EIOPA Report Examines Use of Solvency II Capital Add-Ons in 2019
EIOPA published a report on the use of Solvency II capital add-ons during 2019. The capital add-on measure is intended to ensure that the regulatory capital requirements reflect the risk profile of the undertaking or of the group. Therefore, it is important that it is used by national competent authorities when needed. This analysis in this report draws on a survey on the use of capital add-ons and on the 2019 year-end Solvency II data submitted by reporting entities from the 30 European Economic Area countries and from UK. The results show that, in 2019, nine national competent authorities had set capital add-ons for 19 solo undertakings, out of the 2,816 insurance and reinsurance undertakings under the scope of Solvency II.
The 19 solo undertakings include nine non-life undertakings, five life undertakings, one composite undertaking, and four reinsurance undertakings. The number of capital add-on was broadly in line with the 2018 figures, when eight national competent authorities had set capital add-ons for a total of 21 solo undertakings including 10 non-life undertakings, eight life undertakings, two composites, and one reinsurer. The amount of capital add-ons imposed on undertakings using the standard formula remains very low overall in 2019, accounting for less than 0.5% of the total Solvency Capital Requirement or SCR. However, the amount of capital add-on is not insignificant when considering the amount at individual level. In sum, as of the year-end 2019, the weight of the capital add-on over the total Solvency Capital Requirement for undertakings using the standard formula with capital add-ons increased to 38% (from 32% in 2018). This applies to both solo undertakings and groups. All national competent authorities reported no changes to the internal process of setting and reviewing capital add-ons and the vast majority of authorities have no formal policies in place. Of the national competent authorities that set capital add-ons, only two have formal policies in place. Most national competent authorities find the current legislation and regulation, including the content of the implementing regulation, sufficient and adequate for the purpose of setting capital add-ons.
The Solvency II Directive states each capital add-on shall be reviewed at least once a year by the supervisory authority and be removed when the undertakings have remedied the deficiencies, which led to its imposition. This requires proactive monitoring of the situation that led to the imposition of the capital add-on by both national competent authorities and the relevant undertaking or group. The undertaking or group shall provide progress reports to their supervisory authority if required by the national competent authorities in accordance with Article 37 (10 (b) and (c)).
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Keywords: Europe, EU, Insurance, Solvency II, Capital Add-Ons, SCR, Solvency Capital Requirement, EIOPA
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