REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking and pursuit of the business of Insurance and Reinsurance (Solvency II) with regard to group supervision and capital management within a group of insurance or reinsurance undertakings
Date: 2019-06-27
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: capital movement, financial solvency, financial supervision, group of companies, holding company, insurance company, insurance law, parent company, risk management

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 27.6.2019  COM(2019) 292 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking and pursuit of the business of Insurance and Reinsurance (Solvency II) with regard to group supervision and capital management within a group of insurance or reinsurance 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 and reinsurance firms in the 
EU.  Based  on  the  risk  profile  of  individual  companies,  it  promotes  comparability, 
transparency and competitiveness.  

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

This  report  assesses  the  benefit  of  enhancing  group  supervision  and  capital  management 
within a group of insurance or reinsurance undertakings, as required under Article 242(2) of 
the Solvency II Directive. 

On 7  June 2018, the Commission  asked the European  Insurance and Occupational  Pensions 
Authority  (EIOPA)  for  input  to  the  report2.  EIOPA's  contribution,  as  provided  on  19 
December 20183, fed into this report.  

The report is divided into four parts. Chapter II analyses supervisory practices and challenges 
related to the determination of the scope and the exercise of supervisory powers over groups. 
Chapters  III  and  IV  assess  challenges  and  legal  uncertainties  related  to  group  solvency 
calculation,  group  governance  and  group  reporting4.  Finally,  Chapter  V  provides  a  brief 
overview  of  developments  in  the  fields  of  mediation  of  supervisory  disputes  and  insurance 
guarantee schemes (IGS), which are not directly related to group supervision.  

Some  topics  are  not  addressed  in  this  report.  Points  (g)  and  (i)  of  Article  242(2)  of  the 
Solvency  II  Directive  are  related  to  resolution  frameworks.  While  the  Commission  is 
monitoring international developments related to resolution and systemic risk5, there has been 
no  broad  EU-wide  initiative  in  this  area  since  the  entry  into  application  of  Solvency  II. 
Similarly,  point  (f)  of  Article  242(2)  deals  with  a  harmonised  framework  on  asset 
transferability,  insolvency  and  winding-up  procedures.  There  is  currently  no  policy 
development in this area, neither at EU level, nor at international level.  

Unless stated otherwise, the report uses data up to the end of 2017, covering the 28 Member 
States of the European Union. 

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, p. 1. 
2 See the letter sent to EIOPA and the detailed annex. 
3 Available at this link. 
4 Commonly referred to as "pillar I", “pillar II", and "pillar III" requirements respectively. 
5 See for instance this link. 

1 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
II. 

Scope  of  group  supervision  and  supervisory  powers  over  insurance  and 
reinsurance groups 

Solvency II provides that group supervision must apply in the following cases6: 

 

 

 

the  group  head  is  an  insurance  or  reinsurance  undertaking  headquartered  in  the 
European Economic Area (EEA), and at least one of its related undertakings is another 
insurance or reinsurance company headquartered in the EEA or in a third country; 
the group includes an insurance or reinsurance subsidiary undertaking in the EEA, and 
the parent company of the group is either an insurance or reinsurance undertaking, or 
an insurance holding company or mixed financial holding company7 headquartered in 
the EEA or in a third country; 
the group includes an insurance or reinsurance subsidiary undertaking in the EEA, and 
the parent  company of the group is  a mixed-activity insurance holding company8;  in 
that  specific  case,  group  supervision  is  limited  to  the  supervision  of  intra-group 
transactions involving an insurance or reinsurance undertaking9. 

Based  on  the  supervisory  disclosures  published  by  National  Supervisory  Authorities 
(hereafter "NSAs"), around 350 groups are supervised by a group supervisor in the EU.  

a.  Exercise of group supervision where the ultimate parent company has its head 

office in a third-country 

The  number  of  acquisitions  of  European  insurers  by  non-EEA  investors  has  increased  in 
recent  years10.  Indeed,  the  introduction  of  Solvency  II  has  required  insurers  to  re-examine 
their  business  in  light  of  new  capital  requirements.  According  to  some  practitioners,  this 
exercise  may  have  facilitated  the  identification  of  businesses  more  suitable  for  divestments 
and  new  acquisitions,  although  there  is  no  conclusive  evidence  of  this.  EIOPA’s  oversight 
activities help to monitor this trend. 

Currently,  approximately  200  insurance  groups  have  their  ultimate  parent  undertaking  in  a 
third  country.  Such  groups  are  subject  to  group  supervision  in  Solvency  II11.  While  NSAs 
must  rely  on  the  group  supervision  exercised  by  supervisory  authorities  of  equivalent  third 
countries12,  they  are  required  to  directly  apply  worldwide  group  supervision  where  the 
ultimate parent company has its head office in a non-equivalent third country13. Where there 
is no consolidating holding company in the EEA, the Solvency II Directive provides that the 
group  supervisor  should  be  the  supervisory  authority,  which  authorised  the  insurance  or 
reinsurance undertaking with the largest balance sheet total14. 

6 See Article 213(2) of the Solvency II Directive. 
7 As defined in points (f) and (h) of Article 212(1) of the Solvency II Directive, respectively. 
8 As defined in point (g) of Article 212(1) of the Solvency II Directive. 
9 See Article 265 of the Solvency II Directive. 
10 For example, since 2017, insurance groups and private equity investors from China, Japan, the United States, 
Switzerland and Canada acquired (a stake in the capital of) insurance undertakings established in the EU. 
11 See Article 213(2)(c) of the Solvency II Directive. 
12 See Article 261 of the Solvency II Directive. 
13 See Article 262(1) of the Solvency II Directive. 
14 See Article 247(2)(b)(v) of the Solvency II Directive. 

2 

 
 
 
 
 
 
 
 
 
                                                           
Full group supervision at the level of the ultimate parent company can therefore be difficult to 
exercise, as it implies access to information related to activities outside the Union. This is why 
in  such  cases,  Article  262(2)  of  the  Solvency  II  Directive  allows  supervisory  authorities  to 
apply  "other  methods"  which  ensure  appropriate  group  supervision.  Those  methods  are  not 
exhaustively described in the Directive, which only explicitly refers to the possibility for the 
group supervisor to require the establishment of an insurance holding company in the Union 
to which full group supervision requirements are applied.  

However, in practice, there are widely divergent practices regarding the supervision of groups 
whose parent companies have their head offices in non-equivalent third countries.  

On the one hand, in accordance with Article 262(2), by the end of 2018, the Commission has 
received several notifications of use of "other methods" from two NSAs. In most cases, such 
notifications included both group supervision at European level, and targeted other reporting 
requirements  to  monitor  risks  stemming  from  the  non-EEA  part  of  the  insurance  or 
reinsurance group. 

On  the  other  hand,  based  on  supervisory  disclosures,  other  NSAs  are  supervising  groups 
whose  ultimate  parent  companies  have  their  head  offices  in  third  countries.  According  to 
EIOPA, one NSA is of the view that it is sufficient to require the establishment of a holding 
company  in  the  EEA,  and  that  the  non-EEA  part  of  third-country  groups  should  not  be 
included in group supervision. Other NSAs that decided not to use "other methods" indicate 
that the implementation of Article 262(2) may be difficult, and consider that they should be 
allowed to completely waive worldwide group supervision15. However, such approaches are 
not sufficient to monitor appropriately the risks stemming from the non-EEA parts of third-
country groups, and their compatibility with Solvency II would be questionable. 

b.  Scope of group supervision and supervision at the level of holding companies 

Group supervisors may decide on a case-by-case basis, and where certain criteria are met, not 
to  include an undertaking in  the scope of  group supervision16  (including the ultimate parent 
company  of  the  group).  This  decision  may  sometimes  result  in  a  total  absence  of  group 
supervision, which can be detrimental to policyholder protection and to the level playing field.  

There  are  risks  of  having  an  unlevel  playing  field  even  where  the  exclusion  of  the  ultimate 
parent  company  does  not  lead  to  the  absence  of  group  supervision,  but  to  the  exercise  of 
group supervision at the level of an intermediate parent company. Such decisions of exclusion 
may indeed generate significant capital relief for the group, in cases where the ultimate parent 
does not hold the whole capital of those subsidiaries. 

In  addition,  where  the  parent  company  of  a  group  is  a  holding  company,  group  supervision 
may  be  limited  to  the  reporting  of  intragroup  transactions  if  the  group  supervisor  considers 
that  the  main  business  of  the  parent  company  is  not  to  hold  participations  in  insurance 
subsidiaries17.  Therefore,  inconsistent  approaches  to  the  identification  of  holding  companies 

15  However,  group  supervision  of  groups  whose  parent  undertakings  are  registered  in  a  non-equivalent  third 
country must be exercised in accordance with Article 262 of the Solvency II Directive. 
16 See Article 214(2) of the Solvency II Directive. 
17  In  that  case,  the  holding  company  is  a  mixed-activity  insurance  holding  company  (referred  to  in  Article 
212(1)(g) of the Solvency II Directive) and not an insurance holding company (referred to in Article 212(1)(f)). 

3 

 
 
 
 
 
 
 
 
 
                                                           
are likely to lead to an unlevel playing field in the European Union. More generally, EIOPA 
notes that the powers of intervention by group supervisors at the level of holding companies, 
which are defined by national laws, are limited in some jurisdictions18. 

c.  Early intervention framework at group level19  

Early intervention is defined by EIOPA as a "stage where the solvency position of an insurer 
starts to deteriorate and where it is likely that it will continue to deteriorate and fall below the 
Solvency Capital Requirement if no remedial action is taken". 

Early intervention at group level necessitates that group supervisors have timely information 
on  deteriorating  financial  conditions.  To  this  end,  the  Solvency  II  Directive20  requires  the 
participating undertaking of an insurance or reinsurance group to inform the group supervisor 
as soon as the group Solvency Capital Requirement (hereafter "SCR") is breached or is likely 
to  be  breached  within  the  next  three  months.  EIOPA  reports  four  cases  of  notifications  in 
three  different  Member  States  since  1  January  2016  (one  of  those  cases  corresponds  to  an 
actual breach of SCR). Within two months from the observation of non-compliance with the 
group SCR, a recovery  plan must be submitted to the group supervisor21. This was the case 
for the group, which breached its group SCR.  

Although not explicitly covered, early intervention powers are to a certain extent embedded in 
Solvency II. At solo level, supervisors should have the power to take all measures necessary 
to safeguard the interests of policyholders where the solvency position of an insurer continues 
to  deteriorate22. At group  level,  Solvency  II  establishes an obligation for all  NSAs as  group 
supervisors  to  adopt  the  necessary  measures  where  the  group  solvency  may  be  jeopardised 
(even if the group meets all regulatory requirements) or where the intra-group transactions or 
the  risk  concentrations  are  a  threat  to  the  financial  position  of  the  insurance  or  reinsurance 
undertakings within the group23. 

Despite the existence of those provisions, EIOPA reports that only twelve NSAs have explicit 
powers  of  early  intervention  at  group  level.  Further  investigations  would  be  needed  to 
understand  why  a  majority  of  NSAs  are  reported  as  having  no  early  intervention  power  at 
group level despite the existing provisions in the framework.  

Among the national frameworks where NSAs have early intervention powers, the triggers are 
very different, from purely quantitative (for two NSAs) to purely qualitative criteria (for two 
other  NSAs)  –  eight  NSAs  using  both  quantitative  and  qualitative  triggers.  The  toolbox  of 
early  intervention  powers  at  the  disposal  of  NSAs  as  group  supervisors  significantly  differs 
between  Member  States:  while  some  of  them  are  generally  available  (for  instance  to  limit 

18 Similar issues were identified in the banking sector. Directive (EU) 2019/878 of the European Parliament and 
of the Council of 20 May 2019 amending  Directive 2013/36/EU  introduces a  specific approval procedure and 
direct supervisory powers over certain holding companies. Further, Regulation (EU) 2019/876 of the European 
Parliament and of the Council of 20 May 2019 amending  Regulation (EU) No 575/2013 clarifies the criteria to 
identify whether the main activity of a financial institution (holding company) is to hold banking subsidiaries. 
19 See Article 242(2)(a) of the Solvency II Directive.   
20 See Article 218(5) of the Solvency II Directive. 
21 See Article 218(4) of the Solvency II Directive. 
22 See Article 141 of the Solvency II Directive. This provision does not apply mutatis mutandis at group level. 
23 See Article 258(1) of the Solvency II Directive. 

4 

 
 
 
 
 
 
 
 
                                                           
dividend payments), others are only available to a limited number of NSAs (for instance, to 
require the sale of subsidiaries). 

III.  Pillar I: group solvency calculation and supervision  

Supervision of group solvency implies monitoring that eligible own funds are available in the 
group,  and that their  amount is  always  at  least  equal  to  the group SCR24. By default,  group 
solvency  calculation  must  be  carried  out  in  accordance  with  method  1  ("accounting 
consolidation-based  method")25.  In  this  case,  both  group  own  funds  and  group  SCR  are 
calculated  on  the  basis  of  the  consolidated  accounts.  More  than  90  %  of  European  groups 
apply the default approach. 

Where  the  exclusive  application  of  method  1  would  not  be  appropriate,  group  supervisors 
may decide, after consulting the other supervisory authorities concerned and the group itself, 
to apply to a group either method 2 ("deduction and aggregation method") or a combination of 
methods 1 and 226. Before making that decision, the group supervisor must consider together 
a  limited  number  of  criteria  that  are  listed  in  Article  328  of  the  Commission  Delegated 
Regulation  (EU)  2015/35  (hereafter  "Solvency  II  Delegated  Regulation")27.  In  that  case,  the 
companies  that are not  in the scope of method 1 contribute to  the group  own funds and the 
group SCR through the proportional share of their solo own funds and capital requirements.  

In practice, and based on the supervisory disclosures published by NSAs, the "full" deduction 
and aggregation method is hardly ever applied, and the groups concerned represent less than 
0.9 % of the aggregate amount of group own funds at European level. 

a.  Group own funds 

i.  Classification of group own funds 

In  order  to  be  classified  at  group  level,  own  fund  items  issued  by  subsidiary  insurance  and 
reinsurance undertakings, insurance holding  companies, mixed financial holding companies, 
and ancillary services undertakings28, need to meet the requirements set out in Articles 331 to 
333  of  the  Solvency  II  Delegated  Regulation.  This  implies  that  for  an  own  fund  item  to  be 
eligible at group level, it is not sufficient to be classified as an own fund item at solo level. 

One  explicit  additional  requirement  is  for  a  group  own  fund  item  to  be  free  from 
encumbrances29. In practice, this implies that the assessment of encumbrances carried out at 
solo level may need to be supplemented by an additional analysis at group level. 

In  particular,  recital  127  of  the  Solvency  II  Delegated  Regulation  gives  an  example  of 
encumbrance  in  the  context  of  own  fund  items  issued  by  insurance  holding  companies  or 

24 See Article 218 of the Solvency II Directive. 
25 See Article 220 of the Solvency II Directive. 
26 See Article 220 of the Solvency II Directive. 
27 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. 
28 As defined in points (53) of Article 1 of the Solvency II Delegated Regulation. 
29 See paragraph 1(b) of Articles 331, 332 and 333 of the Solvency II Delegated Regulation. 

5 

 
 
 
 
 
 
 
 
 
 
 
                                                           
mixed financial holding companies30. EIOPA emphasises that this recital should be followed 
when  assessing  whether  there  is  an  encumbrance.  However,  some  NSAs  would  welcome 
more  clarity  in  a  legal  provision  in  order  to  ensure  the  enforceability  of  that  requirement. 
Furthermore, EIOPA underlines that it is not clear whether the principles set out in the recital 
should also apply to parent insurance or reinsurance undertakings whose own fund items are 
also  required  to  be  free  from  encumbrances31.  A  few  NSAs  already  follow  recital  127 
regardless of the nature of the parent company. 

An  additional  requirement  for  group  own-funds32  is  that  they  should  provide  for  a 
cancellation  or  deferral  of  distributions33,  as  well  as  the  suspension  of  their  repayment  or 
redemption34 where there is a non-compliance (or where the distributions would lead to non-
compliance) with the group SCR and/or the group MCR. However, the Regulation is unclear 
as  whether  non-compliance  with  this  requirement  implies  that  the  instrument  cannot  in  any 
circumstance be recognised as group own fund, even where it contributes to covering the risks 
stemming from a related insurance company. 

ii.  Availability of group own funds 

Article 330(1) of the Solvency II Delegated Regulation defines the criteria that NSAs should 
consider  when  assessing  the  availability  of  own  funds  at  group  level.  Assessing  the 
availability of group own funds requires an understanding of contract law and corporate law 
of  the  different  countries  where  the  group  is  operating.  This  creates  challenges  for  group 
supervisors, in particular in cases of large cross-border groups.  

Sometimes, the availability assessment is confused with a mere assessment of the liquidity of 
assets, since availability assessment covers both the capacity of own funds to absorb all types 
of  losses  and  the  ability  to  transfer  assets35.  It  is  subject  to  widely  diverging  supervisory 
practices,  which  can  have  a  significant  impact  on  group  solvency  calculations.  Those 
uncertainties are related to:  

 

 

the  methods  that  may  be  used  to  demonstrate  the  possibility  to  make  own  funds 
available within a maximum of nine months36,  
the treatment of specific items such as the reconciliation reserve37 (including expected 
profits included in future premiums and the benefit of the transitional measures on the 
risk-free rates or on technical provisions38), or minority interests; 

30 "Own fund items which are issued by insurance holding companies and mixed financial holding companies in 
the group should not be considered to be free from encumbrances unless the claims relating to those own fund 
items rank after the claims of all policy holders and beneficiaries of the insurance or reinsurance undertakings 
belonging to the group". 
31 In this regard, the title of Article 331 of the Delegated Regulation may not be fully consistent with the content 
of  this  article.  Indeed,  while  the  title  suggests  that  this  article  only  applies  to  related  insurance  or  reinsurance 
undertakings, paragraph 3 of this article provides that it also applies to participating undertakings. 
32 See paragraph (2)(a) of Articles 331, 332 and 333 of the Solvency II Delegated Regulation. 
33  See  Articles  71(1)(l),  73(1)(g)  and  77(1)(g)  of  the  Solvency  II  Delegated  Regulation.  Distributions  refer  to 
dividends  for  equity  instruments,  and  coupon  payments  for  subordinated  debts.  Cancellation  of  distributions 
where the group SCR is breached, is only required for Tier 1 own funds. 
34 See Articles 71(1)(j), 73(1)(f) and 77(1)(f) of the Solvency II Delegated Regulation. 
35 See points (a) and (b) of Article 330(1) of the Solvency II Delegated Regulation. 
36 See Article 330(1)(c) of the Solvency II Delegated Regulation. 
37 As defined in Article 70 of the Solvency II Delegated Regulation. 
38 See Articles 308c and 308d of the Solvency II Directive, respectively. 

6 

 
 
 
 
 
 
 
                                                           
 

the interpretation of the provision allowing certain non-available items to be included 
in group own funds up to the contribution of each related insurer to the group SCR39. 

b.  Group capital requirements 

i.  Use of method 1 (Accounting consolidation-based approach) 

When  method  1  is  used,  Solvency  II  requires  groups  to  fully  consolidate  all  EEA  and  non-
EEA insurance or reinsurance subsidiary undertakings40, or where the necessary information 
is not available, to fully deduct the book value of those companies41. However, some NSAs 
consider  those  requirements  impractical  for  large  international  groups,  and  see  room  for 
simplified  approaches.  More  generally,  other  differences  in  the  consolidation  approaches 
under Solvency II and IFRS may raise significant operational difficulties for groups42. 

The consolidated group SCR should take into account the global diversification of risks that 
exist  across  all  insurance  and  reinsurance  undertakings  in  order  to  reflect  properly  the  risk 
exposure  of  that  group43.  Therefore,  in  almost  all  cases,  where  method  1  is  used,  the  group 
SCR  will  be  lower  than  the  sum  of  the  solo  SCRs  of  all  insurance  and  reinsurance 
undertakings  within  that  group.  However,  according  to  EIOPA,  some  group  supervisors 
restrict  diversification  benefits,  by  considering  that  the  SCR  of  an  insurance  or  reinsurance 
undertaking is a barrier to transferability of its own funds. Such an interpretation would have 
the  same  effect  on  group  solvency  as  disallowing  diversification  benefits  between 
undertakings of a given group.  

Furthermore,  some  stakeholders  claim  that  the  approach  to  calculate  the  minimum 
consolidated  group  SCR  (hereafter  "group  MCR")  may  lead  to  unintended  consequences. 
Indeed,  while  at  solo  level,  the  Minimum  Capital  Requirement  (hereafter  "MCR")  must 
neither  fall  below  25  %  nor  exceed  45  %  of  an  undertaking's  SCR44,  there  is  no  such 
"corridor"  at  group  level.  As  a  result,  for  some  groups,  the  group  MCR  is  close  (or  even 
equal)  to  the  group  SCR,  and  the  group  MCR  ratio  can  be  lower  than  or  very  close  to  the 
group  SCR  ratio45.  Therefore,  there  may  be  cases  where  a  group  breaches  its  group  MCR 
before  its  group  SCR.  In  such  situations,  the  group  MCR  limits  the  diversification  benefits 
that groups may recognise in their capital requirements.  

Finally,  the  treatment  of  third-country  insurance  or  reinsurance  undertakings  in  the  group 
MCR may not be sufficiently clear, despite EIOPA guidelines46 on this topic.  

39 Some NSAs are of the view the contribution cannot be covered by non-available items only. 
40 See Article 335(1)(a) and Article 336(a) of the Solvency II Delegated Regulation. 
41 See Article 229 of the Solvency II Directive. 
42 For instance, Article 335 of the Solvency II Delegated Regulation does not make a clear distinction between 
joint ventures and joint-operations as defined in IFRS 11. This implies that while an insurer must account for its 
interest  in  a  joint  venture  using  the  equity  method  for  accounting  purposes,  it  may  have  to  use  proportional 
consolidation under Solvency II (this requires more granular and possibly non-available information). 
43 See Recital 101 of the Solvency II Directive. 
44 See  Article 129(3) of the Solvency II Directive. Note that this "corridor" does not apply in cases  where the 
MCR is equal to the absolute floor as defined in Article 129(1)(d) of the Directive. 
45  This  may  happen  because  Solvency  II  imposes  stricter  eligibility  criteria  for  own  funds  to  cover  the  group 
MCR.  Tier  3  own  funds  and  ancillary  own  funds  are  not  eligible  to  cover  the  group  MCR,  whereas  they  are 
eligible to cover the group SCR. 
46 Available at this link. 

7 

 
 
 
 
 
 
 
 
 
                                                           
ii.  Use of a combination of methods 1 and 2 

Where  a  combination  of  methods  is  used,  a  few  NSAs  consider  that  companies  included 
through method 2 should still contribute to the consolidated part of the group SCR47. Others 
do  not  agree  with  this  approach,  which  would  lead  to  a  double  counting  of  the  same  risks, 
since those companies also contribute to the total group SCR through the proportional share 
of their solo SCRs48. On the other hand, when using method 2 exclusively, the group SCR is 
based  on  the  solo  SCR  of  each  company  without  eliminating  intra-group  transactions 
(therefore, leading to double counting of the same risks).  

Another  uncertainty  is  whether  method  2  may  also  be  applied  to  insurance  holding 
companies,  and  not  only  to  insurers.  This  would  however  imply  ensuring  that  a  notional 
capital requirement for such companies is calculated in a consistent manner across the Union.  

Finally, it is unclear whether method 2 may apply to a consolidated sub-group49. EIOPA is of 
the view that the deduction and aggregation method may only apply to individual companies. 

iii.  Group internal models50  

In line with its risk-oriented approach, Solvency II allows insurance companies and groups to 
use  internal  models  for  the  SCR  calculation,  rather  than  the  standard  formula,  subject  to 
supervisory approval. Article 231 of the Solvency II Directive defines group internal models 
and provides rules on how to reach a joint decision on an application to use one.  

Based  on  the  supervisory  disclosures  published  by  NSAs,  there  are  45  approved  internal 
models51  at  group  level  in  ten  different  EU  Member  States.  In  general,  NSAs  consider  that 
Solvency  II  offers  the  measures  and  flexibility  required  to  effectively  assess,  authorise  and 
monitor the appropriateness of group internal models.  

Where  the  scope  of  a  group  internal  model  does  not  cover  all  related  insurance  and 
reinsurance  undertakings  (partial  group  internal  model),  groups  may  decide  to  apply  to 
companies that are not covered by the internal model: 

  one  of  the  integration  techniques  set  out  in  Annex  XVIII  of  Commission  Delegated 

Regulation (EU) 2015/35 (hereafter "Solvency II Delegated Regulation"); 
the deduction and aggregation method (method 2). 

 

However, integration techniques were initially designed to integrate risks, and not companies. 
Therefore,  the  use  of  those  techniques  at  group  level  may  not  properly  reflect  some  inter-
dependencies  between  undertakings.  There  might  also  be  opportunities  for  regulatory 
arbitrage  between  the  use  of  an  integration  technique  (which  does  not  require  a  dedicated 

47 They may be considered as contributing to the equity, currency and market risk concentration sub-modules. 
48 This argument is disputable regarding currency risk: method 2 may not appropriately capture the currency risk 
stemming from the use of a different currency at third-country undertaking level and at group level. 
49 This would imply that it is possible to calculate a consolidated capital requirement at the level of the sub-group 
(i.e.  net  of  intra-group  transactions  and  allowing  diversification  effects  between  the  companies  of  that  sub-
group), and to then aggregate that capital requirement to the rest of the group. 
50 See Article 242(2)(b). 
51 Eleven full internal models or thirty four partial internal models. 

8 

 
 
 
 
 
 
 
 
 
  
 
 
                                                           
approval process) and the use of the deduction and aggregation method (which is subject to 
prior supervisory  approval).  Indeed, the inclusion of a company may be more advantageous 
through an integration technique than through the deduction and aggregation method52, unless 
the undertaking concerned has its head office in an equivalent third country, in which case the 
group may be incentivised to apply for method 2 in order to use local rules53.  

Finally, EIOPA indicates that some groups take certain jurisdictions out of the scope of their 
internal models due to different supervisory practices. Furthermore, in the context of a joint 
decision  process,  the  same  internal  model  may  be  implemented  in  different  ways  at  group 
level and at the level of related undertakings on key aspects, such as the implementation of the 
dynamic  volatility  adjustment,  or  the  modelling  of  sovereign  risk.  Such  divergences  may 
affect group risk management.  

iv.  Treatment of undertakings from other financial sectors 

Undertakings  from  other  financial  sectors  (for  instance,  credit  and  financial  institutions,  or 
institutions  for  occupational  retirement  pensions)  should  be  included  in  the  group  solvency 
calculation through their proportional share of sectorial own funds and capital requirements54. 
Both EIOPA and NSAs are of the view that the legal framework does not clearly specify how 
such companies should contribute to the group SCR coverage. 

In particular, assessing the quality and availability of sectorial own funds in light of Solvency 
II  principles  proves  to  be  challenging.  Similarly,  the  legal  framework  does  not  specify  the 
treatment of sectorial capital buffers and add-ons.  

Finally, Article 228 of the Solvency II Directive provides that when calculating the solvency 
of  a  group  that  includes  a  related  credit  or  financial  institution  or  an  investment  firm,  that 
group  may  apply  methods  1  or  2  set  out  in  Annex  I  to  Directive  2002/87/EC55  mutatis 
mutandis.  This  article  also  provides  that  method  1  may  be  applied  only  where  the  group 
supervisor is "satisfied as to the level of integrated management and internal control regarding the 
entities  in  the  scope  of  consolidation".  However,  in  practice,  the  methods  set  out  in  Directive 
2002/87/EC  are  hardly  workable,  due  to  the  different  standards  for  valuation  and 
consolidation under the two frameworks, and the lack of guidance on how to assess the level 
of integrated management and internal control. 

52  For  instance,  minority  interests  may  be  part  of  group  own  funds  when  an  integration  technique  is  used, 
whereas it cannot be the case when the deduction and aggregation method is used. 
53  Where  a  related  insurance  or  reinsurance  undertaking  included  through  method  2  has  its  head  office  in  an 
equivalent third country as per Article 227 of the Solvency II Directive, that undertaking’s own funds and capital 
requirements may be determined in accordance with local rules for the purposes of group solvency calculation. 
54 See Article 335(1)(e) and Article 336(d) of the Solvency II Delegated Regulation. 
55  Directive  2002/87/EC  of  the  European  Parliament  and  of  the  Council  of  16  December  2002  on  the 
supplementary  supervision  of  credit  institutions,  insurance  undertakings  and  investment  firms  in  a  financial 
conglomerate  and  amending  Council  Directives  73/239/EEC,  79/267/EEC,  92/49/EEC,  92/96/EEC,  93/6/EEC 
and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council, OJ L 
35, 11.02.2003, p. 1. 

9 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
IV.  Pillars 2 and 3: group governance and group reporting56  

a.  Group governance 

i.  "Mutatis  mutandis"  application  at  group  level  of  provisions  that  are 

applicable at solo level 

Governance requirements at group level are not  fully specified in the Solvency II Directive. 
On  the  contrary,  the  Directive  simply  provides  that  several  provisions  that  are  applicable  at 
solo level also apply mutatis mutandis at group level. This makes it more difficult for group 
supervisors to implement such provisions, according to EIOPA. The main challenges concern: 

 

 

the group system of governance57. First, non-insurance companies are in the scope of 
groups and are therefore covered by the group system of  governance, which may be 
challenging. Furthermore, there may be legal uncertainties regarding the identification 
and  responsibility  of  the  "administrative,  management  and  supervisory  body" 
(hereafter "AMSB") at group level58. Finally, the AMSB of a solo company may face 
conflicting  objectives,  since  it  has  to  ensure  both  the  appropriateness  of  the  solo 
system of governance and its consistency with the group one. 
fit and proper requirements59, which depend on NSAs’ powers of intervention at  the 
level of holding companies. Moreover, the scope of application of those requirements 
are unclear in  EIOPA’s view (the AMSB and/or the persons who effectively run the 
insurance holding company and/or key functions holders)60. 

  group capital add-ons61, in particular in relation to governance. Since the group system 
of governance is partly defined via a reference to the mutatis mutandis application of 
solo  provisions,  which  is  subject  to  interpretation,  it  is  more  difficult  for  a  group 
supervisor to ascertain a significant deviation from the Directive.  

Those different examples show that the provisions using "mutatis mutandis" leave a very wide 
margin  for  interpretation,  and  may  raise  difficulties  for  supervisors  to  enforce  their 
interpretation  of  the  rules.  EIOPA  has  provided  guidance  on  some  of  the  above-mentioned 
issues. Some NSAs, when transposing the Solvency II Directive into national legislation, have 
also developed their own national rules or guidance. 

ii.  Centralised group risk management62  

Insurance  and  reinsurance  groups  are  required  to  establish  effective  risk  management  and 
internal  control  systems  applied  consistently  in  all  solo  undertakings  within  the  scope  of 

56 Although "pillar 3" also covers group public disclosure, this aspect is not in the scope of this chapter. 
57 See Article 246 of the Solvency II Directive. 
58 More precisely, there is no definition of the "group AMSB", and Article 40 of the Solvency II Directive on the 
responsibility of the AMSB does not apply mutatis mutandis at group level. 
59 See Article 257 of the Solvency II Directive.  
60 See Articles 257 (title and text of the article) and 42 of the Solvency II Directive.  
61 See Article 233(6) of the Solvency II Directive. 
62 See Article 242(2)(b); The regime of centralised group risk management replaces the Commission proposal of 
a "group support regime", which would have allowed groups to meet a part of the SCR of the subsidiaries by a 
promise that the parent company  would provide capital to related insurers  when necessary. The group support 
regime  is  out  of  the  scope  of  the  Commission’s  request  to  EIOPA  for  technical  advice  on  the  review  of  the 
Solvency II Directive. 

10 

 
 
 
 
 
 
 
 
 
                                                           
group supervision63. However, Solvency II also provides that groups may apply for a regime 
of  group  supervision  with  centralised  risk  management  (CRM)  where  the  risk  management 
processes  and  internal  control  mechanisms  of  the  parent  undertaking  also  cover  its 
subsidiaries64. The CRM regime therefore implies a transfer of risk management tasks from a 
related undertaking to the participating undertaking of the same group. 

There is currently no case of application of provisions on CRM. In any case, the CRM regime 
would  probably  have  no  significant  impact  on  the  capital  allocation  within  a  group,  since 
related  insurance  or  reinsurance  undertakings  would  still  have  to  comply  with  their  solo 
capital  requirements.  More  generally, under the current  framework, there  is  no clear benefit 
for groups to apply for the CRM regime. Where the CRM regime is applied, the arrangements 
between  the  parent  company  and  its  subsidiaries  related  to  risk-management  processes  and 
internal  control  mechanisms  fall  under  the  scope  of  outsourcing.  Therefore,  insurance  or 
reinsurance  companies  within  the  group  would  still  have  to  comply  with  all  Solvency  II 
outsourcing  requirements,  and  more  generally  remain  responsible  for  the  appropriateness  of 
their own system of governance.  

b.  Reporting  of  intragroup  transactions,  risk  concentration,  and  diversification 

effects at group level 

i.  Intra-group transactions65  

An intra-group transaction is a transaction by which an insurance or reinsurance undertaking 
relies, directly or indirectly, on other undertakings within the same group or on any natural or 
legal person linked to the undertakings within that group by close links, for the fulfilment of 
an obligation, whether or not contractual, and whether or not for payment66.  

Insurance or reinsurance groups are required to report to group supervisors significant intra-
group transactions  at  least  annually, and very significant  intra-group transactions  as  soon as 
practicable67.  Group  supervisors  must  also  define  the  types  of  intra-group  transactions  that 
should be reported by groups in all circumstances68. 

The definition in the Directive of an intra-group transaction may not be sufficiently clear and 
exhaustive. This leads to different interpretations both among supervisors and among market 
participants.  In  particular,  the  inclusion  in  the  scope  of  reporting  of  holding  companies, 
ancillary services undertakings, and companies from other financial sectors is uncertain.  

While  guidelines  from  EIOPA  could  help  foster  supervisory  convergence,  there  may  still  a 
need  to  ensure  legal  certainty  by  amending  the  definition  of  intra-group  transactions  in  the 
Solvency  II Directive. A clear delineation of the  scope of intra-group transactions  may  also 
have an impact on the triggering of enforcement measures, as supervisory authorities have the 
power to adopt measures where intra-group transactions (or risk concentrations) "are a threat 

63 See Article 246(1) of the Solvency II Directive. 
64 See Articles 236 to 239 of the Solvency II Directive. 
65 See Article 242(2)(c) of the Solvency II Directive. 
66 See Article 13(19) of the Solvency II Directive. 
67 See Article 245(2) of the Solvency II Directive. 
68 See Article 245(3) of the Solvency II Directive. 

11 

 
 
 
 
 
 
 
 
 
                                                           
to the financial position of the insurance or reinsurance undertakings"69. EIOPA reports one 
case where such enforcement measures were used at both solo and group level. 

Group supervisors follow different procedures and use different criteria and thresholds when 
requiring  the  reporting  of  intra-group  transactions.  While  some  supervisors  are  of  the  view 
that a case-by-case approach is justified by the need to take into account the specificities of 
each  group,  other  NSAs  believe  that  more  harmonisation  is  needed,  as  inappropriate 
thresholds  (either  too  low  or  too  high)  impair  the  supervision  of  intra-group  transactions, 
which is an integral part of the overall risk assessment of groups.  

ii.  Risk concentration70  

Participating insurance and reinsurance undertakings, insurance holding companies and mixed 
financial  holding  companies  are  required  to  report  to  group  supervisors  any  significant  risk 
concentration  at  least  annually71.  Group  supervisors  must  also  define  the  type  of  risks  that 
should be reported in any circumstances by groups72. 

However,  there  is  no  clear  definition  of  risk  concentrations.  Article  376  of  the  Solvency  II 
Delegated  Regulation  defines  "significant"  risk  concentration  indirectly  by  its  potential 
impact on the group solvency or liquidity position. That article also provides a non-exhaustive 
list  of  direct  and  indirect  exposures  that  should  be  considered  by  groups  when  reporting 
significant risk concentrations. 

The Solvency  II Directive makes a clear distinction  between significant  risk  concentrations, 
for which quantitative thresholds must be defined from risk concentrations to be reported in 
any  circumstances  that  should  be  defined  by  "type".  While  some  NSAs  strictly  respect  this 
distinction,  others  combine  quantitative  thresholds  with  qualitative  criteria  (for  instance, 
different thresholds depending on the rating of the instrument). At this stage, the Commission 
has  no  evidence  that  the  variety  of  supervisory  practices  in  this  regard  is  detrimental  to  the 
level-playing field.  

More generally, EIOPA identifies similar challenges as for intra-group transactions regarding 
the  determination  of  thresholds  and  types  of  risk  concentrations  to  be  reported:  while  some 
supervisors favour a case-by-case approach, other NSAs advocate for more harmonisation.  

iii.  Interactions between Solvency II and FICOD 

Where  an  insurance  group  is  also  (or  belongs  to)  a  financial  conglomerate  subject  to 
supplementary supervision in accordance with Article 5(2) of Directive 2002/87/EC (hereafter 
"FICOD"),  the  group  supervisor  under  Solvency  II  may  decide,  after  consulting  other 
supervisory authorities concerned, not to carry out the supervision of risk concentration and/or 
intra-group  transactions73.  Such  possibility  is  justified  by  the  existence  of  similar  reporting 
requirements under FICOD74. 

69 See Article 258(1) of the Solvency II Directive. 
70 See Article 242(2)(c) of the Solvency II Directive. 
71 See Article 244(2) of the Solvency II Directive. 
72 See Article 244(3) of the Solvency II Directive. 
73 See Article 213(3) of the Solvency II Directive. 
74 See Articles 8 and 9 of Directive 2002/87/EC. 

12 

 
 
 
 
 
 
 
 
 
 
                                                           
EIOPA  reports  only  two  cases  of  use  of  the  waiver75.  FICOD  provides  that  if  there  is  no 
agreed  threshold,  only  intra-group  transactions  exceeding  5  %  of  the  total  amount  of  the 
conglomerate's capital adequacy requirements should be reported. If the insurance part of the 
conglomerate is not very big in comparison to the banking part, this threshold is likely to be 
too  high to  sufficiently  cover insurance-related transactions. Therefore, in the absence of an 
agreement with the banking supervisor on more granular thresholds, there is no incentive for 
the insurance group supervisor to grant the waiver. 

iv.  Diversification effects in a group76 

Groups must provide to group supervisors a proper explanation of the difference between the 
sum  of  the  SCRs  of  all  related  insurance  or  reinsurance  undertakings  of  the  group  and  the 
group consolidated SCR77. However, in EIOPA’s view, the absence of harmonised reporting 
templates  on  diversification  benefits  leads  to  widely  diverging  quality  and  granularity  of 
information provided to group supervisors.  

However, there is  no one-size-fits-all approach to  the assessment of diversification benefits, 
which should be tailored to the risk, nature, and complexity of each group. Therefore, some 
NSAs  are  of  the  view  that  fully  standardised  reporting  and  disclosure  of  diversification 
benefits do not allow appropriately capturing the specific situation of each group.  

V.  Other  topics  listed  in  article  242(2)  of  the  Solvency  II  Directive,  which  are  not 

related to group supervision.  

a.  Mediation of supervisory disputes by EIOPA78  

By the end of 2018, there has been no case of request of binding mediation. EIOPA has been 
approached  by  some  NSAs  regarding  non-binding  mediation  related  to  cross-border  issues. 
EIOPA published its first non-binding mediation opinion in June 201879.  

b.  Insurance guarantee schemes (hereafter "IGS")80 

The situation in Europe regarding IGSs81 is fragmented. While some countries have more than 
one IGS, others have no IGS at all. There are also substantial differences regarding the lines 
of business covered, the coverage level, the scope of application82, the sources of funding, the 

75 According to the Joint Committee List of Financial Conglomerates published in 2018, there are 81 financial 
conglomerates among which 24 are fully or partly waived the application of FICOD.  
76 See Article 242(2)(d) of the Solvency II Directive. 
77 See Article 246(4) of the Solvency II Directive. 
78 See Article 242(2)(e) of the Solvency II Directive. 
79 Available at this link. 
80 See Article 242(2)(h). This section does not cover bodies responsible for compensation of victims referred to 
in Article 10 Directive 2009/103/EC ("Motor Insurance Directive"). 
81 According to the European Commission’s White Paper on Insurance Guarantee Schemes of 2010, "insurance 
Guarantee Schemes (IGSs) provide last-resort protection to consumers when insurance undertakings are unable 
to fulfil their contractual commitments. They thus protect people against the risk that claims will not be met if 
their insurance company becomes insolvent". 
82 Protecting policyholders in the home Member State only, or extending to the host Member States where the 
insurer is operating. 

13 

 
 
 
 
 
 
 
 
 
 
 
                                                           
role of the IGS83, the basis for calculating market participants’ contributions, and the capacity 
for the IGS to raise additional funding in case of shortfalls84. 

VI.  Conclusion 

Overall,  the  prudential  framework  of  group  supervision  is  proving  to  be  robust,  laying 
emphasis on capital management and governance, and allowing for a better understanding and 
monitoring of risks at group level. However, some areas of the framework may not ensure a 
harmonised implementation of the rules by groups and NSAs, with potential impacts on the 
level playing field and on capital management strategies.  

Chapter II shows that the diverging implementations of Solvency II on group supervision may 
be  detrimental  to  policyholder  protection,  depending  on  how  NSAs  determine  the  scope  of 
supervision,  and  exercise  supervision  at  the  level  of  parent  holding  companies.  It  also 
highlights  the  importance  of  ensuring  an  appropriate  supervision  of  groups  whose  parent 
company  is  headquartered  in  a  third  country.  In  addition,  in  light  of  the  wide  differences 
between  the  supervisory  powers  of  the  different  NSAs,  it  is  necessary  to  assess  the 
appropriateness of the powers of early intervention embedded in Solvency II. 

Chapter III identifies a number of legal uncertainties and diverging supervisory practices that 
can  have  a  significant  impact  on  group  solvency.  They  concern  both  group  own  funds,  the 
group SCR and the group MCR. The use of group internal models may raise additional issues. 
First, a different implementation of the same internal model at solo level and at group level on 
key aspects such as the dynamic volatility adjustment can affect  group risk management.  In 
addition,  the  use  by  a  group  of  a  partial  internal  model  could  generate  regulatory  arbitrage 
regarding the way to integrate in the group solvency the entities out of the scope of the model.  

Chapter  IV  illustrates  the  wide  margin  of  interpretations  regarding  the  provisions  on  group 
governance, which  are  generally defined in  the Solvency  II  Directive as a  mutatis  mutandis 
application  of  solo  requirements.  This  chapter  also  identifies  some  reasons  why  the  CRM 
regime  is  currently  not  applied  by  any  group.  With  regard  to  pillar  III  requirements,  the 
definition  and  scope  of  intragroup  transactions  to  be  reported  is  considered  by  EIOPA  and 
NSAs  as  insufficiently  clear  and  exhaustive.  However,  there  are  divergent  views  among 
supervisors  regarding  the  appropriate  level  of  harmonisation  of  the  reporting  of  intra-group 
transactions and risk concentrations, as well as of the quantification of diversification effects. 

Finally, the widely fragmented landscape of IGS in Europe, as shown in Chapter V, can affect 
policyholder protection, as illustrated by several recent cases of failures of insurers operating 
cross-border.  EIOPA  is  currently  further  investigating  on  the  need  for  potential  moves 
towards harmonisation of IGS, following its Discussion Paper published in 201885. 

Article  242(2)  of  the  Solvency  II  Directive  provides  that  the  Commission’s  report  may  be 
accompanied  with  legislative  proposals.  This  report  has  identified  a  number  of  important 
issues that may need to be addressed, potentially including via legislative changes. However, 
further analysis is needed on the impact of those potential changes in the rules. Therefore, the 
Commission  deems  it  appropriate  to  include  group  supervision  in  the  scope  of  the  general 

83 Seeking the continuation of insurance policies or policyholders compensation for the loss. 
84 For instance, by issuing debt securities or by increasing the amount of annual contributions. 
85 Available at this link. 

14 

 
 
 
 
 
 
 
 
 
                                                           
review in 2020 of the Solvency II Directive. The Commission has invited EIOPA to provide 
by 30 June 2020 technical advice on the issues identified in this report, as well as other related 
issues that may be detrimental to policyholder protection, as part of the 2020 Review of the 
Solvency II Directive86. 

86 See the Commission's request to EIOPA for technical advice on the review of the Solvency II Directive.  

15