Solvency ii framework, highlighting issues regarding its proportionality and technical consistency both within the solvency ii framework and with other regulations applicable to 1 see the action plan on building a capital markets union. The purpose of the guidelines is to adopt a consistent and convergent approach to solvency ii preparation across europe and to mitigate the risk that supervisors will adopt their own approaches at a national level. Solvency ii solvency and financial conditions report. We develop a realistic stochastic asset and liability. Commentary around solvency ii requirements for insurance.
This paper aims at providing advice on the solo treatment of participations in credit and financial institutions for the determination of own funds as required in article 92 of the solvency ii. Status on solvency ii and its challenges for actuaries the directives requirements the latest consultation papers why harmonisation of technical provisions across europe is difficult the current discussion between ceiops and groupe consultatif best estimate papers. Solvency ii on 20 march the pra published policy statement 215 solvency ii. Solvency ii in article 12 of commission delegated regulation ec, 2014 prescribes the indisputable exception of valuation methods, where goodwill and other intangible assets, e. Moreover, where exemptions or limited reporting has been approved by the regulator, alternative templates may apply as indicated below. Solvency ii impacts on the investment policy of insurers. Under the new european solvency ii capital requirements life insurance companies have to implement a marketconsistent valuation framework. At the portfolio level, diversification effects must also be generated as far as possible, optimizing the investment allocation. Revision of the solvency ii standard formula approach. Unfortunately, the reality is far from that ideal and, for many insurers in many countries, solvency. The purpose of this note is to propose a consistent framework for the treatment of. Solvency ii sii requires firms to consider all possible future cashflows. Level ii ceiops implementing measures consultation papers on level 2 implementing measures nov 2009 repackaged loans investments cp63 advice on extension of recovery period cp64 partial internal models cp65 solvency for groups with centralised risk management cp66 treatment of participations cp67. Solvency ii analysts briefing 4 the road to solvency ii on the final straight solvency ii regime becomes fully applicable on 1 january 2016 preparatory phase 20142015 successfully concluded level 1, 2 and 3 documents finalised and mainly.
Table 1 participations in related undertakings that are financial and credit institutions which individually exceed 10% of items included in a i, ii, iv and vi of article 69, not including consolidated strategic. Paneuropean personal pension product pepp innovation. The cea has always supported the solvency ii project and favours the introduction of a robust economic riskbased prudential regime that follows the principles set out in the solvency ii framework directive. Ceiops advice for level 2 implementing measures on. A new regime for insurers the policy statement which sets out the pras final solvency ii rules and accompanying supervisory statements together with providing feedback on the responses to earlier consultation papers. Solvency ii value statutory accounts value c0010 c0020 assets goodwill r0010 deferred acquisition costs r0020 15,005,629. They also set out the pras expectations of firms in relation to how participations in reinsurance firms are reflected in the solvency capital requirement at the solo level. Ii nonlegislative acts regulations commission delegated regul ation eu 201535 of 10 october 2014 supplementing directive 20098ec of the european parliament and of the council on the takingup and pursuit of the business of insurance and reinsurance solvency ii.
A new regime published on 20 march 2015 this supervisory statement is of interest to all uk solvency ii firms and to the society of lloyds. The valuation for solvency ii purposes is set in principle at the fair value market value. A strategic participation is defined as an equity investment which. Aegon solvency and financial condition report qrts 2017. Solvency ii value assets c0010 r0030 r0040 r0050 r0060.
In some areas, further detail will need to follow, presumably in the second set of guidelines due to be released in december 2014. Solvency iis economic balance sheet and solvency capital requirements would replace several current measurement systems and leave insurers in a simpler position. The solvency ii directive is a new regulatory framework for the european insurance industry that adopts a more dynamic riskbased approach and implements a nonzero failure regime, i. However, the material will help all firms move forward with their solvency ii preparations for go live on 1 january 2016. It represents approximately twothirds of the basic solvency capital requirement bscr for a life solo insurance undertaking, onethird for a nonlife solo undertaking, and globally more than a half of the whole eu insurance markets capital charge. Cbi solvency ii matters 7 may consultation open until 19 june. Supervision of group solvency for groups with centralised risk management. Ra publishes final rules and supervisory statements on. Solvency and financial condition report hannover re. The default position of solvency ii, in article 2621, is that requirements of full group supervision apply mutatis mutandis. Supervision of group solvency for insurance and reinsurance undertakings that are subsidiaries of an insurance holding company or a mixed financial holding company.
Insurance and reinsurance news january 2015 solvency ii. The solvency ii level 1 framework directive leaves open the detailed treatment of participated undertakings when calculating the scrs at various levels. Proposal for an alternative treatment of equity risk under solvency ii strategic participations and longterm equity investment strategies. Guidance is therefore required to ensure that this issue is addressed in a consistent manner at level 2. The scr solvency capital requirements at the reporting date of 31 december 2016 are illustrated in the following table. It is likely that firms can envisage future scenarios which are not present in the data used to develop gross claims provisions, for example, particularly if the firm is using limited history for its projections. It is, however, recognised that there are practical challenges in this application. Insofar as ifrs values appropriately reflect the fair value, these values are applied to solvency ii. Solvency ii update from the cea the framework directive provides the potential for a major step forward in eu insurance regulation the proposed text incorporates a range of features, which the industry has for a long time strongly advocated use of a riskbased economic approach marketconsistent approach for valuing assets and technical.
Solvency ii update unlisted equities, longterm equity investments and unrated debt based on the technical advice of eiopa, the european commission ec delegated regulation of 8. While some insurers will opt for the standard formula as the basis for an economic view of their business, they should be aware of its limitations. Hri has been granted approval by the cbi to use volatility adjustments to value the best estimate liability bel beginning with 31 december 2018. However, due attention should be paid, at this stage, to the. Title i valuation and riskbased capital requirements pillar i, enhanced governance pillar ii and increased transparency pillar iii arts. Holdings in related undertakings, including participations the company has investments in wholly owned subsidiaries which have been deemed to be strategic participations under the solvency ii guidelines. This guidance paper provides a highlevel overview of the key aspects of solvency ii related to insurance groups and aims to assist these groups to prepare for the implementation of solvency ii. For the affected kvgs, solvency ii firstly results in a necessity to identify the own capital requirements of the insurer at the individual investment level. Contents ii appendix i offer and acceptance 26 appendix ii unfunded participations default notice 28 appendix iii funded participations demand notice 29 appendix iv certain u.
Cea paper on treatment of participated undertakings. Surplus participation schemes for life annuities under. Solvency and financial condition report disclosures. The pra is required to transpose the directive by tuesday 31 march 2015 and the solvency ii regime will apply to all affected firms from 1. Framework directive 20098eu, introducing the essential principles of the new regime. Regulation 201535eu solvency ii delegated regulation. Regulation 201535eu the socalled delegated acts a second level measure, containing detailed measures on the new regime, recently amended by eu delegated regulation 2016467. As the drafting of the level 2 and level 3 texts are still being finalised at the time of publication of this guidance paper, changes may be effected. Quantitative reporting under solvency ii solo undertakings and groups should identify the subset of templates that applies to their business as not all the templates apply to all undertakings.
Guidelines on treatment of related undertakings, including. Consideration of nonlife reinsurance under solvency ii, insurers have a choice of which methods they use to assess risk and capital. A special challenge is the estimation of the market value of liabilities for products containing future discretionary surplus payments such as withprofit or participating life annuities plas. These guidelines cover the treatment of all related undertakings in the calculation of the solvency capital requirement hereinafter scr and include guidance on the determination of own funds in. Transitional measures key points the pra is consulting on draft rules to implement solvency ii transitional measures for riskfree interest rates and technical provisions as well as a draft supervisory statement on this matter. On 23 january 2015, the pra published a consultation paper that sets out draft rules on transitional measures for riskfree interest rates and for technical provisions, necessary. Solvency ii project, including the list of implementing measures and timetable until implementation. Report on the companys solvency and financial position. Solvency capital requirement using the standard formula breakdown by risk category. The solvency ii regulatory framework has different layers at supranational level. Proposal for an alternative treatment of equity risk under.