An insurance group is an insurer or holding company with one or more participating interests in subsidiaries that are primarily insurance or reinsurance firms. In such cases, supervision of the individual insurance firms in the group is supplemented by supervision of the group as a whole. This means that almost all elements of Solvency II are, mutatis mutandis, applied to the group.
Application of group supervision
In principle, group supervision is carried out at the level of the highest insurance firm (parent) or insurance holding company. However, in some cases it is also possible to supervise a smaller part of the insurance group at a national or European level. This is referred to as “subgroup supervision”.
If a group carries out insurance activities even though its core activity is not the insurance business, it is termed a mixed insurance holding company. For these groups, the emphasis is on reporting intra-group transactions. The individual insurance entities still have to meet all Solvency II Directive requirements.
If the parent company is based outside the EU (third country), an assessment is made to determine the equivalence of the supervision in the third country with the stipulations of Solvency II. If so, group supervision in specific cases may be left to the authorities in the third country. An important condition, however, is that the cooperation between the European supervisors and the supervisor in the third country is properly structured and that information exchange is effectively organised through a college of supervisors.
Solvency of the group
Insurance groups must meet the solvency requirements of Solvency II at the level of the group. The insurance groups may use an internal model for computation provided it has been validated by the supervisor. There are two methods for including the various activities of a group in the computation of the group's solvency. The standard method is based on the group's consolidated annual accounts. In special cases the supervisor may also decide to apply the deduction and aggregation method.
Governance and risk management
The governance requirements for individual insurers also apply to insurance groups. In addition, there are complementary requirements for internal control systems with respect to group reporting and the principal insurance firm must also perform an Own Risk and Solvency Assessment (ORSA) for the group as a whole.
Integrity and suitability
The persons running the insurance holding company must be competent and trustworthy enough to exercise these functions properly. The group must provide the supervisor with the necessary information to determine whether these persons are trustworthy and suitable. The group supervisor may enforce the group requirements at the level of the holding company. Any sanctions and measures may be imposed at the level of the holding company or on the persons actually running it.
Group Solvency and Financial Condition Report
Just like individual insurers, insurance groups must publish information about their financial position. Subject to certain conditions, groups only have to submit a single Group Solvency and Financial Condition Report containing data on the group and the individual insurers. However, this requires prior approval by the supervisory authority.
Cooperation between the European supervisory authorities
The introduction of group supervision increased the importance of cooperation between supervisors of various countries. Solvency II contains stipulations for European supervisory authorities that are involved in the supervision of internationally operating insurance groups through the college of supervisors. These stipulations deal with the rights and duties of the supervisors in the college, the information exchange, mutual cooperation and decision-making. In addition, EIOPA acts as an intermediary.