Question ID: 1401
Regulation Reference: (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
Article: 328
Status: Final
Date of submission: 29 Jun 2018
Question
Question concerning combination of methods 1 and 2 and insurance subgroups
Is it possible to apply combination of methods 1 and 2 to group solvency calculation so that method 1 is applied to an insurance subgroup and this subgroup is further taken into account in the group solvency calculation by means of method 2?
Would it make a difference to the acceptability of such a combination
1. if the subgroup is in the same Member State as the ultimate parent of the group?
2. if the subgroup is in a different Member State than the ultimate parent of the group?
3. if the Supervisor of that different Member State requires that calculation of the solvency at the level of the subgroup is carried out using method 1?
4. as a temporary measure, if the subgroup has entered the group in a recent acquisition and full consolidation is not yet possible?
EIOPA answer
We understand the overall question as if there is a possibility of applying combination of methods to a Group that intends to establish sub-groups and intends to apply Method 1 for its sub-groups in order to calculate its total Group Solvency.
We wish to emphasise that Solvency II Framework is very specific regarding the choices of calculation method for group solvency:
· Method 1 is the default method of application and that involves full consolidation so that all the risks of the group are taken into account, and it does not foresee any sub-consolidation.
· When other methods are applied (Method 2, and Combination of Methods), the calculation of the group solvency applies to related undertakings and not to sub-groups.
Therefore, a combination of the methods as described in your question one to four are not acceptable under the Solvency II framework.
We also wish to outline that the application of other methods (Method 2, and Combination of Methods) follows a rigorous supervisory assessment and should be used looking at the substance of it based on the criteria outlined in Article 328 of the Delegated Regulations, and not encouraged for a temporary use.
Where method 2 is needed for temporary reasons (as in the situation described in scenario 4), we advise that you liaise with your national competent authority to ensure your individual case is carefully analysed in detail. This includes to assess the issues of a ´strong use´ of discretion and level playing field and to consider adequate supervisory measures (as an example , an agreed plan to implement a method compliant with the Solvency II requirements). Moreover, as this subject may relate to sub-groups in jurisdictions other than the member state from where your question is issued, we also encourage your national competent authority to engage with the supervisory authorities that may be involved on this case to ensure consistency of supervisory practices.
In any case, we reiterate that should method 2 be granted for a temporary use, it will apply to related undertakings and not to sub-groups.