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The solvency of insurance and reinsurance groups under Solvency II: a risk-sensitive approach

Anna Maria Ambroselli, Istituto per la Vigilanza sulle Assicurazioni - IVASS - Prudential Supervision Directorate Rome, Italy

Questo articolo si concentra su alcuni aspetti della solvibilità di gruppo come definita nell'attuale quadro Solvency II. I principi chiave per il calcolo della solvibilità di gruppo sono: approccio del “totale del bilancio” applicato al gruppo assicurativo e riassicurativo nel suo complesso, considerato come un'unica entità economica; criteri chiari e trasparenti per calibrare i requisiti patrimoniali; considerazione nei requisiti patrimoniali di tutti i rischi materiali a cui è esposto il gruppo; riconoscimento esplicito dei vantaggi della diversificazione; determinazione dei fondi propri effettivamente disponibili a livello di gruppo; stretta collaborazione tra le autorità di vigilanza all'interno dei collegi dei supervisori. L'articolo mira a illustrare come questi principi di base sono stati specificati nelle regole di Solvency II e come, sei anni dopo l'entrata in vigore del regime Solvency II, sono applicati dai gruppi assicurativi e riassicurativi europei.

La solvibilità dei gruppi assicurativi e riassicurativi nel regime Solvency II: un approccio sensibile al rischio

This paper focuses on some aspects of the group solvency as defined in the current Solvency II framework.

The key principles for calculating group solvency are: “total balance sheet” approach applied to the insurance and reinsurance group as a whole, that is considered as a single economic entity; clear and transparent criteria for calibrating the capital requirements; consideration in the capital requirements of all material risks to which the group is exposed; explicit recognition of the diversification benefits; determination of own funds effectively available at group level; close cooperation between supervisory authorities within the colleges of supervisors.

The paper aims at illustrating how these basic principles were specified in Solvency II rules and how, six years after the entry into force of Solvency II regime, they are applied by the European insurance and reinsurance groups.

Keywords: group solvency calculation, equivalence; accounting consolidation-based method (Method 1), group solvency capital requirement (group SCR), groupown funds (group OF), colleges of supervisors.

Articoli Correlati: solvibilità di gruppo - Solvency II

TRADUZIONE IN ITALIANO:

  1. Il quadro legislativo e regolamentare Solvency II: uno snapshot

Gli aspetti fondamentali della disciplina del gruppo assicurativo e del calcolo della solvibilità di gruppo sono contenuti nella Direttiva Solvency II[1] (di seguito la “Direttiva”). C’è uno specifico Titolo – il Titolo III – relativo alla supervisione di gruppo, che include aspetti relativi a: calcolo della solvibilità di gruppo; sistema di governance; vigilanza sulla concentrazione di rischi e sulle operazioni infragruppo; organizzazione e funzionamento dei collegi delle autorità di vigilanza per la supervisione dei gruppi transfrontalieri[2].

Le previsioni della Direttiva sono integrate e, in alcuni casi, chiarite dal Regolamento Delegato della Commissione europea[3] (di seguito “Atti Delegati”).

Sia la Direttiva che gli Atti Delegati sono vincolanti per tutti gli Stati membri europei[4].

Inoltre, l'EIOPA[5] ha pubblicato nel novembre 2014 le Linee guida sul calcolo della solvibilità di gruppo[6] (di seguito le "Linea guida"). Le Linee guida sono strumenti non vincolanti rivolti alle Autorità di vigilanza e mirano a specificare e armonizzare i requisiti per il calcolo della solvibilità di gruppo. Sono soggette al processo di “comply and explain” per cui le autorità di vigilanza nazionali, che ne sono le destinatarie, dovranno fare ogni sforzo per conformarsi ad esse ovvero motivare le ragioni per non volersi conformare.

Il 1° gennaio 2016, il nuovo regime normativo e regolamentare è entrato in vigore.

Secondo l’articolo 242 della Direttiva, la Commissione europea era tenuta a fare una valutazione “…sui vantaggi del miglioramento della vigilanza di gruppo e della gestione del capitale nell’ambito di un gruppo di imprese di assicurazione o di riassicurazione…” entro la fine del 2018.

Nel giugno 2018, la Commissione ha richiesto all'EIOPA una relazione sulla vigilanza di gruppo e sulla gestione del capitale, nonché sulla libertà di prestazione di servizi e di stabilimento ai sensi della Direttiva[7]. La richiesta riguardava anche alcuni aspetti relativi al calcolo della solvibilità di gruppo.

Il 18 dicembre [continua..]

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Sommario:

1. Keywords: group solvency calculation; equivalence; accounting consolidation-based method (Method 1);group solvency capital requirement (group SCR); groupown funds (group OF); colleges of supervisors. - 2. The scope of the group for the purpose of group solvency calculation - 3. Subgroup supervision at national or regional level of EEA groups - 4. Subgroup supervision of non-EEA groups - 5. Group solvency calculation with the accounting consolidation-based method - 6. Group Solvency Capital Requirement (Group SCR) - 6.1. Non-compliance with the group SCR - 7. Group SCR floor - 7.1. Non-compliance with the group SCR floor - 8. Group Eligible Own Funds - 9. Non-available own funds at group level - 10. Treatment of minority interests - 11. Treatment of ring-fenced funds - 12. Final remarks - NOTE


1. Keywords: group solvency calculation; equivalence; accounting consolidation-based method (Method 1);group solvency capital requirement (group SCR); groupown funds (group OF); colleges of supervisors.

The bases for group solvency calculation are in the Solvency II Directive [1] (hereinafter the “Directive”). There is a specific Title – Title III – that deals with the group supervision, including aspects related to: group solvency calculation; system of governance; supervision of risk concentration and intra-group transactions; organization and functioning of the colleges of supervisors for the supervision of cross-border groups [2]. The provisions of the Directive are complemented and, in some cases, clarified by the Delegated Regulation of the European Commission [3] (hereinafter the “Delegated Regulation”). Both the Directive and the Delegated Regulation are mandatory for all the European [4] Member States. In addition to that, EIOPA [5] released in November 2014 the Guidelines on group solvency calculation [6] (hereinafter the “Guidelines”). They are non-binding instruments addressed to the supervisory authorities; they aims at specifying and harmonizing the requirements for the group solvency calculation. The Guidelines are subject to the “comply or explain” procedure that means that the national competent authorities shall make every effort to comply with and incorporate them into their regulatory or supervisory framework in an appropriate manner or explain the reasons why they do not intend to comply. On 1stJanuary 2016, the new supervisory framework became applicable. According to Art. 242 of the Directive, the European Commission was required to make an assessment “… of the benefit of enhancing group supervision and capital management within a group of insurance or reinsurance undertakings …” by the end of 2018. On June 2018, the Commission requested EIOPA for a report on group supervision and capital management as well as on freedom to provide services and freedom of establishment under the Directive [7]. The request also covered some aspects related to the group solvency calculation. On 18 December 2018, EIOPA submitted its Report to the Commission [8]. The report gives, inter alia, an overview of the current implementation of the main provisions related to group solvency calculation as well as on the main gaps and areas that still need a higher convergence in the practical implementation [9]. On 11 February 2019, the Commission formally requested technical advice from EIOPA to prepare for the review of [continua ..]

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2. The scope of the group for the purpose of group solvency calculation

This paper analyses: – the criteria according to which to identify the insurance and reinsurance group for the purpose of the group solvency; – the rules for calculating the group solvency according to the accounting consolidation-based method. The first step for calculating the group solvency of insurance and reinsurance groups (hereinafter referred to as “insurance groups”) is the clear identification of the scope of the insurance group. According to the Directive, “group” means a group of undertakings that: – consists of a participating undertaking, its subsidiaries and the entities in which the participating undertaking or its subsidiaries hold a participation as well as the undertakings that are managed on a unified basis or the administrative, management or supervisory bodies consist for the major part of the same persons or; – is based on the establishment of strong and sustainable financial relationships among those undertakings provided that one of those undertakings effectively exercises, through centralized coordination, a dominant influence over the other undertakings that are part of the group and that the establishment and dissolution of such relationships are subject to prior approval by the group supervisor [12]. The identification of the scope of the group therefore requires the identification of participations [13] and contractual relationships on the basis of which the undertakings are to be included in the group and treated as subsidiaries or related undertakings. In the event that several companies belonging to the group have participations in the same company, individually not significant but which become significant taken together, this company must also be considered as belonging to the group. The supervisory authorities shall also consider as a parent undertaking any undertaking which, in their opinion, effectively exercises a dominant influence over another undertaking and also consider as undertakings which are part of the group those over which the participating undertaking effectively exercises a dominant influence (subsidiaries) or significant influence. It is a broad definition, which requires further specifications. They not always are in the Directive itself but in other Directives, in the Delegated Regulation, in Guidelines, which delimit its scope according to the objective of the supervision: group solvency calculation; supervision of intra-group [continua ..]

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3. Subgroup supervision at national or regional level of EEA groups

According to the Directive, Member States may allow their supervisory authorities to exercise the supervision at the level of a national subgroup or covering several Member States (“regional subgroup supervision”). If, therefore, the Member State has exercised the option (Option 1), the national supervisory authorities may decide (Option 2) whether, and in which areas, to exercise supervision at subgroup level. Supervision at subgroup level may be limited to the supervision of: – group solvency; – risk concentration and/or intra-group transactions; – risk management and internal control. The Delegated Regulation has identified the criteria to be considered by national supervisors to exercise supervision at the level of a national or regional subgroup level. The subgroup supervision can be applied by the relevant supervisory authorities only when justified by “objective differences in the operations, the organization or the risk profile between the subgroup and the group” [19]. The criteria are not cumulative and allow supervisors to assess the specific case. Moreover, supervision at subgroup level is not permitted when the subgroup is part of a group with centralized risk management. Under the Directive, this is the case when the risk management procedures and internal control mechanisms of the parent company cover the subsidiaries and the supervisory authorities concerned are satisfied with the prudent management of the subsidiary by the parent company. The national subgroup shall consist of all the undertakings in the subgroup, regardless of whether they are located in the same country as the parent undertaking of the national subgroup or in another country. If the ultimate parent undertaking applies a calculation method, the choice is also binding on the supervisory authority of the national subgroup, which must apply the same method. Consequently, if a group applies the Method 1, any calculation of group solvency at the level of the national subgroup must be made using the same method. This provision of the Directive promotes the comparability and consistency of the calculations made at subgroup level with those made at parent company level and was not foreseen in the previous Solvency I regime. So far, all Member States have exercised the 1stoption, i.e. the possibility to exercise subgroup supervision is envisaged in their national legislation. National subgroup supervision has been applied by [continua ..]

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4. Subgroup supervision of non-EEA groups

The Guidelines clarify how supervision is applied at European subgroup level for groups of third countries. The rules of the Directive in this respect are not easy to interpret nor has the Delegated Regulation clarified this aspect. The Guidelines specify that supervision at European subgroup level (including group solvency calculation) applies by default to all subgroups of groups from third countries, whether or not they are equivalent in terms of group supervision compared to Solvency II. However, where the group is headquartered outside the EEA and is subject to a group supervision that is considered equivalent or temporarily equivalent [21], the group supervision at EEA level may be waived, on a case-by-case basis, where this would result in a more efficient supervision of the group. A more efficient group supervision is achieved when the following criteria are met: a) the worldwide group supervision allows for a robust assessment of the risks to which the EEA subgroup and its entities are exposed, considering the structure of the group, the nature, scale and complexity of the risks and the capital allocation within the group; b) the cooperation in place between the third-country group supervisor and EEA supervisory authorities for the group concerned is structured and well-managed through regular meetings and appropriate exchange of information within a college of supervisors to which the EEA supervisory authorities and EIOPA are invited; c) an annual work plan, including joint on-site examinations, is agreed upon in these regular meetings by the supervisory authorities involved in the supervision of the group. Therefore, for the purposes of the treatment of groups of third countries, it is first of all relevant whether they are subject to a supervision that is considered equivalent or temporarily equivalent to that provided for in the Solvency II regime [22]. If so, supervision at the European group level may be waived on the basis of an assessment to be carried out by supervisors on a case-by-case basis. Such criteria relate to the concrete capacity of supervisory authorities to cooperate and exchange information for an efficient and effective group supervision. Where the group has its ultimate parent undertaking in a third country that is neither equivalent nor temporarily equivalent, supervision at the level of the European subgroup shall apply in any case, without the possibility of derogation. Among the measures that the [continua ..]

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5. Group solvency calculation with the accounting consolidation-based method

The calculation of the group solvency can be made by using: – the accounting consolidation-based method (Method 1); – the deduction and aggregation method (Method 2); – or a combination of the two above-mentioned methods [23]. The parent undertaking is required to carry out the calculation at least annually. The accounting consolidation-based method is the default method, that is the method that groups should use unless the group supervisor, under certain circumstances specified in the Delegated Regulation [24], allows them to use the deduction and aggregation method or a combination of the methods. Unlike the previous Directive 98/78/EC on the supplementary supervision of insurance groups, which was neutral as regards the choice of the method for calculating the adjusted solvency requirement [25], the Directive recognizes that the accounting consolidation-based method is the one which best suits the consideration of the insurance group as a whole, i.e. as a single economic entity. It is also the method that allows the recognition of diversification benefits as descried in the following paragraphs. This paper analyses in particular this method of calculation, specifying the rules to be followed under the existing legislative and regulatory framework as well as the areas that still need clarifications and specifications. The group solvency is the difference between: a) the own funds eligible to cover the SCR, calculated on the basis of consolidated data; b) the solvency capital requirement, calculated on the basis of consolidated data. The starting point for the determination of consolidated data is given bythe consolidated accounts, IFRS or local GAAP, but with some differences due to valuation rules as well as to the scope and treatment of related undertakings according to the Solvency II rules. Equivalence considerations do not apply when using Method 1, this means that related undertakings in non-EEA countries are treated, for the purpose of group solvency calculation, as related undertakings in EEA countries [26]. As mentioned in the previous paragraphs, insurance groups may include entities that carry out different activities. Besides, some of them are linked by control, directly or through more or less complex corporate control chain; others are non-controlling participations; others managed on a unified basis. The diversity of the companies included in the scope of consolidation and of the [continua ..]

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6. Group Solvency Capital Requirement (Group SCR)

The group SCR should take into account all quantifiable risks which may impact the solvency and financial position of the group arising from all the entities of the group, independently of their nature, regulated or not, and localization. It should also take into account the benefits of the global diversification that exist across the group in order to reflect properly its risk exposure. The concrete application of these principles of the calculation is specified in the Delegated Regulation and in the Guidelines as follows: the consolidated group SCR is the sum of four components: SCRDIVERSIFIED, SCRNPC, CROFS, SCROT. The following diagram, contained in the EIOPA guidelines, shows graphically the four components described above which added together constitute the consolidated group SCR:   The SCRDIVERSIFIED is the SCR of the controlled (re)insurance undertakings, ancillary service undertakings [29], IHC, MFHC and SPV [30] both in EEA e non-EEA countries. The assets and liabilities of these companies are fully consolidated, i.e. they are consolidated line-by-line. It is with reference to this part of assets and liabilities that insurance groups have to quantify the risks for the calculation of the group SCR. As foreseen for individual re(insurance) undertakings, the group SCR should be calibrated at an amount that corresponds to the Value-at-Risk of the group basic own funds subject to a confidence level of 99.5% over a one-year period. For the calculation, groups can use either a standard formula or a full or partial internal model. More specifically, when using the standard formula, the group Basic Solvency Capital Requirement (BSCR) shall be calculated by applying at group level the same correlation matrix as that applied to (re)insurance undertakings and described in Annex IV to the Directive; to this is added the capital requirement for operational risk and the (decreasing) adjustments relating to the loss-absorbing capacity of technical provisions and deferred taxes in order to obtain the SCRDIVERISIFIED. The benefits of diversification arise from the application of the standard formula and its correlation matrix. They are defined in Art. 13(37) of Directive as follows: “the reduction in the risk exposure of insurance and reinsurance undertakings and groups related to the diversification of their business, resulting from the fact that the adverse outcome from one risk can be offset by a more favorable outcome from another [continua ..]

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6.1. Non-compliance with the group SCR

As with the non-compliance with the SCR of (re)insurance undertakings, if the group SCR is no longer complied with or if there is a risk that it will not be complied with within the next three months, the parent undertaking shall immediately inform the group supervisor. In the case of a cross-border group, the group supervisor shall, in turn, inform the other authorities within the college of supervisors. Within two months from the observation of non-compliance, the parent undertaking shall submit for approval by the group supervisor a realistic recovery plan to restore, within six months of that detection, the group own funds at least to the level of the group SCR or to reduce its risk profile in order to ensure compliance. Where appropriate, the group supervisor may extend that period by three months. In the event of exceptionally adverse situations, as identified in the Directive itself (a fall in financial markets which is unforeseen, sharp and steep; a persistent low interest rate environment; a high-impact catastrophic event) affecting insurance groups, the time period may be further extended for a maximum period of seven years. It should be highlighted that the provision that supervisory authorities may, in exceptional cases, also restrict or prohibit the free disposal of the assets of (re)insurance undertaking is not applicable at group level, as this is a power not directly attributed by the Directive to the group supervisor.

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7. Group SCR floor

In addition to that, the group SCR should be at least equal to the sum of the Minimum Capital Requirement (MCR) of the parent undertaking and the proportional share of the MCR of the related (re)insurance undertakings, IHC, MFHC. This amount – often indicated as group SCR floor – represents the minimum capital requirement of the insurance part of the group that is the minimum level of security below which the amount of the financial resources of the group should not fall, whatever the effect of diversification benefits. The proportional share used for the calculation of the MCR of the related companies is the same as that used for the calculation of consolidated data: therefore, if an (re) undertaking is fully consolidated, the MCR must also be included according to a proportion of 100%. The SCR floor refers only to the specifically insurance part of the group and does not include companies in other financial sectors for which sectoral capital requirements are added to the diversified SCR.

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7.1. Non-compliance with the group SCR floor

If the SCR floor is no longer complied with or when there is a risk that it will not be complied with within the next three months, the parent company shall immediately inform the group supervisor, which shall, in turn, inform the members of the college of supervisors if it is a cross-border group. Within one month from the observation of non-compliance with the minimum consolidated group SCR, the ultimate parent submits to the group supervisor for approval a realistic short-term financing scheme to restore, within three months, the compliance with the minimum consolidated group SCR or to reduce its risk profile.

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8. Group Eligible Own Funds

Group own funds are required to be sufficient to cover the group SCR and appropriately distributed within the group. In other terms, they have to be available to protect policyholders and beneficiaries on a going-concern basis. In order to determine the eligible own funds at group level to cover the group SCR and the group SCR floor, the group must: a) calculate group own funds on the basis of consolidated data and net of intra-group transactions; b) deduct from these and their respective tiers any own funds not available at group level, including own funds relating to minority interests and ring-fenced funds (see the following paragraphs for their determination); c) apply to the remaining part of the own funds, which is then available at group level, the same quantitative limits applicable to Tiers 1, Tier 2 and Tier 3 items as are applicable at individual level in order to determine the own funds eligible to cover the group SCR and the SCR floor. The following diagram, contained in the EIOPA guidelines, summarizes the different steps for calculating group eligible own funds.   As far as compliance with the group SCR, Tier 2 and Tier 3 items are subject to quantitative limits that ensure that at least the proportion of Tier 1 items in the eligible own funds is higher than one third of the total amount of eligible own funds and that Tier 3 items are less than one third of the total amount of eligible own funds. As far as compliance with the group SCR floor, only basic own funds can be used and the proportion of Tier 1 items in the BOF should be higher than one half of the total amount of eligible own funds. Own funds held by IHC and MFHC have to be included in the calculation of the limits. Further limits fixed with reference to group SCR and group SCR floor are established in the Delegated Regulation. More specifically, with reference to the group SCR: – the eligible amount of Tier 1 items shall be at least one half of the group SCR; – the eligible amount at Tier 3 items shall be less than 15% of the group SCR; – the sum of the eligible amounts of Tier 2 and Tier 3 items shall not exceed 50% of the group SCR. For the SCR floor, the BOF of Tier 1 items must be at least 80% of the SCR floor and the basic own funds of Tier 2 items must not exceed 20% of the SCR floor. Eligible ancillary own funds at group level shall only be those approved by the supervisory authorities of the (re)insurance undertakings holding them. [continua ..]

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9. Non-available own funds at group level

According to the Directive, where the supervisory authorities consider that certain eligible own funds of the related (re)insurance undertaking cannot be effectively made available to cover the group SCR, those own funds may be included in the calculation only to the extent that they are eligible to cover the SCR of the related (re)insurance undertaking. Delegated Regulation and Guidelines have further specified the content of the provision. Own funds of individual companies can be considered effectively available at group level if: they have no limitations on their fungibility (i.e. they are not dedicated to absorbing only certain losses) and intra-group transferability (i.e. there are no significant obstacles to the transfer of own funds items from one entity to another), within a maximum of 9 months and on a going-concern basis. The following categories, because of their characteristics, are considered to have limits on their availability at group level: – ancillary own funds; – preference shares, subordinated mutual members account and subordinated liabilities [33]; – an amount equal to the value of net deferred tax assets. These own fund items are assumed to be non-available at group level unless the group may provide evidence to the contrary to the group supervisor. If the reasons given are considered satisfactory by the supervisory authorities, insurance groups can include them in the calculation of the group own funds. As mentioned above, the group supervisor should base its decision assessing whether they are dedicated to absorb only certain losses and if there significant obstacles to move them from one company to another of the group within 9 months. It is clear that the barriers to the transferability are not easy to verify by the supervisors: their assessment poses several difficulties, for example how to assess the nine-month criterion in practice, and may lead to the application of different supervisory approaches. The calculation of own funds not available at group level shall be made for all (re)insurance subsidiaries, IHC and MHFC which are fully consolidated or consolidated on a proportional basis, adding up for each of them all own funds deemed not available. The proportion of such funds which, taken together, exceeds the value of the “contribution” of the subsidiary to the group SCR, shall be considered not to be available at group level and be deducted from the group own funds, as set out in [continua ..]

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10. Treatment of minority interests

Minority interests and ring-fenced funds have a specific treatment in the calculation of group eligible own funds, indicated in the Delegated Regulation and detailed in the Guidelines. Any minority interests [36] in controlled (re)insurance undertakings, IHC, MFHC exceeding the “contribution” of the subsidiary to the group SCR should be considered as not available at group level. The underlying logic and calculation methodology reflects the assumption that own funds actually available to the parent company cannot include the part of the excess own funds in relation to the SCR of the subsidiaries that belongs to the minority interests. More specifically, the part of own funds attributable to minority interests, calculated as a percentage of the difference between the own funds and the SCR of fully consolidated (re)insurance subsidiaries, IHC and MFHC and reduced to take account of the effects of diversification, shall not be considered available at group level. Minority interests in controlled ancillary services undertakings must be deducted in full: since the calculation of the SCR is not required for this category of undertakings (not even notional, i.e. theoretical and required only for the purposes of calculating group solvency), the legislator’s choice was to require the deduction of the full amount of minority interest. However, it should be noticed that these cases are limited because the ancillary services undertakings are generally 100% controlled by the parent company or by other companies in the group. The fundamental difference with the treatment of other non-available own funds is that groups cannot demonstrate that the total amount of minority shares is available at group level, since the part of the minority shares in the eligible own funds of the subsidiary that exceeds the subsidiary’s contribution to the group SCR can never be considered available at group level. In other words, it is not possible for the groups to provide evidence to the contrary. The legislator’s choice to specify their treatment in the Delegated Regulation, thus making it mandatory for all insurance groups, stems from the importance of this category of own funds and the observation that the insurance groups had adopted divergent practices. This has greatly facilitated the adoption of a uniform and comparable approach between the different European groups and represents, compared to the previous regime, a significant step towards [continua ..]

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11. Treatment of ring-fenced funds

Ring-fenced funds are those own-fund items that can only be used to cover losses arising from a particular liability segment or particular risks. Ring-fenced funds that exist in controlled (re)insurance undertakings should also be considered as ring-fenced funds at group level. To these must be added those of subsidiaries in third countries that are recognized in the group calculation but are not subject to the Solvency II rules at individual level. For these, therefore, it is the group supervisor that has to make an assessment, applying the Solvency II rules. The treatment of ring-fenced funds at group level requires the treatment of intra-group transactions. In calculating the group SCR, intra-group transactions relating to each material separate fund and the remainder should not be eliminated. The group SCR is the sum of: – notional SCR of each material ring-fenced calculated gross of intra-group transactions; – diversified group SCR for the remaining consolidated data. There is therefore no recognition of diversification benefits between the SCR of ring-fenced and the remaining part of the SCR precisely because these funds, by their nature, are intended to cover specific liabilities and are therefore not transferable at group level. The consolidated data used for the calculation of the group's own funds, on the other hand, are net of intra-group transactions. For each material ring-fenced fund, the sum of all the adjustments provided for at individual level is the part of the own funds that must be deducted from the group own funds through a specific adjustment in the reconciliation reserve [37]. This method of calculation, proposed in the Guidelines, even though has some approximations due to the different treatment of intra-group transactions in the calculation of the SCR and own funds, has the advantage of not requiring a recalculation at group level and, above all, of ensuring the same level of protection for policyholders and beneficiaries of these funds as is provided for at individual level.

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12. Final remarks

The correct determination of the group solvency calculation is essential to assess the situation of the group as a whole. It is therefore of paramount importance that it takes into account all risks to which the group is exposed and, at the same time, takes due account of diversification effects. The method based on consolidated data is the method that best suits the consideration of the insurance group as a single economic entity and is the method that, according to the Solvency II directive, groups should apply by default. The application of this method consists, as explained in the preceding paragraphs, in the application mutatis mutandis of individual rules to the group, as if it were a single insurance or reinsurance undertaking. However, as highlighted above, the calculation of group solvency is much more complex than that at individual level, firstly because it requires the exact identification of the perimeter of the group itself and, secondly, because it has to properly take into account the diversity of the entities that are part of the group. The calculation of group solvency therefore requires significant adjustments and specifications compared to the rules applied to insurance and reinsurance undertakings at individual level. The Delegated Regulation and the Guidelines have specified most of the rules to be applied for the calculation, thus favouring in a decisive way, compared to the past, a uniformity of calculation at European level and an easier and more meaningful comparability of the results of the different insurance groups. However, there are still areas and aspects, which require greater convergence in application. These concern the treatment of insurance holding companies and mixed financial holding companies at both the ultimate and intermediate levels in the chain of control; the valuation of own funds of undertakings operating in other financial sectors; the valuation of non-available own funds, including those of third countries; and cases of exclusion from the group scope. There are also aspects that partly overlap with other sectoral directives (e.g. the treatment of own funds of entities in other financial sectors). In this respect, it seems appropriate to reconsider some of the existing rules in order to streamline the legislative and regulatory framework. The Commission Proposal has taken into account most of these aspects and has proposed amendments to specify and clarify the meaning of some of the current rules of [continua ..]

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NOTE

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