EIOPA issued a Supervisory Statement on the application of the proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.
EIOPA identified potential divergences in the supervisory practices concerning the supervision of the calculation of immaterial SCR sub-modules.
This supervisory statement provides guidance to NCAs that could have a concrete impact and is a step further towards in the effective application of the principle of proportionality.
Companies, regardless of their size, could ask their NCA to calculate certain SCR sub-modules only every 3 years instead of yearly (or quarterly).
Conditions:
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- The sub-module to be immaterial (ie not relevant for the decision-making process or the judgement of the company or the NCA). EIOPA recommends that materiality is assessed considering the weight of the sub-modules in the total BSCR and that:
- each sub-module concerned should not represent more than 5% of the BSCR
- or all sub-modules concerned should not represent more than 10% of the BSCR
- The sub-module to have a stable pattern over the last 3 years
- The sub-module to have a consistent pattern with regard the business model/strategy
- Risk management system in place to monitor the risk evolutions
- The sub-module to be immaterial (ie not relevant for the decision-making process or the judgement of the company or the NCA). EIOPA recommends that materiality is assessed considering the weight of the sub-modules in the total BSCR and that:
- Prudent calculation
- Reporting requirements in the ORSA (eg qualitative and quantitative early warning indicators) and in the RSR/SFCR
Process:
- NCA “may allow undertakings […] to adopt a proportionate approach”
- The approach “should be implemented in the context of on-going supervisory dialogue” = a priori no formal application for approval
- NCAs “should be satisfied and agree on the approach taken”
- In case of concern, should not be implemented, or with additional safeguards
- NCAs could require a calculation if concerns about material changes of risk profile or about governance
The secretariat of Insurance Europe notes that however very positive and demonstrating EIOPA’s will to further enhance the application of the, this statement could enhance supervisory divergences, as not all NCAs are eager to further extend its application.