EIOPA published an opinion on the supervision of remuneration principles in the insurance and reinsurance sectors in EU. The opinion addresses how to ensure consistent practices in application of the remuneration principles included in Solvency II and offers guidance to national supervisory authorities on how to challenge the application of certain principles. EIOPA also published a feedback statement on the comments received on the opinion. EIOPA will start monitoring the application of this opinion by the supervisory authorities two years after its publication. Supervisory authorities should collect qualitative and quantitative data, enabling them to perform supervisory review of the remuneration principles in accordance with this opinion. Instruments for data collection might be either the regular supervisory reporting or a specific request.
EIOPA delivered this opinion on the basis of Solvency II Directive and the Commission Delegated Regulation in line with the relevant provisions of Directive 2017/828/EC on remuneration. While the Solvency II framework provides for provisions of remuneration for sound and prudent management, the remuneration principles defined in the Delegated Regulation are high-level and leave considerable discretion to undertakings and supervisory authorities. To promote a proportionate approach, the opinion focuses on the staff members identified as potential higher profile risk-takers, including those whose annual variable remuneration exceeds EUR 50,000 and represents more than one-third of the total annual remuneration. These include administrative, management, and supervisory body members, other executive directors who effectively run the undertaking, key function holders as defined in the EIOPA Guidelines on System of Governance, and categories of staff whose professional activities have a material impact on the undertakings' risk profile. Among others, the opinion states the following:
- Where remuneration schemes have fixed and variable components, these components should be in such a proportion that the employees do not become overly dependent on the variable components.
- When assessing the adequacy of the deferral period with regard to the nature of the undertakings’ business, its risks, and the activities of the employees in question, supervisory authorities should keep in mind that undertakings have different deferral periods depending on the risks they enter into and that deferral period may or may not vary depending on the categories of staff.
- Where variable remuneration is performance-related, the total amount of variable remuneration has to be based on a combination of the assessment of the individual’s performance, the performance of the business unit concerned, and the overall result of the undertaking or group to which the undertaking belongs.
- Financial and non-financial criteria should be appropriately balanced. For instance, where the criteria is 80% financial and 20% non-financial, supervisory authorities may come to the conclusion that the assessment framework is not appropriately balanced.
- For the supervisory dialog with undertakings, supervisory authorities should consider, as part of the term downward adjustment, all kind of adjustments—for example, malus clawback and in-year adjustments.
- The supervisory assessment of the undertakings’ remuneration policies should cover the policy for the possible use of termination payments, which should contain guidance of the maximum payment or the criteria for determining the amount of the payment.
For members of the administrative, management, and supervisory body and the most highly paid employees of global systemically important undertakings, besides the guidance provided in this opinion, supervisory authorities should take into account the FSB Principles and Standards for sound compensation practices if these principles and standards apply in the respective jurisdiction. The benchmarks or thresholds included in this opinion should be considered for supervisory dialog and not as hard targets for the practical implementation of the remuneration principles. These indicative benchmarks or thresholds do not in any way restrict the supervisory authorities from having stricter practices—that is, lower benchmarks or thresholds—to trigger a supervisory dialog with undertakings if it is deemed appropriate based on a risk-based approach. In this context, supervisory authorities may also adopt a proportionate and more flexible approach in the supervision of the remuneration principles when undertakings are categorized as low risk, including the design of the remuneration policy.
Keywords: Europe, EU, Insurance, Solvency II, Remuneration Principles, Reporting, FSB, EIOPA
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