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The Council Working Party reached a compromise on the Solvency II directive adding some new recitals such as on supervision, group support, surplus and eligible own funds, and the introduction of an equity dampener to the proposal.
With regard to third country equivalence insurance and re-insurance supervision, provision should be made for the Commission to make a binding decision regarding the equivalence of third country solvency regimes. For third countries where no decision has been made by the Commission the assessment of equivalence should be made by the group supervisor after consulting with other relevant supervisory authorities.
The full document is attached below.
NEW RECITALS
Recital on Article 70:
The Directive reflects an innovative supervisory model where a leading role is assigned to a lead the group supervisor, whilst recognising and maintaining an important role to the solo supervisor. The powers and responsibilities of supervisors should go hand-in-hand with their accountability.
Recital on Article 90
Surplus funds should be valued in line with the economic approach laid down in the Directive. In this respect, a mere reference to the evaluation of surplus funds in the statutory annual accounts should not be sufficient. In line with the requirements on own funds, surplus funds should be subject to the criteria laid down in the Directive on the classification into tiers. This means, inter alia, that only surplus funds which fulfil the requirements for classification into tier 1 should be considered as tier 1 capital.
Recital on Article 105bis
The Solvency Capital Requirement should reflect a level of eligible own funds that enables insurance and re-insurance undertakings to absorb significant losses and that gives reasonable assurance to policyholders and beneficiaries that payments will be made as they fall due. Provision should also be made that Member States may allow an approach to equity risk whereby the calibration of the capital requirement should properly take into account the long holding period of assets that is typical in insurance business (where liabilities could be of a long duration), in particular for certain types of assets, such as equity, and shall not discourage undertakings from holding participations in financial and non-financial firms. The typical holding period is calculated taking into account the investment strategy of the undertaking, its asset-liability management, and the duration of liabilities. The assessment of the investment strategy should reflect in particular the long-term nature of strategic participations. The duration of liabilities used in the calculation of the typical holding period should not be longer than the average run-off period of the insurance or re-insurance contracts of the undertaking.
Recital on Article 105ter
To avoid the exacerbation of procyclical effects of prudential requirements, a macro-economic dimension should be introduced in the supervisory rules and practices.
First, the equity risk sub-module should include a symmetric adjustment mechanism (equity dampener) to avoid that insurance and re-insurance undertakings would be unduly forced to raise additional capital or sell equities as a result of an adverse movement in equity markets and that they unduly buy equities as a result of a favourable movement in equity markets.
Second, in the event of exceptional falls in financial markets and where this adjustment mechanism is not sufficient to enable insurance and re-insurance undertakings to comply with their Solvency Capital Requirement, provision should also be made to allow supervisory authorities to extend the time period which undertakings have to re-establish the level of eligible own funds covering up to the Solvency Capital Requirement.
Recital on Article 210
Subject to Community and national law, mutuals and mutual-type associations are able to come together by constituting concentrations or groups. Those groups are not constituted with capital ties but through formalised strong and sustainable relationships, based on contractual or other material recognition that guarantees a financial solidarity between the mutuals or mutual-type associations. Where a significant or dominant influence is exercised through a centralised co-ordination, the mutuals and mutual-type associations shall be supervised according to the same rules as those provided for groups constituted through capital ties in order to achieve an adequate level of protection for policyholders and a level playing field between groups.
Recital or Article 235:
Whereas some provisions of the Directive provide explicitly for a mediation or a consultation role for CEIOPS, this should not preclude CEIOPS from playing a mediation or a consultation role also with regard to other provisions.
Recitals on Article 237
New recital: examples of legal instruments backing the group support declaration (e.g. first demand guarantee):
Different legal instruments may allow for a prompt transfer of funds called according to a group support declaration. In particular, first demand guarantee mechanisms that are already established in the international financial community may provide a high level of certainty to the transfer of funds.
Other instruments may be used, without prejudice of the implementing measures adopted pursuant to this Directive.
Recital on Article 238: relevance of the recovery plan/short term finance scheme depending on the promptness of recovery:
The recovery plan (resp. the short term finance scheme) shall be submitted to the supervisory authority within 2 months (resp. 1 month) after the breach of the Solvency Capital Requirement (resp. the Minimum Capital Requirement). Where the undertaking has recovered its Solvency Capital Requirement (resp. Minimum Capital Requirement) in the meantime, there is no further need for a recovery plan (resp. short-term finance scheme). In particular, where a new declaration of group support (resp. a prompt transfer of own funds) sufficient for the recovery, is effective before the end of the 2 months (resp. 1 month), the recovery plan (resp. short-term finance scheme) is no more needed.
Recital on Article 244:
Where the parent undertaking is not able to meet its group support obligations (global crisis in the group), liabilities resulting from insurance contracts entered into by the parent undertaking shall not be treated more favourably than liabilities resulting from insurance contracts entered into by any subsidiary which benefits from a group support declaration. In addition, liabilities resulting from insurance contracts entered into by subsidiaries benefiting from a group support declaration shall be treated on an equal footing, as far as possible. Therefore, some rules are explicitly provided in the
Directive to ensure a balanced redistribution of own funds where the parent undertaking is not able to meet its group support obligation.
Recital on article 251
(74a) In light of the increasing competences of the group supervisor it has to be ensured that the criteria for choosing the group supervisor can not be arbitrarily circumvented. In particular in cases where the group supervisor will be designated taking into account the structure of the group and the relative importance of the insurance and re-insurance activities in different markets, internal group transactions as well as group reinsurance shall not be double-counted when assessing the relative importance within a market.
Recital on Article 252: objectives of the college:
The activities of the college shall be proportionate to the nature, scale and complexity of the risks of the group and the cross-border dimension. The college of supervisors shall be set up to ensure that co-operation, exchange of information and consultation processes among the supervisory authorities of the college, are effectively applied in accordance with Title III of this Directive. Supervisory authorities shall use the college to promote convergence of their respective decisions and to co-operate closely to carry out their supervisory activities across the group under harmonised criteria.