The objective is to contribute to a higher degree of supervisory convergence in the use of capital add-ons between supervisory authorities in the different Member States and to highlight any concerns regarding the capital add-ons framework. The analysis is based on 2017 year-end Solvency II data.
Albeit a slight increase in the use of capital add-ons can be seen, the overall usage remains extremely limited. During 2017 six NCAs have set capital add-ons to 23 solo insurance and reinsurance undertakings. This limited usage might be due to the negative image that is attributed to capital add-ons or to the level of judgement that is associated to the decision and calculation of the capital add-ons which in turn inhibits supervisors from using it.
Even if the capital add-ons are not used often, when used they have indeed a material impact on the Solvency Capital Requirement (SCR) of some of the entities. The weight of the capital add-on ranges from a low 1 % to a high 83 % respectively with an average of 30 % of the total SCR.
The capital add-on seems to be a good and positive measure to adjust the SCR to the risks of the undertaking, when the application of other measures is not adequate - such as the development of an internal model - as in 18 cases the capital add-on was already set in 2016.
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