The authors of this technical note are Caio Ferreira and Nobuyasu Sugimoto (IMF) and José Tuya (external expert).
The tax on life insurance premiums was introduced in 2005 (1.1 percent) and increased to 2 percent in 2015. The tax on other financial products (such as deposits and securities) will be increased in 2017, which could have a positive impact to the insurance sector.
Regulation (EU) No. 575/2013.
FHC is defined in CRR as a financial institution the subsidiaries of which are mainly financial. A MAHC is defined as a parent undertaking holding financial activities but whose business is mainly nonfinancial. FICOD defines a MFHC as a holding which along with its subsidiaries meets the definition of FC.
BL, Article 183.
Council Regulation (EU) No 1024/2013.
Regulation (EU) No 468/2014 of the ECB.
Basel III was implemented mainly through Regulation (EU) No 575/2013 (CRR) that establishes the requirements to calculate and consistently observe minimum capital requirements. These provisions are supplemented and further specified by Delegated Regulations (EU) No. 241/2014, 2015/850 and 2015/923 and by other delegated or implementing acts of the EC. Directive 2013/36/EU (CRD), as transposed into national legislation of the respective EU Member State, determines minimum requirements for capital buffers. National options and discretions specified in ECB’s regulation N°2016/445 were implemented in Belgium through NBB Regulation of 4 March 2014 implementing the CRR.
CRR, Article 7.
Article 49, paragraph 1 and Article 471 of the CRR.
Banks subject to the CRR can exclude exposures to pension funds, member state central governments, regional governments and local bodies wherever they qualify for a 0 percent risk weight under the standardized approach for credit risk as well as to qualifying non-financial end-users.
The implementation has been phased in from 2014 to 2018. Banks have applied 20 percent of the IRB RWA for those exposures in 2014, 40 percent in 2015 and 60 percent in 2016. In 2017 they should apply 80 percent and in 2018100 percent.
Article 22 of the NBB Regulation of March 4, 2014 implementing the CRR.
Article 38 of the NBB Regulation of March 4, 2014 implementing CRR options. Minimum own funds requirement is calculated as 6 percent of liabilities ≤ €25 million, plus 4 percent of liabilities > €25 million and ≤ €125 million, plus 3 percent of liabilities > €125 million and ≤ €250 million, plus 2.5 percent of liabilities > €250 million and ≤ €1.250 million plus 2 percent of liabilities > €1.250 million.
CRR Article 458.
EBA guidelines the criteria to determine the conditions of application of Article 131(3) of Directive 2013/36/EU (CRD) in relation to the assessment of other systemically important institutions (O-SIIs).
Five SI banks used models for market risk. Two SI banks and one LSI bank use models for operational risk.
Article 16(2)(a) of the SSMR
Supervisory procedures for the SREP at subsidiary level are usually simpler than the ones used at consolidated level and do not include supervisory stress tests.
The proposals are part of the Risk Reduction Measures (RRM) Legislative Proposals (https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/COM-2016-850-F1-EN-MAIN.PDF). The proposals are currently discussed at the Council of the EU and the European Parliament.
Cross border waivers for liquidity requirements are already allowed by Article 8 (3) of the CRR. As the competent authority responsible for granting this waiver, the ECB has issued a guideline where it establishes a minimum Liquidity Coverage Ratio of 75 percent for systemically important subsidiaries.
The ECB is currently working on a recommendation to the EC for additional prudential safeguards and technical modifications in order to address any potential financial stability concerns resulting from the application of this waiver mechanism. This is particularly relevant in case the waiver application relates to a systemically important subsidiary.
BL, Article 148.
Royal Decree (RD) of 23 September 1992 on the annual accounts of credit institutions. This RD implements the European Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions.
CRR, Article 393.
CRR, Articles 389, 395 and 403.
CRR, Article 400(2).
This discretion is foreseen in CRR Article 493(3)(c).
BL, Article 72.
BL, Article 57.
NBB Governance Manual.
NBB-FSMA circular of December 4, 2012 regarding the compliance function.
See the BL (Article 39); NBB Regulation of May 19, 2015; and NBB circular of July 13, 2015 on the internal audit function.
There is merit in the simplicity of this conservative approach. Any inclusion of future potential deferred tax assets needs very careful validation. EIOPA provides high level guidance, however there are no established practices to recognize such future assets reliably.
Solvency II grandfathers the capital instruments issued before January 2016 that meet the requirements under Solvency I.
The NBB does not have concrete figures of how much of the unrestricted Tier I is composed of Value in Force. Rough estimation based on B-GAAP figure is that it could reach more than 10 percent of the insurance liabilities, which suggests that a significant portion of Tier I relies on future unrealized gain from existing policies. As Belgian insurers are exposed to high redemption risk, the Value in Force is exposed to higher risk.
Most insurers designated as D-SIFIs belong to banking groups which are also designated as D-SIFIs.
Especially when the credit spread increases in euro area periphery countries and not in core and Belgian government bonds. VA is designed to stabilize industry’s overall solvency ratio to offset investment losses from higher credit spreads. Therefore, the benefits are likely to exceed the losses of insurers with conservative asset allocations, such as Belgian insurers.
The majority of mortgage loans in Belgium are fixed rate without material penalty for prepayment. Prepayment rate of Belgian mortgage loans increased in 2014 and 2015, when long term interest rates decreased. This makes the effective duration of the portfolio shorter while that of insurance liabilities becomes longer due to the change of policyholders’ behavior.
ICP requires contingency plans and procedures on their specific risks for both going and gone-concern situation.
Commission Staff Working Document on Directive 2002/87/EU on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (FICOD), available at http://ec.europa.eu/transparency/regdoc/rep/10102/2017/EN/SWD-2017-272-F1-EN-MAIN-PART-1.PDF.
Following Article 212 BL, which refers to Article 234, §1 BL, the request to remedy may be addressed directly to the credit institution, the FHC or to the MFHC. As Article 212 BL refers solely to Article 234, §1 BL, the binding measures that are foreseen in Article 234, §2 BL can only be addressed to the credit institution, provided that the FHC or the MFHC are responsible for compliance with such measures by their subsidiary (Article 205 BL).
BL, Article 205.
BL, Article 170.
BL, Article 168.
BL, Article 212.
BL, Articles 190–194.
BL, Article 194, §4.
BL, Articles 21 and 168.
BL, Article 170, §2.
BL, Article 213.
Before entry into force of CRR, NBB regulation foresaw an effective risk weight of 400 percent, including 30 percent for expected loss on equity. This specificity was not retained in the CRR.
In principle, investments in the insurance subsidiaries should be deducted from the parent’s capital. The impact of the deduction is similar to imposing a 1,250 percent risk weight on the investment.
The risk weight of subordinated loans would be lower than that of equities, in particular if the bank uses the IRB approach.
FICOD, Article 9.
BL, Article 188.
BL, Articles 167 to 170.
BL, Article 188 and 191; FICOD, Articles 7 and Annex II; and Delegated Regulation (EU) 2015/2303 on risk concentration and intragroup transactions.
BL, Article 192 and FICOD Article 6
BL, Article 170.
The mission did not assess the materiality of the risk from off-balance sheet activities.