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

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806