Please can you confirm the required treatment, for a solo entity (participating undertaking), which holds an investment in another insurance company (related undertaking).

Directive 2015/35 states that ‘in order to avoid double counting of own-funds between the insurance and banking sectors at individual level, insurance and reinsurance undertakings should deduct from the amount of basic own funds any participations in financial and credit institutions in excess of 10 % of the Tier 1 own-fund items which are not subject to any limit.’  The treatment of these investments being detailed in article 68.

A ‘financial and credit institution’ is defined in article 92(2) of directive 2009/138/EC.  
Per the definition referenced above, an insurance company does not meet the definition of a ‘financial and credit institution’.
However, if the participating undertaking was not to deduct the investment in the related undertaking (in this case, an insurance company), there would be a double counting of own funds within the insurance sector at individual level?
It is worth noting that in this example, the insurance company which holds the participation is located in the UK (regulated by the PRA), with the subsidiary insurance company being located in Luxembourg (regulated by the CAA).  Additionally, the related undertaking is 100% owned.

As a result, the two companies will both be required to submit solo returns to their designated regulators (PRA and CAA).
The consolidation takes place at the holding company above the insurance company in the UK.  At the group level, per article 68 of directive 2015/35, point 3, the deduction is not required.

In short, should the UK company deduct its investment in the Luxembourg insurance company, in its solo returns?