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["Comments on Recitals"]
["Member\nState","Recital","Comment","Revised text"]
["CEA","002","From an economic point of view DTA/ DTL should be considered for all items with a positive value for tax purposes even if those items are not recognised on the SII balance sheet. Otherwise tax payments could be over or under-stated under Solvency II.","Insurance and reinsurance undertakings should calculate deferred tax assets or liabilities in relation to all items that are recognised for solvency purposes and in the tax balance sheet."]
["CEA","010","[Please see the CEA key priority issues paper]\nWe welcome the allowance for diversification up to entity level in the risk margin. However, this should be extended to allow for diversification up to group level.\n\n","The calculation of the risk margin should be based on the assumption that the whole portfolio of insurance and reinsurance obligations is transferred to another insurance or reinsurance undertaking. In particular, the calculation should take the diversification of the whole portfolio into account up to group level."]
["CEA","012","In line with the principle of proportionality.","The segmentation of insurance and reinsurance obligations into lines of business and homogeneous risk groups should reflect the nature and scale of the risks underlying the obligation. The nature of the underlying risks may justify segmentation which differs from the allocation of insurance activities to life insurance activities and non-life insurance activities, from the classes of non-life insurance set out in Annex I of Directive 2009/138/EC and from the classes of life insurance set out in Annex II of Directive 2009/138/EC."]
["CEA","013","The illiquidity premium can be earned on all illiquid assets, which will not only be the case during periods of “stressed illiquidity”.\nIf the market is considered “liquid” there would be expected to be no material liquidity premium observed. In this case, a formulaic approach could still be used, without the need for Eiopa to exercise discretion to define “periods of stressed illiquidity”.","During periods of stressed In illiquidity in financial markets, the interest rate that can be earned on temporarily illiquid assets in excess of the interest rate that can be earned on credit-risk free liquid assets may be attributable to sources other than credit risk. Investors capable of holding illiquid assets that can become temporarily illiquid, in particular insurance and reinsurance undertakings matching their liabilities with such assets, are therefore earning an illiquidity premium in those periods of stressed liquidity. The inclusion of an illiquidity premium in the risk-free interest rate term structure used to calculate the best estimate with respect to the insurance and reinsurance obligations is intended to eliminate the valuation mismatch between the assets and liabilities in particular during periods of stressed liquidity and mitigate potential undue pro-cyclical effects of the financial system."]
["CEA","014","The illiquidity premium may be earned on all illiquid assets available in the financial markets. Not just those which are quoted. Indeed, non-quoted assets would be expected to be less liquid than quoted assets.\nAdditionally, in principle, illiquid assets may be available for longer durations than the point at which the extrapolation of the risk-free curve begins. The risk-free curve is extrapolated precisely because there is an illiquid market for risk-free instruments beyond this point.\n","The illiquidity premium cannot be reliably earned in the financial markets in relation to maturities beyond the point where no market data is available. Therefore, no illiquidity premium should be applied to the extrapolated part of the relevant risk-free interest rate term structure."]
["CEA","015a","The starting point for extrapolation of the Euro curve should thus be significantly earlier compared to QIS5. Current indications are that extrapolation should start at around 20 years for Euro Swaps and later for Sterling Swaps, and will differ as appropriate for other currencies. \n[We refer to our liquidity ratio methodology as set out in the CEA paper on long-term guarantees:\nhttp://www.cea.eu/uploads/Modules/Publications/Working%20Group%20on%20long%20term%20guarantees.pdf ]","Extrapolation of the risk-free curve should start where markets are not sufficiently deep and liquid for undertakings to match the cash flows of their technical provisions. The extrapolation method should result in a smooth curve and should take into account data that does not fully meet the criteria (the criteria being deep, liquid and transparent markets as referred to earlier in the paragraph)."]
["CEA","016","We welcome this paragraph ","The determination whether a method of calculating technical provisions is proportionate to the nature, scale and complexity of the risks should include an assessment of the model error of the method. But this assessment should not require insurance and reinsurance undertakings to specify the precise amount of the model error"]
["CEA","019","The wording is inconsistent with the framework directive which states that in order to be qualified as Tier 1 the item should substantially posses the relevant characteristics. Also, the directive refers to high quality items and not to highest.","Tier 1 should be made up of own-fund items which are of a high quality and which fully absorb losses to enable an insurance or reinsurance undertaking to continue as a going concern."]
["CEA","022/023","We strongly support the current Commission proposals for the full value of in force cash flows relating to existing business to be classified as Tier 1. Applying an SCR stress and additionally tiering the item is a double-counting of the risk, and insurers already cover the risk that future cash flows do not occur as expected under the SCR.\n[Please see the CEA key priority issues paper]","The assessment of loss-absorbency in a winding-up in accordance with Article 93 of Directive 2009/138/EC should not involve a comparison of the excess of assets over liabilities valued on a going-concern basis against the excess of assets over liabilities valued under the assumption that winding-up proceedings have been opened in relation to the insurance or reinsurance undertaking. \nThe amount of the excess of assets over liabilities that is included in Tier 1 should not be adjusted for amounts that relate to expected profits that result from the inclusion in the calculation of technical provisions of premiums on existing contracts that will be received in the future."]
["CEA","024","We disagree with this recital and instead believe that moderate step-ups should be allowed in Tier 1. This is because the call is optional, and would only be exercised if market conditions allow undertakings to refinance at a lower cost than the new stepped-up coupon. Under stressed conditions this is very unlikely to be the case. \n[Please see the CEA key priority issues paper]","Incentives to redeem increase the likelihood that an insurance or reinsurance undertaking will repay or redeem a basic own-fund item when it has the option to do so. Examples include contractual increases in the dividend or interest rate combined with a call option. Own-fund items having such features should be limited to ensure that the objective of stopping cash out-flows in the form of repayment or redemption of the own-fund item once the Solvency Capital Requirement is not complied with is not undermined and should only be classified as Tier 2 or Tier 3."]
["CEA","025","The excess of assets over liabilities should be considered as a whole (i.e. under an economic approach it does not make any sense to split it according to accounting items which do not have an economic value under Solvency II) and should not be subject to tiering which should only apply to subordinated debt items.\nWe are concerned that the concept of a reconciliation reserve will inadvertently result in \"sub-tiers\" if undertakings are required to disclose an artificial split of tier 1 capital. \nThis appears to be a concept  that has been copied over from banks and we question the need for this copy across. A comparison between the solvency of banks and insurers is not relevant or meaningful given the different business models and the completely different solvency regimes for the two sectors (different concepts behind the starting balance sheets, different calibrations of capital requirements, different role of pillar 2, etc).","In order to derive the excess of assets for the purpose of classifying own fund items into tiers, insurance and reinsurance undertakings should take the excess of assets over liabilities, valued in accordance with Article 75 and Section 2 of Directive 2009/138/EC and separate this into amounts corresponding to capital items in their financial statements and a reconciliation reserve. The reconciliation reserve may be positive or negative. The classification of the excess of assets over liabilities should be on the basis of the criteria used to classify own funds in accordance with Article 93 of Directive 2009/138/EC of the excess of assets over liabilities, valued in accordance with Article 75 and Section 2 and not the loss absorbency of the capital items in the undertakings financial statements."]
["CEA","032","No rationale is given to only focus on  mass lapse risk.","The modelling of mass lapse risk in the Solvency Capital Requirement standard formula should be based on the assumption that the risk relating to the options that a ceding insurance or reinsurance undertaking of a reinsurance contract may exercise is not material for the accepting insurance or reinsurance undertaking"]
["CEA","033","We welcome this paragraph","The modelling of the mass accident risk should be based on the assumption that the exposure of insurance and reinsurance undertakings to mass accident risk situated in third countries is not material."]
["CEA","034","[Please see the CEA key priority issues paper]\nAll participations should be considered as strategic by their very nature – as discussed in our comments to IM27/ Para 152 of the consolidated IM.\n","Insurance and reinsurance undertakings should assess the participation in all related undertakings in order to identify those which are of a strategic nature. Taking into account the likely reduction in the volatility of the value of related undertakings, within the meaning of art. 212 of the Directive 2009/138/EC, arising from the strategic nature of those investments, the calibration of the equity risk on the investments in related undertakings which are of strategic nature should reflect theis likely reduction in the volatility of their value arising from the strategic nature of these investments, their long-term holding and the influence exercised by the participating undertaking on those related undertakings."]
["CEA","038","We strongly support this new recital.","The calibration of the interest rate risk at longer maturities should reflect that the ultimate forward rate towards which the risk-free interest rate term structure converges is stable over time and only changes because of changes in long-term expectations."]
["CEA","039","Note that this recital appears to repeat Recital 34.\nAll participations should be considered as strategic by their very nature – as discussed in our comments to IM27/ Para 152 of the consolidated IM.\n[Please see the CEA key priority issues paper]","Insurance and reinsurance undertakings should identify which of its related undertakings are of a strategic nature. The calibration of the equity risk on the investments in related undertakings which are of strategic nature should reflect the likely reduction in the volatility of their value arising from the strategic nature and the influence exercised by the participating undertaking on those related undertakings. "]
["CEA","042","We received feedback following QIS5 that the current design of the illiquidity premium stress is illogical: The illiquidity premium should be shocked as part of the spread risk module and so should be shocked up and down in line with the spread risk shocks, rather than under a separate risk module.","As a portion of the illiquidity premium observed in the financial markets is recognised in the calculation of technical provisions, insurance and reinsurance undertakings should be required to reflect the specific risks of an increase of change in the value of technical provisions due to a decrease change in the illiquidity premium when calculating their Solvency Capital Requirement as part of the spread risk module."]
["CEA","043","We received feedback following QIS5 that the current design of the illiquidity premium stress is illogical: The illiquidity premium should be shocked as part of the spread risk module and so should be shocked up and down in line with the spread risk shocks, rather than under a separate risk module.","Consistent with the approach set out in Article 105(5) of Directive 2009/138/EC, the market risk module shall include an additional risk sub-module in order to address the specific risks arising from the inclusion of an illiquidity premium in the calculation of the technical provisions that are not captured elsewhere in the Solvency Capital Requirement. The effect of an increase of the illiquidity premium is captured in the calibration of the parameters of the spread risk sub-module."]
["CEA","051","The assumption of an instantaneous shock, which effectively excludes any benefit from dynamic hedging, is unrealistic. In practice the shock would not happen instantaneously. \nTherefore the exclusion of dynamic hedging and future management actions is far more prudent than a 99.5th VaR. These methods should be recognised within the SCR.\n","The scenario-based calculations of the Solvency Capital Requirement standard formula are based on the impact of instantaneous shocks and insurance and reinsurance undertakings should not take into account risk mitigation techniques that rely on insurance or reinsurance undertakings taking future action, such as dynamic hedging strategies or future management actions, at the time that the shock occurs.  Dynamic hedging strategies and future management actions should be distinguished from rolling hedge arrangements, where a risk-mitigation technique is currently in force and will be replaced at the time of its expiry with a similar arrangement regardless of the solvency position of the undertaking."]
["CEA","054","We strongly object to this recital.\nUndertakings should not have to prove that diversification exists between the RFF and the rest of the company. \nThe SCR of the entity should be calculated taking into account diversification effects between the RFF and the rest of the entity. Diversification of risks means that all risks do not happen at the same time - the existence of RFFs does not change this.\nCases where diversification exists are much more frequent than cases where diversification should not be recognised. Consequently, the burden of proof should be inverted: supervisors, after justification, could ask undertakings not recognise diversification.\nThe current proposals are more penalising than Ceiops’ final advice on ring-fenced funds.","The adjustment to the calculation of the Solvency Capital Requirement as calculated using the standard formula for ring-fenced fund arrangements should allow diversification of risks within the ring-fenced fund to be recognised. The adjustment to the calculation of the Solvency Capital Requirement as calculated using the standard formula for ring-fenced fund arrangements should also be based on the assumption that there is no diversification of risks between the ring-fenced funds and the rest of the insurance or reinsurance undertaking, unless supervisory authorities demonstrate sufficient evidence that undertaking can demonstrate, to the satisfaction of the supervisory authority, that this assumption is inappropriate for that undertaking."]
["CEA","055","As a general comment, there should be a clear distinction between parameters and coefficients which should be updated more frequently and those which could be received on a less frequent basis.\nThe discount rate, illiquidity premium, last liquid point and coefficients included in the spread risk module, are examples of those that should be reviewed more frequently.\nCorrelation coefficients could be reviewed less frequently.  \nA general period will be too short for some elements but too long for others.\n","No redrafting proposed."]
["CEA","056","It is not the case that undertakings hold all the necessary information to assess and update correlation parameters.  Some of the information will be undertaking specific and some will specifically relate to the market.  Supervisory authorities should only request from (re)insurers, undertaking specific data.  Also, this kind of information should not be part of systematic reporting to the supervisor.","In order to be able to advise the Commission on future revisions of correlation parameters on the basis of suitable empirical information, EIOPA should receive appropriate data from supervisory authorities. Supervisory authorities should in any event request additional information, where applicable, receive this data from insurance and reinsurance undertakings as part of the information which is to be reported to supervisors given that it will be necessary for the purposes of supervision from the perspective of informing the use of supervisory tools such as capital add.ons, requirements to use models and undertaking specific parameters. The information could include items such as changes in assumed mortality rates, lapse rates, expense assumptions for life obligations and combined ratios or provision run-off ratios for non-life insurance obligations and should not therefore result in additional burdens for undertakings."]
["CEA","064","Undertakings should not have to calculate the SCR via the standard formula for use in their MCR if they have an approved internal model.","Insurance and reinsurance undertakings should calculate the linear Minimum Capital Requirement using a standard calculation regardless of whether the undertaking uses the standard formula or an internal model to calculate its Solvency Capital Requirement"]
["CEA","065","We welcome the clarification that no quarterly calculation of the Solvency Capital Requirement is required.","For the purposes of calculating the cap and the floor of the Minimum Capital Requirement insurance and reinsurance undertakings should not be required to calculate a Solvency Capital Requirement on a quarterly basis. Where the calculation of the Minimum Capital Requirement does not coincide with an annual calculation of the Solvency Capital Requirement, undertakings should use the last calculated Solvency Capital Requirement in accordance with Article 102 of Directive 2009/138/EC."]
["CEA","066","Consistency should be ensured with the forthcoming CRD versions as long as they are not in breach of the Directive 2009/138/EC for insurance and reinsurance undertakings. A recital should be added to cater for this.\n5% may be better described as a material interest than as a significant interest","Consistent with the prudent person principle set out in Article 132 of Directive 2009/138/EC and to ensure cross-sectoral consistency, the interests of originators that re-package loans into tradable securities and other financial instruments and the interests of the insurance and reinsurance undertakings investing in those securities or instruments should be aligned. To achieve this, the originator should retain a significant economic interest in the underlying asset."]
["CEA","068","We believe that the investment in such repackaged loan investments should be mainly guided by the prudent person principle stated by the Directive. We firmly believe undertakings will need to have an appropriate understanding of such holdings. \nThese investments are an important component of the current economy, and the present restrictions/rules could severely limit the asset management of insurance company. \nWe believe that the effect of tougher capital requirements, in connection with additional qualitative requirements for investments in repackaged loans, is harmful for the construction of a diversified portfolio. From our perspective, the entirety of new requirements directed towards investments will most certainly have a significant effect on the possibilities for insurance companies to take on market risk. The asset allocation will undoubtedly be pushed away from a diversified portfolio structure towards a concentration on certain low yield products, in particular government bonds. For these reasons, we disagree with restrictions on investments, which are considered to be a direct intervention of the supervisor in the management of the undertaking.","Insurance and reinsurance undertakings investing in tradable securities and other financial instruments based on repackaged loans should make their investment decision only after having conducted thorough due diligence, from which they should have adequate information and knowledge about the securitisation including a comprehensive and thorough understanding of the investment and its underlying exposure."]
["CEA","069","We acknowledge that the words “at least” appear in the Framework Directive however, we believe their inclusion in the implementing measures could result in an unlevel playing field.\nIt is necessary to clearly explain the purpose of the four eye principle.","The \"four-eye\" principle sets out A a basic principle of good governance is that no individual should have unfettered power over decision making. Therefore, prior to implementing any significant decision concerning the undertaking at least two persons should review that decision.  It clarifies the principle under company law that any company must have two persons in charge of the company and that one-person-controlled insurance undertakings are not allowed."]
["CEA","070","We propose to delete this Rectial as we do not believe it is in line with the spirit of the framework directive.  Rectial 31 of the Frameowrk Directive states that undertakings should be free to decide how they organise the functions, under the system of governance, in a way that does not cause undue bruden. ","In the context of the system of governance, in order to ensure independence a person or organisational unit carrying out a function should be able to carry out the related duties objectively and free from influence and to report relevant findings directly to the administrative, management or supervisory body. In order to be fully independent, as required for the internal audit function, a person or organisational unit performing such a function should, in addition, not assume responsibilities for more than one function. "]
["CEA","078","The recovery period of 21 months seems too short for an undertaking to recover. The appropriateness of the extension period should be determined with respect to recovery of the financial market as a whole.","In order to avoid pro-cyclical effects the general maximum extension period available under Article 138(4) of Directive 2009/138/EC should be such as to provide sufficient flexibility for a large number of undertakings to implement recovery measures over a sufficiently long period of time.  The maximum period of time for which the extension referred to in Article 138(4) of Directive 2009/138/EC may be granted should generally therefore not be more than 21 months. The maximum recovery period should not exceed 30 months (that is not more than 6+3+21 months).  The length of the extension period should be determined with respect to recovery of the financial markets as a whole."]
["CEA","081","We believe the wording, “should not lead” is unclear. The end result should be clarified.","The application of the proportionality principle in the area of public disclosure should not result in lead insurance and reinsurance undertakings being required to disclose any information which would not be relevant to their business or not be material."]
["CEA","084","When quantitative templates supplement the narrative Regular Supervisory Report (RSR), it would be helpful to clarify if this would refer to quarterly or annual templates. This is important as the RSR is compiled on a different default frequency i.e. once every 3 years.","No redrafting suggestions."]
["CEA","085","The CEA supports the Commission original drafting as it illustrates how proportionality may be applied in practice.","The information which insurance and reinsurance undertakings submit regularly to the supervisory authorities should be proportionate to the nature, scale and complexity of their business, and in particular to the risks inherent in that business. In order to avoid unnecessary burdens for small insurance and reinsurance undertakings where the undertaking's risk profile is less complex, those could, for example, be exempted, where appropriate, from submitting quantitative templates on a quarterly basis.  The application of the proportionality principle in the area of supervisory reporting should not lead insurance and reinsurance undertakings having to submit any information which would not be relevant to their business or not be material."]
["CEA","088","The proposed new wording provides consistency with Article 31(1).","In order to ensure comparability of supervisory disclosure, there should be a defined list of the key aspects of the application of the prudential framework on which aggregated data are to be disclosed by supervisory authorities as a minimum. Due respect will be paid to the protection of confidential data."]
["CEA","089","It should be clear that the special purpose vehicle authorization can only be granted by a supervisory authority of a country in which the special purpose vehicle is established as that supervisory authority will be responsible for the on-going supervision of the special purpose vehicle.","The supervisory authority in the Member State in which the special purpose vehicle is established should be responsible for the authorisation of that special purpose vehicle. Where a special purpose vehicle assumes risks from an insurance or reinsurance undertaking and is established in a Member State which is not the Member State in which the insurance or reinsurance undertaking is established, there should be close co-operation between the supervisory authorities."]
["CEA","090","In a life securitisation the structuring is such that the SPV starts holding the policy reserves plus the cash contributed by investors minus the commission paid to the insurer. This leaves the reserves plus a contingency fund to absorb fluctuations in experience. In each future period the insurer will transfer to the SPV the premiums on the underlying policies and receive any claim amounts due.  It is planned that the premium +/- change in reserve (this change may be up or down) exceeds the claims and this excess is used to fund the periodic interest payments to investors and build the redemption fund.  Without the future premiums the SPV is not likely to have sufficient funds to meet the future claims of the insurer or the investors. \nIn a CAT type securitisation the premium may be paid to the SPV at outset but where multi-year cover is provided it may be spread over the coverage period.\nThis has to be seen in connection with the drafting in Article 319.","The exposure of the special purpose vehicle should always be limited in order to ensure that the special purpose vehicle has assets that are equal to or exceed its aggregate maximum risk exposure. Those assets should not include future premiums."]
["CEA","092","It should be made clear that the “fit and proper” standards need to be seen “in light of the requirements of a SPV” and this should be reflected in the wording. The simplified set-up of a SPV has to be seen when applying e.g. the rules of Article 42 (1) of Directive 2009/138/EC. Here only a specified insurance risk is transferred mostly in just one contract. People running such SPVs need a certain background to properly act in this field, but only in the context of that limited transaction combined with the fact that many functions (such as risk modeling) are outsourced.","Assessments of fit and proper requirements for shareholders or members having a qualifying holding in the special purpose vehicle and for persons who effectively run the special purpose vehicle should, where relevant, take account of similar requirements applying to insurance or reinsurance undertakings reflect the nature, scale and complexity of the special purpose vehicle"]
["CEA","099","It should always be clear that the group supervisor is directly responsible for the supervision of a group.","Articles 237 to 240 of Directive 2009/138/EC assign a number of rights and duties to the group supervisor (including on exchange of information) in the supervision of insurance and reinsurance undertakings that are subsidiaries of other insurance or reinsurance undertakings and are subject to centralised risk management at the level of the parent undertaking, with a view to ensuring close cooperation between all supervisory authorities concerned.  In this context, it is necessary to harmonise the procedures applicable to the supervision of such insurance and reinsurance subsidiaries."]
["CEA","NEW","We question why the reference to the 6 months has been deleted and propose to include this recital in the regulation again.","The supervisory authorities should decide on an application for the use of an internal model within six months from the receipt of the complete application. Whether or not an application is complete should be defined in an objective way"]
["CEA","NEW","We propose to reinstate this Recital as there should be a hook in the Level 2 text to illustrate how proportionality would apply in each case.","The principle of proportionality should allow for a system of governance that reflects the risk profile of the individual insurance or reinsurance undertaking. Consideration of the principle of proportionality is especially important to avoid unnecessary burdens for small and medium-sized insurance and reinsurance undertakings by allowing less sophisticated methods to be applied, by both the undertaking carrying activities and the supervisory authority, where the undertaking's risk profile is less complex."]
["CEA","NEW","This Recital should be reinstated.\nSupervisory transparency and the exchange of information between supervisors will be essential when ensuring that Solvency II rules are applied consistently.","Supervisory disclosure aims to make information related to supervision, and in particular to prudential supervision, available in a timely manner to all interested parties, including insurance and reinsurance undertakings, intermediaries, other market participants, other supervisory authorities and policyholders and beneficiaries."]
["CEA","NEW","This Recital should be reinstated.","Supervisory disclosure aims at enhancing the effectiveness and transparency of supervision and at fostering convergence of supervisory practices and thus promoting a level playing field throughout the Union."]

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["Comments on Articles"]
["Member\nState","Article","Para-\ngraph","Comment","Revised text"]
["CEA","002 \n(former)",null,"While the exact method of applying proportionality will differ depending on specific circumstances, the Level 2 implementing measures should introduce the overarching principle of proportionality. Although this principle is mentioned in the Directive, it is not sufficient. This is because of the different legal nature of the Directive and the Regulation. A Directive addresses the Member States which are required to transform the specifications of the directive into national law. In contrast, a Regulation is applicable to persons directly. With respect to the principle of proportionality this difference is important because it must be made quite clear that the principle of proportionality is applicable to the authorities as well as to the undertakings supervised by the authorities. \nIn addition, further guidance should be given in the individual articles to help with interpretation and application, complmenting the overarching principle statement on proportionality in level 2 \n\nThe alternative is to state that the principle of proportionality as mentioned in the Directive is applicable here as well. In this regard it has no relevance that this principle is mentioned in some areas expressis verbis (e. g. reporting) but in other areas no such wording can be found.","The principle of proportionality shall be exercised when the requirements set out in this Regulation are applied. In applying these requirements, the nature, scale and complexity of the operations of insurance or reinsurance undertakings and the risks inherent in their business shall be taken into account. The principle of proportionality justifies simpler and less burdensome or more complex requirements depending on the risk-profile of the undertaking.\nInsurance and reinsurance undertakings may use simplified calculations where these are proportionate to the nature, scale and complexity of the risk faced by the undertaking.\nOr alternatively:\nThe principle of proportionality as mentioned in the Directive is applicable in all areas covered by this Regulation. Specific references to the principle of proportionality in this Regulation do not mean that this principle is not applicable in other areas where it is not mentioned expressis verbis.\n"]
["CEA","003\n(former)",null,"While the exact method of applying materiality will differ depending on specific circumstances, the Level 2 implementing measures should introduce the overarching principle of materiality (although this is not directly outlined as a principle in Level 1).\nFurther guidance should be given in the individual articles on how to apply materiality, for example ‘material risk’ or ‘material change’. ","Any information should be considered as material if that information could influence the decision-making and judgement of the intended user of that information."]
["CEA","006","1-2","We are concerned with a blanket requirement to apply IFRS. In our view, the principle for market consistency should be stated here. IFRS is not a principle, rather one tool available to achieve a market consistent valuation. We cannot preclude that other methodologies are equally appropriate. The possibility to rely on existing data and calculations is really crucial for small undertakings and should be not excluded if equivalence with a market consistent valuation is ensured.\n","Valuation methodology – general principles\n1.  Unless otherwise stated, assets and liabilities other than technical provisions shall be recognised in conformity with the international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002. (Re-)insurance undertakings which are neither obliged to prepare financial statements under international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002, nor provide such statements on a voluntary basis are allowed to recognise assets and liabilities according to local reporting requirements provided that they are deemed to be consistent with the valuation approach set out in Article 75 of the Framework Directive. If local GAAP requirements are not considered to be equivalent (re-)insurance undertakings are required to adjust the corresponding balance sheet items in accordance with Art. 75.\n2.  Notwithstanding paragraph 1, the valuation of assets and liabilities other than technical provisions shall be carried out, unless otherwise stated, in conformity with international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002 provided that those standards include valuation methods that are consistent with the valuation approach set out in Article 75 of Directive 2009/138/EC. If those standards allow for more than one valuation method, only valuation methods that are consistent with Article 75 of Directive 2009/138/EC can be used.\n3. Where the valuation methods included in international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002 are either temporarily or permanently not consistent with the valuation approach set out in Article 75 of Directive 2009/138/EC, insurance and reinsurance undertakings shall use the alternative valuation methods that are consistent with the valuation approach as referred to in Article 75 of Directive 2009/138/EC, as prescribed by EIOPA.  "]
["CEA","006","4","We are concerned by the requirement for assets and liabilities to be valued separately. This is not in line with the total balance sheet approach based on economic principles underpinning Solvency II. There is no need to split-up and value parts of the business separately under a going-concern valuation.","4. Individual assets and liabilities shall be valued separately."]
["CEA","008",null,"We do not agree with the recognition of contingent liabilities. \nIn order to measure contingent liabilities an excessive use of expert judgment would be needed as a contingent liabilities can each have unique characteristics and no reliable historical data to use to carry out the valuation. \nWe request that the EC takes into account the final advice of Ceiops, which also states that contingent liabilities are to be disclosed only.\nAdditionally, the definition of materiality remains unclear and leaves room for arbitrary interpretation. If the reference to materiality is retained, we suggest a high threshold to make clear that only a few items would have to be valued.\n","Recognition Treatment of contingent assets and liabilities\nInsurance and reinsurance undertakings shall recognise as a liability contingent liabilities, as defined in international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002, that are material.\nContingent liabilities are material if information about the current or potential size or nature of that liability could influence the decision-making or judgement of the intended user of that information.\nContingent assets and liabilities, as defined by the Commission in accordance with Regulation (EC) No 1606/2002, should not be recognised for solvency purposes. Material contingent assets and liabilities shall however be reported to supervisors and be subject to continuous assessment as part of the ORSA."]
["CEA","009","1(a)","The proposed treatment could be very onerous for non-listed participations. We do not agree with the proposal to move straight to the adjusted equity method if a quoted market value is not available. We believe that a mark-to-model approach provides a valuation that better reflects the economic balance sheet of the participations and therefore is more in line with the spirit of the Directive. A mark-to-model approach should be the method to use if a quoted market value is not available.\nThe adjusted equity method requires undertakings to set up a Solvency II balance sheet for all subsidiaries. For EEA-subsidiaries such a balance sheet exists of course. However there may be Non-EEA subsidiaries for which this will create extra burden and cost. At least for those subsidiaries a mark-to-model approach should be allowed  in accordance with Article 7 V 3 (2).\nWe would propose that the fair value hierarchy from IFRS should be used as a reference:\n1) Use market values if quoted\n2) Use mark to model approaches based on observable market input is possible\n3) Use valuation technique based on non-observable inputs (of which the adjusted equity value could be one).\n","1. Insurance and reinsurance undertakings shall value:\n(a) Holdings in related undertakings, within the meaning of Article 212 of Directive 2009/138/EC, using the default valuation approach set out in the first subparagraph of Article V3(1);\nwhere a valuation in accordance with the first subparagraph of Article V3(1) is not possible, the following shall apply:\n(i) an alternative valuation approach shall be used in accordance with Article V3(2); in the case of a subsidiary undertaking, as defined in Article 13(16) and referred to in Article 212(2) of Directive 2009/138/EC, valuation shall be based on an adjusted equity method;\n(ii) in the case of holdings in related undertakings that are not subsidiary undertakings, valuation shall be based on an adjusted equity method wherever possible. Where an adjusted equity method is not possible, an alternative valuation method shall be used in accordance with Article V3.\n"]
["CEA","009","1(b)","There should be no zero valuation of related undertakings for which the Level 1 text (Art 229) requires the book value to be deducted from the own funds of the group. We do not see why an exclusion or deduction of related undertakings at group level might have an impact on the valuation of assets and liabilities at solo level.\nFurthermore, a zero valuation and a deduction of the book value of the participation seems to result in a double-deduction. We would request clarity as to whether the book value for solvency purposes would also be set to zero.","1. Insurance and reinsurance undertakings shall value:\n(b) Notwithstanding paragraph 1, holdings in related undertakings, within the meaning of Article 212 of Directive 2009/138/EC, that are either:\n(i) excluded from the scope of the group supervision under point (a) of Article 214(2) of Directive 2009/138/EC; or\n(ii) deducted from the own funds eligible for the group solvency in accordance with Article 229 of Directive 2009/138/EC, \nat zero unless the insurance or reinsurance undertaking is able to demonstrate to the supervisory authority that the circumstances for the exclusion or deduction do not apply at solo level.\n"]
["CEA","009","1(c)","Goodwill has economic value and as such the possibility to assign value to goodwill should not be excluded. This is essential for an economic approach. Goodwill can be sold and so would have a value under a transfer.\nAssigning a nil value is inconsistent with the requirements for accounting purposes (under which goodwill is tested for impairment and if it is not impaired by definition it has a non-nil value). If goodwill is assigned a value then obviously the fact that its value maybe impaired under stress circumstances would be considered within the capital requirements.","1. Insurance and reinsurance undertakings shall value:\n(c) Goodwill at zero shall be valued in accordance with international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002 or according to local accounting principles.\n"]
["CEA","009","1(d)","We see no reason for this difference in valuation related to IFRS.","(d) intangible assets, other than goodwill, at zero, unless they can be sold separately and the insurance and reinsurance undertaking can demonstrate that there is a value for the same or similar assets that has been derived in accordance with Article V3(1) shall be valued in accordance with international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002 or according to local accounting principles."]
["CEA","010",null,"Explicit consideration of employee benefits and termination benefits is missing from this section."]
["CEA","010","2","As per Ceiops’ final advice on contingent assets and liabilities. Please see our comments to Article 8.\n","(2)  Contingent liabilities, recognised in accordance with Article V4, based on the expected present value of future cash-flows required to settle the contingent liability over the lifetime of that contingent liability, using the relevant risk-free interest rate term structure."]
["CEA","011","1","IFRS is just one but not the only suitable proxy for valuation under Solvency II (as admitted by Ceiops in its final advice with regard to the valuation of assets and other liabilities). This should be reflected in the proposals.\n","1. Insurance and reinsurance undertakings shall recognise and value deferred taxes in conformity with international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002 or according to local accounting principles. "]
["CEA","011","3","From an economic point of view DTA/ DTL should be considered for all items with a positive value for tax purposes even if those items are not recognised on the SII balance sheet. Otherwise tax payments could be over or under-stated under Solvency II. \nWe note that the first sentence of this paragraph does not seem completely in line with the new text in recital 2. Does the item need to be recognised in both the solvency and tax balance sheets or in only one of these? The wording is not clear.\n\nWe note additionally, that there are 2 possible interpretations of the wording as illustrated by the following example:\n\nSolvency basis:  assets = 100 (of which goodwill is not recognised), liabilities = 80, excess = 20\nTax basis:  assets = 150 (of which goodwill = 50), liabilities = 80, excess = 70\n\n(A) if goodwill is valued at nil in the balance sheet where it is not recognised:   \nDTA = { 70 (= taxable excess) less 20 (= SII excess, with goodwill at nil) } * tax rate\n\n(B) if goodwill is valued at nil on both sides:\nDTA = { 20 (= taxable excess, but with goodwill at nil) less 20 (= SII excess, with goodwill at nil) } * tax rate\n\nInterpretation (A) would be the appropriate treatment and the wording in the article should be extended to clarify this.","3. Insurance and reinsurance undertakings shall calculate deferred taxes in relation to all assets and liabilities that are recognised for solvency or tax purposes. Where that asset or liability is not recognised for solvency or tax purposes, then the value ascribed to that asset or liability for the purposes of the calculation set out in paragraph 2 shall be nil.  "]
["CEA","011","4","This requires an assessment of the probability of the DTA being utilised, however, under IFRS DTA already includes a deliberate assessment of recoverability. Therefore, it remains unclear which criteria should be applicable in order to demonstrate the recoverability for prudential purposes.\nFurthermore, it should be clarified that Para 4 applies to net DTAs in line with the letter of the Commission as to changes to the QIS5 specifications.","4. In the case of net deferred tax assets the insurance and reinsurance undertaking shall be able to demonstrate to the supervisory authority that it is probable that future taxable profit will be available against which the deferred tax asset can be utilised. Elements as future business, or fiscal mutualisation within a group could be used for demonstrating the recoverability of deferred tax assets. When assessing future profits, the legal time limit for carrying forward the tax deficit should be taken into account."]
["CEA","012",null,"The wording “becomes party to the contract” is not sufficiently clear.\nWe request the text is re-drafted in line with the tentative decision of the IASB staff paper 11B (week beginning April 2010).","Recognition and derecognition of insurance obligations\nInsurance and reinsurance undertakings shall recognise an insurance or reinsurance obligation at whichever is the earlier of the date the undertaking becomes a party to the contract that gives rise to the obligation and, the date the insurance or reinsurance cover begins.\n(a) the undertaking being on risk to provide coverage to the policyholder for insured events and\n(b) the signing of the insurance contract.\nInsurance and reinsurance undertakings shall derecognise an insurance or reinsurance obligation only when it is extinguished."]
["CEA","013",null,"The contract boundary is a critical point - It is vital that the implementing measures contain clearly drafted principles to avoid the concerns we witnessed in QIS5. However, with each round of re-drafting of the implementing measures, the contract boundary definition is getting more and more difficult to interpret. This is causing significant uncertainty for undertakings and would likely result in inconsistent applications - we do not believe it is sufficiently robust to be interpreted consistently in practice. The contract boundary requirements should be set out as clearly defined principles, rather than the current set of confusing rules-based requirements. Furthermore, it appears completely out-of-line with current best practices and will create a mismatch between solvency statements and risk management. \nThe valuation of assets and liabilities is central to an economic approach and is defined by the insurance contract. It is critical that the boundary of a contract is appropriately defined so all the risks and obligations are appropriately included to ensure policyholder protection. The current drafting appears to restrict the boundary of a contract such that obligations which the industry currently recognises and considers a key component of their insurance risk within existing contracts would not be recognised. \nWe should add that the Industry proposal is very conservative compared to a strict economic basis. On a true economic basis, consideration should be on an expected basis, and in line with the insurer’s other management action assumptions and so there should be no strict requirement to assume no continuance of the contracts where the insurer has a unilateral right to cancel these. Otherwise, it may not represent a realistic picture of the situation of the insurer on a going-concern.\nNevertheless, we continue to support our previous position as a workable compromise for calculating contract boundaries for Solvency II.\nWe would like to highlight, that our continued support for the conservative approach highlighted in our previous paper is conditional on the fact that expected future profits are classified as Tier 1 capital and that there is an appropriate allowance for goodwill in the valuation of assets (e.g. participations).\nThe fundamental consideration should be that if the insurer is not able to treat the contract in the same way as new business, then the cash flows under this contract should be treated as existing business. \nFinally, we should point out that the ability to adjust the fees, mortality pricing and interest rate guarantees for future premiums on a portfolio level according to changed external conditions is an excellent feature for sound risk management and shouldn’t be punished by the contract boundary proposals.","[We refer again to the joint industry proposal on contract boundaries:\nhttp://www.cea.eu/uploads/Modules/Publications/1241447091_joint-contract-boundaries-paper.pdf\n and note that we are currently discussing the updated IASB proposal on contract boundaries.]"]
["CEA","013","1(a)","It is not completely clear under which conditions premiums will be taken into account as future premiums, especially in the case of a “unilateral right”.\nE.g. premiums are enforceable, however not in the case of “en-bloc”. It is not clear whether those premiums could be taken into account as future premiums. The IFRS-II exposure draft is clearer in this respect:\n“The measurement of an insurance contract shall include premiums and other cash flows (eg claims and expenses) resulting from those premiums if, and only if:\n(a) the insurer can compel the policyholder to pay the premiums or\n(b)  the premiums are within the boundary of that contract.”\n","Boundary of an insurance or reinsurance contract\n1. For the purpose of determining which insurance and reinsurance obligations arise in relation to a contract, the boundaries of an insurance or reinsurance contract shall be defined in the following manner:\n(a) Where the insurance or reinsurance undertaking has a unilateral right to terminate the contract, a unilateral right to reject premiums payable under the contract or a unilateral right to amend the premiums or the benefits payable under the contract to an unlimited extent at a future date at the individual risk profile, any obligations which relate to insurance or reinsurance cover which might be provided by the undertaking after that date do not belong to the contract, unless the undertaking can compel the policy holder to pay the premium for those obligations."]
["CEA","013","1(c)","We do not support these new paragraphs (c) and (d). Once the contract boundary is determined, all cash in and outflows within that period should be included. However, the the current proposals are stating that only outflows relating to already paid in cash flows should be included. \n\nWe have a particular concern relating to riders attached to unit-linked and traditional contracts. This drafting it is unclear as to whether cash-flows from riders should be included in the calculation of technical provision or not. Riders form very significant part of insurance contracts in many markets; our concerns relates to riders attached to unit-linked and traditional contracts, for which premiums can be changed (but very seldom are) e.g. according to loss ratio/claims development.\nA decision on inclusion or exclusion of rider cash-flows can have a significant impact on valuation of technical provisions and amount of available capital. \nWe strongly argue for including future cash-flows (premiums and benefits) from riders within contract boundaries and request re-drafting the definition of contract boundaries in such a way that it clearly stipulates that future cash-flows from riders are to be included.\n\n","(c) Notwithstanding points (a) and (b), where an insurance or reinsurance contract \n– does not provide compensation for a specified uncertain event that adversely effects the insured person, \n– does not include a guarantee of benefits where the value of the benefits can exceed the value of premiums, \nonly the obligations that relate to premiums which have already been paid belong to the contract, unless the undertaking can compel the policy holder to pay the future premium."]
["CEA","013","1(d)","We do not support these new paragraphs (c) and (d). Once the contract boundary is determined, all cash in and outflows within that period should be included. However, the current proposals are stating that only outflows relating to already paid in cash flows should be included. \nWe do not support a requirement to unbundle cash flows. We do not perceive unbundling as a practicable option or indeed a theoretically correct option, given the economic basis of Solvency II.\nThis could result in one contract being split into 2 parts, for example one part which considers 20 year’s worth of cash flows, the other only 1 year’s worth of cash flows. This does not make sense from an economic perspective. Either a contract is in force, in which case all cash flows would arise, or the contract is no longer in force, in which case none of the cash flows arise.\n","(d) Notwithstanding points (a) and (b), where an insurance or reinsurance contract can be unbundled into two parts where a part meets the two requirements set out in point (c), only the obligations of that part which relate to premiums which have already been paid belong to the contract, unless the undertaking can compel the policy holder to pay future premium of that part. \n"]
["CEA","013","1 (f) addendum","This change is proposed to cover contracts set up under legally presribed schemes which exist at national level in some Member States.","(f) Where it is possible for the risk-coverage of the contract to be changed at a future date under legally prescribed schemes, any obligations which relate to insurance or reinsurance cover which might be provided by the insurance or reinsurance undertaking after that date do not belong to the contract."]
["CEA","013","2","The deletion of the word \"not\" is essential in order to ensure that future cashflows relating to policies for which we can change the premiums charged only together with other contracts are included, while excluding those for which we can change the premiums by re-assessing at individual policyholder level. If undertakings can only change future premiums together with other contracts the cashflows should be included.\n\nFurthermore, it is not clear whether the EC amendment to the text compared to the lst version of implementing measures has any significant impact on the resulting contract boundary. i.e. the new text:\n\"...provided that the insurance or reinsurance undertaking’s unilateral right to amend premiums or benefits at the level of that group of insurance or reinsurance contracts is itself unlimited. \"\nThis paragraph is difficult to interpret and differing feedback has been received from members.\n","2. Where an insurance or reinsurance undertaking only has the unilateral right to amend the premiums or benefits of an insurance or reinsurance contract together with the premiums or benefits of other insurance or reinsurance contracts, the undertaking's unilateral right to amend the premiums or benefits of that contract shall not be regarded as limited for the purpose of point (a) of paragraph 1, provided that the insurance or reinsurance undertaking’s unilateral right to amend premiums or benefits at the level of that group of insurance or reinsurance contracts is itself unlimited. "]
["CEA","014","1 - 2","The principle of proportionality should be included here - data collection, validation and documentation is especially burdensome.\nCompiling all data is counterproductive. This requirement would seem realistic only if it were required in an aggregated form. Furthermore, it is unclear whether the information would have to be ready at any time or whether some time would be allowed to produce the information needed.  We request that the whole of paragraph 1 is dropped and the concept included in a principle-based manner in paragraph 2.","1. Insurance and reinsurance undertakings shall compile a directory of all relevant data used in the calculation of the technical provisions in an aggregate form, specifying the source, characteristics and usage of the data in that calculation.\n2. In relation to the data used in the calculation of the technical provisions, insurance and reinsurance undertakings shall establish, implement and maintain a data policy which covers the following areas:\n(a) the definition and the assessment of the quality of data, including specific qualitative and quantitative standards for different data sets, based on the criteria of accuracy, completeness and appropriateness;\n(b) the use of assumptions made in the collection, processing and application of data;\n(c) the process for carrying out data updates, including the frequency of regular updates and the circumstances that trigger additional updates.\n(d) documentation of the structure, source and characteristics of the data used in calculating TP."]
["CEA","014","3","The current wording used in Para 3(b) and 7 is unclear. It could mean, for example, that when setting mortality rates, the data for different time periods must be consistent (which is extremely unlikely due to mortality improvements)?  Or it could mean that there should be no arbitrary changes to data sources used over time, which would appear more reasonable.","3. Insurance and reinsurance undertakings may not consider the data used in the calculation of the technical provisions to be accurate unless at least the following conditions are met:\n(a) the data are free from material errors;\n(b) there are no arbitrary changes to the data sources from for different time periods used for the same estimation are consistent;\n(c) the data are recorded in a timely manner and consistently over time."]
["CEA","014","5","With regards to the use of the term “at least” in Para 5, the conditions given are adequate. Additional conditions should not be required, therefore “at least” should be removed.","5. Insurance and reinsurance undertakings may not consider the data used in the calculation of the technical provisions to be appropriate unless at least the following conditions are met:\n(a) the data are consistent with the purposes for which it will be used;\n(b) the amount and nature of the data ensure that the estimations made in the calculation of the technical provisions on the basis of the data do not include a material estimation error;\n(c) the data are consistent with the assumptions underlying the actuarial and statistical techniques that are applied to them in the calculation of the technical provisions;\n(d) the data appropriately reflect the risks to which the insurance or reinsurance undertaking is exposed with regard to its insurance and reinsurance obligations."]
["CEA","014","7","The current wording used in Para 3(b) and 7 is unclear. It could mean, for example, that when setting mortality rates, the data for different time periods must be consistent (which is extremely unlikely due to mortality improvements)?  Or it could mean that there should be no arbitrary changes to data sources used over time, which would appear more reasonable.","7. Insurance or reinsurance undertakings shall ensure that their data are used consistently over time in the calculation of the technical provisions. Any inconsistent use of data shall be justified and documented by the undertaking."]
["CEA","017","3","The current wording is too strong – we request that the requirement is to “explain”, rather than “justify”.\n\nThe need to estimate the impact of material changes of assumptions from one period to the next would require detailed calculations on a quarterly basis.","3. Insurance and reinsurance undertakings shall ensure that assumptions underlying the calculation of the technical provisions are derived consistently over time and within homogeneous risk groups and lines of business, without arbitrary changes. The assumptions shall adequately reflect any uncertainty underlying the cash-flows.\nInsurance and reinsurance undertakings shall monitor, justify explain and document the changes of assumptions from one period to another. They shall estimate the impact of material changes of assumptions from one period to another."]
["CEA","017","4","Neither the use of the model nor the definition of current asset prices fit the criteria in Article TP21(3), which refers to highly liquid public market. \nWe believe that mark to market/model should be available. This would have practicality advantages as well as being consistent with IFRS and the level I text\n","4. Insurance and reinsurance undertakings shall derive assumptions on future financial market parameters or scenarios according to the following requirements:\n(a) the undertaking is able to demonstrate that the assumptions are appropriate and consistent with Article 75 of Directive 2009/138/EC; \n(b) where the undertaking uses a model to produce projections of future financial market parameters, the undertaking shall ensure that the model complies with the following requirements:\n– it generates asset prices that are consistent with financial markets that meet the requirements set out in Article TP21(3);\n– it assumes no arbitrage opportunity; \n– the calibration of the parameters or scenarios is consistent with the relevant risk-free interest rate term structure as referred to in Article 77(2) of Directive 2009/138/EC."]
["CEA","019","3","Use of term “realistic”\nFuture management actions can’t be considered as realistic for all future scenarios. Sometimes they are planned as reactions to situations which have not occurred before.\n\nReference to current business strategy  \nWe recommend the inclusion of this precision. Indeed, even if the major part of the management actions would be implemented considering the undertaking continue to write NEW business, on particular point, especially related to assets and cash-flows, it could lead to odd model behaviour. For instance, the management action related to the maturity of future bonds bought: if the undertaking is supposed to continue writing NEW contracts, the duration of the technical provision would stay stable and so do the maturity of future bonds investments. However, in the model used for the calculation, only premiums arising from past business would be taken into account, so the duration of the technical liabilities would decrease, and if the duration on the assets side stay the same due to an inflexible use of the on-going concern principle, it would generate an artificial duration mismatch which would false the assessment of the technical provision.","3. Assumed future management actions shall be realistic reasonable and consistent with the insurance or reinsurance undertaking’s current business practice and business strategy, including the use of risk mitigation techniques. If there is sufficient current evidence that an undertaking will change its practices or strategy, the assumed management actions shall be consistent with the changed practices or strategy. Assumed future management actions should nevertheless take into account the fact that only premiums related to existing business are taken into account in the calculation of the technical provisions. "]
["CEA","019","7","Reference to current business strategy  \nWe recommend the inclusion of this precision. Indeed, even if the major part of the management actions would be implemented considering the undertaking continue to write NEW business, on particular point, especially related to assets and cash-flows, it could lead to odd model behaviour. For instance, the management action related to the maturity of future bonds bought: if the undertaking is supposed to continue writing NEW contracts, the duration of the technical provision would stay stable and so do the maturity of future bonds investments. However, in the model used for the calculation, only premiums arising from past business would be taken into account, so the duration of the technical liabilities would decrease, and if the duration on the assets side stay the same due to an inflexible use of the on-going concern principle, it would generate an artificial duration mismatch which would false the assessment of the technical provision.","7. Insurance and reinsurance undertakings shall be able to verify that assumptions about future management actions are realistic through: \n(a) a comparison of assumed future management actions with management actions taken previously by the undertaking;\n(b) a comparison of future management actions taken into account in the current and past calculations of the best estimate.\nInsurance and reinsurance undertakings shall document and be able to explain any relevant deviations in relation to points (a) and (b). In this analysis, undertakings should take into account the fact that only premiums related to existing business are taken into account in the calculation of technical provisions.\n"]
["CEA","020","3","We are very concerned about the provision in article 20(3) which require a separate calculation of future discretionary bonuses. In Denmark the value of the discretionary bonuses is calculated as a residual between the best estimate plus risk margin and the total value of assets belonging to the policyholders. This is due to the fact that the technical result every year for with-profit policies is distributed between the owners and the policyholders (as a group) according to rules that are specified and publicised in advance. These rules are a part of what we call the Contribution principle. This method means that no complex methods are needed to calculate the value of future discretionary bonuses when first the best estimate calculation has been performed. Therefore, it should be possible to perform the calculation as a residual and not only as a separate calculation. It should be possible to use sophisticated models, but it should not be a requirement in itself.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n3. When calculating technical provisions, insurance and reinsurance undertakings shall calculate separately the future discretionary bonuses referred to in Article 78(3) of Directive 2009/138/EC."]
["CEA","021bis",null,"It is proposed to delete this article as the breakdown of cashflows should not be prescribed. For example, taxation payments charged to policy holders should not be a separate part of the cash flow-projection of the undertaking but part of the benefit payments to policy holders and beneficiaries.\nIn certain cases there are a need for reasonable approximations e.g. in relation to taxes that are proportional to the discount rate and therefore very well could be approximated by a deduction in the discount rate as well","Cash-flows\nThe cash-flow projection used in the calculation of the best estimate shall include, but shall not be limited to, the following cash-flows, to the extent that those cash-flows relate to existing insurance and reinsurance contracts:\n(a) benefit payments to policy holders and beneficiaries;\n(b) payments that the insurance or reinsurance undertaking will incur in providing contractual benefits that are paid in kind;\n(c) payments of expenses as referred to in Article 78(1) of Directive 2009/138/EC;\n(d) premium payments and any additional cash-flows that result from those premiums;\n(e) amounts recoverable from reinsurance contracts and special purpose vehicles unless specified otherwise in Article TP22;\n(f) payments between the insurance or reinsurance undertaking and intermediaries related to insurance or reinsurance obligations;\n(g) payments between the insurance or reinsurance undertaking and investment firms in relation to contracts with index-linked and unit-linked benefits;\n(h) payments for salvage and subrogation to the extent that they do not qualify as separate assets or liabilities in accordance with international accounting standards, as endorsed by the Commission in accordance with Regulation (EC) No 1606/2002;\n(i) taxation payments which are, or are expected to be, charged to policy holders or are required to settle the insurance or reinsurance obligations."]
["CEA","021bis","i","Tax consideration in BE\nThe insurer should model all the cash flows it is expecting to receive in, less all the cash flows it is expecting to pay out, as part of its best estimate. \nConsider first, if policyholders pay tax on their insurance claims after receipt, then there should be no specific consideration of this tax by the insurer. The insurer should be considering its gross payment to the policyholder only. The current wording is unclear in this regard.\nConsider then, if a tax is charged to policyholders on their premiums, via an increased premium paid to the insurer which must then be passed by the insurer to the tax authority. This would be a cashflow that passes through the insurer and so in principle should be considered within the BE.\nHowever, often the most pragmatic way to model this would be by modelling the net premium (after tax) received by the insurer within the best estimate. This is because simplifications should be possible if they have an immaterial impact on the result, or can be shown not to underestimate the TP.\nTherefore, it is not clear why this paragraph is drafted in this way, requiring the insurer to make a specific consideration of policyholder tax within the best estimate.\nLikewise, we should add that we have similar concerns for all cash flows which are by nature \"passing through arrangements\" e.g. cash flows which do not generate risks for the insurer.","(i) taxation payments which are, or are expected to be, charged to policy holders or are required to settle the insurance or reinsurance obligations. Any taxation payments charged to policyholders and directly transferred to the taxation authority should not be included in the calculation of best estimate."]
["CEA","022",null,"Expected future developments\nAlthough, in principle this requirement appears in line with an economic approach, it would be very important to apply these requirements pragmatically. The future developments considered should be highly probable and there should be sufficient evidence to support the assumptions, otherwise this requirement could include a very high degree of uncertainty and complexity.\nWe note that Article 78 only states that undertakings should take into account assumptions on inflation, expenses and future discretionary bonuses. Therefore, the current drafting goes a lot further than the Directive’s requirements.\nWe request that this article is removed, or as a compromise, the text amended to only apply to those developments that are highly probable at the calculation date.","Expected future developments in the external environment\nThe calculation of the best estimate shall take into account expected future developments that will have a material impact on the cash in- and out-flows required to settle the insurance and reinsurance obligations thereof. For this purpose future developments shall include demographic, legal, medical, technological, social, environmental and economical developments including inflation as referred to in Article 78 of Directive 2009/138/EC if they are highly probable at the calculation date."]
["CEA","023",null,"A requirement to take ALL uncertainties into account does not appear feasible.\n\nIn some cases, future risks are mitigated by premium adjustment mechanisms, where calculation parameters can be adjusted to future trends (eg inflation)","Uncertainty of cash-flows\nThe cash-flow projection used in the calculation of the best estimate shall, explicitly or implicitly, take account of all known uncertainties in the cash-flows, identifying including where relevant the following characteristics:\n(a) uncertainty in the timing, frequency and severity of insured events;\n(b) uncertainty in claim amounts, including uncertainty in claims inflation, and in the period needed to settle and pay claims;\n(c) uncertainty in the amount of expenses as referred to in Article 78(1) of Directive 2009/138/EC;\n(d) uncertainty in expected future developments referred to in Article TP9 to the extent it is practicable;\n(e) uncertainty in policy holder behaviour;\n(f) dependency between two or more causes of uncertainty;\n(g) dependency of cash-flows on circumstances prior to the date of the cash-flow.\n(a) the risk drivers which have the potential to materially affect (directly or indirectly) the frequency of option take-up rates;\n(b) the risk drivers which have the potential to materially affect (directly or indirectly) the level of moneyness.\n\nThe cash-flow projections should take account of claims inflation and premium adjustment clauses. It may be assumed that the effects of claims inflation and premium adjustment clauses cancel out each other in the cash-flow projection."]
["CEA","026",null,"It would be very important to apply the principle of proportionality here.\nFurthermore, it is important to emphasise that risk mitigation techniques currently in place should be taken into account in the valuation of options and guarantees. Risk mitigation techniques should be fully recognised under the risk sensitive approach of Solvency II.","Valuation of contractual options and financial guarantees\nWhen calculating the best estimate, insurance and reinsurance undertakings shall identify and take into account:\n(a) all material financial guarantees and contractual options included in their insurance and reinsurance policies;\n(b) factors which may materially affect the likelihood that policy holders will exercise contractual options or the value of the option or guarantee.\n(c) any risk mitigation techniques that are currently in place\n"]
["CEA","027",null,"Calculations per currency\nProjecting cash flows in all currencies could be unduly onerous for international insurers and reinsurers where there can be many currencies.  Undertakings with worldwide business cannot demonstrate all obligations in different currencies.  \nIt is common practice to deal with major currencies separately and use groupings for other currencies.","Currency of the obligation\nThe best estimate shall be calculated separately for significant cash-flows in different currencies in line with the principle of proportionality."]
["CEA","029",null,"Policy-by-policy calculations\nThe per policy calculation is a new requirement which is not in the Directive. Policy-by-policy calculations are unnecessary if the data can be grouped without loss of accuracy. \nRather than requiring policy-by-policy calculations to be the default, we believe that firms should have the freedom to group policy data. \nTherefore, grouping of policies should be possible not only in the case of an “undue burden”, but as long as the criteria (a-c) are met.","Life insurance obligations\nThe cash-flow projections used in the calculation of best estimates for life insurance obligations shall may either be made separately for each policy or. Where the separate calculation for each policy would, be an undue burden on the insurance or reinsurance undertaking, it may carry out the projection by grouping policies, provided that the grouping complies with the following requirements:\n(a) there are no major significant differences in the nature, scale and complexity of the risks underlying the policies that belong to the same group;\n(b) the grouping of policies does not significantly misrepresent the risk underlying the policies and does not significantly misstate their expenses;\n(c) the grouping of policies is likely to give approximately the same results for the best estimate calculation as a calculation on a per policy basis, in particular in relation to financial guarantees and contractual options included in the policies."]
["CEA","031",null,"We have received concerns that this article and hence the assumptions required to be used in the risk margin calculation are not clear. It is important calculations are clearly defined. It should be clearly stated that the reference udnertaking should be considered to be a mirror immage of the current undertaking. Once that is defined, many of the assumptions stated in the remainder of this article could be deleted as they will automatically follow.","The reference undertaking should be assumed to be a mirror image of the original undertaking."]
["CEA","031","1(a)","Risk Margin - Diversification\nWe strongly support the proposal to include diversification across lines of business within the risk margin. However, this should be extended to include diversification across group entities and between life and and non-life business.\n","1. The calculation of the risk margin shall be based on the following assumptions:\n(a) the whole portfolio of insurance and reinsurance obligations of the insurance or reinsurance undertaking that calculates the risk margin (original undertaking) is taken over by another insurance or reinsurance undertaking (reference undertaking);"]
["CEA","031","1(b)","Risk Margin - Diversification\nWe do not agree that diversification between life and non-life business should not be recognised. This is not in line with an economic approach.","(b) however, where the original undertaking simultaneously pursues both life and non-life insurance activities according to Article 73(5) of Directive 2009/138/EC, the combined portfolio of life and non-life insurance and reinsurance obligations relating to life insurance activities and life reinsurance obligations and the portfolio of insurance obligations relating to non-life insurance activities and non-life reinsurance obligations are taken over separately by a single two different reference undertakings;"]
["CEA","031","1(h)","Risk Margin - Residual market risk\nWe strongly support the Commission in the removal of a requirement to calculate residual market risk. \nWe have strongly questioned how residual market risk could have been assessed in a way that ensures common practices between countries and which does not increase significantly the complexity of the standard formula.\nAt the end, it could only have more penalised long-term business as retirement products which could have a high duration. ","(h) the assets are selected in such a way that they eliminate the Solvency Capital Requirement for market risk that the reference undertaking is exposed to;"]
["CEA","031","1(i)","Risk Margin - Residual market risk\nWe strongly support the Commission in the removal of a requirement to calculate residual market risk. \nWe have strongly questioned how residual market risk could have been assessed in a way that ensures common practices between countries and which does not increase significantly the complexity of the standard formula.\nAt the end, it could only have more penalised long-term business as retirement products which could have a high duration. ","(i) the Solvency Capital Requirement of the reference undertaking captures\n- underwriting risk with respect to the transferred business;\n- credit risk with respect to reinsurance contracts, arrangements with special purpose vehicles, intermediaries, policyholders and any other material exposures which are closely related to the insurance and reinsurance obligations;\n- operational risk;\n"]
["CEA","031","1(j)","Risk Margin - Loss absorbency of DT\nAfter a portfolio has been transferred, the reference undertaking will incur similar cash in and outflows as the original undertaking. In particular, the reference undertaking will generate deferred tax liabilities in the same way as the original undertaking. As a consequence, the loss absorbing capacity of these deferred taxes should be taken into account.\nSetting the loss absorbency of deferred taxes to zero is, in our view, not in line with the economic framework and is not a requirement of the Level 1 text.\nMoreover, the allowance of DT absorbing capacity would particularity decrease the risk margin for long term businesses, for which the risk margin is very expensive (due to the high duration of their technical provision).","(j) the loss-absorbing capacity of technical provisions and deferred taxes, as referred to in Article 108 of Directive 2009/138/EC, in the reference undertaking corresponds for each risk to the loss-absorbing capacity of technical provisions in the original undertaking;\n"]
["CEA","031","1(k)","Risk Margin - Loss absorbency of DT\nAfter a portfolio has been transferred, the reference undertaking will incur similar cash in and outflows as the original undertaking. In particular, the reference undertaking will generate deferred tax liabilities in the same way as the original undertaking. As a consequence, the loss absorbing capacity of these deferred taxes should be taken into account.\nSetting the loss absorbency of deferred taxes to zero is, in our view, not in line with the economic framework and is not a requirement of the Level 1 text.\nMoreover, the allowance of DT absorbing capacity would particularity decrease the risk margin for long term businesses, for which the risk margin is very expensive (due to the high duration of their technical provision).","(k) there is no loss-absorbing capacity of deferred taxes as referred to in Article 108 of Directive 2009/138/EC for the reference undertaking;\n"]
["CEA","031","1(l)","Risk Margin - Management actions\nDemanding  that the reference undertaking will adopt the same future management actions as the original undertaking seems to contradict 1(h) that says that the assets to be considered shall eliminat the SCR for market risk. In our view, choosing the strategic asset allocation is a management action.","(l) subject to points (e) and (f), the reference undertaking will adopt future management actions that are consistent with the assumed future management actions, as referred to in Article TP6, of the original undertaking. "]
["CEA","031","2","Risk Margin - Diversification\nWe propose the addition of Para 3 – We do not agree that diversification within groups should be excluded from the risk margin. Even ignoring any potential restructuring, this will be costly under current Group structures. We request justification of this approach. Diversification within the group for the purposes of the risk margin calculation should be allowed for in line with an economic methodology.","3. These principles also apply at group level on the basis of the whole portfolio of insurance and reinsurance obligations of the insurance or reinsurance group."]
["CEA","032",null,"6% CoC\nWe have concerns that the 6% is too high and has not been sufficiently justified by Ceiops. We note that it is very important that this figure will be regularly reviewed and updated, as required by the level 1 text.\n","Cost-of-Capital rate\nThe Cost-of-Capital rate referred to in Article 77(5) of Directive 2009/138/EC shall be equal to 6 % and shall be reviewed on a regular basis."]
["CEA","033","1","Risk Margin - default approach\nThis text suggests that the default approach for the risk margin calculation is a full projection of the SCR.  However, in our view, insurers should not have to prove, under the proportionality principle, that it is appropriate for them to use simplifications for this calculation. A simplified method should be standard. We note that the Risk Margin calculation in itself is an approximation in order to arrive at a market consistent valuation, and  it rests on many assumptions (e.g. the 6% CoC) which are approximate. Therefore a requirement to project forward each future SCR accurately would result in a significant burden and spurious accuracy.\nFeedback we have received from QIS5 is that across the board, the full formula is too complex and consequently was impossible to test in QIS5.\nOne of the simplifications suggested in QIS5 should be included in the drafting here. \n\nRisk Margin – Interest rate\nThe interest used should be the same risk-free rate used to discount the liabilities. There is no justification for using a discount rate excluding the illiquidity premium.\n","[One of the simplifications proposed in QIS5 should be drafted here]\n\n1. The risk margin for the whole portfolio of insurance and reinsurance obligations shall be equal to the following:\n[...]\nwhere CoC denotes the Cost-of-Capital rate, SCR(t) denotes the Solvency Capital Requirement referred to in Article TP18(2) after t years and r(t+1) denotes the relevant basic risk-free interest rate referred to in point (a) of Article IR1(1) for the maturity of t+1 years including the illiquidity premium. The basic risk-free interest rate r(t+1) shall be chosen in accordance with the currency used for the financial statements of the insurance and reinsurance undertaking.\n"]
["CEA","033","2","Companies should be allowed to use the internal model for the calculation of the risk margin if the internal model has not been finally approved but: the application process is advanced, no major issues have been identified by the supervisory authority and the delay in the approval is not due to any lack of cooperation of the undertaking.","2. Where insurance and reinsurance undertakings calculate their Solvency Capital Requirement using an approved internal model and determine that the model is appropriate to calculate the Solvency Capital Requirements referred to in Article TP18(2), undertakings shall use the internal model to calculate the amounts SCR(t) referred to in paragraph 1. \nIf the internal is not approved, but the undertaking is allowed to use the internal model on a transitional basis according to Article 210bis, or the undertaking can provisionally use its internal model according to Article 208, undertakings shall also use the internal model to calculate the amounts SCR(t) referred to in paragraph 1."]
["CEA","033","3","The allocation in the risk margin is not needed to achieve an accurate valuation. Flexibility is needed on the re-allocation methods - a variety of allocation principles are available. It should be noted that an allocation of capital and/or margin is a decision for internal management.","3. Insurance and reinsurance undertakings shall allocate the risk margin for the whole portfolio of insurance and reinsurance obligations to the lines of business referred to in Article 80 of Directive 2009/138/EC. The allocation shall adequately reflect the contributions of the lines of business to the Solvency Capital Requirement referred to in Article TP18(2) over the lifetime of the whole portfolio of insurance and reinsurance obligations. "]
["CEA","034",null,"The current drafting appears too strict.\nThe combined result of these requirements would imply that replication would be almost impossible.\nWe request that the requirements that should be satisfied by the financial instruments are consistent with the requirements set out under IM3 (valuation of assets and other liabilities) i.e. there should be a link to IFRS.\nThere should not be additional requirements over and above IM3 for these financial instruments.","Circumstances in which technical provisions shall be calculated as a whole\n1. For the purpose of determining the circumstances where some or all future cash flows associated with insurance or reinsurance obligations can be replicated reliably using financial instruments for which a reliable market value is observable as referred to in the second subparagraph of paragraph 4 of Article 77 of Directive 2009/138/EC, undertakings shall assess whether all the criteria set out in paragraph 2 and 3 are met. In this case, the value of technical provisions associated with those future cash-flows shall be equal to the market value of the financial instruments used in the replication.\n2. The cash-flows of the financial instruments shall replicate reliably the uncertainty in amount and timing of the cash-flows associated with the insurance or reinsurance obligations, in relation to the material risks underlying the cash-flows associated with the insurance and reinsurance obligations in all possible scenarios. In particular, the following cash-flows associated with insurance or reinsurance obligations cannot be reliably replicated:\n[...]"]
["CEA","035","2","It would be extremely burdensome and impracticable to require a best estimate calculated separately for each counterparty. We request that only the “sum of” the amounts recoverable should be calculated.","2. The sum of the amounts recoverable from special purpose vehicles, the amounts recoverable from finite reinsurance contracts as referred to in Article 210 of Directive 2009/138/EC and the sum of the amounts recoverable from other reinsurance contracts shall each be calculated separately. The amounts recoverable from a special purpose vehicle shall not exceed the aggregate maximum risk exposure of this special purpose vehicle to the insurance or reinsurance undertaking."]
["CEA","035","6","It is not clear what material structural basis risk would mean in practice. Therefore, this requirement could result in considerable uncertainty for insurers as to what would be permitted. \nConceptually the recovery from the SPV may have an expected value of 75% of the gross liability. If 25% is defined as material then there will be no credit for the 75% even if the entity can make a reasonable assessment using its risk assessment and modelling capabilities. \nIf insurers are holding assets that do not fully match their liabilities then a capital charge will apply and in essence you would look through any SPV structure. The wrong approach, in our view, would be to try and ban them or quasi limit their use.\nThe requirement in this article to verify the amount in a prudent, reliable and objective manner should be sufficient.","6. If cash-flows from the special purpose vehicles to the insurance or reinsurance undertaking do not directly depend on the claims against the insurance or reinsurance undertaking ceding risks, the amounts recoverable from these special purpose vehicles for future claims shall only be taken into account to the extent it can be verified in a prudent, reliable and objective manner that the structural mismatch between claims and amounts recoverable is not material."]
["CEA","036","1","We do not understand the current wording: the items reducing the default risk of reinsurance and SPVs should be integrated in the assessment of the probability of default and the LGD of the exposure and consequently be included in the technical provisions on recoverable on the asset side. It would significantly increase the complexity of the standard formula and makes the understanding of the Solvency II balance sheet more difficult if the item covering the counterparty risk of the value of recoverable is valued separately from the value of the recoverable.","1. The adjustment to take account of expected losses due to default of the counterparty, referred to in Article 81 of Directive 2009/138/EC, shall be calculated as the expected present value of the change in cash-flows underlying the amounts recoverable from that counterparty, resulting from a possible default of the counterparty, including insolvency or dispute, at a certain point in time. For this purpose, the change in cash-flows shall not take into account the effect of any risk mitigating technique that mitigates the credit risk of the counterparty. These risk mitigating techniques shall be separately recognised as an asset, without increasing the amount recoverable from reinsurance contracts and special purpose vehicles."]
["CEA","036","2","The current proposal is excessively burdensome. A requirement for such a degree of granularity is not feasible or necessary for most undertakings. Simplifications should be allowed. For example, it should be possible to group counterparties if they exhibit the same rating.","2. The calculation in paragraph 1 shall take into account possible default events over the lifetime of the reinsurance contract or arrangement with the special purpose vehicle and the dependence on time of the probability of default. Where material, it shall be carried out separately by each counterparty and each line of business, and in non-life insurance also separately for premium provisions and provisions for claims outstanding."]
["CEA","036","3","There may be certain structures where it is reasonable to believe that rates of recovery will be far in excess of 50% (e.g. reinsured External Fund Links with UK regulated unit-linked insurers with floating charges in place) but where data is extremely limited due to lack of actual defaults. The wording of this paragraph would appear to require actual recovery data to be available in order to justify a rate higher than 50%, which would be excessively prudent in some circumstances. \nTherefore, the 50% should not be a hard assumption that is impossible to over-turn without providing proof to an unreasonable or unrealistic level.\nIn general, limits should not be fixed at level 2.","3. The average loss resulting from a default of a counterparty, referred to in Article 81 of Directive 2009/138/EC, shall by default not be assessed at lower than 50 % of the amounts recoverable without the adjustment referred to in paragraph 1, unless there is a reliable basis for another assessment."]
["CEA","036","4","It is not clear that the original wording would allow for any arrangements that overlay the actual assets held and improve the security of the SPV.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n4. The probability of default of special purpose vehicles referred to in Article 211 of Directive 2009/138/EC shall be calculated on the basis of the credit risk inherent in the assets held by the special purpose vehicle. "]
["CEA","036","5 \nNEW","We request that it is clearly written how the counterparty default adjustment should be assessed. In particular, it should be specified that collateral should be taken into account when assessing the default adjustment.","5. The expected losses of the counterparty should be assessed as the LGD (allowing for any risk mitigation techniques such as collateral) of the counterparty multiplied by the probability of default.\n"]
["CEA","037",1,"The illiquidity premium needs to added to the forward curve. It is not clear from this drafting that that would be the case and seems to be suggesting that it should instead be added to the swap curve.\nThis is a crucial technical point - it is the same process for the extrapolated curve. If not, it would produce a technically incorrect result and the resulting spot curve would give illogical results and could produce negative forward rates. ","1. The rates of the relevant risk-free interest rate term structure to calculate the best estimate with respect to insurance or reinsurance obligations, as referred to in Article 77(2) of Directive 2009/138/EC, shall be calculated from forward rates as the sum of:\n(a) the forward rates of a basic risk-free interest rate term structure; \n(b) where applicable, an illiquidity premium corresponding to the insurance or reinsurance obligations.\nThe relevant risk-free interest rate term structure shall be calculated separately for each currency and maturity, based on information and data relevant for that currency and that maturity.\nThe illiquidity premium should be added to the forward rates derived from the spot rates of the basic interest rate term structure."]
["CEA","037",2,"[Please see the CEA key priority issues paper] \nThe current proposals for Eiopa to exercise discretion in the application of the illiquidity premium are not workable in practice. The illiquidity premium should be determined using a formula which is specified in level 2. Please see in more detail our comments to Para 41.","2. For each relevant currency, EIOPA shall derive and publish:\n(a) the basic risk-free interest rate term structure referred to in point (a) of paragraph 1; \n(b) the illiquidity premium observed in the financial markets referred to in paragraph 1 of Article IR6; \n(c) the ultimate forward rate referred to in paragraph 2 of Article IR4."]
["CEA","037",4,"EIOPA should continuously monitor the illiquidity in the market in to ensure an approporiate automatic mechanism is in place for undertakings to use.","4. In periods of stressed liquidity in financial markets, EIOPA shall at the same time as it publishes the information referred to in paragraph 2, also publish for each relevant currency:\n(a) the representative portfolio of assets used to determine the illiquidity premium observed in the financial markets referred to in paragraph 2 of Article IR6 and the reasons for the choice thereof;\n(b) the portion of the spread over the rates of the basic risk-free interest rate term structure attributable to expected losses on the assets referred to in paragraph 2 of Article IR6 and the reasons for the choice thereof;\n(c) the portion of the remainder attributable to unexpected credit risk of the assets referred to in paragraph 2 of Article IR6 and the reasons for the choice thereof; \n(d) where necessary, any other adjustment to the spread necessary to determine the illiquidity premium and the reasons for the choice thereof.\n"]
["CEA","038",1,"The proposals have so far not enshrined any principle which states that the risk-free term structure curve has to be free of arbitrage.","1. The rates of the basic risk-free interest rate term structure shall meet all of the following criteria:\n(a) they are free of any risk;\n(b) insurance and reinsurance undertakings are able to earn the rates in a risk-free manner in practice;\n(c) the rates are reliably determined based on financial instruments traded in a market meeting the criteria set out in paragraph 3 of Article TP21.\n(d) the rates must result in an arbitrage-free term structure."]
["CEA","038",2,"In practice, an adjustment to the swap curve for credit risk and basis risk is expected to be immaterial. We question whether it is necessary to make this adjustment.\nPlease note also, that it is important for undertakings to have certainty as to how to calculate the risk-free rate on a continuous basis, as this is a key component of the calculation of Technical Provisions. Therefore, we request the addition of the calibration of the adjustment to be made to the swap curve included within level 2, which should then be regularly reviewed to ensure it remains appropriate.","2. For each currency, the basic risk-free interest rate term structure referred to in point (a) of paragraph 1 of Article IR1 shall be derived, where appropriate, on the basis of interest rate swap rates adjusted to take account of the credit risk and the basis risk of the corresponding interest rate swaps. For this purpose basis risk shall mean the risk of loss or of adverse change in the financial situation of the holder of the interest rate swaps, resulting from the mismatch between the cash in-flows and the cash out-flows of the interest rate swap. The adjustments shall reflect the current market conditions.\nFor each currency, the adjustment for credit risk of the interest rate swaps shall be assessed at 0.10%, unless Eiopa determines and publishes a reliable basis for an alternative assessment that reflects the current market conditions."]
["CEA","038",3,"It is not clear how the credit adjustment would be calculated for non-AAA government bonds and so we would request clarity on this point within the Level 2 text.\nAdditionally, we note that Eiopa would need to adequately justify the appropriate determination of the final risk-free curve if it was based on both the swap curve and the government bond curve for different maturities.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n3. For each currency, for maturities where interest rate swap rates are unavailable or such rates are not available from markets that satisfy the criteria set out in paragraph 3 of Article TP21 government bond rates adjusted to take account of the credit risk of the corresponding government bonds shall be used to derive the basic risk free interest rate term structure referred to in point (a) of paragraph 1 of Article IR1, provided that, such government bond rates are available from markets that meet all of the criteria set out in paragraph 3 of Article TP21."]
["CEA","039",1,"[Please see the CEA paper on Long-term guarantees]\nExtrapolation of the Euro risk-free curve should start where markets are not sufficiently deep and liquid for undertakings to match the cash flows of their technical provisions. The starting point of extrapolation should thus be significantly earlier compared to QIS5. Current indications are that the extrapolation should start at around 20 years for Euro swaps and later for Sterling Swaps, and will differ as appropriate for other currencies.\nThe liquidity of the market should be assessed equally rigorously when determining the starting points for interpolation of other currencies\n","[Redrafting suggestion is currently being discussed]"]
["CEA","039",2,"[Please see the CEA paper on Long-term guarantees]\nIn converging to the long-term rate, it would be important to take account of the decreasing liquidity in the market. \nOther extrapolation methods should be evaluated for full Solvency II implementation including, for example, the Nelson-Siegel method and the CEA method based on the liquidity ratio.\nIn the context of further work needed on the overall calibration of the risk-free rate, further work is needed to define which is the most appropriate and to determine an appropriate point at which to reach the long-term rate for more liquid currencies, such as the Pound Sterling as there would need to be consistency between methodologies for different currencies.\n\n","2. For each currency, the extrapolated part of the basic risk-free interest rate term structure shall be based on forward rates converging smoothly from one or a set of interest rates in relation to the longest maturities for which they can be observed in a deep and liquid market to an ultimate forward rate. \nThe rate of convergence from market data to the unconditional ultimate long term forward rate shall take account of market liquidity."]
["CEA","039",3,"It is important to have harmonisation in the calculation of the unconditional forward rate across currencies","3. The principles applied when extrapolating the basic risk free interest rate term structure shall be the same for all currencies, in particular as regards the determination of the longest maturities for which interest rates can be observed in a liquid market and the mechanism to ensure a smooth convergence to the ultimate forward rate and the level of the unconditional forward rate."]
["CEA","040",null,"[Please see the CEA paper on Long-term guarantees]\nWhere reliable historic market data is available, the UFR should be calculated using the moving average approach.\nWhere reliable historic market data is not available, the component approach should continue to be used. This should be adjusted to use the inflation targets of the central banks and to make allowance for a term premium.\n\n","[Redrafting suggestion is currently being discussed]"]
["CEA","040",2,"[Please see the CEA paper on Long-term guarantees]\nThere is no rationale given for this new paragraph. A zero term-premium is inappropriate. Numerous academic papers support our view (for example, Cochrane and Pianezzi, 2006)\nThe term premium should be derived from observed market data in order to provide compensation for the uncertainty in whether both real rates and inflation will materialise at the assumed level.  For example, according to calculations performed on Swedish market data comparing long-term and short-term real rates over a long time period, the term premium for the Swedish market was approximately 2% in 2009.","2. The unconditional forward rate should not include a term premium to reflect the additional risk of holding long-term investments."]
["CEA","041",2,"These requirements are far too restrictive. It is possible to earn the illiquidity premium on illiquid assets. A requirement for these assets to only be illiquid in abnormal market conditions is un-necessary. The key requirement to calculate the illiquidity premium should be the fact that the asset is currently illiquid.","2. For each currency, the illiquidity premium observed in the financial markets referred to in paragraph 1 shall be calculated in a transparent, prudent, reliable and objective manner as a portion of the spread between the interest rate that could be earned from a representative portfolio of assets that insurance and reinsurance undertakings are invested in and the rates of the basic risk-free interest rate term structure. The portion shall not be attributable to expected losses, unexpected credit risk on the assets or any other source other than illiquidity. For this purpose, the assets of the representative portfolio shall be valued in accordance with paragraph 1 of Article V3 and shall be traded in markets that, except in periods of stressed liquidity, meet all of the criteria set out in paragraph 3 of Article TP21. The use of financial instruments traded in markets that temporarily cease to meet the criteria set out in paragraph 3 shall be permitted, provided that the market is expected to comply with the criteria again within a reasonable period of time. "]
["CEA","041",4,"[Please see the CEA paper on Long-term guarantees]\nAs agreed by the joint Ceiops/Industry task force on the  illiquidity premium, it is important that the resulting risk free curve is smooth. \nThe illiquidity premium should be fully applied up until the point that extrapolation of the risk-free curve begins with no phasing-out of the illiquidity premium.\nConsideration should be given to extrapolating the application of the illiquidity premium beyond the point at which the extrapolation starts.\n","4. The illiquidity premium corresponding to the insurance or reinsurance obligations referred to in point (b) of paragraph 1 of Article IR1 shall be applied for those maturities in the non extrapolated part of the basic risk-free interest rate term structure where insurance and reinsurance undertakings would be able to earn the illiquidity premium observed in the financial markets in a risk-free manner in practice.\nThere shall be no gap between the starting point of the extrapolation and the illiquidity premium cut off point. The part of the interest rate term structure where the illiquidity premium ends and extrapolation starts shall be smooth."]
["CEA","041",5,"[Please see the CEA key priority issues paper] \nThe calculation of the illiquidity premium observed in the financial markets should be based on a clear methodology that builds on the experiences and data in that market and avoids uncertainty around how the calculation is carried out based on those observations. The formula from the joint Ceiops/Industry taskforce achieves this and should be included within the level 2 implementing measures. \nCritically, this also would negate the need for anybody (be it Eiopa or anyone else) to be tasked with determining whether a market is or is not in ‘stress’ which causes uncertainty and runs the risk of exacerbating the volatility in the market.  Introducing such uncertainty cannot be a sensible basis on for the regulatory framework to require capital to be assessed on an on-going basis (it will also create an impact in the markets.) We do not believe the illiquidity premium should be applied based on a subjective judgement. The formula (subject to periodic review) should be allowed to operate automatically to determine the level of liquidity premium relative to market conditions. \nConsequently, we strongly believe that the formula based on a transformation of the observed credit spread, as per the joint taskforce should be included in the Level 2 text.","5. The illiquidity premium shall be zero for all maturities except during periods of stressed liquidity in financial markets as determined by EIOPA. EIOPA shall determine the existence of a period of stressed liquidity in financial markets if the following conditions are met:\n(a) a material part of the spread between the rates of credit risk-free liquid assets and the rates of assets that insurance and reinsurance undertakings are invested in cannot be attributed to the credit risk of the issuer and can be demonstrably attributed to the illiquidity of those assets; \n(b) it is demonstrated that the illiquidity of the assets that undertakings are invested in is more likely than not to result in undertakings selling a large part of those assets unless an illiquidity premium is taken into account in discounting technical provisions.\ncalculated as follows:\nIlliquidity premium = max (0, X * (Z  – Y))\nWhere, \nZ is the spread calculation of the margin of the yield on a published index reflecting the average rating and maturity of credit portfolios held by insurers in respect of relevant liabilities over the basic risk free rate for the applicable currency in percentage points as set out in IR2;\nY is the allowance for long term expected default on the index, 0.4%  \nX is the proportion of the spread remaining after the deduction of Y that is due to illiquidity, 50%"]
["CEA","041",6,"[Please see the CEA key priority issues paper] \nThe illiquidity premium, by its very nature, depends on the illiquidity of the market. It is not an on/off mechanism, rather the market will move over time to show differing levels of illiquidity. The discount curve should reflect current market rates, so just as the base risk-free curve should reflect the current Swap curve, the illiquidity premium should reflect the current market illiquidity. This can only be done by ensuring that the illiquidity premium is regularly updated, and so it needs to be easily re-calculated as often an undertaking wishes to re-calculate their BE Liabilities. Thus, the industry proposed the proxy formula based on market spreads, shown in our re-drafting proposal.\nThese new paragraphs added in the most recent draft of this article suggest that the illiquidity premium switches on and off, and can be calculated at one date, and then applies at that level for a set period of time. This shows a lack of understanding of the concept of an illiquidity premium in the first place, and it will not provide the effective anti-cyclical mechanism that the illiquidity premium can provide.","6. If EIOPA, for a given currency and due to stressed liquidity in the financial markets of this currency, has allowed the use of an illiquidity premium different from nil, this illiquidity premium can be taken into account in discounting technical provisions during a one year period. After the one year period, the illiquidity premium should be reduced to zero, unless the conditions that triggered the illiquidity premium in the first place, persist."]
["CEA","041",7,"[Please see the CEA key priority issues paper] \nThe illiquidity premium, by its very nature, depends on the illiquidity of the market. It is not an on/off mechanism, rather the market will move over time to show differing levels of illiquidity. The discount curve should reflect current market rates, so just as the base risk-free curve should reflect the current Swap curve, the illiquidity premium should reflect the current market illiquidity. This can only be done by ensuring that the illiquidity premium is regularly updated, and so it needs to be easily re-calculated as often an undertaking wishes to re-calculate their BE Liabilities. Thus, the industry proposed the proxy formula based on market spreads, shown in our re-drafting proposal.\nThese new paragraphs added in the most recent draft of this article suggest that the illiquidity premium switches on and off, and can be calculated at one date, and then applies at that level for a set period of time. This shows a lack of understanding of the concept of an illiquidity premium in the first place, and it will not provide the effective anti-cyclical mechanism that the illiquidity premium can provide.","7. If the financial markets at the end of the one year period are deemed still to be exceptionally stressed, EIOPA can extend the use of the illiquidity premium by another six month period, and then for as many six month periods as the stressed situation persists. After the initial one year period, EIOPA will calculate and publish the illiquidity premium at intervals of six months."]
["CEA","042",null,"We welcome the move away from the binary approach for the application of the illiquidity premium. However, we still have some concerns with the proposals as set out below. We should note additionally that simplifications may be needed on the assumptions to use for the buckets under the principle of proportionality."]
["CEA","042","1\nNEW","We request the proposed changes in line with our joint CEA/CFOF/CROF paper on the application of the illiquidity premium.","(1 addendum)  For insurance or reinsurance obligations which have discretionary benefits, the assessment of the percentage of the illiquidity premium is performed at a level of aggregation at which the liabilities and associated assets are managed."]
["CEA","042","1(a)","We request the proposed changes in line with our joint CEA/CFOF/CROF paper on the application of the illiquidity premium.","(1) The portion shall be set at 100 % for contracts obligations which meet the following criteria:\n(a) the only significant underwriting risks connected to the contracts obligations are longevity risk and expense risk; "]
["CEA","042","1(b)","We request the proposed changes in line with our joint CEA/CFOF/CROF paper on the application of the illiquidity premium.","(b) the insurance or reinsurance undertaking does not bear any form of surrender risk in relation to the contract there is no option for any form of surrender or the benefits to policyholders in case of any form of surrender are less than or equal to the technical provisions determined with the portion of the illiquidity premium set at 100%"]
["CEA","042","1(c)","We request the proposed changes in line with our joint CEA/CFOF/CROF paper on the application of the illiquidity premium.\nThis requirement in particular is far too restrictive and we request it is deleted. We understand that future cash-inflows incoming the following years could not necessarily be reinvested on assets earning the illiquidity premium. However, this is only an issue if the future in-flows are greater than the future out-flows (claims, expenses...). If not, there is no cash to reinvest, so the illiquidity premium could be earned to meet all (re)insurance obligations.","(1) The portion shall be set at 100 % for contracts obligations which meet the following criteria:\n(c) the premiums have already been paid and no incoming cash-flows are allowed for in the gross technical provisions related to the contracts.\nOR: the premiums have already been paid and no incoming cash-flows are allowed for in the gross technical provisions related to the contracts. or future incoming cash flows are not materially higher than future cash-outflows."]
["CEA","042",2,"We request the proposed changes in line with our joint CEA/CFOF/CROF paper on the application of the illiquidity premium.","(2) The portion shall be set at 75 % for \n(a) life insurance contracts obligations with profit participation other than those specified in paragraph 1.\n(b) obligations for which the benefits to policyholders in case of any form of surrender are less than or equal to the technical provisions determined with the portion of the illiquidity premium set at 75% \n(c) obligations for which there are features in the liability which significantly limit the rational policyholder’s behaviour in the case of any form of surrender. Examples of such features would include significant guaranteed rates or discretionary benefits, significant penalties in case of any form of surrender or fiscal disincentives, significant accrued benefits or final bonus, and the existence of significant in-the-money options and guarantees."]
["CEA","042","2a NEW","A zero bucket should be in place as specified.","(2a) The portion shall be set at 0 % for life insurance obligations where all investment risk is borne by the policyholder and there are no discretionary benefits."]
["CEA","042",3,"Amended to take account of the additional zero bucket which should be in place - as per our redrafting for new paragraph 2a under article 42.","(3) The portion shall be set at 50 % for contracts obligations other than those specified in paragraphs 1, and 2 and 2a.\n"]
["CEA","045",4,"Unbundling should only be applied if the risks relating to the unbundled components are material. This will reduce the administrative burden. The principle of proportionality should be considered.","4. Where an insurance or reinsurance contract covers risks across life and non-life insurance, the insurance or reinsurance obligations shall be unbundled into their life and non-life parts unless the risk in one line of business is not material."]
["CEA","045",5,"Unbundling should only be applied if the risks relating to the unbundled components are material. This will reduce the administrative burden. The principle of proportionality should be considered.","5. Where an insurance or reinsurance contract covers risks across the lines of business 1 to 28 or across lines of business 29 to 36 as set out in Annex I, the insurance or reinsurance obligations shall, where possible, be unbundled into the appropriate lines of business unless the risk in one line of business is not material."]
["CEA","045",6,"Unbundling should only be applied if the risks relating to the unbundled components are material. This will reduce the administrative burden. The principle of proportionality should be considered.","6. Where an insurance or reinsurance contract includes health insurance or reinsurance obligations and other insurance or reinsurance obligations, those obligations shall, where possible, be unbundled unless the risk in one line of business is not material."]
["CEA","047","4","We suggest to assess the materiality of a model error at entity level.","\n"]
["CEA","049",null,"These methods should be the default approach, rather than categorised as simplifications. \nThe benefits of using an approach that requires the projection of future SCRs is highly questionable, especially as the risk margin is a proxy to an unknown value (as market prices do not exist) and that a common, subjectively set, cost of capital rate is used for all companies, which introduces a significant element of approximation. \nApplying more complex calculation methods to derive a proxy for an unknown value will not increase accuracy, but will increase the burden and cost for companies and their policyholders.","Simplified calculation of the risk margin\nSubject to Article TPS1, insurance and reinsurance undertakings may use simplified methods when they calculate the risk margin, including one or more of the following:\n(1) methods which use approximations of the amounts denoted by the terms SCR(t) referred to in Article TP20(1);\n(2) methods which approximate the discounted sum of the amounts denoted by the terms SCR(t) as referred to in Article TP20(1) without calculating each of those amounts separately."]
["CEA","050",null,"As per our comments on art 49 TPS3, insurers should not have to satisfy proportionality requirements in order to use simplified calculations of the risk margin. This is particularly the case for calculations carried out more than annually.\nThe principle of proportionality and the resulting simplification rules should be enshrined more clearly. We propose not to split between proportionality for calculation of TP and SCR but to define one overall principle.","Calculations of the risk margin during the financial year\nSubject to Article TPS1, insurance and reinsurance undertakings may derive the risk margin for dates other than the end of the financial year from the result of an earlier calculation of the risk margin without an explicit calculation of the formula referred to in Article TP20(1)."]
["CEA","050bis",null,"We support the addition of this new article - but it should be expanded in scope to over health insurance obligations in line with recital 31","Simplified calculation of the best estimate for insurance obligations with premium adjustment mechanism\nFor the purpose of this article, 'premium adjustment mechanism' means an arrangement by which the insurance undertaking has the right or the obligation to adjust the future premiums of an insurance contract to reflect material changes in the expected level of claims and expenses.\nSubject to Article TPS1, insurance undertakings and health insurance obligations may calculate the best estimate of life insurance obligations with a premium adjustment mechanism using cash-flow projections which assume that changes in the level of claims and expenses occur simultaneously with premium adjustments and which result in a net cash-flow that is equal to zero, provided that:\n(a) the adjustment mechanism fully compensate the undertaking for any increase in the level of claims and expenses in a timely manner;  \n(b) it does not lead to an underestimation of the best estimate;\n(c) it does not lead to an underestimation of the risk inherent in those insurance obligations."]
["CEA","051",null,"We believe that not setting a timeline for supervisors to render their decision on AOF will lead to significant discrepancies across member states and possibly to situations where the approval of ancillary is unduly delayed.\nOur proposed timeline is in line with the spirit of Art. 34 (6) of the Framework Directive which requires that “Supervisory powers shall be applied in a timely manner”.\n\nFurthermore, we propose that a pre-approval process of AOF is foreseen under Level 3. Please see joint CEA/CROF/CFOF paper on indusrty proposal for the establishment of a pre-approval process for AOF: http://www.cea.eu/uploads/Modules/Publications/Industry%20proposal%20on%20approval%20of%20ancillary%20own%20funds.pdf\n","General provisions for the approval of ancillary own funds \n1. In any application for approval of ancillary own funds, insurance and reinsurance undertakings shall submit, as a minimum, documentary evidence that the ancillary own fund item fulfils the criteria set out in Articles AOF3 to AOF5. \n2. The supervisory authorities shall decide on the application within a reasonable period of time from the receipt of a complete application. \n3. Insurance or reinsurance undertakings shall not consider their application for approval of ancillary own funds approved until the receipt of a decision from the supervisory authorities. \n4. A decision by the supervisory authorities to reject the application for approval of ancillary own funds shall state the reasons on which it is based.\n4. Supervisory authorities should do everything in their power to reach a decision on the application as quickly as possible and within one month from the date of receipt of the complete application.\n5. If the decision requires the involvement of other supervisors then a longer period of 2 months should be granted.\n6. If CEIOPS/EIOPA is referred to in a consultation and mediation process an additional month seems appropriate."]
["CEA","052","1(c)","Delete since not in accordance with the directive.","The supervisory authorities shall base their approval on an assessment of the requirements in Article 90 of Directive 2009/138/EC, taking into account at least the following: \n(a) the legal effectiveness and enforceability of the terms of the commitment in all relevant jurisdictions;\n(b) the contractual terms of the arrangement that the insurance or reinsurance undertaking has entered into with the counterparties to provide funds; \n(c) where relevant, the insurance or reinsurance undertaking's memorandum and articles of association or statutes."]
["CEA","053","3 (a)","The concept of prompt does not appear in FD Art 89 or 90. It could be deleted in (a) and (b) without loss. If retained it should be defined with reference to the duration of policyholder liabilities.","3. In relation to paragraph 1(b), the supervisory authorities shall assess the liquidity position of the counterparties, taking into account the following:\n(a) whether the counterparties are subject to legal or regulatory requirements that may reduce the counterparties' ability to promptly satisfy their commitments under the ancillary own funds item;"]
["CEA","053","3(b)","The concept of prompt does not appear in FD Art 89 or 90. It could be deleted in (a) and (b) without loss. If retained it should be defined with reference to the duration of policyholder liabilities.","3. In relation to paragraph 1(b), the supervisory authorities shall assess the liquidity position of the counterparties, taking into account the following:\n(b) whether the legal form of the counterparties prejudices the counterparties' prompt satisfaction of their commitments under the ancillary own funds item."]
["CEA","053","5","This is not in line with the Directive.","5.The supervisory authorities shall, in assessing the counterparties' ability and willingness to pay, consider any other factors relevant to the status of the counterparties and, where relevant, the insurance or reinsurance undertaking's business model."]
["CEA","053","6","We propose the following clarification.","Where an ancillary own-fund item concerns  is provided by concerns a group of counterparties, supervisory authorities and insurance and reinsurance undertakings may assess the status of the counterparties looking at a group of counterparties as though they were a single counterparty provided that: [...]"]
["CEA","054","2","We propose the following clarification.","(2)  whether the recoverability of the funds is clear of any current or foreseeable impediments; if any current or foreseeable impediments effect the recoverability\n"]
["CEA","055",null,"This would be unreasonable, as the undertaking may not possess such data, whereas the supervisor does possess it.","Assessment of the application – Information on the outcome of past calls\n1. In accordance with Article 90(4)(c) of Directive 2009/138/EC, the supervisory authorities shall base their approval on an assessment of the information of past calls, taking into account the following:\n(a)  whether the insurance or reinsurance undertaking has past experience in recovering funds from the same or similar counterparties under the same or similar circumstances; \n(b) whether that information is relevant and reliable as regards the expected outcome of future calls. \n2. For the purposes of paragraph 1, the information shall include data relating to the insurance or reinsurance undertaking seeking supervisory approval and may also include market data where the data are relevant to the undertaking seeking supervisory approval. The undertaking shall provide the data to the supervisory authorities. "]
["CEA","056","3(b)","We strongly disagree with AOF6 (3) (b) as it could lead to unduly frequent calculations, and give too much discretionary power to supervisors. We would suggest re-drafting this paragraph to state that undertakings should recalculate the amount of the AOF when supervisors ask for it and justify their demand.","3. Where the supervisory authorities approve a method to determine the amount of each ancillary own fund item, the supervisory authorities' decision shall set out the following:\n(b)  the minimum frequency of recalculation of the amount of ancillary own funds item using that method if more frequent than annual, including the reasons for this frequency;\n"]
["CEA","056","3(c)","We think that the approval of the methodology to calculate AOF should be granted for all the life of the instrument, except if supervisors get relevant information to prove that the methodology is no more Solvency II compliant.","3 Where the supervisory authorities approve a method to determine the amount of each ancillary own fund item, the supervisory authorities' decision shall set out the following:\n(c) the time period for which the calculation of the ancillary own funds item using that method is granted.\n"]
["CEA","057","1","Change in accordance to § 4 of Article 57 AOF7 (consistency)\n","“….of Directive 2009/138/EC whether there have been any material” (instead of “relevant”). "]
["CEA","058",null,"Criteria for classification should not apply to the excess of assets over liabilities as this would result in double counting the risks covered by the SCR and furthermore, it is difficult to see how this could be applied in practice.\nWe have concerns with the “paid-in” feature required for Tier 1: the Directive (Article 93 (1)) states that Tier 1 items should be available, but not specifically paid-in. This comment is relevant for all references of “paid-in” instruments in this section.","The following basic own-fund items shall be classified as Tier 1 provided that they meet the criteria set out in Article COF2:\n(1)  the part of excess of assets over liabilities, valued in accordance with Article 75 and Section 2 of Chapter VI of Directive 2009/138/EC, comprising the following items:\n"]
["CEA","058","1(f)","Preference shares where the preferential treatment only concerns ranking between shareholders should be excluded from 1(f) and be treated as ordinary share capital.","(f) paid-in preference shares where the shareholders only have a preferential treatment regarding the dividends or the right of vote;"]
["CEA","058","1(g)","The excess of assets over liabilities should be considered as a whole (i.e. under an economic approach it does not make any sense to split it according to accounting items which do not have an economic value under Solvency II) and should not be subject to tiering which should only apply to subordinated debt items.\nWe are concerned that the concept of a reconciliation reserve will inadvertently result in \"sub-tiers\" if undertakings are required to disclose an artificial split of tier 1 capital. \nThis appears to be a concept  that has been copied over from banks and we question the need for this copy across. A comparison between the solvency of banks and insurers is not relevant or meaningful given the different business models and the completely different solvency regimes for the two sectors (different concepts behind the starting balance sheets, different calibrations of capital requirements, different role of pillar 2, etc)."," (g) a reconciliation reserve; "]
["CEA","058",2,"Referring to article 75 of the directive might be confusing as to include the initial credit spread in the valuation. We would suggest referring to article 10 of the consolidated implementation measures.","2. paid-in subordinated liabilities valued in accordance with Article 10 V6 75 of Directive 2009/138/EC. \nThe reconciliation reserve referred to in point (1)(g) shall compromise the amount that represents the total excess of assets over liabilities reduced by:\n  - the amount of own shares held by the insurance and reinsurance undertaking;\n- the foreseeable dividends and distributions;\n- the basic own-fund items included in points (a) to (f) of this Article, paragraph 1 of Article COF3 and paragraph 1 of Article COF7;\n- the restricted own-fund items that exceed the notional Solvency Capital Requirement in the case of ring-fenced funds in accordance with Article RFFOF2(2)."]
["CEA","058","2","As per our comments on art 58 1(g), we are concerned that the concept of a reconciliation reserve will inadvertently result in \"sub-tiers\" if undertakings are required to disclose an artificial split of tier 1 capital.  If the concept of a reconciliation reserve is to be maintained, then this paragraph needs to be amended (in line with art 69 para 2).","the restricted own-fund items that exceed the notional Solvency Capital Requirement in the case of a ring-fenced funds in accordance with Artcile RFFOF(2) reduced by the value of future transfers attributable to shareholders."]
["CEA","059","1(a)","We do not agree with the introduction of mutltiple layers of subordination. See joint CEA/CROF/CFOF paper on Hybrids: http://www.cea.eu/uploads/Modules/Publications/Industry%20proposal%20on%20Own%20Funds%20-%20%20%20Hybrids.pdf\n","The basic own-fund item ranks pari passu with,or senior only to, the own fund items referred to in paragraphs (1)(a) and (1)(b) after all other claims in the event of winding-up proceedings regarding the insurance or reinsurance undertaking, except that basic own-fund items referred to in paragraphs (1)(d), (1)(f) and (2) of Article COF1 may rank ahead of the Tier 1 basic own-fund items referred to in paragraphs (1)(a) and (1)(b) of Article COF1.;  "]
["CEA","059","1(e)","We do not agree that the first contractual opportunity to repay or redeem the basic own-fund item should be the maturity date of the own fund. Such a requirement ignores industry common practices where hybrid securities, particularly in the retail market, are expected to incorporate a first call date at around 5 years after the initial offering. Investors generally consider such ‘first call’ provisions as a formality and genuinely treat the hybrid as a perpetual security. This is further evidenced by the fact that the issuers incur no adverse reaction for not exercising the call option.\nFurthermore, not allowing for any incentive to redeem while setting the maturity at the first opportunity to repay seems inconsistent (redundant prudence).\nSee joint CEA/CROF/CFOF paper on Hybrids: http://www.cea.eu/uploads/Modules/Publications/Industry%20proposal%20on%20Own%20Funds%20-%20%20%20Hybrids.pdf","(e) the basic own-fund item is undated or has an original maturity of at least 10 years. The maturity date shall be deemed to be the first contractual opportunity to repay or redeem the maturity date of the basic own-fund item. The exchange or conversion of a basic own-fund item into another Tier 1 basic own-fund item of at least the same quality shall not be deemed to be a repayment or redemption. The exchange or conversion is subject to the approval of the supervisory authority;"]
["CEA","059","1(f)","Moderate Step-ups should be allowed in Tier 1 because:\n- The call is optional, and  would only be exercised if market conditions allow undertakings to refinance at a lower cost than the new stepped-up coupon which under stressed conditions, is very unlikely to be the case\n- The order of magnitude of step-ups (usually from 100-150bp) is lower than what has been observed in the interest rate markets over several years.\n- When faced with the recent stress market conditions certain insurers have not called their transactions despite the presence of step-ups.\nPara 1(f) - It does not make sense to require supervisory approval of repayments and redemptions on a going concern basis. It is unduly burdensome, especially at maturity.","(f) the basic own-fund item is only be repayable or redeemable at the option of the insurance or reinsurance undertaking and shall not may include any moderate incentives to repay or redeem that item. Incentives to redeem are features included in basic own-fund items that increase the likelihood that an insurance or reinsurance undertaking will repay or redeem that basic own-fund item where it has the option to do so. The repayment or redemption of the basic own-fund item is subject to prior supervisory approval if the solvency position would be materially weakened by this repayment or redemption."]
["CEA","059","1(g)",null,"(g) the basic own-fund item provides for the suspension of repayment or redemption of that item in the event that there is non-compliance with the Minimum Solvency Capital Requirement or repayment or redemption would lead to such non-compliance until the undertaking complies with the Minimum Solvency Capital Requirement and the repayment or redemption would not lead to non-compliance with the Minimum Solvency Capital Requirement; "]
["CEA","059","1(h)","Full flexibility over dividend payments would be in breach of shareholders law in most Member States and would also be an obstacle to dividend pusher and stopper mechanisms - see joint CEA/CROF/CFOF paper on Hybrids: http://www.cea.eu/uploads/Modules/Publications/Industry%20proposal%20on%20Own%20Funds%20-%20%20%20Hybrids.pdf\n\nBesides, the provision is in contradiction with the concept of trigger levels proposed by Ceiops which by definition takes away this flexibility from undertakings.\nFurthermore, as curently drafted this article can be interpreted as being limited to cash payments.  It is important that appropriate alternative coupon settlement mechanisms (ACSM) are allowed instead of a full payment flexibility requirement, i.e. full discretion for the issuer whether to pay in cash or through the ACSM at any time should be recognised as a Tier 1 feature.","(h) notwithstanding point (i), the insurance or reinsurance undertaking has full flexibility in whether to pay in cash or otherwise the over the payment of interest or dividends on basic own-fund items if the MCR is breached."]
["CEA","059","1(j)","Para (1) (j): an explanation of the concept “free from encumbrances” is needed."]
["CEA","059","2","We interpret para 1 (g) and (i) to mean that the suspension of repayment of the instrument and the cancelation of coupons should be a contractual option which is exercised at the discretion of undertakings according to what actions is best as part of their recovery plan. Therefore any reference to supervisors having the power to waive the suspension of repayments and cancellation of coupons appears to be in contradiction with this. Indeed these paragraphs appear to be introducing automatic triggers for the suspensions of repayments and cancelations of coupons. We believe that introducing an automatic trigger is inconsistent with the purpose of the ladder of supervisory intervention. \n\n","2.In the event referred to in point (g) of paragraph 1, the supervisory authority may exceptionally waive the suspension of repayment or redemption of that basic own-fund item provided that the basic own-fund item is exchanged for or converted into another Tier 1 own-fund item of at least the same quality and the Minimum Capital Requirement is complied even after the repayment or redemption.\n\n"]
["CEA","059","3","We interpret para 1 (g) and (i) to mean that the suspension of repayment of the instrument and the cancelation of coupons should be a contractual option which is exercised at the discretion of undertakings according to what actions is best as part of their recovery plan. Therefore any reference to supervisors having the power to waive the suspension of repayments and cancellation of coupons appears to be in contradiction with this. Indeed these paragraphs appear to be introducing automatic triggers for the suspensions of repayments and cancelations of coupons. We believe that introducing an automatic trigger is inconsistent with the purpose of the ladder of supervisory intervention. \n","3. In the event referred to in point (i) of paragraph 1, the supervisory authority may exceptionally waive the cancellation of the payment of interest or dividend, provided that the payment does not further weaken the solvency position of the insurance or reinsurance undertaking and the Minimum Capital Requirement is complied with even after the payment of interest or dividend is made. "]
["CEA","059","4","Permanent or temporary deferral features, where the temporary feature implies that a reinstatement is possible should be allowed for in Tier 1. (See CEA paper on deferrals where it is explained how conversion into equity with the possibility of a later write up achieves the same loss absorption and effective policyholder protection on a going-concern basis and on a gone going-concern basis as payment deferrals - http://www.cea.eu/uploads/DocumentsLibrary/documents/1229438911_cea-working-paper-on-deferral-of-coupon-and-principal-payments.pdf","4. Where the basic own-fund item is a basic own-fund item referred to in points (1)(d), (1)(f) or (2) of Article COF1, then that item shall possess one of the following principal loss absorbency mechanisms to be triggered at the trigger event specified in paragraph 6: \n(a) the basic own-fund item automatically converts into a basic own-fund item listed in (1)(a) or (1)(b) of Article COF1; \n(b) the nominal or principal amount of the basic own-fund item is written down pari passu by the amount by which the Solvency Capital Requirement is not complied with a basic own-fund item listed in (1)(a) or (1)(b) of Article COF1. In this case any future write-up of the nominal or principal amount of the basic own-fund item that has been written down shall only occur once the undertaking complies with the Solvency Capital Requirement; or in liquidation. Write-up of the nominal or principal amount of the basic own-fund item is pari passu with a basic own-fund item listed in (1)(a) or (1)(b) of Article COF1; or \n(c)  a principal loss absorbency mechanism that achieves an equivalent outcome to the principal loss absorbency mechanisms set out in points (a) and (b)."]
["CEA","059","6","Introducing an automatic trigger is inconsistent with the purpose of the ladder of supervisory intervention. How an undertaking best recovers the level of the SCR should be assessed on a case-by-case basis and should be part of the recovery plan approved by the supervisor. Automatic contractual suspensions of repayments and redemptions, coupon/interest and dividend payments may prove not to be the best actions to take in all situations.\n\nSetting a trigger at 75% of the SCR would create a third threshold, in addition to the two already defined in the Directive (MCR and SCR). It seems to us contrary to the Level 1 text, which would have defined such a threshold if necessary. The trigger should be set at the level of the MCR.\n\nPara 6(b) We suggest making a reference to the 6+3 months allowed to undertakings to cover their SCR, rather than creating a new 2-months period which is new compared to the Level 1 text.","6.The trigger event referred to in paragraph 4 is significant non-compliance with the Solvency Capital Requirement, defined for the purposes of this Article as the earlier of the following events: \n(a)  the amount of own-fund items eligible to cover the Solvency Capital Requirement is equal to or less than the 75 % of the Solvency Capital Requirement Minimum Capital Requirement.\n(b) non-compliance with the Solvency Capital Requirement, where compliance with the Solvency Capital Requirement is not re-established within a period of three nine months of that non-compliance occurring and if an extension of the recovery period as referred to in article 138 (4) is not in place.\n"]
["CEA","060",null,"Criteria for classification are not meant to apply to the excess of assets over liabilities as this would result in double counting the risks covered by the SCR and furthermore, it is difficult to see how this could be applied in practice.","Tier 2 Basic own-funds – List of own-fund items \nThe following basic own-fund items shall be classified as Tier 2 provided that they meet the criteria set out in Article COF4:\n(1)  the part excess of assets over liabilities, valued in accordance with Article 75 and Section 2 of Chapter VI of Directive 2009/138/EC, comprising the following items: \n(a)  ordinary share capital;\n(b) initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings;\n(c)  share premium account;\n(d)  subordinated mutual member accounts;\n(e)  preference shares; \n(2) subordinated liabilities Article 10 V6 75 of Directive 2009/138/EC "]
["CEA","061","1(b)","The text is clearer as amended.","(b) the basic own-fund item does not include features which may cause or accelerate the insolvency of the insurance or reinsurance undertaking other than at maturity if the hybrid is dated; "]
["CEA","061","1(c)","We do not agree that the first contractual opportunity to repay or redeem the basic own-fund item should be the maturity date of the own fund.","(c) the basic own-fund item is undated or has an original maturity of at least 5 years. The maturity date shall be deemed to be the first contractual opportunity to repay or redeem the basic own-fund item maturity date. The exchange or conversion of a basic own-fund item into another Tier 1 or Tier 2 basic own-fund item of at least the same quality shall not be deemed to be a repayment or redemption. The exchange or conversion is subject to the approval of the supervisory authority;"]
["CEA","061","1(d)","It does not make sense to require supervisory approvals of repayments and redemptions on a going concern basis. It is unduly burdensome, especially at maturity.","(d) the basic own-fund item is only repayable or redeemable at the option of the insurance or reinsurance undertaking and may include limited incentives to repay or redeem that basic own-fund item. The repayment or redemption of the basic own-fund item is subject to prior supervisory approval; "]
["CEA","061","1(e)",null,"(e) the basic own-fund item provides for the suspension of repayment or redemption of that item in the event that there is non-compliance with the Minimum Solvency Capital Requirement or repayment or redemption would lead to such non-compliance until the undertaking complies with the Minimum Solvency Capital Requirement and the repayment or redemption would not lead to non-compliance with the Minimum Solvency Capital Requirement; "]
["CEA","061","1(f)",null,"(f) the basic own-fund item provides for the deferral of the payment of interest or dividends in relation to that item in the event that there is non-compliance with the Minimum Solvency Capital Requirement or the payment of interest or dividends would lead to such non-compliance until the undertaking complies with the Minimum Solvency Capital Requirement and the payment of interest or dividends would not lead to non-compliance with the Minimum Solvency Capital Requirement;"]
["CEA","061","2","We interpret the first sentences of paragraphs 1.e and 1.f to mean that the suspension of repayment of the instrument and the deferrals of coupons should be a contractual option which is exercised at the discretion of undertakings according to what actions is best as part of their recovery plan. Therefore any reference to supervisors having the power to waive the suspension of repayments and deferrals of coupons appears to be in contradiction with this. Indeed these paragraphs appear to be introducing automatic triggers for the suspensions of repayments and deferrals of coupons. We believe that introducing an automatic trigger is inconsistent with the purpose of the ladder of supervisory intervention.","2.In the event referred to in point (e) of paragraph 1, the supervisory authority may exceptionally waive the suspension of repayment or redemption of that basic own-fund item provided that the basic own-fund item is exchanged for or converted into another Tier 1 or Tier 2 basic own-fund item of at least the same quality and the Minimum Capital Requirement is complied with even after the repayment or redemption."]
["CEA","061","3","We interpret the first sentences of paragraphs 1.e and 1.f to mean that the suspension of repayment of the instrument and the deferrals of coupons should be a contractual option which is exercised at the discretion of undertakings according to what actions is best as part of their recovery plan. Therefore any reference to supervisors having the power to waive the suspension of repayments and deferrals of coupons appears to be in contradiction with this. Indeed these paragraphs appear to be introducing automatic triggers for the suspensions of repayments and deferrals of coupons. We believe that introducing an automatic trigger is inconsistent with the purpose of the ladder of supervisory intervention.","3. In the event referred to in point (f) of paragraph 1, the supervisory authority may exceptionally waive the cancellation of the payment of interest or dividend, provided that the payment does not further weaken the solvency position of the insurance or reinsurance undertaking and the Minimum Capital Requirement is complied with even after the payment of interest or dividend is made. "]
["CEA","064",null,"Classification criteria should not apply to the excess of assets over liabilities as this would result in double counting the risks covered by the SCR.  As such Net deferred taxes should be classified in Tier 1.","Tier 3 Basic own-funds– List of own-fund items \nThe following basic own-fund items shall be classified as Tier 3 provided that they meet the criteria set out in Article COF8: \n(1) the part excess of assets over liabilities, valued in accordance with Article 75 and Section 2 of Chapter VI of Directive 2009/138/EC, comprising the following items: \n(a)  subordinated mutual member accounts; \n(b) share premium account;\n(c) preference shares; \n(d)  an amount equal to the value of net deferred tax assets;\n(2) subordinated liabilities valued in accordance with Article 10 V6 75 of Directive 2009/138/EC"]
["CEA","065","1(c)","We do not agree that the first contractual opportunity to repay or redeem the basic own-fund item should be the maturity date of the own fund. See our comment on art 59 para 1 (e).","(c) the basic own-fund item is undated or has an original maturity of at least 3 years. The maturity date shall be the first contractual opportunity to repay or redeem maturity date of the basic own-fund item. The exchange or conversion of a basic own-fund item into another Tier 1, Tier 2 basic own-fund item or Tier 3 basic own-fund item of at least the same quality shall not be deemed to be a repayment or redemption. The exchange or conversion is subject to the approval of the supervisory authority;"]
["CEA","065","2","We interpret paragraph 1.d to mean that the suspension of repayment of the instrument should be a contractual option which is exercised at the discretion of undertakings according to what actions is best as part of their recovery plan. Therefore any reference to supervisors having the power to waive the suspension of repayments appears to be in contradiction with this. Indeed this paragraph appears to be introducing automatic triggers for the suspensions of repayments. We believe that introducing an automatic trigger is inconsistent with the purpose of the ladder of supervisory intervention.","2. In the event referred to in point (d) of paragraph 1, the supervisory authority may exceptionally waive the suspension of repayment or redemption of that basic own-fund item provided that the basic own-fund item is exchanged for or converted into another Tier 1, Tier 2 basic own-fund item or Tier 3 basic own-fund item of at least the same quality and the Minimum Capital Requirement is complied with even after the repayment or redemption."]
["CEA","067",null,"The current wording requires that basic own fund items not included in the list of own funds need to be fully paid-in to be recognised. However, this seems to be in conflict with article 93 (1) (a) level I which allows basic own funds to be paid-in or to be called up on demand.","Supervisory Authorities approval of the assessment and classification of own-fund items\n1. Without prejudice to Article 90 of Directive 2009/138/EC, where an own-fund item is not included in the list of own-funds set out in Articles COF1, COF3, COF5, COF7 and COF9, insurance or reinsurance undertakings shall submit a request for approval of its assessment and classification to the supervisory authority before considering that item as own funds. \n2. The supervisory authority shall assesses the following, when approving the assessment and classification of own-fund items not included in the list of own-fund items set out in Articles COF1, COF3, COF5, COF7 and COF9: \n(a) the appropriateness of the proposed classification, based on the requirements set out in Articles 93 and 94 of Directive 2009/138/EC and the criteria for classification set out in Articles COF2, COF4, COF6 and COF8;\n(b) the legal effectiveness and enforceability of the contractual terms of the own-fund item;\n(c) whether the own-fund item has been fully paid-in.\nThe insurance or reinsurance undertaking shall demonstrate to the supervisory authorities that the requirements in points (a) to (b) are met and shall provide the supervisory authorities with information on whether the own-fund item has been fully paid-in.\n3. Basic own-fund items not included in the list of own-fund items set out in Articles COF1, COF3 and COF7 shall only be classified as Tier 1 basic own funds where they are fully paid-in.  \n4. The inclusion of own-fund items approved by the supervisory authority in accordance with this Article shall be subject to quantitative limits defined in Article EOF1.\n5. The supervisory authorities shall decide on the application within a reasonable period of time from the receipt of a complete application. \n6. Insurance or reinsurance undertakings shall not consider their application approved until the receipt of a decision from the supervisory authorities. \n7. A decision by the supervisory authorities to reject the application shall state the reasons on which it is based.\n"]
["CEA","069","1","Ring-Fenced Funds definition\n1) This is not in line with the Directive. Recital 49 clearly states that the ring-fenced fund should be defined when some policyholders have greater rights to assets. The notion of specific own funds covering specific risks is not in the Directive.\n2) Most importantly, we have strong concerns that this implies ring-fenced funds may be set up to cover certain risks, despite the fact that SCR capital is already held to cover insurance risks. This clearly appears to be double-counting the SCR requirements. For example, if reserves are currently set up in a Member State to cover Cat risk, we would not expect these to still exist and to be ring-fenced under Solvency II as SCR capital is already held to cover Cat risk to a 1 in 200 level under Solvency II. A similar issue would exist for equalisation reserves for example. If these reserves were still required to be held, this would clearly result in an unlevel playing field across Europe in which certain insurers need to hold more than the 1 in 200 agreed level.\n=>This is a return to national accounting policies and moves away from the economic valuation foreseen in the Directive. \n3) Furthermore, we do not see how this can actually be applied in practice. How would you make the adjustments to Own Funds and the SCR for a fund that covers risks already included in the SCR? How are undertakings expected to split this fund from their other business and calculate its capital requirements as if it were an individual entity? This would not be logical in practice.\nWe should also add that for voluntary reserves, the proposed treatment would not be appropriate.\nWe note that in order to imporve clarity, and in line with the calculations proposed, we would request the addition of a new sentence at the start of this paragraph.","1 pre. Ring-fenced funds are arrangements where assets and liabilities are ring-fenced and form an identifiable unit in the same manner as though the ring-fended fund were a separate undertaking.\n1. An adjustment to own funds for ring-fenced funds is required if own-fund items within that ring-fenced fund have a reduced capacity to fully absorb losses on a going-concern basis due to their lack of transferability within the insurance or reinsurance undertaking because the restricted own-fund items:\n(a) can only be used to cover losses on a defined portion of the insurance or reinsurance undertaking's insurance or reinsurance contracts; \n(b) can only be used to cover losses in respect of certain policy holders or beneficiaries; or\n(c) can only be used to cover losses arising from particular risks.  \n"]
["CEA","069","2","It is unclear how “shall not include value of future transfers attributable to shareholders” is to be considered in the “adjustments for RFF acc. to Article 70 RFFOF2”?\nDefinition of “restricted own-funds items” is unclear.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n2. Without prejudice to the requirement set out in Article COF1 that foreseeable dividends and distributions shall be excluded from the reconciliation reserve, the own-fund items referred to in paragraph 1 (restricted own-fund items) shall not include the value of future transfers attributable to shareholders. "]
["CEA","071",null,"Please see the CEA key priority issues paper] \nWe disagree with the deduction of participations in financial and credit institutions. We see no reason for a specific treatment for these participations, which creates and unlevel playing field with banks.\nParticipations in financial and credit institutions will normally be included in group supervision in accordance with Articles 228 or 229 of the Framework Directive. Therefore, at group level double-gearing is eliminated. At solo level, however, participations in regulated undertakings included in group supervision should in our view not be subject to any measure for eliminating double gearing. Instead, for the purpose of calculating the solo SCR, participations in financial and credit institutions should be treated as equity investments. There is no need to eliminate double-gearing at solo level when it is already carried out at group level.\nFurthermore, not eliminating double gearing at solo level is consistent with the treatment of credit institutions’ participations in insurance undertakings in accordance Art. 60 of Dir. 2006/48/EC (CRD): “Member States may provide that for the calculation of own funds on a stand-alone basis, credit institutions subject to supervision on a consolidated basis in accordance with Chapter 4, Section 1,or to supplementary supervision in accordance with Directive 2002/87/EC, need not deduct the items referred to in points (l) to (p) of Article 57 which are held in credit institutions, financial institutions, insurance or reinsurance undertakings or insurance holding companies, which are included in the scope of consolidated or supplementary supervision.” [Point (o) of Article 57 refers to insurance and reinsurance undertakings and insurance holding companies.]\nThis option, applied by a majority of Member States, allows them to decide not to deduct certain holdings and participations in institutions included in the scope of their consolidation from solo-level own funds.\nMoreover, in groups with insurance and banking activities of a similar size, the solo solvency of the insurer with deducted non-insurance participations will not reflect the economic reality. The path towards an internal model is not possible, because of the use test requirements – modelling only the insurance part is not sufficient for internal management. Thus, deduction is not appropriate and we suggest use of the 22% equity stress.\nFinally, the proposed treatment is not appropriate because: \n• It suggests that the Commission places no reliance on surplus produced under CRD. This is inconsistent with other part of the level 2 text where reliance is place on CRD (e.g. IM18 – repackaging loans) \n• It provides a strong incentive for the undertaking to move surplus funds from the participation up to the participating undertaking (where it can be used for solvency purposes).","Treatment of participations in the determination of basic own funds\nFor the purpose of determining the basic own funds of insurance and reinsurance undertakings, the excess of assets over liabilities referred to in Article 88 of Directive 2009/138/EC shall be reduced by the value, determined in accordance with Article 75 of Directive 2009/138/EC, of the participations that they hold in financial and credit institutions as referred to in Article 92(2) of Directive 2009/138/EC."]
["CEA","072","1(a)","Although we understand the intention to remain faithful to the wording of the Framework Directive, we believe that it should be made clear that the limits are applicable to the eligible own funds covering the SCR.\nPara 1(a) and (b) – Tier 1 should cover at least one third of the SCR and Tier 3 should be eligible to cover 1/3 of the SCR as suggested by the Framework Directive.","1. As far as compliance with the Solvency Capital Requirement is concerned:\n(a) the proportion of Tier 1 items in the eligible own funds is at least one half one third of the total amount of eligible own funds used to cover the SCR;\n"]
["CEA","072","1(b)","Although we understand the intention to remain faithful to the wording of the Framework Directive, we believe that it should be made clear that the limits are applicable to the eligible own funds covering the SCR.\nPara 1(a) and (b) – Tier 1 should cover at least one third of the SCR and Tier 3 should be eligible to cover 1/3 of the SCR as suggested by the Framework Directive.","1. As far as compliance with the Solvency Capital Requirement is concerned:\n(b) the eligible amount of Tier 3 items is less than 15 33 %  of the total amount of eligible own funds used to cover the SCR.\n"]
["CEA","072","3","3 )a to d): In principle the CEA does not support the complexity introduced by the use of sub-limits. Sub-limits have to be carefully assessed against the criteria used for T1. If a financial instrument complies with the criteria it should be allowed to be fully part of tier 1 with no additional restrictions.  The mix of the instruments constituting Tier 1 capital should be assessed on a regular basis as part of the undertaking’s ORSA in accordance to its specific risk profile. In any case, we believe there is a case for a higher limit. We will come back with a more detailed position of where this limit must be set. Our preliminary view however is that it should be set in the range between 40 to 50% of T1.\n\n3d) Having grandfathered instruments subject to the proposed T1 sub-limit defeats the purpose of grandfathering. Indeed, introducing a sub-limit in Tier 1 for grandfathered hybrids will essentially cancel out the intended effects of any transitional provision as most of the 20% sub-limit is expected to be in most cases of undertakings issuing hybrids already filled with the other items subject to this limit (preference shares and hybrid debt), leaving no room for the eligibility of grandfathered instruments. ","3.Within the limit referred to in points (1)(a) and (2), the eligible amount of the sum of the following basic own-fund items shall be less than 20 % of al amount of Tier 1:\n(a)  items referred to in point (1)(d) of Article COF1; \n(b) items referred to in point (1)(f) of Article COF1; \n(c)  items referred to in point (2) of Article COF1;\n(d) items that are included in Tier 1 basic own funds under the transitional arrangements set out in Article TOF1. "]
["CEA","073 ",null,"Having the date for grandfathering as the same as the date for the implementation of Solvency II would be simpler to apply in practice. Sufficient assurance to supervisors is given by the fact that instruments under Solvency I will still need prior supervisory approval.\n\nIntroducing new classification criteria for subordinated debt will add unnecessary complexity and is likely to, instead of ensuring the needed soft transition to Solvency II, cause turbulence in the financial markets and increase the costs of capital, especially in current conditions. The reason for this is that the purpose of transitional provisions is obviously to ensure a smooth transition from current practices to Solvency II without undue disruption. However, the current proposals are not based on the way that instruments are accounted for as part of the Solvency Margin, and so it is difficult to see how the proposed transitional provisions can achieve their aim.\nTransitional provisions for own funds items should be simplified by basing grandfathering criteria on existing Europe-wide regulations for hybrid capital: Subordinated instruments currently eligible to cover the required solvency I margin up to 50% should be grandfathered under Tier 1 and subordinated instruments eligible to cover the required solvency I margin up to 25% should be grandfathered under Tier 2.\n\nWe recommend the retention of a longer period to give undertakings sufficient time to redeem their subordinated debts issued before the full entry into force of Solvency II. We do not understand why transitional provisions on hybrid capital, on which it was agreed during the Level 2 discussion to have a 15 years transitional period, are now set to 10 years. This period should either be extended to up to 20 years or transitional provisions should run until the maturity of the instruments to give sufficient time to undertakings to redeem their subordinated debt before the entry into force of Solvency II. Failing to do this will equally create market distortions as still many companies will be looking to replace their non redeemed subordinated debt all at the same time in 2023.","Tier 1 – Transitional Arrangements\n1. Notwithstanding Articles COF1 to COF8, basic own-fund items that were issued prior to the date of adoption of this Regulation the date referred to in Article 309 of Directive 2009/138/EC, and which according to the Directives referred to in Article 310 of Directive 2009/138/EC could be used to meet the available solvency margin up to at least 50% of the solvency margin, that meet the criteria set out in paragraph 2, shall be included in Tier 1 basic own funds for up to 10 20years after the date referred to in Article 309 of Directive 2009/138/EC.\n2. The criteria referred to in paragraph 1 are as follows:\n(a) the criteria set out in paragraphs (a), (d) and (g) of Article COF4, except that any limited incentives to repay or redeem that basic own-fund item shall not apply before 10 years after the issue date of that basic own-fund item; \n(b) the basic own-fund item shall be fully paid in, undated and absorb losses on a going-concern basis; \n(c)  the basic own-fund item shall provide for the cancellation or deferral of the payment of interest or dividends in relation to that item in the event of financial stress.  \n\nTier 2 basic own-funds – Transitional Arrangements\n1. Without prejudice to Article EOF1 and notwithstanding Articles COF1 to COF8, basic own-fund items that were issued prior to the date referred to in Article 309 of Directive 2009/138/EC, and which according to the Directives referred to in Article 310 of Directive 2009/138/EC could be used to meet the available solvency margin up to 25% of the solvency margin of adoption of this Regulation, that meet the criteria set out in paragraph 2, shall be included in Tier 2 basic own funds for up to 10 20 years after the date referred to in Article 309 of Directive 2009/138/EC.\n2. The criteria referred to in paragraph 1 are as follows:\n(a) the criteria set out in paragraphs (a), (c), (d) and (g) of Article COF4, except that for the purpose of this article exchange or conversion of a basic own-fund item shall be into another basic own-fund item of at least the same quality; \n(b) the basic own-fund item shall be fully paid in."]
["CEA","075","2","The requirement to allow for any relevant adverse changes in option take-up behaviour should also take account of positive changes in take-up. The treatment should not be asymmetric","2. The recalculation of technical provisions arising as a result of considering the impact of a scenario as referred to in paragraph 1 shall take account of the following: \n(a) without prejudice to points (c) and (d) of paragraph 1, future management actions following the scenario provided they comply with the requirements set out in Article TP6; \n(b) any material adverse impact of the scenario or the management actions referred to in point (a) on the likelihood that policy holders will exercise contractual options.\n\n"]
["CEA","076",null,"Intangible asset risk module\nIn our view, rather than having a separate intangible asset risk module, a more pragmatic solution would be to stress intangible assets under the most prudent stress in the market risk module. We have chosen the most prudent stress to reflect the high (and may be unjustified) level of doubt of supervisors with regards to intangible assets. \nWe see no reason for splitting-out intangible assets from other assets, and additionally, this would reduce the complexity of the standard formula. In our view, this change would set a more reasonable risk charge which has been calibrated based on market data.\nTherefore, we would propose that the definition of non-listed equity be extended to cover intangible assets and consequently the proposed intangibles asset risk module be deleted.\nFurthermore, we do not understand why this new capital requirement on intangible assets is simply added it to the formula.","Basic Solvency Capital Requirement\nThe Basic Solvency Capital Requirement laid down in Article 104(1) of Directive 2009/138/EC shall include a risk module for intangible asset risk.\nThe Basic Solvency Capital Requirement shall be equal to the following:\n[For redrafting suggestion, refer to CEA Annex: Formulas and tables]\nwhere the summation, Corri,j, SCRi and SCRj are defined as set out in point (1) of Annex IV of Directive 2009/138/EC and [...] denotes the capital requirement for intangible asset risk referred to in Article IA1."]
["CEA","077",null,"SCR simplifications\nThe principle of proportionality and the resulting simplification rules should be enshrined more clearly:\n- We propose not to split between proportionality for calculation of TP and SCR but to define one overall .principle.\n- No explicit formulae should be stipulated for simplifications at Level 2. This prevents actuarial progress.\nAny qualitative or even quantitative assessment of the module error by undertakings applying simplifications is impossible. Instead, undertakings should have the possibility to explain that the application leads to a conservative assessment of the risk."]
["CEA","077","1","In line with Article 109 of the Framework Directive and Ceiops’ advice. Level 2 should not prescribe a closed list of simplifications. Any simplification should be allowed provided it can be shown that it will not understate the requirements.\nFurthermore, proportionality should not only apply in the case that the standard calculation results in an undue burden for the insurer. ","1. Insurance and reinsurance undertakings may, for the purposes of Article 109 of Directive 2009/138/EC, use the simplified calculations included in this chapter for a risk module or sub-module of the Solvency Capital Requirement standard formula where such simplified calculations are proportionate to the nature, scale and complexity of the risks faced by the undertaking and or where the standard calculation for that risk module or sub-module would be an undue burden for the undertaking. Insurance and reinsurance undertakings may use other simplifications provided that it can be shown that the simplification chosen does not understate the Solvency Capital Requirement compared to the standard calculation."]
["CEA","077","3","We fully support this change. It is common prudential sense and could greatly simplify the Solvency II implementation. We suggest referring to the net surplus (OF-SCR) rather than only the SCR. Simplified methods should be allowed for the assessment of Own Funds, with the same principle: less requirements if the simplified OF are lower than the non-simplified OF.","3. A simplified calculation shall not be considered to be proportionate to the nature, scale and complexity of the risks if the error referred to in point (b) of paragraph 2 is material, unless the simplified calculation leads to a net surplus Solvency Capital Requirement which exceeds the net surplus Solvency Capital Requirement that results from the standard calculation."]
["CEA","078",null,"Simplifications for captives\nWe do not agree that there should be specific measures applicable for captives. The same risks should need the same requirements. No distinction should be made based on the legal nature of the undertaking. All simplifications should be made available for all undertakings complying with SCRS1.","General provisions for simplifications for captives\nSubject to the captive insurance or reinsurance undertaking complying with Article SCRS1,  simplifications which are specifically made available to captive insurance and reinsurance undertakings shall apply only to captive insurance  and  reinsurance undertakings as defined in Article 13 of Directive 2009/138/EC that meet the following requirements: \n(a) in relation to the insurance obligations of the captive insurance undertaking, all insured persons and beneficiaries are legal entities of the group of the captive insurance or reinsurance undertaking and were also legal entities of that group at the time the relevant contract was entered into;\n(b) in relation to the reinsurance obligations of the captive insurance or reinsurance undertaking, all insured persons and beneficiaries of the insurance contract underlying the reinsurance obligations are legal entities of the group of the undertaking and were also legal entities of that group at the time the underlying contract was entered into; \n(c) the insurance obligations of the captive insurance undertaking and the insurance contract underlying the reinsurance obligations of the insurance or reinsurance captive undertaking do not relate to any compulsory third party liability insurance."]
["CEA","080","3","We find the correlation between premium/reserve risk and cat risk as too conservative for these risks which can be considered independent. Eiopa indicates also that there is low or zero correlation between these risks and its proposal to set the correlation factor at 25% is not backed by hard evidence. Since the imposition of this correlation is expected to lead to an increase in capital of 7%, we suggest that an increase of such a scale should not be imposed without clear evidence.","3. The correlation parameter CorrNL(i,j) referred to in paragraph 2 shall be equal to the item set out in row i and in column j of the following correlation matrix: \n[For redrafting suggestion, refer to CEA Annex: Formulas and tables]\n\n"]
["CEA","080a","1(c)","For non-life business, the lapse risk stresses are too complex given that this risk is not material or relevant in the vast majority of cases.\nFurther the data from non-life cash flows which is used to calibrate the premium risk implicitly comprise the volatility due to lapses. In developing a separate module for this risk, double counting between premium/ reserve risk and lapse risk must be avoided. Since such an exercise would generate significant practical problems for what is considered to be an immaterial risk in most cases and because of the practical issues outlined above we suggest that this risk module is dropped.","1. The non-life underwriting risk module shall consist of the following sub-modules:\n(c) the non-life lapse risk sub-module."]
["CEA","081",null,"The use of this approximation for the 99.5% exact quintile ρ(σ)  of the lognormal law is penalising undertakings, if their σ is lower than 15%. We attach a set of figures detailing how for various levels of volatility the approximation changes. \n[For info, refer to CEA Annex: Formulas and tables]\n","The capital requirement for non-life premium and reserve risk shall be equal to the following:\n[For redrafting suggestion, refer to CEA Annex: Formulas and tables] \n\n \n\n\n"]
["CEA","082",null,"Although the level 1 text requires 1 year of new business to be taken into account in the SCR calculations, it is important to have consistency between the valuation of Technical Provisions and valuation of the SCR, i.e. the SCR needs to be based on the same Technical Provisions that are shown in the Solvency II balance sheet.\nTheoretically there are two possible solutions in order to ensure consistency: \n• Both the SCR and the Technical Provisions allow for one-year of new business. \n• Neither the SCR nor the Technical Provisions allow for one-year of new business.\n"]
["CEA","082","1","Any volume measure which is directly proportional to the (positive) value of premiums or of premium provisions penalizes undertakings with high expected profits from existing business. So any reasonable volume measure must mirror these expected profits i.e. the smaller the expected future profits (or the higher the losses) the higher must be the premium risk.\n\nWe support explicit recognition to geographical diversification","1. For all segments set out in Annex NLUR1, the volume measure of a particular segment s shall be equal to the following: \n [...]\nwhere V(prem,s) denotes the volume measure for premium risk of segment s, V(res,s) denotes the volume measure for reserve risk of segment s and DIVs denotes the factor for geographical diversification of segments."]
["CEA","082","3","The term FP(future,s) causes a material imbalance the the economic valuation of premiums resp. premium provisions and the volume measure for premium risk. If only existing contracts are taken into account in the balance sheet then new business must be dropped from the volume measure in premium risk. This proposal is of high relevance for undertakings with long-term business or material growth.\n\n\n","3. For all segments set out in Annex NLUR1, the volume measure for premium risk of a particular segment s shall be equal to the following: \n[For redrafting suggestion, refer to CEA Annex: Formulas and tables] \n\n\n"]
["CEA","082","4","The term FP(future,s) causes a material imbalance the the economic valuation of premiums resp. premium provisions and the volume measure for premium risk. If only existing contracts are taken into account in the balance sheet then new business must be dropped from the volume measure in premium risk. This proposal is of high relevance for undertakings with long-term business or material growth.\n\nAlso, there appears to be a typo: In 4(a), if Ps remains in the formula then the explanation should be:\n(a) the administrative, management or supervisory body of the insurance or reinsurance undertaking has decided that its earned premiums in the segment s during the last following 12 months should not exceed Ps; \nalternatively\nPs is changed for P(last,s) in the formula and\n(a) the administrative, management or supervisory body of the insurance or reinsurance undertaking has decided that its earned premiums in the segment s during the following 12 months should not exceed P(last,s); ","4. For all segments set out in Annex NLUR1, insurance and reinsurance undertakings may, notwithstanding paragraph 3, calculate the volume measure for premium risk of a particular segment s in accordance with the formula \n[For redrafting suggestion, refer to CEA Annex: Formulas and tables] \nusing the same meaning for terms of the formula as in paragraph 3, provided that the following conditions are met:\n(a) the administrative, management or supervisory body of the insurance or reinsurance undertaking has decided that its earned premiums in the segment s during the following 12 months will not exceed Ps;\n(b) the insurance or reinsurance undertaking has established effective control mechanisms to ensure that the limits on earned premiums referred to in point (a) will be met;\n(c) the insurance or reinsurance undertaking has informed its supervisory authority about the decision referred to in point (a) and the reasons for it."]
["CEA","082","6","In the standard formula, the capital requirement for covering the reserves volatility is applied in the model to the overall Non Life claim outstanding net reserves. \nHowever parts of claims reserves have absolutely no risk of adverse deviation/volatility for reinsurers and as such should be exempted from any capital requirements for reserve risk for either the cedant (point 1) or the reinsurer (points 2 and 3).\n1 - when the retention limit has been reached by the cedant. In this case all the risk is passed on to the reinsurer and as such these claims need to be excluded from the reserve risk of the cedant. Obviously these claims should not be exempted from counterparty default risk and reserve risk may still exist at the higher end of the reinsurance/retrocession program (i.e. the claim is higher than the end of the retro/reinsurance capacity) depending on the cover.\n2 - when an XS layer has been reserved in full. Contractually each reinsurance layer has a capacity and the reinsurer is only legally bound to pay at maximum the full capacity of that layer. Therefore there is not any possible further downward effect for the reinsurer. Any volatility would be a positive outcome for the claims reserves of the reinsurer, i.e. a claims’ reduction.\n3 - when an annual aggregate limit on the contract has been reached. This is fairly similar to point 2. For some Proportional contracts as well as for Non Proportional contracts, annual aggregate limits are included in the contractual terms and therefore cap the amount the reinsurance is liable for in any given contractual year. Once this amount is reached again only positive ouctomes are possible for the reinsurer claims reserves.","6. For all segments set out in Annex NLUR1, the volume measure for reserve risk of a segment shall be equal to the best estimate of the provisions for claims outstanding for the segment, after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles provided that the reinsurance contracts or special purpose vehicles meet the requirements set out in Articles SCRRM1 to SCRRM3 and SCRRM5 and after deduction of amounts of capped reserves which cannot increase further due to contractual arrangements, as  for example excess loss, annual aggregate limit or attachment point of retro recovery reached."]
["CEA","083",null,"We strongly recommend checking this proposal (calculating a weighted aggregated sigma and a weighted aggregated volume measure) against a different methodology: determining the SCR on a segment and risk category (premium / reserve risk) level and doing the aggregation of the SCRs afterwards.\nWe propose to change the order of aggregation within the basic risk: aggregate the reserve risk for all LoBs in a first step, aggregate the premium risk for all LoBs in a second step and finally aggregate the reserve and premium risk on a total basis applying a certain correlation (e.g. 0,5).\nChanging the aggregation order opens the possibility to apply different correlations between LoBs for reserve and premium risk. This change in aggregation order is appropriate and well justified by the underlying random variables which are used to calibrate the premium risk and the reserve risk. \nRandom variable to derive premium risk is ultimate loss ratios (ultimate losses including administration costs divided by earned premiums). The expected value of this random variable is not equal 0. \nRandom variable to derive the reserve risk is economical claims development result. The expected value of this random variable is equal 0.\nFurthermore one can use (and one must use) the same data for calibrating premium and reserve risks in order to calibrate the correlations.\nThe approach to be followed for obtaining the correlations within premium risk is the following:\nThe random variable is the ultimate loss ratio as mentioned above. To obtain the correlation coefficient the following steps are to be taken:\n1) For each cash-flow triangle in a given line of business estimate the ultimate losses including tail estimation up to 25 development years. Tail estimation is done with market parameters.\n2) For each undertaking and accident year calculate the ultimate loss ratios (ultimate losses divided by earned premiums).\n3) Estimate the correlation coefficient in the ultimate loss ratios in two lines of business using the robust estimation technique of Kendall’s: Calculate Kendall’s tau for the ultimate loss ratio residuals (with variance inverse proportional to the earned premium), calculate the correlation coefficient via formula sin(tau * pi / 2)."]
["CEA","083","2","This formula seems to implicitly assume a 50% correlation between premium and reserving risk. This should better be spelled out and not hidden. Furthermore, this is a very high correlation for risks that relate to disjoint underwriting years; the only driving forces behind this correlation are calendar year effects, i.e. claims inflation of various sources.\nIn addition, the formula used to calculate the Non-Life SCR for Premium and Reserve Risk uses a measure of standard deviation, σs, (for line of business “s”) which, under the QIS5 technical specification incorporated the impact of geographical diversification. However, the draft level 2 implementing measures change the definition of σs from that used in QIS5 by transforming the denominator V(prem,s) + V(res,s) into Vs :The result of this change is that the effect of geographical diversification now cancels out. We believe this is clearly a simple typographical mistake which, given the importance of the geographical diversification element of the calculation, should be corrected to again reflect the QIS5 definition","2. For all segments set out in Annex NLUR1, the standard deviation for non-life premium and reserve risk of a particular segment s shall be equal to the following:\n[For redrafting suggestion, refer to CEA Annex: Formulas and tables] \n where Vs denotes the volume measures for premium and reserve risk of segment s referred to in Article NLUR3, σ(prem,s) denotes the standard deviation for non-life premium risk of segment s determined in accordance with paragraph 3, σ(res,s) denotes the standard deviation for non-life reserve risk of segment s as set out in Annex NLUR1, V(prem,s) denotes the volume measure for premium risk of segment s referred to in Article NLUR3 and V(res,s) denotes the volume measure for reserve risk of segment s referred to in Article NLUR3."]
["CEA","084",null,"Simplifications for captives\nThe same risks should need the same requirements. We do not agree that there should be specific measures applicable for captives.","Simplified calculation for captive insurance and reinsurance undertakings of the capital requirement for non-life premium and reserve risk \nSubject to the captive insurance or reinsurance undertaking complying with Article SCRS1 and SCRSC1, the capital requirement for non-life premium and reserve risk calculated with the simplified calculation shall be equal to the following: \n[...]"]
["CEA","085",null,"The Non Life lapse risk module adds undue complexity for a risk which in most cases is immaterial for non life undertakings. It should therefore be deleted\nNotwithstanding the comment above, we observe that for lapse risk related to Life business,  reference is made to all legal or contractual policy holder rights to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse.” The text (“For the purposes of this article  ...”) regarding Non-Life has been adapted and does no longer refer to all legal or contractual policy holder rights ..., which would mean that also lapses not linked to policyholder’s rights would be treated as lapses, including non-payment of premiums. This is not consistent with the treatment for Life and should be prevented.","Non-life lapse risk sub-module\nThe capital requirement for the non-life lapse risk sub-module referred to in point (c) of Article NLUR1(1) shall be equal to the loss in basic own funds of insurance and reinsurance undertakings resulting from a combination of the following:\n(a) the surrender of 30 % of the insurance policies for which the exercise of the surrender right would result in an increase of technical provisions without the risk margin\n(b) where reinsurance contracts cover insurance or reinsurance contracts that will be written in the future, the decrease of 30 % of the number of those future insurance or reinsurance contracts used in the calculation of technical provisions. \nThe stresses referred to in points (a) and (b) shall apply uniformly to all insurance and reinsurance contracts concerned. In relation to reinsurance contracts the stress referred to in point (a) shall apply to the underlying insurance contracts.\nFor the purposes of this Article 'surrender' means to all possible ways to terminate the contract, including surrender without the payment of a surrender value, change of the insurance undertaking by the policy holder and termination of the policy resulting from the policy holder's refusal to pay the premium."]
["CEA","086 - 103",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nOur key concerns on the Non Life Cat risk module are the following:\n- We are concerned about the level of detailed data and information required. A simpler approach is needed for standardized scenarios.\n- Reinsurance should appropriately be reflected in capital requirements. In particular, cross regional reinsurance.\n- For man –made catastrophe, the non linearity between company size and risks, which is currently recognized to some extent for the Motor TPL module, needs to be extended to all other risks.\n- Undertaking specific scenarios (“USPs”) should be allowed as they would provide for solutions to some of the shortcomings identified with the proposed approach such as: \n• some risks are not included in the scenarios sections, as third liability risk. For this LoB only the very costly factor based approach is available.\n• for countries outside the EU there are no scenario available. It raises a significant problem for international group and reinsurers. It would penalize the investment in third countries and increase the unlevel playing field with international competitors. We would suggest developing more CAT scenarios (for countries where the exposure of European insurers is high for instance, as USA). We understand that the whole world could not be treated with standardized scenarios: we would suggest for geographical areas not included in the standardized scenarios package to allow the use of undertaking specific scenario subject to supervisory approval. At least, the factors of the factor-based CAT approach should be significantly reduced.\n- regarding credit and suretyship cat scenarios:\n• The recession scenario could double-count premium and reserve risk.\n• Cycle-sensitive dampening mechanism in the recession scenario is not in line with a 99.5% VaR.\n• The assumption that 3 largest credit exposures default is overly conservative","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","087",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nUndertakings usually segment their premium and loss data by Line of Business (LoB) and peril, not by peril alone which was the requirement under QIS5. The QIS5 approach to segment by peril alone, adds unnecessary complexity, and also creates difficulty in allocating the risk margin per LoB. Furthermore, undertakings assess their exposure to any one LoB and peril based on an exposure measure relevant for that LoB, for example sum insured for Fire, number of vehicles for motor etc, which was not reflected in QIS5. The approach under QIS5 was as such not in line with current standard practice for managing exposure to Nat Cat risk, and the Industry would prefer a more appropriate and more pragmatic approach. \nWe propose to calculate a capital charge per peril, region  and LoB rather than by peril and region alone","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","087","3","The current matrix is not internally consistent (not symmetric) with  the correlation factor between hail/windstorm","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","088",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nUndertakings usually segment their premium and loss data by Line of Business (LoB) and peril, not by peril alone which was the requirement under QIS5. The QIS5 approach to segment by peril alone, adds unnecessary complexity, and also creates difficulty in allocating the risk margin per LoB. Furthermore, undertakings assess their exposure to any one LoB and peril based on an exposure measure relevant for that LoB, for example sum insured for Fire, number of vehicles for motor etc, which was not reflected in QIS5. The approach under QIS5 was as such not in line with current standard practice for managing exposure to Nat Cat risk, and the Industry would prefer a more appropriate and more pragmatic approach. \nWe propose to calculate a capital charge per peril, region  and LoB rather than by peril and region alone.","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","088","1","Para 1 - We believe that allowance should be made for cross regional reinsurance contracts in place.\nAccording to NLUR8, capital requirements for wind storm peril shall be calculated net of reinsurance for each region, and then aggregated  into the wind storm SCR.  We interpret this as a tightening compared to the QIS5-TS. \nApplying reinsurance by region before aggregating losses from a single event is problematic for (re)insurers with exposure in multiple regions for the following reasons:\n• Assuming the catastrophe reinsurance programme cover multiple regions, and consist of multiple layers each with a few reinstatements, the lower layers will be affected once per region per event.  This could potentially exhaust the lower layers before all regions are covered. \n• The upper layers may – incorrectly – not be affected at all using this method.\n• For each region and event, a full retention of the programme will be included in the SCR-calculation, implying multiple counts of retentions.\nQIS5-TS, Paragraph SCR9.78 states that an undertaking may aggregate a gross wind storm scenario across regions, and then apply the effect of reinsurance. This is much more in line with how cross-regional reinsurance works, as for a wind storm event impacting more than one region, claims from all affected regions will be aggregated to a gross claim for that event, before recovering reinsurance.","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","089",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nUndertakings usually segment their premium and loss data by Line of Business (LoB) and peril, not by peril alone which was the requirement under QIS5. The QIS5 approach to segment by peril alone, adds unnecessary complexity, and also creates difficulty in allocating the risk margin per LoB. Furthermore, undertakings assess their exposure to any one LoB and peril based on an exposure measure relevant for that LoB, for example sum insured for Fire, number of vehicles for motor etc, which was not reflected in QIS5. The approach under QIS5 was as such not in line with current standard practice for managing exposure to Nat Cat risk, and the Industry would prefer a more appropriate and more pragmatic approach. \nWe propose to calculate a capital charge per peril, region  and LoB rather than by peril and region alone","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","089","1","[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nThe allowance for allows for cross regional reinsurance is an important feature of the calculation of the SCR for catastrophe risk. This was aknowledged in QIS5 TS 9.81.\n","1. For all regions set out in Annex NLUR6 the capital requirement for earthquake risk in a particular region r shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is equal to the following amount:[…]\n"]
["CEA","090",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nUndertakings usually segment their premium and loss data by Line of Business (LoB) and peril, not by peril alone which was the requirement under QIS5. The QIS5 approach to segment by peril alone, adds unnecessary complexity, and also creates difficulty in allocating the risk margin per LoB. Furthermore, undertakings assess their exposure to any one LoB and peril based on an exposure measure relevant for that LoB, for example sum insured for Fire, number of vehicles for motor etc, which was not reflected in QIS5. The approach under QIS5 was as such not in line with current standard practice for managing exposure to Nat Cat risk, and the Industry would prefer a more appropriate and more pragmatic approach. \nWe propose to calculate a capital charge per peril, region  and LoB rather than by peril and region alone","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","090","1","[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nThe allowance for allows for cross regional reinsurance is an important feature of the calculation of the SCR for catastrophe risk. This was aknowledged in QIS5 TS 9.85.\n","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","091",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nUndertakings usually segment their premium and loss data by Line of Business (LoB) and peril, not by peril alone which was the requirement under QIS5. The QIS5 approach to segment by peril alone, adds unnecessary complexity, and also creates difficulty in allocating the risk margin per LoB. Furthermore, undertakings assess their exposure to any one LoB and peril based on an exposure measure relevant for that LoB, for example sum insured for Fire, number of vehicles for motor etc, which was not reflected in QIS5. The approach under QIS5 was as such not in line with current standard practice for managing exposure to Nat Cat risk, and the Industry would prefer a more appropriate and more pragmatic approach. \nWe propose to calculate a capital charge per peril, region  and LoB rather than by peril and region alone","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","091","1","[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nThe allowance for allows for cross regional reinsurance is an important feature of the calculation of the SCR for catastrophe risk. This was aknowledged in QIS5 TS 9.89.\n","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","092",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nUndertakings usually segment their \npremium and loss data by Line of Business (LoB) and peril, not by peril alone which was the requirement under QIS5. The QIS5 approach to segment by peril alone, adds unnecessary complexity, and also creates difficulty in allocating the risk margin per LoB. Furthermore, undertakings assess their exposure to any one LoB and peril based on an exposure measure relevant for that LoB, for example sum insured for Fire, number of vehicles for motor etc, which was not reflected in QIS5. The approach under QIS5 was as such not in line with current standard practice for managing exposure to Nat Cat risk, and the Industry would prefer a more appropriate and more pragmatic approach. \nWe propose to calculate a capital charge per peril, region  and LoB rather than by peril and region alone","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","092","1","[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nThe allowance for allows for cross regional reinsurance is an important feature of the calculation of the SCR for catastrophe risk. This was aknowledged in QIS5 TS 9.92.\n","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","094",null,"The approach for non-proportional property reinsurance (250% of estimated earned premiums) is inadequate in our view due to reasons given in paragraph SCR.9.56. of the QIS5 Technical specifications, stating: ”The scenarios are not appropriate for non-proportional reinsurance writers. The reason is that the relationship between total insured value and loss damage ratio (1 in 200 loss / total exposure) (and also premium and loss damage ratio) is more variable between reinsurance undertakings and from one year to the next, than for direct or proportional reinsurance writers. The relationship depends on the Level of excess at which non proportional business is written and the pattern of participation by (re)insurance layer. The complexity that would be introduced by attempting to allow for non proportional business would be disproportional to the benefits gained.” For companies which write material amounts of non-proportional reinsurance undertaking-specific scenarios should be allowed in the context of the standard formula or at least partial internal models should be encouraged.\n","Sub-module for catastrophe risk of non-proportional property reinsurance\n1. The capital requirement for catastrophe risk of non-proportional property reinsurance shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss in relation to each reinsurance contract that covers reinsurance obligations of line of business 28 as set out in Annex I [of IM13rev1]. \n2. The amount of the loss, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, could be  determined using a scenario suggested by the undertaking, after validation by its supervisory authority. If the undertaking does not suggest a scenario or if the supervisory authority rejects it, then the instantaneous loss shall be equal to 250 % of an estimate of the premiums to be earned by the insurance or reinsurance undertaking for each contract that covers the reinsurance obligations of line of business 28 as set out in Annex I [of IM13rev1]. For this purpose premiums shall be gross, without deduction of premiums for reinsurance contracts."]
["CEA","095",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nOur concern is that the Scenario-based approach for man-made catastrophe risk in QIS5 was calibrated mostly based on expert judgment and gave resulting capital requirements which were not in line with the claims experience of undertakings. Additionally, undertaking specific risk characteristics were not taken into account (such as policy limits, retained exposure limits, management decisions etc.). Furthermore, the non-linear relation between risk exposure and company size, which is crucial when calculating a capital charge for man-made events, was not taken into account in QIS5. This non-linear relationship is important as capital charges for undertakings with small market shares for a given LoB should be larger than their commensurate percentage (of exposure, premium, etc.) of a 200 year market loss, while capital charges for undertakings with large market shares should be smaller than their commensurate percentage. We consider one single closed formula (with parameters calibrated differently for each line of business) to be sufficient for the standardised scenario approach.\nThe idea of such a formula for man-made catastrophes is the non-linear relation between size of the undertaking and risk exposure (lobs: MTPL, TPL, fire). This non-linear relation prevents that the risk of small undertakings will be extremely underrated, and the risks of big ones will be overrated. \nIndividual upper limits of undertakings should be taken into account.\nSo all different scenarios and formulae should be deleted.","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","096",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nOur concern is that the Scenario-based approach for man-made catastrophe risk in QIS5 was calibrated mostly based on expert judgment and gave resulting capital requirements which were not in line with the claims experience of undertakings. Additionally, undertaking specific risk characteristics were not taken into account (such as policy limits, retained exposure limits, management decisions etc.). Furthermore, the non-linear relation between risk exposure and company size, which is crucial when calculating a capital charge for man-made events, was not taken into account in QIS5. This non-linear relationship is important as capital charges for undertakings with small market shares for a given LoB should be larger than their commensurate percentage (of exposure, premium, etc.) of a 200 year market loss, while capital charges for undertakings with large market shares should be smaller than their commensurate percentage. We consider one single closed formula (with parameters calibrated differently for each line of business) to be sufficient for the standardised scenario approach.\nThe idea of such a formula for man-made catastrophes is the non-linear relation between size of the undertaking and risk exposure (lobs: MTPL, TPL, fire). This non-linear relation prevents that the risk of small undertakings will be extremely underrated, and the risks of big ones will be overrated. \nIndividual upper limits of undertakings should be taken into account.\nSo all different scenarios and formulae should be deleted.","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","096","1","This equation does not always give intuitive answers and will need to be tested and analysed further.  For example, due to the discontinuity in the distribution caused when policy limits bite most of the time, it is possible that there is no solution to the equation provided.  In such cases CEIOPS-DOC-79/10 (p62) states that the correct gross risk charge should be the value S at the lower limit of the discontinuity.","1. The capital requirement for motor vehicle liability risk shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is equal to the following euro amount:\n[...]\n where N is the number of vehicles insured by the insurance or reinsurance undertaking in lines of business 4 and 16 as set out in Annex I . The number of motor vehicles covered by the proportional reinsurance obligations of the insurance or reinsurance undertaking shall be weighted by the relative share of the undertaking's obligations in respect of the sum insured of the motor vehicles."]
["CEA","099",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nOur concern is that the Scenario-based approach for man-made catastrophe risk in QIS5 was calibrated mostly based on expert judgment and gave resulting capital requirements which were not in line with the claims experience of undertakings. Additionally, undertaking specific risk characteristics were not taken into account (such as policy limits, retained exposure limits, management decisions etc.). Furthermore, the non-linear relation between risk exposure and company size, which is crucial when calculating a capital charge for man-made events, was not taken into account in QIS5. This non-linear relationship is important as capital charges for undertakings with small market shares for a given LoB should be larger than their commensurate percentage (of exposure, premium, etc.) of a 200 year market loss, while capital charges for undertakings with large market shares should be smaller than their commensurate percentage. We consider one single closed formula (with parameters calibrated differently for each line of business) to be sufficient for the standardised scenario approach.\nThe idea of such a formula for man-made catastrophes is the non-linear relation between size of the undertaking and risk exposure (lobs: MTPL, TPL, fire). This non-linear relation prevents that the risk of small undertakings will be extremely underrated, and the risks of big ones will be overrated. \nIndividual upper limits of undertakings should be taken into account.\nSo all different scenarios and formulae should be deleted.","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","099","1","For industrial (and to a limited extent also for commercial) business a loss of the total sum insured is rather unlikely. We therefore recommend to use the possible maximum loss (PML) instead which is a well-established concept in industrial / commercial (re)insurance usually forms the basis of reinsurance decisions","1. The capital requirement for fire risk shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is equal to the sum insured possible maximum loss by the insurance or reinsurance undertaking with respect to the largest fire risk concentration."]
["CEA","099","2(b)","We find the implementation of these requirements extremely costly (in terms of data collection and reporting, especially for reinsurers) for the following reasons:\n• Reporting exposure inside a certain radius requires precise (GPS) coordinates or similar registration for every single insured building. This may be possible in some countries for some products, but definitely not in general due to different registration mechanisms across Europe.\n• For chains of retail stores there will be a separation between the stores and the stocks/ warehouse. If the stocks are located more than 150 meters from the store is seems that the stocks represent a separate risk centre. Consequently the risk centres must be dealt with separately on an individual basis.\n• For industrial premises a delimitation of 150/300 meters is not decisive in determining the risk. Large industrial plants may themselves stretch far outside a 300m radius, and sums insured may not be recorded at sections of such a plant.\n• Sums insured or Estimated Maximum Losses are likely not to be recorded for each location, as this would require on-site valuation by skilled specialists (e.g. engineers). This is costly and therefore only done at the biggest/riskiest locations.\n• In certain member states only the addresses of headquarters may be recorded and exact locations of stores and warehouse, for example, are not always available.\n• Requiring accumulation of risk exposure within a given radius would require all direct insurers to report their exact risk locations and sums insured per location to reinsurers, which then need to record the information and aggregate it for their own QIS5 calculation needs.","2. The largest fire risk concentration of an insurance or reinsurance undertaking is the set of buildings with the largest sum insured that meets the following conditions:\n(a) the insurance or reinsurance undertaking has insurance or reinsurance obligations in lines of business 7 and 19 as set out in Annex I, in relation to each building which cover damage due to fire or explosion, including as a result of terrorist attacks.\n(b) all buildings are partly or fully located within a radius of 200 meters."]
["CEA","100\n(Former)",null,"We welcome the deletion by the EC of the terrorism sub modules and its inclusion into the fire risk sub module as it simplifies the approach.","The EC deleted this article"]
["CEA","102",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent on28/03/2011]\nOur concern is that:\n  Firstly, there was an inconsistent approach in the “recession scenario” where, in our view, capital requirements are double-counted with non-life premium and reserve risk and the pro cyclicality assumptions are not supported by a clear analysis nor calibrated to a 1 in 200 year event, as set out in the Framework Directive. \n  Secondly there were overstated capital requirements for the “large buyer scenario”, where, bearing in mind that the rating of large buyers would be A, AA or better, the assumption that three of these exposures would default in the same year is excessive.\n","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","102","1","Treatment of recession as a separate CAT scenario involves a risk of double-counting with the premium and reserve risk sub-module. Economic downturns are captured in the normal loss history of credit insurers upon which premium and reserve risk is assessed. It is of utmost importance that there is no material double counting with events already considered in the tail of the standard calculation for premium and reserve risk. It is not evident in the proposal how this issue has been addressed.\nA recession for C&S is not an extraordinary event that requires a separate modelling approach like, e.g., a severe hail-storm for car insurance, or a hurricane for property insurance, etc.  A recession therefore should be considered to be part of the tail of the standard model for premium and reserve risk. Consequently, within the context of the standard model for premium and reserve risk, the factors (standard deviations) should be calibrated such that a recession event (e.g. 2009 losses) should not exceed the corresponding percentile (2009 being widely recognised as being a 1-in-50 to 1-in-100 year event) of the standard log-normal distributions for most Credit Insurers.  \n","[whole section needs re-drafting in line with our proposals]\n"]
["CEA","102","2","We question the calibration of this proposal. An assumption of the “instantaneous default of the three largest credit insurance exposures” appears to imply either extremely high correlation, or that a scenario proposed has a likelihood of occurring that is significantly lower than a 1-in-200 year event. A credit insurer manages its top exposures prudently, implying that top exposures will typically have a credit quality that is investment grade or comparable. Based on the QIS5 Technical Specifications (TP 2.162) where a BBB exposure could have a probability of default of 0.5%, default of a single exposure would seem more appropriate than three exposures. \nCredit Insurers also have the capability to dynamically manage credit exposure which also reduces the already small number of large risks potentially able to hit the non-proportional reinsurance.  Hence assuming only a single top exposure default may just about form a relevant CAT scenario (this will depend on the individual Credit Insurer’s portfolio).  Assuming two or more to default, would either imply that a correlation of 100% is assumed or that the scenario proposed has a likelihood off occurring that is significantly smaller than a 1 in 200 year event. We view this as inappropriate.\nPara 2 - It should be clarified what is meant by “exposure”.  Given the context we assume that by “exposure” this paragraph means the sum of live granted credit limits or live Surety bonds. It is important to note, however, that Credit Insurance policies have maximum liability clauses. These maximum liabilities are significantly smaller than the sum of granted credit limits per policy, typically at least by a factor of 10. Hence, in a sufficiently extreme event, losses will no longer be proportional to the total granted credit limits, and aggregate losses will be limited by these maximum liabilities.","2. The capital requirement for the risk of a large credit default shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous default the three single largest credit insurance exposures of an insurance or reinsurance undertaking. The calculation of the capital requirement shall be based on the assumption that the loss-given-default, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, of each credit insurance exposure is 10 % of the sum insured in relation to the exposure. "]
["CEA","102","4","The calibration of recession risk should avoid any double counting with the standard deviation factors calibrated for premium and reserve risk.","4. The capital requirement for recession risk shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous default of [x%] of the credit insurance exposures of the undertaking. The calculation of the capital requirement shall be based on the assumption that the loss-given-default, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, of each credit insurance exposure is [y%] of the sum insured in relation to the exposure."]
["CEA","102","5","We question the inclusion a cycle-sensitive dampening mechanism, which we believe is inconsistent with the 99.5th percentile 1-year value-at-risk measure set out in the Directive (which should be independent of the state of the economy).  We also do not understand how this measure has been calibrated.\nIt is also unclear how the pro-cyclical measure would affect the overall calibration of default rates (x% in paragraph 4) or losses as a percentage of exposure (y% in paragraph 4) for the recession scenario.","5. Notwithstanding paragraph 4 the capital requirement for recession risk of an insurance or reinsurance undertakings shall not be larger than the following amount: \n where\n[...]\n(a) Pcredit denotes an estimate of the premiums, after deduction of the amounts recoverable from reinsurance contracts, to be earned by the insurance or reinsurance undertaking in the lines of business 9 and 21 as set out in Annex I and in relation to non-proportional credit and suretyship reinsurance during the following year;\n(b) LRcredit denotes the net loss ratio for credit and suretyship insurance and reinsurance of the insurance or reinsurance undertaking."]
["CEA","104",null,"Consistency of life risk with other risk modules\nAs compared with Article 80 for Non-life and Article 124 for health this article is missing a list of sub-risks and the formula for calculating the capital requirements. For consistency reasons, we request that these are added.\n\nLife risk correlations\nCAT risk - CAT risk is, by its very nature, independent of other risks. We see no reason why a non-zero correlation should be set between risks which are intuitively independent. Ceiops has not provided any statistical analysis to support this assumption. A correlation of 0 with other risks should be stated, as it was the case in QIS4.\nLongevity/mortality risk - Ceiops’ final advice on the correlation coefficient between longevity and mortality discusses their reasons for not setting the correlation to -1. The justification provided for the decision instead to set a correlation of -0.25 is very vague and could just as easily justify a correlation coefficient of -0.5 or -0.75. \nWe believe that the correlation factor should at least be –0.5 as this better reflects the nature of dependence between mortality risk and longevity risk. \nThe statement in Ceiops’ final advice that mortality and longevity risks refer to different age cohorts is not based on any research. In general there is a higher degree of young people with longevity risk and a higher degree of old people with mortality risk than is assumed when assessing this correlation factor.","Correlation coefficients Life underwriting risk module\n1. The life underwriting risk module shall consist of the following sub-modules:\n(a) the life mortality risk sub-module; \n(b) the life longevity risk sub-module; \n(c) the life disability-morbidity risk sub-module; \n(d) the life expense risk sub-module; \n(e) the life revision risk sub-module;\n(f) the life lapse risk sub-module;\n(g) the life CAT risk sub-module; \n2. The capital requirement for the life underwriting risk module shall be equal to the following: \n [For redrafting suggestion, refer to CEA Annex: Formulas and tables]\nwhere the sum covers all possible combinations (i,j) of the sub-modules set out in paragraph 1, CorrL(i,j)  denotes the correlation parameter for life underwriting risk for sub-modules i and j and SCRi and SCRj denote the capital requirements for risk sub-module i and j respectively.\n3. “Correlation coefficients”\nThe correlation coefficient Corri,j referred to in point (3) of Annex IV of Directive 2009/138/EC denotes the item set out in row i and in column j of the following correlation matrix: \n"]
["CEA","105","1","Mortality risk\nThe 15% calibration is too high and the move from the QIS4 calibration of 10% has not been sufficiently justified by Ceiops.","1. Subject to paragraph 2, the capital requirement for mortality risk referred to in point (a) of Article 105(3) of Directive 2009/138/EC shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent increase of 15 10 % in the mortality rates used for the calculation of technical provisions. \n[For redrafting suggestion, refer to CEA Annex: Formulas and tables]"]
["CEA","105","2","The current non-symmetric treatment, requiring insurers to only stress those policies creating a loss, is not in line with the economic risk-based framework and produces capital requirements that are far more onerous than the 99.5th percentile, adding prudential margins over the 1 in 200 level. It is not realistic or technically sound to assume that: the stress would only affect those policies for which mortality risk would create capital requirements; while having zero affect on those policies for which mortality risk would create profit. The stress and its correlation with other risks should be calibrated to a 1 in 200 stress level and then applied realistically across the insurers portfolio, as would be the case under Internal Models.\nFurthermore, this requirement would mean that the natural diversification of well diversified portfolios would not be recognised.\nWe also note that it is burdensome to require insurers to apply stresses to a subset of policyholders, which may move over time and is likely to be different for each risk.","2. The increase in mortality rates referred to in paragraph 1 shall apply to all policies only apply to those insurance policies for which an increase in mortality rates leads to an increase in technical provisions, taking into account the following: \n(a) multiple insurance policies in respect of the same insured person may be treated as if they were one insurance policy;\n(b) where the calculation of technical provisions is based on groups of policies as referred to in Article TP16, the identification of the policies for which technical provisions increase under an increase of mortality rates may also be based on those groups of policies instead of single policies, provided that it would give approximately the same result;  "]
["CEA","107","1","Longevity risk\nWe support the reduction from a 25% stress. However, the current factor is too high. Longevity risk is a key risk for insurers providing pension business and so it is essential that no level of excessive prudence is factored into the calibration over the 99.5% VaR.  We question some of the assumptions used by Ceiops in this calibration. A recent study published by the Danish Insurance Association concludes that a 10%-15% longevity risk charge, would be more appropriate:\nhttp://www.cea.eu/uploads/DocumentsLibrary/documents/1274268244_assessment-of-longevity-risk.pdf\nFurthermore, a longevity risk charge which is modelled via a “one size fits all” immediate shock will always be a simplification of the realistic effect of longevity risk. Please see the study carried out by Unespa/Towers Perrin: http://www.cea.eu/uploads/DocumentsLibrary/documents/1236954597_unespa_longevity.pdf  \nwhich shows that longevity improvements vary by age/duration of the policy.\nWe understand that for practicality reasons the immediate shock approximation for longevity risk is proposed. However, we would expect that Undertaking Specific Parameters should be available for those insurers for whom longevity risk is material, so that this can be modelled appropriately.\n","1. Subject to paragraph 2, the capital requirement for longevity risk referred to in point (b) of Article 105(3) of Directive 2009/138/EC shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent decrease of 13 20 % in the mortality rates used for the calculation of technical provisions."]
["CEA","107","2","The current non-symmetric treatment, requiring insurers to only stress those policies creating a loss, is not in line with the economic risk-based framework and produces capital requirements that are far more onerous than the 99.5th percentile, adding prudential margins over the 1 in 200 level. It is not realistic or technically sound to assume that: the stress would only affect those policies for which mortality risk would create capital requirements; while having zero affect on those policies for which mortality risk would create profit. The stress and its correlation with other risks should be calibrated to a 1 in 200 stress level and then applied realistically across the insurers portfolio, as would be the case under Internal Models.\nFurthermore, this requirement would mean that the natural diversification of well diversified portfolios would not be recognised.\nWe also note that it is burdensome to require insurers to apply stresses to a subset of policyholders, which may move over time and is likely to be different for each risk.","2. The decrease in mortality rates referred to in paragraph 1 shall apply to all policies only apply to those insurance policies for which a decrease in mortality rates leads to an increase in technical provisions taking into account the following: \n(a) multiple insurance policies in respect of the same insured person may be treated as if they were one insurance policy;\n(b) where the calculation of technical provisions is based on groups of policies as referred to in Article TP16, the identification of the policies for which technical provisions increase under a decrease of mortality rates may also be based on those groups of policies instead of single policies, provided that it would give approximately the same result; \n"]
["CEA","109",null,"Disability-morbidity risk \nAn additional shock has been introduced compared to QIS4 of a 20% shock on the recovery rate. No sound study has been carried out by Ceiops to justify this.\nIt is a concern for us, as usually an insured population with a very short-term disability (e.g. 3/4 days of disability, due to flu or a dislocated wrist) has a very good recovery rate (~90%). Shocking it to 70% is very costly. \nWe would suggest the removal of this new shock\nOR we suggest an alternative calibration as proposed.","Disability-morbidity risk sub-module\nThe capital requirement for disability-morbidity risk referred to in point (c) of Article 105(3) of Directive 2009/138/EC shall be equal to the aggregation of the following loss in basic own funds of insurance and reinsurance undertakings that would result from the combination of the following instantaneous permanent changes:\n1. a capital requirement corresponding to the loss in basic own funds of insurance and reinsurance undertakings that would result from the following instantaneous permanent changes:\n(a) an  increase of 35 % in the disability and morbidity rates which are used in the calculation of technical provisions to reflect the disability and morbidity experience in the following 12 months. For this shock, the disability and morbidity rates refer to the probability to become disabled and exceed the waiting period of the contract;\n(b) an  increase of 25 % in the disability and morbidity rates which are used in the calculation of technical provisions to reflect the disability and morbidity experience for all months after the following 12 months. For this shock, the disability and morbidity rates refer to the probability to become disabled and exceed the waiting period of the contract;\n2. a capital requirement corresponding to the loss in basic own funds of insurance and reinsurance undertakings that would result from the following instantaneous permanent changes:\n(a) an increase of 20 % in the probability of remaining disabled a decrease of 20 % in the disability and morbidity recovery rates used in the calculation of technical provisions in respect of the following 12 months and for all months thereafter. For this shock, the probability of remaining disabled is the probability conditioned to the fact that the duration in disability has exceeded the waiting period of the contract. For each insured, this shock only applies over the period when the main cause of the termination of the disability is recovery and not death.\nThe correlation factor that should be used to aggregate the capital requirements described under (1) and (2) is 0.25."]
["CEA","109bis",null,"Typo - Missing \"and\" in new text","[...] CaR1 denotes the capital at risk, being for each policy the sum of the amount or the expected present value of the amounts that the insurance or reinsurance undertaking would pay in the event of the disability-morbidity of the insured persons under the policy, after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles less the best estimate corresponding to obligations relating to the disability-morbidity of the undertaking's insured person, after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles and CaR2 denotes the capital at risk after 12 months. "]
["CEA","113","2","The requirements to stress only certain options is excessively complex, particularly in stochastic models.\nWe also point out that this could well overestimate the actual risk.                                                                                                                                                                                                                             Additionally,w hen aggregated to other risks the lapse module could give a wrong picture of the actual risk. For example, for some policy types, a large fall in equities it could actually be a positive thing for the own funds value if a lot of policyholders surrenders. The worst scenario could actually be a large equity fall combined with the fact that all policyholders stay. That’s because many policies would have turned unprofitable in case of a equity fall (or other bad market scenarios). ","2. The capital requirement for the risk of a permanent increase in lapse rates shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent increase of 50 % in the option exercise rates of the relevant options set out in paragraph 4 and 5. However, the resulting increased option exercise rates, following the application of the instantaneous permanent increase of 50 %, shall not be deemed to exceed 100 %. The increase in option exercise rates shall only apply to those relevant options for which the exercise of the option would result in an increase of technical provisions without the risk margin. "]
["CEA","113","3","The requirements to stress only certain options is excessively complex, particularly in stochastic models.\nWe also point out that this could well overestimate the actual risk.                                                                                                                                                                                                                             Additionally,w hen aggregated to other risks the lapse module could give a wrong picture of the actual risk. For example, for some policy types, a large fall in equities it could actually be a positive thing for the own funds value if a lot of policyholders surrenders. The worst scenario could actually be a large equity fall combined with the fact that all policyholders stay. That’s because many policies would have turned unprofitable in case of a equity fall (or other bad market scenarios). ","3. The capital requirement for the risk of a permanent decrease in lapse rates shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent decrease of 50 % in the option exercise rates of the relevant options set out in paragraph 4 and 5. However, the resulting decreased option exercise rates (expressed as percentages), following the application of the instantaneous permanent decrease of 50 %, shall not be deemed to decrease by more than 20 percentage points. The decrease in option exercise rates shall only apply to those relevant options for which the exercise of the option would result in a decrease of technical provisions without the risk margin."]
["CEA","113","4","Proportionality should be considered as these requirements could be very burdensome. Reference to the materiality of the impact is needed to avoid a useless calculation.","4. The relevant options for the purposes of paragraph 2 and 3 shall mean all legal or contractual policy holder rights to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse. Where a right allows the full or partial establishment, renewal, increase, extension or resumption of insurance or reinsurance cover, the change in the option exercise rate referred to in paragraphs 2 and 3 shall be applied to the rate that the right is not exercised if the effect is expected to be material. "]
["CEA","113","6(a)","There has been no evidence to support the proposed stresses. 70% seems far too high, especially given the fact that lapses based on market stresses are already captured in the market risk module.\nAdditionally, we note that it is important that there is a clear and appropriate definition of non-retail business, which should cover only wholesale business. Preliminary feedback we have received from QIS5 suggests that the definition may be too wide. We are currently looking into this issue. ","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n6. The capital requirement for mass lapse risk shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from the following combination of instantaneous changes:\n(a) the surrender of 70 % of the insurance policies with a positive surrender strain falling within Article 2(3)(b)(iii) and (iv) of Directive 2009/138/EC, where the policy holder is either:\n– not a natural person and surrender of the policy is not subject to approval by the beneficiaries of the pension fund; or\n– a natural person acting for the benefit of the beneficiaries under those policies, but excluding policies in respect of which there is a family relationship between that natural person and the beneficiaries, and policies effected for private estate planning or inheritance purposes in circumstances where the number of beneficiaries under the policy does not exceed 20; "]
["CEA","113","6(b)","We have not seen evidence to support this stress. Based on our own analysis which was based on data provided by Watson Wyatt, a stress of between 15% and 20% is more appropriate:\nhttp://www.cea.eu/uploads/DocumentsLibrary/documents/1255534197_cea-additional-contribution-on-cp49-mass-lapse-risk.pdf","(b) the surrender of 30 20  % of the insurance policies with a positive surrender strain other than those falling within point (a)."]
["CEA","113","6(c)","For some participating contracts, the surrender strain is not a relevant metric to assess whether the scenario is adverse or not.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n(c) where reinsurance contracts cover insurance or reinsurance contracts that will be written in the future, the decrease of 30 % of the number of those future insurance or reinsurance contracts used in the calculation of technical provisions."]
["CEA","113","7","It should be clearly stated that group contracts which can be transferred should not be included in the scope of the lapse risk. The current calibration is totally unrealistic regarding the very low transfer rate observed in the past.","For the purposes of this Article 'surrender' means to all possible ways to terminate the contract, including surrender without the payment of a surrender value, change of the insurance undertaking by the individual  policy holder and termination of the policy resulting from the policy holder's refusal to pay the premium.  This does not include the transfer of group contracts."]
["CEA","115",null,"Life CAT risk\nAs per our comments on longevity and mortality risk, biometric shocks should applied to the whole portfolio. Pandemic risk would not choose victims according to their insurance contracts (i.e. kill the holders of savings or death contracts but save the life of holders of annuities contracts).","Life-catastrophe risk sub-module\n1. The capital requirement for life-catastrophe risk referred to in point (g) of Article 105(3) of Directive 2009/138/EC shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous addition of 0.15 percentage points to the mortality rates (expressed as percentages) which are used in the calculation of technical provisions to reflect the mortality experience in the following 12 months. \n2. The increase in mortality rates referred to in paragraph 1 shall apply all to all policies only apply to those insurance policies for which an increase in mortality rates to reflect the mortality experience in the following 12 months leads to an increase in technical provisions taking into account the following:\n(a) multiple insurance policies in respect of the same insured person may be treated as if they were one insurance policy;\n(b) where the calculation of technical provisions is based on groups of policies as referred to in Article TP16, the identification of the policies for which technical provisions increase under an increase of mortality rates may also be based on those groups of policies instead of single policies, provided that it would give approximately the same result;  \n3. With regard to reinsurance policies, the identification of the policies for which technical provisions increase under an increase of mortality rates shall apply to the underlying insurance policies only and shall be carried out in accordance with paragraph 2."]
["CEA","117",null,"[Please see our proposals in our paper on \"CEA proposals for Catastrophe\" sent to the EC on 28/03/2011].\nOur concern is that:\nThe approach for the Non-SLT Health scenarios does not consider limits on available capacity; the correlation between Health catastrophe risk and the Non-SLT Health premium risk is overstated; and some of the Non-SLT Health scenarios overlap"]
["CEA","117","3","The correlation between UW risk and cat risk as too conservative for these risks which can be considered independent. \nCeiops says also that there is low or zero correlation between these risks and the comments they make to put the factor at 25% are not backed by hard evidence. \nThe correlation between CAT-risk and the underwriting risks 0.25 should be changed to the more relevant 0.","3. The correlation coefficient CorrH(i,j) referred to in paragraph 2 denotes the item set out in row i and in column j of the following correlation matrix:  \n[For redrafting suggestion, refer to CEA Annex: Formulas and tables] \n"]
["CEA","118","1(b)","For NSLT health, the lapse risk stresses are too complex given that this risk is not material or relevant in the vast majority of cases.\nFurther the data from non-life cash flows which are used to calibrate the premium risk implicitly comprise the volatility due to lapses. In developing a separate module for this risk, double counting between premium/ reserve risk and lapse risk must be avoided.\nSince such an exercise would generate significant practical problems for what is considered to be an immaterial risk in most cases and because of the practical issues outlined above we suggest that this risk module is dropped.","1. The NSLT health underwriting risk sub-module shall consist of the following sub-modules:\n(b) the NSLT health lapse risk sub-module.\n"]
["CEA","119",null,"The use of this approximation for the 99.5% exact quintile ρ(σ) of the lognormal law is penalising undertakings, if their σ is lower than 15%. We attach a set of figures detailing how for various levels of volatility the approximation changes. [For info suggestion, refer to CEA Annex: Formulas and tables] \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n","NSLT health premium and reserve risk sub-module\n\nThe capital requirement for the NSLT health premium and reserve risk sub-module shall be equal to the following:\n[For redrafting suggestion, refer to CEA Annex: Formulas and tables]  \n\nwhere σNSLTh denotes the standard deviation for NSLT health premium and reserve risk determined in accordance with Article HUR5 and VNSLTh denotes the volume measure for NSLT health premium and reserve risk determined in accordance with Article HUR4.\n\n"]
["CEA","120","1","Any volume measure which is directly proportional to the (positive) value of premiums or of premium provisions penalizes undertakings with high expected profits from existing business. So any reasonable volume measure must mirror these expected profits i.e. the smaller the expected future profits (or the higher the losses) the higher must be the premium risk.","1. The volume measure for NSLT health premium and reserve risk shall be equal to the sum of the volume measures for premium and reserve risk of the segments set out in Annex HUR1."]
["CEA","120","3","Although the level 1 text requires 1 year of new business to be taken into account in the SCR calculations, it is important to have consistency between the valuation of Technical Provisions and valuation of the SCR, i.e. the SCR needs to be based on the same Technical Provisions that are shown in the Solvency II balance sheet.\nTheoretically there are two possible solutions in order to ensure consistency: \n• Both the SCR and the Technical Provisions allow for one-year of new business. \n• Neither the SCR nor the Technical Provisions allow for one-year of new business. \nWe stand ready to discuss with the EC and Ceiops the possibilities above.","3. For all segments set out in Annex HUR1, the volume measure for premium risk of a particular segment s shall be equal to the following:\n where\n\n(a) P,s denotes an estimate of the premiums to be earned by the insurance or reinsurance undertaking in the segment s during the following 12 months;\n(b)  P(last,s) denotes the premiums earned by the insurance and reinsurance undertaking in the segment s during the last 12 months;\n(c) FP(existing,s) denotes the expected present value of premiums to be earned by the insurance and reinsurance undertaking in the segment s after the following 12 months for existing contracts;\n(d) FP(future,s) denotes the expected present value of premiums to be earned by the insurance and reinsurance undertaking in the segment s after the following 12 months for contracts where the initial recognition date falls in the following 12 months."]
["CEA","121","2","This formula seems to implicitly assume a 50% correlation between premium and reserving risk. This should better be spelled out and not hidden like now. Furthermore, this is a very high correlation for risks that relate to disjoint underwriting years; the only driving forces behind this correlation are calendar year effects, i.e. claims inflation of various sources.","2. For all segments set out in Annex HUR1, the standard deviation for NSLT health premium and reserve risk of a particular segment s shall be equal to the following:\n[...]\n where Vs denotes the volume measures for premium and reserve risk of segment s referred to in Article HUR4, σ(prem,s) denotes the standard deviation for NSLT health premium risk of segment s determined in accordance with paragraph 3, σ(res,s) denotes the standard deviation for NSLT health reserve risk of segment s as set out in Annex HUR1, V(prem,s) denotes the volume measure for premium risk of segment s referred to in Article HUR4 and V(res,s) denotes the volume measure for reserve risk of segment s referred to in Article HUR4.\nFor all segments set out in Annex HUR1, the standard deviation for NSLT health premium risk of a segment is equal to the product of the standard deviation for NSLT health gross premium risk of the segment set out in Annex HUR1 and the adjustment factor for non-proportional reinsurance which shall be calculated according to Annex NLUR4."]
["CEA","122","2(h)"," The 50% limit of the reduction is not justified and should be removed and the actual adjustment of the equalisation system should be used.Therefore there should  be no floor stipulated.","2. EIOPA may determine standard deviations for NSLT health premium and reserve risk of the segments 1 to 3, as set out in Annex HUR1, for business that is subject to a HRES provided that the following conditions are met:\n(h) notwithstanding points (a) to (g), the standard deviation for premium risk of a segment is not lower than half the standard deviation for NSLT health premium risk of the segment set out in Annex HUR1 and the standard deviation for reserve risk of a segment is not lower than half the standard deviation for NSLT health reserve risk of the segment set out in Annex HUR1;  \n"]
["CEA","122","2(i)","There should not be a closed list of methodologies for calculating the standard deviation. A method which may be appropriate for one market or company may not be appropriate for another market or company. This is even more the case for health products and risk equalization systems which vary greatly from one member state to another. Therefore, companies should be able to use their own methods where they better reflect their risk profile and as such we do not see any valid reason why their use should be de facto restricted to pre-defined lists of methods.","(i) EIOPA publishes the methodology for the calculation of the standard deviation and the calculation of the standard deviation.   "]
["CEA","122","4","we welcome a similar treatment for premium and reserve risk where only a part of an insurance’s business is subject to HRES.\nIn addition we believe there is a typographical error that we corrected in replacing \"Premium\" by \"reserve\"","4. Notwithstanding Article HUR5(2), where EIOPA has determined a standard deviation for NSLT health insurance reserve risk for business subject to a HRES in accordance with paragraph 2, insurance undertakings shall use this standard deviation instead of the standard deviation for NSLT health reserve risk of the segment set out in Annex HUR1 for the calculation of  the standard deviation for NSLT health premium and reserve risk referred to in Article HUR5(1). Where only a part of an insurance undertaking's business in a segment s is subject to the HRES, the undertaking shall use a standard deviation for NSLT health premium reserve risk of the segment in the calculation of the standard deviation for NSLT health premium and reserve risk referred to in Article HUR5(1) that is equal to the following:[…]"]
["CEA","123",null,"For Health Non SLT business, the lapse risk stresses are too complex given that this risk is not material or relevant in the majority of cases. \nFurthermore, in some markets medical expense insurance is compulsory so any lapse risk is even further reduced.\nAs such, this risk module should be dropped for Health Non SLT.\n","NSLT health lapse risk sub-module\nThe capital requirement for NSLT health lapse risk referred to in point (b) of Article HUR2(1) shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from the combination of the following changes:\n(a) the surrender of 30 % of the insurance policies for which the exercise of the surrender right would result in an increase of technical provisions without the risk margin;\n(b) where reinsurance contracts cover insurance or reinsurance contracts that will be written in the future, the decrease of 30 % of the number of those future insurance or reinsurance contracts used in the calculation of technical provisions. \nThe stresses referred to in points (a) and (b) shall apply uniformly to all insurance and reinsurance contracts concerned. In relation to reinsurance contracts the stress referred to in point (a) shall apply to the underlying insurance contracts.\nFor the purposes of this Article 'surrender' means to all possible ways to terminate the contract, including surrender without the payment of a surrender value, change of the insurance undertaking by the policy holder and termination of the policy resulting from the policy holder's refusal to pay the premium."]
["CEA","124","3","Longevity/mortality risk - Ceiops’ final advice on the correlation coefficient between longevity and mortality discusses their reasons for not setting the correlation to -1. The justification provided for the decision instead to set a correlation of -0.25 is very vague and could just as easily justify a correlation coefficient of -0.5 or -0.75. \nWe believe that the correlation factor should at least be –0.5 as this better reflects the nature of dependence between mortality risk and longevity risk. \nThe statement in Ceiops’ final advice that mortality and longevity risks refer to different age cohorts is not based on any research. In general there is a higher degree of young people with longevity risk and a higher degree of old people with mortality risk than is assumed when assessing this correlation factor.","SLT health underwriting risk sub-module\n3. The correlation coefficient CorrSLTH(i,j) referred to in paragraph 2 denotes the item set out in row i and in column j of the following correlation matrix: \n[For redrafting suggestion, refer to CEA Annex: Formulas and tables] \n\n\n\n\n\n\n\n\n\n"]
["CEA","125","1","The 15% calibration is too high and the move from the QIS4 calibration of 10% has not been sufficiently justified by Ceiops.\nMortality, as longevity shocks should be done for all contracts at the same time. Undertakings have a lot of “groups of policies”, to calculate separately the mortality shock to see when technical provision would increase is very burdensome. Furthermore, stating that mortality or longevity would only deviate when it increase technical provision seems not technically sounded.\nThis measure would not recognize the natural diversification of well-diversified portfolios face to biometrics risks.","1. The capital requirement for health mortality risk shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent increase of 10 15 % in the mortality rates used for the calculation of technical provisions.\nThe increase in mortality rates referred to in paragraph 1 shall apply to all policies only apply to those insurance policies for which an increase in mortality rates leads to an increase in technical provisions taking into account the following: \n(a) insurance policies on the same insured person may be treated as if they were one insurance policy;\n(b) where the calculation of technical provisions is based on groups of policies as referred to in Article TP16, the identification of the policies for which technical provisions increase under an increase of mortality rates may also be based on those groups of policies instead of single policies, provided that it would give approximately the same result;"]
["CEA","125","2","The current non-symmetric treatment, requiring insurers to only stress those policies creating a loss, is not in line with the economic risk-based framework and produces capital requirements that are far more onerous than the 99.5th percentile. It is not realistic or technically sound to assume that: the stress would only affect those policies for which mortality risk would create capital requirements; while having zero effect on those policies for which mortality risk would create profit. The stress and its correlation with other risks should be calibrated to a 1 in 200 year event stress level and then applied realistically across the insurers portfolio, as would be the case under Internal Models.\nFurthermore, this requirement would mean that the natural diversification of well diversified portfolios would not be recognised.\nWe also note that it is burdensome to require insurers to apply stresses to a subset of policyholders, which may move over time and is likely to be different for each risk.","2. With regard to reinsurance obligations, the identification of the policies for which technical provisions increase under an increase of mortality rates shall apply to the underlying insurance policies only and shall be carried out in accordance with paragraph 2."]
["CEA","126","1","We support the reduction from a 25% stress. However, the current factor is too high. Longevity risk is a key risk for insurers providing pension business and so it is essential that no level of excessive prudence is factored into the calibration over the 99.5% VaR.  We question some of the assumptions used by Ceiops in this calibration. A recent study published by the Danish Insurance Association concludes that a 10%-15% longevity risk charge, would be more appropriate:\nhttp://www.cea.eu/uploads/DocumentsLibrary/documents/1274268244_assessment-of-longevity-risk.pdf\nFurthermore, a longevity risk charge which is modelled via a “one size fits all” immediate shock will always be a simplification of the realistic effect of longevity risk. Please see the study carried out by Unespa/Towers Perrin: http://www.cea.eu/uploads/DocumentsLibrary/documents/1236954597_unespa_longevity.pdf  \nwhich shows that longevity improvements vary by age/duration of the policy.\nWe understand that for practicality reasons the immediate shock approximation for longevity risk is proposed. However, we would expect that Undertaking Specific Parameters should be available for those insurers for whom longevity risk is material, so that this can be modelled appropriately.\nIn addition, the stress factor of 25 % is too high when the calculation of Best Estimate already takes into account a future reduction in mortality, for example using a Lee-Carter-model.","1. The capital requirement for health longevity risk shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent decrease of 13 20 % in the mortality rates used for the calculation of technical provisions. \nThe decrease in mortality rates referred to in paragraph 1 shall apply to all policies only apply to those insurance policies for which a decrease in mortality rates leads to an increase in technical provisions taking into account the following: \n(a) multiple insurance policies in respect of the same insured person may be treated as if they were one insurance policy;\n(b) where the calculation of technical provisions is based on groups of policies as referred to in Article TP16, the identification of the policies for which technical provisions increase under an decrease of mortality rates may also be based on those groups of policies instead of single policies, provided that it would give approximately the same result; "]
["CEA","126","2","The current non-symmetric treatment, requiring insurers to only stress those policies creating a loss, is not in line with the economic risk-based framework and produces capital requirements that are far more onerous than the 99.5th percentile, adding prudential margins over the 1 in 200 level. It is not realistic or technically sound to assume that: the stress would only affect those policies for which mortality risk would create capital requirements; while having zero affect on those policies for which mortality risk would create profit. The stress and its correlation with other risks should be calibrated to a 1 in 200 stress level and then applied realistically across the insurers portfolio, as would be the case under Internal Models.\nFurthermore, this requirement would mean that the natural diversification of well diversified portfolios would not be recognised.\nWe also note that it is burdensome to require insurers to apply stresses to a subset of policyholders, which may move over time and is likely to be different for each risk.","2. With regard to reinsurance obligations, the identification of the policies for which technical provisions increase under an decrease of mortality rates shall apply to the underlying insurance policies only and shall be carried out in accordance with paragraph 2. "]
["CEA","128",null,"This article is not very clear.\nApparently it is trying to cover the situation where there is an increase in the claim frequency and/or claim costs and a change in the rate of claim cost inflation assumed for medical expense insurance written on a long-term basis (as in Germany). This section should make it much clearer on what it is referring to.\nFurther, we fail to see clearly how a decrease in the claim frequency and lower future inflation would lead to an increase in technical provisions.","Capital requirement for medical expense disability-morbidity risk \nThe capital requirement for medical expense disability-morbidity risk shall be equal to the larger of the following capital requirements:\n(a) the capital requirement for the increase of medical payments;\n(b) the capital requirement for the decrease of medical payments.\n1. The capital requirement for the increase of medical payments shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from the following combination of instantaneous permanent changes:\n(a) an  increase of 5 % in the amount of medical payments taken into account in the calculation of technical provisions; \n(b) an addition of 1 percentage point to the inflation rate of medical payments (expressed as a percentage) used for the calculation of technical provisions.\n2. The capital requirement for the decrease of medical payments shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from the following combination of instantaneous permanent changes:\n(a) a  decrease of 5 % in the amount of medical payments taken into account in the calculation of technical provisions; \n(b) a subtraction of 1 percentage point from the inflation rate of medical payments (expressed as a percentage) used for the calculation of technical provisions."]
["CEA","133",2,"We do not see any justification for such a non symmetric treatment. It is not realistic or technically sound to assume that the stress would only affect those non-life policies for which an increase in lapsation would create an increase in technical provisions.\nMoreover, in order to reduce complexity, we prefer a more straight-forward approach in lapse risk. A splitting of relevant options depending on which of them raise or decrease the technical provision is technically complex,. especially in stochastic models.","2. The capital requirement for the risk of a permanent increase in SLT health lapse rates shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent increase of 20 % in the relevant option exercise rates set out in paragraph 4 and 5. However, the resulting increased option exercise rates, following the application of the instantaneous permanent increase of 20 %, shall not be deemed to exceed 100 %.\nThe increase in option exercise rates shall only apply to those relevant options for which the exercise of the option would result in an increase of technical provisions without the risk margin.”"]
["CEA","133",3,"We do not see any justification for such a non symmetric treatment. It is not realistic or technically sound to assume that the stress would only affect those non-life policies for which a decrease in lapsation would create decrease in technical provisions.\nMoreover, in order to reduce complexity, we prefer a more straight-forward approach in lapse risk. A splitting of relevant options depending on which of them raise or decrease the technical provision is technically complex,. Especially in stochastic models.","3. The capital requirement for the risk of a permanent decrease in SLT health lapse rates shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous permanent decrease of 20 % in the relevant option exercise rates set out in paragraph 4 and 5. However, the resulting decreased option exercise rates following the application of the instantaneous permanent decrease of 20 %, shall not be deemed to decrease by more than 20 percentage points. The decrease in option exercise rates shall only apply to those relevant options for which the exercise of the option would result in a decrease of technical provisions without taking account of the risk margin."]
["CEA","133","4","This statement could be very burdensome for second-rate impact. The reference to the materiality of the impact is needed to avoid useless calculation.","4. The relevant option exercise rates for the purposes of paragraph 2 and 3 are all legal or contractual policy holder rights to fully or partly terminate, surrender, decrease, restrict or suspend the insurance or reinsurance cover or permit the insurance policy to lapse. Where a right allows the full or partial establishment, renewal, increase, extension or resumption of insurance or reinsurance cover, the change in the option exercise rate referred to in paragraphs 2 and 3 should be applied to the rate that the right is not exercised if the effect is material."]
["CEA","133","6(a)","The calculation of a surrender strain on a policy-by-policy basis is very challenging and hardly possible","“the surrender of 30 % of the insurance policies with a positive surrender strain”"]
["CEA","133","7","It should be clearly stated that group contracts which can be transferred should not be included in the perimeter of the lapse risk. The current calibration is totally unrealistic regarding the very low transfer rate observed in the past.","7. The surrender strain of an insurance policy referred to in paragraph 6 is the difference between the following:\n(a) the amount currently payable by the insurance undertaking on surrender by the policy holder, net of any amounts recoverable from policy holders or intermediaries;\n(b) the amount of gross technical provisions without taking account of the risk margin. \nFor the purposes of this Article 'surrender' means to all possible ways to terminate the contract, including surrender without the payment of a surrender value, change of the insurance undertaking by the policy holder and termination of the policy resulting from the individual policy holder's refusal to pay the premium."]
["CEA","134",null,"[Please note that we are currently discussing alternative proposals for health CAT risk with our members with the aim of providing something to the EC within the coming weeks]\nOur key concerns on the Health Cat risk module are the following:\n- We are concerned about the level of detailed data and information required. A simpler approach is needed for standardized scenarios.\n- Reinsurance should appropriately be reflected in capital requirements. In particular, cross regional reinsurance.\n- Undertaking specific scenarios (“USPs”) should be allowed as they would provide for solutions to some of the shortcomings identified with the proposed approach.\n- We disagree with the 25% correlation between Cat risk and other risks. Cat risk should have zero correlation with other risks.\n"]
["CEA","135",null,"[Please note that we are currently discussing alternative proposals for health CAT risk with our members with the aim of providing something to the EC within the coming weeks]\nOur key concerns on the Health Cat risk module are the following:\n- We are concerned about the level of detailed data and information required. A simpler approach is needed for standardized scenarios.\n- Reinsurance should appropriately be reflected in capital requirements. In particular, cross regional reinsurance.\n- Undertaking specific scenarios (“USPs”) should be allowed as they would provide for solutions to some of the shortcomings identified with the proposed approach.\n- We disagree with the 25% correlation between Cat risk and other risks. Cat risk should have zero correlation with other risks.\nTypo - In addition, it should be made clear that the formulas in paragraph 1 and 2 are linked  by SCR(ma,s) = L(ma,s). It is not clear why the text changes terminology from one paragraph to the next.\n","Mass accident risk sub-module\n2. For all Member States the capital requirement for mass accident risk of Member State s shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles is calculated as follows:[…]\n\n"]
["CEA","136",null,"[Please note that we are currently discussing alternative proposals for health CAT risk with our members with the aim of providing something to the EC within the coming weeks]\nOur key concerns on the Health Cat risk module are the following:\n- We are concerned about the level of detailed data and information required. A simpler approach is needed for standardized scenarios.\n- Reinsurance should appropriately be reflected in capital requirements. In particular, cross regional reinsurance.\n- Undertaking specific scenarios (“USPs”) should be allowed as they would provide for solutions to some of the shortcomings identified with the proposed approach.\n- We disagree with the 25% correlation between Cat risk and other risks. Cat risk should have zero correlation with other risks.\nTypo - In addition, it should be made clear that the formulas in paragraph 1 and 2 are linked  by SCR(ac,c) = L(ac,c). It is not clear why the text changes terminology from one paragraph to the next.","Accident concentration risk sub-module\n1. The capital requirement for the accident concentration risk sub-module shall be equal to the following::[…]\nwhere the sum includes all countries c and SCR(ac,c) denotes the capital requirement for accident concentration risk of country c.\n2. For all countries the capital requirement for accident concentration risk of country c shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is calculated as follows:\n"]
["CEA","137","1","[Please note that we are currently discussing alternative proposals for health CAT risk with our members with the aim of providing something to the EC within the coming weeks]\nOur key concerns on the Health Cat risk module are the following:\n- We are concerned about the level of detailed data and information required. A simpler approach is needed for standardized scenarios.\n- Reinsurance should appropriately be reflected in capital requirements. In particular, cross regional reinsurance.\n- Undertaking specific scenarios (“USPs”) should be allowed as they would provide for solutions to some of the shortcomings identified with the proposed approach.\n- We disagree with the 25% correlation between Cat risk and other risks. Cat risk should have zero correlation with other risks.","Pandemic risk sub-module\n1. The capital requirement for the pandemic risk sub-module shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that,  without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is calculated as follows:[…]\n"]
["CEA","138",null,"ECAIs\nEach supervisory authority is unlikely to have sufficient resources to carry out proper diligence. Controlling rating agencies is not their core business, and so these requirements could be very demanding.\nWe would propose instead, that if an ECAI is registered as a credit rating agency in accordance with Regulation (EC) No 1060/2009, then this rating should be usable under SII, unless Eiopa has publicly justified otherwise. ","General provisions\nWhere insurance and reinsurance undertakings determine credit quality by reference to the credit assessments of an external credit assessment institution (‘ECAI’) the ECAI shall comply with the requirements set out in this subsection.\nAn external credit assessment shall be used to determine  a capital requirement only if the ECAI which provides it has been recognised as eligible for this purpose by EIOPA (‘an eligible ECAI’).\nEIOPA shall recognise an ECAI as eligible only if it is satisfied that its assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency, and that the resulting credit assessments meet the requirements of credibility and transparency. For those purposes, EIOPA shall take into account the technical criteria set out in Annex VI, Part 2 of Directive 2006/48/EC where references to the term “credit institutions” should be read as  referring to “insurance or reinsurance undertakings”. Where an ECAI is registered as a credit rating agency in accordance with Regulation (EC) No 1060/2009 of 16 September 2009 of the European Parliament and of the Council on credit rating agencies, insurance and reinsurance undertakings can base the credit rating used to determine capital requirements on the credit rating provided by this credit rating agency. However, EIOPA can specify that the credit ratings provided by a specific credit rating agency are not usable. This decision should be publicly available and properly justified. EIOPA shall consider the requirements of objectivity, independence, ongoing review and transparency with respect to its assessment methodology to be satisfied. \nEIOPA shall make publicly available an explanation of the recognition process, and a list of eligible ECAIs."]
["CEA","143",null,"“A” factor - Our previous paper looking at historic market risk correlations (based on data provided by Watson Wyatt) proposed that this correlation should be in the range (0.1 to 0.5) / -(0.1 to 0.5). \nThe current proposal is not in line with this historic data.  \n\nEquity/property factor - In our comments to CP74, we provided a study which shows that a correlation factor of 0.25 is appropriate. 0.75 is excessive.\nEquity/spread factor - The last crisis has shown that the 0.25 correlation used in QIS4 is too low. However, the 0.75 is excessive, we support 0.5.\nProperty/spread factor – 0.5 appears too prudent.\nCurrency risk - This does not take account of the fact that currency risk is a 2-sided risk and so could cause a loss or a profit in the balance sheet. Thus the correlation factor could range from -1 to 1. The medium correlation factor would then be 0 rather than 0.25.\nIlliquidity premium/spread factor – -0.5 seems too prudent.\n\nAdditionally, we point out that it needs to be explicitely stated here that the capital requirement is the highest of the two capital requirements for the bi-directional stresses.","Correlation coefficients\n1. The market risk module laid down in Article 105(5) of Directive 2009/138/EC shall include a risk module for illiquidity premium risk.\n2. The market risk module shall be equal to the following:\n [For redrafting suggestion, refer to CEA Annex: Formulas and tables]\n\nThe factor A shall be equal to -0.3 0  when the capital requirement for interest rate risk referred to in point (a) of Article 105(5) is the capital requirement referred to in point (a) of Article IRR1. Otherwise, the factor A shall be equal to 0.3 0.5."]
["CEA","144",null,"The complete look-through approach is too burdensome and is not practicable for funds which are not sufficiently transparent.\nThe following are some of the difficulties undertakings are likely to face if the look-through approach is made mandatory for investments held in funds:\na) It is impossible for certain investment funds to provide look-through on a daily basis. In most cases the fund manager may only agree to deliver a look-through on monthly basis.\nb) Seamless integration with companies' systems represents a hurdle. Once the data is received on monthly basis such data can rarely be integrated in the insurance companies’ systems directly.\nc) There are certain regulations that apply to the funds industry that preclude fund managers from making portfolio holdings public before 30 days from the month end unless the investor would have signed a confidentiality agreement. Such provisions could impose an added liability on insurance companies for alleged breaches of confidentiality which cannot be readily measured.\nd) The investment industry’s delivery capabilities are not aligned with the requirements of the insurance industry. For a “Look Through” approach to work seamlessly the fund manager would have to provide details of the underlying holdings of the fund to the custodian of the insurance company who, for the purposes of reporting, would then incorporate such fund holdings with other direct investments of the company.\nFirst, as it is mentioned in SCR.5.11 of QIS5, the scope of the look-through approach should depend on the materiality of the market risk to capture.\nSecondly, alternative simplified methods should be proposed as mentioned in SCR.5.13 & SCR.5.13 of QIS5: \nSCR.5.13. Where a collective investment scheme is not sufficiently transparent to allow a reasonable allocation of the investments, reference should be made to the investment mandate of the scheme. It should be assumed that the scheme invests in accordance with its mandate in such a manner as to produce the maximum overall capital requirement. For example, it should be assumed that the scheme invests assets in each rating category, starting at the lowest category permitted by the mandate, to the maximum extent. If a scheme may invest in a range of assets exposed to the risks assessed under this module, then it should be assumed that the proportion of assets in each exposure category is such that the overall capital requirement is maximised.\nSCR.5.14. As a third choice to the look-through and mandate-based methods, undertakings should consider the collective investment scheme as an equity investment and apply the global equity risk stress (if the assets within the collective investment scheme are only listed in the EEA or OECD) or other equity stress (otherwise)","Treatment of investment funds and other indirect exposures\n1.  Where possible, mMarket risk shall be calculated on each of the underlying assets of collective investment vehicles and other investments packaged as funds (look-through approach). \n2. Where possible, paragraph 1 shall also apply to indirect exposures other than collective investment vehicles and investments packaged as funds.Where an indirect investment vehicle is not sufficiently transparent to allow a reasonable allocation of investments, reference sghould be made to the investment mandate of the scheme. It should be assumed that the scheme invests in accordance with its mandate in such a manner as to produce the maximum overall capital requirement. If a scheme may invest in a range of assets exposed to the risks assessed under the market risk module, then it should be assumed that the proportion of assets in each exposure category is such that the overall capital requirement is maximised.\n3. Notwithstanding paragraph 2, paragraph 1 shall not apply to investments in related undertakings within the meaning of Article 212 of Directive 2009/138/EC.\n"]
["CEA","145",null,"Interest rate risk - invariance of the curve\n[Please see the CEA key priority issues paper]\nWe strongly support the new Recital 38 which states that the interest rate shocks should reflect the fact that the UFR is stable over time.\nHowever, the relative invariance of the long-term rate is then not taken into account via reduced stresses in the SCR. \nTherefore, the current capital requirements for interest rate risk is inappropriate for the extrapolated part of the curve and should be adjusted.\nInterest rate risk – inconsistent shocks\nFurthermore, the below graph shows that the current non-monotonic sequence of shocks is not appropriate. The change of monotony from 16 to 22 years leads to a stress-up forward rate which is actually lower than the unstressed forward rate at the maturity of the 19th year.\n[For info, refer to CEA Annex: Formulas and tables]\n","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\nGeneral provisions\n1. The capital requirement for interest rate risk referred to in point (a) of Article 105(5) of Directive 2009/138/EC shall be equal to the larger of the following capital requirements:\n(d) The capital requirement for the risk of an increase in the term structure of interest rates as referred to in Article IRR2;\n(e) The capital requirement for the risk of a decrease in the term structure of interest rates as referred to in Article IRR3.\n2. Irrespective of paragraph 1, where the largest of the capital requirements referred to in points (a) and (b) of paragraph 1 and the largest of the corresponding capital requirements calculated in accordance with Article ALAC2(2) are not based on the same scenario, the capital requirement for interest rate risk referred to in point (a) of Article 105(5) of Directive 2009/138/EC shall be the capital requirement referred to in points (a) and (b) of paragraph 1 for which the underlying scenario results in the largest corresponding capital requirement calculated in accordance with Article ALAC2(2).\n"]
["CEA","146",null,"Currently the interest rate stress is not consistent with the extrapolation method. As opposed to stressing the extrapolating curve, one should stress the curve observed in the market (both up and down) and then extrapolate those curves. The difference in the extrapolated curves (up minus base and down minus base) should be used as stress. This will typically reduce the stress (and hence volatility) in the long end of the curve. This is consistent with the extrapolation method that converges to the unconditional forward rate.\n\nA new article should be included covering the stress to be applied to extrapolated risk free curves.","For extrapolated risk free curves the stresses defined in Article IRR2 and IRR3 should apply to the liquid part of the curve, and then the stressed curves should be extrapolated using the same methodology as defined in Article  39 IR4 (Art. 77(2) of Directive 2009/138/EC). The difference between the base extrapolated curve and the stressed extrapolated curves defines the interest rate stresses. This methodology is consistent with the fact that the extrapolated curve converges to an ultimate forward rate as defined in Article  40 IR5 (Art. 77(2) of Directive 2009/138/EC)"]
["CEA","146","1","As stated to our comments to Article 145 above, this article is totally inconsistent with the new recital stating that the volatility should be reduced for maturities of the extrapolated part of the curve.\nLong-term rates on the extrapolated curve should not be shocked with the same magnitude as the non-extrapolated part of the curve. The use of long-term rates is structurally less volatile than shorter ones because of the extrapolation of the curve which allows a part of the long-term rates to be disconnected from market fluctuations. It clears that it could not be proved with market data as by construction this part of the curve is independent from market data. A linear diminution of the shock factors to zero when the ultimate forward rate is reached could reduce the cost of capital for long-term business, as retirement, heavily penalised with the interest rate risk module.","1. The capital requirement for the risk of an increase in the term structure of interest rates shall be equal to the loss in the basic own funds that would result from an instantaneous increase in interest rates at different maturities according to the following:\n(a) Up to the maturity of 2 years, the increase shall be 70 %;\n(b) At the maturity of 3 years, the increase shall be 64 %;\n(c) At the maturity of 4 years, the increase shall be 59 %;\n(d) At the maturity of 5 years, the increase shall be 55 %;\n(e) At the maturity of 6 years, the increase shall be 52 %;\n(f) At the maturity of 7 years, the increase shall be 49 %;\n(g) At the maturity of 8 years, the increase shall be 47 %;\n(h) At the maturity of 9 years, the increase shall be 44 %;\n(i) At the maturity of 10 years, the increase shall be 42 %;\n(j) At the maturity of 11 years, the increase shall be 39 %;\n(k) At the maturity of 12 years, the increase shall be 37 %;\n(l) At the maturity of 13 years, the increase shall be 35 %;\n(m) At the maturity of 14 years, the increase shall be 34 %;\n(n) At the maturity of 15 years, the increase shall be 33 %;\n(o) At the maturity of 16 years, the increase shall be 31 %;\n(p) At the maturity of 17 years, the increase shall be 30 %;\n(q) At the maturity of 18 years, the increase shall be 29 %;\n(r) At the maturity of 19 years, the increase shall be 27 %;\n(s) From the maturity of 20 years up to the maturity of 29 years, the increase shall be 26 %;\n(t) From the maturity of 30 years onwards, the increase shall be 25 % until the last liquid point is reached, then the factor should linearly converged to zero for the maturity for which the ultimate forward rate is reached.\nFor maturities not specified above, the value of the increase shall be linearly interpolated from the increases specified in (a) to (u).  For maturities shorter than 2 years, the increase shall be 70 %"]
["CEA","146","2","Only participations in financial and credit institutions that are not included in the scope of group supervision should be deducted from the own funds of the participating undertakings.","2. Notwithstanding paragraph 1, the impact of the increase in the term structure of interest rates on the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions not included in the scope of group supervision  shall be considered only to the extent that such impact increases the basic own funds."]
["CEA","147","1","We have seen no economic justification for this minimum stress rule and request that it is deleted. \n\nFurthermore, as stated to our comments to Article 145 above, this article is totally inconsistent with the new recital stating that the volatility should be reduced for maturities of the extrapolated part of the curve.\nLong-term rates on the extrapolated curve should not be shocked with the same magnitude as the non-extrapolated part of the curve. The use of long-term rates is structurally less volatile than shorter ones because of the extrapolation of the curve which allows a part of the long-term rates to be disconnected from market fluctuations. It clears that it could not be proved with market data as by construction this part of the curve is independent from market data. A linear diminution of the shock factors to zero when the ultimate forward rate is reached could reduce the cost of capital for long-term business, as retirement, heavily penalised with the interest rate risk module.\n","1. The capital requirement for the risk of a decrease in the term structure of interest rates shall be equal to the loss in the basic own funds that would result from an instantaneous decrease in interest rates at different maturities according to the following:\n(a) Up to the maturity of 1 year, the decrease shall be 75 %;\n(b) At the maturity of 2 years, the decrease shall be 65 %;\n(c) At the maturity of 3 years, the decrease shall be 56 %;\n(d) At the maturity of 4 years, the decrease shall be 50 %;\n(e) At the maturity of 5 years, the decrease shall be 46 %;\n(f) At the maturity of 6 years, the decrease shall be 42 %;\n(g) At the maturity of 7 years, the decrease shall be 39 %;\n(h) At the maturity of 8 years, the decrease shall be 36 %;\n(i) At the maturity of 9 years, the decrease shall be 33 %;\n(j) At the maturity of 10 years, the decrease shall be 31 %;\n(k) At the maturity of 11 years, the decrease shall be 30 %;\n(l) At the maturity of 12 years, the decrease shall be 29 %;\n(m) At the maturity of 13 years, the decrease shall be 28 %;\n(n) At the maturity of 14 years, the decrease shall be 28 %;\n(o) At the maturity of 15 years, the decrease shall be 27 %;\n(p) From the maturity of 16 years up to the maturity of 18 years, the decrease shall be 28 %;\n(q) From the maturity of 19 years up to the maturity of 21 years, the decrease shall be 29 %;\n(r) From the maturity of 22 years onwards, the decrease shall be 30 % until the last liquid point is reached, then the factor should linearly converged to zero for the maturity for which the ultimate forward rate is reached.\nFor maturities not specified above, the value of the decrease shall be linearly interpolated from the decreases specified in (a) to (r). For maturities shorter than 1 year, the decrease shall be 75 %. Notwithstanding the points (a) to (r), the decrease of interest rates at any maturity shall not be lower than one percentage point. Where interest rates after the decrease are negative, it shall be assumed that these interest rates are nil."]
["CEA","147","2","Only participations in financial and credit institutions that are not included in the scope of group supervision should be deducted from the own funds of the participating undertakings.","2. Notwithstanding paragraph 1, the impact on the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions of the decrease in the term structure of interest rates not included in the scope of group supervision  shall be considered only to the extent that such impact increases the basic own funds."]
["CEA","148",null,"The same risks should need the same requirements. We do not agree that there should be specific measures applicable for captives.","Simplified calculation of the capital requirement for interest rate risk for captive insurance or reinsurance undertakings\n1. Subject to the captive insurance or reinsurance undertaking complying with Article SCRS1 and SCRSC1, the capital requirement for interest rate risk referred to in point (a) of Article 105(5) of Directive 2009/138/EC calculated with the simplified calculation shall be equal to the higher of the following simplified calculations: \n(a) The capital requirement for the risk of an increase in the term structure of interest rates as referred to in paragraph 2;\n(b) The capital requirement for the risk of a decrease in the term structure of interest rates as referred to in paragraph 3.\n2. Subject to the captive insurance or reinsurance undertaking complying with Article SCRS1 and SCRSC1, the capital requirement calculated with the simplified calculation for the risk of an increase in the term structure of interest rates shall be equal to the following: \n[...]\n where  denotes the capital requirement for the risk of an increase in the term structure of interest rates;  denotes the value according to section V [valuation] of assets less liabilities other than technical provisions for each maturity interval i;  denotes the simplified remaining duration of maturity interval i;  denotes the relevant risk-free rate for simplified duration of maturity interval i;  denotes the relative upward shock of interest rate for simplified duration of maturity interval i;  denotes the best estimate in line of business lob;  denotes the modified duration of the best estimate in line of business lob;  denotes the relevant risk-free rate for modified duration  and denotes the relative upward shock of interest rate for modified duration. \n3. Subject to the captive insurance or reinsurance undertaking complying with Article SCRS1 and SCRSC1 [...] \n\n"]
["CEA","149","2","Currently the definition of type 1 equities appears too narrow. This classification could also be appropriate for equities listed on several other markets.\nWe note that the list of OECD countries pseudo-static and can take up to several years to update. The last time the OECD list was updated was back in 2001.\nTherefore, considering all exceptions to EEA or OECD equities as type 2 is not appropriate. For instance, Hong Kong and Singapore, two well established and developed economies are not members of the OECD and would be considered as type 2 equities and attract a higher charge.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n2. Type 1 equities are equities listed in regulated markets in the countries which are members of the EEA or the OECD."]
["CEA","149","3","It is unreasonable to allocate all assets referred to in Article MR(2) where a look-through approach was impossible to type 2 equity exposures. If there is information regarding the investment mandate of the scheme, (re-)insurance undertakings should be allowed use these information. That is, reference should be made to the investment mandate of the scheme. It should be assumed that the scheme invests in accordance with its mandate in such a manner as to produce the maximum overall capital requirement. For example, it should be assumed that the scheme invests assets in each rating category, starting at the lowest category permitted by the mandate, to the maximum extent. If a scheme may invest in a range of assets exposed to the risks assessed under this module, then it should be assumed that the proportion of assets in each exposure category is such that the overall capital requirement is maximised.\n\nFor the treatment of Intangible assets, please see our comments to IM23/ Para 182 of the consolidated IM. We request that for those few intangibles that are valued under the current IM proposals, these are treated as type 2 equities.\nAdditionally, we note that the use of the term “other alternative investments” is unclear. What instruments are referred to here?","Type 2 equities shall comprise equities listed in stock exchanges in the countries which are not members of the EEA or the OECD, equities which are not listed, private equities, hedge funds, commodities, intangible assets, and other alternative investments. They shall also comprise all investments other than those covered in the interest rate risk sub-module, the property risk sub-module or the spread risk sub-module, including the assets referred to in Article MR3(2) where a look-through approach was not possible."]
["CEA","150","1(a)","“Strategic” participations\n[Please see the CEA key priority issues paper] \nPara 1(a) and 2(a) - We do not support the proposal to define “strategic” participations - all participations are strategic by their very nature.\nPlease see our comments to IM27/ Para 152 of the consolidated IM.","1. The capital requirement for type 1 equities referred to in Article ER1 shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of:\n(a) 22 % in the value of equity investments in related undertakings within the meaning of Article 212 of Directive 2009/138/EC, listed in regulated markets in the countries which are members of the EEA or the OECD, which are of a strategic nature."]
["CEA","150","2(a)","“Strategic” participations\n[Please see the CEA key priority issues paper] \nPara 1(a) and 2(a) - We do not support the proposal to define “strategic” participations - all participations are strategic by their very nature.\nPlease see our comments to IM27/ Para 152 of the consolidated IM.","2. The capital requirement for type 2 equities referred to in Article ER1 shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of:\n(a) 22 % in the value of equity investments in related undertakings within the meaning of Article 212 of Directive 2009/138/EC which are of a strategic nature and other than those included in point (a) of paragraph 1;\n"]
["CEA","150","3","Participations in financial and credit institutions\n[Please see the CEA key priority issues paper] \nWe do not support the proposals to deduct participations in financial and credit institutions. Please see our comments to IM17/ Para 71 of the consolidated IM.","3. Notwithstanding paragraphs 1 and 2, there shall be no instantaneous decrease in the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions for the purpose of calculating the capital requirements for type 1 and type 2 equities."]
["CEA","151","1","“Strategic” participations\n[Please see the CEA key priority issues paper] \nWe do not support the proposal to define “strategic” participations - all participations are strategic by their very nature.\nPlease see our comments to IM27/ Para 152 of the consolidated IM.","1. Notwithstanding Article ER3, where an insurance or reinsurance undertaking has received supervisory approval to apply the provisions set out in Article 304 of Directive 2009/138/EC, the capital requirement for type 1 equities referred to in Article ER1 shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of:\n(h) 22 % in the value of the type 1 equities corresponding to the business referred to in point (i) of paragraph 1 of Article 304 of Directive 2009/138/EC;\n(i) 22 % in the value of equity investments in related undertakings within the meaning of Article 212 of Directive 2009/138/EC, listed in regulated markets in the countries which are members of the EEA or the OECD and which are of a strategic nature; \n(j) the sum of 39 % and the symmetric adjustment (SA) as referred to in Article SA, in the value of type 1 equities, other than those referred to in (a) or (b). \n"]
["CEA","151","2","Duration-based equity risk\nIt is important to ensure that the proposed duration-based equity stress is consistent with the standard stress. \nFor this reason, we believe that it would be appropriate to have differential levels of the duration-based equity stress, based on the types of equity invested in, in line with the proposals for the standard stress.\nOur proposed re-drafting is based on the assumption that the spread between the duration-based and standard shock is the same for each equity type.","2. Notwithstanding Article ER3, where an insurance or reinsurance undertaking has received supervisory approval to apply the provisions set out in Article 304 of Directive 2009/138/EC, the capital requirement for type 2 equities referred to in Article ER1 shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of:\n(a) 22 32 % in the value of the type 2 equities corresponding to the business referred to in point (i) of paragraph 1 of Article 304 of Directive 2009/138/EC;\n(b) 22 % in the value of equity investments in related undertakings within the meaning of Article 212 of Directive 2009/138/EC, which are of a strategic nature and other than those included in point (b) of paragraph 1; \n(c) the sum of 49 % and the symmetric adjustment (SA) as referred to in Article SA, in the value of type 2 equities, other than those referred to in (a) or (b)."]
["CEA","151","3","Participations in financial and credit institutions\n[Please see the CEA key priority issues paper] \nWe do not support the proposals to deduct participations in financial and credit institutions. Please see our comments to IM17/ Para 71 of the consolidated IM.","3. Notwithstanding paragraphs 1 and 2, there shall be no instantaneous decrease in the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions for the purpose of calculating the capital requirements for type 1 and type 2 equities."]
["CEA","152",null,"“Strategic” participations\n[Please see the CEA key priority issues paper] \nWe do not support the proposal to define “strategic” participations - all participations are strategic by their very nature.\n• In our view, the proposal in the IMs is inconsistent with the Level 1 text. \n• An investment by an insurance or reinsurance undertaking in more than 20% of the equity of a company is a substantial commitment and not one that is made with the intention of selling the stake. Such investments are intrinsically of a long term nature.\n• We note also that the requirements in Level 1 for the definition of a participation (>20% holding) are higher than in common corporate laws (usually >10%), which reinforces the strategic nature by default for all participations defined under Solvency II.\n• Given that participations which are subject to group supervision are treated properly at group level, only a simple approach needs to be adopted at solo level. The detail required to prove that a participation is strategic seems excessive and disproportionate given the end use - a single shock for all participations is simple to apply and can be applied consistently across undertakings and Member States.\n• Applying a 22% shock to participations should be seen as parallel to the fact that a 22% shock has been considered appropriate for the duration based equity shock, which is a shock applied to equities held for a long time.\n","Strategic participations\nFor the purpose of paragraphs 1(b) and 2(b) of Article ER2 and paragraphs 1 (a) and 2(a) of Article ER3, equity investments of a strategic nature shall mean equity investments for which the insurance or reinsurance undertaking demonstrates:\n(a) that the value of the equity investment is likely to be materially less volatile for the following 12 months than the value of other equities over the same period as a result of both the nature of the investments and the influence exercised by the participating undertaking in the related undertaking; and\n(b) that the nature of the investment is strategic, taking into account all relevant factors, including:\ni.  the existence of a clear decisive strategy to continue holding the participation for long  period;\nii.  the consistency of such strategy with the main policies guiding or limiting the actions of the undertaking;\niii.  the insurance or reinsurance undertaking’s ability to continue holding the participation in the related undertaking;\niv.  the existence of a durable link;  \nv.  where the insurance or reinsurance participating company is part of a group, the consistency of such strategy with the main policies guiding or limiting the actions of the group.\n"]
["CEA","152","(a)","We should note additionally, that the wording under this paragraph seems strange. The reduced shock is due to the fact that the horizon of time for calibration of the VaR is greater than one year, in no way it is due to the fact that the participation is less volatile. This is the same concept as the duration-based equity risk shock.","(a) that the value of the equity investment is likely to be materially less volatile for the following 12 months than the value of other equities over the same period as a result of both the nature of the investments and the influence exercised by the participating undertaking in the related undertaking; and"]
["CEA","153","3","Symmetric adjustment mechanism\nThe current approach is not symmetric, is too volatile, and too often equal to +10% or -10% (binomial behaviour).\nIn order to have a symmetric adjustment, the mean of the indicator used should be equal to zero \nHowever, as currently written, the adjustment is not symmetric. Indeed, if we back-tested for 22 years the indicator MSCI World minus its 3-years moving average, we would observe that the mean of this indicator is not nil, but 10%. This issue still exists when using other periods for calculating the moving average, because it is linked to the average trend of the markets.\n","[we are discussing this issue as part of the task force on long term and hope that a re-drafting solution can be determined as part of that work]\n\n3. Subject to paragraph 5, the symmetric adjustment shall be equal to the following:\n [...]\nwhere SA denotes the symmetric adjustment, CI denotes the current level of the equity index and AI denotes the weighted average of the daily levels of the equity index over the last 36 months. \n"]
["CEA","154","1","The proposed stress of 25% may need to be refined as it may be too high for some segments of the market and so a country specific stress may be more appropriate dependent on the location of the property.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n1. The capital requirement for property risk referred to in point (c) of Article 105(5) of Directive 2009/138/EC shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of 25 % in the value of investments in real estate."]
["CEA","155","3","Typo","[...] where SCRspread denotes the capital requirement for spread risk, SCRbonds denotes the capital requirement for spread risk on bonds, SCRrpl denotes the capital requirement for spread risk on tradable securities or other financial instruments based on repackaged loans and SCRcd denotes the capital requirement for spread risk on credit derivatives. "]
["CEA","156","3","It should be clarified what duration is meant in this case (e.g. Macaulay duration/ modified duration), we assume that this should refer to modified duration as per Para 2.\nFurthermore, we request clarification around the use of the unconventional credit quality assessment scale (0-6). We would propose to keep the typical rating categories, or at least map back to these i.e. AAA = prime; AA = high grade; A = upper medium grade; BBB = lower medium grade; BB = speculative; B = highly speculative...\nAdditionally, we note that spread risk should always be lower than the equity risk charge, since the bonds never rank lower or on par with equity from the same company.","3. Bonds for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor FUPi for the increase in spreads of bonds and a maximum modified duration according to the following table, in accordance with the assignment by EIOPA of the credit assessments of eligible ECAIs to seven steps in a credit quality assessment scale. \n"]
["CEA","159",null,"We support this simplification suggested by Commission in reducing the stresses from two to one. The spread risk module for structured products was unjustifiably complex. The approach selected is both simple and risk sensitive and we support it.\nWe also support that Eiopa is re-looking at the calibration of the risk factors and note note that, under QIS5, comparing the current proposals for structured bonds and vanilla corporate bonds gives some strange results. Sometimes for the same risk factors, the capital requirements for one are above the other and vice versa and we request that the new calibration factors will resolve this issue."]
["CEA","159","4","We would question, if it is appropriate to apply an 80% shock of non-rated structured finance instruments virtually without considering the real duration of the security. An approach that takes the real duration of the asset more into consideration might be more appropriate. This should be analysed in context with the table in No. 3 of this article, however, there are no values given, currently.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n4. Structured finance instruments for which such a credit assessment is not available shall be assigned a risk factor FUP'i for the increase in spread of structured finance instruments of 80 % and a maximum duration of 1 year."]
["CEA","163","1","Spread risk - covered bonds\n[Please see the CEA key priority issues paper] \nThe preferential treatment for covered bonds (as defined in Article 22(4) of Directive 85/611/EEC), relative to corporate bonds, is welcomed. However, the treatment is still too onerous and is not in line with the secure nature of these investments.\nAdditionally, the privileged treatment of covered bonds should not only be applicable to covered bonds with a AAA rating. \nThis is an issue for  several Member States across the EU, where insurers currently are significant investors in covered bonds.\nThe ECBC (European Covered Bond Council) has carried out a calibration study for Solvency II and we support their findings:\nhttp://intranet.hypo.org/docs/1/IECLMIBBPBOHGHFEPMOIJJFKPDWD9DBYW6TE4Q/EMF/Docs/DLS/2010-00213.pdf\n \n","1. Notwithstanding Article SR2, exposures in the form of covered bonds as defined in Article 22(4) of Directive 85/611/EEC shall be assigned a risk factor FUPi of 0.6 0.423% for the increase in the spread of bonds and a maximum duration of 53 years, provided the corresponding exposures in the form of covered bonds have been assigned to the credit quality step 0 and 0.506% for the increase in the spread of bonds provided the corresponding exposures in the form of covered bonds have been assigned to the credit quality step 1, in accordance with Subsection UECAI and with the assignment by EIOPA of the credit assessments of eligible ECAIs to seven steps in a credit quality assessment scale. "]
["CEA","163","4","Spread risk - OECD/EEA central bank /government borrowings\nCeiops final advice on spread risk proposed that OECD as well as EEA central bank and government borrowings should have a zero stress. We request that this is specified in Level 2.\nAdditionally, a potential issue remains: for subsidiaries in non-EEA countries, which invest in local governments bonds, sometimes because the local regulation forces them to do so, the cost of capital for these bonds is high. It questions the possibility for local subsidiaries to invest the money of their policyholders in their own government debt. We would suggest excluding from spread risk the exposure of government bonds issued by the state of the subsidiary.","4. Notwithstanding paragraph 2 and Article SR2, exposures to Member OECD or EEA States' central government and central banks denominated and funded in the domestic currency of that central government and the central bank shall be assigned a risk factor FUPi of 0 % for the increase in the spread of bonds. The same treatment applies to third countries central governments and central banks for undertaking’s subsidiaries located in this third country."]
["CEA","163","6","Exposures backed by governments or local authorities\nExposures which are backed by or guaranteed by governments or local authorities should be given the same treatment as exposures issued by these bodies, as the risk of the instruments is comparable.","6. Exposures to, or backed by, regional governments and local authorities of the Union as published by EIOPA shall be treated as exposures to the central government in whose jurisdiction they are established if there is no difference in risk between such exposures because of the specific revenue-raising powers of the former, and the existence of specific institutional arrangements the effect of which is to reduce the risk of default. Exposures to regional governments and local authorities which are not treated as exposures to central governments shall be assigned a rating according to the credit quality step to which exposures to the central government of the jurisdiction in which the institution is incorporated are assigned in accordance with the table in paragraph 5."]
["CEA","163","9","Participations in financial and credit institutions\n[Please see the CEA key priority issues paper] \nWe do not support the proposals to deduct participations in financial and credit institutions. Please see our comments to IM17/ Para 71 of the consolidated IM.","9. Notwithstanding Article SR2, participations, as defined in Article 92(2) of Directive 2009/138/EC, in financial and credit institutions shall be assigned a risk factor FUPi of 0 % for the increase in the spread of bonds."]
["CEA","165","4","Concentration risk - ratings to use\nSometimes only the head of the group is rated. The subsidiary will benefit from the group solvency and so our proposal would seem to be a logical addition.","4. For the purpose of paragraph 3, individual exposures for which a credit assessment by a nominated ECAI is available, shall be assigned a credit quality step in accordance with the assignment by EIOPA of the credit assessments of eligible ECAIs to seven steps in a credit quality assessment scale. Exposures for which a credit assessment by a nominated ECAI is not available shall be assigned to credit quality step 5, unless the un-rated exposure is the subsidiary of a rated parent undertaking, in which case the rating of the ultimate parent undertaking should be used."]
["CEA","166","2","Concentration risk - formula\nWe request that a specific formula for the determination of Conci is included in this paragraph.","2. The capital requirement for market risk concentration on a single name exposure i Conci shall be equal to the loss in the basic own funds that would result from an instantaneous relative decrease of the product XSi multiplied by gi in the value of the assets corresponding to the single name exposure i where:\n(a) XSi is the excess exposure referred to in Article CO3;\n(b) gi is the risk factor for market risk concentration referred to in Articles CO5 and CO6.\nConci = Assets * XSi *gi"]
["CEA","167","2c","Only participations in financial and credit institutions that are not included in the scope of group supervision should be deducted from the own funds of the participating undertakings.","2. The calculation base of the market risk concentration sub-module shall not include:\n[...]\n(c) participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions when these participations are included in the scope of group supervision; \n[...]"]
["CEA","168",null,"Changes from QIS4 - It is not clear why these parameters have changed compared to those used in QIS4. We have seen no calibration analysis to support this change. We request that the QIS4 figures are retained.","Excess exposure thresholds\nThe excess exposure threshold on a single name exposure shall be determined according to the weighted average credit quality step of the single name exposure as calculated in accordance with Article CO1(3). The threshold for a given weighted average quality step shall correspond to the percentage set out in the following table.\n[For redrafting suggestion, refer to CEA Annex: Formulas and tables]\n"]
["CEA","169","2","Risk factor for concentration risk\nIn principle, we are in favour of measures which will reduce over-reliance on external rating and as such are in favour of the use of counterparties’ solvency II or equivalent 3rd country’s solvency ratios, however this should only be the case when external ratings are not available. The approach using the counterparty’s solvency ratio presents practical difficulties. For instance, it may be the case that information on the counterparty’s solvency ratio is not available when it is needed (i.e. before publication) and that the last available solvency ratio may have to be used as a proxy.  Therefore, it needs to be made clearer that the approach using the counterparty’s solvency ratio is an alternative to be used when ratings are not available and that the default approach is the one using credit ratings when these are available.\nFurthermore, it crucial that the default probabilities assigned to counterparties solvency ratio are consistent with the ones assigned to rating classes. This is a key issue that needs to be addressed if EU undertakings are not to be put at competitive disadvantage compared to 3rd country and other financial sectors’ counterparties for which it is most likely that external ratings will be used.","2. Notwithstanding paragraph 1, unrated single name exposures which are insurance or reinsurance undertakings shall be assigned a risk factor gi for market risk concentration according to the following:\n(a) Where the eligible amount of own funds to cover the Solvency Capital Requirement is less than or equal to 75 % of the Solvency Capital Requirement, the risk factor gi for market risk concentration shall be X % (calibration currently undertaken by EIOPA);\n(b) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals the Solvency Capital Requirement, the risk factor gi for market risk concentration shall be X % (calibration currently undertaken by EIOPA);\n(c) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals 125 % of the Solvency Capital Requirement, the risk factor gi for market risk concentration shall be X % (calibration currently undertaken by EIOPA);\n(d) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals 150 % of the Solvency Capital Requirement, the risk factor gi for market risk concentration shall be X % (calibration currently undertaken by EIOPA);\n(e) Where the eligible amount of own funds to cover the Solvency Capital Requirement exceeds 175 % of the Solvency Capital Requirement, the risk factor gi for market risk concentration shall be X % (calibration currently undertaken by EIOPA).\nWhere the eligible amount of own funds to cover the Solvency Capital Requirement falls in between the eligible amount values specified above, the value of the risk factor gi for market risk concentration shall be linearly interpolated from the eligible amount and risk factor values specified in (a) to (e). \n"]
["CEA","169 bis",null,"As stated in our comments to Article 169 (2)  - we do not agree with  a requirement to use solvency ratios instead of ratings. If ratings exist they should be used."]
["CEA","170","1","Typo","Notwithstanding Article CO4, exposures in the form of covered bonds as defined in Article 22(4) of Directive 85/611/EEC shall be assigned an excess exposure threshold of 15 %, provided the corresponding exposures in the form of covered bonds have been assigned to the credit quality step 0 or 1 in accordance with the assignment by EIOPA of the credit assessments of eligible ECAIs to seven steps in a credit quality assessment scale as are referred to in Subsection UECAI. [...]"]
["CEA","170","2","Concentration risk - central bank /government borrowings\nA potential issue remains: for subsidiaries in non-EEA countries, which invest in local governments bonds, sometimes because the local regulation forces them to do so, the cost of capital for these bonds is high. It questions the possibility for local subsidiaries to invest the money of their policyholders in their own government debt. We would suggest excluding from spread risk the exposure of government bonds issued by the state of the subsidiary.","2. Notwithstanding Article CO4 and CO5, exposures to a single property shall be assigned a threshold to derive the excess exposure of 10 % and a risk factor gi for market risk concentration of 12 %. The same treatment applies to third countries central governments and central banks for undertaking’s subsidiaries located in this third country."]
["CEA","170","4","Concentration risk - OECD/EEA central bank /government borrowings\nCeiops final advice on concentration risk proposed that OECD as well as EEA central bank and government borrowings should have a zero stress. Government borrowings by countries such as the USA, Canada, Japan etc. should not be considered as corporate bonds.\n","4. Notwithstanding Article CO5, exposures to Member OECD or EEA States' central government and central banks denominated and funded in the domestic currency of that central government and central bank shall be assigned a risk factor gi for market risk concentration of 0 %."]
["CEA","170","7","Concentration risk – bank deposits\nThis text suggests that bank deposits would be subject to a concentration risk charge unless the deposits are guaranteed by the government. Government guarantees to bank deposits is capped at a very low amount. As a result of this insurers would be required to hold capital against very liquid assets – this is nonsensical.\nFurthermore, bank deposits are already charged for counterparty default risk.","7. Notwithstanding Article CO5, exposures in the form of bank deposits shall be assigned a risk factor  gi for market risk concentration of 0 %, provided they meet the following requirements:\n(a) the full value of the exposure is covered by a government guarantee scheme in the Community;\n(b) the guarantee is applicable to the insurance or reinsurance undertaking without any restriction;\n(c) there is no double counting of such guarantee with any other element of the SCR calculation.  "]
["CEA","172","3","Currency risk\nThe method set out in this article, which was applied in QIS5, increases currency risk and encourages poor currency risk management for solo entities. For groups it can have bizarre consequences.\nA more logical proposal to calculating the group currency risk capital charge would be to apply the currency risk shock to the sum of the local surpluses net of the SCR (pre-currency risk).  For solo entities, where no local SCR is available, a consistent approach could be achieved by weighting the currency risk capital charge by the proportion of assets and liabilities held in foreign currencies.  This is set out in more detail in the CEA paper:\n[Please see Annex: CEA comments on currency risk treatment]","3. The capital requirement for the risk of an increase in value of the foreign currency against the local currency shall be equal to the loss in the basic own funds that would result from an instantaneous increase of 25 % in the value of the foreign currency against the local currency.:\na) For solo undertakings the loss in the Currency Risk Exposure (CRE) in each material foreign currency that would result from an instantaneous increase of 25% in the value of the foreign currency against the local currency, where the CRE is defined as :\nCRE = Total Assets * (Percentage of total assets in currency C - percentage of liabilities in currency C).\nb) For group undertakings, the loss in the basic own funds net of the SCRs in the local currency that would result from an instantaneous increase of 25 % in the value of the foreign currency against the local currency.\n"]
["CEA","172","4","Currency risk\nThe method set out in this article, which was applied in QIS5, increases currency risk and encourages poor currency risk management for solo entities. For groups it can have bizarre consequences.\nA more logical proposal to calculating the group currency risk capital charge would be to apply the currency risk shock to the sum of the local surpluses net of the SCR (pre-currency risk).  For solo entities, where no local SCR is available, a consistent approach could be achieved by weighting the currency risk capital charge by the proportion of assets and liabilities held in foreign currencies.  This is set out in more detail in the CEA paper:\n[Please see Annex: CEA comments on currency risk treatment]","4. The capital requirement for the risk of a decrease in value of the foreign currency against the local currency shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of 25 % in the value of the foreign currency against the local currency.:\na) For solo undertakings the loss in the Currency Risk Exposure (CRE) in each material foreign currency that would result from an instantaneous decrease of 25% in the value of the foreign currency against the local currency, where the CRE is defined as per Article 172 (4)\nb) For group undertakings, the loss in the basic own funds net of the SCRs in the local currency that would result from an instantaneous decrease of 25 % in the value of the foreign currency against the local currency.\n"]
["CEA","172","5","The criteria for allowing a special treatment of currencies pegged to the Euro are not clear. \n\n","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n5. For currencies which are pegged to the euro, the factor referred to in paragraphs 3 and 4 shall  be replaced by appropriate factors as determined by EIOPA depending on the following criteria:\n(a) whether the currency participates in the European Exchange Rate Mechanism (ERM II);\n(b) whether there is a decision from the Council which recognizes pegging arrangements between this currency and the euro;\n(c) whether the pegging arrangement is established by the law of country establishing the country's currency.\nThe pegging arrangement shall ensure that the relative changes in the exchange rate over a one-year-period do not exceed the factors, in the event of extreme market events, that correspond to the confidence level set out in Article 101(3) of Directive 2009/138/EC. In analysing the robustness of the pegging arrangement the financial resources of the parties that guarantee the pegging shall be taken into account."]
["CEA","172","6","Only participations in financial and credit institutions that are not included in the scope of group supervision should be deducted from the own funds of the participating undertakings.","6. Notwithstanding paragraphs 3 and 5, the impact of an increase in value of a foreign currency against a local currency on the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions not included in the scope of group supervision, shall be considered only to the extent such impact increases the basic own funds."]
["CEA","172","7","Only participations in financial and credit institutions that are not included in the scope of group supervision should be deducted from the own funds of the participating undertakings.","7. Notwithstanding paragraphs 4 and 5, the impact of the decrease in the value of the foreign currency against the local currency on the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions not included in the scope of group supervision shall be considered only to the extent such impact increases the basic own funds."]
["CEA","174",null,"The requirements in the counterparty default risk are extremely complex. \nThe requirement related to the separate quantification of the risk mitigating benefits for each risk mitigation instrument, is burdensome as companies are likely to use numerous such instruments. This is particularly burdensome to SMEs as the use of risk mitigation instruments is a key way in which they can achieve diversification effects (e.g. through the use of reinsurance) and remain competitive. We observe that the Article 176bis for a simplification of the risk mitigating effect in the counterparty risk module appears not appropriate as it still requires to determine explicitly the change of the SCR for all relevant sub-modules components and for each counterparty. This may not provide any significant simplification compared to the full calculation since the risk sub-modules not affected by the reinsurance contracts will contribute with 0 anyhow. \nThe complexity of this risk module should be significantly reduced. Per counterparty calculations should not always be necessary.\n- Calculations have to be noticeably simplified, e.g. by a factor approach or other far reaching simplifications. Thus, this section has to be completely rewritten.\n[ Please see Annex: ECO-SLV-11-193 CEA proposals for simplifications to the Counterparty Default Risk module]"]
["CEA","174","2(b)","Cash at bank is assigned to the counterparty default risk, while “deposits with credit institutions” is assigned to the spread risk module. We recommend a clearer distinction between these two terms to prevent double counting.","2. Type 1 exposures shall consist of  exposures in relation to:\n(b) Cash at bank; "]
["CEA","174","2(c)","We question the use of a threshold for determining type 1 or type 2 exposures. By definition and structurally, calculations for type 1 exposures better fit with the risk profile and better catch the counterparty risk. Undertakings should be allowed to carry out those calculations even if the number of counterparties exceeds 15.","2. Type 1 exposures shall consist of  exposures in relation to:\n(c) Deposits with ceding undertakings, where the number of single name exposures does not exceed 15 is reasonable to carry out the calculation without excessive burden;\n"]
["CEA","174","3(b)","• The exposure to policyholders should be net of any seizure (of technical provisions for instance) that would occur if the policyholder is bankrupt.\n• The treatment of mortgage loans is not clear. It would be necessary for the value of the property backing the mortgage to be treated as collateral in the LGD formulas. However, this is not specified. Without this clarification, the proposal to treat mortgage loans in the counterparty default risk module rather than the spread risk module will be inappropriate.\nFurthermore, what is the treatment of mortgage loans where no policyholder is the debtor? Are they covered in the bond part of spread risk module? This could be double-counting. What would be the sense of differentiating? The essential aspect to be considered is the real estate collateral, while it is less important who is the debtor.","3. Type 2 exposures shall consist of all credit exposures which are not covered in the spread risk sub-module and which are not type 1 exposures, including:\n(f) Policy holder debtors and mortgage loans net of items that would be legally or contractually ceased in case of bankruptcy;\n"]
["CEA","174","3(d)","We question the use of a threshold for determining type 1 or type 2 exposures. By definition and structurally, calculations for type 1 exposures better fit with the risk profile and better catch the counterparty risk. Undertakings should be allowed to carry out those calculations even if the number of counterparties exceeds 15 (See Annex ECO-SLV-11-193 CEA proposals for simplifications to the Counterparty Default Risk module).\n1. Type 2 exposures shall consist of all credit exposures which are not covered in the spread risk sub-module and which are not type 1 exposures, including:\n(a) Receivables from intermediaries net of items that would be legally or contractually ceased in case of bankruptcy; \n(b) Policy holder debtors and mortgage loans  net of items that would be legally or contractually ceased in case of bankruptcy;\n(c) Deposits with ceding undertakings, where the number there are too many of single name exposures exceeds 15 to carry out the calculation without excessive burden; and \n(d) Commitments received by the insurance or reinsurance undertaking which have been called up but are unpaid, where the number there are too many of single name exposures exceeds 15 to carry out the calculation without excessive burden, including called up but unpaid  ordinary share capital and preference shares, called up but unpaid legally binding commitment to subscribe and pay for subordinated liabilities, called up but unpaid initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings, called up but unpaid guarantees, called up but unpaid letters of credit, called up but unpaid claims which mutual or mutual-type associations may have against their members by way of a call for supplementary contributions.","(d) Commitments received by the insurance or reinsurance undertaking which have been called up but are unpaid, where the number there are too many of single name exposures exceeds 15 to carry out the calculation without excessive burden, including called up but unpaid  ordinary share capital and preference shares, called up but unpaid legally binding commitment to subscribe and pay for subordinated liabilities, called up but unpaid initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings, called up but unpaid guarantees, called up but unpaid letters of credit, called up but unpaid claims which mutual or mutual-type associations may have against their members by way of a call for supplementary contributions."]
["CEA","175","1","The time horizon within the standard formula is a 12 months thus the insurer is always able to negotiate a contract with another counterparty. So in our opinion the RM should be similar to the reinstatement premium or premium to be paid to buy a similar cover. As the formula is now, the LGD is overstated.\nDetermining RM is very complex as it requires high calculation efforts, while the basic assumption behind RM is wrong: For most OTC derivatives, where the counterparty might potentially default, a substitute counterparty can be found easily – the hedge is not lost (with the exception of unhedged market risk exposure for the time between default of the first counterparty and new arrangement with the second counterparty). Therefore, we recommend either the deletion of RM in the LGD formula or that adding RM to LGD should only be necessary for very special big hedging arrangements with single counterparties and should not be necessary in general.\nFurthermore, the 90% was not justified by Ceiops in their final level 2 advice – this is far too onerous. We do not support this proposal.","1. The loss-given-default on a single name exposure shall be equal to the sum of the loss-given-default of each of the individual exposures to a counterparty. The loss-given-default shall be net of the liabilities towards this single name exposure provided that those liabilities and individual exposures can be set off in the case of default of the single name exposure and when the requirements of Articles SCRRM1 and SCRRM2 are met in relation to that right of set-off. No netting shall be allowed for if the liabilities are expected to be met before the credit exposure is cleared."]
["CEA","175","2","The time horizon within the standard formula is a 12 months thus the insurer is always able to negotiate a contract with another counterparty. So in our opinion the RM should be similar to the reinstatement premium or premium to be paid to buy a similar cover. As the formula is now, the LGD is overstated.\nDetermining RM is very complex as it requires high calculation efforts, while the basic assumption behind RM is wrong: For most OTC derivatives, where the counterparty might potentially default, a substitute counterparty can be found easily – the hedge is not lost (with the exception of unhedged market risk exposure for the time between default of the first counterparty and new arrangement with the second counterparty). Therefore, we recommend that adding RM to LGD should only be necessary for very special big hedging arrangements with single counterparties and should not be necessary in general.\nFurthermore, the 90% was not justified by Ceiops in their final level 2 advice – this is far too onerous. We do not support this proposal.","2. The loss-given-default of a reinsurance arrangement or securitisation shall be equal to the following:\n[...]\n \nwhere Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement or securitisation and the corresponding debtors, RMre denotes the risk mitigating effect on underwriting risk of the reinsurance arrangement  or securitisation, Collateral denotes the risk-adjusted value of collateral in relation to the reinsurance arrangement or securitisation and Factor denotes a factor to take into account the economic effect of the collateral in relation to the reinsurance arrangement or securitisation in case of any credit event related to the counterparty.\nWhere the reinsurance arrangement is with a reinsurance undertaking or a third country reinsurance undertaking and 60% or more of that counterparty's assets are subject to collateral arrangements, the loss-given-default shall be equal to the following:\n[...]\n \nwhere Factor' denotes a factor to take into account the economic effect of the collateral in relation to the reinsurance arrangement or securitisation in the case of any credit event related to the counterparty."]
["CEA","176",null,"Allowance to group counterparties: The current approach for the counterparty default risk requires a separate quantification of the risk-mitigating benefits for each risk mitigation instrument. Per counterparty calculations should not always be necessary and level 2 should provide the opportunity to group counterparties or to derive the risk charge by applying reinsurers’ share of best estimates to the level of the total capital charge for reinsurers’ default risk in year 0 as was the case in QIS4. The allowance to group counterparties should be available across all parts of the counterparty default risk module.\nWe note that merging all counterparties of the same rating class would be the most straightforward grouping despite the fact that no diversification would then be recognized within the same rating class. We request that this is allowed.\nAdditionally, we note that the possibility to group counterparties across rating classes should be allowed, as was the case in QIS5. However, QIS5 required that the probability of default of the group was that of the riskiest counterparty which was very onerous. It should be possible to merge all counterparties and use the weighted mean of all ratings of all counterparties in this merged portfolio to determine the default risk. The counterparty risk module would only then need to be applied only once\nFurthermore, we note that the inclusion of the risk-mitigating effect of the reinsurance contract / the derivative contract in the calculation of counterparty default risk creates a dependence between the modules of the SCR calculation. The correlation between the event of each counterparty default and the underlying risk event (market risk / insurance risk) is assumed to be 100% in the counterparty risk module. On top of this, the counterparty risk module is aggregated with the market risk module with a correlation of 25%. This is clearly a double-counting.\n[See Annex: ECO-SLV-11-193 CEA proposals for simplifications to the Counterparty Default Risk module]\n","Risk mitigating effect\nThe risk-mitigating effect on underwriting or market risks of a reinsurance arrangement, securitisation or derivative is the difference between the following capital requirements:\n(a) the hypothetical capital requirement for underwriting or market risk of the insurance or reinsurance undertaking that would apply if the reinsurance arrangement, securitisation or derivative did not exist; \n(b) the capital requirement for underwriting or market risk of the insurance or reinsurance undertaking."]
["CEA","176bis",null,"While we welcome the inclusion of simplified methods for the calculation of RM in the latest version of the draft Implementing Measures, we believe the simplified approach should be the default and, as such, should apply to all undertakings.  Under this approach, undertakings would calculate an aggregate RM across risk mitigation techniques of a similar nature (reinsurance or derivative) and then allocate this across each counterparty or counterparty subset\n[ Please see Annex: ECO-SLV-11-193 CEA proposals for simplifications to the Counterparty Default Risk module]","Simplified calculation of the risk mitigating effect \n1. Subject to the insurance or reinsurance undertaking complying with Article SCRS1, the risk-mitigating effect on underwriting and market risks of a reinsurance arrangement, securitisation or derivative is the difference between the following capital requirements:\n(a) the sum of the hypothetical capital requirement for the sub-modules of underwriting and market risk of the insurance or reinsurance undertaking affected by the risk-mitigating instrument, if the reinsurance arrangement, securitisation or derivative did not exist; \n(b) the sum of the capital requirements for the sub-modules of underwriting and market risk of the insurance or reinsurance undertaking affected by the risk-mitigating instrument."]
["CEA","176quarter",null,"See our comments for Article 176 bis","Simplified calculation of the risk mitigating effect for proportional reinsurance arrangements \nSubject to the insurance or reinsurance undertaking complying with Article SCRS1, the risk-mitigating effect on underwriting risk of a proportional reinsurance arrangement shall be equal to the following: [...] \n\nwhere BE denotes the best estimate of obligations, Recoverablesi denotes the best estimate of amounts recoverables from the reinsurance arrangement and the corresponding debtors for counterparty i, Recoverablesall denotes the best estimate of amounts recoverables from the reinsurance arrangements and the corresponding debtors for all counterparties and SCRj denotes the capital requirements for underwriting risk j of the insurance or reinsurance undertaking."]
["CEA","176ter",null,"See our comments for Article 176 bis.\nNotwithstanding the comments above, The approach taken in Article 176ter (1)) for a simplification of the risk mitigating effect “RM” in the counterparty risk module appears not appropriate for non proportional reinsurance treaties for the following reasons:\n• It implicitly assumes a proportionality between the risk capital relief under a reinsurance contracts and the best estimate recoverable from the reinsurer. This does not hold for non-proportional treaties.\n• For non-proportional reinsurance contracts and contracts on a funds withheld basis in life insurance often a negative recoverable has to be recognized. (This reflects the fact that the reinsurance premium exceeds the expected refund under best estimate assumptions.) In that case the formula of Article 176ter would lead to a negative value of RM, which is not reasonable\nWe propose therefore an alternative formula for this simplification","Simplified calculation of the risk mitigating effect for reinsurance arrangements or securitisation\n1. Subject to the insurance or reinsurance undertaking complying with Article SCRS1, the risk-mitigating effect on underwriting risk of a reinsurance arrangement or securitisation i shall be equal to: [...]\n \nwhere RMre,all denotes the risk mitigating effect on underwriting risk of the reinsurance arrangements and securitisations for all counterparties calculated according to paragraph 2, Recoverablesi denotes the best estimate of amounts recoverable from the reinsurance arrangement or securitisation and the corresponding debtors for counterparty i and  Recoverablesall denotes the best estimate of amounts recoverable from the reinsurance arrangements and securitisations and the corresponding debtors for all counterparties. \n\n2. Notwithstanding the above Subject to the insurance or reinsurance undertaking complying with Article SCRS1, the risk-mitigating effect on underwriting risk of a non-proportional reinsurance arrangement i shall be equal to: [...]\n\nThe value of  [...]  is computed by disregarding the cumulated reinsurance arrangements of counterparty i in the corresponding risk module j. For sake of clarity and in order to avoid double counting it should be clarified that the index “j” refers to the modules of the SCR model (in the sences of Article 101 (4) of the directive and not to the sub-modules of the respective risk modules."]
["CEA","177",null,"This article leads to an overall complexity of the counterparty default risk. The shock suggested is moreover over calibrated (one year magnitude shock) for collaterals that may be adjusted on a weekly or monthly basis. To take into account both a week market shock and potentially bankruptcy of the depositary, we suggest an overall haircut of 10%","Risk adjusted value of collateral \n[delete whole article]\n"]
["CEA","177","5","\nTo the extent the recoverable under a reinsurance contract (or the market value under a derivative) is exposed to the same type of market risk than the collateral, there can be an offsetting effect. This should be covered when assessing the market risk of assets held as collateral by an amendment to the current wording","5. The market risk of the assets held as collateral referred to in paragraphs 1, 2 and 4 is the difference between the following capital requirements:\na) the hypothetical capital requirement for market risk of the insurance or reinsurance undertaking that would apply if the assets were held by the undertaking directly and not held as collateral; and \nb) the capital requirement for market risk of the insurance or reinsurance undertaking."]
["CEA","178","2","The QIS5 steps of 80% and 90% should be maintained.\n\nPara 2 & 4 - In principle, we are in favour of measures which will reduce over-reliance on external rating and as such are in favour of the use of counterparties’ solvency II or equivalent 3rd countries solvency ratios when external ratings are not available. The approach using the counterparty’s solvency ratio presents some practical difficulties. For instance, it may be the case that information on the counterparty’s solvency ratio is not available when it is needed and that the last available solvency ratio may have to be used as a proxy.  Therefore, it needs to be made clearer that the approach using the counterparty’s solvency ratio is an alternative to be used when ratings are not available and that the default approach is the one using credit ratings when these are available.\nFurthermore, it crucial that the default probabilities assigned to counterparties solvency ratio are consistent with the ones assigned to rating classes. This is a key issue that needs to be addressed if EU undertakings are not to be put at competitive disadvantage compared to 3rd country and other financial sectors’ counterparties for which it is most likely that external ratings will be used. (For instance the calibration of the probability of default of 0.5% for a SCR cover of 100% is inconsistent with the probability of default of 0.24% for a counterparty of credit quality 3).\n","2. Notwithstanding paragraph 1, single name exposures which are insurance or reinsurance undertakings for which a credit assessment by a nominated ECAI is not available, shall be assigned a probability of default according to the following:\n(a) Where the eligible amount of own funds to cover the Solvency Capital Requirement is less than or equal to 80 % of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA);\n(b) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals 85% of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA);\n(c) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals equals 95%  of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA);\n(d) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals the Solvency Capital Requirement, the probability of default shall be 0.5 %;\n(e) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals 125%  of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA);\n(f) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals 150% of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA);\n(g) Where the eligible amount of own funds to cover the Solvency Capital Requirement equals 175% of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA);\n(h) Where the eligible amount of own funds to cover the Solvency Capital Requirement exceeds 200 % of the Solvency Capital Requirement, the probability of default shall be X % (calibration currently undertaken by EIOPA).\nFor values of Where the eligible amount of own funds to cover the Solvency Capital Requirement not falls in between the eligible amount values specified above, the value of the probability of default risk factor gi for market risk concentration shall be linearly interpolated from the eligible amount and risk factor values specified in (a) to (h) "]
["CEA","178","4","The QIS5 steps of 80% and 90% should be maintained.\n\nPara 2 & 4 - In principle, we are in favour of measures which will reduce over-reliance on external rating and as such are in favour of the use of counterparties’ solvency II or equivalent 3rd countries solvency ratios when external ratings are not available. The approach using the counterparty’s solvency ratio presents some practical difficulties. For instance, it may be the case that information on the counterparty’s solvency ratio is not available when it is needed and that the last available solvency ratio may have to be used as a proxy.  Therefore, it needs to be made clearer that the approach using the counterparty’s solvency ratio is an alternative to be used when ratings are not available and that the default approach is the one using credit ratings when these are available.\nFurthermore, it crucial that the default probabilities assigned to counterparties solvency ratio are consistent with the ones assigned to rating classes. This is a key issue that needs to be addressed if EU undertakings are not to be put at competitive disadvantage compared to 3rd country and other financial sectors’ counterparties for which it is most likely that external ratings will be used. (For instance the calibration of the probability of default of 0.5% for a SCR cover of 100% is inconsistent with the probability of default of 0.24% for a counterparty of credit quality 3).\n","4. Where single name exposures are insurance or reinsurance undertakings and those undertakings have been authorised for less than 2 years, paragraphs 2 and 3 shall only apply as of the first date of public disclosure of the report on solvency and financial condition referred to in Article 51 of Directive 2009/138/EC of those undertakings. Before that date, paragraph 1 shall apply."]
["CEA","178","11","The time period of 3 months is overly conservative. It is not uncommon for receivables to be paid after 3 months - this would not automatically signal that the intermediary has any credit difficulty. We would suggest a period of 12 months would better discriminate between situations reflecting a specific credit risk, not already captured in the general risk factor, compared to simple administrative delays in paying.","Paragraphs 1 to 10 shall only apply to Type 1 exposures. The probability of default on receivables from intermediaries which have been due for more than 12 three months shall be equal to 90 % and the probability of default on other type 2 exposures shall be equal to 15 %."]
["CEA","179","2","No justification given for such assessment.","2. Where the standard deviation of the loss distribution of type 1 exposures is higher than 5.46 % of the total losses given default on all type 1 exposures and lower than 20 % of the total losses given default on all type 1 exposures, the capital requirement for counterparty default risk on type 1 exposures shall be equal to the following:\n  [...]\n where σ denotes the standard deviation of the loss distribution of type 1 exposures.\n"]
["CEA","180","1(a)","This formula assumes that the counterparties are not independent, which is in contradiction with recital 45.\n","1. The variance of the loss distribution of type 1 exposures as referred to in paragraph 4 of Article CDR7 shall be equal to the sum of the following:\n[...]\n(a)  \n\nwhere   denotes the variance of the loss distribution of type 1 exposures distributed by probabilities of default of the corresponding counterparties, LGDPDj and LGDPDk denotes the total losses given default on all type 1 exposures from counterparties bearing a probability of default PDj and PDk respectively and where the sum denotes all possible pairs (j,k) of probabilities of default of counterparties corresponding to type 1 exposures."]
["CEA","180","1(b)","This formula assumes that the counterparties are not independent, which is in contradiction with recital 45.","(b)  \n[...]\nwhere   denotes the variance of the loss distribution of type 1 exposures from counterparties having the same probabilities of default,  denotes the loss-given-default on the type 1 exposures from the counterparty i bearing a probability of default PDj and where the sum on i denotes all independent counterparties and the sum on j denotes all possible probabilities of default of counterparties corresponding to type 1 exposures."]
["CEA","181 ",null,"It would be helpful to make use of a formula for the capital requirement for type 2 exposures analogous to the QIS5 formula (Technical Specifications SCR.6.35.).","The capital requirement for counterparty default risk on type 2 exposures shall be equal to the loss in the basic own funds that would result from an instantaneous decrease in value of type 2 exposures of an amount equal to the product of the losses-given-default and the probabilities of default of  type 2 exposures. the following:\n15% * E + 90% Epast-due \nwhere E denotes the sum of the values of type 2 exposures, except for receivables from intermediaries which are due for more than 12 months and Epast-due denotes the sum of the values of receivables from intermediaries which are due for more than 12 months.\n"]
["CEA","182",null,"Intangible asset risk\nThe 80 % risk charge on intangibles is too high. This is especially so considering the very strict requirements for the valuation of intangible assets set out in IM3 (which mean that very few intangibles will be valued and so are already effectively stressed at 100%) and also the fact that no diversification with other risks is assumed.\nThe 80% charge does not appear to have been calibrated based on statistical analysis and there is no justification for the assumption that this shock is fully correlated to all other risks. \nWe do understand that it is obviously very hard to calibrate this risk charge, however, all risk factors should be based on a transparent statistical analysis of the 99.5th %. \nLogically, it would be very difficult to understand how the volatility of an intangible asset can be the double that of a non-listed/developing-country equity for example.\nIn our view, a more pragmatic solution would be to stress intangible assets under the most prudent stress in the market risk module. This would remove the need for a separate risk module, as we see no reason for splitting-out intangible assets from other assets, and so it would reduce the complexity of the standard formula. This change would also set a more reasonable risk charge which has been calibrated based on market data. \nTherefore, we would propose that the definition of non-listed equity be extended to cover intangible assets (and therefore stressed at 49% +/- symmetric adj) and consequently this new risk module be removed.\n","Intangible asset risk module\nThe capital requirement for intangible asset risk shall be equal to the following:\n [...]\nwhere  denotes the capital requirement for intangible asset risk, and Vintangibles denotes the amount of intangible assets as recognised and valued according to Articles V2 and V5 [of IM3]. "]
["CEA","183","2","We believe that the calibration of the operational SCR is too conservative.\nPara 2 “first formula” - The formula taking the higher of the operational risk charge on premiums and the operational risk charge on technical provisions  introduces a further (un-quantified) level of conservatism which may not be consistent with the 99.5th percentile over one year VaR criterion.\nPara 2 “second formula” - The factor applied to earned life premiums (excluding unit-linked premiums) is +33% higher compared to QIS4.  In QIS4 the factor was 3%.\nThe factor applied to earned non-life premiums is +50% higher compared to QIS4.  In QIS4 the factor was 3%.\nFurthermore, the CEA strongly disagrees with the additional operational risk capital charge applied to annual increases in earned premiums.  We expect earned premiums to often exceed prior year earned premiums. There does not appear to be any sound justification for the factor applied to year-on-year changes in earned premiums (there is also no corresponding operational risk charge for the banking sector), which would introduce undue volatility in the operational risk SCR from one year to the next.  If the operational risk charge does not adequately reflect the risk profile of an undertaking, this should be captured under Pillar 2. Furthermore, supervisors would be able to apply a capital add-on for operational risk.\nPara 2 “third formula”\nThe factor applied to life technical provisions (excluding unit-linked business) is +50% higher compared to QIS4.In QIS 4, the factor was 0.3%.\nThe factor applied to Non Life technical provisions is +50% higher compared to QIS 4.  In QIS 4 the factor was 2%.\nThe operational risk capital requirement should be adjusted to recognise an undertaking’s internal risk management framework\nIn order to encourage best practice in operational risk management and to improve consistency with the banking sector (BCBS June 2006, International Convergence of Capital Measurement and Capital Standards A Revised Framework, 665. (ii) Qualitative standards), we suggest that the EC consider an adjustment to the calculation of the standard formula operational risk capital requirement by allowing for an additional factor to be applied to the unadjusted operational risk SCR, which depends on the adequacy and quality of an undertaking’s operational risk management procedures.\nAn additional X% reduction of the operational risk charge shall be allowed to the (re)insurance undertaking that meets the following qualitative standards:\n(a) The undertaking must have an independent operational risk management function that is responsible for the design and implementation of the undertaking’s operational risk management framework. \n(b) The undertaking’s internal operational risk management system must be considered as an integral part of the risk management processes of the undertaking. \n(c) There must be regular reporting of operational risk exposures and loss experience to business unit management, senior management, and to the board of directors.\n(d) The undertaking’s operational risk management system must be well documented and perform regular reviews of the operational risk management processes and measurement systems.\nAll values and components mentioned in paragraphs 1 and 2 for calibrating the operational risk should be reviewed on a regular basis.\n","\n"]
["CEA","183",null,"We believe that the increase in the parameters from QIS4 is not sufficiently justified with clear evidence and is based on assumptions which result in introducing too much prudence in the calibration of the operational risk module \nIn particular, the CEA interpretation of Article 103 of the Directive is that the simplicity of the SCR formula makes no reference as to whether or not to include implicit average levels of diversification in the calibration. The spirit of the Directive is that diversification should be allowed in line with an economic approach.\nWe understand that the increases in operational risk factors were based on an analysis of sample companies’ internal model operational risk capital requirements. This approach should not be the primary basis for increasing the operational risk charge, since the internal models analysed only reflect a limited number of insurers in a small number of countries and do not represent the full insurance market in Europe. Furthermore, this does not compare like with like as internal models acknowledge diversification in operational risk, so the factors used in a handful of internal models should not be relevant for the standard formula, where diversification is not taken into account. In conclusion, there are no sound theoretical evidence for increasing the capital charge proposed in QIS4\n"]
["CEA","184",null,"Specification is needed of the definition of basis risk and clarifications with regard to the requirements for SPVs and ratings with reinsurers from third countries."]
["CEA","184","1(c)","This requirement should not exclude SPV structures.","1. Risk-mitigation techniques used by an insurance or reinsurance undertaking shall only be taken into account when calculating the Basic Solvency Capital Requirement where, in addition to the requirements set out in Article 101(5) of Directive 2009/138/EC, the following conditions are met:\n(c) the insurance or reinsurance undertaking has, in the event of a default, insolvency or bankruptcy of a counterparty or other credit event set out in the transaction documentation for the arrangement, a direct claim on that counterparty; "]
["CEA","184","2","For clarification.\nRisk mitigation techniques must be recognised with the mitigation effect it has at the time of the SCR calculation, not pro rata temporis with its remaining maturity. \nOnce the arrangement has expired, if there is no longer a risk mitigation effect, and if, as a result, the SCR has changed significantly, a new SCR calculation would be required.\nWe also note that in some cases there may be virtually no risk that the company will not be able to keep the hedging effect after the maturity. For example, for an interest rate future with physical delivery of the underlying bond at maturity, there is virtually no risk that the hedging effect will not remain after the maturity of the future. ","2. Only risk-mitigation techniques that are in force for at least the next 12 months and which meet the criteria set out in this Section shall be fully taken into account in the Basic Solvency Capital Requirement. In all other cases, the risk-mitigation effect of risk-mitigation techniques that are in force for a period shorter than 12 months and which meet the criteria set out in this Section shall be taken into account in the Basic Solvency Capital Requirement pro rata temporis for the shorter of the full term of the risk exposure or the period that the risk-mitigation technique is in force."]
["CEA","184","3(e)","These conditions are indeed extremely problematic e.g. with regard to the recognition of Variable Annuity Hedging, where hedges are adjusted daily based on equity index development (i.e., event outside the control of a company) which can trigger a hedge adjustment.\nIf Para. 3 (a) and 3 (g) are fulfilled, then we would propose that the extent or level of replaced risk mitigation could be conditional on future events.\nThe exclusion of dynamic hedging and future management actions is far more prudent than a 99.5th VaR. These methods should be recognised within the SCR. Solvency II should not discourage insurers from setting up dynamic hedging programs.","3. Notwithstanding paragraph 2, where contractual arrangements governing the risk-mitigation techniques which meet the criteria in this Section and which will be in force for a period shorter than the next 12 months, and the insurance or reinsurance undertaking intends to replace that risk-mitigation technique at the time of its expiry with a similar arrangement, the risk-mitigation technique shall be fully taken into account in the Basic Solvency Capital Requirement provided the following conditions are met: \n\n(e)  the risk that the risk-mitigation technique can not be replaced due to an absence of liquidity in the market is not material; \n\n"]
["CEA","184","3(f)","These conditions are indeed extremely problematic e.g. with regard to the recognition of Variable Annuity Hedging, where hedges are adjusted daily based on equity index development (i.e., event outside the control of a company) which can trigger a hedge adjustment.\nIf Para. 3 (a) and 3 (g) are fulfilled, then we would propose that the extent or level of replaced risk mitigation could be conditional on future events.\nThe exclusion of dynamic hedging and future management actions is far more prudent than a 99.5th VaR. These methods should be recognised within the SCR. Solvency II should not discourage insurers from setting up dynamic hedging programs.","3. Notwithstanding paragraph 2, where contractual arrangements governing the risk-mitigation techniques which meet the criteria in this Section and which will be in force for a period shorter than the next 12 months, and the insurance or reinsurance undertaking intends to replace that risk-mitigation technique at the time of its expiry with a similar arrangement, the risk-mitigation technique shall be fully taken into account in the Basic Solvency Capital Requirement provided the following conditions are met: \n\n(f)  the risk that the cost of replacing the risk-mitigation technique increases during the following 12 months is reflected in the Solvency Capital Requirement;  \n"]
["CEA","184","3(g)","This condition should only apply in normal market conditions.","(g) the replacement of the risk-mitigation technique would not be contrary to requirements that apply to future management actions set out in TP6 (5)."]
["CEA","185","2","Based on the principle of proportionality only material new risks should be captured.\nWe support this paragraph. This new wording, compared to the previous draft IM, is clearer and allows more flexibility in the treatment of basis risk under the standard formula. It is appreciated that material basis risk should not exclude the recognition of the risk mitigation instrument provided it is properly reflected in the SCR. This is also consistent with the approach for internal models and so will not mean a disadvantage for users of the standard formula (as was the case in the first draft IM).\nBasis Risk should be measured in comparison to the transferred insurance risk. However, the materiality criteria is not defined and there is no guidance as to the calculation of the basis risk. Clarification in this area is requested.","2. The contractual arrangement shall not result in the creation of material new risks, unless these are properly captured in the Basic Solvency Capital Requirement. Where basis risk, defined as the risk that the exposure covered by  the risk-mitigation technique does not correspond to the risk exposure of the insurance or reinsurance undertaking, is material in respect of the transferred risk, the insurance or reinsurance undertaking shall not take that risk-mitigation technique into account unless that material basis risk is captured in the calculation of the Basic Solvency Capital Requirement. "]
["CEA","186",null,"The definition should not restrict the innovation of new underwriting risk transfer mechanisms.","\n"]
["CEA","186","1(a)","For clarity.\nPara 1(a) - At the moment of entering into the transaction it may not possible to know exactly whether the counterparty complies with the SCR. This is only known at the point in time for which published solvency figures are released by the counterparty.\nPara 1(a) - A requirement for the counterparty to comply with the SCR could lead to pro-cyclical and systemic effects. \nIf one reinsurer does not cover its SCR, the solvency position of all of its clients would suddenly be lower as the reinsurance arrangement would not be able to be taken in account in their SCRs. This could lead to a domino effect of insolvencies with respect to Solvency II. \nWe strongly suggest that the requirement should be linked to the MCR rather than the SCR. \nAlternatively, the requirement could be that: even if the reinsurer does not cover its SCR, it has a recovery plan in force which has been validated by its supervisor.","1. Where risk is transferred to an insurance or reinsurance undertaking, those Counterparties to reinsurance contracts shall be: \n(a) an insurance or reinsurance undertaking which complies with the Solvency Minimum Capital Requirement; or an insurance or reinsurance undertaking which does not comply with the SCR but for which the recovery period has not ended"]
["CEA","186","2","We make 2 observations:\n1)While the concept of this new requirement appears sensible, there are significant practical issues. The SCR of reinsurance companies will be published at the same time as the direct insurance company. \nThis means the undertaking has to look at last year's SCR which is not appropriate. In addition it is not appropriate to reduce the recognition of reinsurance as a default only because the reinsurer is slightly below SCR. The threshold needs to be much lower (such as breach of MCR or breach of 70% SCR), because 100% is just the first point of intervention. \nIn addition, what happens if the reinsurer is from a non-equivalent third country?\n2)The Directive allows for 6+3 months. Moreover, if the Pilar 2 Dampener is activated, the recovery period could be longer. Asking here for three months will put an great pressure on the reinsurers, which would lose their clients if they cannot restore their compliance within three months and consequently accelerate their insolvency (typically it is a procyclical effect). This would generate a regulatory mismatch between reinsurers and insurers, which is not the aim of Solvency II. \n","2. Where a counterparty to a reinsurance contract is an insurance or reinsurance undertaking which ceases to comply with the Solvency Capital Requirement after the reinsurance contract has been entered into, the protection offered by the insurance risk-mitigation technique may be partially recognised, provided that the insurance or reinsurance undertaking can demonstrate that the counterparty has submitted a realistic recovery plan to its supervisory authorities and compliance with the Solvency Capital Requirement will be restored within three months within the appropriate timeframe defined in the recovery plan. For this purpose, the effect of the risk-mitigation technique shall be reduced by the percentage by which the Solvency Capital Requirement is breached. "]
["CEA","186","5","The general exclusion of “Finite Reinsurance” contracts from being recognizable in the calculation of the BSCR is not appropriate. By definition (Art. 210 (3)), finite reinsurance contacts need to transfer “significant underwriting risk” that “exceeds the premium over the lifetime of the contract by a limited but significant amount”. To the extent underwriting risk is transferred a recognition in the BSCR should be allowed. While for finite reinsurance contracts in the sense of Art 210 (3) the mitigation effect on in the non-life premium and reserve risk is typically quite limited, such contracts can have a significant effect on the risk of loss in the life, health and the non-life catastrophe risk module.\nMoreover it should be possible for undertakings to take account of the effect of these risk mitigation techniques in their SCR using Internal Models, provided that the risks arising from the use of such techniques are properly reflected in those models.","5. Finite reinsurance, as defined in Article 210(3) of Directive 2009/138/EC, or similar arrangements, where the lack of effective risk transfer is comparable to that of finite reinsurance, shall not be deemed to meet the requirements in Articles SCRRM1 and SCRRM2 and shall not be recognised in the calculation of the non-life premium and reserve risk sub-modules of the Basic Solvency Capital Requirement."]
["CEA","187","1","In many cases also risks other than insurance risk are transferred by reinsurance contracts. Typically but not necessarily such contracts transfer both insurance and financial risk . Examples are Loss Portfolio Transfers and Life Reinsurance Contracts where also some of the investment risk is transferred to the counterparty. This should properly reflected in the Regulation","Where insurance or reinsurance undertakings transfer risk, other than in the cases referred to in Article SCRRM3, including transfers through reinsurance contracts or the purchase or issuance of financial instruments, the following criteria shall be met, in addition to the requirements set out in Articles SCRRM1 and SCRRM2, in order for the risk-mitigation technique to be taken into account in the Basic Solvency Capital Requirement:  \n1. the risk-mitigation technique meets the requirements of the insurance or reinsurance undertaking's risk management policies, as referred to in Article 44 (2) of Directive 2009/138/EC;"]
["CEA","187","3","All risk mitigation techniques should be allowed for according to their genuine risk transfer capacity. Excluding financial instruments with a particular rating is not the correct way to draw a realistic picture of the solvency position and is not in the spirit of the Directive. A more economic approach would be that the rating of the counterparty is reflected in the undertaking’s SCR on a continuous scale, with lower rating giving less risk-reduction. The rating would also be reflected in the default risk module correspondingly.\nWe request more information on UECAI and ECAI.","3. the counterparties to the risk-mitigation technique or, in the case of a risk-mitigation technique that is a financial instrument, the financial instrument, shall have a credit quality which has been assigned to credit quality step 3 or better in accordance with Subsection UECAI and with the assignment by the supervisory authorities of the credit assessments of eligible ECAIs to seven steps in a credit quality assessment scale. "]
["CEA","188","1(a)","We understand that the requirements of article SCRRM7 should apply only if a collateral arrangement exists. \nIf not, we do not understand why collateral arrangements have to exist in all cases for risk-mitigation techniques. The imposition of collateral arrangements is a constraint which is not in line with the economic spirit of the Framework Directive. If no collateral exists, then the SCR for counterparty risk would be higher, but in no case should collateral arrangements be compulsory.","1. Notwithstanding the requirements in Articles SCRRM3(1) and SCRRM4(3), the risk-mitigation technique shall be taken into account when calculating the Basic Solvency Capital Requirement where either of the following situations exists: \n(a) in addition to the risk-mitigation technique meeting the requirements set out in Articles SCRRM1 and SCRRM2, when collateral arrangements exist they that meet the definition and requirements in Article SCRRM6 and, where relevant, the segregated assets meet the requirements in Article SCRRM7; or \n"]
["CEA","188","1(b)","Similar to the previous comment, it should not be compulsory for risk mitigation techniques to be supported by further techniques.\n","(b) when the risk mitigation technique is accompanied by another risk mitigation technique, where the further technique, whether viewed separately or in combination with the first technique meets Articles SCRRM1 and SCRRM2 and where the counterparties to the further technique meet the requirements in Articles SCRRM3 (1) and SCRRM4 (3)."]
["CEA","189","1(a)","This should not prevent SPV structures as long as they are set up in a way that ensures liquidation of collateral for the benefit of the insurance or reinsurance undertaking.","1. In the calculation of the Basic Solvency Capital Requirement, collateral arrangements shall only be recognised  where, in addition to the requirements in Articles SCRRM1 and SCRRM2, the following criteria are met:\n(a) The insurance or reinsurance undertaking shall have the right to liquidate, or retain or to ensure that the special purpose vehicle liquidates or retains directly or via a security trustee, in a timely manner, the collateral in the event of the default, insolvency or bankruptcy or other credit event of the counterparty; "]
["CEA","189","2(c)","Potential volatility of the value of the collateral is already taken into account in the calculation of the risk adjusted collateral in the counterparty default risk module. Consequently, there should be no additional requirement on the value of the collateral","2. There is sufficient certainty as to the protection achieved by the collateral either because it is sufficiently liquid and sufficiently stable in value or because it is guaranteed by a counterparty,  other than a counterparty refferred to in article CO6(7) and (10) who has been assigned a risk factor for spread risk of 0%"]
["CEA","190","2","All risk mitigation techniques should be allowed for according to their genuine risk transfer capacity. Excluding financial instruments with a particular rating is not the right way to draw a realistic picture of the solvency position and is not in the spirit of the Directive. A more economic approach would be that the rating of the counterparty is reflected in the undertaking’s SCR on a continuous scale, with lower rating giving less risk-reduction. The rating would also be reflected in the default risk module correspondingly.\nPara (a) - We request more information on UECAI and ECAI.","2. Where, in accordance with paragraph 1 a risk-mitigation technique is covered by segregated assets, the insurance or reinsurance undertaking shall ensure that, in addition to the requirements in Articles SCRRM1,  SCRRM2 and SCRRM6, the following criteria are met:\n(a) the segregated assets are held with a deposit-taking institution that has a credit quality which has been assigned to credit quality step 3 or better in accordance with Subsection UECAI and with the assignment by the supervisory authorities of the credit assessments of eligible ECAIs to seven steps in a credit quality assessment scale;\n(b) the segregated assets are individually identifiable and can only be changed or substituted with the consent of the insurance or reinsurance undertaking or a person acting as trustee in relation to the insurance or reinsurance undertaking’s interest in such assets or pursuant to pre-determined investment guidelines; \n(c) the insurance or reinsurance undertaking or a person acting as trustee in relation to the insurance or reinsurance undertaking’s interest in such assets shall have the right to liquidate or retain, in a timely manner, the segregated assets in the event of a default, insolvency or bankruptcy or other credit event of the counterparty;  \n(d) there is sufficient certainty as to the protection achieved by the segregated assets either because they are sufficiently liquid and sufficiently stable in value or because it is guaranteed by a counterparty, other than a counterparty referred to in Article CO6(7) and (10) who has been assigned a risk factor for spread risk of 0 %; \n(e) the segregated assets shall not be used to pay at least the same priority, or to provide collateral in at least the same rank in favour of, any person other than the insurance or reinsurance undertaking or as directed by the insurance or reinsurance undertaking. \n"]
["CEA","192",null,"Modular approach vs Single Equivalent Scenario\nWe support the fact that the modular approach is the approach specified in the Implementing Measures. Based on the feedback from QIS5, the Single Equivalent Scenario does not appear to be a workable solution for the standard formula."]
["CEA","193","2","Loss absorbency of DT\nThe original drafting is redundant when this is already covered within IM3.","2. For the purpose of paragraph 1, the value of deferred taxes shall be calculated in accordance with Article V7. Where the loss referred to in paragraph 1 would result in the setting up of, or a change in, deferred tax assets, insurance and reinsurance undertakings shall take into account the magnitude of the loss and its impact on the undertaking's financial situation when valuing assessing whether it is probable that future taxable profit will be available against which the deferred tax asset can be utilised in accordance with Article V7(2).  "]
["CEA","193","5","How would it be required to be “consistent with the contribution of the modules and sub-modules of the standard formula to the BSCR” which implies the use of a specific allocation method (covariance method) as used in the standard approach?\nWhy does it explicitly discuss the standard formula SCR? What about Internal Model users?","5. Where it is necessary to allocate the loss referred to in paragraph 1 to its causes in order to calculate the adjustment for the loss-absorbing capacity of deferred taxes, insurance and reinsurance undertakings shall allocate the loss to the risks that are captured by the Basic Solvency Capital Requirement and the capital requirement for operational risk. In case the Solvency Capital Requirement is calculated with the standard formula the allocation shall be consistent with the contribution of the modules and sub-modules of the standard formula to the Basic Solvency Capital Requirement. In case the Solvency Capital Requirement is calculated by means of an approved internal model the allocation shall be based on the internal model."]
["CEA","194",null,"RFF – materiality thresholds\nWe think that a materiality threshold for the adjustments to ring-fenced fund should apply. This should reflect the proportionality principle as set out in Art. 29 Par. 3 of the Level I text and as required in Art. 29 Par. 4 for all implementing measures. \nFurthermore, consistent with RFFSCR2, no SCR calculation should be required for undertakings < 5 Mio. € premium, etc.","Ring-fenced funds requiring adjustment\n1. Where Article RFFOF1 applies, an adjustment for ring-fenced funds shall be made to the calculation of the Solvency Capital Requirement as calculated using the standard formula. \n2. Without prejudice to Paragraph 1, an adjustment to the SCR for a ring-fenced fund is not required where the insurance or reinsurance undertaking can demonstrate to the satisfaction of the supervisory authority that the adjustment is not proportionate to the nature, scale and complexity of the risks inherent in the ring-fenced fund compared to the risks inherent in the business of the whole insurance or reinsurance undertaking.\n3. Where the ring-fenced considered as a separate undertaking would be excluded of the scope of Directive 2009/138/EC according Article 4 of Directive 2009/138/EC, no adjustment is required.\n4. In making the adjustment to the calculation of the Solvency Capital Requirement, insurance and reinsurance undertakings calculating the Solvency Capital Requirement on the basis of the standard formula shall follow the method that is set out in Article RFFSCR2. "]
["CEA","195","1","To calculate the national SCR “in the same manner” as the SCR of a separate undertaking is a very strong requirement/wording. Simplifications should be allowed.","1. Where ring-fenced funds exist, insurance and reinsurance undertakings shall calculate a notional Solvency Capital Requirement for each ring-fenced fund, as well as for the remaining part of the undertaking, in a consistent the same manner as if those ring-fenced funds and the remaining part of the undertaking were separate undertakings."]
["CEA","195","2","What about unrestricted Own Funds?\nDoes this text mean that all transferable (non-restricted) own funds that could arise from the liabilities of the ring-fenced fund are automatically considered as part of the eligible own funds of the company?","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n2. Notwithstanding Article RMMSCR1 and paragraph 1, where an insurance or reinsurance undertaking has excluded the total amount of restricted own-fund items from the amount of own-fund items eligible to cover the Solvency Capital Requirement and the amount of own-fund items eligible to cover the Minimum Capital Requirement, then that insurance or reinsurance undertaking is not be required to calculate a notional Solvency Capital Requirement."]
["CEA","195","4","This drafting has created confusion for some members. We understand the intention of this paragraph is the following, in line with Ceiops’ final advice: \n- In the case of bi-directional scenarios (i.e. interest rate risk, spread risk etc), the most onerous of the up or down scenario is determined at entity level and this is then this is assumed to be the relevant scenario to calculate capital requirements for each ring-fenced fund.\nWe request that the text is clarified in this manner.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n4. Where profit participation arrangements exist in the ring-fenced fund, the following additional requirements shall apply: \n(a) notwithstanding Article BSCRx(4), where the scenario-based calculation referred to in paragraph 3 would result in an increase in the basic own funds at the level of the ring-fenced fund, the estimated change in those basic own funds shall be adjusted to reflect the existence of profit participation arrangements in the ring-fenced fund. In this case, the adjustment to the change in the basic own funds of the ring-fenced fund shall be the amount by which technical provisions would increase due to the expected future distribution to policy holders or beneficiaries of that ring-fenced fund;\n(b) where the scenario-based calculation referred to in paragraph 3 would result in a decrease in the basic own funds at the level of the ring-fenced fund, the estimated change in those basic own funds for the calculation of the net Basic Solvency Capital Requirement, as referred to in Article [ALAC2], shall be adjusted to reflect the reduction in future discretionary benefits payable to policy holders or beneficiaries of that ring-fenced fund provided the requirements in Articles [TP6] and [TP7] are met. The adjustment shall not exceed the amount of future discretionary benefits within the ring-fenced fund. "]
["CEA","195","8","We strongly object to these paragraphs. Diversification of risks means that all risks do not happen at the same time and as a consequence when the business is more diversified the SCR should be decreased. \nWhy should the existence of ring-fenced funds lead to simultaneous occurrence of risk events?\nImportantly, we note that this is not in line with Ceiops’ final advice on ring-fenced funds which is much less penalising. The final advice on CP68 states that:\nPara 3.35\n“c) For each of gross/net, the total capital charge for the individual risk is given by the sum of the capital charges calculated at the level of each ring-fenced fund and that calculated at the level of the remaining sub-portfolio of business;\nd) For each of gross/net, the total capital charges for each individual risk are then aggregated using the usual procedure of the standard formula to derive the total SCR.”\nCases where diversification exists are much more frequent than cases where diversification should not be recognised. Consequently, the burden of proof should be inverted: supervisors, after justification, could ask undertakings not recognise diversification.","8. Insurance and reinsurance undertakings shall assume that there is no diversification of risks between each of the ring-fenced funds and the remaining part of the insurance or reinsurance undertaking unless supervisory authorities demonstrate sufficient evidence that there is no diversification and then ask to the undertaking to and shall calculate their Solvency Capital Requirement as the sum of the notional Solvency Capital Requirements for each of the ring-fenced funds and for the remaining part of the undertaking.\n"]
["CEA","195","9","We strongly object to these paragraphs. Diversification of risks means that all risks do not happen at the same time and as a consequence when the business is more diversified the SCR should be decreased. \nWhy should the existence of ring-fenced funds lead to simultaneous occurrence of risk events?\nImportantly, we note that this is not in line with Ceiops’ final advice on ring-fenced funds which is much less penalising. The final advice on CP68 states that:\nPara 3.35\n“c) For each of gross/net, the total capital charge for the individual risk is given by the sum of the capital charges calculated at the level of each ring-fenced fund and that calculated at the level of the remaining sub-portfolio of business;\nd) For each of gross/net, the total capital charges for each individual risk are then aggregated using the usual procedure of the standard formula to derive the total SCR.”\nCases where diversification exists are much more frequent than cases where diversification should not be recognised. Consequently, the burden of proof should be inverted: supervisors, after justification, could ask undertakings not recognise diversification.","9. Where the insurance or reinsurance undertaking can demonstrate to the satisfaction of the supervisory authority that the assumption stated in paragraph 8 is inappropriate in the specific circumstances of the ring-fenced fund, the insurance or reinsurance undertaking shall calculate its Solvency Capital Requirement by aggregating the notional Solvency Capital Requirements of the ring-fenced funds and the remaining part of the undertaking only to the extent that diversification effects can be observed as between and among the relevant ring-fenced funds or parts of the undertaking.  "]
["CEA","196",null,"The process to derive USPs has to make wider allowance for some expert judgment provided this is documented and explained. Indeed, mechanical application of pre-defined methods to derive USPs will in many cases lead to unsatisfactory results as it is expected that data patterns are irregular in many cases. Therefore, to assess the data and results there should always be an element of judgement (either based on own data or based on benchmarks)."]
["CEA","196","1","The set of standard parameters that are allowed to be replaced by undertaking-specific parameters should be expanded. At the very least, lapse and expense risk as covered in the life underwriting risk module should be included.\nThe Directive has forbidden the use of USP only for market risks. So excluding life underwriting risks and others would not be consistent with the Level 1 text. For those risks, as we do not yet have the parameters to be implemented, we suggest to let them be determined with a Level 3 BTS.","1. Undertaking specific parameters may be applicable for the following risk modules:\n• operational risk module\n• life underwriting risk module (including CAT risk)\n• non life underwriting risk module (including CAT risk)\n• health underwriting risk module\n• counterparty default risk module \n2.          The following subset of standard parameters are examples to may be\nreplaced by undertaking-specific parameters:\n(a) in the non-life premium and reserve  risk sub-module, for each segment set out in Annex NLUR1, the standard deviation for non-life premium risk of the segment and the standard deviation for non-life reserve risk of the segment as referred to in Article NLUR4(2);\n(b) in the life revision risk sub-module, the instantaneous permanent increase to be applied to the amount of annuity benefits taken into account in the calculation of the technical provisions referred to in Article LUR6;\n(c) in the NSLT health premium and reserve risk sub-module, for each segment set out in Annex HUR1, the standard deviation for NSLT health premium risk and the standard deviation for NSLT health reserve risk as referred to in Article HUR5;\n(d) in the health revision risk sub-module, the instantaneous permanent increase to be applied to the amount of annuity benefits taken into account in the calculation of the technical provisions referred to in Article HUR15.\nA conclusive enumeration of all parameters to be replaced within each of the risk module will be fixed on level III.\n"]
["CEA","197",null,"While we welcome the removal of the requirement for undertakings to submit a justification of the inappropriateness of the standard formula parameters, we maintain our comments that the approval procedure and data criteria should not counterproductive by setting much too high barriers and thereby limiting the use of USPs \nThe use of USP should be supervised in a flexible manner. The approval process needs to be designed along the lines of the required flexibility. \nWe stand ready to further discuss with the EC on how this can best be done.","[we do not have any re-drafting suggestion at this stage]"]
["CEA","197","3(a)","It should be made clear that the process of collecting data has to be auditable, but not necessarily by the users of the data.","the process for collecting data is transparent, auditable and known by the users of the external data and furthermore is auditable"]
["CEA","198",null,"What are the standardised methods? We need to see, as soon as possible, what these methods to be included in Level 3 are. It is vital that undertakings can know as early as possible whether their USPs will be accepted.\nThe restriction of methods to the “standard methods” proposed will, in most cases, make it impossible to obtain valid results, as any closed list of standardised methods will by definition have limitations, and will restict actuarial progress.\nWe also believe that it would difficult with any list of standardised methods to identify the \"optimal\" methods as there could be pros and cons for several methods. As a consequence, we are not in favour of a closed list of methods.\n","Standardised methods to calculate the undertaking-specific parameters \n\n1. Insurance and reinsurance undertakings shall calculate the standard deviation of the undertaking by using, for each parameter, a standardised method. \n2. Where the standardised method does not include an allowance for non-proportional reinsurance, the standard deviations of the undertaking for non-life premium risk and NSLT health premium risk calculated using the standardised method shall be adjusted for each segment set out in Annex NLUR1 and Annex HUR1 respectively using the adjustment factor for non-proportional reinsurance referred to in paragraph 3 of Article NLUR4.\n3. Where the undertaking is able to use more than one standardised method, the method or methods that provides the most accurate result for the purpose of fulfilling the calibration requirements included in Article 101 (3) of Directive 2009/138/EC shall be used. \n"]
["CEA","199","1(a)","See our comment to art 198.","1. Where the time series of data to calculate the undertaking-specific standard deviations are not long enough to provide a reliable estimation, the undertaking-specific parameter shall be equal to a weighted average of: \n(a) an estimate derived using a standardised method based on that time series of data; "]
["CEA","199","1(a)","Consideration should be given to the introduction of requirements depending on the type of business which is being considered.\nFurthermore, a typical characteristic of some lines of business such as health insurance is that the products and legislation are changing rapidly. In this kind of environment, recent data is far more relevant than historical data and as such should be given more weight in the estimations of premium and reserve risks.","1. Where the time series of data to calculate the undertaking-specific standard deviations are not long enough to provide a reliable estimation, the undertaking-specific parameter shall be equal to a weighted average of: \n(b) the standard formula parameter.\n"]
["CEA","199","2","Consideration should be given to the introduction of requirements depending on the type of business which is being considered.\nFurthermore, a typical characteristic of some lines of business such as health insurance is that the products and legislation are changing rapidly. In this kind of environment, recent data is far more relevant than historical data and as such should be given more weight in the estimations of premium and reserve risks.","2. The weight for the estimate referred to in paragraph 1 shall reflect the reliability of the data and should depend on the type of business which is being considered."]
["CEA","200",null,"While we welcome the removal of the requirement for undertakings to submit a justification of the inappropriateness of the standard formula parameters, we maintain our comments that the approval procedure and data criteria should not counterproductive by setting much too high barriers and thereby limiting the use of USPs \nThe use of USP should be supervised in a flexible manner. The approval process needs to be designed along the lines of the required flexibility. \nWe stand ready to further discuss with the EC on how this can best be done.","[we do not have any re-drafting suggestion at this stage]"]
["CEA","200","1(c)","We think that this requirement would “keep the door opened“ to a Level 3 disposition asking for a full-fledged comparison of the methods, something which could eventually be an important burden for the undertakings.\nThe undertakings should be allowed to focus only on the chosen method after explaining qualitatively the reasons why the other methods have been deemed less appropriate to reflect their risk profile","1. In any application for approval of the use of undertaking-specific parameters to replace a subset of parameters of the standard formula, insurance and reinsurance undertakings shall submit, as a minimum:\n(c) a qualitative justification that the choice of the standardised method to be used provides the most accurate result for the fulfilment of the requirements set out in Article 101 of Directive 2009/138/EC. \n"]
["CEA","200","3","When the time line for approvals has elapsed, the company should be allowed to consider the use of USPs as approved. In such a case, there is no justification to leave an undertaking in a situation of uncertainty when the application is complete and receipt has been received. The approval process should be clearly defined and certainly not be perceived as a possible never-ending process as this will discourage undertakings to take that route.","3. The supervisory authorities shall decide on the application in the next 3 months within a reasonable period of time from the receipt of a complete application. Supervisory authorities shall give approval to the application only if they are satisfied with the justification to replace a subset of parameters of the standard formula. In addition, when the time line for approvals has elapsed, the company should be allowed to consider the use of USPs as temporary approved. "]
["CEA","200","4","When the time line for approvals has elapsed, the company should be allowed to consider the use of USPs as approved. In such a case, there is no justification to leave an undertaking in a situation of uncertainty when the application is complete and receipt has been received. The approval process should be clearly defined and certainly not be perceived as a possible never-ending process as this will discourage undertakings to take that route.","4. The supervisory authorities may require the insurance undertakings to provide additional information where necessary to assess the application."]
["CEA","200bis",null,"New article on Transitional Arrangements for USPs\nWe believe there will be many cases where companies will not have sufficient data to comply with these requirements when Solvency II comes into force and will therefore not be able to use as many entity specific parameters, which by definition better reflect their business. Therefore, we propose that a sliding transitional mechanism could be put in place in order to ensure a smooth transitioning to Solvency II.\n","Transitional arrangements:\nThe length of time series taken into account when determining credibility factors should initially be reduced when allowing for undertaking specific parameters.  Undertakings are allowed to use a 100% credibility factor with a reduced number, x, of historical data when Solvency II comes into force. This reduced number of years for historical data (x) will increase each subsequent year, until the number of years required by legislation is reached."]
["CEA","201",null,"There is currently no reliable stastical data for extreme events therefore \"tail\" dependencies might require further quantitative insights from experts.","No redrafting proposed."]
["CEA","202","1","It is not the case that undertakings hold all the necessary information to assess and update correlation parameters.  Some of the information will be undertaking specific and some will specifically relate to the market.  Supervisory authorities should only request from (re)insurers, undertaking specific data.  Also, this kind of information should not be part of systematic reporting to the supervisor.  Freely available data, e.g. on market and credit risks (Bloomberg, Datastream) should be collected directly by EIOPA itself.\nTo comply with the 99.5% requirement of Art. 101 (4) of Directive 2009/138/EC, Section 16 has to be extended to an updating/review process not only for correlation parameters but also for all other aspects of the standard formula, including the review of other parameters, calibrations, and assumptions.  This comment is also reflected in our proposed redrafting for Recital 55.","1. EIOPA shall analyse quantitative data and appropriate undertaking specific data any other appropriate information in order to give an opinion to the Commission on whether, and if so what, updates of other aspects of the standard formula, including other parameters, calibrations, and assumptions are necessary. and if so what, updates to correlation parameters in the standard formula of the Solvency Capital Requirement are necessary in accordance with Article 111(d) of Directive 2009/138/EC."]
["CEA","202","2","Calibrations are based on market observations, which may change significantly over time.","2. EIOPA shall provide a first opinion on updating no later than 1 January 2018 and shall then provide further opinions on updating at least every 3 10 years from the date the first opinion is provided."]
["CEA","202","3","The phrase “at least” could result in an unlevel playing field through supervisors applying national add-ons.","3. EIOPA shall consider at least the following in preparing its analysis:\n(a) whether the application of the standard formula by insurance and reinsurance undertakings, before any updates have been applied, would result in an overall Solvency Capital Requirement which complies with Article 101 of Directive 2009/138/EC;\n(a) (b) whether the application of the updated correlation parameters or other updated aspects of the standard formula by insurance and reinsurance undertakings would result in an overall Solvency Capital Requirement which complies with the principles in Article 101 of Directive 2009/138/EC; and\n(b) (c) whether dependencies between risks are non-linear or there is a  lack of diversification under extreme scenarios in which case EIOPA shall consider alternative measures of dependence for the purposes of calibrating updates to the correlation parameters.\n"]
["CEA","203","2(a) (i)","The applicant does not know how long the approval process will take. However, the undertaking specifies a starting day in the request for approval. This starting day may be adjusted if necessary. See also Article IM6(3)(a). We find this language clearer. ","i. a request for approval to use an internal model to calculate the Solvency Capital Requirement starting from an assumed specified date and a general explanation of the internal model including a brief description of the structure of the model and risks and business units the coveredage of by the model;"]
["CEA","203","2(a) (ii)",null,"ii. a confirmation of the period prior to the application for which the internal model has been appropriately used in their risk management system and decision making processes; A description of which aspects of the internal model, the internal model has been in use in risk management and decision making processes prior to the application."]
["CEA","203","2(a) (iii)","If the application is an accurate reflection of the model, it is by definition complete. We find that it should be the supervisory authorities who assess whether the application is complete, not the administrative, management or supervisory body of the insurance or reinsurance undertaking.","iii. a confirmation that the application is complete and is an accurate reflection of the internal model and that no material facts have been omitted;"]
["CEA","203","2(b)","The first sentence covers all internal models, full internal models as well as partial internal models, where as the second sentence provides additional requirements in the case of partial internal models. Requiring the internal model in the first sentence to cover all the material risks would not make it applicable to partial internal models.","(b) an explanation of how the internal model covers all the material and quantifiable risks of the insurance or reinsurance undertaking. Where the application for the approval relates to a partial internal model the explanation shall be limited to the material and quantifiable risks within the scope of the partial internal model and the insurance or reinsurance undertaking shall also provide an explanation of how the additional conditions referred to in Article 113 of Directive 2009/138/EC have been satisfied;"]
["CEA","203","2(c)","The meaning of the word “integration” is unclear. ","(c) an explanation of the adequacy and effectiveness of the use of the internal model as set out in Article 120 of Directive2009/138/EC integration of the internal model into the risk management function and of how the internal model allows the insurance or reinsurance undertaking to identify, measure, monitor, manage and report risks. For this purpose, the (c) application shall include the relevant extracts of the risk management policy referred to in Article 41(3) of Directive 2009/138/EC; "]
["CEA","203","2(e)","There can be many other outputs of the internal model not related to the SCR. Only those elements which are relevant to the SCR calculation need to be included.\n","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n(e) the technical characteristics of the internal model, including a detailed description of the structure of the internal model, together with a list and justification of the assumptions underlying the internal model where an adjustment to these assumptions would result in a significant change in the Solvency Capital Requirement;"]
["CEA","203","2(f)","The approval of the internal model should focus on the internal model and its use.  Clearly the internal model can potentially be used in supporting e.g. the compliance function. However the approval of the internal model (also given the restricted timeline) should not be overloaded with check of the adequacy of the internal control system of the undertaking.  There are other supervisory processes to assess the adequacy of the internal control system.\n","(f) an explanation of how the internal model is used to support of the adequacy of the internal control system of the insurance or reinsurance undertaking taking into account the structure and coverage of the model; "]
["CEA","203","2(h)","The Solvency II Directive does not require undertakings to have a separate fully functioning validation team, and from CEIOPS advice and consultation papers we have always understood that this is explicitly not supervisors' intention. Article TSIM 18 (3)(g) requires the validation policy to specify an assessment of the independence of the validation process and this is a sufficient control on independence. \nPara 2 h - Article 124 of Directive 2009/138/EC requires a regular validation cycle. Para 2. (h) - seems to go beyond this requirement by requesting an “independent validation”. We understand that “independence” in this context refers to the fact that operation and validation of internal models results should be conceptually and process-wise independent and that no separate validation unit is required.","(h) a report describing the last independent validation of the internal model and its results in accordance with Article 124 of Directive 2009/138/EC;"]
["CEA","203","2(i)","No such policies are required for internal model approval:\n1.  We agree that liquidity management standards are an essential element defining the risk management function in the system of governance. However liquidity and solvency are two different aspects for the well-being of an undertaking: excess solvency does not help when liquidity is lacking and excess liquidity does not help if the company is insolvent.  The liquidity policy should therefore not be required as a document in the internal model approval.  However it might make sense to include it as a means of evidencing the use test if the internal model has in addition to the SCR calculation a role in assessing contingent liquidity.\n2.  There is no requirement for a P&L policy in the directive. Clearly there is need for a manual and process documentation, but calling this a policy is clearly stressing term. Moreover it is not clear why the detailed operations of the P&L process are prerequisite for assessing the internal model.\n","(i) the policy for changing the internal model referred to in Article IM2, the data policy referred to in Article TSIM10, the liquidity policy referred to in Article TSIM14, the specification of the profit and loss attribution policy referred to in Article TSIM17 and the validation policy referred to in Article TSIM18;"]
["CEA","203","2k","The requirement exceeds the requirements laid down in Art. 112 (7) of Directive 2009/138/EC which demands reasons. Certain business models will not be represented adequately by the standard formula and thus we see the danger of false conclusions drawn from such a calculation\nFurthermore, the text should clarify if the \"last point in time prior to the application where the Solvency Capital Requirement was calculated with the standard formula\" only refers to post-implementation calculations (i.e. not QIS5)","(k) an estimation of the Solvency Capital Requirement calculated with the internal model and with the standard formula for the last point in time prior to the application where the Solvency Capital Requirement was calculated with the standard formula; However, if the undertaking can demonstrate that the standard formula does not adequately capture its risk profile the requirement to calculate standard formula is not applicable."]
["CEA","204","1","The process to determine when the internal model is changed is part of the governance system, but not of the policy for changing the internal model. Here only the procedure to change the model is included.\nIt is important that the policy applies to any change, as this decreases the overall burden for the company. \nThis way there is only one approval by the regulators for the policy to change the model (not for every change covered by the policy). Otherwise an approval for every change outside the policy has to be obtained.\nThe important point is that only major changes require an individual approval process as laid out in the redrafting suggestion.","1. The policy for changing the internal model shall cover the procedure to be followed when the undertaking changes its internal model to determine whether a change in the internal model is needed as a consequence of any relevant change in the system of governance, the compliance with the requirements to use the internal model, the method of calculation of the Solvency Capital Requirement and any relevant change to the risk profile of the undertaking. \nThe policy shall define the notion of major and minor changes which will be applied to any change of the internal model.\nThe policy shall specify when a combination of minor changes shall be considered a major change.\nFor any major change, the procedure laid down in Article IM3 shall apply.\n"]
["CEA","204","2","Requiring a policy for any changes may trigger a large number of approval processes. Only material changes should be covered. ","2. Any relevant change as referred to in paragraph 1 not covered by the scope of the policy for changing the internal model requires an amendment of that policy approved by the supervisory authorities in accordance with the procedure laid down in paragraphs 6 to 8. \nThe policy for changing the internal model shall not cover the inclusion of new elements in the internal model, such as the inclusion of additional risks or business units. Inclusion of new elements in the internal model shall follow the approval procedure laid down in Article IM3."]
["CEA","204","3","See new proposed paragraphs. The original version would create significant practical issues. For example any new business unit would trigger a 6-9 month process.  This would prevent all reorganisations of regulated legal entities that use an internal model","3. The policy for changing the internal model shall specify when a change of the internal model will be considered as major or minor and when a combination of minor changes shall be considered a major change. Where a combination of minor changes is considered a major change, the procedure laid down in Article IM3 for major changes shall apply."]
["CEA","204","4","See new proposed paragraphs. The original version would create significant practical issues. For example any new business unit would trigger a 6-9 month process.  This would prevent all reorganisations of regulated legal entities that use an internal model","4. The policy for changing the internal model shall set out the governance requirements in relation to changes to the internal model, including internal approval of changes, internal communication, documentation and validation of changes."]
["CEA","205",null,"The CEA would appreciate further guidance on the definition of minor and major changes at level 2. This will help to maximise the harmonisation of policies for changes of internal models supervisors will approve across MS. An example of a major change could be material additional risk models and an example of a minor change could be the regular updates of parametric assumptions.","[we do not have any re-drafting suggestion at this stage for this paragraph]"]
["CEA","205","3","It should not require 6 months to approve a major change when 6 months are also foreseen for the initial approval. Furthermore, six month for the approval of a major change can lead to a disruption of the calculation of the capital requirements.\nThe internal model has to be used in the system of governance on a continuous basis. To avoid disruptions of the SCR calculation the company should not be forced to use the standard formula if the supervisory authorities fail to make a decision in the required time frame.","3. Supervisory authorities shall decide on the application for approval of a major change to the internal model within six three months from the receipt of the complete application in accordance with Article IM6. The decision of the supervisory authorities may include the transitional plan laid down in Articles IM7 and IM8.Supervisory authorities may decide, on a case-by-case basis, to grant a prior temporary approval of a major change in the full or partial internal model on a temporary basis. The temporary approval can be withdrawn at any time if the insurance or reinsurance undertaking fails to comply or ceases to comply with required conditions"]
["CEA","205","4","This provision seems to require them to carry out full internal model calculations quarterly. If this is indeed the intention, these requirements appear very onerous and we have received concerns from members as to the practicality of the proposals. ","4. Insurance or reinsurance undertakings shall report minor changes to the internal model to the supervisory authorities quarterly annually or more frequently where appropriate. Minor changes to the internal model shall be communicated in a summarised report that describes both the quantitative and qualitative impacts of each change and the cumulative quantitative and qualitative effects of the changes on the approved internal model. "]
["CEA","206","1","This amendment becomes necessary because it applies to changes of the model and also to changes of the policy to change an internal model.","1. Once the supervisory authorities have received the application for the use of an internal model, they shall assess whether the application is complete. The supervisory authorities shall determine whether the application is complete within 30 days from the date of the receipt of the application. An application to use an internal model to calculate the Solvency Capital Requirements shall be considered as complete if it includes all the relevant documentation set out in Article IM1(2). In the case of an application of a major change it shall be considered as complete if it includes all relevant documentation set out in Article IM3(1)."]
["CEA","206","4","Not all documents will be available in electronic form. For example, documentation on elements of the internal model based on software supplied by an external service provider may not be available to the insurance or reinsurance undertaking in an electronic form.","4. The insurance or reinsurance undertaking shall ensure that all documents referred to in Article 125 of Directive 2009/138/EC are made available, including in where possible electronic form, to the supervisory authorities throughout the assessment of the application. "]
["CEA","206","5","This information would allow the insurance or reinsurance undertaking to supply any missing information or take other appropriate action.","5. The assessment of the application shall involve ongoing communication with the insurance or reinsurance undertaking and may include requests for adjustments to the internal model where requested and for a transitional plan as set out in Article 113 of Directive 2009/138/EC. "]
["CEA","206","7","This last condition may cause additional delay.","7. Where supervisory authorities request further information or the adjustments to the internal model referred to in paragraph 6, the insurance or reinsurance undertaking may request a suspension of the six months approval period referred to in Article 112 of Directive 2009/138/EC and the approval period shall continue once the insurance or reinsurance undertaking has made the necessary adjustments and the supervisory authorities have received an amended application providing documentary evidence of the adjustments. The supervisory authorities shall then inform the insurance or reinsurance undertaking of the new expiry date of the approval period.  "]
["CEA","208","2","While we welcome the introduction of transitional provisions for internal models to acknowledge the fact that the internal model application process may not be finalized for all relevant undertakings when Solvency II comes into force as described in Article 210bis, we have strong concerns that an internal model shall not be considered as approved if the supervisory authority fails to reach a decision within six months. \nMany companies have started the pre-application process for internal model validation. Based on first experiences, the process is very resource-intensive and time consuming. An internal model may thus not be approved within the timeframe foreseen in the Directive and the Level 2 Implementing Measures, for example if supervisory authorities or the college need more time to reach a decision. \nTherefore, under certain circumstances, a company should be allowed to use its internal model for calculating the SCR until the supervisor reaches a decision to avoid the whole model being held up because a small part is still in the process of approval. This should be provided the following conditions are satisfied:\n• Any delay is not due to a lack of cooperation or readiness to cooperate by the company; \n• The supervisory authority has a good understanding about the internal model and the overall structure is considered appropriate; and \n• The company has provided sufficient information to ensure the fulfilment of the use test.\n\nThe supervisor would obviously continue to be able to disapprove an internal model that shows clear weaknesses, that is inappropriately documented or that clearly does not fulfil the use test.\n","2. Insurance and reinsurance undertakings shall not consider their application for an internal model approved until the receipt of the decision from the supervisory authorities. Failure by the supervisory authorities to make a decision within the period referred to in Article 112 of Directive 2009/138/EC shall mean that the undertaking may use its internal model for calculating the SCR until the supervisor reaches a decision not result in the application being considered as approved. "]
["CEA","210bis",null,"While we welcome the introduction of transitional provisions for internal models to acknowledge the fact that the internal model application process may not be finalized for all relevant undertakings when Solvency II comes into force as described in Article 210bis, we have strong concerns that an internal model shall not be considered as approved if the supervisory authority fails to reach a decision within six months. \nAs per our comments on Art 208 (2), under certain circumstances, a company should be allowed to use its internal model for calculating the SCR until the supervisor reaches a decision to avoid the whole model being held up because a small part is still in the process of approval.\n\nFurthermore, measures should be put in place in order to avoid that supervisors as a result of the transitional measure suggested  delay the process for approval by inappropriately over-using this temporary approval solution. Temporary approval should not be considered as the optimal industry solution as this does not give adequate certainty, and could jeopardize the consistent implementation of Solvency II all across European as too much discretionary power is given to the supervisory authority for the implementation of this provision. Additionally, we have strong concerns if undertakings are required to report based on the standard formula as well as their (temporary) internal model SCR.\n\nFurthermore, as the transitional provision described in Art 210bis lasts for until the 30.09.2013, after this period the undertaking would have to either continue using  its internal models subject to approval according to Art. IM6 or revert to the standard formula if the internal model is not approved or if no decision has been taken by supervisors.  This is a concern as it may lead to high uncertainty and high volatility of the SCR requirements which could render the capital management of an undertaking rather difficult.\n","Drafting suggestion:\n5. Paragraphs 1 to 4 apply mutatis mutandis to applications according to Art. 327 IMG1 to Art. 330 IMG4."]
["CEA","212",null,"Different granularities are needed for different decision-making processes. ","Fit to the business \nInsurance and reinsurance undertakings shall ensure that the design of the internal model is aligned with their business in the following manner:\n(a) the modelling approaches reflect the nature, scale and complexity of the risks inherent in the business of the undertaking which are within the scope of the internal model;\n(b) the outputs of the internal model and the content of the internal and external reporting of the undertaking are consistent;\n(c) the internal model is capable of producing outputs that are sufficiently granular to be able to play an important role in the relevant management decisions of the undertaking; as a minimum, the totality of the outputs of the internal model shall be able to differentiate between material lines of business, between risk categories and between major business units used for internal steering purposes;\n(d) the internal model is adjusted for changes in the scope or nature of the business of the undertaking."]
["CEA","213",null,"Requiring each of the persons who effectively run the undertaking to demonstrate individually an overall understanding of the IM is unduly demanding and unrealistic.","Understanding of the internal model\nThe administrative, management or supervisory body of the insurance or reinsurance undertaking and the other persons who effectively run the undertaking shall collectively be able to demonstrate an overall understanding of the internal model.\nIn addition, the other persons who effectively run the undertaking shall be able to demonstrate a sufficiently detailed understanding of the parts of the internal model used in the area for which they are responsible. \nOverall understanding of the internal model shall mean knowledge about:\n(a) the structure of the internal model and the way the model fits to the business and is integrated in the risk-management system of the insurance or reinsurance undertaking;\n(b) the scope and purpose of the internal model and the risks covered by the internal model, as well as those not covered;\n(c) the general methodology applied in the internal model calculations; \n(d) the known limitations of the internal model;\n(e) the diversification effects taken into account in the internal model."]
["CEA","214",null,"The model should be widely used. However, it is not possible to use it for all decision making processes.\nThe CEA finds that it would be more appropriate not to provide any examples.","Internal model to support decision-making\nThe internal model shall be used to support the relevant decision-making processes in the insurance or reinsurance undertaking, including the setting of the business strategy. However, the business strategy itself is not part of the use test.\nThe internal model shall be used by insurance and reinsurance undertakings to assess the impact of potential, material decisions including the impact on expected profit or loss and the variability of the profit or loss resulting from those decisions.\nThe internal model and its results shall be regularly discussed and reviewed in the administrative, management or supervisory body of the insurance or reinsurance undertaking."]
["CEA","215","j","It is difficult to see how partial internal models will comply with the criteria outlined in Art 215 TSIM5, in particular the requirement for “all material risks identified by the risk management system are covered by the internal model”. Partial internal models may have material lines of business which are not included in the model for whatever reason.","(j) all material risks identified within the scope of the internal model are covered by the internal model all material quantifiable risks identified by the risk management system which are within the scope of the internal model are covered by the internal model;"]
["CEA","215","l","We find that our proposed drafting is clearer.","(l) the reporting procedures of the risk management function are aligned to and consistent with the relevant outputs of the internal model the relevant outputs of the internal model are covered by the internal reporting procedures of the risk management system;"]
["CEA","216","3","Insurance and reinsurance undertakings should only be required to be able to provide qualitative explanations and not quantitative justifications.","3. Insurance and reinsurance undertakings may use the approach set out in paragraph 2 provided that they are able to explain justify that the results taken from the previous calculation of the Solvency Capital Requirement would not be materially different from the results of a new calculation."]
["CEA","216","4","This adds a new requirement for internal model users, which seems to require them to carry out full internal model calculations quarterly. If this is indeed the intention, these requirements appear very onerous and we have received concerns from members as to the practicality of the proposals. \nWhilst internal model users will have to satisfy the use test and, as such, will be using their internal model regularly, this does not mean that full internal model runs will be frequently carried out. Obviously, for specific risks which are very volatile such as market risk, very frequent full calculations will be carried out. However, for risks which are relatively stable over the short term, full calculations would be unnecessary and excessively burdensome. We therefore oppose the requirement for a full quarterly calculation. \nWe add that it is not clear why this requirement has been added for internal model users when it is not a requirement for standard formula users.","4. The simplified calculation of the Solvency Capital Requirement shall not be applied where calculations of the Solvency Capital Requirement in accordance with Articles 102 of Directive 2009/138/EC are required. "]
["CEA","218","3(b)","We interpret the word relevant in TSIM 8 (3) (b) and elsewhere in IM5 as referring mainly to materiality considerations. We would welcome a statement clarifying this interpretation.\n","3. Insurance and reinsurance undertakings shall choose appropriate actuarial and statistical techniques with a view to ensuring that: \n(b) the outputs of the internal model are stable in relation to changes of the input data that do not correspond to a relevant change of the risk profile of the insurance or reinsurance undertaking;\n"]
["CEA","218","3(e)","All models have model error. Trying to amend the probability distribution to deal with it is hard-to-impossible. This point is more sensibly dealt with by testing (which is part of validation). We propose to delete the paragraph. \nIf this proposal is not acceptable, we propose that \"undue\" is replaced by \"material\". \"Undue\" in is ambiguous, as different persons will have different understandings of precisely what it means. Materiality is a well-understood concept in insurance and normally has to be defined by each undertaking, which would add clarity.","(e) the outputs of the internal model do not include an undue model error or estimation error and that, where practicable, the probability distribution forecast takes these errors into account;"]
["CEA","218","4","In the probability distribution forecast, the model can be quite different from the valuation model, e.g. mortality shock risk is dominated by pandemic risk, and pandemic risk does not play a role in valuation.","4. Insurance and reinsurance undertakings shall be able to demonstrate that explain how the methods used to calculate the probability distribution forecast are consistent with the methods used for the valuation of assets and liabilities according to Articles 75 to 86 of Directive 2009/138/EC. "]
["CEA","220",null,"Insurance data is never \"perfect\" and realistically never will be. Furthermore, most models will theoretically require more data than will be available. It is therefore necessary to be careful to avoid specifying data requirements that are unattainable.","[we do not have any re-drafting suggestion at this stage for this paragraph]"]
["CEA","220","3(d) NEW"," Professional judgement is an essential element in the collection and interpretation of data which needs to be considered.","d) The instances where professional judgement may be relied upon in respect of data issues."]
["CEA","220","5(c)","The models used for assessing insurance liabilities should be consistent with the data available and not the other way around. This can avoid selecting a simple method that reduces data requirements significantly.","(c) the underlying assumptions of the actuarial and statistical techniques that are applied in the model are consistent with the available data the data are consistent with the assumptions underlying the actuarial and statistical techniques that are applied to them in the internal model;"]
["CEA","220","5(d)",null,"(d) the data are appropriately reflect to assess the risks to which the insurance or reinsurance undertaking is exposed."]
["CEA","221",null,"In line with Article TSIM12(1) “...the internal model covers all material quantifiable risks ...”.","Ability to rank risk\n1. In complying with the requirement referred to in the second subparagraph of Article 121(4) of Directive 2009/138/EC, insurance and reinsurance undertakings shall demonstrate that the requirements set out in paragraphs 2 to 5 are met.\n2. The ability of the internal model to rank risks shall exist for all material quantifiable risks covered by the internal model.\n3. The ability to rank risks shall provide a risk-ranking that is sufficiently precise for the purposes of risk-management, decision-making and capital allocation in accordance with Article 120 of Directive 2009/138/EC.\n4. The ability to rank risk shall be consistent with the classification of risks used in the internal model and the classification of risks used in the risk management system.\n5. Risks of similar nature shall be ranked consistently throughout the insurance or reinsurance undertaking and ranked consistently over time. The ranking of risk shall be reconciled with the capital allocation referred to in point (b) of Article 120 of Directive 2009/138/EC. "]
["CEA","223",null,"The expression “lack of diversification” implies a presumption of absence of diversification under extreme scenarios. No such presumption should be used – the true VaR 99,5 % should be sought after. Thus, “degree of diversification” is more appropriate.\nWe suggest to delete paragraph 5 because it is already included in the general paragraph 4. We do not see any rationale to specifically focus at RFF. It could be wrongly understood as “no diversification with RFF, whereas the undertaking should be allowed to demonstrate to its supervisory authority why diversification should be taken into account.\nDiversification effects and aggregation techniques are intimately linked. In certain cases there will be only weak empirical evidence concerning dependency, in particular in the case of aggregation between risk categories. Thus, the requirement to “justify the assumptions underlying the system used for measuring diversification effects on an empirical basis” will lead to low dependencies and thus underestimate SCR requirements. We therefore hold the restriction to empirical evidence to be dangerous. \nRequirement (6) is unnecessary in our view as usually whole distributions are aggregated and thus the respective risk measure will automatically incorporate all effects, also strange / unexpected ones (e.g. violation of sub-additivity).","Diversification effects\n1. The system used for measuring diversification effects referred to in Article 121(5) of Directive 2009/138/EC shall meet at least the requirements set out in paragraphs 2 to 5.\n2. The system used for measuring diversification effects shall identify the key variables driving dependencies.\n3. Insurance and reinsurance undertakings shall be able to justify the assumptions underlying the system used for measuring diversification effects on an empirical basis.\n4. The system used for measuring diversification effects shall take into account any material non-linear dependence and any material degree lack of diversification under extreme scenarios.\n5. The system used for measuring diversification effects shall take into account any material restrictions of diversification which arise from the existence of ring-fenced funds.\n6. The system used for measuring diversification effects shall take into account the characteristics of the risk measure used in the internal model."]
["CEA","223","3","This requires an empirical justification for diversification assumptions.  While this is good discipline, in practice certain dependency assumptions cannot be proved empirically (for example certain operational risks vs market risk) and are based more on expert judgement.  We would suggest softening the wording to state that empirical justification is provided where possible","Insurance and reinsurance undertakings shall be able to justify the assumptions underlying the system used for measuring diversification effects.  Where possible, this shall be on an empirical basis."]
["CEA","224",null,"Many reinsurance contracts apply on a global basis. The requirement to ensure that they are enforceable in \"all relevant jurisdictions\" is unrealistic and raises the question of how and by whom a jurisdiction is determined to be \"relevant\". We would prefer the words \"and enforceable in all relevant jurisdictions\" to be removed. If it is considered that the requirement that they are purporting to describe is of sufficient importance to be retained, we suggest that it is reworded as \"and enforceable in the relevant jurisdiction(s).\" In most circumstances only a single jurisdiction will be relevant, that of the country in which the reinsurer is located. ","Risk-mitigation techniques\n1. Insurance and reinsurance undertakings may take full account of the effect of risk-mitigation techniques in their internal model if they are able to demonstrate that the requirements set out in paragraphs 2 to 7 are met.\n2. The contractual arrangements relating to the risk-mitigation technique shall be legally effective and enforceable in all relevant jurisdictions and ensure that the transfer of risk is clearly defined and incontrovertible. \n3. Insurance and reinsurance undertakings shall, in the event of the default, insolvency or bankruptcy of the counterparty or other credit event set out in the transaction documentation to the arrangements relating to the risk-mitigation technique, have a direct claim on the counterparty.\n4. The legal arrangements underlying the risk-mitigation technique shall contain an explicit reference to a specific risk exposure, so that the extent of the cover provided by the risk-mitigation technique is clearly defined. Where the risk exposure covered by the risk-mitigation technique does not coincide with the risk exposure of the insurance or reinsurance undertaking, the internal model shall take into account the reduced effectiveness of the risk-mitigation technique. \n5. Where the risk-mitigation technique is subject to a condition, the fulfilment of which is outside the direct control of the insurance or reinsurance undertaking and which could undermine the effective transfer of risk, the internal model shall take into account the effects of those conditions and any reduced effectiveness of the risk-mitigation technique. \n6. The risk-mitigation technique shall meet the requirements of the insurance or reinsurance undertaking's risk management policies, as referred to in Article 44(2) of Directive 2009/138/EC.\n7. No double counting of the effects of the risk-mitigation technique in own funds and in the calculation of the Solvency Capital Requirement or within the calculation of the Solvency Capital Requirement shall be allowed.  "]
["CEA","225","3","Management actions\nWe recommend the inclusion of this precision. Indeed, even if the major part of the management actions would be implemented considering the undertaking continue to write NEW business, on particular point, especially related to assets and cash-flows, it could lead to odd model behaviour. For instance, the management action related to the maturity of future bonds bought: if the undertaking is supposed to continue writing NEW contracts, the duration of the technical provision would stay stable and so do the maturity of future bonds investments. However, in the model used for the calculation, only premiums arising from past business would be taken into account, so the duration of the technical liabilities would decrease, and if the duration on the assets side stay the same due to an inflexible use of the on-going concern principle, it would generate an artificial duration mismatch which would false the assessment of the technical provision.","Future management actions\n3. Assumed future management actions shall be realistic and consistent with the insurance or reinsurance undertaking’s current business practice and business strategy, including the use of risk-mitigation techniques. If there is sufficient current evidence that the undertaking will change its practices or strategy, the assumed management actions shall be consistent with the changed practices or strategy. Assumed future management actions should nevertheless take into account the fact that only premiums related to existing business are taken into account in the calculation of the technical provision \n"]
["CEA","226","2","Demonstrating that the error is immaterial implies that the result using the full model is known/calculated. This would annihilate any interest of using an approximation. The word “explain” would be more appropriate.","Calibration standards \n2. If insurance and reinsurance undertakings use a different time period or risk measure for internal modelling purposes, they shall justify the appropriateness of the choice of that time period or risk measure. In particular, when the time period used is different from the one set out in Article 101(3) of Directive 2009/138/EC, the insurance or reinsurance undertaking shall:\n(a) demonstrate explain that the internal model takes into account that risk events may not be equally distributed over time;\n(b) demonstrate that all significant risks over a one-year-period are properly managed and, in particular, when considering a longer time period than that set out in Article 101(3) of Directive 2009/138/EC, that due consideration to the solvency position during the time period has been given by the undertaking;\n(c) justify the choice of the time period taking into account the average duration of the liabilities of the insurance or reinsurance undertaking, the business of the undertaking and, where relevant, the uncertainties associated with long time periods. \n"]
["CEA","227",null,"As it currently stands, undertakings would have to first demonstrate that the standard formula aggregation matrix and then all the level 3 listed methods are not appropriate before being given the opportunity to demonstrate that their own integration technique should be used. \nThis would be very burdensome and likely to cause undue delays in the approval process which is already heavy enough. \nWe believe that instead, as a first step within option 3 considered by Ceiops in CP 65, undertakings should be allowed to use their own integration approach with this being subject to supervisory review. \nIndeed, the aim of partial models should be to facilitate and encourage more sophisticated risk management, which should include how companies integrate the internal and standard formula components in their partial models.\nFurthermore, the range of approaches listed in level 3 from which undertakings will have to choose will never be wide enough to include all approaches that may potentially be appropriate for certain undertakings depending on their risk profile. For instance, instead of determining capital through the use of Monte Carlo simulation an alternative formulaic approach that may be possible to overcome the issue of non-linearity is using the Cornish-Fisher approach. This method like others may be deemed as appropriate in some instances while it has not been included so far in the list of methods under Level3. \nOn the other hand, it is obvious that the burden on undertakings would be all the more important if level 3 contains too wide range of sophisticated methods of which undertakings would be required to demonstrate their inappropriateness before being able to use their own integration technique.\nFinally, we would like to point out that we see a clear risk of spill over effects of the proposed approach to internal models, for which supervisors may not consider any other method than the ones in level 3 as eligible for aggregating PIMs with the SF. It is essential that all possible means are used to avoid that the integration methods listed\n","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\nIntegration of a partial internal model into the Solvency Capital Requirement standard formula\n1. In order to fully integrate a partial internal model into the Solvency Capital Requirement standard formula, insurance and reinsurance undertakings shall use as a default integration technique the correlation matrices of the standard formula set out in Annex IV of Directive 2009/138/EC and Chapter [SCR].\n2. Notwithstanding paragraph 1, where the insurance or reinsurance undertaking further demonstrates to the supervisory authorities that it would not be appropriate to use the correlation matrices of the standard formula set out in Annex IV of Directive 2009/138/EC and Chapter [SCR] for one or several of the reasons laid down in paragraph 5, insurance and reinsurance undertakings shall use the most appropriate integration technique set out in the relevant technical standards. The insurance or reinsurance undertakings shall demonstrate the appropriateness of the integration technique proposed.\n3. Where the insurance or reinsurance undertaking further demonstrates to the supervisory authorities that it would not be appropriate to use any of the integration techniques set out in the relevant technical standards for one or several of the reasons laid down in paragraph 5, the insurance and reinsurance undertaking may, subject to the approval of the supervisory authorities, use another alternative integration technique. The insurance or reinsurance undertaking shall demonstrate the appropriateness of the integration technique proposed.  \n4. The alternative integration technique used shall result in a Solvency Capital Requirement that complies with the principles set out in Title I, Chapter VI, Section 4, subsections 1 and 3 of Directive 2009/138/EC and which more appropriately reflects the risk profile of the insurance or reinsurance undertaking.\n5. An integration technique is not appropriate if at least one of the following conditions is met: \n(a) the resulting Solvency Capital Requirement would not comply with Article 101 of Directive 2009/138/EC;\n(b) the resulting Solvency Capital Requirement would not appropriately reflect the risk profile of the insurance or reinsurance undertaking; or\n(c) the structure of the partial internal model would not allow its integration into the standard formula"]
["CEA","229","2","The paragraph will require absolute independence for the validation team, raising costs unnecessarily and creating operational issues. The Solvency II Directive does not require undertakings to have a separate fully functioning validation team, and from CEIOPS advice and consultation papers we have always understood that this is explicitly not supervisors' intention. Paragraph 3(g) requires the validation policy to specify an assessment of the independence of the validation process and this is a sufficient control on independence.","2. The validation process shall be independent from the development and operation of the internal model."]
["CEA","229","3(d)","The responsibility may be assigned to a function rather than to a person.","3. Insurance and reinsurance undertakings shall establish, implement and maintain a validation policy which describes the validation processes to be used. The validation policy shall specify at least:\n(d) the persons or functions who are responsible for each validation task; "]
["CEA","229","3(f)","Undertakings should not be required in addition to setting up validation policy also to assess its strengths and weaknesses and justify those strengths and weaknesses.","(f) an assessment by the insurance or reinsurance undertaking of the limitations of the validation policy; "]
["CEA","230","5-6","CEA finds that no additional stress tests should be required. The text in Art. 124(2), is sufficient.","Validation tools \n5. Insurance and reinsurance undertakings shall develop and carry out their own stress tests and scenario analysis, taking into account their particular business and risk profile. The stress testing and scenario analysis and their results shall be monitored and assessed by insurance and reinsurance undertakings on an ongoing basis and updated at least annually. \n6. The model validation process shall include a reverse stress test, identifying the most probable stresses that would threaten the viability of the insurance or reinsurance undertaking.\n"]
["CEA","233","5(a)","specifically requires the model to demonstrate that all material quantifiable risks are within scope. When assessing and documenting a full internal model, it is inappropriate for undertakings to assess and document immaterial risks, but this appears to be the intention of this sub-section.","5. When assessing and documenting circumstances under which the internal model does not work effectively, insurance and reinsurance undertakings shall take account of at least the following aspects:\n(a) the risks which are not covered by the internal model;\n(a) the limitations in risk modelling;\n"]
["CEA","233","5(d)","specifically requires data to be accurate, complete and appropriate. Assessment of data deficiencies should normally lead to their correction, not their documentation. However, it is not always possible to correct data of lower quality. In this case, an assessment may show that some particular data deficiency of a limited magnitude may be acceptable.","(d) the deficiencies in data used in the internal model and the lack of data for the calculation of the internal model;"]
["CEA","236","2","Undertakings should be allowed to use simplified methods to update the quarterly value of Technical Provisions to use in the linear MCR calculation. For example by adding premiums and claims to the best estimate calculated last year and taking into account an adjustment for unrealised gains or losses transferred to policyholders or by proxies using local GAAP data.\nWe note that Article 36(6) of the Framework Directive, mentions that: “The supervisory authorities shall establish the minimum frequency and the scope of those reviews, evaluations and assessments having regard to the nature, scale and complexity of the activities of the insurance or reinsurance undertaking concerned.”, where evaluations contain the technical provisions, SCR and MCR.\n","2. The combined Minimum Capital Requirement shall be equal to the following: \nMCR combined = min(max(MCRlinear; 0,25*SCR); 0,45*SCR)\nwhere MCRlinear denotes the linear Minimum Capital Requirement, calculated in accordance with Articles MCR2 to MCR7 and Annex MCR1, and SCR denotes the Solvency Capital Requirement calculated in accordance with Chapter VI, Section 4, Subsections 2 or 3 of Directive 2009/138/EC. For the purpose of this Article the Solvency Capital Requirement shall include any capital add-on imposed in accordance with Article 37 of Directive 2009/138/EC, unless the second paragraph of Article 129(3) of Directive 2009/138/EC applies."]
["CEA","237",null,"The treatment of health should be clarified. We request a clear link between the segmentation used for the MCR and that used for the SCR. Therefore, it would be appropriate for health (SLT and non-SLT) to have a specific treatment, possibly via a separate MCR health component.\nThe design for non-SLT could be the same as for non life, but the calibration should be specific.\nFor SLT, a specific design may be needed and therefore a specific calibration too.","[We do not have re-drafting suggestions at this stage]\n\n"]
["CEA","238",null,"There is a change in the formula of the linear minimum capital requirements for non life obligations (MCRNL):\nOld version MCRNL = Sum[max(a*TP;b*P)]\nWhere a and b stands for alfa and beta. \nNew version MCRNL = Sum[a*TP + b*P]\nWe would be very concerned if the recalibration of the associated factors alpha and beta was not carried out to ensure that the MCR remains within the corridor.\nNonetheless, we note that the European Commission informed us that this was a conscious change related to the legal base of the previous formula. Nonetheless the intention was to recalibrate the associated factors alpha and beta to remain within the corridor and certainly not to double the linear MCRnl. \n\n \n"]
["CEA","241","3","Reference is made to factors a, b, c, and d, set out in Annex MCR 1.\nAs a matter of fact, there is no definition of  such  factors in Annex MCR 1."]
["CEA","243",null,"Para “Definitions”\nThe definition of \"repackaged loan\" is legally speaking strictly correct. However, the definition is very difficult to read as it makes reference to directive 2006/48/EC. Including the definitions from this directive would make the IM more user friendly:\n\"tradable securities or other financial instruments based on repackaged loans\" means tradable securities or other financial instruments offered by way of a \"securitisation\" whereby the credit risk associated with an exposure or pool of exposures is tranched, having the following characteristics:\n(a) payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures;\n(b) the subordination of tranches determines the distribution of losses during the ongoing life of the\ntransaction or scheme;\n ‘tranche’ means a contractually established segment of the credit risk associated with an exposure or number of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in each other such segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments;\n ‘originator’ means either of the following:\n(a) an entity which, either itself or through related entities, directly or indirectly, was involved in the\noriginal agreement which created the obligations or potential obligations of the debtor or potential debtor\ngiving rise to the exposure being securitised; or \n(b) an entity which purchases a third party's exposures onto its balance sheet and then securitises them;\n‘sponsor’ means a credit institution other than an originator credit institution that establishes and manages an asset backed commercial paper programme or other securitisation scheme that purchases exposures from third party entities;\nWe understand that pool of collateral (Pfandbriefe and Danish mortgage credit bonds) is pooled loans and not repackaged loans. In case the EC has a different understanding, please let us know."]
["CEA","244","1","Although we support the fundamental view that the originator retains a net economic interest of not less than 5%, we want to draw attention to the fact that it is for the supervisor and not for the investor, to monitor that the originator complies with the 5 % obligation. \nWhen originators are supervised under the CRD / MIFID directives Insurance undertakings should be able to take credit for the activity of these regulators and not be expected to duplicate their role.","1. Insurance and reinsurance undertakings shall only invest in tradable securities and other financial instruments based on repackaged loans if the originator or sponsor has explicitly disclosed to the undertaking in the documentation governing the investment that it will retain, on an ongoing basis a net economic interest which, in any event shall not be less than 5%."]
["CEA","244","2","A sole retention of the first loss tranche makes it feasible to use asymmetric information for a transfer of systematic or contagion risk away from originator/sponsor level. It would also be possible to compensate a 5% retention of a first loss tranche by a high yield","2. For the purpose of this Article, retention of net economic interest means:\n(a) retention of no less than 5 % of the nominal value of each of the tranches sold or transferred to investors; \n(b) in the case of securitisation of revolving exposures, retention of the originator’s interest of no less than 5 % of the nominal value of the securitised exposures; \n(c) retention of randomly selected exposures, equivalent to no less than 5 % of the nominal amount of the securitised exposures, where such exposures would otherwise have been securitised in the securitisation, provided that the number of potentially securitised exposures is not less than 100 at origination; or\n(d) retention of the first loss tranche and, if necessary, other tranches having the same or a more severe risk profile than those transferred or sold to investors and not maturing earlier than those transferred or sold to investors, so that the retention equals in total no less than 5 % of the nominal value of the securitised exposures.\n(e) a combination of the above.\nThe retained net economic interest shall be measured at the origination and shall be maintained on an ongoing basis. The retained net economic interest shall not be subject to any credit risk mitigation or any short positions or any other form of hedge. For the purpose of this Article, 'ongoing basis' means that retained positions, interest or exposures are not hedged or sold.\nThere shall be no multiple applications of the retention requirements for any given securitisation."]
["CEA","244","2(e)","We understand that the proposed wording follows the CRD definition. We propose to allow for a combination of the above criteria as a sensible addition","2. For the purpose of this Article, retention of net economic interest means:\n(e) a combination of the above.\n"]
["CEA","244","3","This paragraph is worded as if the investment was an independent major investment project. We do not understand why undertakings would have to ensure all these requirements, as far as they invest on regulated products. Those requirements should only be applicable for non-regulated investments. For regulated repackaged loans (as Europeans ones), we think that it is the role of supervisors to ensure that. The undertaking would just have to check that the investment is regulated.","3. Insurance and reinsurance undertakings shall conduct adequate due diligence prior to making the investment, which includes an assessment of the commitment of the sponsor and originator to maintain a net economic interest in the securitisation and the matters that could undermine maintaining that interest as disclosed according to point (f) of paragraph 4 if the originator is not subject to supervision based on the CRD / Basel II regulations.. "]
["CEA","244","4","We suggest monitoring of sponsor declarations as the investor cannot ensure some of these qualities. For example it cannot ensure (a) that the granting of credit is in practice based on criteria etc or (b) the effectiveness of the systems.\nThere is a heavy presumption that the originator will answer any question in the affirmative even though the originator does not comply with the rules. Third party checks will be prohibitively expensive for all minor investors and investments.","4. Before investing, and as appropriate thereafter, in tradable securities or other financial instruments based on repackaged loans, insurance and reinsurance undertakings shall ensure that monitor whether the sponsor and originator declare that meet the following criteria:\n(c) The originator or, where appropriate, the sponsor grant credit based on sound and well-defined criteria and clearly establishes the process for approving, amending, renewing and refinancing loans to exposures to be securitised as they apply to exposures which it will not securitise;\n(d) The originator or, where appropriate, the sponsor have in place effective systems to manage the ongoing administration and monitoring of its credit risk-bearing portfolios and exposures;\n(e) The originator or, where appropriate, the sponsor adequately diversify each credit portfolio based on its target market and overall credit strategy;\n(f) The originator or, where appropriate, the sponsor make readily available access to all relevant data necessary for the insurance or reinsurance undertaking to comply with the requirements set in Article RL4;\n(g) The originator or, where appropriate, the sponsor has a written policy on credit risk that includes its approved  risk tolerance limits and provisioning policy and how it measures, monitors and controls that risk;\n(h) The originator or, where appropriate, the sponsor discloses the level of its retained net economic interest as referred to in paragraph 1 as well as any matters that could undermine the maintenance of the minimum required net economic interest as set out in that paragraph.\n"]
["CEA","244","4(d)","We recommend establishing a sound process, within the regulatory authority, to certify for originators or sponsors, for each investment product offered, the terms of supervisory requirements to be fulfilled like – credit granting processes, – administration and management of credit risks, documentation.","(d) The originator or, where appropriate, the sponsor make readily available access to all relevant data necessary for the insurance or reinsurance undertaking to comply with the requirements set in Article RL4;"]
["CEA","244","4(e)","We recommend establishing a sound process, within the regulatory authority, to certify for originators or sponsors, for each investment product offered, the terms of supervisory requirements to be fulfilled like – credit granting processes, – administration and management of credit risks, documentation.","(e) The originator or, where appropriate, the sponsor has a written policy on credit risk that includes its approved  risk tolerance limits and provisioning policy and how it measures, monitors and controls that risk;"]
["CEA","244","4(f)","We recommend establishing a sound process, within the regulatory authority, to certify for originators or sponsors, for each investment product offered, the terms of supervisory requirements to be fulfilled like – credit granting processes, – administration and management of credit risks, documentation.","(f) The originator or, where appropriate, the sponsor discloses the level of its retained net economic interest as referred to in paragraph 1 as well as any matters that could undermine the maintenance of the minimum required net economic interest as set out in that paragraph.\nIf the originator is subject to supervision based on the CRD / Basel II regulations the criteria (d) to (i) are deemed to be met."]
["CEA","244","4(g)","We recommend establishing a sound process, within the regulatory authority, to certify for originators or sponsors, for each investment product offered, the terms of supervisory requirements to be fulfilled like – credit granting processes, – administration and management of credit risks, documentation."]
["CEA","244","4(h)","We recommend establishing a sound process, within the regulatory authority, to certify for originators or sponsors, for each investment product offered, the terms of supervisory requirements to be fulfilled like – credit granting processes, – administration and management of credit risks, documentation."]
["CEA","244","4(i)","We recommend establishing a sound process, within the regulatory authority, to certify for originators or sponsors, for each investment product offered, the terms of supervisory requirements to be fulfilled like – credit granting processes, – administration and management of credit risks, documentation."]
["CEA","245","1","We welcome the suppression of the list of multilateral development institutions. \nFurthermore, the wording should be changed as the list should not be definitive in order to capture market developments going forward.\n","1. Article RL2(1) shall not apply when the securitised exposures in respect of tradable securities or other financial instruments based on repackaged loans are claims or contingent claims on or fully, unconditionally and irrevocably guaranteed by institutions such as:\n(a) central governments or central banks; \n(b) regional governments, local authorities and \"public sector entities\" - within the meaning of Article 4(18) of Directive 2006/48/EC - of Member States;\n(c) institutions to which a 50% risk weight or less is assigned under Articles 78 to 83 of Directive 2006/48/EC; or \n(d) multilateral development banks. "]
["CEA","246","1","We consider that the requirements under this paragraph are already covered by paragraph 3, under this article.","1. Insurance and reinsurance undertakings investing in tradable securities or other financial instruments based on repackaged loans shall meet the following requirements:\n(a) the undertakings shall assess the asset and liability management risk, the concentration risk and investment risk arising from the investments in tradable securities or other financial instruments based on repackaged loans;\n(b) the undertakings shall establish written monitoring procedures commensurate with the risk profile of their investments in tradable securities or other financial instruments based on repackaged loans to monitor on an ongoing basis and in a timely manner performance information on the exposures underlying those investments;\n(c) the undertakings shall ensure that there is an adequate level of internal reporting to its administrative, management or supervisory body so that they are aware of material investments made in tradable securities or other financial instruments based on repackaged loans and that the risks from these investments are adequately managed; \n(d) the undertakings shall include appropriate information on their investments in these instruments, and their risk management procedures in this area, in complying with their supervisory reporting and public disclosure requirements."]
["CEA","246","1(a)","We agree that repackaged loan investments are also subject to Art. 132 of the level 1 text - the prudent person principle.","1. Insurance and reinsurance undertakings investing in tradable securities or other financial instruments based on repackaged loans shall meet the following requirements:\n(a) the undertakings shall assess the asset and liability management risk, the concentration risk and investment risk arising from the investments in tradable securities or other financial instruments based on repackaged loans;"]
["CEA","246","1(b)","We agree that monitoring procedures should be commensurate with the risk profile.","1. Insurance and reinsurance undertakings investing in tradable securities or other financial instruments based on repackaged loans shall meet the following requirements:\n(b) the undertakings shall establish written monitoring procedures commensurate with the risk profile of their investments in tradable securities or other financial instruments based on repackaged loans to monitor on an ongoing basis and in a timely manner performance information on the exposures underlying those investments;"]
["CEA","246","2","We have strong concerns with the introduction of “stress tests” related to these investments. We strongly support that the undertakings shall understand, report and monitor their exposure to such investments and follow the prudent person principle. However, performing stress tests is the role of the originator or sponsor, and undertakings would not have to get resources and procedures to do so. We do not recognise the necessity to undertake specific stress tests given that stricter requirements are placed on the assessment of these securities and that the enforcement of adequate and effective risk management by the insurance undertaking are essential prerequisites for their acquisition.","2. Where insurance and reinsurance undertakings hold a material amount of tradable securities or other financial instruments based on repackaged loans they shall regularly perform stress tests in relation to their securitisation positions. Any stress test shall be commensurate with the nature, scale and the complexity of the risk inherent in the financial instrument."]
["CEA","246","3","We believe that ‘each’ together with ‘comprehensive and thorough’ will lead to an excessive requirement where holdings are not material either separately or together. The last sentence should be reinstated to ensure the proportionality principle applies to the written policies and procedures requirements. The level of understanding of the investment shall be commensurate with the nature, scale, complexity of the risk inherent thereof. A thorough understanding of the underlying exposure shall be required only where necessary to understand the risks associated with the instrument.","3. Insurance and reinsurance undertakings investing in tradable securities and other financial instruments based on repackaged loans shall be able to demonstrate to their supervisory authorities that for each of these investments they have a an adequate comprehensive and thorough understanding of the investment and its underlying exposure and for the investment in these instruments they have implemented written policies and procedures for their risk management. These written policies and procedures shall be proportionate to the risk profile of their investments in securitised positions."]
["CEA","249","1(a)","We propose to delete these words as it is not clear what they refer to.\n","Insurance and reinsurance undertakings shall:\n1(a) establish, implement and maintain effective cooperation, internal reporting and communication of information at all relevant levels of the undertaking;"]
["CEA","249","1(d)","The requirements under para 1(c) should suffice.  It should not be required for members of the management or supervisory board to hold professional qualifications.  This is of particular importance for Mutuals whose policyholders could essentially act as the Board. ","1(d) ensure that each individual member of the administrative, management or supervisory body has the necessary qualifications, competency, skills and professional experience to perform the tasks assigned;"]
["CEA","249","1(f)","We support the Commission wording. Without a formal assessment, it will be difficult for undertakings to “ensure” all personnel are aware of relevant procedures.","1(f) ensure request that all personnel are aware of the procedures for the proper discharge of their responsibilities;"]
["CEA","250",null,"We propose to reinstate this Article as there should be a hook in the Level 2 text to illustrate how proportionality would apply in each case.  \nApplication of the proportionality principle is especially important to avoid unnecessary burdens for smaller undertakings (in terms of risk profile and complexity) by allowing less sophisticated methods to be applied. It is not justified to make requirements more complex than is already the case.","Principle of Proportionality\nIn implementing the requirements referred to in this Chapter account shall be taken of the nature, scale and complexity of the operations of insurance or reinsurance undertakings. The principle of proportionality justifies simpler and less burdensome or more complex requirements depending on the risk-profile of the undertaking. This shall neither affect the effectiveness of the system of governance nor lead to an unsound or imprudent management of the business."]
["CEA","251","1(a)","assignment of responsibilities within the undertaking is an organisational issue and not part of the risk management strategy.","1(a) a risk management strategy which clearly and in a well documented manner is consistent with the undertaking’s overall business strategy. The risk management strategy shall includes the relevant objectives and key principles of the strategy, approved risk tolerance limits and the assignment of responsibilities across all the activities of the undertaking;"]
["CEA","251","3","We propose to delete this paragraph as it is unclear how it would work in practice. Paragraph 1(b) of Article 251 states that the risk management system will include a procedure documenting and defining the decision making process within the risk management system.  Decision making will be dependent on some kind of analytical assessment which could include, but not be limited to, stress tests and scenario analyses.  Other kinds of analytical assessments could, for example, consist of expert interviews.  The methods of analysis used in the risk management system should be determined by the undertaking.","3. Insurance and reinsurance undertakings shall, where appropriate, include the performance of stress tests and scenario analysis with regard to all relevant risks faced by the undertaking in their risk-management system."]
["CEA","252",null,"We acknowledge that the words “at least” appear in the Framework Directive however, we believe their inclusion in the implementing measures could result in an unlevel playing field."]
["CEA","252","1(c)","There should not be a focus on information which would require a rating.","1(c)(iii) the insurance or reinsurance undertakings' own assessment ratings of the credit risk of counterparties of the investments, including where the counterparties are central governments;"]
["CEA","252","1(g) ","The requirement outlined in the proposed wording should be sufficient.","1(g) Reinsurance and other insurance risk mitigation techniques:\n(i)actions to be taken by the insurance or reinsurance undertaking to ensure the selection of suitable reinsurance and other risk mitigation techniques;\n(ii) actions to be taken by the insurance or reinsurance undertaking to assess which types of risk mitigation techniques are appropriate according to the nature of the  risks assumed and the capabilities of the undertaking to manage and control the risks associated with those techniques.\n\n1(g) Procedures to be followed by the insurance or reinsurance undertaking to determine the effectiveness of insurance and other risk mitigation techniques."]
["CEA","255",null,"Valuation of TP\nData collection, validation and documentation is especially burdensome for small insurers. The principle of proportionality should be applied. \nInsurance companies often do not have adequate data and information about their coinsurance business in order to conduct projections on a policy-by-policy or on a portfolio basis. Hence, the questions how to simplify the calculation of TP or rather how to approximate the TP for coinsurance business, how to validate (Article TP24) and how to document (Article TP25) should be addressed and further discussed.\nFurthermore, it should be clarified that the validation process is carried out \n* internally to the undertaking.\n* only for the uncertainty mentioned in Art. 254, 1, (d) w.r.t. the level of technical provisions. \nBecause paragraph 2 refers to (a) until (g) of Paragraph 1. This means that the validation must be done at a very low level and seems to imply that you need to validate e.g. TP, RM and BE, when either validating the BE+RM or the TP would suffice as they are the sum of each other. A validation of the BE plus RM would also negate the need to specifically refer to homogeneous risk groups which are part of the BE.\n","1. Insurance and reinsurance undertakings shall internally validate the calculation of technical provisions, in particular by comparison against experience as referred to in Article 83 of Directive 2009/138/EC, at least once a year and where there are indications that the data, assumptions or methods used in the calculation or the level of the technical provisions are no longer appropriate. The validation shall cover the following:\n[...]\n2.  The validation process should be carried out, subject to the principle of propotionality, at least for the best estimate and Risk Margin or for the technical provisions, where the latter be applicble where technical provisions are valued as a whole. The validation shall be carried out separately for homogeneous risk groups.  It shall be carried out separately for the best estimate, the risk margin and technical provisions calculated according to the market value of financial instruments which reliably replicate future cash-flows in accordance with Article TP21. In relation to the best estimate, it shall be carried out separately for the gross best estimate and amounts recoverable from reinsurance contracts and special purpose vehicles. In relation to non-life insurance obligations, it shall be carried out separately for premium provisions and provisions for claims outstanding. \n"]
["CEA","255","1(g) ","it should be clarified that the validation process is carried out internally to the undertaking.","1. Insurance and reinsurance undertakings shall internally validate the calculation of technical provisions, in particular by comparison against experience as referred to in Article 83 of Directive 2009/138/EC, at least once a year and where there are indications that the data, assumptions or methods used in the calculation or the level of the technical provisions are no longer appropriate. The validation shall cover the following:\n(g) the appropriateness of the level of the technical provisions as referred to in Article 84 of Directive 2009/138/EC."]
["CEA","256",null,"Documentation of TP\nData collection, validation and documentation is especially burdensome for small insurers. The principle of proportionality should be included. \nWe would recommend to delete this article. Article TP3 requires the collection of data, including a description of concepts and processes. Article TP24 requires the validation of this information. \nTo document this process of collecting, documenting and validating data is an additional and quite burdensome task.\nAll requirements concerning documentation should be combined in one single TP e.g. TP 3 and or TP4\n","Valuation of technical provisions – documentation\n1. Insurance and reinsurance undertakings shall document the following processes:\n(a) the collection of data and analysis of its quality and other information that relates to the calculation of technical provisions;\n(b) the choice of assumptions used in the calculation of technical provisions, in particular the choice of relevant assumptions about the allocation of expenses;\n(c) the selection and application of actuarial and statistical methods for the calculation of technical provisions;\n(d) the validation of technical provisions. \n2. For the purposes of point (b) of paragraph 1, the documentation shall include:\n(a) a justification for the choice of the assumption;\n(b) a description of  the inputs on which the choice is based;\n(c) the objectives of the choice and the criteria used for determining the appropriateness of this choice;\n(d) any material limitations in the choice made;\n(e) a description of the processes in place to review the choice of assumptions.\n"]
["CEA","256","1(b)","It is unclear why the documentation about the assumptions regarding allocation of expenses should be treated in a special way, there are other assumptions which are equally important","the choice of assumptions used in the calculation of technical provisions, in particular the choice of relevant assumptions about the allocation of expenses;"]
["CEA","257",null,"The CEA suggests deleting the first part of the second sentence.  The purpose of the Internal Control System should not be to ensure effectiveness and efficiency of an undertaking’s operations.","Internal control system\nThe internal control system shall ensure the insurance and reinsurance undertaking's compliance with applicable laws, regulations and administrative provisions and the effectiveness and the efficiency of the undertaking's operations in light of its objectives as well as ensure the availability and reliability of financial and non-financial information."]
["CEA","257bis","3","We find the possibility for supervisors to require external valuation or verification too extensive. This is not a requirement conferred to Level 2 under Articles 46 or 50 of the Framework Directive. ","3. At the request of the supervisory authorities, insurance and reinsurance undertakings shall undertake an external, independent valuation or verification of the value of material assets and liabilities."]
["CEA","258","1","It is not the case in every country that the administrative, management or supervisory body has an operational role in the undertaking.  Considering is it proposed that Level 2 measures take the form of a Regulation, it is essential that some flexibility is maintained concerning company law issues.\n\nIn general, further clarification would be helpful on the duties and responsibilities of the functions and how they should interact.  A level of certainty should be included in the Level 2 text to be supplemented by supervisory guidance.","1. Insurance and reinsurance undertakings shall incorporate the functions and the associated reporting lines into the organisational structure in a way which ensures that each function is free from influences that may compromise the function's ability to undertake its duties in an objective, fair and independent manner and in the case of the internal audit function in a fully independent manner. Each function shall operate under the ultimate oversight of, and be able to report to the administrative, management or supervisory body and shall, where appropriate, cooperate with the other functions in carrying out their roles."]
["CEA","258","2","Insurance and reinsurance undertakings shall be free to decide how to organise and staff its functions.  This is in keeping with the spirit of the framework directive.","2.  Insurance and reinsurance undertakings may, except with respect to the internal audit function, whilst having regard to the principle of proportionality, allow a single person or organisational unit to carry out more than one function."]
["CEA","259","1(d)","The word “detailed” should not be explicitly stated.  The level of detail will depend on the nature, scale and complexity of the undertaking. ","1(d)  detailed reporting on risk exposures and advising the administrative, management or supervisory body on risk management matters, including in relation to strategic affairs such as corporate strategy, mergers and acquisitions and major projects and investments;"]
["CEA","260",null,"Level 3 guidance regarding the purpose and content of the compliance policy would be helpful.","No redrafting suggested.\n\nCompliance function\n1. The compliance function shall include a compliance policy and, where appropriate, a compliance plan. The compliance policy shall define the responsibilities, competencies and reporting duties of the compliance function. The compliance plan shall set out the planned activities which take into account all relevant areas of the activities of insurance and reinsurance undertakings and their exposure to compliance risk.\n2. The duties of the compliance function shall include assessing the adequacy of the measures adopted by the undertaking to prevent non-compliance."]
["CEA","260","2","We propose to delete this paragraph as for independence reasons, the compliance function should not be responsible for assessing it's own measures/policies.  This should be done by one of the other functions under the system of governance, for example, internal audit. ","2. The duties of the compliance function shall include assessing the adequacy of the measures adopted by the undertaking to prevent non-compliance."]
["CEA","261","1","We propose a clarification on the scope of the requirement in Article 261(1). ","1. Whilst having regard to the principle of proportionality, Tthe persons carrying out the internal audit function shall not assume any responsibility for any other control functions as defined in Article 258 SG6, or any operational function  within the undertaking or the  group."]
["CEA","261","2(a)","We assume that this point refers to an annual perspective but if this is not the intention, we propose to delete.  The audit plan should consider risks in the immediate year ahead as is in line with the one year time horizon of Solvency II.  Further clarification would be helpful on what might be included in the internal audit plan.","2. The internal audit function shall:\n2(a) establish, implement and maintain an audit plan setting out the audit work to be undertaken in the upcoming years, taking into account all activities and the complete system of governance of the insurance or reinsurance undertaking; "]
["CEA","261","2(d)","The internal audit function should not have to report all findings. The internal audit report should include major findings with the appropriate level of detail being defined by the undertaking using the principle of proportionality.","2(d) issue recommendations based on the result of the work carried out in accordance with point (a) and submit a written report on its major findings and recommendations to the administrative, management or supervisory body on at least an annual basis;"]
["CEA","262","6(b)","clarification from the Commission would be helpful as to why the text in para.6(b) is highlighted.","No redrafting suggested.\n\n6. Regarding the underwriting policy, the opinion to be expressed by the actuarial function in accordance with Article 48(1)(g) of Directive 2009/138/EC shall at least include the following issues:\n(b) considerations regarding inflation, legal risk, change in the composition of the undertaking's portfolio, and effect of systems which adjust the premiums policy-holders pay upwards or downwards depending on their claims history (bonus-malus systems) or similar systems, implemented in specific homogeneous risk groups;"]
["CEA","263",null,"The definition of Key Functions should be re-introduced as it is necessary for the overall understanding of this Article.  It is also necessary for understanding what constitutes a \"critical or important operational function\" under Article 264 on Outsourcing.","2(a) Key functions are those considered important or critical in the system of governance including at least the risk management, the compliance, the internal audit and the actuarial functions. Other functions may be considered key functions. A function shall be regarded as critical or important if a defect or failure in its performance would materially impair the continuing compliance of an insurance or reinsurance undertaking with the conditions and obligations of its authorisation or its other obligations under Directive 2009/138/EC, or the soundness or the continuity of its insurance services and activities.\n\nWhen determining whether a function is a key function, the principle of proportionality should be taken into account."]
["CEA","264","2","Undertakings will not necessarily have control or influence over a service provide within their group. ","2. Where the undertaking and the service provider are members of the same group, the undertaking shall, when outsourcing critical or important operational functions as defined in Article SG11 (2) or activities, in addition to requirements set out in paragraph 3 take this relationship into account the extent to which the undertaking controls the service provider or has the ability to influence its actions."]
["CEA","264","3","It should be clarified what critical or important operational functions or activities are. ","3. Outsourcing of a critical or important operational function occurs where a key function, or an essential part of a key function, as defined in Article 263 is outsourced. In the case of such outsourcing When choosing a service provider for any critical or important operational functions or activities, the administrative, management or supervisory body shall ensure that: "]
["CEA","264","3(d)","Clarification from the Commission would be helpful as to why the wording “explained to”, is highlighted.","3. (d) the general terms and conditions of the outsourcing agreement are, where appropriate, explained to the undertaking’s administrative, management or supervisory body and authorised by them;"]
["CEA","264","4(f)","This would make void the possibility for undertakings to fulfil the requirements for a consolidated tax filing status.  ","(f) that the undertaking reserves the right to be informed about the outsourced functions and activities and their performance by the services provider as well as a right to issue general guidelines and individual instructions at the address of the service provider, as to what has to be taken into account when performing the outsourced functions or activities;"]
["CEA","264","4(h)","We propose to delete this paragraph as it is unduly burdensome to apply this provision to non-regulated (re)insurance entities.  Preliminary feedback has indicated that some service providers may hold (re)insurance undertakings responsible for any damages which could result from such on-site inspections.  It is clear from the Level 1 and 2 texts that (re)insurance undertakings will at all times remain fully responsible for outsourced functions and will liaise with their supervisor on their activities as a whole, this should be sufficient for supervisory purposes.","(h) that the undertaking, its external auditor and the supervisory authority have effective access to all information relating to the outsourced functions and activities including carrying out on-site inspections of the business premises of the service provider; "]
["CEA","264","6","It is clear that the administrative, management or supervisory body retains responsibility for the outsourced function. It is therefore sufficient to stipulate what is required of the undertaking.  \nUndertakings, in particular larger ones (in terms of risk profile and complexity), should themselves determine which contracts are subject to board approval. In this respect, paragraph 6 is considered overly burdensome. ","6.  The undertaking shall:\n6(a) verify that the service provider has the necessary financial resources to perform the additional tasks in a proper and reliable way, and that all staff of the service provider who will be involved in providing the outsourced functions or activities are sufficiently qualified and reliable;\n6(b)  ensure that the service provider has adequate contingency plans in place to deal with emergency situations or business disruptions and periodically tests backup facilities where necessary, taking into account the outsourced functions and activities."]
["CEA","265","1","The text “at least” could result in an uneven playing field.\n\nIn general, the CEA believes that the issue of remuneration should first be discussed in the wider context before applying detailed elements to the Solvency II text.  Also, national contract and labour laws may have an impact on proposals regarding remuneration and we would question the implications of introducing such requirements as a Regulation. ","1. When establishing and applying the remuneration policy referred to in Article SG1 (l) insurance and reinsurance undertakings shall comply with at least  the following principles:\n"]
["CEA","265","1(c)",null,"(c) the remuneration policy applies to the undertaking as a whole, and contains, where appropriate, specific arrangements that take into account the tasks and performance of the administrative body, management body or supervisory body, persons who effectively run the undertaking, holders of key functions and other categories of staff whose professional activities have a material impact on the undertaking's risk profile;"]
["CEA","265","1(e)","This is a new requirement that should first be discussed in the wider context.\n","1.(e) the members or shareholders of the undertaking shall be involved in the approval of the remuneration of the administrative, management or supervisory body"]
["CEA","265","1(g) ","The requirement to interact with additional committees should be in line with the proportionality principle.","1(g) -an independent remuneration committee shall be created, where appropriate, in order to periodically support the administrative, management or supervisory body in overseeing the design of the remuneration policy and remuneration practices, their implementation and operation;\n\n1(g) Where appropriate due to the undertaking’s risk profile and macro-economic relevance, an operationally independent remuneration committee shall be created in order periodically to support the administrative, management or supervisory body in overseeing the design of the remuneration policy and practice, their implementation and operation;"]
["CEA","265","2(f)","This should first be discussed in the wider context.","2(f) termination payments shall be related to performance achieved over the whole period of activity and be designed in a way that does not reward failure; "]
["CEA","266","b","It would not be possible to pre-empt the exact size of the deviation.  In general, if the actual size of the deviation needs to be known (i.e. the difference between the SCR and the modified SCR), before it is required to calculate the modified SCR, then the requirements may be circular.","(b) the nature, type and expected size of the deviation;"]
["CEA","268","3","If the SCR does not properly reflect the risk profile of the undertaking then it may be questionable to use this is the basis for calculating a capital add-on.\nCapital Add-ons should be used as a last resort measure and as such, it is important for both supervisors and undertakings to understand exactly when such a requirement might apply. It would also be useful to develop a qualitative assessment which would help the supervisor to better understand the situation of the undertaking.","3. Risk profile deviations calculated according to paragraph 1 which exceed 15 % shall be regarded as significant."]
["CEA","270",null,"The CEA believes that the insurer will need time to assess, design and implement any changes.  Changes must then be endorsed by supervisory authorities.  \nThe level of own funds should also be taken into account when setting a timeframe to remedy any deficiencies.  An appropriate timeframe should depend on the specific circumstances of the undertaking.","Appropriate timeframe for adapting the internal model to better reflect the given risk profile and for improving governance deficiencies \nFor the purposes of Article 37(1)(b) and (c) of Directive 2009/138/EC respectively, in concluding that the adaptation of the model to better reflect the given risk profile has failed, or that the application of other measures is unlikely to improve deficiencies as the case may be, supervisory authorities shall take account of all relevant factors, including own funds, in determining what an appropriate timeframe is, including the likelihood and severity of any adverse impact on policy holders and beneficiaries. The timeframe shall not exceed 6 months."]
["CEA","272","4","The CEA expresses concern about comparing data, designs, structures and methodologies between ‘similar undertakings’.  Comparisons would be difficult to achieve in practice and the Supervisory Authority would not be able to disclose underlying information to the undertaking.","4. Any modification referred to in paragraph 2 or methodology referred to in paragraph 3  shall use adequate, applicable and relevant actuarial and statistical techniques and shall be based on accurate, complete and appropriate data of the undertaking, or if these are not available, data which is directly relevant for the operations of that undertaking."]
["CEA","272","5","The CEA expresses concern about comparing data, designs, structures and methodologies between ‘similar undertakings’.  Comparisons would be difficult to achieve in practice and the Supervisory Authority would not be able to disclose underlying information to the undertaking.","5. Where alternative methodologies are insufficient or inappropriate supervisory authorities may calculate the Solvency Capital Requirement for the purposes of Article CA6(1) by comparing the Solvency Capital Requirements of undertakings with similar risk profiles.\n\n\n"]
["CEA","272","6","The CEA expresses concern about comparing data, designs, structures and methodologies between ‘similar undertakings’.  Comparisons would be difficult to achieve in practice and the Supervisory Authority would not be able to disclose underlying information to the undertaking.","6. For the purposes of paragraphs 4 and 5 supervisory authorities may use information relating to other insurance and reinsurance undertakings with similar risk profiles provided that the supervisory authorities can justify, in accordance with Article 37(1) of Directive 2009/138/EC their decision to set a capital add-on in a way which does not result in non-compliance with the professional secrecy requirements in Article 67 of Directive 2009/138/EC."]
["CEA","272","7","In general, the CEA believes that altering undertaking specific parameters /partial/internal models, should be a precursor to capital add-ons and not as a condition for netting.   The CEA supports netting against areas with higher SCR.","7. Supervisory authorities may only set aspects of the risk profile deviation which  indicate that a lower Solvency Capital Requirement would better reflect the insurance or reinsurance undertaking's actual risk profile off against the other aspects, which  indicate a higher Solvency Capital Requirement is appropriate, if the insurance or reinsurance undertaking  satisfies them that:\n(a) there is a modification or a methodology complying with the requirements set out in paragraph 4 to quantify the impact on the amount referred to in Article CA6(1) of the aspects which indicate a lower Solvency Capital Requirement; \n(b) it would be inappropriate to address the aspects which indicate a lower Solvency Capital Requirement by replacement of parameters specific to the undertaking in accordance with Article 104(7) of Directive 2009/138/EC or by using an internal model in accordance with Article 112 of Directive 2009/138/EC;  \n(c) the overall Solvency Capital Requirement that would result after setting off the risk profile deviations against each other will comply with Article 101(3) of Directive 2009/138/EC.\nInsurance or reinsurance undertakings shall notify the supervisory authority without delay of any material changes in the circumstances set out in points (a) to (c)."]
["CEA","276",null,"The CEA supports application of a review period and proposes that the Commission reinstate this paragraph.","No later than 5 years after the date referred to in Article 309 of Directive 2009/138/EC, the Commission shall, after consulting EIOPA, make an assessment of the application of this Chapter as regards the supervisory practices concerning setting capital add-ons, and in particular whether the percentage amounts referred to in Article CA3 are appropriate and whether other types of quantitative threshold could further enhance convergence. The Commission shall, where appropriate, propose amendments to this Regulation."]
["CEA","277",null,"There must be sufficient supervisory guidance on the matter of “exceptional fall in financial markets”. \nThe recovery period of 21 months seems too short for an undertaking to recover. The appropriateness of the extension period should be determined with respect to recovery of the financial markets as a whole. ","Maximum extension period\nIn the event of an exceptional fall in financial markets as determined by EIOPA, the maximum extension available under Article 138(4) of Directive 2009/138/EC shall not generally exceed 21 months.  The length of the extension period should be determined with respect to recovery of the financial markets as a whole."]
["CEA","278",null,"As this provision aims at reacting to a breach of SCR in a situation where markets are seriously disrupted, it is important to be able to act without undue delay.","Procedure\n3.  The supervisory authority shall notify to the insurance or reinsurance undertaking concerned its decision to grant an extension of the recovery period within four weeks of date determined by paragraphs 1 and 2.  "]
["CEA","279",null,"The number of undertakings affected should not be a criteria. Also situations where only one (major) undertaking is affected could have an adverse impact on the market. \nMembers’ feedback is requested on amendments (cfr. c-f-g)","External Factors\nFor the purpose of deciding on an extension of the period referred to in Article 138(4) of Directive 2009/138/EC and determining its length, external factors to be taken into account by the supervisory authority shall include the following: \n(b) the number and size of insurance and reinsurance undertakings affected by the exceptional fall in financial markets and whether the size and nature of those undertakings could, when taken together, have a negative effect on the financial markets;"]
["CEA","279","1(b)","The number of undertakings affected should not be a criteria. Also situations where only one (major) undertaking is affected could have an adverse impact on the market. ","(b) the number and size of the insurance and reinsurance undertakings affected by the exceptional fall in financial markets and whether the size and nature of those undertakings could, when taken together, have a negative effect on the financial markets;"]
["CEA","281",null,"The CEA would prefer a shorter review period of, for example, 3 years in order to capture \ndevelopments in markets that may contribute towards the need for a longer recovery period. \nMembers’ feedback is required on the removal on the review clause on the recovery period.","No later than [3] years after the date referred to in Article 309 of Directive 2009/138/EC, the Commission shall, after consulting EIOPA, make an assessment of this Chapter and in particular whether the maximum recovery period provided for in Article ERP1 is appropriate. The Commission shall, where appropriate, propose amendments to this Regulation."]
["CEA","281 bis",null,"It is important to clarify the scope of the principle of materiality.","Materiality\nThe information to be disclosed in the solvency and financial condition report should be considered as material if its omission or misstatement could influence the assessment of the solvency position of the undertaking, the decision-making or judgement of the users of that document.  The principle of materiality shall apply to all information in the Solvency and Financial Condition Report."]
["CEA","282",null,"In order to avoid duplication of information provided to the public there should be an explicit mentioning of the fact that the SFCR may be an Annex to an existing report.","Structure and format\nThe annual solvency and financial condition report shall follow the structure set out in Annex PD1 and disclose in a coherent and informative manner the information referred to in Articles PDS2 to PDS8 either in full or by way of reference to equivalent information contained in documents required for other legal or regulatory purposes.  Insurance and reinsurance undertakings may choose to publish their solvency and financial condition report as an annex to their annual report.  \nThe report shall be proportionate to the nature scale and complexity of the undertaking and contain narrative information in quantitative and qualitative form supplemented, where appropriate, with quantitative templates."]
["CEA","282","1","In order to avoid duplication of information provided to the public there should be an explicit mentioning of the fact that the SFCR may be an Annex to an existing report.","The solvency and financial condition report shall follow the structure set out in Annex PD1 and disclose in a coherent and informative manner the information referred to in Articles PDS2 to PDS8 either in full or by way of reference to equivalent information.  The solvency and financial condition report may be part of an existing document which is shared with the public.  The report shall contain narrative information in quantitative and qualitative form supplemented, where appropriate, with quantitative templates."]
["CEA","283",null,"An easily understandable summary should not be limited to policyholders. ","Summary\nThe solvency and financial condition report shall include a concise and easily understandable summary, aimed specifically at policy holders and beneficiaries."]
["CEA","284",null,"It should be possible that any comparison to financial statements is done so in a way that does not go beyond the format of that financial statement. The segmentation used in financial statements should be sufficient for the public disclosure of Solvency II information in respect of this Article."]
["CEA","284","1(a)","The name and legal form of will be included as standard on the title page of the report.","1 (a) the name and legal form of the undertaking;"]
["CEA","284","3(a)","Detailed disclosure per asset class is excessive and should not be required.","3(a)  information on income and expenses arising from investments and, where  relevant, components of such income  and expenses distinguished by  appropriate asset classes;"]
["CEA","284","3(c)",null,"3(c) information about any material investments in tradable securities or other financial instruments based on repackaged loans."]
["CEA","284","4",null,"4. Insurance and reinsurance undertakings shall briefly describe their other material income and expenses incurred over the reporting period together with a comparison of the information with that reported during the previous reporting period, as shown in the undertaking's financial statements."]
["CEA","284","5","The CEA believes that a separate section would be misleading and that any additional information should be disclosed in the section the information relates to. ","5. Insurance and reinsurance undertakings shall disclose in a separate section any other material information regarding their business and performance."]
["CEA","285",null,"The CEA believes that public disclosure requirements should be briefer than those for supervisory reporting. \n","No redrafting proposed."]
["CEA","285","1(a)",null,"1(a) A brief description of the structure of the undertaking’s administrative, management or supervisory bodies, providing a brief description of their main roles and responsibilities and a brief description of the segregation of responsibilities within these bodies, in particular where relevant committees exist within them, as well as a description of the main roles and responsibilities of key function holders; "]
["CEA","285","1(c)",null,"1(c) Relevant information on the remuneration policy and practices, including:\n- a brief description of the main characteristics of supplementary pension or early retirement schemes (as distinct from termination payments), for the members of the administrative, management or supervisory bodies and other key function holders;"]
["CEA","285","2(b)",null,"2(b) a description of the undertaking's process for assessing the fitness and the propriety of the persons who effectively run the undertaking or hold have other key functions."]
["CEA","285","3(a)","The CEA would like to clarify that it is the risk management system of the undertaking that runs on a continuous basis and not the disclosure requirements of the undertakings.\nThe CEA believes that reporting on ‘interdependencies’ will be overly onerous.  ","3(a) a brief description of the undertaking’s risk management system comprising strategies, processes and reporting procedures, is able to effectively identify, measure, monitor, manage and report, on a continuous basis, the risks on an individual and aggregated level, to which the undertaking is or could be exposed;\n"]
["CEA","285","3(b)","The CEA would like to clarify that it is the risk management system of the undertaking that runs on a continuous basis and not the disclosure requirements of the undertakings.\nThe CEA believes that reporting on ‘interdependencies’ will be overly onerous.  ","3(b) a brief description of how the risk management system including the risk management function are integrated into the organisational structure and decision-making processes of the undertaking.\n"]
["CEA","285","4(c)","Article 45(6) of the Framework Directive foresees reporting on the outcome of the ORSA to the Supervisor.  While some ORSA related information may be relevant to external stakeholders to provide confidence in the system, information on capital management arising from ORSA should be reported to the Supervisor only. \n","4(c) a statement explaining how the undertaking has determined its own solvency needs given its risk profile and how its capital management activities and its risk management system interact with each other."]
["CEA","285","8","If information on outsourcing is disclosed in great detail, it could jeopardise commercially sensitive information.  \n","8. With regard to their outsourcing policy, insurance and reinsurance undertakings shall disclose, where applicable, a brief description of their outsourcing policy including the rationale for the undertaking's  outsourcing of any critical or important activities and critical or important operational functions and the jurisdiction in which the service provider is located.\n"]
["CEA","285","9","This requirement will be unduly burdensome for undertakings.  Information on the system of governance will already be made public therefore it should be responsibility of their reader to make their own assessment.","9. Insurance and reinsurance undertakings shall disclose an assessment of the adequacy of their system of governance to the nature, scale and complexity of the risks inherent in their business."]
["CEA","285","10","The CEA believes that a separate section would be misleading and that any additional information should be disclosed in the section the information relates to.","10. Insurance and reinsurance undertakings shall disclose in a separate section any other material information regarding their system of governance."]
["CEA","286","1(d)","The CEA believes that the granularity in this section is excessive and that public disclosure should not be made by sub-module.\nIt will be difficult to report quantitative information on “liquidity risk”.  \n","1. Insurance and reinsurance undertakings shall disclose qualitative and quantitative information regarding their risk profile, in accordance with paragraphs 2 to 5, separately for the following categories of risk:\n(d)  liquidity risk;\n"]
["CEA","286","2(a)",null,"2(a)  a brief description of the nature of the measures used to assess these risks within the undertaking, including any material changes over the reporting period;"]
["CEA","286","2(b)",null,"2(b)  a brief description of material risks that the undertaking is exposed to, including any material changes over the reporting period; "]
["CEA","286","2(c)","The CEA believes that for public disclosure, it would be more appropriate comment only on the investment management strategy.  The underlying details of an investment management strategy may be deemed as commercially sensitive.\n","2(c) a brief description of how the investment strategy of an undertaking is in accordance with the prudent person principle so that the risks mentioned in paragraph 1 are properly managed. "]
["CEA","286","3",null,"3. With regard to risk concentration, insurance and reinsurance undertakings shall disclose a brief description of the material risk concentrations to which the undertaking is exposed. "]
["CEA","286","4",null,"4. With regard to risk mitigation, insurance and reinsurance undertakings shall disclose a brief description of the techniques used for mitigating risks, and the processes for monitoring the continued effectiveness of these risk-mitigation techniques."]
["CEA","286","6","The CEA believes that a separate section would be misleading and that any additional information should be disclosed in the section the information relates to. ","6. Insurance and reinsurance undertakings shall disclose in a separate section any other material information regarding their risk profile"]
["CEA","287","1(a)",null,"1(a)  separately for each material class of assets the amount of assets, as well as a brief description of the basis, methods and main assumptions used for their valuation for solvency purposes;"]
["CEA","287","1(b)","Reconciliation between Solvency II and accounting statements should not be publically disclosed.  This information could be easily misinterpreted by the reader depending on whether IFRS or National GAAP forms the basis of their financial statements.","1(b) separately for each material class of assets, a quantitative and qualitative explanation of any material differences  between the basis, methods and main assumptions used by the undertaking for solvency purposes and those used for  their valuation in financial statements."]
["CEA","287","2(a)",null,"2(a)  separately for each material line of business the amount of technical provisions, and any amount of the best  estimate and the risk margin,  as well as a brief description  of the basis, methods and main assumptions used for their valuation for solvency purposes;"]
["CEA","287","2(b)","Uncertainty of provisions is captured in Risk Margin and SCR. The CEA cannot see where the value added is for stakeholders. ","2(b) A description of the level of uncertainty associated with the amount of technical provisions;"]
["CEA","287","2(c)","Reconciliation between Solvency II and accounting statements should not be publically disclosed.  This information could be easily misinterpreted by the reader depending on whether IFRS or National GAAP forms the basis of their financial statements.","2(c) separately for each material line of business, a quantitative and qualitative explanation of any material differences  between the  basis, methods and main assumptions used by the undertaking for solvency purposes and those used for  their valuation in financial statements."]
["CEA","287","2(d)","This is commercially sensitive information and should that should not be disclosed in the SFCR.","2(d) a description of: \n– the relevant assumptions about future management actions, \n– the relevant assumptions about policy holder behaviour, "]
["CEA","287","3(b)","Reconciliation between Solvency II and accounting statements should not be publically disclosed.  This information could be easily misinterpreted by the reader depending on whether IFRS or National GAAP forms the basis of their financial statements.","3(b) separately for each material class of other liabilities, a quantitative and qualitative explanation of any material differences with the valuation basis, methods and main assumptions used by the undertaking for solvency purposes and those used for their valuation in financial statements;"]
["CEA","287","4","This information is too detailed for public disclosure and should only be included in the RSR.","4. Insurance and reinsurance undertakings shall include appropriate information on the areas set out in Article 254 (1) [x2 IM3] in complying with their supervisory reporting and public disclosure requirements. "]
["CEA","287","5","The CEA believes that a separate section would be misleading and that any additional information should be disclosed in the section the information relates to. ","5. Insurance and reinsurance undertakings shall disclose in a separate section any other material information regarding the valuation of assets and liabilities for solvency purposes."]
["CEA","287","6(d)","We find that the obligation to disclose a quantitative assessment of the impact of on the valuation of technical provisions of using the transitional provisions on risk free rates would require carrying out an actual calculation. We would instead propose an assessment of any material differences in the technical provisions as a result of the use of the transitional provision.","(d) where applicable, information on whether the insurance or reinsurance undertaking is using the transitional provisions on the risk-free interest rate term structure referred to in Article IR8 [a qualitative assessment of the material quantitative impact on the valuation of technical provisions where those transitional provisions are used];"]
["CEA","288",null,"In general, the information requested under this Article is too detailed for public disclosure.","No redrafting proposed."]
["CEA","288","1(a)","This information is commercially sensitive and should not be publically disclosed. ","1(a)A brief description of information on the objectives, policies and processes employed by the undertaking for managing its own funds, including information on the on the time horizon used for business planning and on any material changes over the reporting period;\n"]
["CEA","288","1(b)",null,"1(b)  separately for each tier, information on the structure, amount and quality of own funds used to cover the SCR at the end of the reporting period and at the end of the pervious reporting period, including an analysis of the significant changes over the reporting period; "]
["CEA","288","1(e)","The CEA considers this information should be covered under supervisory reporting only.","1(e) a quantitative and qualitative explanation of any material differences between equity according to the undertaking’s financial statements and the excess of assets over liabilities;"]
["CEA","288","1(f)",null,"1(f) for each basic own-fund item that is subject to the transitional arrangements referred to in Articles TOPF1 and TOF2, as a brief description of the nature of the item and its amount; "]
["CEA","288","1(g) ","This information is commercially sensitive and should not be disclosed to this extent.  For Mutual’s, disclosing information on counterparties would involve disclosing the underlying information on policyholders.","1(g) for each material items of ancillary own funds: a brief description of the item, its amount and, where appropriate, the method by which to determine the amount of the ancillary own-fund item,  as well as the nature and the names of the counterparty or group of counterparties when there are many minor parties, to the extent that such disclosure is legally possible and practicable;"]
["CEA","288","1(h)","The CEA considers this information should be covered under supervisory reporting only.","1(h) a description of any item deducted from own funds and of any significant restriction affecting the availability and transferability of own funds within the undertaking.\n"]
["CEA","288","2(a)",null,"2(a) the amounts of the undertaking’s Solvency Capital Requirement and the Minimum Capital Requirement at the end of the reporting period and, where applicable, together with an indication that the final amount of the Solvency Capital Requirement is still subject to supervisory assessment; "]
["CEA","288","2(f)","The CEA believes that this should be covered under supervisory reporting only.","2(f) any material change in the Solvency Capital Requirement and in the Minimum Capital Requirement over the reporting period, and the reasons for any material change."]
["CEA","288","4(a)","To ensure an undertaking does not suffer a competitive disadvantage, and to respect confidentiality, detailed disclosure on internal models should not be required.  Information on the integration of the partial internal model into the standard model is confidential and should be reported to supervisors only.","4(a)   a description of the various purposes for which the undertaking is using its internal model;"]
["CEA","288","4(b)","To ensure an undertaking does not suffer a competitive disadvantage, and to respect confidentiality, detailed disclosure on internal models should not be required.  Information on the integration of the partial internal model into the standard model is confidential and should be reported to supervisors only.","4(b) a brief description of the scope of the internal model in terms of business units and risk categories; "]
["CEA","288","4(c)","To ensure an undertaking does not suffer a competitive disadvantage, and to respect confidentiality, detailed disclosure on internal models should not be required.  Information on the integration of the partial internal model into the standard model is confidential and should be reported to supervisors only.","4(c) where a partial internal model is used, a description of the technique which has been used to integrate any partial internal model into the standard formula including, where relevant, a description of non standardised techniques used; "]
["CEA","288","4(d)",null,"4(d) a description of the methods used in the internal model for the calculation of the probability distribution forecast and the Solvency Capital Requirement;"]
["CEA","288","4(e)","The CEA interprets this to mean that calculation of the Standard SCR would be required on an ongoing basis for undertakings using internal models.  As previously mentioned, it should not be the case for undertakings to calculate both. ","4(e) an explanation - in general terms and by risk module - of the main differences in the methodologies and underlying assumptions used in the standard formula and in the internal  model;"]
["CEA","288","4(g)",null,"4(g) a brief description of the nature and appropriateness of the data used in the internal model."]
["CEA","288","6","The CEA believes that a separate section would be misleading and that any additional information should be disclosed in the section the information relates to.","6. Insurance and reinsurance undertakings shall disclose in a separate section any other material information regarding their capital management."]
["CEA","288","9(d)","It should not be required to perform a calculation only for the purpose of this disclosure requirement.  \n\nCapital add-ons should not be subject to public disclosure. ","(d) unless the undertaking's Member State has made use of the option provided for in the third subparagraph of Article 51(2) of Directive 2009/138/EC, a qualitative description of the material impact of any undertaking-specific parameters used by the undertaking in applying the standard formula in accordance with Article 110 of Directive 2009/138/EC and the amount of any capital add-on applied to the Solvency Capital Requirement, together with consise information on its justification by the supervisory authority concerned;"]
["CEA","290",null,"The CEA expects that supervisory authorities shall explain why their permission is withdrawn","No redrafting suggested."]
["CEA","291","1(d)","In previous drafts, the Commission proposed that the SFCR be disclosed 16 weeks after the year end, from 2016 onwards.  The CEA supports this original drafting. ","1(d) regarding the solvency and financial condition report related to financial years ending on or after 1 January 2016, insurance and reinsurance undertakings shall subsequently disclose their solvency and financial condition report no later than 16 14 weeks after the relevant undertaking’s financial year end."]
["CEA","292","5","I should not be required for undertakings to incur additional costs.","Means of disclosure\n5. Insurance and Reinsurance undertakings shall, irrespective of whether the undertakings report has been made available on a website in accordance with paragraph 1 or 2, send, to any person who so requests within two years of the disclosure date referred to in Article PDS11(1), a printed copy of their report within 20 working days from that request, not necessarily free of charge."]
["CEA","293",null,"The CEA believes that it is not necessary to republish the full SFCR report, an addendum highlighting the parts of the SFCR that have changed should be sufficient.","Updates\n1. Where insurance and reinsurance undertakings have to disclose publicly, in accordance with Article 54(1) of Directive 2009/138/EC, appropriate information on the nature and effects of any major development significantly affecting the relevance of their solvency and financial condition report, the undertaking shall provide an addendum to the section of the report concerned.  updated version of that report.  Articles PDS1 to PDS10 shall apply mutatis mutandis to that addendum updated version.\n\n2.  Subject to any disclosure which shall be immediately required by the supervisory authority in accordance with the requirements of Article 54(1) of Directive 2009/138/EC, any addendum to updated version of the solvency and financial condition report shall be disclosed as soon as it is practicable after the occurrence of the major development referred to in paragraph 1, in accordance with the provisions set out in Article PDS12.\n\n3. Notwithstanding paragraphs 1 and 2, insurance and reinsurance undertakings may decide, for the purpose of paragraph 5 of Article PDS12, to disclose appropriate information on the nature and effects of any major development significantly affecting the relevance of their solvency and financial condition report in the form of amendments supplementing the initial printed copy."]
["CEA","293 bis",null,"The CEA will continue to consult with Members on the issue of transitional provisions.  We would appreciate the opportunity to further discuss this matter with the Commission at a later date.","Transitional arrangements\nIn relation to the first year of implementation of Directive 2009/138/EC, where in this Section a comparison of the information with that reported during the previous reporting period is required, insurance and reinsurance undertakings shall comply with such a requirement only where the previous reporting period covers a period after implementation of Directive 2009/138/EC: after the reporting period 2013."]
["CEA","294",null,"As a general comment, reporting requirements should not go beyond what is required in the Framework Directive under each respective Article i.e. it should not be required to complete new calculations and implement new systems only to satisfy supervisory reporting obligations.\n","No redrafting proposed."]
["CEA","294","1(a)","It should not be required to re-publish the SFCR, it should be possible to publish any updates in the form of an addendum. ","1(a)  the solvency and financial condition report disclosed by the insurance or reinsurance undertaking in accordance with Article PDS11, as well as any addendum to updated version of that report disclosed in accordance with Article PDS13;"]
["CEA","294","1(c)"," Differentiation between the content of qualitative and quantitative reporting should be more clearly outlined in Level 2 implementing measures.  As a general rule, quarterly quantitative templates should consist of a simplified overview of annual quantitative templates.\nIt is also important to note that harmonised European templates should not be supplemented by national templates.\n\nThe RSR should be reported every 3 years, more frequent reporting should be in very exceptional cases.","1(c)  annual and quarterly quantitative templates specifying in greater detail and supplementing, where appropriate, the content outlined in Annex XXX, and where appropriate the information presented in the solvency and financial condition report and in the regular supervisory report. "]
["CEA","294 bis",null,"It is important to clarify the scope of the principle of materiality.","Materiality\nThe information submitted to supervisors should be considered as material if its omission or misstatement could influence the decision-making or judgement of the supervisory authorities.  The principle of materiality shall apply to all information submitted to supervisors."]
["CEA","295",null,"The CEA supports that Regular Supervisory Reporting of ORSA results to the supervisor is fulfilled in this way.","Summary\nThe regular supervisory report shall include a summary which shall in particular highlight clearly any material changes that have occurred in the undertaking’s business and performance, system of governance, risk profile, valuation for solvency purposes and capital management over the reporting period, and provide a concise explanation about the rationale causes and effects of such changes. The summary shall include the information on the own risk and solvency assessment for the purpose of Article 45(6) of Directive 2009/139/EC."]
["CEA",296,2,"Typo","The following qualitative quantitative and qualitative information"]
["CEA","296","2",null,"2. The following quantitative qualitative and qualitative information shall be reported by insurance and reinsurance undertakings regarding the performance arising from their underwriting activities, as shown in the undertaking’s financial statements:"]
["CEA",296,3,"Typo","The following qualitative quantitative and qualitative information"]
["CEA","296","3",null,"3. The following quantitative qualitative and qualitative information shall be reported by insurance and reinsurance undertakings regarding the performance arising from their investment activities, as shown in the undertaking’s financial statements: "]
["CEA","296","3(e)","It is important to clarify the scope of the principle of materiality.","3(e) information about any material investments in tradable securities or other financial instruments based on repackaged loans, and the undertaking's risk management procedures in respect of such securities or instruments."]
["CEA","297","2(a)","The person within the undertaking will assume responsibility for adherence to fit and proper requirements.  It should not be required that the supervisor requests this information directly from service providers in the case of outsourcing.  ","2(a) in accordance with the requirements set out in Article 42 of Directive 2009/138/EC, a list of the persons in the undertaking or external to the undertaking in the case that the undertaking has outsourced key functions that are performing key functions;"]
["CEA","297","4(c)","Supervisory reporting should not unduly influence the data to be collected by undertakings when carrying out their ORSA.  The SCR and ORSA have different purposes and a comparison seems irrelevant. \nWe support reporting in accordance with Article 295 (SRS2).","4(c) information on the main differences between the Solvency Capital Requirement and the overall solvency needs identified on the basis of the own risk and solvency assessment."]
["CEA","298","1(d)","It will be difficult to report quantitative information on “liquidity risk”.","1. Insurance and reinsurance undertakings shall report qualitative and quantitative information regarding their risk profile, in accordance with paragraphs 2 to 5, separately for the following categories of risk:\n1(d)  liquidity risk;"]
["CEA","298","3",null,"3. With respect to risk concentration insurance and reinsurance undertakings shall report detailed information on the material risk concentrations to which the undertaking is exposed to and an overview of any future risk concentrations anticipated over the business planning time horizon given the undertaking’s business strategy, and how these risk concentrations will be managed."]
["CEA","299",null,"The granularity of supervisory reporting requirements is of particular concern.  The CEA finds the volume of information excessive in terms of ensuring compliance with Solvency II.  Reporting requirements should not require additional calculations to those already required in Pillar 1 of the Framework Directive.","Valuation for solvency purposes\nInsurance and reinsurance undertakings shall report in detail any important information, other than that already disclosed in their solvency and financial condition report, regarding the valuation of their assets, technical provisions and other liabilities for solvency purposes."]
["CEA","300","4","The CEA supports the Commission’s original drafting on this point.","4. Insurance and reinsurance undertakings shall report information on any reasonably foreseeable risk of significant non-compliance with the undertaking’s Minimum Capital Requirement or Solvency Capital Requirement, and the undertaking’s plans for ensuring that compliance with each is maintained."]
["CEA","301",null,"The CEA suggests an additional clause which allows a re-examination of initial deadlines after 3 years.\nAll deadlines should be consistent with the dates proposed for transitional provisions.","8. By 31 December 2016, the Commission shall make an assessment of the appropriateness of the deadlines for supervisory reporting.\nThe Commission shall present a report to the European Parliament and the Council, accompanied, where appropriate, by a proposal for the amendment of the legislation."]
["CEA","301","2","Annual reporting of the RSR should not be a standard requirement."]
["CEA","301","6(a)","In previous drafts, the Commission proposed that annual templates be reported 16 weeks after the year end, from 2016 onwards.  The CEA supports this original drafting.","6 (a) regarding the quarterly quantitative templates related to any quarter ending on or after 1 January 2013: but before 1 January 2014: no later than 8 weeks after the quarter end;\n\n6 (a) Member States may allow supervisory authorities to waive the requirement for reporting of full quarterly quantitative templates in 2013."]
["CEA","301","6(d)","In previous drafts, the Commission proposed that annual templates be reported 16 weeks after the year end, from 2016 onwards.  The CEA supports this original drafting.","6 (d) regarding the annual quantitative templates related to the financial year of the undertaking ending on or after 1 January 2016: no later than 16 14 weeks after the relevant undertaking’s financial year end."]
["CEA","301","7(d)","In previous drafts, the Commission proposed that quarterly templates be reported 6 weeks after the quarter end, from 2016 onwards.  The CEA supports this original drafting.","7(d) regarding the quarterly quantitative templates related to any quarter ending on or after 1 January 2016: no later than 6 5 weeks after the relevant quarter end."]
["CEA","302",null,"Secure handling of data must be ensured.","No redrafting proposed."]
["CEA","303",null,"The CEA fully supports this. Comparability of information is essential to support harmonisation.","No redrafting proposed."]
["CEA","305","1","This information is important for the transparency of the methods applied in the supervisory review process.","1 Disclosure of general criteria used in the supervisory review process as referred to in Article 31(2)(b) of Directive 2009/138/EC shall include information on the scope of the supervisory review as referred to in Article 36 of Directive 2009/138/EC. Disclosure of the methods as referred to in Article 31(2)(b) of Directive 2009/138/EC shall include a general description of the supervisory review process and monitoring tools used by supervisory authorities in order to identify deteriorating financial conditions in insurance and reinsurance undertakings and groups and to monitor remedial actions taken by undertakings. This information shall include criteria for approval of internal models, for setting, review and removal of capital add-ons, for classification of specific own fund items and for the application of the proportionality principle."]
["CEA","305","2","The usefulness of harmonised mandatory standardised stress tests should be discussed further.","2. Where standardised stress tests are used by the supervisory authorities, the basis for such a decision, including the stress scenarios shall be disclosed."]
["CEA","306","1","Disclosure of aggregate statistical data should not be in breach of secrecy rules and should not allow the possibility to derive estimated numbers for any individual supervised entity or group. \nIn order to achieve this, it could be the case that numbers from any one entity or group should not exceed a predefined percentage of the jurisdiction total for that item, for example, 50%.","No redrafting proposed."]
["CEA","307",null,"The level 1 Directive, Art. 31 (2), requires that disclosure shall be sufficient to enable comparison of the supervisory approaches. This would be achieved by applying a common format. See also CEIOPS advice, (CEIOPS – DOC – 30/09), paras. 3.7 and 3.20. ","Objectives, main functions and activities of supervision\nDisclosure, in a common format, of the objectives, main functions and activities of supervision as referred to in Article 31(2)(e) of Directive 2009/138/EC shall include information on the objectives of supervision imposed by law in the field of insurance and reinsurance and information on the aims that supervisory authorities set themselves in the exercise of their supervisory tasks. It shall also cover the scope of duties of the supervisory authorities and the key actions supervisory authorities take in order to discharge their duties."]
["CEA","308",null,null,"Means of Disclosure\n4. The first year for which information must be published in the official language or languages of the Member State concerned shall be the calendar year ending 31 December 2013. In relation to the first year, the information to be disclosed in English as a language customary in the sphere of international finance shall be published no later than 12 months after the date in which the information in the official language or languages of the Member State concerned is published."]
["CEA","309","4","This paragraph should not limit the re-use of the SPV. ","The authorisation of special purpose vehicles by a supervisory authorities shall state the uses for which the special purpose vehicle is authorised and, where relevant, any terms and conditions, relating to that use. The authorisation of special purpose vehicles by a supervisory authorities should only be valid for the purpose it was established for, which may include potential future reuse."]
["CEA","310","1","We do not understand if derivatives would be included in this scope. We suggest a clear wording to state that it is not the case.\n\n[The CEA’s view is that the scope of this regulation should only apply to insurance or indemnity arrangements, and not to parametric/modelled loss arrangements which most often are derivatives and therefore do not need an insurance SPV to be realized]\n","1. the special purpose vehicle assumes risks from an insurance or reinsurance undertaking through reinsurance contracts or assumes insurance risks through equivalent arrangements;"]
["CEA",312,null,"The onus should be on undertakings to demonstrate effective risk transfer. This position is also shared by Eiopa.\nAdditionally, there is a typo in this article.","[...]\nThe determination that the transfer of risk is effective in all circumstances in accordance with paragraph 1(a) in the first paragraph shall take into account whether there are any connected transactions which could undermine the effective transfer of risk."]
["CEA","312","1","“All circumstances” is confusing and alludes to removal of all basis risk (which is unlikely in structuring terms); the meaning of the item  1.b would suffice in terms of clarifying the risk transfer requirement and the extent to which risk has been transferred under which circumstances. Consequently, article 1.a could be removed.","The contractual arrangements relating to the transfer of risk from an insurance or reinsurance undertaking to a special purpose vehicle and from the special purpose vehicle to the providers of debt or financing shall ensure that: \n(a) the transfer of risk is effective in all circumstances; \n(b) the extent of risk transfer is clearly defined and incontrovertible. \n(c) no connected transactions can undermine the effective transfer of risk  \n"]
["CEA","312","2","Appending Article 312 Paragraph 1 with the revised suggestion (c) makes this paragraph 2 not needed","The determination that the transfer of risk is effective in all circumstances in accordance with paragraph 1(a) shall take into account whether there are any connected transactions which could undermine the effective transfer of risk."]
["CEA","314","3","First part: The second sentence entails a great deal of subjectivity without adding up any added value to this section considering the principles already laid down in all the other paragraphs.  We propose the deletion of that sentence\n\nSecond part: Again here, the principles already laid down in all the other paragraphs are enough for solvency purposes. Even worst, asking for ensuring the profitability of the portfolio could incentivize against the other principles. We propose the deletion of the word “profitability”.","All assets shall be invested in a manner appropriate to the nature and duration of the special purpose vehicle's liabilities. All assets shall be invested in the best interest of the insurance and reinsurance undertakings transferring risk to the special purpose vehicle.\n \nAssets shall be invested in such a manner as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In addition the localisation of those assets shall be such as to ensure their availability. "]
["CEA","314","4","The definition of “excessive” risk concentration should reflect the risk profile of the issuer itself.\n\nIn addition, if the SPV’s only invests into highest ranking assets such as high ranking sovereign debt, there should be an exception of the diversification requirement . Indeed, the diversification requirement needs to be commensurate to the riskiness of the asses assets undertakings invest in. If an asset portfolio of the SPV solely consists of highest ranking treasuries, diversification among assets cannot significantly increase the financial stability of the SPV.","The use of derivative instruments shall be possible insofar as they contribute to a reduction of risks or facilitate efficient portfolio management.\n Investments and assets which are not admitted to trading on a regulated financial market shall be kept to prudent levels.  \n Assets shall be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings, or geographical area and excessive accumulation of risk in the portfolio as a whole.\nInvestments in assets issued by the same issuer, or by issuers belonging to the same group, shall not expose the special purpose vehicle to excessive risk concentration. Diversification requirements shall not apply if the SPV solely invests into highest ranking sovereign debt\n"]
["CEA","315","1","The fit and proper requirements for the persons running the SPV should be set with a view to the nature, scale and complexity of the risk transfer into the SPV. In most of the cases, we would expect such features to generate a proportionately less stringent need for fitness and propriety compared to the case of reinsurers.","1. All persons who effectively run a special purpose vehicle shall to the extent relevant taking into account the nature of the SPV and the principle of proportionality at all times fulfil the requirements set out in Article 42(1) of Directive 2009/138/EC.  "]
["CEA","317",null,"If parts of the various functions in the SPV are fulfilled by the undertaking that transfer risks into the SPV, this should be recognised as well.","1. Special purpose vehicles shall have a system of governance that is appropriate to the nature, scale and complexity of the risks that the special purpose vehicle assumes and the uses for which the special purpose vehicle is authorised in accordance with Article SPV1(4), including:\n(a)  sound administrative and accounting procedures, including the maintenance of adequate and orderly records of the activities and transactions undertaken by the special purpose vehicle, adequate internal control mechanisms and an effective risk management system;  \n(b)  written policies in relation to at least risk management, internal control, administrative and accounting procedures and, where relevant, outsourcing. The written policies shall comprise policies relating to the areas set out in Article 44(2)(a) to (f) of Directive 2009/138/EC to the extent that these are relevant taking into account the uses of the special purpose vehicle; \n(c)  Internal controls to ensure that the mandatory contract conditions in section 2 and the requirements in Section 5  are fulfilled on an ongoing basis\n(d)  an effective risk-management system comprising processes and reporting procedures necessary to identify, measure, monitor, manage and report, on an ongoing basis the risk to which the special purpose vehicle could be exposed.  \n2. Special purpose vehicles shall ensure that the policies referred to in point (b) of paragraph 1 are implemented effectively. \n3. Special purpose vehicles shall provide details of the internal controls referred to in point (c) of paragraph 1 at the request of the supervisory authorities.\n"]
["CEA","318","2","As a principle the SPV should only be reporting to the authorities in the member state where the SPV is established. We recommend deleting the whole phrase or at a minimum revert to use of providing a copy.\n","2. Special purpose vehicles shall report the following information to the supervisory authorities in the Member State in which the special purpose vehicle is established and to the supervisory authorities in the Member States in which the insurance or reinsurance undertakings that have transferred risk to the special purpose vehicle are established: \n(a)  the amount of the assets of the special purpose vehicle valued in accordance with Article SPV11(1)(a) distinguished by material class and a description of the basis, methods and assumptions used for their valuation;  \n(b)  the aggregate maximum risk exposure of the special purpose vehicle and a description of the basis, methods and assumptions used for the determination of the aggregate maximum risk exposure; \n(c) material conflicts of interest between any of the special purpose vehicle, the insurance or reinsurance undertakings and the providers of debt or finance; \n(d) significant transactions entered into by the special purpose vehicle during the last reporting period."]
["CEA","319","2","The assessment of supervisors should take into account the SPV particularities. SPVs should not be expected to have similar risk management capabilities to a reinsurance undertaking. It should be noted that an SPV is not meant to be actively managed. It is designed to follow the guidelines of the transaction documentation. The documentation acts as risk mitigant. The careful review of the documentation by sponsors, regulators, rating agencies and investors provides the necessary comfort around the risk management. Any ongoing risk assessment if required is usually provided by third parties or directly by the undertaking. Requiring risk management capabilities from an SPV would make it an actively managed entity and very much alike a traditional reinsurance undertaking. It would lose its predictable nature (passive entity with actions limited to those described in the transaction documentation) which is an essential feature both for sponsors and investors and the cost of this would be equally prohibitive. ","2. The assessment by supervisory authorities of whether a special purpose vehicle is fully funded shall be based on whether the conditions in points (b ) and (c) of paragraph 1 have been satisfied, taking into account, where appropriate:\n(a) The liquidity risk of the special purpose vehicle;\n(b) the quantifiable risks of the special purpose vehicle;  \n(c) the arrangements for holding assets in the special purpose vehicle. "]
["CEA","319","4","Many SPVs finance coupon and fees by entering into contract with the sponsor; this contractual payment claim should be considered as an asset.\nWe have strong concerns about the general exclusion of future premiums in SPV and believe that this is based on a misunderstanding of the functionality of SPVs.The current specification can severely damage the ability for undertakings to use SPVs and we do not believe this is the intention of the EC. We propose to have a joint meeting with the commission in order to clarify this issue.","4. For the purpose of this Article and Articles SPV10, aggregate maximum risk exposure shall be defined as the sum of the maximum payments, including fees and expenses that the special purpose vehicles may incur."]
["CEA","322","1(3)","As the non regulated undertakings carrying out financial activities are not covered by the L1 text, the L2 text should not submit those undertakings to any requirement.","(3) the provisions set out in Article 228(1) of Directive 2009/138/EC and in point (19 above shall apply mutatis mutandis to related undertakings which are non-regulated undertakings carrying out financial activities, in which case a notional solvency requirement shall be calculated for the related undertaking. For this purpose the notional solvency requirement is the capital requirement with which the related undertaking would have to comply under the relevant sectoral rules as if it were a regulated entity;"]
["CEA","322","1(4)","It appears that this clause addresses the case where subordinated debt is \"issued\" by a parent insurance holding. The word \"held\" implies that the parent insurance holding holds subordinated debt as an asset. We would recommend clarifying the wording.","Parent insurance holding companies\n(4) For the purpose of applying the provisions set out in Article 235 of Directive 2009/138/EC, in case the parent insurance holding company holds has issued subordinated debt or other eligible own funds subject to limitation in accordance with Article 98 of Directive 2009/138/EC, Article 226 (2) of Directive 2009/138/EC shall apply. \n"]
["CEA","323","2","This is not in line with the Level I text (it is not required that capital can be transferred in both directions – only from subsidiary to parent undertaking, but not vice versa).","In assessing, in accordance with paragraph (3) of Article 222 of Directive 2009/138/EC, whether certain own funds eligible for the Solvency Capital Requirement of a related insurance or reinsurance undertaking are unable to effectively be made available to cover the Solvency Capital Requirement of the participating insurance or reinsurance undertaking or insurance holding company for which the group solvency is calculated, the supervisory authorities shall consider whether those own funds cannot effectively be made available for the group on the basis of the following criteria:"]
["CEA","323","2(b)","For the reasons explained above, we do not find that the transferability should be considered when assessing the own funds available at group level.","(b)The own-fund item is subject to legal or regulatory requirements that restrict the transferability of that item to another insurance or reinsurance undertaking;"]
["CEA","323","2(c)","9 months is too short; it may not be possible to sell some types of assets (such as property) in this timescale.","(c) Making those own funds available for covering the Solvency Capital Requirement of the participating insurance or reinsurance undertaking the group would not be possible within a maximum of 12 9 months or 21 months in the event of an exceptional fall in financial markets,."]
["CEA","323","3",null,"In considering the amount of eligible own funds which cannot effectively be made available for covering the Solvency Capital Requirement of the participating insurance or reinsurance under undertaking the group, the supervisory authorities shall assess the restrictions that would exist in going concern.  \nThe supervisory authorities shall also take into account any material costs to the participating insurance or reinsurance undertaking or insurance holding company, or to any related undertaking, that making such own funds available for the group is likely to entail."]
["CEA","323","4","Funds can be made available at group level through the use of intra – group transactions. As such what is considered to be loss absorbent at solo level should also be considered as loss absorbent at group level. We therefore do not agree with the systematic assumptions that some funds are less likely to be available at group level","4. When considering whether certain eligible own funds cannot effectively be made available for the group, the supervisory authorities shall pay particular attention to at least the following items:\n(a) ancillary own funds;\n(b) preference shares, subordinated mutual members account and subordinated liabilities;\n(c) an amount equal to the value of  net deferred tax assets."]
["CEA","323","5","(b) Although we welcome the recognition of the fact that the best possible way of addressing transferability/fungibility constrains is through the use of IM, we urge the EC not pre-empt the way in which this will be done in practice.\n(c) It is unclear what a restricted item in ring fenced funds is.","5. The following items shall not be considered as effectively available for covering the Solvency Capital Requirement of the participating insurance or reinsurance undertaking the group:\n(a) any minority interests in the eligible own funds exceeding the Solvency Capital Requirement of a subsidiary insurance or reinsurance undertaking;\n(b) any minority interest in a related ancillary services undertaking and insurance holding company; \n(c) any restricted own funds item in ring-fenced funds as referred to in point (b) or Article 99 of Directive 2009/138/EC and in Article RFFOF1 [of IM7 and/or IM33]."]
["CEA","323","6","The reduction of eligible own funds which cannot be effectively made available for the group by a “diversification haircut” is unjustified. \nWe believe that while the Group SCR should fully take into account diversification effects (i.e. the fact that risks do not materialise at the same time in all entities of the group) any limitations of transferability should only be reflected in the amount of own funds available at group level without any adjustment to the Group (or solo) SCRs. The current proposal is not in line with the text of Art. 222 of Directive 2009/138/EC which does not allow for such an adjustment but rather clearly states that  non transferable funds should be eligible to cover the group SCR in so far as they cover the related undertaking’s SCR.","6. Where the group supervisor decides, in accordance with paragraph (3) of Article 222 of Directive 2009/138/EC, that certain own funds eligible for the Solvency Capital Requirement of a related insurance or reinsurance undertaking or insurance holding company cannot effectively be made available for the group, and where method 1 is used in relation to that related undertaking, these own funds may be included in the calculation only in so far as they are eligible for covering the following:\n(a) Where the consolidated group Solvency Capital Requirement is calculated, in relation to that related undertaking, on the basis of the standard formula, the Solvency Capital Requirement of that related undertaking multiplied by a percentage corresponding to the proportion that the consolidated group Solvency Capital Requirement bears to the sum of the Solvency Capital Requirements of each of the insurance and reinsurance undertakings or insurance holding companies included in the consolidated calculation based on the standard formula;\n(b) Where the consolidated group Solvency Capital Requirement is calculated, in relation to that related undertaking, on the basis of an internal model, the Solvency Capital Requirement of that related undertaking multiplied by a percentage corresponding to the proportion of the diversification effects at group level that are attributed to that related undertaking, determined by that internal model, provided that the sum of such percentages for all the related insurance and reinsurance undertakings, insurance holding companies included in the consolidated calculation based on the internal model equals 100%.\nThe first subparagraph shall apply in particular to any minority interests in the eligible own funds covering the Solvency Capital Requirement of a related insurance or reinsurance undertaking."]
["CEA","323bis",null,"Typo","1. Without prejudice to Article 221(2) of Directive 2009/138/EC 2209/138/EC,"]
["CEA","323bis","1(c)","As the non regulated undertakings carrying out financial activities are not covered by the L1 text, the L2 text should not submit those undertakings to any requirement.\nThe scope of the consolidated accounts should be the same as the scope used for accounting purposes.","(c) on a full basis, data of the proportional share of the undertakings’ own funds calculated according to the relevant sectoral rules, as set out in Annex I to Directive 2002/87/EC,  in relation to holdings in related undertakings which are credit institutions, investment firms and financial institutions, including institutions for occupational retirement provision within the meaning of Directive 2003/41/EC and which are subsidiaries of the parent undertaking; however, with respect to the data of such related undertakings, the sectoral rules referred to in Art. 322 SCG2 paragraph 1 lit. a) and b) shall apply and non-regulated undertakings carrying out financial activities;"]
["CEA","323bis","1(c bis)","It should be noted that the information required for the adjusted equity method may not be available for third county participations.\nThe scope of the consolidated accounts should be the same as the scope used for accounting purposes.","(c bis) the proportional share of the related undertakings’ own funds calculated according to the relevant sectoral rules, as set out in Annex I to Directive 2002/87/EC, which are credit institutions, investment firms and financial institutions, including institutions for occupational retirement provision within the meaning of Directive 2003/41/EC, and which are not considered under lit. (c); "]
["CEA","323ter","1(a)","Typo","(a) A Solvency Capital Requirement calculated on the basis of consolidated data defined in Article 323 SCGter bis(1)(a),(b) and (d) following the rules laid down in Title I, Chapter VI, Section 4, Subsections 1, 2 and 3 of the Directive 2009/138/EC. For entities under (1) (d) , the provisions set out in Article V5 [of IM3],  Articles ER1 to ER4,  Articles CO1 to CO6 and Article CR1 [of IM27] shall apply;"]
["CEA","323ter","1(b)","Please note that where those credit institutions, investment firms and financial institutions are fully consolidated, this may not be appropriate– See also comment above on Art. 323bis SCG3.","(b) The proportional share of the capital requirements for credit institutions, investment firms, financial institutions and institutions for occupational retirement provision within the meaning of Directive 2003/41/EC, calculated according to relevant sectoral rules and the proportional share of the notional solvency capital requirements of non-regulated undertakings carrying out financial activities;"]
["CEA","326",null,"Undertakings should not be required to recalculate the SCR assuming an unwinding of an IGT but simply may remove the corresponding capital charges related to operational risk, if any, and counterparty risk.","[we do not have a re-drafting suggestion at this stage]"]
["CEA","326bis",null,"The initial text would cover the entire group if method 1 is applied and only a part of the group when a combination of methods 1 and 2 is applied to determine the group solvency. \nFurthermore, this text is inconsistent with the standard method for calculating group solvency (cf. Art. 230 L1). Article 326bis GTP should therefore be amended to state that the risk margin calculation should be consistent with the group method used.\nDiversification within the group for the purposes of the risk margin calculation should be allowed for in line with an economic methodology.\nOur proposed amendment recognises the risk margin diversification at group level whether method 1, 2 or a combination of both applies, which fully reflects the underlying economic principles of market consistent valuation. ","Risk margin\nThe risk margin of technical provisions at the level of the group shall be calculated consistently with calculation method of group solvency as referred to in Article SGC1 (EIOPC/SEG/IM11/2010/Rev1). This means that the risk margin shall be equal to the sum of the following:\na) the risk margin calculated on the basis of consolidated accounts for that part of the group that is treated according to method 1 for calculating the group solvency (“core consolidated group”) of the participating insurance or reinsurance undertaking;\na)b) the sum of the following: the proportional share of the participating insurance or reinsurance undertaking in the risk margin of the related insurance or reinsurance undertakings.\n- the risk margin of the participating insurance or reinsurance undertaking unless it is not covered in (a);\n- the proportional share of the participating insurance or reinsurance undertaking in the risk margin of the related insurance or reinsurance undertakings unless it is not covered in (a)."]
["CEA","328","1","Please refer to CEA comments to Article IM4.","[we do not have any re-drafting suggestion at this stage for this paragraph]\n\n1. Articles 204 IM2 and 205 IM3 shall apply to the policy for changing an internal model used to calculate the group Solvency Capital Requirement and to applications for approval of major changes to an internal model."]
["CEA","328","2","Please refer to CEA comments to Article IM4.","2. The policy for changing the internal model shall not cover the inclusion of material new elements within the scope of the internal model, such as the inclusion of additional type of risks or additional business units or material related undertakings which are not already covered by the internal model. Subject to Articles 327 IMG1, Article 329 IMG3 and Article 330 IMG4, the inclusions of material new elements in the internal model shall follow the approval procedure laid down in Article 205 IM3."]
["CEA","329","4-5","Please refer to CEA comments to Article IM4.\nIn our view the article is a misrepresentation of the way group internal models work especially in case of the application of the default/consolidated method (Article 230 of Directive 2009/138/EC). A group internal model based on this method will treat the group as a single entity and thus a direct application of the group internal model to a subsidiary is not possible. It is, however, possible to apply the same framework (e.g. the same economic scenarios). Consequently, paragraph 5 should be deleted.","Assessment of the application\n4. Where applicable, the assessment of the application shall include an evaluation of whether the explanation provided by the participating undertaking in accordance with Article 327 IMG1 (5)(a)(iii) of the reasons for the exclusion of related undertakings from the internal model for the calculation of the group solvency Solvency Capital Requirement is appropriate in order to demonstrate that the overall risks to which the group is exposed is not underestimated.\n5. The assessment of the application shall include an evaluation of whether the explanation provided by the participating undertaking in accordance with Article 327 IMG1 (5)(a)(iv) of the reasons why the internal model covers a related undertaking for the calculation of the group Solvency Capital Requirement but it is not used to calculate the Solvency Capital Requirement of that related undertaking is appropriate in order to justify that an application is not submitted in accordance with the procedure laid down in Article 231 of Directive 2009/138/EC.  "]
["CEA","330",null,"Please refer to CEA comments to Article IM4.","Decision on the application and transitional plan to extend the scope of a partial internal model\n1. Articles 208 IM6 to 210 IM8 shall apply to the decision on an application to use an internal model to calculate the group Solvency Capital Requirement.\n2. After due consultation with other supervisory authorities as set out in Article 329 IMG3 (2) to (4), the group supervisor shall make its own decision on the application. The group supervisor shall provide its decision to the participating insurance or reinsurance undertaking and the other supervisory authorities involved in the assessment of the application. The decision shall be written in an official the language agreed on in accordance with Article IMG1(3) of the Member State of the group supervisor. \n3. Where the supervisory authorities involved in the assessment of the application comprise supervisory authorities from more than one Member State, the group supervisor shall, after consultation with the other supervisory authorities and with the group itself, provide the decision referred to in paragraph 1 in another language most commonly understood by the other supervisory authorities involved.\n4. After due consultation with the other supervisory authorities within the college of supervisors, the group supervisor may require the participating insurance or reinsurance undertaking applying for the approval of the internal model to submit a realistic transitional plan to extend the scope of the internal model at group level, in which case Article 210 IM8 shall apply in relation to that transitional plan"]
["CEA","335","1(a)","There should be flexibility in the way groups organise their risk management.  There is not just one specific group structure; instead groups are structured in very different ways (financial holdings, strategic holdings, service holdings etc.).  ","1. In assessing, in accordance with the first part of point (b) of Article 236 of Directive 2009/138/EC, whether the risk management processes and internal control mechanisms of the parent undertaking cover the subsidiary, the group supervisor and the other supervisory authorities concerned shall consider whether all the following criteria are met:\n(a) the risk management function referred to in Article 44 (4) of Directive 2009/138/EC is carried out, in respect of the subsidiary, be deemed to be carried out to a significant extent by the parent undertaking, or, on behalf of the parent undertaking or another undertaking of the group on behalf of the parent undertaking, where the parent undertaking carries out the majority of the tasks of the risk management function listed in Article 259 SG7.  "]
["CEA","335","1(b)","From an organisational point of view, for example, staff dealing with the risk management function at group level should not necessarily be located in the parent undertaking.  The structure should be based on lines of business and not on legal entities.  Otherwise, the implementation of risk management in business decisions will be difficult e.g. the use of internal models.  The key issue is that risk management is effective.","(b) the compliance function referred to in Article 46 of Directive 2009/138/EC is carried out, in respect of the subsidiary, to a significant extent by the parent undertaking or on behalf of the parent undertaking by another undertaking of the group. The compliance function shall, in respect of the subsidiary, be deemed to be carried out to a significant extent by the parent undertaking or another undertaking of the group on behalf of the parent undertaking where the parent undertaking carries out the majority of the tasks of the risk management function listed in Article 260 SG8;"]
["CEA","335","2","It is important that decisions are taken and communicated promptly.  Clarification is necessary as to exactly what role each party will play in the process.","The decision on the application for permission will be communicated by the Supervisory Authority to the undertaking within 4 weeks after the application for permission has been submitted."]
["CEA","336","1(a)","The CEA believes that a description of the rationale is excessive. ","1. Where a parent undertaking wishes to obtain permission to subject any of its subsidiaries to the rules laid down in Articles 238 and 239 of Directive 2009/138/EC, that parent undertaking shall submit an application containing the following:\n(a) a cover letter approved by the administrative, management or supervisory body of the parent undertaking, describing the rationale for the application and including relevant contact information;\n"]
["CEA","336","1(b)","Completeness should be required only for material information.","(b) a formal confirmation approved by the administrative, management or supervisory body of both the parent undertaking and the subsidiary concerned, that all documentation provided as part of the application is complete in all material respects and presents a true and fair view of all material aspects;"]
["CEA","336","3","The decision on the applications is a case-by-case decision. There’s no legal basis in the Level I text for a joint permission or rejection. In addition, the work of the college should be organised by the college in an efficient manner. This might mean to deal with some applications separately or earlier. “at the same time” would be also arbitrary – incentive to submit applications on different days.","3. Where the parent undertaking decides to submit at the same time applications in relation to several subsidiaries, these applications shall be considered, within the college of supervisors in accordance with Article 237 of Directive 2009/138/EC, jointly."]
["CEA","337","2","When assessing when an emergency situation should be declared, an emphasis should be put on timing. ","2. the supervisory authority having authorised the subsidiary is of the opinion that a delay in the immediate application of the proposed measures would cause the financial conditions of the subsidiary to further deteriorate in such a way that there is an imminent risk that the subsidiary will not comply with its Minimum Capital Requirement.  "]
["CEA","337","3","This information will be of interest to the college of supervisors.","3. The supervisory authority having authorised the subsidiary will inform the college of supervisors of the measures taken in an emergency situation."]
["CEA","338","1","The phrase “at least” could result in an unlevel playing field.","1. Where the supervisory authority of a significant branch of an insurance or reinsurance undertaking wishes to participate in a college of supervisors in accordance with the second subparagraph of Article 248(3) of Directive 2009/138/EC, it shall present a reasoned request to that effect to the group supervisor. The group supervisor shall allow the supervisory authority of the branch to participate in the college if at least one of the following conditions is met:"]
["CEA","338","1(a)","The Level I text limits participation of supervisory authorities of significant branches and related undertakings to “achieving the objective of an efficient exchange of information”. Further, Art. 248 (3) of the directive states that the effective functioning of the college may require that some activities be carried out by a reduced number of supervisory authorities. IM 21 should also restrict the participation of branch supervisors on the purpose of an efficient exchange of information and not allow for “involvement… in any relevant activity”. \nIt should also be noted that not all groups have to do consolidated accounts (e.g. Gleichordnungskonzerne).\nPoint a) and in particular point b) will be difficult to determine. Branches are not separate legal entities and will be automatically included under calculations for the undertaking of which they belong to. The calculation would have to be done separate for branches. A reasonable estimate should be sufficient.\n","(a) the annual gross written premium of the branch exceeds 5 10 % of the annual gross written premium of the group, measured with reference to the last available consolidated or combined financial statements of the group.  A reasonable estimate of the gross written premium volume is sufficient if the figure is not readily available. "]
["CEA","338","1(b)","The Level I text limits participation of supervisory authorities of significant branches and related undertakings to “achieving the objective of an efficient exchange of information”. Further, Art. 248 (3) of the directive states that the effective functioning of the college may require that some activities be carried out by a reduced number of supervisory authorities. IM 21 should also restrict the participation of branch supervisors on the purpose of an efficient exchange of information and not allow for “involvement… in any relevant activity”. \nIt should also be noted that not all groups have to do consolidated accounts (e.g. Gleichordnungskonzerne).\nPoint a) and in particular point b) will be difficult to determine. Branches are not separate legal entities and will be automatically included under calculations for the undertaking of which they belong to. The calculation would have to be done separate for branches. A reasonable estimate should be sufficient.\n","(b) the annual gross written premium of the branch exceeds 5 10% of annual gross premiums written for all business where the host Member States is the Member State in which the risk is situated. A reasonable estimate of the gross written premium volume is sufficient if the figure is not readily available.\n"]
["CEA","339","4","The CEA would like to seek clarification that the emergency plan is drafted by Supervisors and is not linked to the recovery plan that would (if necessary) be drafted by undertakings.  Undertakings should not be put in a situation where they are required to submit information twice.","No redrafting proposed."]
["CEA","340","2(c)","Information exchanged within the college should be focused and precise.","(c) the main conclusions drawn by the supervisory authority concerned pursuant to the supervisory review process carried out at individual level."]
["CEA","340","3","Article 253 of the Level 1 text relates to professional secrecy and confidentiality arrangements.  Supervisors should be aware of third country professional secrecy arrangements.  ","3. The items which are to be disseminated to or whose access to is to be facilitated by the group supervisor on a systematic basis to the other supervisory authorities within the college shall be subject to Article 253 of Directive 2009/138/EC in accordance with article 338, CGS1 and include the following:"]
["CEA","341","1","We do not agree with the deletion of mutatis mutandis.","Articles PDS1 to PDS8 shall apply mutatis mutandis to the group solvency and financial condition report ..."]
["CEA","341","2(a)","This would be onerous for large cross border groups. \n","2. The group solvency and financial condition report shall include the following additional information:\n(a) regarding the group’s business and performance:\n– a description of the legal and organisational group structure, with a description of all material subsidiaries and material participations;\n– qualitative and quantitative information on relevant operations and transactions within the group, and their net value in quantitative terms over the reporting period;"]
["CEA","341","2(b)","At solo level it is required only to disclose the outsourcing policy of the undertaking.  It is not required to disclose individual outsourcing arrangements and therefore, this should not be an additional requirement at group level.\n\nInformation on intra-groups transactions (IGTs) are highliy sensitive and should only be reported for supervisory purposes.  In consolidated financial statements IGTs have to be eliminated in order to present the group as one single undertaking.  From this perspective, disclosure of individual IGTs would be misleading to those other than supervisors.","regarding the group's system of governance: - information on any material intra-group outsourcingarrangements;"]
["CEA","341","2(e)","Quantification of diversification is the result of calculations performed using the accounting consolidation based method.  The requirement in this article could be read to require groups who use the deduction and aggregation method to also calculate their capital requirements using the accounting consolidation based method. This would be against the Level I text which states that only one method has to be applied.  \n\n","(e) regarding the group’s capital management:\n– qualitative and quantitative information on any significant restriction to the fungibility and transferability of own funds eligible for covering the group Solvency Capital Requirement;\n– where method 1 is used, the amount of the consolidated group Solvency Capital Requirement, with separate indication of the amounts referred to in Article 323ter SCG;\n– qualitative and quantitative information on the material sources of group diversification effects;\n– where applicable, the sum of amounts referred to in points (a) and (b) of the second subparagraph of Article 230(2) of Directive 2009/138/EC;\n– where applicable, a brief description of the undertakings which are in the scope of any internal model used to calculate the group Solvency Capital Requirement; \n– a brief description of the main differences, if any, between any internal model used at individual undertaking level and any internal model used to calculate the group Solvency Capital Requirement."]
["CEA","342",null,"To avoid overly onerous translation requirements, groups should have the option of using English, or the language(s) of their ‘home member state’. Disclosure at subsidiary level could be the full SFCR in English/’home member state of group’. If required, the subsidiary could disclose translated summary into the language of the ‘home member state of the subsidiary’. ","1. Participating insurance and reinsurance undertakings or insurance holding companies shall disclose their group solvency and financial condition report in the language English or languages determined by their group supervisor.\n2. Where the college of supervisors comprises supervisory authorities from more than one Member State, the group supervisor may, after consultation with the other supervisory authorities concerned and of the group itself, require participating insurance and reinsurance undertakings or insurance holding companies to also disclose the report referred to in paragraph 1 in another language most commonly understood by the other supervisory authorities concerned.\n3. Where any of the insurance or reinsurance subsidiaries of the participating insurance or reinsurance undertakings or insurance holding companies has its head office in a Member State whose official language or languages are different from the language or languages in which the group solvency and financial condition report is disclosed by application of paragraphs 1 and 2, participating insurance and reinsurance undertakings or insurance holding companies shall disclose a translation of the summary of that report as referred to in Article PDS2 into the official language or languages of that Member State.\n1. Participating insurance and reinsurance undertakings or insurance holding companies shall disclose their group solvency and financial condition report in the language English or languages determined by their group supervisor.\n2. Where the college of supervisors comprises supervisory authorities from more than one Member State, the group supervisor may, after consultation with the other supervisory authorities concerned and of the group itself, require participating insurance and reinsurance undertakings or insurance holding companies to also disclose the report referred to in paragraph 1 in another language most commonly understood by the other supervisory authorities concerned.\n3. Where any of the insurance or reinsurance subsidiaries of the participating insurance or reinsurance undertakings or insurance holding companies has its head office in a Member State whose official language or languages are different from the language or languages in which the group solvency and financial condition report is disclosed by application of paragraphs 1 and 2, participating insurance and reinsurance undertakings or insurance holding companies shall disclose a translation of the summary of that report as referred to in Article PDS2 into the official language or languages of that Member State.\n"]
["CEA","344",null,"The CEA welcomes the increase in extension from 4 weeks to 6 weeks but considers that 8 weeks would be a more appropriate extension for this purpose.","Deadlines\nArticle PDS11 shall apply to the disclosure by participating insurance and reinsurance undertakings or insurance holding companies of their group solvency and financial condition report, except that the deadlines for disclosure referred to in that Article shall each be extended by 6 8weeks."]
["CEA","346",null,"The CEA believes that it is not necessary to re-publish the full SFCR report, an addendum highlighting the parts of the SFCR that have changed should be sufficient. ","Updates\nAddendum to group and financial condition report\n1. Where participating insurance and reinsurance undertakings or insurance holding companies have to disclose publicly, in accordance with Article 256(1) of Directive 2009/138/EC, appropriate information on the nature and effects of any major development that materially affect the relevance of their group solvency and financial condition report, they shall provide an addendum to that report updated version of that report.  Articles PDG1 to PDG4 shall apply to that updated version.\n2. Without prejudice to the requirements for immediate disclosure set out in Article 54(1) of Directive 2009/138/EC, any updated version addendum of the group solvency and financial condition report shall be disclosed as soon as practicable after the occurrence of the major development referred to in paragraph 1, in accordance with the provisions set out in Article PDG6."]
["CEA","346bis",null,"Unclear what this article actually means, in particular “for one year after”. Is the reference to PDS12 correct?","No redrafting proposed."]
["CEA","352bis",null,"Unclear what this article actually means, in particular “for one year after”.","No redrafting proposed."]
["CEA","353","1","There will be different starting points for many undertakings in terms of quarterly reporting.  The principle of proportionality should be applied in this respect.","1. Reflecting the nature, scale and complexity in terms of the risk profile of the group concerned, Articles SRS1 to SRS7 shall apply to the information which participating insurance and reinsurance undertakings or insurance holding companies shall be required to submit to the group supervisor pursuant to the first subparagraph of Article 254(2) of Directive 2009/138/EC."]
["CEA","353","2","Reporting at the level of the group should constitute a high level overview of solo reports.  Group reporting should be used to assess the solvency of a group, it should not be required to duplicate reporting from a solo level.\nMembers’ feedback is requested on the extra information required on group’s capital management.","2. The group regular supervisory report shall include the following additional information:\n\n(a) Regarding the group’s business and performance:\n- a description of activities and sources of profits or losses for each material undertaking in the group; \n- a description of the contribution of each subsidiary to the group strategy;\n\n(b) Regarding the group's system of governance:\n- qualitative and (if appropriate) quantitative information on material specific risks at group level;\n"]
["CEA","353","3","IM 21 outlines the functioning of the College of Supervisors.  This is the correct forum for the exchange of detailed information on solo templates.","3. Group reports should be submitted to the group supervisor by the ultimate parent. This is without prejudice to the submission of solo reports to the solo supervisor."]
["CEA","356bis","2","See comment on Article SRS10. ","2. 2. Participating insurance and reinsurance undertakings or insurance holding companies shall submit to the group supervisor the information in paragraph 1 no later than 10 14 weeks after the reference date of the opening financial statement as referred to in Article SRS10(1)."]
["CEA","361","2","The requirement for companies to have a risk management process in place which all risks to which a company could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.  ","2. The solvency regime of the third country shall require domestic insurance and  reinsurance undertakings carrying out reinsurance activities to have in place an effective risk-management system comprising strategies, processes and internal reporting procedures necessary to identify, measure, monitor, manage and report, on a continuous regular basis the risks at an individual and an aggregated level, to which the undertaking is or could be exposed, and their interdependencies, as well as an effective internal control system. "]
["CEA","365","2","Transitional arrangements\nThe inclusion of transitional rules is to be welcomed; nonetheless, the demand raised in this context, that third countries have to i) present a public commitment to introduce supervisory rules that are consistent with Solvency II and ii) establish a comprehensive assessment programme seem too extensive. \nIn order to provide greater clarity on the procedural aspects of the transitional provisions we suggest that Art 365-TRTCE1 is expanded to include: \n• End to end procedure/process for transitional equivalence applications (including the involvement or otherwise of EIOPA in that process). \n• The CEA welcomes the extension of the transitional period from 3 to 5 years.\n• However, the CEA believes that reference should also be made to the possibility of a five year extension to the transitional period in the event that a third country is not equivalent at the end of the five years but has made good progress towards meeting its milestones.  Given the legal procedures and the regulatory changes required for a regime to move towards equivalence the possibility of such an extension is very important. Otherwise, concerns about level playing fields and business disruption will only resurface at a later date.","2. The third country supervisory authorities responsible for the solvency regime have before the date referred to in Article 309 of Directive 2009/138/EC: \n(a) made a public commitment to introduce a solvency regime that is capable of satisfying the criteria set out in Articles GSTCE1 to GSTCE8 before the end of the period referred to in paragraph 4; \n(b) established a programme for convergeing to a solvency regime that is capable of satisfying the criteria set out in Articles GSTCE1 to GSTCE8 (a convergence programme). The third country should publically commit to convergence programme shall include whilst also clear milestones ensuring for how the criteria set out in Articles GSTCE1 to GSTCE8 shall be met and when. The convergence programme milestones shall be comprehensive and capable of being completed before the end of the period referred to in paragraph 4; \n(c) the resources necessary for the completion of the convergence programme and have allocated these to its implementation; \n(d) meet the criteria in paragraph 3"]
["CEA","365","4","Transitional arrangements\nThe inclusion of transitional rules is to be welcomed; nonetheless, the demand raised in this context, that third countries have to i) present a public commitment to introduce supervisory rules that are consistent with Solvency II and ii) establish a comprehensive assessment programme seem too extensive. \nIn order to provide greater clarity on the procedural aspects of the transitional provisions we suggest that Art 365-TRTCE1 is expanded to include: \n• End to end procedure/process for transitional equivalence applications (including the involvement or otherwise of EIOPA in that process). \n• The CEA welcomes the extension of the transitional period from 3 to 5 years.\n• However, the CEA believes that reference should also be made to the possibility of a five year extension to the transitional period in the event that a third country is not equivalent at the end of the five years but has made good progress towards meeting its milestones.  Given the legal procedures and the regulatory changes required for a regime to move towards equivalence the possibility of such an extension is very important. Otherwise, concerns about level playing fields and business disruption will only resurface at a later date.","The period of time referred to in paragraph 1 shall be a period of 5 years after the date referred to in Article 309 of Directive 2009/138/EC. At the end of the 5 years in the event that a 3rd country is not yet equivalent but has made good progress towards meeting its commitments the Commission may decide to grant a maximum of a 5 year extension to the transitional period.  \nNo later than 3 years after the date referred to in Article 309 of Directive 2009/138/EC, the Commission shall review in relation to each third country for which a decision referred to in paragraph 1 has been made, the progress that has been made by the third countries supervisory authorities in meeting the milestones convergence programme."]
["CEA","366","1","The requirement for companies to have a risk management process in place which all risks to which a company could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.  ","1. The solvency regime of the third country shall require domestic insurance and reinsurance undertakings carrying out reinsurance activities to hold adequate financial resources for their reinsurance activities."]
["CEA","366","2","The requirement for companies to have a risk management process in place which all risks to which a company could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.  ","2.The assessment of the financial position of domestic insurance and reinsurance undertakings carrying out reinsurance activities in the third country shall rely on sound economic principles and solvency requirements for reinsurance activities shall be based on an economic valuation of all assets and liabilities."]
["CEA","366","3","The requirement for companies to have a risk management process in place which all risks to which a company could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.  ","3. The solvency regime of the third country shall require domestic insurance and reinsurance undertakings carrying out reinsurance activities to establish technical provisions with respect to all of their insurance and reinsurance obligations towards policy holders and beneficiaries of insurance or reinsurance contracts"]
["CEA","366","4","The requirement for companies to have a risk management process in place which all risks to which a company could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.  ","4. The solvency regime of the third country shall require that assets held to cover technical provisions shall in relation to reinsurance activities be invested in the best interest of all policy holders and beneficiaries taking into account any disclosed policy objective and that domestic insurance and reinsurance undertakings carrying out reinsurance activities only invest in assets and instruments whose risks the undertaking concerned can properly identify, measure, monitor, manage, control and report. "]
["CEA","366","5","The requirement for companies to have a risk management process in place which all risks to which a company could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.  ","5. The solvency regime of the third country shall require domestic insurance and reinsurance undertakings carrying out reinsurance activities to meet capital requirements for their reinsurance activities that are set at a level which ensures that in the event of significant losses policy holders and beneficiaries are adequately protected and that payments can continue to be made to them as they fall due to a level of confidence at least equivalent to that achieved by Article 101 of Directive 2009/138/EC. Those capital requirements shall be risk-based with the objective of capturing quantifiable risks. Where a significant risk is not quantifiable and could not be captured in the capital requirements, then that risk shall be addressed through another supervisory mechanism. The calculation of capital requirements shall ensure timely intervention by supervisory authorities of the third country in the event that the capital requirement is not complied with."]
["CEA","367","2","Transitional arrangements\nThe inclusion of transitional rules is to be welcomed; nonetheless, the demand raised in this context, that third countries have to i) present a public commitment to introduce supervisory rules that are consistent with Solvency II and ii) establish a comprehensive assessment programme seem too extensive. \nIn order to provide greater clarity on the procedural aspects of the transitional provisions we suggest that Art 365-TGTCE1 is expanded to include: \n• End to end procedure/process for transitional equivalence applications (including the involvement or otherwise of EIOPA in that process). \n• The CEA welcomes the extension of the transitional period from 3 to 5 years.\n• However, the CEA believes that reference should also be made to the possibility of a five year extension to the transitional period in the event that a third country is not equivalent at the end of the five years but has made good progress towards meeting its milestones.  Given the legal procedures and the regulatory changes required for a regime to move towards equivalence the possibility of such an extension is very important. Otherwise, concerns about level playing fields and business disruption will only resurface at a later date.","2. The third country supervisory authorities responsible for the solvency regime have before the date referred to in Article 309 of Directive 2009/138/EC: \n(e) made a public commitment to introduce a solvency regime that is capable of satisfying the criteria set out in Articles GTCE1 before the end of the period referred to in paragraph 4; \n(f) established a programme for convergeing to a solvency regime that is capable of satisfying the criteria set out in Article GTCE1 (a convergence programme). The third country should publically commit to convergence programme shall include whilst also  clear milestones ensuring for how the criteria set out in Article GTCE1 shall be met and when. The convergence programme milestones shall be comprehensive and capable of being completed before the end of the period referred to in paragraph 4; \n(g) the resources necessary for the completion of the convergence programme and have allocated these to its implementation; \n(h) meet the criteria in paragraph 3"]
["CEA","367","4","Transitional arrangements\nThe inclusion of transitional rules is to be welcomed; nonetheless, the demand raised in this context, that third countries have to i) present a public commitment to introduce supervisory rules that are consistent with Solvency II and ii) establish a comprehensive assessment programme seem too extensive. \nIn order to provide greater clarity on the procedural aspects of the transitional provisions we suggest that Art 365-TGTCE1 is expanded to include: \n• End to end procedure/process for transitional equivalence applications (including the involvement or otherwise of EIOPA in that process). \n• The CEA welcomes the extension of the transitional period from 3 to 5 years.\n• However, the CEA believes that reference should also be made to the possibility of a five year extension to the transitional period in the event that a third country is not equivalent at the end of the five years but has made good progress towards meeting its milestones.  Given the legal procedures and the regulatory changes required for a regime to move towards equivalence the possibility of such an extension is very important. Otherwise, concerns about level playing fields and business disruption will only resurface at a later date.","4.The period of time referred to in paragraph 1 shall be a period of 5 years after the date referred to in Article 309 of Directive 2009/138/EC. At the end of the 5 years in the event that a 3rd country is not yet equivalent but has made good progress towards meeting its commitments the Commission may decide to grant a maximum of a 5 year extension to the transitional period.  \nNo later than 3 years after the date referred to in Article 309 of Directive 2009/138/EC, the Commission shall review in relation to each third country for which a decision referred to in paragraph 1 has been made, the progress that has been made by the third countries supervisory authorities in meeting the milestones convergence programme."]
["CEA","372","1","The requirement for groups to have a risk management process in place which all risks to which a group could be exposed can be measured on a continuous basis is excessive. \nThe CEA welcomes the recognition that flexibility should be afforded to how a group is structured, what is important is that it is effective. \nThe CEA welcomes and supports the inclusion of language enabling the public disclosure on solvency and financial condition to be equivalent in nature and scope to that specified in Article 51 of Directive 2009/138/EC.","1. The prudential regime of the third country shall require an effective risk-management system at the level of the group comprising strategies, processes and internal reporting procedures necessary to identify, measure, monitor, manage and report, on a regular continuous basis the risks to which the group is or could be exposed, and their interdependencies, as well as an effective internal control system."]
["CEA",372,null,"Typo","\n3 This The prudential regime of the third country ..."]
["CEA","375","5","The requirement that the solvency regime of a third country set capital requirements ‘to a level of confidence at least equivalent to that’ is excessive. The reference to ‘at least’ should be removed. \nThe group SCR should provide an equivalent level of policyholder protection not necessarily ‘equivalent result’. Due to acceptable differences in methodology the result of the group solvency calculation may differ and due to these differences the Solvency II SCR may not always be higher than the third country’s “group SCR” calculation.","5. The supervisory authorities of the third country shall require the group to meet capital requirements that are set at a level which ensures that in the event of significant losses policy holders and beneficiaries are adequately protected and that payments can continue to be made to them as they fall due to a level of confidence at least equivalent to that achieved by Article 101 of Directive 2009/138/EC. Those capital requirements shall be risk-based and based with the objective of capturing quantifiable risks. Where a significant risk is not captured in the capital requirements, then that risk shall be addressed through another supervisory mechanism. The calculation of capital requirements shall ensure an accurate and timely intervention by supervisory authorities of the third country."]
["CEA","375","8","The requirement that the solvency regime of a third country set capital requirements ‘to a level of confidence at least equivalent to that’ is excessive. The reference to ‘at least’ should be removed. \nThe group SCR should provide an equivalent level of policyholder protection not necessarily ‘equivalent result’. Due to acceptable differences in methodology the result of the group solvency calculation may differ and due to these differences the Solvency II SCR may not always be higher than the third country’s “group SCR” calculation.","8. The calculation of group solvency in the third country's prudential regime shall produce a level of policyholder protection result that is at least equivalent to that the result achieved by either one of the calculation methods set out in Articles 230 and 233 of Directive 2009/138/EC or a combination of them. The calculation shall ensure that there is no double use of own funds to meet the group capital requirement and that the intra-group creation of capital through reciprocal financing is eliminated.   "]
["CEA","SRS10(bis)","2","The proposed deadline of 8 weeks for reporting additional transitional information at the beginning of 2013 should allow for a longer time period in which to produce the requested information i.e. opening balance sheet, opening SCR and an explanation of differences between Solvency I and Solvency II data.  A period of 20 weeks, as originally proposed by the Commission, would be more appropriate.  The additional transitional information would require an amount of work equivalent to a QIS exercise in 8 weeks, whereas undertakings took more than 4 months to carry out QIS5. Additionally, at year-end of 2012, undertakings will have to prepare the balance sheet and the reporting to supervisors under Solvency I, a process which is likely to engage the same people for 2 to 4 months. Supervisors will still able to assess the solvency of undertakings since they will receive the year-end Solvency I results. Under normal circumstances the supervision of undertakings is done yearly and retrospectively. We do not see the additional benefit of reporting Solvency II figures right after the implementation date of Solvency II, especially given the huge burden for undertakings.","No redrafting proposed."]

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["Comments on Annexes"]
["Please use the following abbreviations in the column \"Annex\": I, NLUR1,…, NLUR12, HUR1, …, HUR3, MCR1, PD1, TA1."]
["Member\nState","Annex","Comment","Revised text"]
["CEA","NLUR1","Typo","Segments 10-12 should be referenced to LoB 26-28 instead of 25-27 on page 311"]
["CEA","NLUR3","We critiziced the fact that for the premium and reserve risk \nmodule,  when two risks are independant then the correlation factor should be 0. The current matrix correlates by default two independant risks at 25% which is an over-prudent and non-economic approach. We therefore strongly recommend that correlation factors put at 25% in the current draft be changed to 0%. \n","[For redrafting suggestion, refer to CEA Annex: Formulas and tables]"]