Can the people who have controlling interest of an insurance company (70% holding) establish an intermediary company which they own 100% and charge 25% commission on the direct business written by the insurance company?
Background of the questionAs the local Superintendent of Insurance has allowed this to happen I believe that it puts a very heavy burden on the financial stability of the Insurance company and does not safeguard the interests of the policyholders.
The Solvency II framework does not outline in which way an undertaking should organise itself or how a group should structure, nor does it set specific limits regarding a commission a company can earn from providing services.
The Solvency II framework does not limit the type of shareholders (natural persons, corporations) that can invest on an (re)insurance undertaking. As regards to the assessment of influence excercised over an undertaking, please refer to GL 1 of EIOPA-BoS-14/170 Guidelines on treatment of related undertakings, including participations.
In relation to the type of holding companies, the Solvency II Framework distinguishes between an Insurance Holding Company (IHC), a Mixed Financial Holding Company (MFHC), and a Mixed Activities Insurance Holding company (MAIHC), see Article 212 of the Solvency II Directive.
Regardless of the ownership structure, in accordance with product oversight and governance rules under the Insurance Distribution Directive (IDD), distributors of insurance products should be selected on the basis that they are the most appropriate to distribute the insurance product, i.e. appropriate to the target market, product characteristics, and capability to assist the policyholder in making an informed decision.
Furthermore, there should be a proper process in place for managing potential conflicts of interest when setting a commission rate for the distribution of an insurance product. At the point of sale, the payment/receipt of commission should not detrimentally impact on the service the company provides to the customer.
It should also be noted that commission services, if identified as an intra-group transaction according to the relevant definition in Article 13(19) of the Solvency II Directive, such transactions should be monitored and reported according to Article 245 of the Solvency II Directive and Article 265 of the SII directive and supporting regulations. Undertakings should be aware of the potential risks associated with such transactions, including the risk of conflict of interest.
An early engagement with the relevant National Competent Authority (NCA) is encouraged to discuss the implications of the case at hand. EIOPA cannot provide consultancy advice nor comment on individual cases subject to supervisory assessment.