The European System of Financial Supervision consists of three supervisory authorities: the National Supervisory Authorities (NSA), the European Systemic Risk Board (ERSB) and the European Insurance and Occupational Pensions Authority (EIOPA). The latter was established on 1 January 2011 to protect the insurance policyholders as well as the members and beneficiaries of the pension schemes and to support the stability of the financial system as well as the transparency of markets and the financial products. Over the current year 2015, EIOPA has to face a budget reduction of -7.6%, which is putting at risk the effective delivery of its core responsibilities. In order to respond to these cuts, EIOPA has been forced to postpone or cancel some ongoing projects: work streams in the areas of Financial Stability and Consumer Protection have been already reprioritized and, even though it remains the highest priority, Solvency II will be affected as well (the training program for supervisors will be reduced by 20% and production of the IT supervisory toolkit related to the XBRL reporting has been already cancelled).

 Regardless of these cuts, EIOPA keeps on working to ensure a strong and consistent insurance supervision in Europe, for the sake of financial stability and consumer protection.

 For instance, on the 28^th of January 2015, the authority published an Opinion concerning consumers protection issue related to insurance and pensions sales via the Internet: EIOPA recommended that National Competent Authorities (NCAs) should ensure online distributions to comply with a duty of advice and insurers to be provided with appropriate information, like disclosures documents, details on the distributor’s customer service and the level of the guarantees provided. Although consumers could benefit from the online distribution thanks to the abundance of information that could be found, behavioral economics has shown that in general most people do not conduct sufficient researches and this turns out in buying unsuitable products or choosing them based only on the offered price, regardless of the quality or of the guarantees; furthermore, sometime various options have to be tick on/off by the consumers, and the default configuration could lead them to enter unsolicited contracts. Lastly it is difficult to monitor emerging digital distribution channels and that’s why EIOPA warned the NCAs to increase their level of awareness.

 Moving on to the sake of financial stability, it’s worthy to recall that the authority published on the 30^th of January 2015 the statistical database for occupational pension in the European Economic Area, which is an important data source to identify trends, potential risks and vulnerabilities at an early stage. Up to now, the database includes statistics from 2004 to 2013 provided by 21 jurisdictions and it will be updated on a yearly basis.

 Then, with the purpose of ensuring a common and consistent application of union law and with the objective of establishing efficient and effective supervisory practices, on the 2^nd of February 2015, EIOPA issued the first set of its Solvency II Guidelines in the official languages of the European union. The Guidelines aim to clarify the Delegated Acts dated 10 October 2014 and are addressed to National Competent Authorities and Financial Institutions; the formers have to confirm whether they will comply with the Guidelines within two months of the issuance date, as stated by Article 16 (3) of the EIOPA Regulation. Among others aspects, the Guidelines cover the following:

• valuation of Technical provisions and Contract Boundaries
• classification of Own Funds, ancillary Own Funds, Ring Fenced Funds
• look-through approach
• basis risk, treatment of market and counterparty risk, application of life underwriting risks, health cat risk
• Loss Absorbing Capacity of Technical Provisions and deferred taxes
• Undertaking Specific Parameters and application of Internal Models
• operational functioning of Colleges of Supervisors and supervisory review process

 With respect to the Guidelines on the System of Governance and the Own Risk and Solvency Assessment (ORSA), EIOPA intends to issue them in all the official languages in April 2015 (final reports on the public consultation was published on the 3^rd of February 2015); they will become applicable on the 1^st of January 2016. The Guidelines on the System of Governance will set out the requirements for the management of undertakings, while the Guidelines on the ORSA will be focused on a better understanding of the undertaking’s solvency needs and capital allocation, as well as on the interrelation between risk and capital management in a forward looking perspective.

 Furthermore, following its previous work on the regulatory treatment of long term investments, EIOPA has started a new work stream on investments in infrastructure projects by insurers, which should finally benefit policyholders and the whole European economy. The main purpose is to develop a definition of investments able to offer predictable long term cash flows, embedding a risk that can be properly identified and managed by insurers. EIOPA intends also to analyze the treatment of the identified investments within Solvency II, focusing on their specific risk profile. Believing on the importance of relying on the knowledge and experience of the stakeholders, the authority has organized a roundtable with the goal of exchange views among high level representatives from infrastructure industry, insurance industry, asset management, public authorities and academia. The event took place on the 27^th of February 2015, and on the same date EIOPA launched a web section dedicated to this topic. The authority envisages giving its recommendations to the European Commission in summer 2015, with the submission of the Technical Advice. EIOPA act in fact as an independent advisory body to the European Commission, the European Parliament and the Council of the European Union.

 Finally, on the 28^th of February 2015, the authority also published the Solvency II relevant risk free interest rate term structures to allow insurance companies to prepare for the start of the new supervisory system in 2016. Along with the risk free interest rates term structures with and without Volatility Adjustment (VA), EIOPA published the effective values of VAs and the fundamental spread to be applied for the calculation of the matching adjustment. All the assumptions an methodologies adopted to calculate these values have been published as well. The reference date of the published term structures was 31 December 2014; while term structures at 31 January and 28 February 2015 were be released on the 6^th of March 2015. Being a key input for the assessment of the solvency and financial position of the insurance companies, the relevant risk free interest rate term structure will be updated on a monthly basis. The use of uniform conditions to calculate Technical Provisions ensures that Solvency II is implemented in a consistent way throughout Europe, which in turn facilitated the valuation of undertakings and the work of supervisors and ultimately benefits insurance policyholders too. The risk free rates are indeed applied to discount insurance obligations in a way that Technical Provisions reflect the amount to be paid by insurance undertakings if they had to transfer their obligations to another insurance undertaking.

 EIOPA also monitors the improvements made by the insurance sectors in term of Solvency II and assesses these twice a year against detailed criteria based on the EIOPA Action Plan for colleges. Colleges are multilateral groups of relevant supervisors formed to ensure a consistent supervision of financial institutions operating across borders. Currently there are 92 insurance groups which are active cross border and represented more than 1 trillion euro premium income during 2014. 77 of them are closely monitored by EIOPA, while towards the remaining 15 colleges the authority applies a proportionate approach. On the 20^th of February 2015 EIOPA published its “Year End report on functioning of colleges and accomplishments of the action plan 2014”; the 2014 Action Plan was focused on the development of a consistent risk based supervision and on the Solvency II preparatory guidelines, here are the main findings:

• during 2014 a progress and increase in the information exchange have been observed: almost all the colleges exchange information on a regular basis (74% of them on a yearly basis); and more than 70% in a structured way. The expectation is that with Solvency II and with the introduction of the single reporting templates and the Guidelines, the exchange of information will take place on structured basis with increased frequency; but on the other hand, professional secrecy issues with respect to the not EEA countries will keep on slowing progresses on this side.
• The vast majority of the colleges has a shared view of risk at group level, excellent examples of approaches to form a shared view have been observed in 6 cases, which will be published as Practical Solutions and Examples on the restricted area of EIOPA’s website.
• 23 groups are preparing an Internal Model (IM) application: except for 1 case, the work planning for the IM pre-application phase has improved significantly during the second half of 2014. Although the colleges with IM are overall very active in the process, some of them still lack a detailed work planning and tracking for the application phase and some others are facing capacity problems in relation to the Solvency II implementation (because of lack of people there is neither always continuity nor a proper hand over in IM experts present at college events on IM).

• Although 60 colleges have had a discussion on the implementation of the preparatory guidelines and 46 have agreed on the implications for their work planning, in the majority of the ones where a discussion took place no feedback has been given to the insurance group. The Solvency II preparatory guidelines will require significant further attention from both colleges and insurance groups.