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

(III) Supervisory Review Process of groups
Extract from <strong>the</strong> Call for Advice:
Would a supervisory review process (SRP) for insurance groups need <strong>to</strong> be set
up, in particular <strong>to</strong> take account of risks not existing on a solo level, but existing
at a group level and that are not taken in<strong>to</strong> account in Pillar I? (See also <strong>the</strong> Call
for Advice on SRP)
Should supervision be applied at group level and how? What would that exactly
entail including advantages/disadvantages (cf. separate Calls for Advice on
supervisory powers, solvency control levels, SRP)?
Explana<strong>to</strong>ry text
Aims <strong>to</strong> be pursued when supervising groups
18.49 It is not uncommon <strong>to</strong> find in <strong>the</strong> group context that it is actually <strong>the</strong>
parent undertaking that lays down <strong>the</strong> business strategy, as well as
sets up internal control and risk management mechanisms for <strong>the</strong>
entire group. Articles 10.3 of <strong>the</strong> Recast Life Directive, as well as Art.
9.3 of <strong>the</strong> Third Non-Life Directive require insurance undertakings
(solo) <strong>to</strong> have adequate internal control systems in place. The IGD
does not have a complete approach <strong>to</strong> internal control, but it addresses
<strong>the</strong> issue of internal control as regards supplementary supervision of an
insurance group as follows:
• regarding <strong>the</strong> information needed for <strong>the</strong> purposes of calculating
<strong>the</strong> adjusted solvency requirement, Art. 5.1 requires that
insurance groups shall have in place adequate internal control
mechanisms for <strong>the</strong> production of any data and information;
• regarding intra-group transactions, Art. 8.2 (as modified by
FCD), requires that insurance groups have in place adequate risk
management processes and internal control mechanisms in order
<strong>to</strong> moni<strong>to</strong>r and control intra-group transactions.
18.50 The FCD has a more complete approach <strong>to</strong> internal control and risk
management. Article 9 sets out more specific requirements for internal
control mechanisms and risk management processes.
18.51 Since a parent undertaking can exercise dominant influence on o<strong>the</strong>r
group undertakings, including <strong>the</strong> possibility <strong>to</strong> restructure <strong>the</strong> capital
of <strong>the</strong> subsidiaries, <strong>the</strong>re is an unquestionable need <strong>to</strong> ensure that <strong>the</strong>
same capital of <strong>the</strong> subsidiaries is not artificially used within a group <strong>to</strong>
cover risks simultaneously in several group companies (double-gearing
of capital).
18.52 An unregulated parent undertaking and its unregulated subsidiaries
may incur similar counterparty and market risks as regulated group
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