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Twinning project funded by The European Union. STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS. The Crisis and Dutch insurance supervision A Case Study Tom Roos Division Director Supervision insurance companies De Nederlandsche Bank Twinning conference - PowerPoint PPT Presentation
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STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS
The Crisis and Dutch insurance supervision
A Case StudyTom Roos
Division Director Supervision insurance companiesDe Nederlandsche Bank
Twinning conferenceMontenegro, 14 & 15 dec 2009
Twinning project funded by The European Union
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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- CDO’s, MBS’s- 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 formula’s 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
