Answers to the European Commission on the ... - Eiopa - Europa

should be a reduction in risk regarding <strong>the</strong> calculation of <strong>the</strong> Solvency
Capital Requirements. Never<strong>the</strong>less, <strong>the</strong> supervisory authority should
have <strong>the</strong> final decision on this subject. CEIOPS at a later stage will
develop principles on covers that are unconditionally admitted for
solvency purposes and covers that require prior regula<strong>to</strong>ry approval
(e.g. innovative risk transfer structures).
Role and responsibilities of <strong>the</strong> Board of Direc<strong>to</strong>rs and <strong>the</strong> Senior Management in
ART arrangements
12.62 The Reinsurance Management Strategy approved by <strong>the</strong> Board of
Direc<strong>to</strong>rs should include <strong>the</strong> Board’s consent <strong>to</strong> <strong>the</strong> use of any ART
products and <strong>the</strong> purpose for <strong>the</strong>ir use. An ART Strategy shall be part
of <strong>the</strong> overall Reinsurance Management Strategy of <strong>the</strong> undertaking.
Financial hedging through <strong>the</strong> use of derivatives
12.63 Responsibilities of <strong>the</strong> Board of Direc<strong>to</strong>rs and <strong>the</strong> Senior Management
in this context are as follows:
• approving clear and precise written strategies and policies on
derivatives. These should specify, in particular, <strong>the</strong> limits, which
types of derivative products may be used, for which purposes,
under which conditions, in which markets, as well as specify lines
of responsibility within <strong>the</strong> undertaking in this context, for <strong>the</strong>
purpose of risk mitigation (or increase risk diversification), or for
<strong>the</strong> purposes of efficient portfolio management, not simply in
order <strong>to</strong> increase returns;
• approving <strong>the</strong> underlying risk management principles, whereby
<strong>the</strong> corresponding strategy must be periodically re-evaluated, at
least on an annual basis;
• ensuring that periodic reports are produced assessing <strong>the</strong> degree
of compliance with <strong>the</strong> written strategies and policies and <strong>the</strong>
scale of risks assumed, and that <strong>the</strong>y are prepared by an internal
or external entity, independent of <strong>the</strong> entity that in practice
executes <strong>the</strong> investment policy of <strong>the</strong> insurance undertaking;
• ensuring that <strong>the</strong> functions which are directly responsible for
implementing <strong>the</strong> derivatives policy have sufficient experience
and knowledge regarding this type of operation and <strong>the</strong> inherent
associated risks.
12.64 The policy for <strong>the</strong> use of derivatives should be consistent with <strong>the</strong>
insurer's activities, its overall strategic investment policy and <strong>the</strong>
asset/liability management strategy, as well as its risk <strong>to</strong>lerance.
12.65 Risk management must cover <strong>the</strong> risks associated with derivatives
activities <strong>to</strong> ensure that <strong>the</strong> risks arising from all derivative transactions
undertaken by <strong>the</strong> insurer can be:
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