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

Purpose: Early warning indica<strong>to</strong>r
15.21 An early warning indica<strong>to</strong>r could serve as an indication of a
deteriorating financial situation at <strong>the</strong> undertaking. For some Member
States an additional solvency control level above <strong>the</strong> SCR (apart from
<strong>the</strong> 'adjusted SCR') does not seem necessary, while o<strong>the</strong>r Member
States do not see <strong>the</strong> adjusted SCR as <strong>the</strong> only solvency control level
above <strong>the</strong> SCR. Since <strong>the</strong> level of <strong>the</strong> SCR has not yet been
determined, and is innovative, <strong>the</strong> latter Member States think it would
be advisable <strong>to</strong> have a control level above <strong>the</strong> SCR. This level would
offer <strong>the</strong> benefit of being harmonised and suitable for public disclosure
and would not only reflect private information between <strong>the</strong> supervisor
and <strong>the</strong> insurance undertaking. Fur<strong>the</strong>rmore, <strong>the</strong>se Member States
underline that a solvency control level above <strong>the</strong> SCR should be driven
by supervisory and prudential objectives. A prudent supervisor will
closely moni<strong>to</strong>r <strong>the</strong> undertaking's situation in any case. The
examination of whe<strong>the</strong>r <strong>the</strong> capital decreases continuously and
approaches <strong>the</strong> SCR, <strong>the</strong> first solvency control level, is one of a range
of indica<strong>to</strong>rs employed in day-<strong>to</strong>-day supervision. If such indica<strong>to</strong>rs
provide a reason <strong>to</strong> act, <strong>the</strong> supervisory authority should be able <strong>to</strong>
respond in a principle-based way.
15.22 Instead of identifying an early warning indica<strong>to</strong>r above <strong>the</strong> SCR, as one
alternative, downward trends in available solvency capital below <strong>the</strong>
SCR could be recorded. As soon as any sustained drop <strong>to</strong>wards <strong>the</strong>
MCR is evident, <strong>the</strong> supervisor should be able <strong>to</strong> take action. Thus,
<strong>the</strong>re should perhaps be a mid-level between <strong>the</strong> SCR and <strong>the</strong> MCR
which would serve as a checkpoint for more 'radical' supervisory
measures.
Purpose: A level calibrated on a longer time horizon
15.23 The <strong>Commission</strong> Services propose that <strong>the</strong> long-term nature of
insurance techniques should be taken in<strong>to</strong> account, <strong>to</strong>ge<strong>the</strong>r with o<strong>the</strong>r
fac<strong>to</strong>rs. The risk measures for calculating <strong>the</strong> SCR currently being
discussed in CEIOPS are geared <strong>to</strong> a single period. Never<strong>the</strong>less,
CEIOPS will also look in<strong>to</strong> o<strong>the</strong>r alternatives which may offer benefits
without presenting <strong>to</strong>o many practical difficulties. A longer time horizon
or a degree of variation within <strong>the</strong> time horizon may be necessary <strong>to</strong>
enable formulae or internal models <strong>to</strong> describe more realistically <strong>the</strong>
speed with which <strong>the</strong> insurer or its supervisor would be able <strong>to</strong> react.
15.24 If a time horizon of no longer than one year is <strong>to</strong> be taken in<strong>to</strong> account,
supervisory control considerations based on a longer time horizon
should be examined qualitatively as part of Pillar II, with <strong>the</strong> help of a
continuity test, for example. Supervisory authorities should have <strong>the</strong>
power, if appropriate, <strong>to</strong> require companies <strong>to</strong> run standard continuity
tests on an annual basis and <strong>to</strong> inform supervisors of <strong>the</strong> results.
15.25 Supervisors should not be obliged <strong>to</strong> perform a continuity test for every
undertaking (principles-based, ra<strong>the</strong>r than rules-based supervision). If
an undertaking fails a longer time-horizon test, ei<strong>the</strong>r <strong>the</strong> undertaking's
capital must be raised or <strong>the</strong> supervisor should require o<strong>the</strong>r measures
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