Solvency II and insurance groups beyond the borders of the European Economic Area

Saying that the supervision regime applicable to insurance groups under Solvency II is complex is certainly an understatement.

But one thing is clear: very often, it will be in the best interest of an insurance group that subsidiaries located in countries outside EEA, but owned by EEA mother companies (and submitted to the group supervision of solvency organised by the Solvency II directive), do some efforts to be compliant, at least to some extent, with the requirements of Solvency II.

Group Solvency Capital Requirement

Indeed, to determine the group Solvency Capital Requirement, the default approach will be to apply the standard formula on the group consolidated data or to apply an internal model on these same data, or any mixed approach between these two approaches. In each case, the work will be facilitated if the subsidiary made an analysis of its risks at its level, gathered the necessary data and developed an appropriate model if appropriate. The local knowledge acquired in that way will be essential before trying to incorporate these risks in a global model or formula.

Requirements of pillar 2 and 3 at the group level

Under pillar 2, the ORSA (Own Risk and Solvency Assessment), has also to be carried out at the group level. Here also, if the work has not been done before at the local level, it will be very difficult for the group to incorporate a relevant assessment of the risk brought by the subsidiary.

Under pillar 3, in some cases, a unique report on solvency and financial condition at the group level is sufficient (rather than a report for each subsidiary), but even in that case, this unique report will have to contain the information by subsidiary, and the subsidiaries will have to be identifiable.