EIOPA Outlines Solvency II Treatment of State Aid Schemes Amid Crisis
EIOPA published a supervisory statement on the Solvency II recognition of schemes based on reinsurance with regard to COVID-19 crisis and credit insurance. The statement outlines supervisory recommendations for national competent authorities while setting out views of EIOPA on the exceptional supervisory treatment—for Solvency II purposes—of schemes based on reinsurance implemented by member states. The schemes under discussion were implemented in the extraordinary context of the EC Temporary Framework for state aid measures to support the economy in the current COVID-19 outbreak, which was adopted on March 19, 2020.
EIOPA has identified significant differences in the way that national schemes in the area of credit insurance are being implemented through the Temporary Framework. Therefore, to ensure a level playing field and consistent treatment of schemes with the same economic consequences as reinsurance, EIOPA outlined, in its statement, a number of supervisory recommendations for national competent authorities. The statement should not serve as a basis for the application of the Solvency II rules beyond the scope and validity of the Temporary Framework. The EIOPA statement outlines the following key recommendations for the treatment of schemes based on reinsurance:
- EIOPA recommends competent authorities to allow insurers and reinsurers to consider schemes that transfer insurance risk to the government of a member state based on the Temporary Framework as having the same consequences as reinsurance as defined in the Solvency II Directive. Such treatment should lead the assets recognized by insurers and reinsurers under the scheme to be considered linked to reinsurance (for example, reinsurance recoverables or reinsurance receivables) for Solvency II purposes.
- To recognize such schemes as risk-mitigation technique for Solvency Capital Requirement calculation, it still needs to be assessed whether the scheme complies with the relevant requirements of Articles 209-215 of the Commission Delegated Regulation (EU) 2015/35.
- Considering that Solvency II regime assumes that governments of member states are solvent counterparties, EIOPA recommends competent authorities to allow insurers and reinsurers to consider that schemes based on reinsurance implemented through the government of a member state comply with the relevant requirements regarding the counterparty. However, other counterparties that are not authorized insurers or reinsurers nor the government of a member state are not allowed to do reinsurance activity. Therefore, any transfer of risk to them should not be considered as reinsurance activity.
- Considering the temporary nature of government schemes allowed by the Temporary Framework, the forward-looking nature of the Solvency Capital Requirement has also been identified as a key aspect of the risk-mitigation technique assessment that requires a convergent approach.
- Competent authorities should allow insurers and reinsurers to assume that the schemes will be extended in 2021 only where such extension has already been approved. However, for mid-year calculations such assumption may be allowed under the proportionality principle. Furthermore, insurers and reinsurers should clearly indicate the assumptions used in the calculation of the Solvency Capital Requirement in their Solvency and Financial Condition Report.
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Keywords: Europe, EU, Insurance, COVID-19, Solvency II, Reporting, SCR, SFCR, State Aid Rules, Temporary Framework, EC, EIOPA
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