EIOPA Statement on Application of Proportionality in SCR Supervision
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
Previous Article
ISDA Publishes Statement on FRTB Implementation in Emerging MarketsRelated Articles
|
News
EP Resolution on Proposal for Sovereign Bond Backed SecuritiesThe European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).
April 16, 2019
WebPage
Regulatory News
|
|
News
FDIC Consults on Approach to Resolution Planning for IDIsFDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.
April 16, 2019
WebPage
Regulatory News
|
|
News
HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.
April 16, 2019
WebPage
Regulatory News
|
|
News
PRA Seeks Input and Issues Specifications for Insurance Stress TestsPRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.
April 15, 2019
WebPage
Regulatory News
|
|
News
PRA Finalizes Policy on Approach to Managing Climate Change RisksPRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).
April 15, 2019
WebPage
Regulatory News
|
|
News
EC Launches Pilot Phase on Implementation of Ethical Guidelines for AIEC launched a pilot phase to ensure that ethical guidelines for the development and use of artificial intelligence, or AI, can be implemented in practice.
April 15, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: First Update for April 2019EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.
April 12, 2019
WebPage
Regulatory News
|
|
News
FED Updates Form and Supplemental Instructions for FR Y-9C ReportingFED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.
April 11, 2019
WebPage
Regulatory News
|
|
News
OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR DisclosuresOSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.
April 11, 2019
WebPage
Regulatory News
|
