Inclusion of third country entities and groups under Solvency II (group calculation and cooperation)

Transcription

1 Inclusion of third country entities and groups under Solvency II (group calculation and cooperation) Anna Maria Ambroselli, ISVAP Perrine Kaltwasser, CEIOPS Secretariat Frankfurt, 7 January 2010 Page 1

2 CEIOPS Index Consequences of equivalence on group calculation 1. the head of the group is in the EEA groups apply the default method groups apply the alternative method 2. the head of the group is outside the EEA Consequences of equivalence on cooperation with non- EEA supervisors 1. the head of the group is in the EEA 2. the head of the group is outside the EEA Page 2

3 EEA groups: SCR calculation according to the default method CEIOPS There is no requirement to undertake an assessment of the equivalence of third countries Solvency II rules apply with respect to a third country undertaking s as included in the consolidated data Treatment for TC entities = treatment for EEA entities if a dominant influence is exercised ((re)insurance subsidiary) Full integration => Diversification recognized There may be factors that restrict the recognition of diversification, in particular insufficient information, but they are not unique to third countries if a significant influence is exercised ((re)insurance subsidiary) Equity value => No diversification recognized Solvency II capital requirement is used as capital charge

4 EEA groups: SCR calculation according to the default method CEIOPS Diversification recognized Diversification non recognized Art. 214 TC with legal impediment to transfer of information => exclusion from scope Art. 229 non-availability of the necessary information => value deducted

5 EEA groups: OF calculation according to the default method CEIOPS There is no requirement to undertake an assessment of the equivalence of third countries According to the Directive if the supervisors find that certain own funds of a related (re)insurance undertaking cannot effectively be made available to cover the SCR of the participating undertaking those own funds may be included in the calculation only in so far as they are eligible for covering the SCR of the related undertaking In order to assess when group own funds are effectively available to cover the group SCR, CEIOPS refers to two related concepts: fungibility transferability

6 CEIOPS EEA groups: OF calculation according to the default method Page 6

7 EEA groups: fungibility and transferability of Own Funds CEIOPS Fungibility: means that an element of own funds can fully absorb any kind of losses within the group regardless of the undertaking within which those own funds are held or of where the commitments arise Transferability: is the actual ability of one entity to transfer own funds from one undertaking to another within the group. The time and the cost of the transfer have to be taken into account These two concepts are linked but distinct from each other: own funds may be transferable but not fungible in the context of Solvency II and viceversa Page 7

8 CEIOPS EEA groups: non fungible Own Funds CEIOPS considers that the following items are, in principle, not fungible at group level: own funds at solo level subject to restricted availability some types of with-profit business hybrid capital and subordinated liabilities minority interests ancillary own funds It is an open list: if the supervisory authority finds that other eligible own funds are not effectively available to cover the group SCR the same limitations apply Page 8

9 CEIOPS EEA groups: own funds TC undertakings CEIOPS considers that eligible own-funds in non-eea countries are available to meet the SCR of the undertaking in which they are held but there may be situations where own funds in excess of the SCR are not available to cover the group SCR These situations may arise in particular when there are restrictions to the fungibility/transferability of own funds The equivalence of the third country regime may also impact on the availability of excess own funds Page 9

10 EEA groups: SCR and OF according to the D&A method CEIOPS Table 1: EEA groups applying the deduction and aggregation method Decision adopted by the Commission (Art.227.4) Decision taken by Group Supervisor on equivalence (Art.227.2) Option (2 nd paragraph Art ) implemented by MS Capital requirement and eligible own fund of a participating undertaking in a third-country Equivalence No decision to take YES NO Local requirements Solvency II requirements Non-equivalence No decision to take Only NO Solvency II requirements No-decision adopted Equivalence Nonequivalence YES NO Only NO Local requirements Solvency II requirements Solvency II requirements

11 EEA groups: SCR and OF according to the D&A method CEIOPS if a dominant influence is exercised ((re)insurance subsidiary) Deduction/aggregation => No diversification recognized if the TC solvency regime is equivalent => Local capital requirement or Solvency II capital requirements are used if the TC solvency regime is not equivalent => Solvency II capital requirements are used if a significant influence is exercised Deduction/aggregation => No Diversification recognized if the TC solvency regime is equivalent => Local capital requirement or Solvency II capital requirements are used if the TC solvency regime is not equivalent => Solvency II capital requirements are used NB: the lack of diversification at group level is an outcome of the methodology not of the equivalence of the TC solvency regime

12 EEA groups: choice of method CEIOPS The accounting consolidation-based method is the default method The deduction and aggregation method is the alternative method CEIOPS considers that the elements to be assessed when requiring the use of D&A - both for EEA and non-eea entities and independently on equivalence decision are: the quality of and access to information on an undertaking the impact of new entities falling within the scope of group supervision (i.e. reorganisation, mergers and acquisitions) The decision of the group supervisor should be applied in a consistent manner over time

13 Non-EEA groups: consequences of equivalence of TC group supervision CEIOPS Table 2: the head of the group is outside the EEA Decision adopted by the Commission (art.260.2) Decision taken by Group Supervisor on equivalence (art.260.1) Sub group calculations required at EEA level Equivalence No decision to take No Non-equivalence No decision to take Yes, if needed (plus requirements of article 262) No-decision adopted Equivalence Non-equivalence No Yes, if needed

14 CEIOPS Non-EEA groups: equivalent group supervision Equivalent TC group supervision: EEA supervisors expect to play a role via the cooperation arrangement put in place by the third country group supervisor Importance of cooperation arrangements with TC group supervisor to ensure the appropriate level of supervision of EEA entities Importance of the EC decision on equivalence Decisions on equivalence will promote consistency and harmonization of Solvency II CEIOPS technical criteria set out in the CP 78 aim at ensuring consistency when assessing the equivalence either by the Commission or by the group supervisor

15 Non-EEA groups: non equivalent group supervision Non Equivalent TC group supervision: CEIOPS Solvency II rules on group supervision apply by analogy group calculation done at the level of insurance holding company third country (re)insurance undertaking accounting consolidation or alternative method verification carried out by the relevant EEA supervisory authority Establishment of a new consolidated point in EEA Level 1 text provides the option to require the establishment of an insurance holding company which has its head office in EEA group supervision applied at this level when deciding the location the group should consult the group supervisor

16 CEIOPS The cooperation with the TC supervisors EEA groups: participation of supervisory authorities of third countries in the colleges of supervisors Non-EEA groups: co-ordination arrangements in the light of equivalence issues Different laws - Impact on the cooperation relating to: EEA groups Non-EEA groups How to build up mutual trust?

17 CEIOPS EA groups: participation of TC supervisors in the colleges of supervisors The Level 1 Text does not refer explicitly to the participation of third country supervisory authorities in the college of supervisors However, CEIOPS acknowledges the importance that third countries insurance undertakings, including branches, can have on some groups and considers that their participation can be relevant in terms of understanding the risks of the group The decision shall be based on the assessment of the group supervisor following consultation with the other supervisory authorities in the College Special attention shall be given to the equivalence of confidentiality requirements

18 EEA groups: participation of TC supervisors in the colleges of supervisors CEIOPS CEIOPS considers that the participation of supervisory authorities of significant branches, related undertakings, third countries and competent authorities of other financial sectors should be foreseen in the College meetings where: issues specific to that undertaking are discussed their participation is relevant in terms of risks for the group or of its systematic relevance to Member States markets Page 18

19 EEA groups: membership and participation in the college of supervisors CEIOPS Page 19

20 CEIOPS EEA groups: the coordination arrangements The coordination arrangements should: be in written form indicate how cooperation and exchange of information will be achieved both in regular and emergency situations (with EEA and non-eea supervisors) Should include in particular: a work plan agreed upon by the college of supervisors an emergency plan Page 20

21 CEIOPS Non EEA groups: co-ordination/co-operation arrangements in the light of equivalence issues Rights and duties of the third country group supervisor should be clear Cooperation arrangements need to define: functioning of cooperation mechanisms concrete work plan and common language possible decision-making processes among supervisory authorities identification of information to be exchanged between third country supervisors and EEA supervisors consultation processes between third country supervisors and EEA supervisors in normal and crisis situations IT platform Cooperation should strive to achieve consensus amongst supervisory authorities (both EEA and non-eea supervisors)

22 CEIOPS Different laws: Non-EEA and EEA groups Non-EEA equivalent groups Articles 247 to 258 on supervisory cooperation apply mutatis mutandis CEIOPS advice on cooperation and colleges of supervisors IAIS guidance on supervisory colleges EEA equivalent groups Integration of local specificities in the aggregated Group SCR CEIOPS advice on cooperation and colleges of supervisors IAIS guidance on supervisory colleges

23 CEIOPS Different laws Impact on the colleges A prerequirement: professional secrecy and confidentiality of data management Legal or practical impediments to transfer information or own funds need to be understood Application of group internal models Ad hoc cooperation with TC supervisors will be a +

24 Necessity to build up mutual trust between supervisors CEIOPS Beyond decisions on equivalence: supervisory trust is essential Organisation of Colleges global/regional/core coordination arrangements/colleges in any case, flexibility is necessary to adapt to the structure of each group closed sessions dedicated sessions to specific responsibilities of EEA supervisors (approval of internal model, e.g.) common on-site inspections specialised supervisory teams / delegation of tasks

25 CEIOPS Conclusions Supervising a group with EEA and non-eea entities goes beyond equivalence of supervisory regimes Assessment of equivalence is not always necessary for EEA groups Supervisory cooperation is essential independently on equivalence decision Dialog with the group is also key Understanding local specificities always matters for group supervision Equivalence may be only one of the tools in that respect Availibility of own funds must be properly assessed (stress tests e.g.)

26 CEIOPS Next steps Final CEIOPS advice on criteria to assess equivalence end of March st wave of assessment of equivalence QIS 5 Practicability and accuracy of the different methods Identification of jurisdictions for the 2 nd wave of equivalence assessment On going dialog with non-eea supervisors and stakeholders

27 Thank you Anna Maria Ambroselli International Affairs Department ISVAP Perrine Kaltwasser CEIOPS Secretariat Page 27