Answers to the European Commission on the ... - Eiopa - Europa

Pillar II review of capital adequacy
10.165 CEIOPS is aware that <strong>the</strong> way of arriving at <strong>the</strong> actual SCR for <strong>the</strong>
individual undertaking is a consequence of 'policy on solvency capital'.
10.166 The adequacy of <strong>the</strong> insurer's policy on solvency capital should be
assessed by supervisory authorities using Pillar II supervisory powers
as described in CEIOPS’ Answer <strong>to</strong> CfA 14.
10.167 An add-on measure, materialised in a requirement of an 'adjusted
SCR', may be envisaged as part of Pillar II measures, <strong>to</strong> be applied on
insurance undertakings with a deficient 'policy on solvency capital'.
Legal considerations should be studied, especially for those Member
States where regulations require precise and clear definitions for
creating higher individual solvency requirements. Having in mind <strong>the</strong>
legal environment in <strong>the</strong>se countries, a list of situations and actions <strong>to</strong>
apply add-on measures under Pillar II may be desirable as part of level
2 or level 3 implementing measures.
10.168 When risks are not captured or captured insufficiently by <strong>the</strong> Pillar I
calculation an 'adjusted SCR' may also be envisaged as part of Pillar II
measures.
10.169 However, where a supervisory authority concludes that <strong>the</strong> insurer has
deficiencies and failures in <strong>the</strong> systems and controls (including in
internal control and/or risk management, or in <strong>the</strong> governance and
market conduct qualitative requirements) of a nature and scale that
fall below minimum standards and where financial loss may result,
CEIOPS advises, that it may adjust <strong>the</strong> SCR <strong>to</strong> reflect this increased
risk while <strong>the</strong>se deficiencies are being rectified.
10.170 CEIOPS clearly recognises that <strong>the</strong> imposition of an adjustment in
<strong>the</strong>se circumstances is not a means of solving <strong>the</strong> issue, which must
be addressed via o<strong>the</strong>r supervisory <strong>to</strong>ols, but of covering <strong>the</strong> additional
risk in <strong>the</strong> meantime. However, supervisory authorities <strong>to</strong>ge<strong>the</strong>r with
<strong>the</strong> insurance undertakings must ensure that in an agreed time frame
<strong>the</strong> insurance undertaking remedies <strong>the</strong> causes for <strong>the</strong>ir additional
risks, so that <strong>the</strong> adjustment can be diminished afterwards.
112