Question ID: 2853
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Group Own funds
Article: Article 70(1)(b); 329(1)(a); 335
Status: Final
Date of submission: 01 Nov 2023
Question
When calculating the eligible group own funds for a group which includes a related credit institution, where dividends are made from the credit institution to the ultimate parent that the parent in turn intends to pay as dividend to its shareholders, should the foreseeable dividend be deducted from the credit institution's own funds or from the group reconciliation reserve?
Background of the question
When calculating the eligible group own funds for a group with a participation in a related credit institution, the contribution from that related credit institution should be the proportional share of that undertaking's own funds calculated according to relevant sectoral rules (Articles 329.1(a) and 335.1(e) in S2 DR 2015/35). And according to sectoral rules (CRR), any foreseeable dividend should be deducted from the credit institution's own funds.
The reconciliation reserve shall, according to article 70.1.b in S2 DR 2015/35, be reduced by foreseeable dividends. This also applies to the group reconciliation reserve regarding foreseeable dividends from the group to shareholders outside the group.
If foreseeable dividends from a related credit institution to the ultimate parent undertaking, that the parent in turn intends to pay as dividend to its shareholders, are deducted from both the own funds of the credit institution and from the group reconciliation reserve, the deduction is made twice. How the deduction is made affects the amount of own funds to cover the minimum consolidated SCR.
EIOPA answer
According to Article 70(1)(b) of Delegated Regulation (EU) 2015/35 (DR), the reconciliation reserve is reduced by foreseeable dividends. Guideline 18 of the EIOPA Guidelines on group solvency states that the participating insurance or reinsurance undertaking, the insurance holding company or the mixed financial holding company should ensure that the reconciliation reserve at group level is based on Article 70 DR.
In the case discussed in the question, the related credit institution intends to pay dividends (i.e. foreseeable dividends) to the ultimate parent and the ultimate parent intends to pay dividends (i.e. foreseeable dividends) to its shareholders. Where deductions for foreseeable dividends are made by the related credit institution in accordance with the sectoral rules, the proportional share of that credit institution's own funds referred to in Article 335(1)(e) DR shall fully reflect those deductions. In addition, the foreseeable dividends of the parent insurance undertaking shall be deducted from the group reconciliation reserve in accordance with Article 70(1)(b) DR.
That approach should be consistently followed for the annual and quarterly reporting.