Question ID: 327
Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Article: 35
Template: S.02.01
Status: Final
Date of submission: 06 Nov 2015
Question
S.07.01 – Structured products
General – Threshold calculation
We believe there is a flaw in the template threshold calculation formula specified in the LOG file. The LOG file states the following:
“This template shall only be reported when the amount of structured products, measured as the ratio between assets classified as asset categories 5 (Structured notes) and 6 (Collateralised securities) as defined in Annex III - Asset Categories of this Regulation and the sum of item C0010/R0070 and C0010/R0220 of S.02.01, is higher than 5%.”
As per this formula denominator includes the total of SII balance sheet line item ‘Investments (other than assets held for index-linked and unit-linked contracts)’ and SII balance sheet line item ‘Assets held for index-linked and unit-linked contracts’. This means denominator only includes net asset value of entities included under the D&A method.
It could be interpreted that the numerator should include the total value of CIC asset categories 5 (Structured notes) and 6 (Collateralised securities), namely the total of structured products and collateralised securities held by entities reported under the consolidation method and D&A (deduction and aggregation) method.
We believe there is an inconsistency for the D&A method entities as the formula requires us to compare gross basis assets vs. net basis assets. We assume that the substance of the requirement is that we should be comparing like with like, namely complete the structured products template if more than 5% of total gross investments are structured notes and collateralised securities.
We suggest the following options:
Option1
Include only structured notes (C0010/R0160) and collateralised securities (C0010/R0170) on the SII balance sheet (S.02.01), in the numerator of the formula instead of referring to Annex III (CIC table). And remove total value of participations (C0010/R0090 in S.02.01) from the denominator.
Or
Option 2
Allow undertakings to include grossed-up asset values of the D&A method entities (using the same CIC codes as for the consolidation method entities) in the denominator of the formula so that we are comparing like with like.
EIOPA answer
You have identified in fact a flaw in the definitions of the reporting requirements and the formula is not adequate for groups that use a combination of methods or method 2 exclusively.
This has been identified as a mistake and the following amendments will be introduced in the text of the ITS and in the Instructions (Annex III) of template S.06.03, S.07.01 and S.10.01.
Amendments:
- Article 23, paragraph f): template S.06.03.04 of Annex I, providing information on the look-through of all collective investments undertakings held, regardless of the method used for the calculation of the group solvency, following the instructions set out in S.06.03 of Annex III, only when the ratio of collective investments undertakings held by the undertaking to total investments is higher than 30%. This ratio is measured as item C0010/R0180 of template S.02.01.02 plus collective investments undertakings included in item C0010/R0220 of template S.02.01.02 plus collective investments undertakings included in item C0010/R0090 of template S.02.01.02 divided by the sum of item C0010/R0070 and C0010/R0220 of template S.02.01.02 when method 1 as defined in Article 230 of Directive 2009/138/EC is used exclusively. When method 1 is used in combination with method 2 as defined in Article 233 of Directive 2009/138/EC or method 2 is used exclusively the ratio needs to be adjusted in order to capture the items of all entities included in the scope of template S.06.02;
- Article 27, paragraph d): template S.07.01.04 of Annex I, providing an item by item list of structured products, regardless of the method used for the calculation of the group solvency, only when the amount of structured products is higher than 5%, measured as the assets classified as asset categories 5 (Structured notes) and 6 (Collateralised securities) as defined in Annex IIII divided by the sum of items C0010/R0070 and C0010/R0220 of template S.02.01.01, following the instructions set out in S.07.01 of Annex III when method 1 as defined in Article 230 of Directive 2009/138/EC is used exclusively. When method 1 is used in combination with method 2 as defined in Article 233 of Directive 2009/138/EC or method 2 is used exclusively the ratio needs to be adjusted in order to capture the items of all entities included in the scope of template S.06.02;
- Article 27, paragraph h): template S.10.01.04 of Annex I, providing an item by item list securities lending and repurchase agreements on and off-balance sheet, regardless of the method used for the calculation of the group solvency, only when the underlying securities, on and off balance sheet, involved in lending or repurchase agreements, for contracts with maturity dates falling after the reporting reference date represent more than 5% of the total investments as reported in items C0010/R0070 and C0010/R0220 of template S.02.01.01, following the instructions set out in S.10.01 of Annex III when method 1 as defined in Article 230 of Directive 2009/138/EC is used exclusively. When method 1 is used in combination with method 2 as defined in Article 233 of Directive 2009/138/EC or method 2 is used exclusively the ratio needs to be adjusted in order to capture the items of all entities included in the scope of template S.06.02.