Question ID: 1819
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 84, 176
Status: Final
Date of submission: 13 Jun 2019
Question
Where a look-through has been performed and bond assets have been identified for collective investment undertakings (as per Article 84 of the Delegated Acts) but some aspects of the underlying assets (e.g. duration or credit rating) are not available but these fall in a specific range for the portfolio (e.g. 1-10 years / AA-AAA, based in investment guidelines or portfolio statistics):
(a) for bonds with "no rating available" is it possible to make a prudent assumption (i.e. lower end of the portfolio specific range, would be AA in the example above) for the rating and then calculate the SCR in line with article 176 paragraph 3 of the regulation?
(b) for bonds where the duration is not available, is it possible to make prudent assumption for the duration (i.e. higher end of the portfolio specific range, would be 10 years in the example above) and then calculate the SCR in line with article 176 paragraph 3 of the regulation?
EIOPA answer
As specified in Article 84.3 of the Commission Delegated Regulation (EU) 2015/35, “data groupings may be used, provided they are applied in a prudent manner, and that they do not apply to more than 20 % of the total value of the assets of the insurance or reinsurance undertaking”. Therefore, in the case of missing information, either on the duration or the credit rating for instance, prudent assumptions based on the asset allocation can be done within the limits described in article 84
Please note that in March 2019, the EU Commission has presented to the Parliament and Council amendments to the Solvency II Delegated Regulation. The co-legislators have 3 months to either approve or reject the Commissions’ proposal. Some amendments to article 84 are proposed in order to ease the application of the look through requirement in certain cases. In particular, if the target underlying asset allocation is not available to the undertaking, the last reported asset allocation can be used for the purpose of Article 84, provided that “ the underlying assets are managed in accordance with that target allocation or last reported asset allocation, as applicable, and that exposures and risks are not expected to vary materially over a short period of time.”