Question ID: 889
Regulation Reference: Guidelines on group solvency
Article: 328-342, 68
Status: Final
Date of submission: 03 Nov 2016
Question
How to treat holdings in other financial sector in group solvency calculation where that holding is over 10 % but less than 20 %, i.e. the holding does not constitute a holding in related undertaking?
Articles 328-342 of Delegated Act, which deal with Group solvency calculation as well as the EIOPA guidelines on Group Solvency are silent about this.
Based on that you could assume that no deduction from Group’s own funds is required in cases where that holding in other financial sector is above 10 % but less than 20 % (not related undertaking). Instead the holding is risk-weighted.
Contrary to the treatment at Group level, at solo level such a holding has to be deducted from insurance company’s own funds based on the article 68 of Delegated Act and EIOPA guidelines on treatment of related undertaking, including participations (appendix C )
If the treatment of holdings over 10% but less than 20 % in other financial sector is treated differently, please provide the rationale to that.
EIOPA answer
Article 335 of Commission Delegated Regulation (EU) 2015/35 (Delegated Regulation) defines the consolidated data for the calculation of group solvency under Method 1. Paragraph(1)(e) of this article applies to holdings in related undertakings in other financial sectors, which includes holdings in financial and credit institutions.
A related undertaking is defined by Article 212 (1)(b) of Directive 2009/138/EC (“Solvency II Directive”) (e.g. "either a subsidiary undertaking or other undertaking in which a participation is held, or an undertaking linked with another undertaking by a relationship as set out in Article 12(1) of Directive 83/349/EEC"). It should also be noted that if a significant influence is exercised by an undertaking according to Article 212(2) of the Solvency II Directive over any undertaking, this latter can be considered as a related undertaking.
On the assumption that the holdings in other financial sectors do not fall in the category of participations as defined by the Article 13(20) of the Solvency II Directive ("ownership, direct or by way of control, of 20 % or more of the voting rights or capital") and taking into account the EIOPA Guidelines on the treatment of related undertakings, including participations, https://eiopa.europa.eu/Publications/Guidelines/Final_Report_Treatment_Related_U_GLs.pdf), then Article 335(1)(e) of the Delegated Regulation would not apply for the purposes of group solvency calculation.
Consequently, the holdings in the other financial institutions (not considered a related undertaking) should be treated as an equity investment for the purposes of calculating the Group SCR (Please refer to Explanatory Text 2.19 to Guideline 8 of the Guidelines on treatment of related undertakings, including participations for further details).
In relation to Article 68 of the Delegated Regulation which is mentioned in your question, it is worth noting that this article refers to the determination of own funds and not how a participation is defined. Therefore, the 10% stated in Article 68 of the Delegated Regulation do not refer to the holding of share capital issued by a related undertaking in other financial sector, but to the treatment of participations in the determination of basic own funds of the insurance undertaking, and in particular to the tier 1 items listed in Article 69(a)(i),(ii),(iv) and (vi) of the Delegated Regulation.