STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

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STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
Twinning project funded by The European Union

• The Crisis and Dutch insurance supervision
• A Case Study
• Tom Roos
• Division Director Supervision insurance companies
• De Nederlandsche Bank
• Twinning conference
• Montenegro, 14 15 dec 2009

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Presentation outline

• What triggered the financial crisis
• How did it hit the Dutch insurance industry
• How reacted DNB as the supervisor
• What did we learn

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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1. What triggered the financial crisis

• Low interest rates, abundant capital
• Booming emerging economies optimistic
  expectations about the world economy
• US keep spending too much and keep issuing state
  bonds
• Search for yield by investors
• Investment banks went creative structured
  products
• Bonusses as a turbo
• Poor risk management

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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and how it started

• Domino effect of defaults- subprime mortgages in
  the US- CDOs, MBSs- money markets dry up-
  liquidity problems for banks- Lehman Brothers
  goes bankrupt- AIG almost tumbles by tremendous
  CDS- exposures- from US to EU NR, UBS,
  Fortis, ING, Aegon

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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2. How did it hit the Dutch insurance industry

• Asset side- stocks, but comparatively moderate-
  structured products, sometimes hidden in
  bonds- corporate bonds- real estateBut Dutch
  state bonds could give relief
• Geographics- US-oriented insurers hit harder

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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2. How did it hit the Dutch insurance industry

• Liability side- low long term interest rates
  required (much) higher technical provisions-
  sufficiency test on fair value - especially life
  insurers came off worst
• Result- dramatic fall in solvency rates

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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3. How reacted DNB

• Stimulating capital infusions by the state- 10
  billion euro to ING- 3 billion euro to Aegon
• Stimulating state backed bond program of max 200
  billion euro
• Assisting the state solving the Fortis problem

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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3. How reacted DNB

• Extra QIS4 on 2008 figures, anticipating on
  Solvency 2
• Stress tests for all insurance companies in three
  groups
• Introduction of quarterly prescripted financial
  reports

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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4. What did we learn

• Benefit of integrated central bank and
  supervision
• More interaction between macro and micro
  supervision
• Benchmarking and stress testing are here to
  stay- differences in solvency formulas and
  accounting- working towards a better level
  playing field
• Solvency 1 not useful

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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4. What did we learn

• Focus from an risk issue point of view rather
  than a vertical point of view
• More international approach in supervision
• Better cooperation between expertise groups
• From analysis to action
• Better regulation

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS
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• Looking forward to working with you!
• Thank you!

STRENGTHENING THE REGULATORY AND SUPERVISORY
CAPACITY OF THE FINANCIAL REGULATORS