In an interview with BaFinJournal, Grund explains what his first few weeks in the job have been like for him, where he sees the biggest challenges of the coming months, and in what ways his experience from the private sector can be of benefit to him.

Dr. Frank Grund

© BaFin/Matthias Sandmann

Mr Grund, congratulations on your new role. How have you found the first few weeks?

I have had a very friendly and welcoming reception. That helped me to get started, because I was involved in the substance of the job from day one as well. With the support of my colleagues, I dived into all important topics currently facing insurance supervision right from the beginning – the traditional supervisory work, the new European supervisory regime Solvency II and other international issues. BaFin's employees have a high degree of expertise and are deeply committed to their work. This is a good basis for our future cooperation in a field which is going through major changes.

What in particular is it about the role of Executive Director that fascinates you?

I think there's hardly a more interesting job anywhere in the insurance field at the moment. Especially for someone like me, who comes from the industry, it's unbelievably exciting to take up this post. I'm now learning to look at issues which I dealt with in the operational business of individual undertakings at a wider level and from a completely different perspective. Then there's the work in international bodies. Representing German interests abroad is a whole new challenge for me. The third aspect, which certainly has its own appeal, is the media attention which comes along with my work. True, I have some experience in that area, but here it's a constant part of the job.

So what were your first appointments?

Naturally, there were various internal appointments at BaFin: meetings of the Executive Board, meetings with the Heads of Department and - which was very important - a big introductory session with the insurance supervision employees. But I also had external contact right from the start: the Insurance Advisory Council met in my first full week. And on 12 October I had my first official appearance – my maiden speech, you might say – at the conference of the German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft – GDV). The preparation of this speech was an ideal opportunity to go deeper into various issues. I also took the chance to discuss and sharpen BaFin's positioning in some aspects.

Where do you see the biggest challenges of the coming months?

Without a doubt, the biggest challenge is Solvency II. It goes live on 1 January 2016, when we will go from dry runs to the real thing. Despite all the preparation, Solvency II is a huge change, both for undertakings and for us. We have to shape this change together. In other words, even we do not know exactly what it will be like. We have certain ideas and we have prepared ourselves as well as we could – but have we focused on the right subjects? Will there be other priorities as well? This can and will only be found out in practice. I see it as my role to create and transmit security, both for my colleagues and for the insurance industry.

In what way?

The key point is to be more specific about the many questions and issues which remain to be answered and are currently abstract. What does proportionality mean in detail? How do we deal with the issue of run-off platforms in life insurance, which is the subject of increasing discussion? What will happen with the Zinszusatzreserve (additional premium provision)? These are just a few examples of the issues requiring clarification. Because if there is one thing that is particularly important in the relationship between BaFin and undertakings, it is this: you have to know what you’re facing. Sometimes it takes a while to find that out. But I've set myself the goal of creating reliable framework conditions as far as is possible.

As the Executive Director, I bear responsibility for the industry. Insurance undertakings have a special significance for the whole national economy, affecting every aspect of life, whether in the private sphere or in large corporations. As the top insurance supervisor, I will always bear this broad significance in mind, particularly in view of the fact that the industry is in troubled waters at the moment, partly due to the ongoing low interest rates.

This is a topic that affects the life insurance business in particular.

That's right. As you know, that's why the legislators have introduced the Zinszusatzreserve, among other things. Since 2011, life insurers have had to make additional provisions to compensate for the reduction in their investment income in times of low interest rates.

Interest rates are very low at the moment. Can the life insurers stand up to this kind of pressure?

Setting up the Zinszusatzreserve is of course a feat of strength, to put it mildly. In 2014 alone, life insurers had to spend about EUR 8.5 billion on that, and this year it is likely to be more. But we need the Zinszusatzreserve to set insurers up for times of consistently low interest rates and to ensure that they can meet their guaranteed rates of interest for the insured in the long term.

The supervisory tools at our disposal equip us well to assess developments in the next few years and to intervene in individual cases if necessary. Undertakings can also take some countermeasures by using the limited scope for discretion permitted by the regulations governing the Zinszusatzreserve. This primarily means an appropriate consideration of the lapse and lump-sum payment probabilities. This already applies to the 2015 financial year. However, insurers have to decide for themselves whether this is a sensible option for them.

Another issue which a lot of insurers are occupied with at the moment is the capital requirements which are to apply to investments in infrastructure projects under Solvency II. The EU Commission wants to lower them. Do you agree with that?

I think that political factors are playing the major role here. The aim is to encourage such investments. Moreover, the industry has said repeatedly that investments in infrastructure are more secure than other ones, that is to say, subject to lower market value fluctuations. However, there is not yet enough data to really assess that claim.

That presents a challenge to us as the supervisors. Capital requirements have to be commensurate to the risk, otherwise they are not fit for purpose. We therefore let ourselves be guided by prudence. If the quantitative requirements are relaxed, it will be our responsibility to look closely at such investments, regardless of the relevant capital charge, and to ask whether the undertakings assess the risks adequately and manage them in an appropriate way.

Do you think Solvency II needs to be amended in some places?

We have about 15 years of tough negotiations behind us and now we have got a set of rules we can all more or less live with – at least, that is my impression. Now we have to get down to business and give the new supervisory regime time to become established. It will then become clear if there is a need for amendments, and if so where. However, we must aim rather to reduce complexity than to increase it even further. One thing is for sure: under Solvency II, it is still the supervisor’s responsibility to ensure that the insurance industry remains consistently stable, in the interests of policyholders.

You spent many years in management positions at insurance undertakings. In what ways has this experience been of benefit to you, as the Chief Executive Director of Insurance Supervision?

For one thing, of course it helps that I have already spent a lot of time on the essential questions relevant to insurance supervision at the moment. I can therefore bring myself up to speed on those issues relatively quickly. For another, my experience means I am good at assessing how the insurance industry will receive an issue and how it will deal with it. We supervisors can benefit from recognising at any early stage which issues are bothering undertakings the most and by orienting ourselves accordingly. But of course, I still have to learn some things which are important in my new function.

You are following in the footsteps of BaFin president Felix Hufeld. Will you take a similar approach to his?

Mr Hufeld advanced the dialogue between BaFin and insurance undertakings and improved the exchange of information. I want to continue this, because it is the only way we can completely fulfil our supervisory function. It is essential for us to identify trends in a timely manner, for us to know from the start the direction in which an undertaking is developing, for us to recognise the strategic orientation and corporate relationships. The regular meetings with the heads of the big insurers set up by Mr Hufeld are the ideal way of understanding what is going on in the undertakings. I think that, thanks to my professional background, it will not be too difficult for me to gain access there. Apart from that, as I said, I think it is very important to ensure clarity and reliable framework conditions. That was also Mr Hufeld's approach, but naturally, there is still plenty of work left to do.

That does sound like a lot of work. What do you do to switch off from your job?

I've always loved horses, ever since I was a child, and I've maintained this interest throughout my whole career. Riding has always been the ideal way for me to get the necessary distance from my work. Horses teach you to be humble and can bring you back to what really matters. They don't care if I've had a hard day in the office or if I'm Chief Executive Director or whatever. If I give the wrong signals from the saddle, I know about it rightaway. That keeps me grounded. An hour on horseback clears my head and keeps me fit as well.

About: Frank Grund

Frank Grund has been Chief Executive Director of Insurance and Pension Funds Supervision at BaFin since 1 October. Previously, Grund spent many years in management positions at insurance undertakings, but has not been involved in the operational business since 2013. In the recent past, he was a member of various supervisory boards in the insurance industry, among other things. He gave up all other posts when he joined BaFin.

Grund headed Basler Versicherungen Deutschland for a total of nine years up to 2012. From 2008 to 2012, he was CEO of Deutscher Ring Sach and Deutscher Ring Leben. Grund started his career in 1986 at the former Gerling-Versicherungsgruppe, where he worked until 2003 and where, after working in a number of management positions in various areas of the business, he was appointed a member of the management board.

The 57-year-old lawyer has a doctorate in law and political science from the University of Bonn. He took his state examinations in law in Bonn and Düsseldorf.