Consultation focuses on technical criteria for assessing third-country equivalence in relation to reinsurance and group supervision. To be considered equivalent, a third-country regime must meet each of the specified principles and objectives.
The Consultation Paper provides draft advice on the Level 2 implementing measures referred to in Articles 172 (reinsurance supervision – Chapter I), 227 (group solvency calculations – Chapter II) and 260 (group supervision - Chapter III) of the Solvency II Directive. Where there are common elements between the three articles (e.g. notably in respect of supervisory cooperation, exchange of information and the supervision of undertaking(s) financial condition) a consistent approach has been followed. Each chapter of advice is designed to stand alone, since third countries can be assessed separately in respect of particular articles. For example, the EC may decide to assess a third country only for reinsurance equivalence but not for group equivalence.
The approach adopted in this Consultation Paper is similar to that used by CEIOPS in assessing the equivalence of third country regimes under Directive 2005/68/EC (Reinsurance Directive); namely, it identifies the key supervisory principles encapsulated in the Solvency II Directive and the objectives each supervisory principle seeks to achieve. In order to be considered equivalent, a third-country regime will have to meet each of the principles and objectives specified in the advice. For each principle and objective, the ‘indicators’ of equivalence are also outlined - namely, those factors which provide guidance in determining whether the relevant principles and objectives are achieved.
All three equivalence assessments incorporate an indicator relating to internal models. CEIOPS does not consider that the existence of an internal models regime is a prerequisite to a positive equivalence determination under any of the relevant articles of the Solvency II Directive. However, where an internal models regime exists, and is part of the fabric of supervision within a third country, the internal models regime needs to be equivalent to that established under the Solvency II Directive.
The Level 1 text sets out a primary objective in requiring an economic approach to valuation of assets and liabilities under Article 75 whilst including in the recitals a secondary objective of ensuring that solvency valuation rules to the extent possible should be compatible with international accounting developments. This will result in similar valuation infrastructure for both accounting and solvency purposes, thereby limiting the administrative burden on (re)insurance undertakings. Nevertheless, depending on the development of international accounting standards, CEIOPS recognizes that adjustments to accounting standards may be needed for an ‘economic approach’.
Deadline for comments is 5 February 2010
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