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

Capital requirements
18.39 The Framework Directive should set provisions for determining a
SCR at group level. There is no general need <strong>to</strong> define a group MCR
as a separate trigger for supervisory intervention. Any adjustments
<strong>to</strong> required solo capital following Supervisory Review Process
(Pillar II) should be fully and au<strong>to</strong>matically taken in<strong>to</strong> account in <strong>the</strong>
determination of required capital at group level.
18.40 CEIOPS stresses that fur<strong>the</strong>r conceptual and numerical analysis is
required on <strong>the</strong> issue of diversification benefits, increases in required
capital, and on <strong>the</strong> processes leading <strong>to</strong> <strong>the</strong> recognition of such
benefits in <strong>the</strong> determination of <strong>the</strong> group SCR.
18.41 The Framework Directive should allow and encourage <strong>the</strong> use of
internal models at group level.
18.42 The group SCR determined with <strong>the</strong> aid of an internal model may
incorporate diversification benefits, or additional capital charges, but
should have a floor based on in essence an addition of <strong>the</strong> solo
MCRs. If a standard formula for <strong>the</strong> determination of <strong>the</strong> group SCR
would include diversification benefits, CEIOPS considers that <strong>the</strong>
same floor concept might apply. 137
18.43 CEIOPS envisages that groups will 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 benefit on a
case-by-case basis. CEIOPS foresees that this may well lead <strong>to</strong> <strong>the</strong>
requirement that this be demonstrated through a validated internal
model and evidence of sufficiently sophisticated risk management.
Such a model would need <strong>to</strong> take in<strong>to</strong> account all risks that occur
within a group context and quantify <strong>the</strong>m as much as possible, both
under average and stressed situations.
18.44 CEIOPS is not convinced that it is possible <strong>to</strong> identify and quantify
diversification benefits at a group level sufficiently accurately for
<strong>the</strong>m <strong>to</strong> be reflected in a reduced SCR at solo level (see draft answer
<strong>to</strong> CfA 19). However, CEIOPS believes that work should continue on
this question and <strong>the</strong> way left open for fur<strong>the</strong>r recognition of
diversification benefits in <strong>the</strong> future. Hence a majority of CEIOPS
members hold <strong>the</strong> view that <strong>the</strong> solo SCR should not be reduced <strong>to</strong>
reflect any diversification benefits at group level which are not
evident at solo level. Any risks that appear at solo level as a
consequence of being part of a group should be reflected in <strong>the</strong> solo
SCR, <strong>to</strong> be assessed in <strong>the</strong> supervisory review process 138 .
18.45 CEIOPS fur<strong>the</strong>r notes that <strong>the</strong> issues outlined above also
fundamentally relate <strong>to</strong> <strong>the</strong> definition of eligible forms of capital, as
137 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.
138 Ano<strong>the</strong>r view is that, in principle, groups should be allowed <strong>to</strong> reflect group level diversification benefits
back <strong>to</strong> <strong>the</strong>ir solo entities SCR, provided <strong>the</strong>y meet a certain eligibility test.
211