Featured Product

    EC Report on Application of Solvency II Regarding Group Supervision

    June 27, 2019

    EC published report on the application of Solvency II Directive (2009/138/EC) on the taking and pursuit of the business of insurance and reinsurance with regard to group supervision and capital management within a group of insurance or reinsurance undertakings. This report identifies issues and assesses the benefit of enhancing group supervision and capital management within a group of insurance or reinsurance undertakings, as required under Article 242(2) of the Solvency II Directive. EC has invited EIOPA to provide, by June 30, 2020, technical advice on the issues identified in this report as well as other related issues that may be detrimental to policyholder protection, as part of the 2020 review of the Solvency II Directive. Unless stated otherwise, the report uses data up to the end of 2017, covering the 28 member states of EU.

    Overall, the prudential framework of group supervision is proving to be robust, laying emphasis on capital management and governance and allowing for a better understanding and monitoring of risks at the group level. However, some areas of the framework may not ensure a harmonized implementation of rules by groups and national supervisory authorities, with potential impact on the level playing field and on capital management strategies. The report highlights that the diverging implementations of Solvency II on group supervision may be detrimental to policyholder protection, depending on how national supervisory authorities determine the scope of supervision and exercise supervision at the level of parent holding companies. In addition, in light of the wide differences between the supervisory powers of the different national supervisory authorities, it is necessary to assess the appropriateness of the powers of early intervention embedded in Solvency II.

    The report identifies a number of legal uncertainties and diverging supervisory practices that can have a significant impact on group solvency. These concern the group own funds, the group Solvency Capital Requirement (SCR), and group Minimum Capital Requirement (MCR). The use of group internal models may raise additional issues. First, a different implementation of the same internal model at solo level and at group level on key aspects such as the dynamic volatility adjustment can affect group risk management. In addition, the use by a group of a partial internal model could generate regulatory arbitrage regarding the way to integrate in the group solvency the entities out of the scope of the model. The report illustrates the wide margin of interpretations regarding the provisions on group governance. With regard to Pillar 3 requirements, the definition and scope of intra-group transactions to be reported is considered by EIOPA and national supervisory authorities as insufficiently clear and exhaustive. However, there are divergent views among supervisors regarding the appropriate level of harmonization of the reporting of intra-group transactions and risk concentrations as well as of the quantification of diversification effects.

    The report also provides a brief overview of developments in the fields of mediation of supervisory disputes and insurance guarantee schemes (IGS), which are not directly related to group supervision. The widely fragmented landscape of the insurance guarantee schemes in Europe can affect policyholder protection. EIOPA is further investigating the need for potential moves toward harmonization of the insurance guarantee schemes, following a discussion paper it published in 2018. The report has identified a number of important issues that may need to be addressed, potentially including via legislative changes. However, further analysis is needed on the impact of those potential changes in the rules. Therefore, EC deems it appropriate to include group supervision in the scope of the general review in 2020 of the Solvency II Directive. 

     

    Related Link: Report (PDF)

     

    Keywords: Europe, EU, Insurance, Solvency II, Group Supervision, Reinsurance, Reinsurance, SCR, MCR, Internal Models, Pillar 3, Solvency II Review, Call for Advice, EIOPA, EC

    Featured Experts
    Related Articles

    PRA Publishes Q&A on Property Valuation Requirements Under CRR

    PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.

    May 29, 2020 WebPage Regulatory News
    News

    IOSCO Consults on Outsourcing Principles for Operational Resilience

    IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.

    May 28, 2020 WebPage Regulatory News
    News

    MAS Consortium to Develop AI Fairness Metrics for Credit Scoring

    MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.

    May 28, 2020 WebPage Regulatory News

    BoE Updates Definitions for BTL Data Collection

    BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.

    May 28, 2020 WebPage Regulatory News
    News

    FSI Examines Financial Stability Implications of Payment Deferrals

    FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.

    May 28, 2020 WebPage Regulatory News
    News

    PRA Finalizes Policy on Prudent Person Principle Under Solvency II

    PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.

    May 27, 2020 WebPage Regulatory News
    News

    EBA on Extending Large Exposure Limits for French Systemic Banks

    EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).

    May 27, 2020 WebPage Regulatory News
    News

    ECB Highlights NPL Resolution as Key Policy Issue in Post-COVID Europe

    As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.

    May 27, 2020 WebPage Regulatory News
    News

    RBNZ Publishes Financial Stability Report for May 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.

    May 27, 2020 WebPage Regulatory News
    News

    ECB Updates Guidance on Reporting of Securities Holdings Statistics

    ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).

    May 26, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5231