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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
Consultation
Paper No. 60
Draft CEIOPS’ Advice for Level 2 Implementing
Measures on Solvency II: Assessment of Group Solvency
3.2. Third country
3.87. This section intends to
provide CEIOPS initial views on the inclusion
of third countries entities in the group calculations.
In early
2010, CEIOPS will publish a consultation paper on the criteria to
assess:
•
the equivalence of third country solvency regimes for the purposes
of Article 225;
• the
equivalence of third country prudential regimes for the purposes
of Article 263 (where the head of the group is outside the EEA).
3.88. Nonetheless, CEIOPS
considers it appropriate to outline its initial views on third
countries to allow more time for discussion of the issues with
groups and third country supervisors.
Therefore, this section
reflects CEIOPS preliminary thoughts on what is a very important
issue for group supervision under Solvency
II.
Recognition of
diversification with third country entities
3.89. While the Level 1
text provides for the inclusion of third country entities in the
group calculations,
the recognition of diversification from those
entities may be challenging.
Issues such as professional secrecy,
access to information and the fungibility or transferability of own
funds may restrict the recognition of diversification.
These restrictions may lead
the group supervisor to require the application of the
deduction and
aggregation method pursuant to Article 218 or a deduction pursuant
to Article 227.
For these reasons,
the
equivalence of the third country regime is not the only issue to
consider.
3.90. CEIOPS notes that the essential features to
make possible the recognition of equivalence might be achieved both
through the regulations of the third country and through certain
supervisory arrangements, (for example, specific written agreements
on confidentiality and transferability).
Provided all the necessary
features are met, both ways would help the recognition of
diversification, even where an undertaking is located in a
non equivalent third country.
Consequence of equivalence
decisions for the group calculation methods
3.91. This chapter
outlines CEIOPS views on the consequences of equivalence decisions
for the group calculations.
There are two cases to be
considered:
1. the head office of the
group is in EEA
2. the head office of the
group is outside the EEA
3.92. The following tables
outline a series of options depending on whether an equivalence
decision has been made by the group supervisor or the European
Commission.
3.2.2.1 The head of the group is within the EEA
and the third country regime is not
equivalent
3.93.
Default method:
The group calculation will be
done by the parent undertaking in the EU on consolidated accounts
which includes the related
third-country (re)insurance
undertakings.
As a result, diversification can be recognised on a
worldwide level.
In this context the chapter on fungibility and
transferability of own funds in this paper should be considered
carefully.
3.94. The group should be able to
demonstrate the
availability and quality of the required data and information.
The value of the assets and liabilities of the related
third-country insurance and reinsurance undertakings should
be accurately included in the consolidated accounts to ensure an
appropriate group SCR calculation.
The assessment of the accuracy
of data should be included as part of the supervisory review
process.
3.95. Alternative method:
The group calculation will be
done by the parent undertaking in the EU.
The SCR and the own
funds of the related third country undertakings will be calculated
under the Solvency II rules and added to the aggregated group SCR
and own funds.
There will be
no recognition of diversification.
The group should be able to
demonstrate the availability and
quality of the required data and information.
The value of the
assets and liabilities of the related third-country
(re)insurance undertakings should be accurately included to
ensure an appropriate aggregated group SCR calculation.
The
assessment of the accuracy of data should be included as part of
the supervisory review process (SRP).
3.96. Internal model:
Supervisors should scrutinise how related
third-country undertaking are treated in a group internal model.
On-site inspections are important, but may be challenging and
this may be an important issue when approving the group internal
model.
Where there is no equivalence, this issue may be difficult
to resolve.
3.2.2.2 The head of the group is within the EEA and
the third country regime is equivalent
3.97. Default method:
The group calculation will be done by the parent undertaking in
the EU on consolidated accounts which includes the
related
third-country (re)insurance undertakings.
As a result,
diversification can be recognised on a worldwide level.
In this
context the chapter on fungibility and transferability of own
funds in this paper should be considered carefully.
The group
should be able to demonstrate the availability and quality of the
required data and information.
The value of the assets and
liabilities of the related third-country insurance
and reinsurance undertakings should be accurately included in the
consolidated accounts to ensure an appropriate group SCR
calculation.
The assessment of the accuracy of data should be
included as part of the supervisory review process.
3.98.
Alternative method:
The group calculation will be
done by the
parent undertaking in the EU.
Where the third-country regime is
found equivalent, the SCR and own funds calculated in accordance
with the local rules may be included in the aggregated
group calculations.
There will be
no
recognition of diversification.
3.99. The group should be able to demonstrate
the availability and quality of the required data and
information.
The value of the assets and liabilities of
the related third-country insurance and reinsurance undertakings
should be accurately included to ensure an appropriate aggregated
group SCR calculation.
The assessment of the accuracy of data
should be included as part of the SRP.
3.100.Internal model:
The equivalence of the third
country regime should help with the
verification of a group internal model.
However, there still may be
challenges with respect to access to information and on-site
inspections.
Therefore written agreements may be
appropriate.
3.2.2.3 The
head of the group is outside the EEA and
the third country regime is not equivalent
3.101.The Solvency
II rules on group supervision apply by analogy where the third
country regime is found non-equivalent.
The group calculation
should be done at the level of the parent undertaking outside the
community based on the accounting consolidation method or the
alternative method.
3.102.Article 264(2) provides for the
use of
other methods to ensure the appropriate treatment of undertakings
in the group.
This provision provides supervisory authorities
with the option to require the establishment of an insurance
holding company which has its head office in the Community.
The
group supervision rules of the Level 1 text can be applied at the
level of this insurance holding company which would
establish an
EEA subgroup.
This ensures that the parent undertaking
at Community level is subject to Solvency II
requirements.
3.103.Where this option is exercised, it is
important that supervisors consult the ultimate parent
undertaking in determining the location of the holding company.
This is to ensure that the outcome does not have any unintended
consequences or generate unnecessary regulatory costs for
the
firm.
3.2.2.4 The
head of the group is outside the EEA and the
third country regime is equivalent
3.104.Article 263(a) states
that Member States shall rely on the equivalent group supervision
exercised by the third-country supervisory authorities.
This highlights the importance of cooperation arrangements with
third country supervisors as the third country group supervisor
is responsible for consolidated supervision.
3.105.If a third
Country is found to be equivalent, they should be subject to
the same criteria by all CEIOPS Member States and the same solvency
approach should be applied.
Similarly, where a third country is found to be non equivalent, it
would be sensible to apply that decision across all Member States.
CEIOPS’
advice
3.106.While the Level 1 text provides for the
inclusion of
third country entities in the group calculations, the recognition
of diversification from those entities
may be challenging.
Issues
such as professional secrecy, access to information and the
fungibility or transferability of own funds may restrict
the
recognition of diversification.
These restrictions may lead the
group supervisor to require the application of the deduction and
aggregation method pursuant to Articles 218 or a deduction
pursuant to Article 227.
For these reasons,
the equivalence of
the third country regime is not the only issue to
consider.
3.107.CEIOPS notes that the essential features to make
possible the recognition of equivalence might be achieved both
through the regulations of the third country and through certain
supervisory arrangements,
(for example, specific written
agreements on confidentiality and transferability).
Provided all
the necessary features are met, both ways would
help the
recognition of diversification, even where an undertaking is
located in a
non equivalent third country.
3.108.CEIOPS
considers that issues concerning third country entities should
be assessed in conjunction with the chapter on transferability of
capital in this paper.
3.109.The group shall be able to
demonstrate the availability and quality of the required data and
information.
This includes the accuracy of the information used
to calculate the group SCR.
The assessment of the accuracy of
data shall be included as part of the supervisory
review process.
3.110.CEIOPS considers that
MoUs may enhance
access to information and promote concerted operations and
practices.
3.111.CEIOPS considers that consistent equivalence
decisions among Members states on equivalence are
desirable.
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
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