Q&A

Question

An undertaking pays for its with profit policies: a) to the policyholders, a part of the financial returns achieved on a pool of assets (with a minimum level retained by the company) which meet the definition of future discretionary benefits according to article 1 point 35 of Commission Delegated Regulation 2015/35; b) to the distributors, another part of the same financial returns achieved on the same pool of assets by way of commissions which therefore have a variable nature. To this end, Recital (17) of the Commission Delegated Regulation 2015/35 future discretionary benefits should capture the benefits paid in addition to guaranteed benefits and that result from profit participation by the policyholder. This implies that expenses cash-flows described sub b) should not be considered as future discretionary benefits and should be considered within the cash flow relating to guaranteed benefits in the BEL calculation. We highlight that according to article 83 para 1 letter (c) of Commission Delegated Regulation 2015/35 the definition of future discretionary benefits used for the calculation of the Basic Solvency Capital Requirement should be the same used for the calculation of the technical provisions according to article 25 of Commission Delegated Regulation 2015/35. As a consequence the expense cash-flows, described in sub b) should be changed and rediscounted (according to par. 1.12 of the "Guidelines on loss-absorbing capacity of technical provisions and deferred taxes") when calculating the impact of a scenario on the basic own funds as referred to in Article 83 of Commission Delegated Regulation 2015/35. Should this approach be considered appropriate even though the expense cash-flows is connected to the financial returns achieved on a pool of assets?

EIOPA answer

Article 28 of the Delegated Regulation refers to benefits only in the context of payments to policyholders and beneficiaries and mentions payments of expenses as a separate category. 

The notion that future discretionary benefits cover only benefits to policyholders is also supported by Recital 17 of the Delegated Regulation.

Therefore the payments to the distributors by way of commission referred to in b) are not part of the future discretionary benefits. As a result, the provision in Article 83(1)(c) of the Delegated Regulation does not apply.