The Solvency II Directive provides for alternative methods for carrying out the group solvency calculation:
- Consolidation under Article 320.
- Deduction and aggregation under Article 233.
- A combination of both methods, subject to group supervisor approval.
EIOPA recently published an opinion1 (EIOPA-BoS-16-008) concerning the use of a combination of methods, highlighting matters which the group supervisor should consider when approving the use of a combination of methods.
The EIOPA opinion states that when a combination of methods is used, the provisions of the Solvency II Directive relevant to (i) the consolidation method; and (ii) the deduction and aggregation method should be applied respectively. This means that distinct tier limits should be used for the parts of the group using each method.
However, EIOPA also recognises that the use of a combination of methods may lead to unintended consequences for example, where groups organise their funding through a central holding company. In such circumstances, EIOPA recommends that the group supervisor should assess the potential impact of the application of a combination of methods before taking the decision, so as to ensure that prudential concerns are duly addressed and that no group is placed in an advantageous position compared to groups exclusively using the consolidation method.
EIOPA states that it will monitor developments in the issues addressed in its opinion.