Question ID: 2373
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Solvency Capital Requirement (SCR)
Article: 4
Status: Final
Date of submission: 20 Dec 2021
Question
When an external credit assessment is not available from the 2 selected ECAIs, would the insurer be allowed to query for available credit assessment from a third ECAI on a subset of the “unrated exposures”, without having to incur the cost of querying for such credit assessment for the full population of bonds and loans?
The subset of the “unrated exposures” would be defined according to objective, consistent and auditable selection criteria (e.g. based on the size or the materiality of the exposures). Can this approach be deemed to be consistent with article 4, recital 4, paragraph b according to which “where an insurance or reinsurance undertaking decides to use the credit assessments produced by a nominated ECAI [i.e. the third ECAI] for a certain class of items [i.e. the subset of “unrated exposures”], it shall use those credit assessments consistently for all items belonging to that class” [i.e. the subset of “unrated exposures”].
Background of the question
An insurer pays a market data provider to gain access to external credit assessments provided by two ECAI’s in accordance with article 4. The two ECAI's are chosen according to a selection process that is duly documented and based on auditable criteria, for example considerations related to cost and coverage. The selected ECAI’s are used in a continuous and consistent way to rate all bonds and loans.
EIOPA answer
The answer to this question is provided by the European Commission.
The term "class of items" does not refer to the classification as rated/unrated exposures by selected ECAIs. Where an external credit assessment is not available from the selected ECAIs (Article 4(2) of Delegated Regulation (EU) 2015/35), an insurer would not be allowed to seek for another available credit assessment from another ECAI in relation to “unrated exposures”, as this would not be in line with the principle laid down in Article 4(3) of Delegated Regulation (EU) 2015/35, under which the use of credit assessments needs not to be used selectively.
Disclaimer provided by the European Commission:
The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies, in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.