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

Background
Current situation
15.1 Two explicit solvency control levels are currently in place (although
current legislation does not use this terminology):
• <strong>the</strong> required minimum solvency margin; and
• <strong>the</strong> guarantee fund.
The consequences of breaching <strong>the</strong>se control levels are set out in
Article 37 of <strong>the</strong> Recast Life Directive (and in Article 20 of <strong>the</strong> First
Non-life Directive). The requirement for a complete coverage of
technical provisions by admissible assets is an implicit control level. If
this control level is breached, competent authorities may limit <strong>the</strong> free
disposal of assets. In some Member States, <strong>the</strong> supervisor can also
require a financial recovery plan.
Explana<strong>to</strong>ry text
Introduc<strong>to</strong>ry remarks
15.2 The aim is <strong>to</strong> establish appropriately harmonised compulsory standards
<strong>to</strong> be applied by all supervisors. Supervisors may take additional action
where indicated.
15.3 CEIOPS agrees with <strong>the</strong> <strong>Commission</strong> Services that <strong>the</strong> Framework
Directive and possible future implementing measures should include
control levels, with different functions, <strong>to</strong>ge<strong>the</strong>r with binding or nonbinding
consequences <strong>to</strong> be associated with <strong>the</strong>se various control
levels.
15.4 The severity of <strong>the</strong> ensuing action depends on <strong>the</strong> type of <strong>the</strong> control
level, which again corresponds <strong>to</strong> <strong>the</strong> degree of mismatch. So, <strong>the</strong>
solvency control levels are <strong>to</strong> be unders<strong>to</strong>od as a supervisory action
'ladder', where a minor deficiency results in flexible, or soft, supervisory
action (principles-based), whereas a major deficiency results in a firm,
rules-based, supervisory intervention.
15.5 This answer is based on <strong>the</strong> SCR and MCR as defined by CEIOPS.
Supervisory reviews of <strong>the</strong> insurer's individual capital adequacy
assessment and risk control processes under Pillar II may result in
changes being made <strong>to</strong> <strong>the</strong> SCR or <strong>the</strong> establishment of an 'adjusted
SCR'.
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