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

Uniform or different rules for technical provisions, MCR and SCR
9.66 The existing investment rules only affect <strong>the</strong> assets covering technical
provisions. 65 In <strong>the</strong> future regime <strong>the</strong>re will be investment rules for <strong>the</strong>
coverage of technical provisions, <strong>the</strong> MCR and <strong>the</strong> SCR. The question
whe<strong>the</strong>r <strong>the</strong> investment rules for different purposes would be <strong>the</strong> same
or different overlaps with CfA 5 on investment management rules 66 .
9.67 It is possible that, in <strong>the</strong> future regime, some or all of <strong>the</strong> implicit
prudential margins now present in <strong>the</strong> technical provisions will be
included explicitly as part of <strong>the</strong> risk margin in <strong>the</strong> provisions. But some
of this implicit prudence might also be transferred <strong>to</strong> <strong>the</strong> MCR and <strong>the</strong>
SCR. Therefore, <strong>to</strong> maintain <strong>the</strong> policyholder safety standards of <strong>the</strong>
existing regime, it might be necessary that <strong>the</strong> same rules apply <strong>to</strong> <strong>the</strong>
coverage of <strong>the</strong> technical provisions, <strong>the</strong> MCR and <strong>the</strong> SCR.
9.68 In life insurance, some part of <strong>the</strong> implicit prudential margins in <strong>the</strong>
current provisions stems from investment risk (since, for example, <strong>the</strong>
interest rates used <strong>to</strong> discount <strong>the</strong> provisions are prudently chosen),
and may, under <strong>the</strong> future solvency regime, indeed be covered, at least
partly, by <strong>the</strong> MCR/SCR. Whe<strong>the</strong>r or not <strong>the</strong> absolute value of <strong>the</strong>
provisions will increase or decrease under Solvency II seems <strong>to</strong> be a
separate issue (<strong>the</strong> valuation of assets will change under Solvency II,
so an increase in <strong>the</strong> level of provisions does not necessarily imply that
<strong>the</strong>re is a likewise increase in <strong>the</strong> level of policyholder safety).
9.69 Ano<strong>the</strong>r argument supporting a uniform treatment of assets is <strong>the</strong> fact
that <strong>the</strong> MCR/SCR is a risk buffer that may have <strong>to</strong> be used up during
<strong>the</strong> solvency assessment time horizon; in such a situation, <strong>the</strong> insurer
should always be able <strong>to</strong> cover its liabilities with assets of sufficient
quality. This could constitute a problem if assets of minor quality were
allowed <strong>to</strong> cover <strong>the</strong> SCR/MCR.
9.70 Applying <strong>the</strong> same rules at all three levels has <strong>the</strong> added advantage of
simplicity.
9.71 Against this, <strong>the</strong>re is a concern that applying <strong>the</strong> same rules <strong>to</strong> <strong>the</strong> SCR
coverage may prove unduly restrictive, and that <strong>the</strong> availability of
admissible assets would cause difficulties for <strong>the</strong> companies if <strong>the</strong> rules
for <strong>the</strong> coverage of technical provisions were extended <strong>to</strong> <strong>the</strong> SCR. This
depends on how restrictive, or how permissive <strong>the</strong>se rules are.
9.72 The possibility of investment management difficulties arising from
investment rules must be properly examined.
9.73 The specific investment rules discussed in this answer would need <strong>to</strong> be
adapted in cases where part of <strong>the</strong> <strong>the</strong> investment risk is borne by <strong>the</strong>
policyholder (e.g. unit-linked life business).
65 To be more precise, <strong>the</strong> rule that excludes intangible assets from <strong>the</strong> available solvency margin is in effect
an investment rule for <strong>the</strong> assets covering <strong>the</strong> capital requirement.
66 CEIOPS-DOC-03/05, available on CEIOPS’ website: www.ceiops.org.
63