REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application of Title III of Directive 2009/138/EC of the European Parliament and the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) as regards the supervision of insurance and reinsurance undertakings in a group, and the assessment of the transitional period for the occupational retirement provision business of life insurance undertakings
Date: 2018-04-05
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: application of EU law, financial requirements, financial supervision, group of companies, holding company, insurance company, insurance law, life assurance, pension scheme, reinsurance

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.4.2018 COM(2018) 169 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application of Title III of Directive 2009/138/EC of the European Parliament and the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) as regards the supervision of insurance and reinsurance undertakings in a group, and the assessment of the transitional period for the occupational retirement provision business of life insurance undertakings  
 
 
I. 

Introduction 

Since  1  January  2016,  when  it  entered  into  application,  the  Solvency  II  Directive1  has 
provided a sound and  robust prudential  framework  for insurance  firms in  the EU. Based on 
the  risk  profile  of  individual  companies,  it  promotes  comparability,  transparency  and 
competitiveness. 

Title III of Solvency II concerns the supervision of insurance and reinsurance undertakings in 
a  group.  The  Directive  uses  an  innovative  supervisory  model  which  assigns  a  key  role  to  a 
group supervisor, while recognising and maintaining an important role for the solo supervisor. 

Solvency  II  also  contains  provisions  on  institutions  for  occupational  retirement  provision 
(IORPs)  Directive2.  In  particular,  subject  to  certain  conditions,  life  insurers’  occupational 
retirement  provision  business  is  exempt  from  full  application  of  the  solvency  capital 
requirement (SCR) in Solvency II for a transition period. Via an amendment to Solvency II, 
the IORP II Directive extended this period from the end of 2019 to the end of 2022. 

Solvency II requires the Commission to report to the European Parliament and Council on the 
group supervision provisions in Title III3 and on the transition period for IORPs operated by 
life insurance undertakings. For the sake of convenience, the present report fulfils these two 
(unrelated) requirements in a single document. 

II.  Application  of  Title  III  of  Solvency  II  on  the  supervision  of  insurance  and 

reinsurance undertakings in a group 

Article 242(1) of Solvency II requires the Commission to report on the operation of Title III 
of Solvency II (group supervision): 

‘By 31 December 2017, the Commission shall make an assessment of the application of 
Title III, in particular as regards the cooperation of supervisory authorities within, and 
functionality  of,  the  college  of  supervisors  and  the  supervisory  practices  concerning 
setting the capital add-ons, and shall present a report to the European Parliament and to 
the  Council  accompanied,  where  appropriate,  by  proposals  for  the  amendment  of  this 
Directive.’ 

1   Directive  2009/138/EC  of  the  European  Parliament  and  of  the  Council  of  25  November  2009  on  the 
taking-up  and  pursuit  of  the  business  of  Insurance  and  Reinsurance  (Solvency  II)  (OJ  L  335,  17.12.2009, 
(Financial  Conglomerates  Directive), 
p. 1), 
Directive 2012/23/EU,  Council  Directive  2013/23/EU,  Directive  2013/58,  Directive  2014/51/EU 
(‘Omnibus II’ Directive) and Directive 2016/2341/EU (‘IORP II’ Directive on Institutions for Occupational 
Retirement Provision). 

subsequently  amended  by  Directive  2011/89/EU 

2   Directive  (EU)  2016/2341  of  the  European  Parliament  and  of  the  Council  of  14  December  2016  on  the 
activities  and  supervision  of  institutions  for  occupational  retirement  provision  (IORPs)  (OJ L 354, 
23.12.2016, p. 37), which entered into legal force on 12 January 2017 and must be transposed in the Member 
States by 13 January 2019. 

3   Article 242(2) of Solvency II requires the Commission to make an assessment of the benefits of enhancing 
group  supervision  and  capital  management  within  a  group  of  insurance  or  reinsurance  undertakings  by 
31 December 2018. The Commission is to present the report to the European Parliament and the Council by 
the end of 2018. 

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On 1 June 2017, the Commission asked the European Insurance and Occupational Pensions 
Authority  (EIOPA)  for  input  to  the  report.  Much  (but  not  all)  of  EIOPA’s  contribution,  as 
provided on 24 January 20184, was fed into this report. 

(a)  General issues regarding group supervision 

The central issues of Chapter I of Title III of Solvency II are the definition of a group and the 
scope  of  group  supervision.  EIOPA  reported  certain  concerns  on  the  definition  of  a  group 
under Article 212(1): 

 

 

 

difficulties in assessing whether, through ‘centralised coordination’, one undertaking 
effectively  exercises  a  dominant  influence  on  the  decisions,  including  financial,  of 
the other undertakings in the group; 

as  regards  third-country  groups  operating  in  several  EEA  countries,  difficulties  in 
identifying  situations  that  trigger  group  supervision  and  the  designation  of  a  group 
supervisor; and 

as  regards  insurance  groups  with  major  non-EEA  operations,  limited  powers  for 
national  supervisory  authorities  (NSAs)  to  impose  additional  capital  requirements 
where  a  material  risk  from  other  non-EEA  group  undertakings  is  identified,  and  to 
restrict intra-group transactions. 

EIOPA  reported  on  the  emergence  in  the  EU  of  several  non-EEA  structures  with  related 
investment  funds  that  invest  in  insurance  undertakings  across  the  EEA.  These  structures  do 
not qualify as groups within the meaning of Solvency II. EIOPA called for the setting-up of 
‘protocolleges’ to exchange information on the basis of which to assess potential risks from 
activities and uncertainties regarding the strategy of the ultimate parent based in a non-EEA 
country.   

Another potential issue is the lack of consistency between the undertakings in the group and 
the  scope  of  group  supervision  in  relation  to  third-country  insurance  undertakings,  the 
insurance  holding  company,  the  mixed  financial  holding  company  or  the  mixed-activity 
insurance  holding  company.  Although  these  entities  can  be  part  of  the  group,  Article  214 
states that ‘the exercise of group supervision in accordance with Article 213 shall not imply 
that the supervisory authorities are required to play a supervisory role’, except in the case of 
the  ‘fit  and  proper’  requirement  in  Article  257.  This  potential  lack  of  supervisory  measures 
against  the  holding  company  could  be  problematic  where  the  valuation  of  participations  is 
considered inadequate. Furthermore, in delimiting the scope of supervision of group solvency, 
Article 218  imposes  the  exercise  of  this  power  in  the  cases  of  insurance  and  reinsurance 
undertakings  referred  to  in  Article  213(2)  (a)  and  (b),  but  Article  214  allows  the  group 
supervisor to reduce the scope of group supervision on a case by case basis. 

(b)  Cooperation  of  supervisory  authorities  within,  and  functionality  of,  colleges  of 

supervisors 

Solvency II strengthens cooperation among supervisory authorities and establishes the rights 
and duties of the group supervisor and the other supervisors in a college of supervisors. Each 
college  of  supervisors  includes  the  group  supervisor,  the  supervisory  authorities  of  all  the 
Member States in which the head offices of subsidiary undertakings are located, and EIOPA. 

4https://eiopa.europa.eu/Publications/Consultations/Report%20to%20the%20European%20Commission%20on%

20the%20Application%20of%20Group%20Supervision.pdf 

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According  to  EIOPA  data,  there  were  92  colleges  in  2016,  allowing  national  supervisors  to 
exchange information regularly and discuss and address divergences in members’ approaches. 

The  overall  assessment  is  that  colleges  function  well,  while  the  main  areas  of  potential 
divergence  are  those  that  involve  the  exercise  of  judgment,  such  as  the  supervision  of  the 
technical  provisions  calculated  by  the  insurance  undertakings.  To  enhance  cooperation,  the 
framework  enables  joint  on-site  examinations,  in  which  EIOPA  can  take  part  pursuant  to 
Article  21  of  Regulation  (EU)  No 1094/20105  (the  EIOPA  Regulation).  This  kind  of 
inspection is becoming more common, demonstrating ‘good cooperation [among NSAs] when 
planning and conducting joint on-site inspections’. The EIOPA report points out one issue as 
regards the language used during the examinations: ‘in some cases, according to the local law, 
the management of the undertaking only need to answer questions and provide information in 
the local language’. 

(c)  Sub-group supervision 

Article  215(1)  of  Solvency  II  establishes  a  general  rule  whereby  the  system  of  group 
supervision at Union level is based on the ultimate parent undertaking6. However, by way of 
derogation  from  this  rule,  Article  216(1)  provides  that  Member  States  may  allow  their 
supervisory authorities to decide, after consulting the group supervisor and the ultimate parent 
undertaking  at  Union  level,  to  subject  the  ultimate  parent  insurance  or  reinsurance 
undertaking, insurance holding company or mixed financial holding company at national level 
to group supervision. This is known as sub-group supervision. 

According  to  EIOPA’s  data,  three  EU  supervisors  conduct  sub-group  supervision  on  eight 
cross-border groups. The immediate effect is the setting-up of an additional college for each 
sub-group  (including  a  separate  coordination  arrangement,  emergency  plan  and  double 
information exchange) and overlaps in the group’s reporting to supervisors and its sub-groups. 
These  additional  complications  need  to  be  balanced  against  the  fact  that  sub-group 
supervision is of great importance to those Member States that practise it. 

(d)  Group internal models 

In  line  with  the  risk-oriented  approach  to  the  SCR,  Solvency  II  allows  individual  insurance 
and  reinsurance  undertakings  and  groups  to  use  internal  models  for  the  SCR  calculation, 
rather  than  the  standard  formula,  subject  to  supervisory  approval.  Article 231  defines  group 
internal models and establishes guidelines for the supervisory authorities concerned on how to 
reach a joint decision on the application. EIOPA reports that 11 NSAs have approved (cross-
border and domestic) group internal models and solo internal models are used in 17 Member 
States. 

5   Regulation  (EU)  No 1094/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010 
establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), 
amending  Decision  No 716/2009/EC  and  repealing  Commission  Decision  2009/79/EC  (OJ  L  331, 
15.12.2010, p. 48). 

6   Where the participating insurance or reinsurance undertaking or the insurance holding company or the mixed 
financial holding company referred to in Article 213(2)(a) and (b) is itself a subsidiary undertaking of another 
insurance or reinsurance undertaking or of another insurance holding company or of another mixed financial 
holding company which has its head office in the Union, Articles 218 to 258 shall apply only at the level of 
the  ultimate  parent  insurance  or  reinsurance  undertaking,  insurance  holding  company  or  mixed  financial 
holding company which has its head office in the Union. 

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NSAs do not consider EIOPA to be one of ‘the supervisory authorities concerned’ (within the 
meaning  of  Article  347(3)  of  Commission  Delegated  Regulation  (EU)  2015/35)7  as  regards 
joint  decisions  on  internal  models  in  colleges,  with  the  consequence  that  EIOPA  has  not  in 
general received the formal application materials. EIOPA concludes that its limited role in the 
assessment and approval of cross-border internal models has sometimes hampered its work in 
assessing and promoting convergence. On the other hand, under Article 248(3) of Solvency II, 
EIOPA  is  a  member  of  the  college  of  supervisors  and  Article  231(1)  states  that  the  ‘group 
supervisor  shall  inform  the  other  members  of  the  college  of  supervisors  and  forward  the 
complete application to them, without delay’. 

Although many of the colleges have had difficult discussions, to date they have reached joint 
decisions  on  group  internal  models  without  requesting  EIOPA  mediation.  Nevertheless, 
EIOPA refers to several cases of a group choosing to remove one or more countries from the 
scope  of  the  group  internal  model  application  where  it  had  concerns  that  it  would  not 
otherwise reach a joint decision in time for approval before the start of Solvency II application 
on 1 January 2016. 

(e)  Group capital add-ons 

Where  the  risk  profile  of  the  group  is  not  adequately  reflected,  a  capital  add-on  to  the 
consolidated group SCR may be imposed. EIOPA reported that this measure was used by one 
supervisor for four groups in 20168. Three capital add-ons at group level related to a standard 
formula significant risk-profile deviation; in one case, a capital add-on related to an internal 
model that did not cover all the material risk-profile deviations. 

(f)  Other group supervision issues 

EIOPA has received no requests to mediate within a college of supervisors under Article 19 of 
the EIOPA Regulation. 

The supervision of group solvency for groups with centralised risk management is laid down 
in Articles 236 to 239 of the Directive. In this regard, EIOPA indicates that there are so far no 
centralised risk management agreements among supervisors. 

III.  Transitional  period  for  life  insurance  undertakings’  occupational  retirement 

provision business 

Article 308b(15) of Solvency II, as amended by Article 63 of the IORP II Directive, requires 
the  Commission  to  report  on  the  operation  of  the  transitional  period  referred  to  in  the 
introduction: 

‘15. Where,  on  the  entry  into  force  of  this  Directive,  home  Member  States  applied 
provisions referred to in Article 4 of Directive (EU) 2016/2341, those home Member 
States may continue to apply the laws, regulations and administrative provisions that 
had been adopted by them with a view to complying with Articles 1 to 19, Articles 27 
to 30, Articles 32 to 35 and Articles 37 to 67 of Directive 2002/83/EC as in force on 
31 December 2015 for a transitional period expiring on 31 December 2022. 

[..] 

7   Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC 
of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and 
Reinsurance (Solvency II) (OJ L 12, 17.1.2015, p. 1). 

8   https://eiopa.europa.eu/Publications/Reports/EIOPA-BoS-17-

336rev2_EIOPA%202 017 %20report%20on%20the%20use%20of%20Capital%20Add%20Ons.pdf 

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By  31  December  2017,  the  Commission  shall  submit  a  report  to  the  European 
Parliament  and  to  the  Council  on  whether  the  period  referred  to  in  the  first 
subparagraph  should  be  extended,  taking  account  of  changes  to  Union  or  national 
law resulting from this Directive.’ 

While  the  legislation  foresees  a  report  at  the  end  of  2017,  the  transitional  period  does  not 
expire until 31 December 2022, so the end of 2017 can be considered somewhat early to draw 
definitive  conclusions  on  its  operation.  At  this  stage,  the  Commission  does  not  have  new 
elements in its possession that would justify a further extension of the transitional period, but 
it  will  continue  to  monitor  the  situation  from  the  entry  into  application  of  the  IORP  II 
Directive on 13 January 2019. The monitoring will contribute to the review of that Directive, 
which is due by 13 January 2023 (see Article 62 of the IORP II Directive). 

IV.  Conclusion 

Article  242(1)  of  Solvency  II  provides  that  the  Commission’s  report  on  the  application  of 
Title III (group supervision) may be accompanied with legislative proposals. 

As  Solvency  II  is  due  for  general  evaluation  in  2020  and  given  the  importance  of  a  stable 
regulatory framework, the Commission considers that only one of the areas identified above 
requires  legislative  amendment  at  this  stage:  the  area  of  group  internal  models,  where 
divergences among Member States have been identified and EIOPA needs enhanced powers 
to bring about convergence. 

However, given the urgency of the matter and the opportunity provided by the Commission’s 
package  of  proposals  to  review  the  functioning  and  financing  of  European  supervisory 
authorities  (as  adopted  on  20  September  2017),  action  has  already  been  taken  on  this.  The 
package included a legislative proposal to amend Solvency II9 so as to mitigate and prevent 
divergences  in  the  supervision  and  approval  of  group  internal  models.  Article  2  of  the 
proposal includes amendments to Solvency II to: 

 

 

give EIOPA a greater role in ensuring supervisory convergence in the area of internal 
model applications (at solo and group level) and with respect to information-sharing 
on such applications; and  

allow EIOPA to issue opinions in this regard and assist in the settlement of disputes 
between  supervisory  authorities,  at  their  request,  on  its  own  initiative  or,  in  certain 
circumstances, at the request of concerned undertakings. 

The amendments also provide that EIOPA should prepare annual reports on this matter. This 
will  allow  close  monitoring  of  the  situation  on  internal  model  applications,  including  the 
bringing to light of outstanding concerns as regards supervisory convergence in this area. 

As  to  the  transitional  period  for  the  occupational  retirement  provision  business  of  life 
insurance  undertakings,  the  Commission  may  take  a  decision  nearer  the  end  of  that  period 
(end  2022)  concerning  its  possible  extension.  If  a  decision  is  taken  to  extend  the  period,  a 
legislative proposal could be introduced in good time before the end of 2022. 

9   Proposal for a Directive of the European Parliament and of the Council amending Directive 2014/65/EU on 
markets in financial instruments and Directive 2009/138/EC on the taking-up and pursuit of the business of 
Insurance and Reinsurance (Solvency II)) (COM(2017) 537 final). See also COM (2017) 536 final (proposal 
for a Regulation amending various regulations, including the EIOPA founding Regulation). 

5