FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Norway

The supervisory and regulatory framework in Norway consists of:

• Central Bank of Norway (Norges Bank)
• Finanstilsynet (The Financial Supervisory Authority of Norway)

FRSGlobal in Norway

In terms of per capita income Norway, although not a member of the European Union, is one of the world's richest countries in the world. With an open economy structure, Norway has been a strong promoter of liberal environment for foreign trade.

Sustainable development is a key theme for policy making in Norway. Financial regulation in Norway is designed to encompass all relevant financial sector entities, strongly limiting the possibility to exploit any regulatory differences.

Norway is amongst the few countries that has been the least affected by the financial crisis.

The main reason for adequate capitalisation of the economy is stringent regulatory measures and comprehensive financial market regulation. Also in certain key areas Norwegian regulations are much stricter than the minimum requirements in the EU.

Strong monetary and fiscal stimuli, and support measures from the government to the financial sector, have contributed in keeping the economy afloat and stabilizing development in Norway.

Regulatory Environment — Norway

Statutory

Financial reporting
Reporting of financial statements in Norway is based on IFRS / national GAAP and depends on the type of credit institutions. Only banks and financial companies listed on organized exchanges are obliged to apply the IFRS or simplified IFRS framework for accounting purposes. All other financial institutions are required to submit quarterly reports based on national GAAP principles. Applying the IFRS or simplified IFRS framework is not mandatory.

Prudential

Capital adequacy reporting
Norway has implemented COREP since January 2008 and the Norwegian FSA has recommended using XBRL as a reporting standard. These reports provide information on capital and risk calculations based on standard or advanced measurements approaches and are required to be reported quarterly on solo and consolidated basis by credit institutions and securities houses. To evaluate the risk management efforts and capital adequacy position of financial institutions additional reports on Internal Capital Adequacy Assessment Process (ICAAP) are required to be submitted to the FSA.

Large exposures reporting
Any transactions exceeding the threshold limit of more than 10 percent of net capital are required to be reported to the FSA by all banks, finance companies, investment firms and securities firms etc. on quarterly basis. The FSA collects these reports to evaluate the solvency position and the exposures faced by financial institutions on large transactions

Provision for loss against loans
The FSA collects periodic reports on losses incurred by banks due to large loans. These reports are collected for monitoring and analysis purposes from commercial banks, top savings banks, finance companies and mortgage companies.

Statistical

Banking and financial statistics (ORBOF)
These reports are required to collect information used for statistical purposes. Included are annual reports on balance sheet and income statement breakdown per country, economic sector, currencies, maturities, profit accounting etc.

Transactional

Significant internal transactions
Financial institutions are required to submit the annual reports of large transactions due to loans, deposits, interbank transactions, other off balance sheet items etc. to the FSA on a consolidated basis.

Counter party exposures
These reports are required to be submitted on a bi-annual basis. The FSA and Norges Bank perform a survey of counterparty exposures and exposures related to foreign exchange settlements .

Cross border transactions reporting
Consolidated reports on cross border transactions are required to be submitted to the FSA on annual basis.

Solvency II

Solvency II, a fundamental and wide-ranging review of the capital adequacy regime for the European insurance industry, aims to strengthen prudential regulation and improve policyholder protection.

January 1, 2013, is the expected global implementation date when all member states of the European Union (EU) will be obliged to implement Solvency II.

The project initiated by the European Commission as an advancement to Solvency I aims to enhance a revised set of EU-wide capital requirements and risk management standards.

The objective of the new system is to introduce more sophisticated solvency requirements for insurers, to guarantee that they have sufficient capital to withstand adverse events, such as floods, storms or big car accidents and offer some protection against systemic economic failures.

Currently, EU solvency requirements cover insurance risks, whereas in future insurers would be required to hold capital also against market risk (e.g. a fall in the value of an insurer's investments), credit risk (e.g. when debt obligations are not met) and operational risk (e.g. malpractice or system failure). This will help to increase their financial soundness with implementation of sound economic risk management practices in insurance industry.

With the demand for a more streamlined approach towards supervision, the Directive would enable insurance groups to be supervised more efficiently, through a College of Supervisors appointed among the supervisory authorities in the home country that would have specific responsibilities to be exercised in close cooperation with the relevant national supervisors.

The group supervisor would ensure that group-wide risks are not overlooked and would enable groups to operate more efficiently, while providing policyholders with a high level of protection. Groups that are sufficiently diversified may also be allowed to lower their capital requirements under certain conditions.

The Directive often referred as Basel II for insurers is based on a three pillar approach which is similar to the banking sector (Basel II) but adapted for insurance.

The three Pillars of this new regime are structured as below:

The new provisions of Solvency II will be adopted under the Lamfalussy process:

In January 2011 the Omnibus II Directive proposed changes aligning the level 1 text with the Lisbon Treaty and amending the text to reflect the EU’s new supervisory structure.

Level 1 – The European Commission adopts formal proposal for the directive (regime’s main outline and high level standards) approved by the European Parliament and the European Council.

Level 2 – – Includes introduction of delegated acts developed by the European Commission. The European Commission is advised by the European Insurance and Occupational Pensions Authority, EIOPA (formerly Committee of European Insurance and Occupational Pension Supervision)- representing all insurance supervisors throughout the EEA.

Level 3 – The EIOPA adopts guidelines and recommendations, carries out peer review, mediates and settles agreements, takes action in emergency situations, facilitates delegation of tasks and responsibilities, monitors and assesses market developments, undertakes economic analyses and fosters investor protection.

Level 4 – Enforcement of European Union law (EIOPA and European Commission). The Commission ensures all member states have implemented the legislation correctly.

Maximum harmonisation is assumed with the new Solvency II framework Directive. This means European rules will be implemented in all countries of the European Economic Area (i.e. the EU including Iceland, Liechtenstein and Norway). The EIOPA has recommended Bermuda, Switzerland and Japan to be the first countries assessed for equivalence with EU insurance regulations under Solvency II. This will facilitate the preservation of a level playing field in Europe, with equal protection of all policyholders within Europe and equivalent jurisdictions.

The new Solvency II requirements with challenges and opportunities ahead will be more risk-sensitive and more sophisticated than in the past, thus enabling a better coverage of the real risks run by any particular insurer.

Insurance companies in Europe have already started their implementation processes and self assessments before the final directive comes into force. Through this exercise and by using the results of QIS 5 companies aim to analyse the factors driving the capital requirements, judge current arrangements and assess Solvency Capital Requirements (SCR).

When it comes to insurance, the Scandinavian market has its own special characteristics and an impressive degree of diversity. Large Scandinavian players like Norway, Denmark, Finland and Sweden are technically quite advanced and have the know-how to meet the Solvency II requirements without much difficulty. This sets them apart from some of the East and Central European countries where even the largest home insurers are struggling to cope with the reform.

As part of the preparatory work on implementation of the new rules, Norway's Financial Supervisory Authority has invited representatives from the insurance industry to participate in their Reference group. The Finance Authority has also prepared a draft legislation and consultation document for the implementation of Solvency II in Norway.