Question ID: 2422
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: 171a, 84, 168
Status: Final
Date of submission: 11 Apr 2022
Question
Article 171a (1) states that LTE may consist only of equities that are listed in EEA or unlisted equities of companies that have their head offices in countries which are members of the EEA. Then Article 171a (2) implies that where equities are held within collective investment undertakings the EEA condition can be assessed at the level of the fund. Is this the case for exchange-traded funds (ETFs) that are managed within the EEA? How about an ETF that is managed within the EEA, but that on a look-through basis has a substantial portion of its assets which do not satisfy the EEA condition? (e.g. an ETF containing equities of US-based S&P500 companies, which is managed in an EEA country)
EIOPA answer
According to Article 84 of the Commission Delegated Regulation EU 2015/35, for investments packaged as funds a look-through approach has to be followed in the standard formula calculation of the SCR. Article 171a(2) stipulates an exemption from applying this look-through principle for the purposes of an assessment of the conditions set out in paragraph 1 of Article 171a, including the condition 171a(1)(f) that specifies that the sub-set of equity investments consists only of equities that are listed in the EEA or of unlisted equities of companies that have their head offices in countries that are members of the EEA. However Article 171a(2) only applies where equities are held within collective investment undertakings (CIU) or within alternative investment funds (AIF) referred to in points (a) to (d) of Article 168(6).
Therefore, the provision in Article 171a(2) can only be applied to an exchange-traded fund (ETF) where the ETF can be classified as one of the following type of funds:
- a CIU which is a qualifying social entrepreneurship fund as referred to in Article 3(b) of Regulation (EU) No 346/2013 of the European Parliament and of the Council;
- a CIU which is a qualifying venture capital funds as referred to in Article 3(b) of Regulation (EU) No 345/2013 of the European Parliament and of the Council;
- a CIU which is authorised as European long-term investment funds pursuant to Regulation (EU) 2015/760; or
- a closed-ended alternative investment fund established in the Union or, if is not established in the Union, which is marketed in the Union in accordance with Article 35 or 40 of Directive 2011/61/EU and which, in either case, has no leverage in accordance with the commitment method set out in Article 8 of Commission Delegated Regulation (EU) No 231/2013.