Featured Product

    EIOPA Statement on Application of Proportionality in SCR Supervision

    April 11, 2019

    EIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula. EIOPA identified potential divergence in practices on the supervision of the calculation of immaterial SCR sub-modules.

    EIOPA agrees that in the supervisory review process in case of immaterial SCR sub-modules the principle of proportionality applies; however, it stresses the importance of supervisory convergence, as divergent approaches lead to supervisory arbitrage. EIOPA believes that consistent implementation of the proportionality principle is a key element to ensure supervisory convergence for the supervision of SCR. For this purpose, the following key areas should be considered: 

    • Proportionate approach. Supervisory authorities may allow undertakings, when calculating SCR at the individual undertaking level, to adopt a proportionate approach toward immaterial SCR sub-modules subject that the undertaking is able to demonstrate required facts to the satisfaction of the supervisory authority. For the calculation of SCR at group level, this approach does not apply. 
    • Prudent calculation. An SCR sub-module should be considered immaterial for SCR calculation when its amount is not relevant for the decision-making process, or the judgment of the undertaking or the supervisory authorities. For immaterial sub-modules, SCR sub-module should be calculated using prudently estimated inputs, leading to prudent outcomes at the time of the decision to adopt a proportionate approach and subject to the consent of the supervisory authority. In this case, supervisory authorities may allow undertakings not to perform full recalculation of such a sub-module annually, taking into consideration the complexity and burden that such a calculation would represent when compared to the result of the calculation.
    • Risk management system and Own Risk and Solvency Assessment (ORSA). The proper monitoring of any evolution of the risk, either triggered by internal sources (such as a change in the business model or business strategy) or by an external source (such as an exceptional event that could affect the materiality of a certain sub-module) should be ensured. Such a monitoring should include the setting of qualitative and quantitative early warning indicators defined by the undertaking and embedded in the ORSA processes.
    • Supervisory reporting and public disclosure. Undertakings should include information on risk management system in the ORSA Report. Undertakings should also include structured information on the sub-modules for which a proportionate approach is applied in the Regular Supervisory Reporting and in the Solvency and Financial Condition Report, under the section “E.2 Capital Management - Solvency Capital Requirement and Minimum Capital Requirement.”
    • Supervisory review process. In context of the ongoing supervisory dialog, the supervisory authority should be satisfied, should agree with the approach followed by the undertaking, and should be kept informed in case of any material change. Vice versa, the supervisory authority should inform the undertaking in case there is any concern.

     

    Related Links

    Keywords: Europe, EU, Insurance, Solvency II, SCR, Proportionality, Supervisor of SCR, ORSA, SCR Sub-Modules, SFCR, EIOPA

    Featured Experts
    Related Articles
    News

    APRA Consults to Standardize Submission Date for Quarterly Reporting

    APRA proposed to standardize quarterly reporting due dates for authorized deposit-taking institutions. The proposed standardized due date is 35 calendar days after the last day of the reference quarter, which will create a 14-calendar-day extension for credit unions and building societies.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Publishes Methodology and Draft Templates for Stress Tests in 2020

    EBA published a package for the 2020 EU-wide stress test exercise for banks.

    November 07, 2019 WebPage Regulatory News
    News

    EC Publishes Results of Fitness Check of Reporting Requirements in EU

    EC published results of the fitness check of supervisory reporting requirements in financial services legislation in EU.

    November 07, 2019 WebPage Regulatory News
    News

    BCBS Assesses NSFR and LE Rules in Argentina and China as Compliant

    BCBS published reports that assess the implementation of net stable funding ratio (NSFR) and large exposures, or LE, framework in Argentina and China.

    November 07, 2019 WebPage Regulatory News
    News

    FSB Publishes Summary of Plenary Meeting in Paris

    At the meeting, the Plenary reviewed vulnerabilities in the global financial system, fintech developments (including developments in the crypto-asset markets), ongoing work of FSB, and the work program for 2020.

    November 07, 2019 WebPage Regulatory News
    News

    HKMA Highlights Technology Initiatives at the Hong Kong FinTech Week

    HKMA co-organized, with InvestHK, the Hong Kong FinTech Week 2019, which was a five-day flagship fintech event that attracted thousands of attendees worldwide.

    November 06, 2019 WebPage Regulatory News
    News

    ECB Report on Fallback Provisions in Contracts Referencing EURIBOR

    ECB published a report, by private sector working group on euro risk-free rates, presenting recommendations for fallback provisions in contracts for cash products and derivative transactions referencing EURIBOR.

    November 06, 2019 WebPage Regulatory News
    News

    EC Regulation on Homogeneity of Underlying Exposures in Securitization

    EC published the Delegated Regulation 2019/1851 regarding the regulatory technical standards on the homogeneity of the underlying exposures in securitization.

    November 06, 2019 WebPage Regulatory News
    News

    FSI Examines Regulatory Approaches on Climate Risk Assessment

    The Financial Stability Institute (FSI) of BIS published a paper that examines the regulatory approaches being used for climate risk assessment in the insurance sector, in particular through enterprise risk management (ERM) frameworks.

    November 06, 2019 WebPage Regulatory News
    News

    SRB Launches Q&A Process for Resolution Reporting

    SRB has setup a dedicated solution for raising questions on the resolution reporting.

    November 06, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4112