CEIOPS consultation on treatment of 'deeply subordinated debt'
09 December 2005
The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) issued a consultation paper on the treatment of 'deeply subordinated debt', which concerns modifying the current insurance Directives to treat, under certain conditions, ‘deeply subordinated debt’ as own funds, taking into account that the current classification of capital has been blurred by the increasing use of ‘hybrid capital’.
The proposal suggests that deeply subordinated debt is allowed up to 15% of the required solvency margin and, given their financial characteristics, considered separately from perpetual subordinated debts, which should not exceed the current limit of 50% of the solvency margin.
The three alternative approaches can be set out as:
not to embark on amending the current legislation and wait to introduce any changes as a part of a comprehensive review of prudential standards as agreed under Solvency II;
to amend the current insurance Directives according to the proposal presented by the French delegation; or
to amend the current insurance Directives to allow for the use of all forms of hybrid capital for solvency margin purposes.
In particular, CEIOPS would be interested in hearing stakeholders’ views on the importance of achieving cross-sectoral alignment, the urgency of the need to change the definition of eligible elements of capital and give indication of the quantitative impacts that the various options would have on the undertakings' capital position.
Due to the increase in Consultation Papers expected in 2006 CEIOPS considers it necessary to shorten the consultation period under its consultation policy to two months.
Deadline for comments is 09 February 2006
Document
© CEIOPS
