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

a robust floor <strong>to</strong> <strong>the</strong> SCR in a group context. Given <strong>the</strong> requirement of
robustness, CEIOPS advises <strong>to</strong> determine such a floor based on <strong>the</strong>
addition of <strong>the</strong> relevant solo MCRs.
18.26 If <strong>the</strong> SCR at group level is determined via a standard formula allowing
for diversification benefits, <strong>the</strong>n it is conceivable that <strong>the</strong> group SCR
could also be lower than <strong>the</strong> sum of <strong>the</strong> solo MCRs. In this context,
CEIOPS would advise that <strong>the</strong> same principle should apply as described
in para. 18.25 concerning internal models.
18.27 It should be noted that were <strong>the</strong> solo MCR determined in a simple
linear way, comparable <strong>to</strong> <strong>the</strong> determination of <strong>the</strong> presently required
solvency margin, <strong>the</strong>n <strong>the</strong> group MCR would be determined directly at
group level in <strong>the</strong> form of a sum of solo MCRs. This ´floor´ group MCR
would thus not allow for any diversification benefits, just as <strong>the</strong> solo
MCR is less risk sensitive than <strong>the</strong> solo SCR 135 .
18.28 The method for determining and calibrating <strong>the</strong> MCR and SCR is still
being discussed and CEIOPS notes that it might need <strong>to</strong> amend its
advice at a later stage in <strong>the</strong> light of <strong>the</strong> outcome of that particular
discussion.
18.29 CEIOPS also notes that financial groups may include entities with
activities (financial or non-financial) which do not require authorisation,
but which may never<strong>the</strong>less impact on <strong>the</strong> risk profile of <strong>the</strong> group.
Fur<strong>the</strong>r analysis is required <strong>to</strong> determine <strong>to</strong> what extent a notional
capital requirement may usefully be calculated and integrated in<strong>to</strong> <strong>the</strong>
group capital requirement and <strong>to</strong> what extent qualitative requirements
and supervisory instruments may be defined <strong>to</strong> deal with <strong>the</strong> risk
resulting from such companies being part of <strong>the</strong> group.
18.30 CEIOPS notes in particular that risk fac<strong>to</strong>rs that may lead <strong>to</strong> a
diversification benefit at group level may be easier <strong>to</strong> quantify than
o<strong>the</strong>r risks, such as legal, operational or reputation risk, that result
from an insurer being part of a group. CEIOPS cautions that <strong>the</strong>re may
thus appear a bias <strong>to</strong>wards <strong>the</strong> granting or seeking of a diversification
benefit, ra<strong>the</strong>r than an increase of SCR at solo or group level. Hence
CEIOPS stresses that <strong>the</strong> supervisory review process should pay
particular attention <strong>to</strong> whe<strong>the</strong>r any such risks arising at group level
may lead <strong>to</strong> a possible increase of SCR at solo or group level. CEIOPS
foresees that, on a case-by-case basis, groups would be required <strong>to</strong>
demonstrate clearly <strong>to</strong> <strong>the</strong>ir supervisors that <strong>the</strong>ir risk exposure and
risk management would allow for a diversification benefits. CEIOPS
envisages that this may well lead <strong>to</strong> <strong>the</strong> requirement that this be
demonstrated through a validated internal model and <strong>the</strong> evidence of
sufficiently sophisticated risk management. Such a model would need
<strong>to</strong> quantify <strong>the</strong> risks that occur within a group context, both under
average and stressed situations. Any supervisory assessment should
take in<strong>to</strong> account modelling uncertainty, which may offset any
perceived diversification benefits.
135 The method for determining <strong>the</strong> MCR is still being discussed and CEIOPS notes that <strong>the</strong> outcome of that
particular discussion might alter this particular line of thought.
208