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

• <strong>the</strong> degree of sensitivity <strong>to</strong> investment risks, including matching,
risk margins, capital requirements; <strong>the</strong> results of <strong>the</strong> use of
quantitative <strong>to</strong>ols in previous years (e.g. stress tests and/or
scenarios) shall also be reflected in <strong>the</strong> investment policy;
• <strong>the</strong> extent <strong>to</strong> which <strong>the</strong> holding of some types of assets is ruled
out or restricted where, for example, <strong>the</strong> sale of <strong>the</strong> asset could
be difficult due <strong>to</strong> <strong>the</strong> illiquidity of <strong>the</strong> market or where
independent (i.e. external) verification of pricing is not available;
• key staff involved in investment activities;
• <strong>the</strong> framework for reporting on asset positions;
• <strong>the</strong> nature of any outsourcing and requirements for <strong>the</strong>
safekeeping of assets (cus<strong>to</strong>dial arrangements);
• <strong>the</strong> strategies on <strong>the</strong> use of voting rights owned; and
• how <strong>to</strong> proceed internally when new asset classes or financial
derivatives become part of <strong>the</strong> investment portfolio.
9.146 Notwithstanding <strong>the</strong> prudential rules that might be set, Senior
Management of an insurer shall define an investment policy, based on
rules and procedures that a wise, prudent and expert manager would
apply in order <strong>to</strong> pursue <strong>the</strong> investment strategy (see para. 9.145), as
set by <strong>the</strong> Board of Direc<strong>to</strong>rs, in line with <strong>the</strong> interests of <strong>the</strong> insured 80
and <strong>to</strong> obtain an income appropriate <strong>to</strong> <strong>the</strong> incurred risk and liabilities
covered. Along with <strong>the</strong> investment policy, an asset-liability policy
shall be drawn up, describing how financial and insurance risks will be
managed in an asset-liability framework both short and long term.
9.147 An asset-liability policy shall be formulated by <strong>the</strong> Senior Management
and approved by <strong>the</strong> Board of Direc<strong>to</strong>rs. It shall clearly identify:
• <strong>the</strong> structure of <strong>the</strong> asset-liability approach, including <strong>the</strong> time
horizon;
• <strong>the</strong> stress tests <strong>to</strong> be performed, including <strong>the</strong> identification of
parameters;
• <strong>the</strong> connection between <strong>the</strong> asset-liability policy and <strong>the</strong>
investment policy and <strong>the</strong>ir interaction
• all areas where <strong>the</strong> insurance undertaking is commited <strong>to</strong> pay
bonuses <strong>to</strong> <strong>the</strong> policyholders.
9.148 The use of derivatives and structured products that have <strong>the</strong> economic
effect of derivatives and securities lending shall be set by <strong>the</strong> Board of
Direc<strong>to</strong>rs, along with <strong>the</strong> investment policy and shall clearly identify:
• goals and strategies of <strong>the</strong> use of derivatives;
• principles of risk management using derivatives;
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