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1. P age |1 InternationalAssociationofRiskandComplianceProfessionals(IARCP) 1200GStreet NWSuite800Washington,DC20005-6705USATel:202-449-9750www.risk-compliance-association.com Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedthe week'sagenda,andwhatisnext DearMember, “Nothingispossiblewithoutmen,butnothingislastingwithoutinstitutions”. Whosaidthat? JeanMonnet. Whosaidthat…JeanMonnetsaidthat? JörgAsmussen,MemberoftheExecutiveBoardoftheEuropeanCentralBank JörgAsmussenalso said: “Ourlong-termgoalisasituationwheretheessentialfunctioningof theeuroareaisunaffectedbyeventsinindividualcountries,becausesovereigntyissharedandexercisedinstrongcommoninstitutions– and thoseinstitutionshavealongertimehorizonthanpolitics. ReadmoreatNumber2ofourlist. Anotherinterestingstory…youmustbeabletodothat,butyoudonotneed todothat… (Whereelse?intheBaseliiiframework…) InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

2. P age |2 Itis abouttheCreditValuationAdjustment(CVA-thedifferencebetweentherisk-freeportfoliovalueandthetrueportfoliovaluethattakesintoaccountthepossibilityofcounterparty’sdefault) TheBaseliiiexplanation: “Toreceiveregulatoryapprovaltousetheadvanced CVAapproach,banks aregenerallyexpectedtohavethesystemscapabilitytocalculatetheCVA capitalchargeonadailybasis,butwouldnotbeexpectedorrequiredtocalculateitonadailybasis.” Readmoreaboutwhatyoushouldbeabletodo(andnotnecessarilydoit)atNumber10. Also…anotherinterestingstory… TheStoryofaSausageBusinessbyClaireGreene,FederalReserveBankofBoston Bymixingtogetherfundingsources,afast-growingsmokehousetripleditsspace,creatingjobsandopportunityforVermontfarmers. VermontSmokeandCuremakessausage,bacon,andhamusingtraditionalmethodsandlocalingredients ReadmoreatNumber6.Welcome totheTop10list. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

3. P age |3 EU-U.S.DialogueProjectTechnicalCommitteeReports ComparingCertainAspectsoftheInsuranceSupervisoryandRegulatoryRegimesintheEuropeanUnionandtheUnitedStates Agenda2013–thenextstepsincompletingEMU SpeechbyMr.JörgAsmussen,MemberoftheExecutiveBoardoftheEuropeanCentralBank,atthe“InternationalerClubFrankfurterWirtschaftsjournalisten”,FrankfurtamMain TheQatarCentralBank,QFCRegulatoryAuthorityandQatarFinancialMarketsAuthority New lawregulatingfinancialinstitutions Doha,Qatar:TheQatarCentralBank(QCB),theQFCRegulatoryAuthority(QFCRA)andtheQatarFinancialMarketsAuthority(QFMA)havewelcomedtheenactmentofTheLawoftheQatarCentralBankandtheRegulationofFinancialInstitutions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

4. P age |4 WIBC2012 InauguralKeynoteAddressbyH.E. Rasheed M.Al-Maraj,Governor CentralBankofBahrain,Manama,Bahrain Financeandtherealeconomy–fosteringsustainability SpeechbyDrZetiAkhtarAziz,GovernoroftheCentralBankofMalaysia AttheIslamicDevelopmentBank(IDB)RegionalLectureSeriesonIslamiceconomics,financeand banking:“Financeandtherealeconomy–fosteringsustainability”, Jakarta. TheStoryofaSausageBusiness ClaireGreene,FederalReserveBankofBoston Bymixingtogetherfundingsources,afast-growingsmokehousetripleditsspace,creatingjobsandopportunityforVermontfarmers. OCCHighlights RisksFacingNationalBanksandFederalSavingsAssociations InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

5. P age |5 TheLiikanenReporttakesaholisticapproach InterviewwithBaFin'sChief ExecutiveDirectorRaimundRöseler FinancialServicesAgency,TheJapaneseGovernment PressConferencebyIkkoNakatsuka,MinisterforFinancialService IsabankrequiredtocalculatetheCVAcapitalchargedaily? Banksshoulddiscuss thefrequencywithwhichtheCVA capitalchargeneedstobecomputedwiththeirnationalsupervisor. ToreceiveregulatoryapprovaltousetheadvancedCVAapproach,banks aregenerallyexpectedtohavethesystemscapabilitytocalculatetheCVA capital chargeonadailybasis,butwouldnotbeexpectedorrequiredtocalculateitonadailybasis. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

6. P age |6 EU-U.S.DialogueProjectTechnicalCommitteeReports ComparingCertainAspectsoftheInsuranceSupervisoryandRegulatoryRegimesintheEuropeanUnionandtheUnitedStates Importantparts TheSteeringCommitteeoftheEU-U.S.DialogueProjectpresentsherewiththefinalreportsofseventechnicalcommitteescomparingcertainaspectsoftheinsurancesupervisoryregimesintheEuropeanUnionandtheUnitedStates. AttachedisbackgroundinformationontheProjectandthereportsthemselves. ThereportsinformedtheSteeringCommitteeas to thekeycommonalitiesanddifferencesbetweentheEU’sinsuranceregulatoryandsupervisoryregimeandthestate-basedinsuranceandregulatoryregimeintheU.S. TheSteeringCommitteehasagreedtocommonobjectivesandinitiativestobepursuedoverthenextfiveyearswhicharesetoutintheWayForwarddocumentavailableat[https://eiopa.europa.eu/publications/reports/index.html]. TheSteeringCommitteeacknowledgesthevaluablecontributionsofthetechnicalcommitteemembersandthosewhoprovidedcommentsduringthepublicconsultationprocess. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

7. P age |7 IntroductiontotheEU-U.S.DialogueProject In theEU,theEuropeanParliament,theCounciloftheEuropeanUnionandtheEuropeanCommission(EC),technicallysupportedbytheEuropeanInsuranceandOccupationalPensionsAuthority(EIOPA),aremodernizingtheEU’sinsuranceregulatoryandsupervisoryregimethroughtheSolvencyIIDirective(Directive2009/138/EC),inplacesince2009. Thisso-calledFrameworkDirectivewastheculminationofworkbeguninthe1990s toupdateexistingsolvencystandardsintheEU. CurrentworkaimstofurtherspecifytheFrameworkDirectivewithtechnicalrulesandguidelines,whicharenecessaryforaconsistentapplicationbyinsurersandsupervisorsoftheframework. IntheUnitedStates,thestatesaretheprimaryregulatorsoftheinsuranceindustry. StateinsuranceregulatorsaremembersoftheNationalAssociationofInsuranceCommissioners(NAIC),astandard-settingandregulatorysupportorganizationcreatedandgovernedbythechiefinsuranceregulatorsfromthe50states,theDistrictofColumbiaandfiveU.S.territories. Aspartofanevolutionaryprocess,throughtheNAIC,stateinsuranceregulatorsintheU.S.arecurrentlyin theprocessofenhancingtheirsolvencyframeworkthroughtheSolvencyModernizationInitiative(SMI). SMIisanassessmentoftheU.S.insurancesolvencyregulationframeworkandincludesareviewofinternationaldevelopmentsregardinginsurancesupervision,bankingsupervision,andinternationalaccountingstandardsandtheirpotentialuseinU.S.insuranceregulation. Inearly2012,theEC,EIOPA,theNAICandtheFederalInsuranceOfficeoftheU.S.DepartmentoftheTreasury(FIO)agreedtoparticipatein dialogueandarelatedproject(Project)tocontribute to anincreased InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

8. P age |8 • mutualunderstandingandenhancedcooperationbetweentheEUandtheU.S.to promotebusinessopportunity,consumerprotectionandeffectivesupervision. • Theprojectisconsidered tobepartofandbuildsontheon-goingEUUSDialoguewhichhasbeeninplaceforover10years. • Theworkwascarriedoutin collaborationwithEIOPAandcompetentauthoritiesintheEUMemberStates,andwithstateinsuranceregulatorsandtheNAICintheUnitedStates. • The objectiveoftheProjectistodeepeninsightintotheoveralldesign,functionandobjectivesofthekeyaspectsofthetworegimes,andtoidentifyimportantcharacteristicsofbothregimes. • ProjectGovernanceandProcess:TheProjectisledbyasix-memberSteeringCommitteecomprisedofthreeEUandthreeU.S.officials,asfollows: • GabrielBernardino– ChairmanofEIOPA • EdwardForshaw–Manager inthePrudentialPolicydivision,UKFinancialServicesAuthority,andEIOPAEquivalenceCommitteeChair • KarelVanHulle– Head ofUnitforInsuranceandPensions,Directorate-GeneralInternalMarketandServices, EC • KevinM.McCarty–Commissioner,OfficeofInsuranceRegulation,StateofFlorida,andcurrentPresidentoftheNAIC • MichaelMcRaith–Director,FIO,UnitedStatesDepartmentoftheTreasury • Therese M.(Terri)Vaughan– Chief ExecutiveOfficer,NAIC InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

9. P age |9 • SincetheProjectbegan,theSteeringCommitteeheldface-to-facemeetingsinBasel,Brussels,FrankfurtandWashingtonDC,aswellasnumerousconferencecalls. • In afirststep,thetopicstobediscussedwereagreeduponandaprocessforinformationexchangeunderconfidentialityobligationswasestablished. • TheSteeringCommitteeagreeduponseventopicsfundamentallyimportanttoasoundregulatoryregimeandtotheprotectionof policyholdersandfinancialstability. • Theseven topicsare: • Professionalsecrecy/confidentiality; • Groupsupervision; • Solvencyand capitalrequirements; • Reinsuranceandcollateralrequirements; • Supervisoryreporting,datacollectionandanalysis; • Supervisorypeerreviews;and • Independentthirdpartyreviewandsupervisoryon-siteinspections. • AseparateTechnicalCommittee(TC)wasassembledtoaddresseachtopic. • EachTCwascomprisedofexperiencedprofessionalsfromboththeEuropeanUnionaswellastheUnitedStates,specifically,fromFIO,theEC,theNAICandEIOPA,aswellasrepresentativesfromstateinsuranceregulatoryagenciesintheUnitedStatesandcompetentauthoritiesofEUMemberStates. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

10. P age |10 Thevariousprofessionalswhocomprisedthe technicalcommitteeswereselectedbecauseoftheirqualificationsandexperiencewithrespecttothesubjectmatterofeachtopic,includinginsuranceregulatorsandsupervisors,attorneys,accountants,examiners,and otherspecialists. The teamsworkedjointly to developobjective,fact-basedreportsintended to summarizethekeycommonalitiesanddifferencesbetweentheSolvencyIIregimeintheEU,andthestate-basedinsuranceregulatoryregimeintheUnitedStates. Supportingdocumentation,e.g.,regulations,directives,andsupervisoryguidance,wasexchangedasrequestedby eitherside. Theaccompanyingseventechnicalcommitteereportswerejointlydrafted to reflecttheconsensusviewsofeachrespectivetechnicalcommittee’smembers. Thedraftreportsweresubsequentlyreleasedforpublicconsultation. Thewrittenconsultationwascomplementedbytwo publichearingsheldinOctober2012,onein WashingtonDCandanotherinBrussels. Basedonoralandwrittencommentsreceivedthroughtheconsultationprocess,factualinaccuraciesnotedinthedraftreportswerecorrectedandlimitedclarificationsweremade. Thereportswerenotamendedfurtherdespiterecommendationstodosobysomecommenters,i.e.,thescopeoftheProjectwasnotexpandedasaresultoftheconsultationprocess. Notwithstandingthis,alloralandwrittencommentshavebeentakenintoconsiderationintheSteeringCommittee'sdeliberationsaspartofthesecondphaseoftheproject. NoactionhasbeentakenbythegoverningbodiesoftheorganizationsrepresentedontheSteeringCommitteetoformallyadoptthefactualreportsandthusthisdocumentshouldnotbeconsidered toexpressofficialviewsorpositionsofanyorganization. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

11. P age |11 ThereportsrepresenttheculminationofworkfromtheProject,andinformedtheworkoftheSteeringCommitteeinagreeingtotheaforementionedcommonobjectivesandinitiatives. Adetailedprojectplanwillbedevelopedinearly2013andwillbeupdated periodically. TheinformationthatisthesubjectoftheaccompanyingsevenreportspertainstotheinsuranceregulatoryandsupervisoryregimesinboththeEUandtheUnitedStates. ThestatebasedapproachintheU.S.asdescribedinthereportsisinsomerespectsbasedonNAIC Modellawsandregulationsthataregiveneffectonlythroughlegislativeenactmentin eachrespectivestate. Whilesomeofthesemodellawshaveyettobeadoptedandimplementedin certainstates,acoresetofcommonsolvencyregulatorystandardsareinplacein allstates. In thecaseoftheEU,theapproachdescribedinthereportsislargelybasedontheapproachsetoutintheSolvencyIIDirective. However,in ordertoensureacomprehensivecomparisonwiththeState-basedRegimeintheU.S.,referenceisalsomadeinsomecasestotheapproachenvisagedforthe technicalrulesthatwillimplementtheDirective. Itisimportant tonotethatthosetechnicalrulesarestillunderdevelopmentandhaveyettobeadoptedbytheEuropeanCommissionintheformofdelegatedacts. TheserulesandcertainNAICmodelsareinsomeinstancesreferredtointhepresent tenseintheTechnicalCommittees’reports,i.e.,asiftheyare currentlyinplace,eventhoughtheyhavenotyetbeen adoptedorimplemented,withrespecttotheserulesin theEUor,inthecaseofthemodellawsintheUnitedStates,byallstates. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

12. P age |12 Thereportdoesnotpurporttorepresentorpre-judgetheviewsand/ortheformalproposalsoftheCommission. Theapproachdescribedislargelybasedonwhatwastestedinthelastfullquantitativeimpactstudy(QIS5),the technicalspecificationsforwhicharepubliclyavailable. Insuranceisaspecializedandcomplexindustry,andinsuranceregulatoryandsupervisorymatterscanbejustasspecializedandcomplex. Terminologyusedinthereportsreflectsthebackgroundoftherespectivemembersofeachtechnicalcommittee,andthustheterminologyandwritingstylesmayvarysomewhatfromonecommitteereport to another. TheSteeringCommitteeexpectsthatinterestedpartieswhomayhaveaninterestintheProjectandinsubmittingcommentsarefamiliarwiththeinsuranceindustryanditsregulationintheEU,theU.S.,or both. Accordingly,thetechnicalcommitteeshaveendeavouredtopreparetheirreportsin amannerthatisappropriatefortheirownpurposesandthatoftheSteeringCommittee. Thereissometechnicalterminologythatisusedinthereportsand,whereconsideredappropriate,definitionshavebeenprovidedtherein. Some termsareunique totheU.S.andtheEUbuthavethesamemeaning,forexample,insurersandundertakings;andreservesandtechnicalprovisions. OthertermsexistinboththeU.S.andtheEU,e.g.,review,auditorORSA,butdiffer incontent/substance. Numerousabbreviationsandacronymshavebeenusedthroughoutthesevenreports,definitionsofwhichhavebeenincludedinaseparateappendixfortheconvenienceofreaders. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

13. P age |13 Thetextofthisreportcanbequotedbutonlywithadequateattributiontothesourcedocument. TheContributingParties TheFederalInsuranceOffice, U.S.DepartmentoftheTreasury TheFederalInsurance Office(FIO)oftheU.S.DepartmentoftheTreasurywasestablishedby theDodd-FrankWallStreetReformandConsumerProtectionAct. TheFIOmonitorsallaspectsoftheinsuranceindustry,includingidentifyingissuesorgapsin theregulationofinsurersthatcouldcontribute to asystemiccrisisintheinsuranceindustryortheUnitedStatesfinancialsystem. TheFIOservesontheU.S.FinancialStabilityOversightCouncil. TheFIOcoordinatesanddevelopsU.S.Federalpolicy onprudentialaspectsofinternationalinsurancematters,includingrepresentingtheUnitedStates,asappropriate,intheInternationalAssociationofInsuranceSupervisors. TheFIOassiststheSecretaryinnegotiatingcertaininternationalagreements,andservesastheprimarysourceforinsurancesectorexpertisewithintheFederalgovernment. TheFIOmonitorsaccess to affordableinsurancebytraditionallyunderservedcommunitiesandconsumers,minorities,andlow-andmoderate-incomepersons. TheFIOalsoassiststheSecretaryinadministeringtheTerrorismRiskInsuranceProgram. TheEuropeanCommission TheEuropeanCommission(EC)isoneofthemaininstitutionsoftheEuropeanUnion. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

14. P age |14 ItrepresentsandupholdstheinterestsoftheEUasawhole. TheECistheexecutivebranchoftheEUandisresponsibleforproposingnewEuropeanlawstoParliamentandtheCouncil. TheECoverseesandimplementsEUpoliciesbyenforcingEUlaw(togetherwiththeCourtofJustice),andrepresentstheEUinternationally,forexample,bynegotiatinginternationaltradeagreementsbetweentheEUand othercountries. ItalsomanagestheEU'sbudgetandallocatesfunding. The27Commissioners,onefromeachEUcountry,providetheCommission’spoliticalleadershipduringtheir5-yearterm. TheNationalAssociationofInsuranceCommissioners TheNationalAssociationofInsuranceCommissioners(NAIC)isthestandard-settingandregulatorysupportorganizationcreatedandgovernedbythechiefinsuranceregulatorsfromthe50states,theDistrictofColumbiaandfiveU.S.territories. ThroughtheNAIC,stateinsuranceregulatorsestablishstandardsand bestpractices,conductpeerreview,andcoordinatetheirregulatoryoversightthatisexercisedatthestatelevel. NAICstaffsupportstheseeffortsandrepresentsthecollectiveviewsofstateregulatorsdomesticallyand internationally. NAICmembers,togetherwiththecentralresourcesoftheNAIC,formthenationalregimeofstate-basedinsuranceregulationintheUnitedStates. EuropeanInsuranceandOccupationalPensionsAuthority TheEuropean InsuranceandOccupationalPensionsAuthority(EIOPA)wasestablishedasaresultofthereformstothestructureofsupervisionofthefinancialsectorintheEuropeanUnion. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

15. P age |15 ThereformwasinitiatedbytheEC, followingtherecommendationsofaCommitteeofWiseMen,chairedbyMr.deLarosière,andsupportedby theEuropeanCouncilandParliament. EIOPAtechnicallysupportstheEC,amongstothers,inthemodernizationoftheEU’sinsuranceregulatoryandsupervisoryregime. CurrentworkaimstofurtherspecifytheSolvencyIIFrameworkDirectivewith technicalrulesandguidelines,whichisnecessaryforaconsistentapplicationbyinsurersandsupervisorsoftheframework. In cross-bordersituations,EIOPAalsohasalegallybindingmediationrole to resolvedisputesbetweencompetentauthoritiesandmaymakesupervisorydecisionsdirectlyapplicabletotheinstitutionconcerned. EIOPAispartoftheEuropeanSystemofFinancialSupervisionconsistingofthreeEuropeansupervisoryauthorities,theothersbeingthenationalsupervisoryauthoritiesandtheEuropeanSystemicRisk Board. EIOPAisanindependentadvisorybodyto theEC,theEuropeanParliamentandtheCounciloftheEuropeanUnion. EIOPA’scoreresponsibilitiesaretosupportthestabilityofthefinancialsystem,transparencyofmarketsandfinancialproductsaswellastheprotectionofinsurancepolicyholders,pensionschememembersand beneficiaries. OtherContributingParties TheSteeringCommitteeofthisDialogueProjectgratefullyrecognizesthecontributionsoftheirorganization’sstaff,ofinsurancesupervisorsandregulatorsfromvariousEUMemberStatesaswellasfromvariousstateinsurancedepartmentsintheUnitedStateswhoservedonthevarioustechnicalcommittees. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

16. P age |16 TheTechnicalCommittee Reports Indevelopingtheirreports,theTechnicalCommitteesacknowledgedtheoverall policy objectiveof insuranceregulation,theprotectionof policyholders. Bothregimesaimtoensuretheongoingsolvencyofdomesticinsuranceandreinsurancecompanies. Additionalregulatoryobjectivesincludefacilitatinganeffectiveandefficientmarketplacefor insuranceproducts,andensuringfinancialstability. Theseoverarchingpolicy objectives– whicharecommontoboththestate-basedregimeintheU.S.aswellastheEUregime–provideafoundationforeachofthe accompanyingsevenreports. In addition,theSteeringCommitteeacknowledgesthateachsolvencyregimemustbeconsideredfromaholisticperspectiveandisalsomindfulthatdifferencesbetweentherespectiveregulatoryframeworks areinsomecasesattributable to differentphilosophicalapproachesandlegalfoundations. Forexample,thedifferentsolvencytoolsoutlinedintheTechnicalReportsareusedtovaryingdegreesbyeachregime. SuchdifferenceswillbeconsideredasappropriateinthesecondphaseoftheProject,but,apartfromtheinclusionof cross-referencesbetweenthetopics,itwasdeemed tobebeyondthescopeoftheProjecttomakefurtheramendmentsto theindividualTechnicalCommitteereportsinthisregard. Thereportgivesnonethelessacomprehensiveoverviewofthekeypartsofbothregimesevenifdepictedseparately. Thestate-basedsolvencyregimeintheU.S.isbasedon7coreprinciples,asfollows: InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

17. P age |17 • Principle1:Regulatoryreporting, disclosureandtransparency • Principle2:Off-siteMonitoringandAnalysis • Principle3:On-siteRisk-focusedExaminations • Principle4:Reserves,CapitalAdequacyandSolvency • Principle5:RegulatoryControlofSignificant,Broad-basedRisk-relatedTransactions/Activities • Principle6:PreventiveandCorrectiveMeasures,includingenforcement • Principle7:ExitingtheMarketandReceivershipTheEUSolvencyIIfollowsathreepillarapproach. • PillarI:Quantitativerequirementsrelatingto valuationofassetsandliabilities, includingtechnicalprovisions,thequalityofownfundsandMinimumandSolvencyCapitalRequirements • PillarII:SystemofGovernanceandriskmanagementrequirements • PillarIII:Supervisoryreportingandpublicdisclosure • TherearecommonalitiesaswellasdifferencesbetweentheCorePrinciplesidentifiedin theU.S.state-basedregime’sInsurance FinancialSolvencyFrameworkandthethreepillarapproachofSolvencyII. • ThereportsoftheTechnicalCommitteeswhichfollow highlightthekeycommonalitiesanddifferencesforeachoftheseven topicalareasselectedforthembytheSteeringCommittee to review. • Eachtechnicalcommitteefocusedononlyoneoftheaforementionedtopics. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

18. P age |18 In practice,theregulatoryaspectsthatarethetopicofeachrespectivetechnicalcommitteereportoperateonanintegratedbasis,aswellaswithotherregulatorytoolsandpowersthatarenotcoveredbytheaccompanyingreports. Whereappropriate,thereportofatechnicalcommitteemakesreferencetothereportsofoneormore othertechnicalcommittees. Forexample,areferenceinanyoneoftheaccompanyingreportsto“TC3”meansthereportofTechnicalCommittee3,whichislistedintheTableofContentsofthiscombineddocumentas“3.SolvencyandCapitalRequirements.” ThereportsofthetechnicalcommitteesrefertovariousEUdirectivesandregulations,aswellas to variousNAICmodellawsandregulations. In theEU,adirectiveisalegalactthatlaysdowncertainendresultsthatmustbe achievedineveryMemberState. Nationalauthoritieshave to adapttheirlawstomeetthesegoals,butarefreetodecidehowtodoso. In caseofmaximumharmonizationdirectives,MemberStatesmaynotforeseerequirements otherthanthoselaiddownbytheDirective. EUregulationsarethemostdirectformoflaw;assoonastheyarepassed,theyhavebindinglegalforcethroughouteveryMemberState,onaparwithnationallaws. NationalgovernmentsdonothavetotakeactionthemselvestoimplementEUregulations. RegulationsarepassedeitherjointlybytheCounciloftheEuropeanUnionandEuropeanParliament,or insomespecific areas,bytheCommissionalone. Thestate-basedregimeintheU.S.,throughtheNAIC,utilizesmodellawsandregulationsdevelopedbystateinsuranceregulators. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

19. P age |19 Althoughthesemodellawsandregulationsrequirestatelegislativeenactmenttobecomeeffective,acoresetofsolvencyregulationstandardsareeffectivelyobligatorybyoperationoftheNAICAccreditationProgram. AlthoughthestatesareprimarilyresponsiblefortheregulationofinsuranceintheU.S.,certainfederallawsreferencedhereinmayalsoapplytoinsurersorspecificinsuranceactivities. 1.ProfessionalSecrecyandConfidentialityExecutivesummary - TC1organiseditsanalysisofthekeycommonalitiesanddifferencesbyfocusingontheanalysisofthefollowingsubjects: policy objectivesofconfidentialitylaws; therelationshipbetweenfreedomofinformationlawsandinsuranceconfidentialitylawsintheU.S.andtheEU; theroleoftheNationalAssociationofInsuranceCommissioners(NAIC),theEuropeanInsuranceandOccupationalPensionsAuthority(EIOPA)andtheFederalInsuranceOffice(FIO)asdistinctfrominsuranceregulators/supervisorsintheU.S.statesandEUMemberStates; authority toshareinformationacrossbordersandthelawsassociatedwithinformationexchanges,methodsforexchanginginformation,suchasMemorandaofUnderstanding(MoUs)andconfidentialityagreements,andtheconfidentialityofnon-publicsupervisoryinformationreceivedbytheFIO. - Bothregimesseektobalancetheobjectiveofmaintainingprofessionalsecrecywithappropriateflexibility to shareinformationwith othersupervisoryauthoritieswithalegitimateandmaterialinterestintheinformation. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

20. P age |20 • Againstthiskeycommonality,keydifferencesin structuralapproachcan beobserved. • In theEU,thebasicpresumptionincorporatedin insurancelegislationisthatvirtuallyallinformation acquiredbythesupervisoryauthoritiesinthecourseoftheiractivitiesisboundbytheobligationofprofessionalsecrecy. • Aseriesof“gateways”thenfacilitatesinformationexchangewithotherrelevantauthorities. • In theU.S.,statelawsgenerallyprovidefortheconfidentialityofcertaininformationsubmittedto,obtainedby,orotherwiseinthepossessionofaninsurancedepartment. • Theapproachismoreoftenfocusedonprotectingspecificinformationfrombeingavailableforpublicinspection. • Freedomofinformation(FOI)lawsconcerninggovernmentrecordsandactionsarepremisedonpublicaccesstoofficialactions. • In boththeEUregimeandthestatebasedregimeintheU.S.,lawsexpressthegeneralpolicy ofpublicaccesstogovernmentinformation,butthispublicpolicyisqualifiedbyspecificprotectionsfromdisclosureforcertaincategoriesofinformation. • Theresultisthatbothregimesprovideforbroadconfidentialityprotectionsforsensitiveinformationwhileallowingforthesharingofthatinformationamongregulatorsin appropriatecircumstances. • In bothregimes,primaryregulatoryresponsibilityrestswiththevariousstateinsurancedepartmentsintheU.S.andwiththeEUMemberStatesupervisoryauthorities,respectively. • ThefunctionsofbothsetsofsupervisorsaresupplementedbytheNAICintheU.S.andEIOPAintheEU. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

21. P age |21 TheNAICandEIOPA, invaryingways,assistthesupervisoryauthoritiesintheirregulatoryrolesand, in doingso,mayreceivecertainconfidentialinformationpursuantto thelawsoftherelevantjurisdictions. - Thenewly-createdFIOestablishesacenterofinsuranceexpertisewithintheU.S.federalgovernment. In carryingoutcertainofitsfunctions,FIOwillcontinuetointeractwithinsuranceand otherregulatorsintheU.S.andtheEU,andmayparticipateinexchangesofconfidentialinformation. TheDodd-FrankActrequirestheFSOC,theFIO,andtheOfficeofFinancialResearch(OFR),whichisanofficewithintheU.S.DepartmentoftheTreasurythatwasalsoestablishedbythe Dodd-FrankAct,tomaintaintheconfidentialityofanydata,information,andreportssubmittedunderthatFederallaw. AllFSOCmembersenteredintoaMoUthatsetsouttheunderstandingofallFSOCmembersregardingthetreatmentof non-publicinformation. TheMoUpresumesthatnon-publicinformationexchangedunderitstermsisconfidential. - Bothregimesincludegeneralauthorizationstoshareconfidentialinformationwithotherfinancialregulators,lawenforcementofficialsandothergovernmentalbodiesinneedofsuchinformationtoperformtheirduties. Confidentialinformationmayonlybedisclosed to suchpersonsifthey canmaintainconfidentialityand/ordemonstratetheirability toprotectsuchinformationfromdisclosurewhentheinformationisintheirpossession. Bothregimesacknowledgethepossibilityofutilizinganddisclosinginformationin receivershipandbankruptcy actions,prosecutingregulatoryandcriminalactions,andpursuanttocertaincourtactions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

22. P age |22 - Bothregimesallow forregulatorstoenter intoagreementsorMoUswithcounterpartsinotherjurisdictionstofacilitatethesharingofconfidentialinformation. Bothregimesprovidebroaddiscretiontoregulatorstoestablishthetermsofsuchagreements,includingtheverificationofeachregulator’sabilitytomaintaintheconfidentialityofinformation receivedfromanotherjurisdiction. Bothregimesaddress theissueofpotentialsharingofinformationwiththirdparties,but achievesimilaroutcomesindifferentways. EU MemberStaterequirementsthattherecipientofconfidentialinformationobtainexplicitpermissionfromtheoriginatingsourcebeforesharingwithanotherregulatorareoftendevelopedasaresultoflegalconstraintsundertheEUdirectives,whilestateinsuranceregulatorsintheU.S.areboundbygenerallegalrequirements torespecttheconfidentialityofinformationunderthelawsoftheprovidingjurisdictionandthememorializationofthisrespectinwrittenconfidentialityagreements. - Thesimilaritiesbetweenthetworegimesaregreaterthananticipated priortothebeginningofthisdialogue. Whiletheremaybedifferencesintheformandapplicationof professionalsecrecyandconfidentialitylawsbetweenthetworegimes,theyaresubstantiallysimilarinthesubjectmatteraddressedandtheoutcome tobeachieved. Itisacknowledgedonbothsidesthatthereislittleevidenceof practicalproblemsrelatedtotheexchangeofconfidentialinformationbetweenstateinsuranceregulatorsintheU.S.andEUregulators,althoughtheflow ofinformationhasnotbeensubstantialsofarandmayhavebeeninhibitedbytheinteractionofEUdirectiveconstraintsandconcernsoverprofessionalsecrecy. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

23. P age |23 • Topic1:Policyobjectivesinrelationtoprofessionalsecrecyand theexchangeof information • KeyCommonalities: • Neitherregimeincludesasingle,all-encompassingdefinitionoftheterm“confidentialinformation.” • Howeverbothregimesidentifygeneralorspecificcategoriesofinformationthatwillbeconsideredconfidentialbylawandnotsubjecttodisclosureexceptunderspecificdefinedcircumstances. • Legalsources,asprimarilyexpressedthroughstatutesanddirectives,providethefoundationfortheconfidentialityofcertaincategoriesofinformationandthecircumstancesunderwhichconfidentialinformationmaybeusedanddisclosed. • Whilestatutesanddirectivesprovidethefoundation,bothregimesrecognizethatconfidentialityrequirementsmaybecomplementedthroughadministrativeregulations,judicialopinionsandMoUs. • Bothregimesprovidearangeofpenaltiesthatmaybeleviedagainstpersonswhobreachprofessionalsecrecyobligations. • Underbothregimes,thepenalties can includelossofemployment,civilandadministrativefines,imprisonmentoracombinationofthesepenalties. • Thedefinitionofthepenalties,aswellastheirenforcement,ishandledattheU.S.stateorEUMemberStatelevel. • KeyDifferences: • - Thestructuralapproachtoconfidentialityisverydifferent. • TheEUapproachstartsfromthepresumptionofconfidentialityandidentifiesexceptions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

24. P age |24 WithintheU.S.,theprovisionsonprofessionalsecrecyvaryfromstatetostateasthereisacleareremphasisonaccess topublicrecords. Thepresumptioninmostcasesisthatinformationispubliclyavailableunlessitisdesignatedconfidentialthroughstatelawsorstatutes. However,bothregimestend towardthesameoutcomesintermsof protectinginformationidentifiedasconfidentialwhilefacilitatinginformationexchange amongsupervisoryauthoritiesacrossjurisdictions. Discussion/DescriptionoftheTwoRegimes:TheEUApproach: TheSolvencyIIDirectiveprovisionsonprofessionalsecrecyreflectsimilarprovisionsintheEUinsurancedirectivescurrentlyinforce. Theseoperateonthebasisthatanyconfidentialinformationreceivedinthecourseoftheperformanceitsdutiesbythesupervisoryauthorityshallnotbedivulgedtoanypersonorauthoritywhatsoever,exceptinsummaryoraggregateform,suchthatindividualinsuranceandreinsuranceundertakingscannotbeidentified. Therearelimitedexceptionstothegeneralrule,coveringcasescovered bycriminallawanddisclosurewhereafirmhasbeendeclaredbankruptorisbeingcompulsorilywoundup. Theprofessionalsecrecyobligationcontinues to applyafteremployeeshaveleftthesupervisoryauthority,andtheobligationalsoappliesequally toauditorsandexpertsactingonbehalfofthesupervisoryauthority. WhilethereisnodefinitionincorporatedineithertheexistingEUdirectivesorSolvencyIIofwhatconstitutesconfidentialinformation,theinterpretationofthescopeoftheprofessionalsecrecyprovisionhasbeenwideranging. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

25. P age |25 Itisgenerallytakentoencompassallfirmspecific informationreceived bysupervisoryauthoritiesunlessitisalreadyinthepublicdomainand notjustinformationthatmightbeexplicitlylabeledconfidential. Supervisoryassessmentsoffirmsundertakenbynationalsupervisoryauthoritiesarenotdisclosed,andthepublicavailabilityofinformationontheperformanceofinsurersundertheexistingdirectiveswillvaryfromEU MemberState toMemberStatedependingonprovisionsinnationallegislation. Bycontrast,theSolvencyIIregimewillincorporateprovisionsrequiringahigherlevelofpublicdisclosureoffinancialinformationacrosstheEU,includingtherequirementonfirmstoreportannuallyontheirsolvencyandfinancialcondition. Acommonprofessionalsecrecyprovisionmeansthatthereisnolegalblock totheexchangeofconfidentialinformationbetweennationalsupervisoryauthoritieswithintheEU,andfacilitatestheparticipationinEU colleges. Nofurthercooperationagreementsarerequired,butinpracticecollegesoftendeveloptheirownMoUtoformalisetheexpectedinformationexchangein respectoftheparticulargroup. TheApproachintheState-basedRegimeintheU.S.: Stateinsurancelawsincludemanyspecificreferencestothetypesofinformationthatwillbeconsideredconfidential,andnotablystatelawsgenerallyprovidethatexaminationworkpapersandrelatedinformation,risk-based capital informationandholdingcompany actfilingsandexaminationinformationareconfidential. Nevertheless theextentoftheavailabilityoffirmspecificinformationinthepublicdomaincanhelpreinforcemarketdiscipline. Theobligationofprofessionalsecrecyontheemployeesofstatesupervisoryauthoritiesisappliedthroughvariousmeans. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

26. P age |26 Statelawsgenerallydeclarethatconfidentialinformationshallbemaintainedasconfidential,andconfidentialinformationshall notbedisclosedexceptasauthorisedbystatelaw. However,theprofessionalsecrecyobligationontheemployeesof statesupervisors canalsobeapplied,orsupplemented,byemploymentlawprovisions,contractualobligationsortheinternalrulesofthestatesupervisor. In manystates,publicemployeeobligationsandpenaltiesparticularlyfocusonthedisclosureofconfidentialinformationforpersonalgain. In someU.S.states,thelawclearlystatesthat confidentialityobligationsfollow publicemployeesupondeparturefrompublicservices. In otherU.S.states,thestatutoryobligationislessexplicitlyexpressedalthoughgeneralrequirementstomaintainconfidentialityand professionalobligationsappearto achievethesameoutcome. Auditorsandexpertsactingonbehalfofthestatesupervisoryauthorityareequally coveredbytheobligationofprofessionalsecrecyasdirectemployeesoftheauthority. Moregenerally,boththeEUandU.S.regimesrecognizethatprofessionalssuchaslawyers,actuaries,accountantsandauditorsaresubjecttoprofessionalandethicalcodesindependentofthoselawsandregulationsspecificallyconcerningtheregulationofinsurance. Professionalsmaybesubjecttoarangeofprofessionalsanctions,includingthelossoflicensure,forbreachingconfidentialityobligationsapplicabletotheirpositions. Whilethevariationinthestructureofstatelawsdealingwithconfidentialinformationandprofessionalsecrecycouldbeperceivedpotentially toinhibitinformationexchangeamongstatesupervisoryauthoritiesin theU.S.,thisissuehasbeenaddressedwiththeMasterInformationSharingandConfidentialityAgreementdevelopedunderNAICauspices. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

27. P age |27 Oneofthestandardclausesoftheagreementstatesthatthestateinsuranceregulatorrequestingorobtainingconfidentialinformationfromanotherisobligedtoprotecttheinformationfromdisclosure“atleasttothesameextenttheConfidentialInformationisprotectedfromdisclosureunderthelawsapplicabletotheRespondingDepartment,andfurtheragreestotakeallactionsreasonablynecessarytopreserve,protectandmaintainallprivilegesorotherprotectionsfromdisclosurerelatedtosuchConfidentialInformation.” Topic2:Theinter-relationshipofFOIprovisionswithprofessionalsecrecyprovisions KeyCommonalities: TherelationshipbetweenEUMemberStateFOIprovisionsandSolvencyII,aswellastherelationshipbetweenstateFOIlawsandconfidentialityprotectionsintheU.S.,resultsinsimilarenvironmentsfor informationidentifiedandmaintainedasconfidential. TheFOIprincipleisanessentialelementofappropriatepublicaccesstogovernmentinformationbutgeneralgrantsofconfidentialityexemptfromdisclosureconfidentialinformationacquiredbythesupervisoryauthority. KeyDifferences: Undertopic1thestrongeremphasisonaccess to informationin theUS wasnoted. Forthestate-basedregimeintheU.S.,FOIprovisions(withvariationsfromstate tostate)potentiallyprovidebroaderaccess to supervisoryinformation,butthosesamelawsalsoprovidegeneralandspecificconfidentialityprotectionsforcertainsupervisoryinformation. OnenotabledifferencefromthisapproachisthatEUlawdoesnotenumeratethespecific typesofinformationthatwillbeexemptedfromdisclosurebutexpressesitin amoregeneralway. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

28. P age |28 WhilestatelawsintheU.S.maycategorizecertainitemsofinformationasconfidential,suchas examinationwork-papers,EUlawimposesageneralobligationofprofessionalsecrecyonpublicemployeesandbroadlyexemptsconfidentialinformationfromdisclosure. Discussion: TheApproachintheState-basedRegimeintheU.S.: Statefreedomofinformation(FOI)lawsintheU.S.generallyprovidethatthepublicpolicyofthestateisforaccessto publicrecordsand otherinformationconcerningtheofficial activitiesofpublicemployeesandofficials. Statelawsprovideforarangeofexceptions tothedisclosurerequirementscontainedwithinthestateFOIlaw. TheseexceptionsmaybeexpressedasspecificexceptionswithintheFOIlaw,specificexceptionswithinanothersectionofthestatutorycode(e.g.,thestate’sinsurancecode)thatdirectlycrossreferencethestateFOIlaw,orspecific declarationsinthestateinsurancecodethatcertaininformationshallbeconsideredconfidentialbylawtherebyindirectlyexceptingtheinformationfromthescopeoftheFOIlaw. Stateinsurancelawsincludemanyspecificreferencestothetypesofinformationthatwillbeconsideredconfidential. Ithas alreadybeennotedthatstatelawsgenerallyprovidethatexaminationworkpapersandrelatedinformation,risk-basedcapitalinformation,andholdingcompanyactfilingsandexaminationinformationareconfidential. In additiontospecificreferences,stateFOIlawsandinsurancelawsincludegeneralreferences to categoriesofinformationthataretobeconsideredconfidentialbylawandnotsubject tosubpoena. Thesegeneralreferencesincludetradesecrets,competitiveinformation,andinformationprovidedordisclosedunderanexpectationoragreementofconfidentiality. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

29. P age |29 Stateinsurancelawsgenerallyprovideforthecommissionertoshareconfidentialinformationpursuant to statutoryauthorization. Thegatewaysforsharingconfidentialinformationwillbedetailedinanothersectionofthispaper. Stateinsurancelawsgenerallyprovidethat,asacondition tosharingconfidentialinformationwithothergovernmentalentities,thecommissionermayberequiredtoenterintoawrittenagreementforthatpurposeandthereceivingpartymusthavetheauthority tomaintaintheconfidentialityoftheinformationprovided. Similarly,stateinsurancelawsgenerallyprovidethatthecommissionermayreceiveconfidentialinformationfrom othersources,includingotherregulators,andthatsuchinformationwillbemaintainedasconfidential(andthusbeyondthescopeofthestateFOIlaws)ifitisprovidedwiththenoticeorunderstandingthattheinformationisconfidentialunderthelawsoftheprovidingjurisdiction. In somecases,theabilitytoreceiveandmaintainconfidentialinformationfromanothersourcewillbestatedgenerally,either intheFOIlawortheinsurancecode;inothercases,statesreceivethisauthority throughspecific insurancecodereferencessuchasthosecontainedwithintheexaminationor holdingcompanylaw. ThereisnosinglestatutoryframeworktoinformationsharingandconfidentialityamongU.S.states,butthisdoesnotcreateabarrier toconfidentialinformationsharing. Somestatesrelyonagenerallegalauthority toshareandmaintainconfidentialinformation,whileotherstatesmayderivesuchauthorityfrommorespecific (includingsubject-matterspecific)provisionsintheirstatutes. Manystatelawsprovideforacombinationofgeneralandspecificconfidentialityprotections. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

30. P age |30 Althoughtheremaybesomevarianceinspecificlegalprovisions,stateFOIlawsandstateinsurancelawsoperatetogethertopreservethepublicpolicy ofopengovernmentandprotectsensitiveinformationfrominappropriatedisclosure. TheEUapproach: FOIlawsandconfidentialityprotectionsoperatesimilarlyintheEU. MemberStatelawsgenerallyprovideforaccessforinformationrelated tothepublicadministrationoflaws, butanalogousprovisionsprovidingfortheconfidentialityofsensitiveinformationoftenarestatedinmoregeneralterms. MemberStatelawstypicallystatethatvirtuallyallinformationacquired bytheregulator incourseofitssupervisoryworkwillbedeemedconfidentialbylaw. ThisgeneralgrantofconfidentialityisembeddedintheexistingEUcoreinsurancelegislation– the ReinsuranceDirective,ConsolidatedLifeDirectiveandThirdNon-LifeInsuranceDirective. TheprofessionalsecrecyandinformationsharingprovisionsinSolvencyIIaresubstantiallysimilar,andrequiresthatinformation acquiredbyasupervisoryauthorityanditsemployeeswillbeconsideredconfidentialandmaynotbedisclosedexceptasspecificallyprovided. SolvencyIIprovidesforthecircumstancesandwhereapplicableproceduralrequirementsfordisclosingconfidentialinformationwithwhatitidentifiesaspermittedrecipients. Thesearetheexceptionstotheobligationofprofessionalsecrecy. Thedetailsofspecificgatewaysfor informationsharingarecovered underTopic4inthispaper,butSolvencyIIstatesthattheobligationof professionalsecrecydoesnotpreclude thesharingofinformationwithsupervisorsin otherEU MemberStates. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

31. P age |31 Informationsharingagreements,suchasMoUs,maybeconcludedwithsupervisorsinnon-EUcountriesprovidedtheinformationtobedisclosedis subject to equivalentguaranteesofprofessionalsecrecyandtheinformationisintendedforuseintheperformanceofsupervisorydutiesinthatcountry. Thiswouldincludeevidenceand/orcommitmentsthatconfidentialinformationwouldnotbecomesubjecttodisclosurethroughoperationofaFOIlawin anon-EUcountry. Topic3:Relationshipswithnational/regionalbodies(i.e.,EIOPA,NAIC,FIO) KeyCommonalities: IntheU.S.andintheEU,primaryregulatoryresponsibilityrestswiththe U.S.state insurancedepartmentsandtheEUMemberStatesupervisoryauthorities,respectively. ThefunctionsofbothsetsofsupervisorsaresupplementedbytheNAICintheU.S.andEIOPAintheEU. TheNAICandEIOPA,invaryingways,assistthesupervisoryauthoritiesintheirregulatoryrolesand,indoingso,mayreceivecertainconfidentialinformationpursuant to thelawsoftherelevantjurisdictions. TheFIOmonitorsallaspectsoftheinsuranceindustry,servesontheFinancialStabilityOversightCouncilandcoordinatesanddevelopsU.S.Federalpolicy onprudential aspectsofinternationalinsurancematters. In carryingoutcertainofitsfunctions,FIOwillcontinuetointeractwithregulatorsintheU.S.andintheEUandwillparticipateinexchangesofconfidentialinformation. KeyDifferences: UndertheEUregime,EIOPAhasthetask ofcontributingtoacommonsupervisoryculturebyensuringconsistent,efficientandeffective InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

32. P age |32 applicationofrelevantlegislation,andhasaparticularroleinEUcollegeswhereitparticipatesasacompetentauthorityin itsownright. In theU.S.,theNAICisnotconsideredasupervisoryauthorityalthoughitcoordinatescertainactivities amongstatesupervisorsandprovidesaseriesofanalyticalandsupportservices. In bothregimes,EIOPAandtheNAICmayhaveaccess to firm-specificinformationthroughtherespectivesupervisoryauthoritiesorothergrantsoflegalauthority;however,theEUregimeisdifferentinthatitallowsEIOPAtorequestinformationdirectlyfrom(re)insuranceundertakingsincertaininstances. Discussion: TheEUApproach: TheRegulationthatestablishedEIOPAappliesthesameprofessionalsecrecyobligationstoEIOPAanditsemployeesthatapplytothesupervisoryauthoritiesinEUMemberStatesbutdoesnotincludethesamegatewaysfordisclosurethatareavailablefornationalsupervisoryauthorities. EIOPAmanagementandstaff,aswellasconsultantsengagedbyEIOPA,aresubjecttoEUlawsconcerningprofessionalsecrecy. EIOPA’s internalprofessionalsecrecyrulesdefineconfidentialmaterialasincludinganyinformationobtainedfromanationalsupervisoryauthoritythatisconsideredconfidentialunderthelawsoftheprovidingjurisdiction. EIOPAhasaccesstofirmspecificinformationthroughanumberofavenues,includingEIOPA’sengagementinsupervisorycolleges,risk identification,crisismanagementandstresstesting. Accordingly,EIOPAisrequiredtoobserveabsoluteconfidentialitywithrespecttosuchinformation,andconfidentialinformationmaybeusedonlyforthepurposesofcarryingoutEIOPA’sdutiesasstatedinEIOPA’sfoundingregulation(“EIOPARegulation”). InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

33. P age |33 SpecificsregardingthefuturenatureofregulatoryreportingunderSolvencyIIandtheextentofEIOPA’saccessinthisrespectwillbeunderdiscussioninthenearfuture. EIOPAprovidesaggregatedinformationontheEUinsurancemarket totheEuropeanSystemicRiskBoard(ESRB)toassistitinachievingitskeytaskofpreventingormitigatingsystemicrisks,andavoidingepisodesofwidespread financialdistress. TheESRB canmakeareasonedrequestto EIOPAfordatathatisnotinsummaryoraggregateformwhereitappearsnecessaryforachievingtheBoard'stasks,buthasnotexercisedthisoptiontodate. EIOPAisrequiredtocooperatewiththeESRBinhaving inplaceadequateinternalprocedures forthetransmissionofconfidentialinformation, inparticularinformationregardingindividualfinancialinstitutions. Thereisnogatewaythatwouldallow nationalsupervisoryauthoritiesorEIOPAtosharefirmspecific confidentialinformationwiththeEUinstitutions(EuropeanCommission;EuropeanCouncil;EuropeanParliament). Anyinformationprovidedontheinsurers'activityinthemarketwould need tobeinsummaryoraggregateformsothatindividualfirm'sactivitiescannotbeidentified. TheApproachintheState-basedRegimeintheU.S.: IntheU.S.,thestates–ratherthanthefederalgovernment–haveprimaryregulatoryresponsibilityforregulatingthebusinessofinsurance,includingforlawsrelatedtoprofessionalsecrecy. TheDodd-FrankActestablishedtheFederalReserveBoardofGovernors(FRB)astheprimaryconsolidatedregulatorforsavingsandloan holdingcompanies,manyofwhicharefirmsengagedprimarilyinthebusinessoflife insurance. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

34. P age |34 TheFRBhasenteredintomemorandaofunderstandingwithstateinsuranceregulatorsregardinginsuranceentities. Federalgovernmentknowledgeandinvolvementin insurancemattersisenhancedbytheestablishmentoftheFIO,whichhasauthoritytomonitorallaspectsoftheinsuranceindustryandcoordinateanddevelop U.S.Federalpolicyonprudentialaspectsofinternationalinsurancematters. Whilethereisnofederalbodymandatinguniformity,stateinsuranceregulatorsintheU.S.operatecollectivelyto establishuniformstandardsinavarietyofareas,includingprofessionalsecrecy. StatelawsauthorizethefilingofcertaininformationwiththeNAICand declarethatcertaincategoriesofinformationdisclosedtotheNAICwillbeconsideredconfidentialinthepossessionoftheNAIC. AlthoughstatesareauthorizedtoshareconfidentialinformationwiththeNAICincertaincircumstances,theNAICdoesnotsupersedetheregulatoryauthorityofthestateinsurancedepartments. Accordingly,theNAICmaynotindependentlydiscloseconfidentialinformationprovided to itbystateinsurancedepartmentstoothersupervisoryauthorities,buttheNAICmayfacilitatesuchinformationexchangesamongregulatorsaspermittedunderrelevantlaw. BecausetheNAICisnotadepartmentoragencyofstateorfederalgovernment,theNAICdoesnotfallwithinthetypesof governmententitiestowhichfreedomofinformationlawsmayapply. TheNAICoccasionallyentersintospecificinformationsharingandconfidentialityagreementswithindividualstates. Thescopeoftheagreementmayvarydependingonthesubjectmatteroftheprojectforwhichanagreementisrequired,theconfidentialinformation tobeprovidedtotheNAIC,andthemannerinwhichsuchinformationistobeusedand/orstoredbytheNAIC. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

35. P age |35 TheNAICmaintainsconfidentialitypoliciestoprotectconfidentialinformationfromdisclosure. Asaconditionofemployment,allNAICemployeesagreetobeboundbysuchpoliciesduring– andfollowing–theirtermofemployment. NAICmodellawsandthefinancialregulatoryaccreditationprogramprovidemeansforestablishingstandardsagainstwhichstateregulatorshold eachotheraccountable. SeveralNAICmodellawsprovidealegaltemplateforenhancingconfidentialityprotectionsaswellasauthorizingthecommissionertodiscloseandreceiveconfidentialinformationwithotherregulators,including internationalregulators. ExemplarymodellawsincludetheModelLawonExaminations,theRisk-BasedCapitalModelAct,theInsuranceRegulatoryInformationSystemModelAct,theInsuranceHoldingCompanySystemRegulatoryAct,andtheProducerLicensingModelAct. Asillustratedbelow,manyofthesemodellawsprovidekeylegalelementsassociatedwiththeNAICaccreditationprogram. Itisimportanttonote,however,thatstateshavenotnecessarilyamendedtheir insurancestatutesexactlyasthemodellawsmaypropose. Forexample,manystateconfidentialitystatutespre-datetheamendmentstotheNAICmodellaws. Statesmayhavedeterminedtheirexistingstatutessufficientlyprovidedfortheconfidentialityandinformationsharing intendedtobeauthorized bythemodellawsandasrequiredforpurposesoftheNAICaccreditation program. TheNAICFinancialRegulationStandardsandAccreditationProgram,in part,requiresstatestohavecertainstatutesinplacethatevidencethelegalauthoritytoregulateforfinancialsolvency. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

36. P age |36 Inordertoachieveaccreditation,statesmusthavespecificlawsrelatedtoinformationsharing. Accreditationstandardsandguidelinesrequiretheinsurancedepartment todemonstrateithas theauthoritytoshareconfidentialinformationwithstate,federalandinternationalregulators;thatthedepartmenthastheauthoritytokeepconfidentialinformationobtainedthosesameregulatorsfromdisclosure;andthatthedepartmenthas awrittenpolicyconcerninginformationexchangeswith otherregulators. Additionally,statesalso mustdemonstratetheyhavestatutesrelatedtoinformationsharingonthespecific topicsofexaminationauthority,risk-based capitalandholdingcompanysystems. 2.GroupSupervisionIntroduction In generalterms,a“group”referstomorethanonecompanythatcoexistsaspartofacorporatefamilybyvirtueofownershiporaffiliation. Generallyspeaking,aninsurancegroupiscomprisedoftwo ormoreinsurers,buttherecouldbe otherlegalentitiesinvolvedaswell– holdingcompanies;subsidiariesoraffiliatessuchasagencies,serviceprovidersorthirdpartyadministratorswhosebusinessistangentialtothatofthememberinsurers;and otherentitieswhosebusinessisunrelatedtotheinsuranceoperationsofthegroup. Againingeneralterms,groupsupervisionistheapplicationofregulatoryoversighttoagroup. Groupsupervisionhasbecomeanimportantaspectoftheoverallsupervisoryprocessbecausegroupmembershipcanposeuniquerisks(e.g.reputationalrisk)aswellasbenefits(e.g.capitaloptions,riskdiversification)to oneormoreinsuranceundertakingsthataremembersofthegroup. Groupsupervisionthereforeisanimportantcomplement tosolosupervisioninensuringpolicyholderprotection. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

37. P age |37 • InthisTC2reportthestate-basedinsuranceregulatoryregimeintheU.S.andtheSolvencyIIregimeintheEUarecomparedas to theirrespectiverequirementsandprocessesforgroupsupervision. • ForcertainU.S.insurancegroups,withabankorthrift,consolidated supervisionisconductedbytheFederalReserveBoardwithanemphasisonprotectingthedepositoryinstitution. • In theEU,financialconglomeratesareregulatedundertheFinancialConglomeratesDirective(FICOD). • ExecutiveSummary: • PolicyObjectives:Theover-archingobjectivesareessentiallythesamei.e.,toprotectpolicyholdersand toenhancefinancialstability. • Thatsaid,therearevariousdifferencesbetweentheEUand • state-basedU.S.regimesinthemannerinwhichthoseobjectivesareachievedwithrespectto groupsupervision. • ScopeofGroupSupervision:Inbothregimes,variouslegalentitieswithinthegroupcanbeincludedinthescopeofgroupsupervision. • ThescopeofgroupsupervisionintheEUaccordingtotheSolvencyIIDirectiveistheentiregroup,i.e.,allentitieswithinthegroup,regulatedorotherwise,onaglobalbasis. • However,thegroupsupervisorhasauthority tonarrowthatscopesubjecttoprescribedcriteria. • In theU.S.,traditionalapplicationofgroupsupervisionhasfocusedontheholdingcompanyanditsinsurancesubsidiariesintheU.S. • - SupervisoryColleges:Bothregimesaregenerallysimilarin termsoftheoperationsofsupervisorycolleges;howevertherole,tasks,powersandcontentofthegroup-widesupervisordifferbetweenthetworegimes. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

38. P age |38 Moreover,theEU’sSolvencyIIregimeprovidesforalegallybindingregime,whereastheU.S.operatesalessformal,nonbindingone. Nonetheless,bothapproachesareintendedtodrivejoint /collaborativedecisionsastoanysupervisoryactionsintheEUatthesoloandgrouplevelandintheU.S.atsololevelaswellasactionsaimingto achieveoutcomesatthegrouplevel. - SupervisoryPowersatthegrouplevel:UnderSolvencyIIintheEU,thereisasinglegroupsupervisorwithexplicitdutiesandpowersthatareapplicabletolegalentitiesandaswellas to insuranceholdingcompanieswhicharelocatedintheEuropeanEconomicArea(EEA). GroupsupervisorsintheEUcanrequestinsuranceholdingcompaniesintheEU to holdmorecapitalto coverexcessiverisk inotherjurisdictions. However,in the caseofaninsuranceholdingcompanylocatedinaMemberStateotherthanthatofthegroupsupervisor,thegroupsupervisorneedstoinformthecompetentsupervisororjurisdictionwheretheholdingcompanyislocatedwiththeaimtohavethatsupervisortakethenecessaryaction. TheU.S.state-basedregimefocusesontheapplicationofpowersatthelegalentitylevelandwithregardtoinsuranceholdingcompanysystemsoninformationgatheringandexamination. Insuranceregulatorshavelimitedextra-territorialpowersandrelyoncommunicationsandcooperationwithotherregulatorsin otherjurisdictionswhohavetheauthority totake necessaryactions. - Reportingatthegrouplevel:IntheEU,reportingisstandardizedandrequiredforallgroupsonaconsolidatedbasis. Groupshavetomakesimilarsubmissionstothatofsoloundertakings(SolvencyandFinancialConditionReport(SFCR),RegularSupervisoryReport,Quantitative ReportingTemplates(QRTs),Own InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

39. P age |39 • Risk andSolvencyAssessment(ORSA))butwithadditionalinformationanddatawhicharegroup-specific. • In thestate-basedregimeintheU.S.,reportingatthegrouplevelisfocusedonextensiveintra-groupreportingrequirementstosupportrequiredpriorapprovalprocessesbasedonlegalstandardsandfinancialanalysis;consolidatedfinancialinformationisusedinthe • U.S. whereavailable,i.e.,forlistedcompanies,thosethatotherwisevoluntarilyprovidesuchinformation,andwherestateinsuranceregulatorsotherwiserequireitthroughfiling,analysisorexamination • processes. • GroupCapital:TheEUhasanexplicitgroupcapitalrequirement,whereasthestatebasedregimeintheU.S.doesnot. • GroupORSA:BothregimeshaveanORSArequirementthatissimilarinconcept,buttheEUsetsinlawtheprocessandkeycomponentsoftheassessmentandhasguidelinesthataremoreprescriptive,whereasintheU.S.,moremanagementdiscretionisallowedastotheuseofmethodologies,withdisclosureandjustification. • GroupGovernance:In bothregimes,companieshavetocomplywithcorporategovernancerequirementsassetforthinfederalandstatelaws. • Publicly-listedcompaniesalsomustabidebyrulessetbythevariousstockexchanges. • U.S.insurersaresubjecttostatecorporatelaws,inadditiontovariousgovernancerequirementsembeddedinstateinsurancelawsandregulations. • In additiontocorporategovernancerequirements,EUSolvencyIIinternalgovernancerequirementsalsoexist,e.g.,withrespecttointernalcontrolsandrisk managementsystemsaswellaskeyfunctions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

40. P age |40 In theU.S.,supervisorsassessthoseaspectsduringon-siteexaminationsforthepurposeofdesigningexaminationprocedures. - RegulationofFinancialConglomerates:ForthoseinsurancegroupswhichareBankHoldingCompanies(BHCs)orSavings&LoanHoldingCompanies(SLHCs),theFederalReservehasexplicit capitalrequirements. In theEUrequirementsforconglomeratesaresetin FICOD. 3.SolvencyandCapitalRequirements Theprimaryobjectiveofbothregulatoryregimesistoprotectthepolicyholders. Forthispurpose,thetwo regimeshavetwo differentapproaches eachofwhichmustbeconsideredfromaholisticperspective. Therespectiveregulatoryframeworksarein some casesattributabletothedifferentphilosophicalapproachesandlegalfoundationsofthoseregimes. Underthestate-basedregime’srisk-based capital(RBC)systemintheU.S.,theCompanyActionLevel(CAL)setsaminimumamountofcapitalbeforecorrective actionisprompted. Thatamountofregulatorycapitalislikely tobelowerthantheEUSolvencyCapitalRequirement(SCR). TheCALRBClevel(andthethree otherlevels)forregulatoryinterventionisnotcalibrated to anoverarchingconfidencelevelortimehorizon(calibrationofriskcategoriesarealsonotderivedfromexplicit targetcriteria). UndertheEUSolvencyIIregime,thesupervisoryladderofinterventionisbasedontheSCRandtheMinimumCapitalRequirement(MCR)whicharecalibratedto 99.5%and85%confidencelevelsrespectively, InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

41. P age |41 usingavalue-at-riskmeasureoftheBasic Own Fundsderivedfromatotalbalancesheetapproach. TheMandatoryControlLevelRBCismostlikelylowerthantheSolvencyIIMCR. The term“internalmodels”indicatesadifferentmeaningunderthestate-basedregimeintheU.S.thanitdoesunderSolvencyII,andthe scopeofapplicationofmodelsismorelimitedundertheRBCsystemintheU.S.thanitisunderSolvencyII. Specifically,RBClimits theapplicationofmodelsintheU.S.tospecificproductsandriskmodules,usingprescribedparametersandtimehorizonsandthemodelsarenotsubject toapriorapprovalbythesupervisor,thoughtheyaresubjecttoregulatoryminimum/floorscenarios. UnderSolvencyII,asawaytomorepreciselyreflecttheriskprofileoftheregulatedentity,internalmodelscanbeusedforthecalculationoftheSCRforallorsomeoftherisks. Theuseof internalmodelsissubjecttopriorsupervisoryapproval,ongoingmonitoringandcompliancewithspecific requirementsincludingtheintegrationofthemodelinrisk managementanddecisionmakingprocesses. Bothregimeshaveasimilarconceptofthe ownrisk andsolvencyassessment(ORSA),buttheEUsetsin law theprocessandprescribesthatthequalitativeandquantitativeassessmentsareperformedagainstasetstandard. TheEUalsoprovidesguidelinesthataremoreprescriptive. In theU.S.,moremanagementdiscretionisallowedastotheuseofmethodologies,withdisclosureandjustification. Thestate-basedStatutoryAccountingPrinciples(SAP)regimeintheU.S.andthevaluationapproachusedinSolvencyIIdeviatefromthebases InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

42. P age |42 usedforgeneralpurposereportinginthosejurisdictions(respectively, U.S.GAAP andIFRS)invaluingcertainassetsandliabilities. SAP looks to establishmoreofawinding-upvaluebasedonthestatutoryaccountsandtheuseofamortizedcostmethodologies,whereastheEUregimeassessesacompanyonagoing-concernbasisbasedonamarketconsistentbalancesheet. ThisdifferenceisconsistentwiththeSCRpotentiallybeinganearlierinterventionpointthantheRBCCALandexplainswhyavailable capitalislikelytobemoresubjecttovariationovertimein responsetochangingmarketconditionsundertheEuropeanregime. Technicalprovisionsarevaluedonamarket-consistentbasisunderSolvencyII. Technicalprovisionscomprisethesumofthebestestimateandariskmargin. Thebestestimaterepresentstheprobabilityweightedaverageofallfuturecashflowsdiscountedusingariskfreerate termstructure. Theriskmarginrepresentsthecostofcapitaltosupporttheproductuntilliabilitiesarefullyrun-off. TheRBCregimebycontrastusesadiscountratebasedoncorporatebondyieldsforlife insurancereservesandabestestimate(forwhich discountingisrestricted to certainlinesofbusiness)forproperty&casualtyinsurancereserves. WhilsttheUSregimecontainsexplicitorimplicitreservemarginsindifferentplaces,theEUregimehasnosuchmargins,butdoescontaintherisk marginasdefined above. Itis tobehighlightedthatthesetwo conceptsarenotdirectlycomparable;theirunderlyingpurposesaredifferent. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

43. P age |43 ThereservingbasesaredifferentandanassessmentoftherelativestrengthoftheEUandU.S.baseswilldependonthespecificproductunderconsideration. UnderRBCrequirements,capitalisdefinedasstatutorycapitalandsurpluswithprudentialadjustments(includingonesmadefor non-admittedandlimitedadmissibilityassets). In theEU,capitalresourcesaregenerallyequalto thenetassetvalueofthefirmplussubordinatedliabilities(basic ownfunds)andancillaryownfunds. SolvencyIIincludesathree-tierclassificationofcapitalandprovidesspecificprovisionsfortheclassificationofhybridandsubordinatedcapitalinstruments. Totheextentthatinstrumentsdonotprovidethebestformoflossabsorbency,theyarerestrictedin countingtowardscoveringcapitalrequirements. InvestmentrestrictionsareconsistentwiththeprudentpersonprincipleunderSolvencyII. In thestate-basedregimeintheU.S.,investmentrestrictionsarebased upondefinedlimitsoraprudentpersonapproach(orsomecombination)dependingonthestate. ForRBCresults,corrective actionsaretriggeredwhenthe capitalresourcesofacompanyarelessthantheCompanyActionLevelRBC,while,underSolvencyIIcapitalrequirements,correctiveactionsaretriggeredwhenacompanybreachesitsSCR. Topic1:PolicyObjectivesOverall PolicyObjectives Theprimaryobjectiveofboththestate-basedregulatoryregimeinthe U.S.andtheEU’sSolvencyIIis toprotectpolicyholders. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

44. P age |44 Theprotectionofpolicyholderspresupposesthatcompaniesaresubjecttoeffectivesolvencyrequirementsthatresultinthemaintenanceofadequatecapitalresourcesthatcoveralloftheriskstowhichaninsurerisorcouldbeexposed. Accordingly,capitalrequirementsareakeytoolforaccomplishingtheobjectiveofpolicyholderprotectionunderbothregimes. Financialstabilityandfairandstablemarketsareotherobjectivesofinsuranceregulationandsupervisionthatshouldalsobetakenintoaccountbutthatshouldnotunderminethemainobjective. Overall PolicyFramework&SupervisorySystem Underthestate-basedregimeintheU.S.,RBCrequirementsareatoolforlegallyauthorizedanddefinedcompanyorregulatoryactionatspecifiedlevels. StateregulatorsalsohaveregulatoryauthorityforCompaniesDeemed tobeinHazardous FinancialCondition(NAICModel385)toimposetailoredtimelyintervention(pursuantto othersolvencytools)priorto anRBCaction-leveltrigger. RBCsetsoutaminimum capitalrequirementanddoesnotaimtobeanevaluationofeconomicortarget capitallevel. Therefore,itisnotusedtoestablishorcomparewell-capitalized companies. RBCrequirementstargetmaterialrisksforeachoftheprimary insurertypes (life,property&casualtyandhealth). In additiontoRBCrequirementsandotherfinancialtoolsused toimplementcorrectiveaction,theoverallstate-basedsolvencyframeworkintheU.S.alsoincludesthefollowing: - restrictionsoninsurers’activitiestomitigateoreliminatesomerisksintheinsurancebusiness; InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

45. P age |45 • prudentialaccountingfilterswhichresultin conservativesurplusrecognitionandprovidecounter-cyclicaleffects;and • aback-stopoffinancialprotectionwheninsurerrehabilitationorliquidationisrequiredviatheStateGuarantyFundSystem. • Assuch,RBCis calculatedfromvaluationsthatareusuallymoreconservative(e.g.,non-admittedassets,deferred acquisitioncostsareexpensedratherthan capitalized)andlessvolatile(e.g.,manyfixedincomeinstrumentsarevaluedatamortizedcost)thanvaluationsunderfinancialaccountingstandardssuchasGAAP. • Insurerrisk managementissuesareaddressedinmultipleareasoutsideofRBC,mostheavilyin theon-siteexaminationprocess(seeTC7)butalsoinreportingandanalysis(seeTC5). • Asdiscussedfurtherbelow,stateregulatorsmayalsoimposeadditionalcapitalrequirements(forexample,fordeficienciesinriskmanagementandotherareas)outsideoftheRBCcalculation. • In theEU,SolvencyIIfollowsa“TotalBalanceSheetApproach”wherethedeterminationofan insurer’scapitalthatisavailableandneededforsolvencypurposesisbaseduponamarketconsistentoreconomicvaluationapproach. • SolvencyIIcapitalrequirementstargetallquantifiablerisksandaredeterminedonthebasisoftheriskprofileofthecompanyandthemanagementofthoserisks(e.g.theuseofriskmitigations). • SolvencyIIcapitalrequirementsthereforeprovideincentivesforsoundriskmanagementpracticesandenhancedtransparency(e.g.,in thecaseofgovernancedeficiencies,supervisorsmayimpose capitaladd-on– see Capitaladd-onbelow). InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

46. P age |46 • KeyCommonalities: • RBC inthestate-basedregulatoryregimein theU.S.,andSolvencyIIcapitalrequirementsin theEU,playa keyrolein meetingthegoalof policyholderprotection,whichiscentraltobothregimes. • Bothregimesprovidethresholdsforregulatoryactions. • Forbothregimes,the capitalrequirementsaresupportedbyrequirementsongovernance,supervisoryreview,reportingtosupervisors. • In addition,bothrelyonmarketdisciplinethroughpublicdisclosure. • Keydifferences: • TheSolvencyIImarket-consistentbalancesheetprovidesagoing-concernviewofaninsurer’ssolvencyposition,whileRBC • represents capitalmoreonawinding-upbasis,therebyinfluencingtheparttheyplayintherespectiveregimes. • TheSCRunderSolvencyIIincludesallquantifiablerisks oftheinsurerwhileRBCincludesrisksconsideredmaterialtotheindustrywithsomemoduleslookingatcompanyspecificassumptions. • TheSolvencyIIframework,includingtheSCR,isdesignedtoprovideincentivesforriskmanagement,whereastheRBCprimarilyreliesonsupervisorytoolsotherthancapitalrequirementstoaddressriskmanagementconcerns. • Topic2:AssessmentofRiskandCapitalAdequacyScopeofregulatorycapitalcalculation • TheRBCcalculationunderthestate-basedregimeintheU.S.ismainlyastandardizedapproachtiedtoannualstatementdatawithincreasinguseofinternally-generatedcompanyinformationformodelapproaches. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

47. P age |47 RBCassessesriskbyapplyingriskweights(called“factors”)withineachriskmodule,although,certainlinesofbusinessandrisks(e.g.interestraterisk)areassessedusingmodels. Eachoftheprimaryinsurancetypes(life,property& casualty,andhealth) has aseparateRBCformula,witheachcontainingitsownsetoffactorscoveringthematerialrisksidentifiedineachformula. Thecomponentsofthelifeinsuranceformulaincludethefollowing:riskrelatedtocertainaffiliatedinvestments;riskonotherfinancialassets(e.g.riskofdefault,changein marketvalue);insurancerisk;interestrate,healthcreditrisk,andmarketrisk;andgeneralbusinessrisk. Thecomponentsoftheproperty&casualtyinsuranceformulainclude: riskrelated to affiliatedcompanyinvestments;riskonfixedincomeassets;riskonequities;creditrisk (related to reinsurancerecoverables);underwritingrisk(relatedtoreserves);andunderwritingrisk (relatedtonetwrittenpremium). ThecomponentsofthehealthinsuranceRBCformulaincludethefollowing:risk related tocertainaffiliatedinvestments;riskonotherfinancialassets;underwritingrisk;creditrisk;andbusinessrisk. Assetconcentrationsarealsoassessedviarisk chargestoreflecttheadditionalrisk ofhighconcentrationsinsingleissuers. However,currencyriskisnottakenintoaccountandcatastropheriskisnotaddresseddirectlyandcompletely,althoughacatastropheriskchargecurrentlyisbeingdevelopedaspartofSolvencyModernizationInitiative. AstandardfactorforoperationalriskisincludedintheLifeRBCformula,butnotintheP&Cformula. TheRBCformulaincludesacovariancecalculation(thatalsovariesdependingonlineofbusiness)thatisdesigned tomeasurecorrelation betweenrisks. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

48. P age |48 Investmentsinaffiliated insurancecompaniesareexcludedfromthecovariancecalculationbasedupontheassumptionthatdiversificationdisappearswhentheentityexperiencesfinancialdistress. FourRBCactionandcontrollevelsestablishrisk-basedrequirementsthatprovideabaselinetomorediscretionaryregulatoryinterventionresultingfromanalysisandexaminationoversightactivities(seeTopic4foradditionaldiscussionoftheRBCactionandcontrol levels). IntheEU,theSolvencyIIframeworksetsouttwodifferentlevelsofcapitalrequirements,anupperlevel,theSCR,andalowerbound,theMCR. TheSCRisdesignedtotakeintoaccountallquantifiableriskstowhichafirmisexposed,toincludeatleastthefollowing:(life,non-lifeandhealth)underwritingrisks;marketrisk;creditrisk;operationalrisk. Eachoftheserisksincludesvarioussub-risks. Forinstance,marketriskincludesinterestraterisk,equityrisk,propertyrisk,spreadrisk,currencyrisk,andmarketriskconcentration. TheSCRtakesintoaccountriskmitigation techniques(e.g.reinsurance)providedthatcreditriskandotherriskarisingfromtheriskmitigationarealsoreflectedintheSCR. TheSCRisarisk-sensitiverequirementusedfortimelysupervisoryintervention(topromptcorrectiveactionbythecompany). TheMCRisdesigned to correspond to aminimumsolvencylevel,belowwhichpolicyholdersandbeneficiariesareexposed to anunacceptablelevelofrisk,iftheinsurerwereallowedtocontinueitsoperations. TheMCRisasimplelinearformula,calculatedindependentlyfromtheSCRcalculation,comprisingasetofriskfactorsapplied totheindividualcompanyliabilities. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

49. P age |49 TheMCRmustbewithin25%and45%oftheSCRandissubject toabsoluteminimumamounts. Asanalternative tousingtheSCRstandardformula,acompanymay,subjecttoregulatoryapproval,replacesomeparametersoftheunderwritingrisksmoduleswithsomeotherparametersbasedonthecompany’s owndata. In accordancewiththerisk-orientedapproachtotheSCR,companiescan,subject to supervisoryapproval,useeitherpartialorfullinternalmodelsforthecalculationofthatrequirement(thisisreflectedin aseparatesection). Theframeworkiscompletedwiththeexistenceofdampeners, bothquantitative(e.g.thesymmetricadjustmentmechanismforequityriskunderthestandardformula)andqualitative(e.g.provisionfortakingduecare to avoidpro-cyclicaleffect whenrequiringplan to restorecompliancewiththeSCR),thataimtoaddresspotentialpro-cyclicaleffectsoftheregime. Calibrationofregulatorycapital ThereisnooverallformulacalibrationunderRBC. Instead,stateregulatorsrefineindividualriskweightsthroughanalysisof historicaldataandprobabilitiesusingexpertjudgment. Aseparatecalibrationprocessisapplicable to partialmodelsused toassessinterestrateandotherrisks. Inshort,RBCfactorsweredevelopedbasedonindustrynormswithsomefactorsadjustedbycompanyspecificexperience. Riskweights,partialmodelcalibration,andanyotherformulachangeareaccomplishedviaatransparentprocessincorporating inputfrominsurancemarketrepresentatives. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

50. P age |50 UnderSolvencyII,theMCRusesastandardizedapproachbaseduponValueatRisk calibratedtoan85%confidencelevelovera1-yeartimehorizon; Thatcalibrationisflooredandcappedat25%and45%respectivelyoftheundertaking’sSolvencyCapitalRequirementandissubjecttoanabsolutefloor,whichdependsonthenatureoftheundertaking,thattheMCRcannotgobelow. TheSCRisbaseduponValueatRiskcalibratedto99.5%confidencelevelovera1-yearhorizonforallrisk modulesandfortheoverallformula. Theoutputsofthemodules(andsubmodules)ofthestandardformulaarecalibratedtothe99.5%ValueatRiskovera1-yearhorizonandthenaggregatedusingaprescribedvariance/covariancematrixbaseduponfixedcorrelationfactorsbetweenriskmodules. Thishasbeencalibratedusingacombinationofdataandregulatoryjudgment. Thecalibrationwasdevelopedthroughatransparentprocessinvolvinginsurancemarketrepresentativesviapublicconsultationsandwastestedthroughquantitativeimpactstudies. Frequencyofcalculationoftheregulatorycapital RBCisanannualfilingto theNAIC. However,supervisorsmayrequiremorefrequentfilingsdirectly to thestateforundertakingsofconcern(typicallyquarterly). UnderSolvencyII,acompanyisrequired to calculatetheSCRatleastonceayear,butmayberequired todosomorefrequentlyiftheriskprofileofthefirmdeviates(orthereisevidencetosuggestthatithasdeviated)significantlyfromtheassumptionsunderlyingthelastreportedSCR.ThefrequencyofcalculationoftheMCRisatleastquarterly. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com