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Group Support Regime and Group Supervision
from the Solvency ii Association,
the largest Association
of Solvency ii Professionals in the world
What is the
Group Support Regime?
Group support is a commitment (a
legally binding
declaration)
by a parent undertaking to
transfer capital to the subsidiaries if
it is needed, subject to supervisory approval.
This is a major reform. The
Group Support Regime
introduces a group support system so that
cross-border companies calculate a single sum for the whole group
and it simply means a smaller amount of capital allocated for the risks
of the group.
The home country will
have the final say so that host country
can not force companies to top up capital locally.
Many EU states opposed this as they will lose power as
host countries.
The
Group Support Regime of
Solvency II (
and the similar
Group Support Regime
proposed for cross-border banks)
is the big test:
Will
European member states accept to give up some sovereignty to a home
country for an integrated financial market?
This is one of the most important and interesting parts for solvency
II, and
many EU and non-EU
countries are absolutely affected.
The difference between the solo
Solvency Capital Requirement (SCR) and solo
Minimum Capital Requirement
(MCR) can be covered by
either the
subsidiary’s own funds or group support.
In technical terms, group support is comparable to a non paid-up
capital
instrument (dated or undated), with the solo
Minimum Capital Requirement
(MCR) of the subsidiary as
the
ultimate trigger point.
In the situation that a subsidiary holds no
longer sufficient
own funds to cover the solo
Minimum Capital Requirement
(MCR), the local supervisor of the
subsidiary may
make a call to the parent undertaking to inject an appropriate amount
of own
funds, up to the level of group support agreed, to bring the own funds
of the
subsidiary again to the level of the
Minimum Capital Requirement
(MCR).
In fact it could be argued
that this is superior, as these capital resources will have been validated to a
known standard
under group supervision and it ensures that capital is available for
use by the solo
undertaking exactly when needed, without any restrictions.
While all insurance
groups will be subject
to group supervision, each group can choose whether to apply for
permission to
be regulated under the Group Support Regime.
The permission to operate
under
the Group Support Regime is subject to a number of conditions that need to be
verified by
the supervisory authorities concerned.
Those insurance groups that decide to request
permission to use
the Group
Support Regime
will do so because it enables the group to
organise its
capital management in a more efficient manner.
It provides flexibility to move
capital to where it is needed when it is needed. Whereas today there
is no formal mechanism to provide group support, Solvency II
introduces
the Group
Support Regime that provides a more formalised and transparent system for
capital
transfers in stress situations across different entities and
jurisdictions in Europe.
April 1st 2009
Solvency II without group support -
It will be discussed again in 2015
New era of
national protectionism, one step back for the European Common Market
The European Parliament has agreed to delete
the group support regime from the
Solvency II directive.
"We are very disappointed that an opportunity has been missed to
enhance the regulation of groups that operate across borders. Capital
requirements will still be set in each country
a firm operates in, and not set centrally
by their lead supervisor"
Stephen Haddrill, director-general at Association of British Insurers
(ABI)
European Parliament legislative resolution of 22 April 2009 on the
amended proposal for a directive of the European Parliament and of the
Council on the taking-up and pursuit of the business of Insurance and
Reinsurance (recast)
(95e) It is necessary to seek advice from the CEIOPS on how best to
address the issues of an enhanced group supervision and capital
management within a group of insurance or reinsurance undertakings.
The CEIOPS should be invited to provide advice
that will help the Commission to develop its proposals under
conditions that are consistent with high level of policyholder (and
beneficiary) protection and safeguarding of financial stability.
In that regard the CEIOPS should be invited to advise the Commission
on the structure and principles which could guide potential future
amendments to this Directive which may be needed to give effect to the
changes that may be proposed.
The Commission should submit a report followed
by appropriate proposals to the European Parliament and the Council
for alternative regimes for the prudential supervision of
insurance and reinsurance undertakings within groups which enhance the
efficient capital management within groups if it is satisfied that an
adequate supportive regulatory framework for the introduction of such
a regime is in place.
In particular, it is desirable that
a group support regime
operates on sound foundations based on the existence of harmonised and
adequately funded insurance guarantee schemes,
harmonised and legally binding framework between competent
authorities, central banks and ministries of finance concerning crisis
management, resolution and fiscal burden-sharing which aligns
supervisory powers and fiscal responsibilities, legally binding
framework for the mediation of supervisory disputes, harmonised
framework on early intervention, harmonised framework on asset
transferability, insolvency and winding up procedures which eliminates
the relevant national company or corporate law barriers to asset
transferability.
[It is
obvious from the previous "sentence" that there is a lot of confusion
in the EU about the new non-group support regime]
In its report the Commission should also take into account the
behaviour of diversification effects over time and risk associated
with being part of a group, practices in centralised group risk
management, functioning of group internal models as well as
supervision of intra-group transactions and risk concentrations.
Group Support Regime -
From the Amended Proposal for a Directive on the taking-up and
pursuit of the business of Insurance and Reinsurance (SOLVENCY II)
[This is the previous version with the group support - it may be back
in 2015]
Additional Improvements Applicable to Groups
Using Group Support
The proposal introduces an innovative regime which seeks to
facilitate capital management by groups,
essentially by
a) allowing under certain conditions a parent
undertaking to use declarations of group support to meet part
of the Solvency Capital Requirement of its subsidiaries, and
b) introducing derogations to some
Articles on solo supervision, where appropriate.
The proposal allows the adoption of implementing measures, and
provides for a review of the whole system five years after the
transposition of the Directive.
General Observation: Group Supervision Not only
Supplementary
The current EU acquis considers group supervision as
merely supplementary to solo
supervision (solo supervision is carried out in the same way on all
entities, whether or not
they are part of a group, and group supervision is merely added to
solo supervision).
The proposal changes substantially that
philosophy: the group text contains many provisions
which will directly influence the way in which
solo supervision is carried out on entities
belonging to a group.
With a view to reflecting explicitly that fundamental development,
the word
"supplementary" has been deleted from all places (including the
title).
(70) It is necessary to ensure that own funds
are appropriately distributed within the group
and available to protect policyholders and beneficiaries where needed.
To this end insurance and reinsurance undertakings within a group
should have sufficient own funds to cover their
solvency capital requirement, unless the objective of
protection of
policyholders and beneficiaries can effectively be achieved otherwise.
Insurance and reinsurance undertakings within a group
should therefore be authorised to cover their
Solvency Capital Requirement with group support declared by
their parent
undertaking, under defined circumstances.
In order to assess the need for and prepare any possible future
revision of the group support regime, the Commission should report on
the rules of the Member States and the practices of the supervisory
authorities in this field.
SUPERVISION OF GROUP SOLVENCY FOR INSURANCE AND REINSURANCE
UNDERTAKINGS THAT ARE SUBSIDIARIES OF AN INSURANCE HOLDING COMPANY
Article
233
Group solvency of an insurance holding company
Where
insurance and reinsurance undertakings are subsidiaries of an
insurance holding
company, the
group
supervisor shall ensure that the calculation of the solvency of the
group is carried out at the level of the insurance holding company
applying Articles
218(2) to 231.
SUBSECTION 6 – GROUP SUPPORT
Article 234
Subsidiaries of an insurance or reinsurance undertaking: conditions
Member States shall provide that the rules laid down in Articles 236
to 241 shall apply to any insurance or reinsurance undertaking which
is the subsidiary of an insurance or reinsurance undertaking, on
request of the latter, where all of the following conditions are
satisfied:
(a) the subsidiary, in relation to which the group supervisor has not
made any decision under Article 212(2), is included in the group
supervision carried out by the group supervisor at the level of the
parent undertaking in accordance with this Title;
(b) the risk management processes and internal control mechanisms of
the parent undertaking cover the subsidiary and the parent undertaking
satisfies the supervisory
authorities concerned regarding the prudent management of the
subsidiary;
(c) the parent undertaking has declared, in writing and in a legally
binding document accepted by the group supervisor in accordance with
Article 237, that it guarantees that own funds eligible under Article
98(5) will be transferred where necessary and up to the limit
resulting from the application of Article 237;
(d) an application for permission to be subject to Articles 236 to 241
has been introduced by the parent undertaking and a favourable
decision has been made on such application in accordance with the
procedure set out in Article 235.
Article 235
Subsidiaries of an insurance or reinsurance
undertaking: decision on the application 1.
In the case of applications for permission to be subject to the rules
laid down in Articles 236 to 241, the supervisory authorities
concerned shall work together, in full consultation, to decide whether
or not to grant the permission sought and to determine the other terms
and conditions, if any, to which such permission should be subject.
An application as referred to in the first subparagraph shall be
submitted only to the group supervisor. The group supervisor shall
inform the other supervisory authorities concerned without delay.
2. The supervisory authorities concerned shall do everything within
their power to reach a joint decision on the application within six
months from the date of receipt of the complete application by the
group supervisor.
The group supervisor shall forward the complete application to the
other supervisory
authorities concerned without delay.
The joint decision shall be set out in a document containing the fully
reasoned decision which shall be transmitted to the applicant by the
group supervisor.
The joint decision referred to above shall be recognised as
determinative and applied by
the supervisory authorities in the Member States concerned.
3. In the absence of a joint decision between the supervisory
authorities concerned within six months, the group supervisor shall
make its own decision on the application.
The decision shall be set out in a document containing the fully
reasoned decision and shall take into account the views and
reservations of the other supervisory authorities concerned expressed
within a six months period.
The decision shall be provided to the applicant and the other
supervisory authorities concerned by the group supervisor.
That decision shall be recognised as determinative and applied by the
supervisory authorities concerned.
Article 236
Subsidiaries of an insurance or reinsurance undertaking: determination
of the Solvency Capital Requirement
1. By way of derogation from Articles 37 and 229, the Solvency Capital
Requirement of the subsidiary shall be calculated as set out in
paragraphs 2, 3 and 4.
2. Where the Solvency Capital Requirement of the subsidiary is
calculated on the basis of an internal model approved at group level
in accordance with Article 229 and the supervisory authority having
authorised the subsidiary considers that its risk profile deviates
significantly from this internal model, and as long as that
undertaking does not properly address the concerns of the supervisory
authority, that authority may, in the cases referred to in Article 37,
propose to the group supervisor to impose a capital add-on to the
Solvency Capital Requirement of that subsidiary resulting from the
application of such model, or, in exceptional circumstances where such
capital add-on would not be appropriate, to require that undertaking
to calculate its Solvency Capital Requirement on the basis of the
standard formula.
The supervisory authority shall communicate the
grounds for such proposals to both the subsidiary and the group
supervisor.
3. Where the Solvency Capital Requirement of the subsidiary is
calculated on the basis of the standard formula and the supervisory
authority having authorised the subsidiary considers that its risk
profile deviates significantly from the assumptions underlying the
standard formula, and as long as that undertaking does not properly
address the concerns of the supervisory authority, that authority may,
in the cases referred to in Article 37, propose to the group
supervisor to impose a capital add-on to the Solvency Capital
Requirement of that subsidiary.
The supervisory authority shall communicate the grounds for such
proposal to both
the subsidiary and the group supervisor.
4. Where the supervisory authority and the group supervisor disagree,
or in the absence of a decision from the group supervisor within one
month from the proposal of the supervisory authority, the matter shall
be referred for consultation to the Committee of European Insurance
and Occupational Pensions Supervisors, which shall give its advice
within two months.
The group supervisor shall duly consider such advice before taking its
final decision.
The decision shall be submitted to the subsidiary and the supervisory
authority by the group supervisor.
In the absence of a final decision from the group supervisor within
one month from the date of the advice of the Committee of
European
Insurance and Occupational Pensions Supervisors, the proposal from the
supervisory authority shall be deemed to have been accepted.
Article 237
Subsidiaries of an insurance or reinsurance undertaking: coverage of
the Solvency Capital Requirement
1. By way of derogation from Article 98(4), any difference between the
Solvency Capital Requirement and the minimum capital requirement of
the subsidiary shall be covered by either own funds eligible under
Article 98(4) or group support, or any combination thereof.
The group support shall, for the purposes of the classification of own
funds into tiers in accordance with Articles 93 to 96, be treated as
ancillary own funds.
2. The group support shall take the form of a declaration to the group
supervisor, expressed in a legally binding document and constituting a
commitment to transfer own funds eligible under Article 98(5).
3. Before accepting the declaration referred to in paragraph 2, the
group supervisor shall verify the following:
(a) that the group has sufficient eligible own funds to cover its
consolidated group Solvency Capital Requirement;
(b) that there is no current or foreseeable material practical or
legal impediment to the prompt transfer of the eligible own funds
referred to in paragraph 2;
(c) that the document containing the declaration of group support
meets all requirements existing under the law of the parent
undertaking to be recognised as a legal commitment, and that any
recourse before a legal or administrative body shall not have suspensive effect.
Article
238
Subsidiaries of an insurance or reinsurance undertaking: monitoring of
the Solvency Capital Requirement
1. By way of derogation from Article 136, the supervisory authority
having authorised the subsidiary shall not be responsible for
enforcing its Solvency Capital Requirement
by taking measures at the
level of the subsidiary.
That supervisory authority shall however continue to monitor the
Solvency Capital Requirement of the subsidiary as set out in
paragraphs 2 and 3.
2. Where the Solvency Capital Requirement is no longer fully covered
by the combination of own funds eligible under Article 98(4) and the
amount of group support declared in accordance with Article 237, but
the own funds eligible under Article 98(5) are sufficient to cover the
minimum capital requirement, the supervisory authority may call on the
parent undertaking to provide a new declaration bringing the group
support to the amount necessary to ensure that the
Solvency Capital
Requirement is again fully covered.
3. Where the Solvency Capital Requirement is no longer fully covered
by the combination of own funds eligible under Article 98(4) and the
amount of group support declared in accordance with Article 237, and
the own funds eligible under Article 98(5) are not sufficient to cover
the minimum capital requirement, the supervisory authority may call on
the parent undertaking to transfer own funds eligible under Article
98(5) to the extent necessary to ensure that the minimum capital
requirement is again covered, and to provide a new declaration
bringing the group support to the amount necessary to ensure that the
Solvency Capital Requirement is again fully covered.
4. Before accepting any new declaration referred to in paragraphs 2 or
3, the group supervisor shall verify that the conditions laid down in
Article 237 are met.
Where the parent undertaking does not provide the new declaration
requested, or where the new declaration provided is not accepted, the
derogations provided for in Articles 236 and 237 and in paragraph 1
shall cease to apply.
The supervisory authority having authorised the subsidiary shall
regain full responsibility for setting the Solvency Capital
Requirement of the subsidiary and taking appropriate measures to
ensure that it is adequately met by own funds eligible under Article
98(4).
The parent undertaking shall however not be released from the
commitment resulting from the most recent declaration accepted.
Article 239
Subsidiaries of an insurance or reinsurance undertaking: winding-up
When the subsidiary is being wound up and found to be insolvent, the
supervisory authority
having authorised the subsidiary shall, on its own initiative or at
the request of any other
authority competent for the winding-up procedure by application of
TITLE IV, call on the
parent undertaking to transfer eligible own funds to the subsidiary,
in so far as they are
necessary to meet policyholder liabilities, up to the limit of the
group support resulting from
the most recent declaration accepted.
Article 240
Subsidiaries of an insurance or reinsurance undertaking: transfer of
own funds
1. In the cases referred to in Articles 238 and 239, the supervisory
authority shall address its request to the parent undertaking and
immediately inform the group supervisor.
Where the parent undertaking does not rapidly transfer eligible own
funds to the subsidiary, the group supervisor shall use all powers
available, including the power available under Article 142, to ensure
that the group provides the requested transfer as soon as is
practicable.
2. Group support may be provided from eligible own funds present in
the parent undertaking or in any subsidiary, subject to that
subsidiary, where it is an insurance or reinsurance undertaking,
having eligible own funds in excess of its minimum capital
requirement.
The supervisory authority having authorised that subsidiary shall not
prevent the transfer of such excess eligible own funds.
However, where such transfer would lead to the Solvency Capital
Requirement of that subsidiary being no longer complied with, it shall
be subject to a declaration by the parent undertaking of the necessary
level of group support and acceptance by the group supervisor.
3. Before accepting any new declaration made in accordance with
paragraph 2, the group supervisor shall verify that the conditions
laid down in Article 237 are met.
However, where any transfer is carried out in accordance with
paragraph 1, the group supervisor shall verify that the group
continues to have sufficient eligible own funds to cover its group
Solvency Capital Requirement.
Where this requirement is no longer satisfied,
the group supervisor
shall take appropriate measures to ensure that the necessary actions
are taken by the group within an acceptable period of time.
Article 241
Subsidiaries of an insurance or reinsurance undertaking: disclosure
The existence of declarations of group support, and any use thereof,
shall be publicly disclosed by both the parent undertaking and the
subsidiary concerned.
Article 242
Subsidiaries of an insurance or reinsurance undertaking: end of
derogations for a subsidiary
1. The derogations provided for in Articles 236, 237 and 238
shall
cease to apply in the
following cases:
(a) the condition referred to in Article 234(a) is
no longer complied
with;
(b) the condition referred to in Article 234(b) is
no longer complied
with and the group does not restore compliance with this condition in
an appropriate period of time.
In the case referred to in point (a) of the first subparagraph, where
the group supervisor decides no longer to include the subsidiary in
the group supervision it carries out, it shall immediately inform the
supervisory authority concerned.
For the purposes of point (b) of the first subparagraph, the parent
undertaking shall be responsible for ensuring that the condition is
complied with on an on-going basis.
In the event of non-compliance, it shall inform the group supervisor
and the supervisor of the subsidiary concerned without delay.
The parent undertaking shall present a plan to restore compliance
within an appropriate period of time.
Without prejudice to the third subparagraph, the group supervisor
shall verify at least once a year, on its own initiative, that the
condition referred to in Article 234(b) continues to be complied with.
The group supervisor shall also perform such verification upon request
from the supervisory authority concerned, where the latter has
significant concerns related to the ongoing compliance with this
condition.
Where the verification performed identifies weaknesses, the group
supervisor shall require the parent undertaking to present a plan to
restore compliance within an appropriate period of time.
If the group supervisor determines that the plan referred to in the
third or fourth subparagraph is insufficient or subsequently that it
is not being implemented within the agreed period of time, the group
supervisor shall conclude that the condition referred to in Article
234(b) is no longer complied with and it shall immediately inform the
supervisory authority concerned.
2. When the derogations provided for in Articles 236, 237 and 238
cease to apply, the supervisory authority having authorised the
subsidiary shall regain full responsibility for setting the Solvency
Capital Requirement of the subsidiary and taking appropriate measures
to ensure that it is adequately met by own funds eligible under
Article 98(4).
The parent undertaking shall however not be released from the
commitments resulting from the most recent declarations accepted in
accordance with Articles 237, 238 and 240.
Article 243
Subsidiaries of an insurance or reinsurance undertaking: end of
derogations for all
subsidiaries
1. In addition to the cases referred to in Article 242, the
derogations provided for in Articles 236, 237 and 238 shall cease to
apply in the following cases:
(a) any of the conditions referred to in the third paragraph of
Article 237 are no longer complied with and compliance is not restored
within an appropriate period of time as set out in paragraph 2;
(b) the group no longer has sufficient eligible own funds
to cover the
minimum consolidated group Solvency Capital Requirement referred to in
Article 228(2).
2. In the case referred to in point (a) of paragraph 1, the parent
undertaking shall be responsible for ensuring that all conditions are
complied with on an on-going basis.
In the event of non-compliance with any of these conditions, it shall
inform the group supervisor and the supervisor of the subsidiary
concerned without delay.
The parent undertaking shall present a plan to restore compliance
within an appropriate period of time.
Without prejudice to the first subparagraph, the group supervisor
shall verify at least once a year, on its own initiative, that the
conditions referred to in the third paragraph of Article 237 continue
to be complied with.
Where the verification performed identifies deficiencies, the group
supervisor shall require the parent undertaking to present a plan to
restore compliance within an appropriate period of time.
If the group supervisor determines that the plan referred to in the
first or second subparagraph is insufficient or subsequently that it
is not being implemented within the agreed period of time, the group
supervisor shall conclude that the conditions referred to in the third
paragraph of Article 237 are no longer complied with and it shall
immediately inform the other supervisory authorities concerned.
In the case referred to in point (b) of the first paragraph, the group
supervisor shall immediately inform the other supervisory authorities
concerned.
3. When the derogations provided for in Articles 236, 237 and 238
cease to apply, the supervisory authorities having authorised any
subsidiary to which the rules laid down in Articles 236 to 241 apply
shall regain full responsibility for setting the Solvency Capital
Requirement of these subsidiaries and taking appropriate measures to
ensure that it is adequately met by own funds eligible under Article
98(4).
The parent undertaking shall however not be released from the
commitments resulting from the most recent declarations accepted in
accordance with Articles 237, 238 and 240.
4. Where the group has restored sufficient eligible own funds to cover
the minimum
consolidated group Solvency Capital Requirement referred to in Article
228(2), the
derogations provided for in Articles 236, 237 and 238 shall be
applicable only if the
parent undertaking submits a new application and obtains a favourable
decision in
accordance with the procedure set out in Article 235.
Article
244
Subsidiaries of an insurance or reinsurance undertaking: reduction of
group supports
1. Where several requests to transfer eligible own funds are addressed
to the parent undertaking and the group supervisor in accordance with
Articles 238 or 239, and the group does not have sufficient eligible
own funds to meet all of those together, the amounts resulting from
the most recent declarations accepted shall be reduced where
necessary.
The reduction shall be calculated for each subsidiary with a view to
ensuring that each subsidiary is subject to the same ratio between the
sum of its available assets and any transfer from the group on the one
hand and the sum of its technical provisions and its minimum capital
requirement on the other hand.
2. Member States shall ensure that liabilities resulting from
insurance contracts entered into by the parent undertaking are not
treated more favourably than liabilities resulting from insurance
contracts entered into by any subsidiary which is subject to the rules
laid down in Articles 236 to 241.
Article 245
Subsidiaries of an insurance or reinsurance undertaking: implementing
measures
In order to ensure the uniform application of Articles 234 to 244, the
Commission shall adopt
implementing measures relating to the following:
(a) specifying the criteria to be applied when assessing whether the
conditions stated in Article 234 are satisfied;
(b) specifying the criteria to be applied when verifying that the
requirements stated in
Article 237 are met;
(c) specifying the means to be used when disclosing the information
referred to in
Article 241;
(d) specifying the procedures to be followed by supervisory
authorities when exchanging
information, exercising their rights and fulfilling their duties in
accordance with Articles 235 to 240 and Articles 242, 243 and 244.
Those measures designed to amend non-essential elements of this
Directive by supplementing it shall be adopted in accordance with the
regulatory procedure with scrutiny referred to in Article 304(3).
Article 246
Subsidiaries of an insurance or reinsurance undertaking: review
The Commission shall submit to the European Insurance and Occupational
Pensions Committee, at the latest five years after the date referred
to in Article 310(1), a report on
Member States' rules and supervisory authorities' practices adopted
pursuant to this
Subsection.
This report shall address in particular the appropriate level of own
funds which a subsidiary is
required to hold where it belongs to a group fulfilling the conditions
of this subsection, the
form which group support is required to take, the allowable amount of
group support and the
level of own funds at which the derogations provided for in Articles
236, 237 and 238 shall
cease to apply.
Article 247
Subsidiaries of an insurance holding company
Articles 234 to 246 shall apply mutatis mutandis to insurance and
reinsurance undertakings
which are the subsidiary of an insurance holding company.
There are concerns about the
balance of powers between the group supervisor and the
subsidiary’s supervisor under the group support regime.
The group support regime provides
four derogations which affect the balance
of responsibilities between the group supervisor and the solo
supervisor of a subsidiary; these are:
A. In the absence of a joint decision by the college
of supervisors, the decision on an application to adopt the group
support regime would ultimately be taken by the group supervisor
(Article 235);
B. If the application referred to in 1. is accepted,
the subsidiary’s supervisor may propose the imposition of a capital
add-on at subsidiary level but may not unilaterally impose it
(Article 236);
C. The facility to permit group capital support to
meet some or all of the difference between the subsidiary’s SCR and
its MCR (Article 237); and
D. The responsibility for enforcing the subsidiary’s SCR (Article 238).
2. However, some member states fear group support reduces their
regulatory influence over multinational insurers operating in their
own countries.
Consultation Paper No. 60
Draft CEIOPS’ Advice for Level 2 Implementing Measures on Solvency
II: Assessment of Group Solvency
1.
Assessment of Group Solvency - Introduction
2.
Level 1 Text
3.
Advice from CEIOPS
4.
Third Countries
5.
Calculation Method
6.
Fungibility and Transferability
7.
Transferability of Own Funds
8.
Calculations
9.
Annex 1 to Annex 5
Group Support Regime and the UK FSA
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