Question ID: 1546
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 13
Status: Final
Date of submission: 11 Sep 2018
Question
We have a technical query we were hoping you could assist with. We are in the process of considering whether to acquire 100% of the shares of an unlisted non-insurance undertaking, which will then be held as a subsidiary of the Company. We would like to clarify the treatment of this investment in our Solvency II balance sheet.
We understand that according to Article 13 of Commission Delegated Regulation EU 2015/35 paragraph 1(b), we should use the adjusted equity method, given that the entity is unlisted and therefore the default valuation method is not applicable.
According to paragraph 3 of Article 13, we should value our holding based on our share of the subsidiary’s net assets. Our question is, how to recognise the initial cost element of the investment. For example:
Initial cost to purchase = EUR 500.000
Assets acquired at purchase date = EUR 250.000
Net assets at next reporting date as per SII = 500K
What would be show in our SII balance sheet? Should the valuation be:
Initial cost 500.000
Plus share of post acquisition movement of net assets 250.000
Valuation of investment as per SII 750.000
EIOPA answer
The unlisted non-insurance undertaking that will be held as a subsidiary, as noted in your case, is valued according to the Solvency II valuation principles for related undertakings.
The valuation of the holdings is based on the share of the excess of assets over liabilities ("EoAoL") of the related undertaking held by the participating undertaking (Article 13(3) of the Delegated Regulation). This amount is to be disclosed in the Solvency II balance sheet template S.02.01.01 Row R0090.
If using the practical example of the first case noted in your question, the amount to be included in the SII balance sheet is the EoAoL as valued according to Art. 13 of Delegated Regulation (EU) 2015/35 (please note in particular the deduction of goodwill and intangible assets), at the end of the period X of reporting is 500K. If the EoAoL for the next period X+1 has changed, then you will use the new EoAoL amount.
The values recorded according to Art. 13 of Delegated Regulation (EU) 2015/35 are also reported in the template SE.06.02.16.01 Cell C0160.