Five Solvency II Implementing Technical Standards were published in the Official Journal of the European Union at the end of last week, and all five will come into force on 2 December 2015.
These Implementing Technical Standards:
- Specify the regional government and local authority exposures that are to be treated as if they were central government exposures (2015/2011) when a (re)insurer (a) calculates its technical provisions; (b) calculates the market risk, and counterparty default risk, modules of the standard formula SCR; and (c) evaluates the risk mitigation techniques that it will or might take into account for SCR calculation purposes. (In the UK, exposures to the the Scottish Parliament, the National Assembly for Wales, and the Northern Ireland Assembly will be treated as if they were exposures to the UK government instead.) (See articles 101(5), 105(5), 105(6) and 109a(2) of the Solvency II Directive, and article 85 of the Delegated Regulation);
- Outline the procedures for setting, calculating and removing a capital add-on (2015/2012) (see article 37(8) of the Solvency II Directive);
- (With respect to the ‘additional assessments’ that (re)insurers are required to use to test the appropriateness of the external credit assessments they rely on, when they calculate their technical provisions and SCR), require (re)insurers to include, in their risk management policies, information about (a) the scope and frequency of the ‘additional assessments’; (b) the manner in which the ‘additional assessments’ are carried out; (c) the assumptions on which these assessments are based; (d) the frequency with which they are reviewed; and (e) the conditions that generate a requirement for an ‘additional assessment’ ad hoc review (2015/2015) (see articles 41(3) and 44(4a) of the Solvency II Directive);
- Govern the calculation of the equity index for the symmetric adjustment of the standard equity capital charge, for the purposes of the equity risk sub-module of the market risk module of the standard formula SCR (2015/2016) (see article 106(2) of the Solvency II Directive, and article 172 of the Delegated Regulation); and
- Govern the adjusted factors for calculating the capital requirement for currency risk for currencies pegged to the euro – long story short: Where the local or foreign currency is the euro, and for the purposes of articles 188(3) and (4) of Delegated Regulation, the 25 % factor is replaced by a factor of between 0.39% and 2% if the other currency is the Danish krone, the lev, the West African CFA franc, the Central African CFA franc, or the Comorian franc; and between 2.24% and 4.04% where there are two currencies and they are any combination of two of these five (2015/2017) (see article 109a(2)(c) of the Solvency II Directive, and article 188(5) of the Delegated Regulation).
These Technical Standards are now available on our Resources Page, which is available here.