solvency ii: equivalence decisions

Solvency II Equivalence Decisions

Introduction

1 On5June2015theEuropeanCommissionpublisheditsfirstsetofthirdcountryequivalencedecisionsmade

under Directive 2009138EU1 (ldquoSolvency IIrdquo) These decisions relate to Switzerland Australia Bermuda

BrazilCanadaMexicoandtheUnitedStatesofAmerica(ldquoUSrdquo) This legal update considers what the

decisionsmeanandtheirpotentialeffectoninsurersandreinsurersinthesethirdcountryjurisdictions

TheupdatefirstoutlinesthescopeofSolvencyIIgenerallyandthenfocusesonitsextraterritorialimpact

particularlythemeaningofthirdcountrylsquoequivalencersquoundertheSolvencyIIregimeandtheeffectofan

lsquoequivalencedecisionrsquoFinallytheupdatelooksatthedecisionsmadethusfarbytheCommissionandthe

practicaleffectthesedecisionswillhaveonthebusinessof(re)insurersbothwithinandoutsidetheEuropean

Economic Area (ldquoEEArdquo)2

The scope of Solvency II

2 SolvencyIIestablishesanewsolvencyandsupervisoryregimefortheEEAinsurancemarketItwillenter

intoforceon1January2016andwillreplace14insuranceandreinsurancedirectives(previouslyknown

collectively as ldquoSolvency Irdquo)Thisnewprudentialregulatoryregimeisaimedatdevelopingasinglemarket

fortheEEAinsurancesectorwhichisoneofthelargestsectorsintheEEAaccountingforaroundathirdof

worldwide insurance business3

3 SolvencyIIprimarilyappliestodirectlifeandnon-lifeinsuranceandreinsuranceundertakingswhichare

established in or which wish to become established in the EEA4 and which are not small (re)insurance

undertakings5Thenatureofsomeofitsprovisionsandrequirementshowevermeansthatitwillalsohave

animpactonnon-EEA(re)insurersincertainsituations

TheextraterritorialeffectofSolvencyII

4 TheextraterritorialeffectofSolvencyIIissignificantInadditiontoitsapplicationwithintheEEAthereare

threeareasinwhichSolvencyIIhasextraterritorialeffectSolvencyIImayaffect

(a) non-EEAreinsurerswheninvolvedinEEAreinsurancecontracts

(b) non-EEAsubsidiariesofEEA(re)insurersand

(c) non-EEA(re)insurerswithEEAsubsidiariesbutwhichdonothaveanEEAsub-groupwithanEEA

parent

Theaimoftheseextraterritorialprovisionsistopreventdistortionsofcompetitionandregulatoryarbitrage

bycreatingalevelplayingfieldamongstall(re)insurersactiveintheEEAregardlessofwhetherthe(re)

insurance group is based inside or outside the EEA

1 As amended by Directive 2014 51EU (ldquoOmnibus IIrdquo)2 At the time of writing the EEA consists of the 28 Member States of the European Union plus Iceland Lichtenstein and Norway3 Insurance Europe Key Facts report found at http wwwinsuranceeuropeeuuploads Modules Publications european -insurance - - - key-

facts-2014 pdf Accessed 1720154 See Article 2(1) Solvency II5 See Article 4 Solvency II

Legal UpdateSeptember 2015

2 Solvency II Equivalence Decisions

5 Inrespectofcategory(a)intheaboveparagraphnon-EEAreinsurerswritingreinsurancecontractswith

EEAentitiesmaybeaffectedbecauseSolvencyIIdoesnotpreventEEAregulatorsimposingadditional

regulatoryrequirementsoncontractsofreinsurancewrittenbyreinsurersfromacountryoutsidetheEEA

whichhasnotbeendeemedtohaveasolvencyregimeequivalenttoSolvencyIIArticles172(3)and173of

SolvencyIIpreventMemberStatesfromtreatingreinsurancecontractswrittenbyreinsurersfromoutside

theEEAlessfavourablythanthosewrittenbyEEAinsurersbutonlywhereanequivalencedecisionhasbeen

adoptedforthethirdcountryinwhichthenon-EEAreinsurerisbasedSointheabsenceofanequivalence

decisionMemberStatesmayimposeadditionalrequirementsonnon-EEAreinsurersThemostcommonly

imposedadditionalrequirementsrelatetocollateralanon-EEAreinsurercanbesubjecttoincreased

collateralrequirementswithintheEEAthusplacingthenon-EEAreinsureratacompetitivedisadvantageto

EEAreinsurers(andthosenon-EEAreinsurerswhosehomejurisdictionhasbeendeemedequivalent)who

areprotectedfromsuchextrarequirementsbySolvencyII

6 Inrelationtocategory(b)aboveArticle227ofSolvencyIIprimafacierequiresEEA(re)insurerstocalculate

consolidated group solvency across their global insurance business Where the EEA (re)insurer has a

subsidiary(orsubsidiaries)basedinanon-EEAjurisdictionthereislikelytobeadiscrepancybetweenthe

methodsofcalculationofsolvencyusedbythatsubsidiaryandthoseusedbytheEEApartsofthebusiness

thesubsidiarywilltypicallyusethelocallyacceptedmethodofitshomejurisdictionandtheEEA-based

entitieswillusethemethodsofSolvencyIIToavoidthisdiscrepancySolvencyIIrequiresthesubsidiaryto

useSolvencyIIformulaeforEuropeanreportingpurposesThiscreatesconsistencyacrossthegroupbutis

likelytocreateanadditionalandduplicativeburdenasthesubsidiarymayberequiredtocalculateandreport

solvency data on two bases

7 Ifthesubsidiaryisrequiredtousetwodifferentmethodsforcalculationofsolvencyitispossiblethatthe

resultsofthecalculationswilldifferbetweenthelocalregimeandtheSolvencyIIregimeForexamplea

subsidiarymightbegivencreditunderitslocalsystemforanticipatedincomeorcreditbutSolvencyIIis

basedonmarket-consistentprinciplesandsoitsformulaedonotgivecreditforanythingbasedonfuture

performanceTheliabilityandassetrequirementsforthesubsidiarycouldbethereforehigherunder

SolvencyIIthantheyhavebeenwhilethesubsidiarywassolelysubjecttothelocalsystemsuddenlyrequiring

thesubsidiarytofindormaintainmoreassetsandfewerliabilities

8 Ifthehomejurisdictionofthenon-EEAsubsidiaryhasbeendeemedequivalentthegroupmaytakeaccount

ofthatjurisdictionrsquossolvencycapitalrequirementandthecapitaleligibletomeetthatrequirementinthe

calculationofgroupsolvencyIfanequivalencedecisionhasnotbeentakenbytheCommissiontheEEA

group supervisor in collaboration with the European Insurance and Occupational Pensions Authority

(ldquoEIOPArdquo)andcollegemembersmayundertakeanequivalenceassessment6 on its own initiative or at the

requestofthe(re)insurerconcerned

9 Anon-EEA(re)insurancegroupwithanEEAsubsidiarybutnotanEEAsub-group(asmentionedin

paragraph 4(c)above)couldencounterdifferentproblemsunderSolvencyIISolvencyIIcontainsprovisions

regardingthesupervisionof(re)insurersthatarepartofagroupTheseprovisionspotentiallyapplytonon-

EEAgroupswithasubsidiaryintheEEAwhoseparentundertakingisheadquarteredoutsidetheEEAIn

theabsenceofanequivalencedeterminationinrespectofthenon-EEAjurisdictioninwhichthegroupis

headquartered an EEA supervisor may decide to apply the group provisions set out in Articles 218 to 235 and

Articles244to258totheworldwidegroupasifitwerebasedintheEEAAlternativelyEEAMemberStates

have a discretion to permit their supervisors to use ldquoother methodsrdquo which ensure appropriate supervision

6 See Article 227(2) Solvency II

mayer brown 3

ofthenon-EEAgroupSolvencyIIandEIOPAenvisagesanldquoothermethodrdquoofsupervisiontobethe

requirement to establish an EEA holding company7 so that supervision can be exercised at that level This

isbecausethereisspecificprovisioninSolvencyIIfornon-EEAgroupsthathaveanEEAsub-groupwith

anEEAparentundertakingthatisitselfa(re)insurerorinsuranceholdingcompanyWhenthereissucha

groupstructureArticle215providesthatSolvencyIIgroupsupervisionshouldonlybeappliedatthelevelof

the ultimate EEA parent

10 Whereanon-EEAgroupdoesnothaveanEEAsub-groupthenitispossiblethatSolvencyIIgroup

supervisionwillbeappliedtotheworldwidegroupThisisnotthedefaultpositionastherearethreeother

options

(a) ACommissiondecisionthatthenon-EEAgroupissubjecttoequivalentgroupsupervisionenables

reliancetobeplacedonthatsupervisionasopposedtotheimpositionofSolvencyIIrequirements

(b) AswiththesolvencyassessmentifanequivalencedecisionhasnotbeentakenbytheCommissionthe

acting EEA group supervisor8incollaborationwithEIOPAandcollegemembersmayundertakean

equivalenceassessmentattherequestofthenon-EEAparentundertakingtheEEAsubsidiariesoronits

own initiative9AdeterminationbytheEEAsupervisorthatthenon-EEAgroupissubjecttoequivalent

group supervision enables reliance to be placed on that supervision in the same way as a Commission

equivalence decision

(c) Member States have a discretion to permit their national supervisors to apply other methods to ensure

appropriatesupervisionThosemethodsmustbeagreedbythegroupsupervisorafterconsultingthe

other relevant supervisors

Intheabsenceofbothanequivalencedeterminationandadecisiontoapplyldquoothermethodsrdquotothenon-EEA

groupthatgroupisrequiredtoapplytherelevantSolvencyIIrequirementstotheworldwidegroupasifit

were based in the EEA

11 Thegroupprovisionsreferredtoaboveincludethegroupsolvencyassessmentsummarisedatparagraphs

6ndash8ofthisupdatethepossibleimpositionofagroupcapitaladd-onsupervisionofriskconcentrationand

intra-grouptransactionssupervisionofthesystemofgovernancearequirementforagroupsolvencyand

financialconditionreportandarequirementthatthepersonsrunningtheinsuranceholdingcompanyare

fitandproperTheserequirementsifimposedcouldbeonerousAnEEAsubsidiaryofanon-EEA(re)

insurancegroupforexampleisrequiredtoreportonitsindividualfinancialconditionaspartofareport

onthefinancialconditionofitsgroup10ThiscouldrequirethirdcountrygroupsofinsurerswithanEEA

elementtoproducefullSolvencyIIfinancialconditionreportssimplybyvirtueofone(potentiallyquite

small)partofthegrouprsquosbusinessbeingcaughtbythegroupsupervisionregime

12 The UK regulator the Prudential Regulation Authority (ldquoPRArdquo) has explained that an application may be

madetothePRAforawaiverfromtherequirementtoapplytherelevantSolvencyIIrequirementstoanon-

EEAworldwidegroupasifitwereagroupbasedintheEEATheapplicationshouldstateothermethodsof

supervisionforthePRAtoconsiderThePRAwillassesssuchapplicationsonacase-by-casebasistaking

intoaccounttheobjectivesofgroupsupervisionasspecifiedbySolvencyIIAnapplicationmaybesubmitted

beforearelevantequivalencedecisionismadebutthePRAmayrefrainfrommakingadecisionuntilan

equivalencedecisionhasbeenfinalised11

7 Article 262(2) Solvency II and Guideline 5 of Guidelines on group solvency EIOPA-BoS-141818 The EEA supervisor who would be the group supervisor if the Solvency II criteria (set out in Article 272(2)) were applied9 See Article 260(1) Solvency II10 It isagroupsupervisionrequirementunderArticle256thatthesolvencyof individualsubsidiariesis includedinagroupfinancialcondition report11 See Supervisory Statement | SS915 Solvency II group supervision March 2015 Section 9


What is equivalence

13 Totemperitsextraterritorialeffectandasindicatedabovecertainprovisions12ofSolvencyIIallow

thedeterminationofwhetherparticularelementsoftheprudentialregimesofnon-EEAcountriesare

equivalenttotheprudentialregimelaiddowninSolvencyIIWhereoneoftheseparticularelementsmeets

relevantcriteriatheCommissionwilladoptanequivalencedecisioninrespectofthatelementWherethe

Commissiondoesnotadoptanequivalencedecisionanationalsupervisormayinrespectofcertainelements

onlyundertakeanequivalenceassessmentbaseduponthesamecriteria

14 Therearethreeelementsofanon-EEAprudentialregimewhichmaybedeemedequivalentbythe

Commission They are

(a) reinsurancesupervisionunderArticle172(seeparagraph5above)

(b) solvencyassessmentunderArticle227(seeparagraphs6to8above)and

(c) groupsupervisionunderArticle260(seeparagraphs9to12above)

Nationalsupervisorsmayundertakeanequivalenceassessmentinrespectofsolvencyassessmentandgroup

supervision only

15 Afullequivalencedecisioninrespectofoneoftheseelementslastsforanunlimitedperiodsubjecttoregular

reviewTheCommissionalsohasthepowertomakeadecisionofprovisionalequivalenceinrespectof

solvencyassessment(underArticle227(5))andtemporaryequivalenceinrespectofreinsuranceandgroup

supervision(underArticles172(4)and260(5))whereathirdcountryisworkingtowardsequivalenceand

it is an ongoing process A temporary equivalence decision lasts up until 31 December 2020 under Articles

172(5)and260(6)Decisionsofprovisionalequivalencelastforaten-yearperiodrenewableforfurtherten-

yearperiodsunderArticle227(6)Inadditionandasnotedaboveintheabsenceofanequivalencedecision

adoptedbytheCommissionandinrelationtocategories(b)and(c)ofparagraph14EEAgroupsupervisors

incollaborationwithEIOPAandcollegemembersmayundertakeanequivalenceassessment

16 Theeffectofanequivalencedecisionorapositiveequivalenceassessmentdiffersbetweenthethree

potentially equivalent elements

Potentially equivalent element Effect of equivalence decision

Reinsurance supervision

(Article 172)

Reinsurancecontractsconcludedwiththeequivalentnon-EEAcountryrsquos

reinsurers shall be treated in the same manner as contracts concluded with

reinsurers governed by Solvency II (ie EEA reinsurers) (Article 172)(3))

Nopossibilityofequivalenceassessment

Solvency assessment

(Article 227)

MemberStatesmayprovidethatthecalculationofsolvencyforanon-EEA

subsidiaryofanEEAgroupcanbedoneusingthecalculationmethodslaid

downbytheequivalentthirdcountrywherethesubsidiaryisestablished(if

theEEAgroupusesthedeductionandaggregationmethodfromArticle233)

(Article 227)(1))

Equivalenceassessmenthassameeffect

Group supervision

(Article260)

(Re)insurancegroupsthataresubjecttosupervisionbyanon-EEAsupervisory

authoritywhichisequivalenttothesupervisionprovidedforbySolvencyII

areexemptfromcertainSolvencyIIgroupsupervisionrequirements(Articles

260(1)and261)


12 See Articles 172(2) 227(4) and 260( 3) Solvency II

mayer brown 5

The equivalence decision process

17 ThereareseveralstepstomakinganequivalencedecisionFirstatechnicalassessmentofthethirdcountryrsquos

prudentialregimeisundertakenbyEIOPAThenEIOPAdeliversitsfindingstotheCommissionEIOPA

maypublishareportonitsfindingsandoccasionallyundertakespublicconsultation13 The Commission is

requiredtoconsultwithEIOPAaboutitstechnicalassessmentbutitistheCommissionrsquosdecisionwhetherto

adoptanequivalencedecisioninrelationtoanyofthethreeelementsofthethirdcountryregimewhichhave

been assessed by EIOPA The Commission decision can be vetoed by the European Parliament or Council

18 ThecriteriatobemetforafullequivalencedecisioncanbefoundinArticles378379and380respectively

ofCommissionDelegatedRegulation20153514TheyarealsolaidoutinAnnex1ofthisupdateSome

examplesofthecriteriawhichareappliedtonon-EEAregimesincludethatthesupervisoryauthoritiesin

thecountryaresufficientlyresourcedtoprotectpolicyholdersandbeneficiariesthatthenon-EEAcountry

imposesadequatecapitalrequirementson(re)insurersandthatthenon-EEAcountryrequires(re)insurers

tohaveeffectivesystemsofgovernanceinplace

19 ForatemporaryorprovisionaldecisionthecriteriaarelessonerousTheyaresummarisedinAnnex2andcan

befoundinfullatArticles172(4)227(5)and260(5)Theyincluderequirementsforthenon-EEAcountryto

haveagreedtosetuparegimewhichwilleventuallybefoundequivalentunderSolvencyIIandforittohaveset

asideresourcesforthispurposeThereisalsoarequirementfortheexistingregimetoberisk-basedandforthe

non-EEAcountrytohaveanindependentsupervisionsystemalreadyinplaceTheseconditionsensurethat

provisionalequivalenceisonlygiventocountrieswhicharealreadyontheirwaytobeingfullyequivalent

20AnequivalencedecisiontakestheformofaCommissionDelegatedDecisionADecisionismadethrough

the procedure laid down in Article 301(2) Solvency II This procedure allows the Commission to adopt the

DecisionunlesstheEuropeanParliamentorCouncilexpressanobjectionwithinthreemonthsorifthethree-

monthperiodisextendedsixmonthsThefinaltextoftheDecisionisthenpublishedintheOfficialJournal

oftheEUandcomesintoeffectwithin20daysofpublication

21 ThefirstsetofDecisions(alludedtoaboveanddetailedbelow)iscurrentlyunderscrutinyfromtheEuropean

Parliament and Council15havingbeenproposedbytheCommissionAccordinglytheseDecisionsarenotyetfinal

What has the Commission done thus far

22AsmentionedabovetheCommissionreleaseditsfirstsetofSolvencyIIequivalencedecisionson5June

2015 The two decisions relate to Switzerland16 and Australia Bermuda Brazil Canada Mexico and the US17

23 Switzerlandhasbeengrantedfullequivalenceinallthreeareasmeaningthatitslocalprudentialregime

canbesubstitutedforSolvencyIIinrespectofreinsurancesupervisionsolvencyassessmentandgroup

supervision Australia Bermuda Brazil Canada Mexico and the US however have only been granted

provisionalequivalenceintheareaofsolvencyassessmentForthesesixcountriesthismeansfirstthat

theirequivalenceisnotindefiniteitwillexpireaftertenyears(on1January2026)subjecttorenewalor

anyfurtherequivalencedecisionsbeingtakenSecondthatthereisnofindingofequivalenceintheareasof

reinsurancesupervisionandgroupsupervisiononlyequivalenceinrespectofreinsurancesupervisionisthe

objectofthepresentDecisiononthesixcountriesotherthanSwitzerlandFurtherdetailontheprocessand

resultsofthetwoDecisionscanbefoundbelow

13 As in the case of the 19 December 2014 consultation on the approach to Switzerland Bermuda and Japan14 This supplemented the original Solvency II Directive and is now par t of the Solvency II package15 On 14 July 2015 the Council indicated that it will not object to the adoption of the two equivalence decisions but the European Parliament has

extended the period for consideration of the second equivalence decision (on Australia Bermuda Brazil Canada Mexico and the US) to six months The period for objection to the second equivalence decision will thus expire on 7 December 2015

16 CommissionDelegatedDecisionC(2015)3754final17 CommissionDelegatedDecisionC(2015)3740final


SWITZERLAND

24 TheCommissiondraftDecisiononSwitzerlandisafullequivalencedecisionmeaningthatSwitzerlandhas

beendeemedequivalentforthethreepurposesofSolvencyIIdescribedaboveforanindefiniteperiodThis

meansthattheCommissionconsiderstheSwissregimetoprovidealevelofpolicyholderandbeneficiary

protection18 comparable to that provided by Solvency II The advice given by EIOPA to the Commission on

SwissequivalencecanbefoundonEIOPArsquoswebsiteandhelpsexplainthebasisoftheCommissionDecision

The legislation which EIOPA considered in Switzerland and which the Commission views as equivalent

includestheSwissFinancialMarketsSupervisoryAct2007(ldquoFINASMArdquo) the Insurance Supervision Act

(ldquoISArdquo) and the Insurance Supervision Ordinance (ldquoISOrdquo)whichenteredintoforceon1July2015

25 TheDecisionexplainstheapplicationoftheequivalencecriteriatotheSwissregimeForexamplerecital10

statesthattheSwissfinancialmarketsupervisorhasthepowereffectivelytosupervise(re)insuranceactivities

andimposesanctionsortakeenforcementactionwherenecessaryrecital11explainsthattheSwissSolvency

Testisbasedonsoundeconomicprinciplesandrecital12statesthattheSwissregimerequires(re)insurersto

haveaneffectivesystemofgovernanceinplace19 The equivalence criteria is set out at Annex 1 to this update

26TheDecisionisperhapsunsurprisinggiventhatSwitzerlandandtheEUhaveenteredintoanumberof

bilateraltreatiesandthattheEUhasldquoclosertieswithSwitzerlandthananyothernon-EEAcountryrdquo20 The

DecisionputsparticularweightonMemorandaofUnderstanding(ldquoMoUsrdquo) signed between Switzerland and

theMemberStatesoftheEUtofacilitateinternationalco-operation21

27 Practicallythisfullequivalencedecisionmeansthat

(a) ASwissreinsurerdoingbusinessintheEEAcannotbesubjectedtocollateralrequirementsorany

otheradditionalrequirementsontopofthosetowhichEEAreinsurersaresubjectunderSolvency

II Reinsurance with a Swiss reinsurer is to be treated in the same way as reinsurance with EEA

counterparties

(b) AEEA(re)insurercancompletealloftherequiredprudentialreportingforitsSwisssubsidiaryin

Switzerland under Swiss capital requirement rules and still comply with Solvency II

(c) ASwiss(re)insurancegroupwithEEAsubsidiariesisexemptfromtheotherwiseextraterritorialaspects

ofSolvencyIIgroupsupervisionTheEEAsupervisormustrelyonthegroupsupervisionoftheSwiss

regulator(FINMA)ratherthanconductgroupsupervisionitselfunderSolvencyII

AUSTRALIA BERMUDA BRAZIL CANADA MEXICO AND THE US

28 IntheExplanatoryMemorandumtotheCommissionrsquosdraftDecisiononAustraliaBermudaBrazilCanada

MexicoandtheUSitismadeclearthatArticle227equivalenceistheonlytypeofequivalencewhichis

thesubjectoftheDecisionAsmentionedabovetheDecisionisalsoonlyofprovisionalequivalencewhich

meansitlastsfortenyears22asopposedtoafullequivalencedecisionwhichisunlimitedindurationThe

provisionalnatureoftheequivalencedecisionhoweverisnotcommerciallyaslimitingasthelackofan

equivalencedecisionunderArticles172and260

18 Seerecital6CommissionDelegatedDecision(EU)C(2015)3754(final)19 ThefinalreportonthisadvicecanbefoundathttpseiopaeuropaeuPagesConsultationsCP-14041aspx20 European Union External Action Service webpage EU relations with Switzerland http eeas europa euswitzerland index _ enhtm21 Seerecital16CommissionDelegatedDecision(EU)C(2015)3754(final)22 See Article 227(6) Solvency II

mayer brown 7

29EIOPAassessedandanalysedtheregimesofallsixofthesejurisdictionsbuthasnotmadeallofitsfindings

publicly available23TheCommissiondecidedthatallofthejurisdictionsmetthecriteriaunderArticle

227(5)forprovisionalequivalenceinrespectofsolvencyassessmentbutitdidnotconsiderthatanyof

thejurisdictionsmetthefullequivalencecriteriaunderArticle379ofRegulation201535Furtherthe

CommissiondidnotconsiderwhetheranyofthejurisdictionsmetthecriteriaforequivalenceunderArticles

172(4)and260(5)inrespectofreinsuranceandgroupsupervision24

30Itisnotablethattheonlyareainwhichthesesixjurisdictionshavebeenfoundequivalentistheareainwhich

equivalenceismostbeneficialtoEEA(re)insurersEquivalenceinrespectofsolvencyassessment(under

Article 227) means that EEA (re)insurers can allow their subsidiaries in Australia Bermuda25 Brazil Canada

Mexico and the US to continue to calculate their standalone solvency based on locally accepted methods

ratherthanhavingtoconverttothemethodsprescribedbySolvencyII(foratleastthenexttenyears)

provided that they use the deduction and aggregation method26(seeparagraphs6to8and17formoredetail)

31 Lackofequivalenceinrespectofreinsurance(underArticle172)adverselyaffectsmainlynon-EEAreinsurers

makingtheEEAmarketlessaccessibleforthem(seeparagraphs5and16 above) although it may also have

consequencesforEEAinsurerswhowanttohavetheoptionofreinsuringriskwithinsurersoutsidetheEEA

Lackofequivalenceinrespectofgroupsupervision(underArticle260)predominantlyimpactsnon-EEA

groupsof(re)insurerswithEEA-basedactivity(seeparagraphs9to12and16formoredetail)

32 TheeffectoftheDecisionifadoptedissignificantfornon-EEA(re)insurersAnEEAregulatorcan

(continueto)imposeadditionalrequirementssuchastheimpositionofcollateralrequirementsoncontracts

ofreinsurancewhichoriginateinanycountryoutsidetheEEAsaveforSwitzerlandFurtherallnon-EEA

(re)insurancegroupsapartfromSwiss(re)insurancegroupswhichhaveEEAsubsidiariesbutnotEEA

sub-groupscouldbesubjecttoSolvencyIIgroupsupervisionrequirementsaswellasthegroupsupervision

exercisedbyitshomejurisdictionThefactthatanequivalencedecisionhasnotbeenmadeinrespectof

group supervision however enables national supervisors to carry out an equivalence assessment In the

absenceofbothanequivalencedecisionandanequivalenceassessmentEEAsupervisorsmayapplyldquoother

methodsrdquotogroupsupervisioninsteadofsupervisingthenon-EEAgroupunderSolvencyII27 As explained

atparagraph12abovethePRAwilltakeacase-by-caseapproachandrequiresanon-EEA(re)insurance

grouptosubmitawaiverapplicationrequestingtheuseofldquoothermethodsrdquoTherearenosuchoptionsin

relation to reinsurance supervision

33 SomemayconsideritsurprisingthattheCommissionfoundtheUSinsuranceregime(thelargestinsurance

marketintheworld)wantingintheareasofreinsuranceandgroupsupervisionbutthisresultwascertainly

foreseeablewhenconsiderationisgiventothefactthattheEUndashUSinsurancedialogueprojectwhich

aimstoachieveimprovedmutualunderstandingoftherespectiveinsuranceregulatoryandsupervisory

regimesstartedin2012buthasstilltoreachanagreedconclusionaboutmutualrecognitionForexample

negotiationsoverreductionofcollateralrequirementsintheUSforEEAreinsurershavebeenongoing

foryearsbutprogresshasbeenslowinsteadSolvencyIIdoesnotpreventtheEEAimposingcollateral

requirements on US reinsurers

23 The full text of the report on Bermuda is available online here ht tps eiopa europa eu Pages News EIOPA- publishes-the- Final- Reports-on-full- equivalence -assessments-of- Bermuda -Japan -and-Switzerland a spx Thefulltextreportsontheotherfivejurisdictionswhicharethesubject of this decision are not publicly available

24 See Annexes 1 and 225 Captive insurers regulated in Bermuda are excluded from the equivalency decision26 See Article 233 Solvency II27 See paragraphs 9 to 12 above


34TheUSinsuranceindustrythroughtheACLI28 RAA29 and other trade associations has been pushing the

federalgovernmenttonegotiateacoveredagreementwiththeEUtopreventtheabovereferencedpotentially

adversecompetitivelydisadvantageousoutcomesfromalackofequivalencedecisionsbytheEUThose

negotiationscontinuetobemiredinpoliticalpositioningwithinthefederalgovernment(atTreasuryandthe

US Trade Representative) with the US state regulators and with the EU regulators and time is running short

SolvencyIIisscheduledtotakeeffecton1January2016andatpresentitappearsunlikelythattheUSwillbe

grantedequivalencebytheCommissioninrespectofreinsuranceandgroupsupervisionInrespectofgroup

supervisionmuchisthereforeinthehandsoftheEEAsupervisors

The equivalence assessment process

35 AsSolvencyIIhasnotcomeintoforceitisnotyetpossibleforanequivalenceassessmenttobecarried

outItwillasdescribedabovebepossibleforEEAsupervisorstomakeanequivalenceassessmentofthe

groupsupervisoryregimeofAustraliaBermudaBrazilCanadaMexicoandtheUSafter1January2016

but EIOPA guidelines30makeclearthatalaterequivalencedecisionbytheCommissionwouldsupersedeany

equivalenceassessmentTheEEAsupervisorscanalsomakeequivalenceassessments(inrespectofboth

solvencyassessmentandgroupsupervision)ofthemanynon-EEAcountrieswhichareunlikelytoeverbethe

subjectofaCommissionequivalencedecision

36TheEIOPAguidelinessetoutthemethodologyforequivalenceassessmentsbynationalsupervisorsThey

stresstheimportanceoftheactivecooperationofthethirdcountryintheequivalenceassessmentprocess

itisdeterminativeinthecaseofgroupsupervisionandlackofcooperationwouldleadtoanon-equivalent

outcome An equivalence assessment is based on the same criteria as an equivalence decision which are set

out in Annex 1 to this update National supervisors can conduct the assessment themselves with assistance

fromEIOPAandinconsultationwithotherEEAsupervisorsorrequestEIOPAtocarryouttheassessment

Unlikeanequivalencedecisionthereisnopossibilityofatemporaryorprovisionalequivalenceassessment

37 Positive equivalence assessments require regular review they must be reviewed at least every three years or

followingsignificantdevelopmentsinthejurisdictionassessedNegativeequivalenceassessmentsmayberevisited

attherequestoftherelevant(re)insureroratthenationalsupervisorrsquosowninitiativewheretherehavebeen

significantchangestothesupervisoryregimelaiddownSolvencyIIortothesupervisoryregimeofthenon-

EEAcountryconcernedUnlesstherehavebeensuchchangesitisnotpossiblefornationalsupervisorstotake

divergentequivalencedecisionsregardingthesamenon-EEAcountryEquivalenceassessmentswillhaveeffect

morebroadlythanjustfortherequesting(re)insurerorgroupAccordinglywhencarryingoutanequivalence

assessmentnationalsupervisorsmustassesstheentirenon-EEAregimenotjusttheregimeasitappliestothe(re)

insurerorgroupconcernedForexampleevenifagroupconductsonlylifeinsurancebusinessitwouldstillbe

necessaryforthenationalsupervisortoassessthethirdcountryregimefornon-lifebusiness

EEA sub-groups

38 As noted at paragraph 9 abovewhereanon-EEAgroupdoesnothaveanEEAparentundertakingandis

notsubjecttoanequivalencedeterminationbyeithertheCommissionoranationalsupervisorEIOPAhas

suggestedthatnationalsupervisorsshouldconsiderrequiringsuchanon-EEAgrouptoestablishanEEAsub-

group Such a requirement will understandably be regarded as onerous but doing so would mean that only the

EEAsub-groupwouldbesubjectedtoSolvencyIIgroupsupervisionandthegroupsolvencycalculation

28 The American Council of Life Insurers29 The Reinsurance Association of America30 See Final Report on Public Consultation No14015 on Guidelines on the methodology for equivalence assessments by national supervisory

authorities under Solvency II EIOPA-BoS-14182 27 November 2014

mayer brown 9

39WhereanequivalencedeterminationhasbeenmadethereisnoneedtocreateanEEAsub-groupbutnon-

EEAgroupswithsuchastructurewillfindthemselvessubjecttodualregulationwhilsttheircompetitors

withoutanEEAparentundertakingwillbeabletorelysolelyonthegroupsupervisionexercisedbytheir

homesupervisorEIOPAifnotSolvencyIIhasconsideredthisdichotomy

40InitsguidanceEIOPAsuggeststhatwherethewidernon-EEAgroupissubjecttoequivalentthirdcountry

group supervision the acting EEA group supervisor should rely on the group supervision exercised by the

third-countrysupervisoryauthoritiesandexempttheEEAsub-groupfromSolvencyIIgroupsupervisionson

acase-by-casebasisbutonlywherethiswouldresultinamoreefficientsupervisionofthegroupandwould

not impair its supervision EIOPA sets out criteria that the acting group supervisor should consider when

deciding whether such an exemption should be granted They are

(a) theworldwidegroupsupervisionallowsforarobustassessmentoftheriskstowhichtheEEAsubgroup

anditsentitiesareexposedconsideringthestructureofthegroupthenaturescaleandcomplexityof

therisksandthecapitalallocationwithinthegroup

(b) thecooperationcurrentlyinplacebetweenthenon-EEAgroupsupervisorandtheEEAsupervisors

forthegroupconcernedisstructuredandwell-managedthroughregularmeetingsandappropriate

exchangeofinformationwithinacollegeofsupervisorstowhichtheEEAsupervisorsandEIOPAare

invitedand

(c) anannualworkplanincludingjointon-siteexaminationsisagreeduponintheseregularmeetingsby

thesupervisoryauthoritiesinvolvedinthesupervisionofthegroup31

41 EIOPAguidanceisnotbindingonthenationalsupervisorsbutthesupervisorshaveinformedEIOPAwhether

or not they intend to comply with it Only Germany has stated that it will not comply with the relevant

guidancebecauseitexplainsGermanlawdoesnotpermitacase-by-caseapproachItappearstherefore

thattheeffectofanequivalencedeterminationbyeithertheCommissionoranationalsupervisorcouldbe

toexemptanEEAsub-groupfromSolvencyIIgroupsupervisionandsolvencycalculationThispossibility

alreadyexistsforSwiss(re)insurancegroups

What happens next

42TheCommissionhasindicated32thatthereareassessmentsofotherthirdcountryjurisdictionscurrently

inprogressandthatsomejurisdictionsaremodifyingtheirinsuranceframeworksinordertofacilitate

equivalencedecisionsInthelightofthisasecondpackageofdecisionsisexpectedintheautumnof

2015ApositivedecisiononreinsuranceequivalenceforJapanalreadythesubjectofanEIOPAreport33 is

expectedtobeincludedinthenextpackageFurthergivenEIOPArsquosfindingsitwouldnotbesurprisingifthe

CommissionmakesapositivedecisionregardinggroupsupervisoryandreinsuranceequivalenceforBermuda

butthefutureislessclearfortheUSAustraliaBrazilCanadaandMexicoInthemeantimenon-EEA(re)

insurance groups will want to consider their group structure in order to ascertain how the extraterritorial

provisionsofSolvencyIImayaffectthem

31 Guideline 5 of Guidelines on group solvency EIOPA-BoS-1418132 Draft minutes of a meeting of the Commissionrsquos expert group on banking payments and insurance ( in its insurance formation) 5 March 201533 See fn 23


Ifyouhaveanyquestionsaboutanyoftheissuesraisedinthisalertpleasecontactyourusualcontactoroneof

the lawyers listed below

LONDON

Alexandria Carr

OfCounsel(EmployedBarrister)

E acarrmayerbrowncom T+442031303398

Mark Compton Partner

E mcomptonmayerbrowncom T+442031303388

Colin Scagell Partner

E cscagellmayerbrowncom T+442031303315

US

David W Alberts

Partner(NewYork)

dalbertsmayerbrowncom T+12125062611

Lawrence R Hamilton

Partner (Chicago)

lhamiltonmayerbrowncom

T +1 312 701 7055

mayer brown 11

Annex 1

Potentially-equivalent element

(Directive 2009138EU)

Criteria to determine equivalence

(Commission Delegated Regulation 201535)


(Article 172)

bull Thesupervisoryauthoritiesofthethirdcountrymusthavethepower(by

laworregulation)toeffectivelysupervisedomesticreinsuranceundertak-

ingsandtoimposesanctionsortakeenforcementactionwherenecessary

(Article 378(a))

bull Thesupervisoryauthoritiesofthethirdcountrymusthavethenecessary

meansandresourcesrelevantexpertiseandthemandatetoeffectively

protectpolicyholdersandbeneficiarieswhereverlocated (Article 378(b))

bull Thesupervisoryauthoritiesofthethirdcountryshouldalwaysduly

considerthepotentialimpactoftheirdecisionsontheglobalstabilityof

financialsystemsparticularlyduringanemergency(Article 378(c))

bull Thesupervisoryauthoritiesofthethirdcountrymusttakeintoaccount

thepotentialpro-cyclicaleffectsoftheiractionswhereexceptionalmove-

mentsinthefinancialmarketsoccur(Article 378(d))

bull Theremustbearequirementforreinsurerstobeauthorisedtoprovide

businessinthethirdcountryandtheremustbeaclearobjectiveand

publiclyavailablesetofwrittenauthorisationstandards(Article 378(e))

bull Thesolvencyregimeofthethirdcountrymustrequiredomesticreinsur-

anceundertakingstohaveaneffectivesystemofgovernancewhich

provides sound and prudent business management including

ndash an adequate transparent organisational structure with clear alloca-

tionandappropriatesegregationofresponsibilities

ndash requirementsforensuringthatpersonswhoeffectivelyrunthe

undertakingarelsquofitandproperrsquo

ndash effectiveprocessestoensurethetimelytransmissionofinformation

bothinternallyandtotherelevantsupervisoryauthoritiesand

ndash requirementsforensuringthatoutsourcedfunctionsactivitiesare

effectivelysupervised(Article 378(f))

bull Thesolvencyregimeofthethirdcountrymustrequiredomesticrein-

suranceundertakingstohaveaneffectiveriskmanagementsystem

comprising

ndash strategiesprocessesandinternalreportingprocedurestoidentify

measuremonitormanageandreportriskstowhichtheundertaking

iscould be exposed at an individual and an aggregated level and on a

continuousbasisand

ndash effectiveinternalcontrols(Article 378(g))


ancetoestablishandmaintaineffectiverisk-managementcompliance

internalauditandactuarialfunctions(Article 378(h))



anceundertakingsto

ndash providethirdcountryauthoritieswithanyinformationnecessaryfor

supervisionand

ndash disclose publicly at least annually a report on their solvency and

financialcondition(Article 378(i))

bull Thesolvencyregimeofthethirdcountryrequiresthatproposedchanges

tothebusinesspolicyormanagementofdomesticreinsuranceundertak-

ingsortoqualifyingholdingsinsuchundertakingsbeconsistentwith

maintaining sound and prudent management (Article 378(j))

bull Assessmentofthefinancialpositionofdomesticreinsuranceundertak-

ings should rely on sound economic principles and solvency requirements

shouldbebasedonaneconomicvaluationofassetsorliabilities(Article

378(k))


anceundertakingstoholdadequatefinancialresourcesincluding

requirements to

ndash establish technical provisions with respect to all reinsurance obliga-

tionstowardspolicyholdersandbeneficiariesofreinsurance

contracts

ndash investassetsheldtocovertechnicalprovisionsinthebestinterestsof

allpolicyholdersandbeneficiaries(takingintoaccountanydisclosed

policyobjective)

ndash investonlyinassetsandinstrumentswhoseriskstheundertakingcan

properlyidentifymeasuremonitormanagecontrolandreport

ndash meet capital requirements set at a level equivalent to that under

SolvencyIIwhichensuresthatbeneficiariesandpolicyholdersare

adequatelyprotectedandcontinuetoreceivepaymentsintheeventof

significantlosses

ndash maintainaminimumlevelofcapital(orsufferimmediatesupervisory

intervention)and

ndash meetcapitalrequirementsreferredtoabovewithownfundsof

sufficientqualitytobeabletoabsorbsignificantlossesbothinagoing

concernandinacaseofwindingup(Article 378(l))

bull Thecapitalrequirementsofthesolvencyregimeinthethirdcountry

shouldberisk-basedtocapturequantifiableriskandanysignificant

non-quantifiableriskshouldbeaddressedthroughanothersupervisory

mechanism (Article 378(m))

mayer brown 13

bull Thesolvencyregimeofthethirdcountrymustensuretimelyintervention

by local supervisory authorities in the event that capital requirements are

not complied with (Article 378(n))

bull Thesolvencyregimeofthethirdcountrymustprovidethatallpersons

workingorwhohaveworkedforlocalsupervisoryauthoritiesandauditors

orexpertsactingonbehalfofthoseauthoritiesareboundbyobligations

ofprofessionalsecrecywhichextendtoinformationreceivedfromall

supervisory authorities (Article 378(o))

bull Withoutprejudicetocasescoveredbycriminallawconfidentialinforma-

tionreceivedbyallpersonswhoworkorhaveworkedforthesupervisory

authoritiesinthethirdcountrymustbekeptconfidentialfromallother

personsandauthoritiesexceptinasummaryoraggregateformwhich

doesnotallowidentificationofindividualundertakings(Article 378(p))

bull Whereareinsuranceundertakinghasbeendeclaredbankruptorisbeing

compulsorilywoundupconfidentialinformationwhichdoesnotconcern

thirdpartiesinvolvedinattemptstorescuetheundertakingsshouldbe

able to be divulged in civil or commercial proceedings (Article 378(q)

bull Thesupervisoryauthoritiesofthethirdcountrywhichreceiveconfiden-

tialinformationfromotherauthoritiesmustonlyusethatinformationin

thecourseoftheirdutiesor

ndash tocheckconditionsattachedtothebusinessofreinsurancesystemsof

governanceandpublicdisclosureandsolvencyassessments

ndash toimposesanctions

ndash inadministrativeappealsagainstsupervisoryauthoritydecisionsor

ndash in court proceedings relating to the solvency regime in the third

country (Article 378(r))

bull Thesupervisoryauthoritiesofthethirdcountrymustbepermittedto

exchangeinformationreceivedfromsupervisoryauthoritiesinthe

dischargeoftheirfunctionsordetectionandinvestigationofbreaches

ofcompanylawwithotherauthoritiesbodiesorpersonswherethat

authoritybodyorpersonissubjecttoanobligationofprofessional

secrecyinthethirdcountryandsuchinformationshouldonlybedis-

closedoncetheexpressagreementoftheoriginatorhasbeenobtained

andsolelyforthepurposesforwhichtheoriginatorgaveitspermission

(Article 378(s))


Solvency assessment

(Article 227)

bull Assessmentofthefinancialpositionofdomestic(re)insuranceundertakings

should rely on sound economic principles and solvency requirements should

bebasedonaneconomicvaluationofassetsorliabilities(Article379(a))

bull Thesolvencyregimeofthethirdcountrymustrequiredomestic(re)insurance

undertakingstoholdadequatefinancialresourcesincludingrequirements

to

ndash establish technical provisions with respect to all (re)insurance obliga-

tionstowardspolicyholdersandbeneficiariesof(re)insurancecontracts



policyobjective)






significantlosses


intervention)and


sufficientqualitywhichareabletoabsorbsignificantlossesbothina

goingconcernandinacaseofwindingup(Article379(b))

bull Thecapitalrequirementsofthesolvencyregimeinthethirdcountrymust

berisk-basedtocapturequantifiableriskandanysignificantnon-quan-

tifiableriskmustbeaddressedthroughanothersupervisorymechanism

(Article 379(c))

bull Thesolvencyregimeofthethirdcountryshouldensuretimelyinterven-

tion by local supervisory authorities in the event that capital requirements

are not complied with (Article 379(d))





supervisory authorities (Article 379(e))


tionreceivedbyallpersonwhoworkorhaveworkedforthesupervisory

authoritiesinthethirdcountrymustbekeptconfidentialfromallpersons

andauthoritiesexceptinasummaryoraggregateformwhichdoesnot

allowidentificationofindividualundertakings(Article379(f))

mayer brown 15

bull Wherea(re)insuranceundertakinghasbeendeclaredbankruptoris

beingcompulsorilywoundupconfidentialinformationwhichdoesnot

concernthirdpartiesinvolvedinattemptstorescuetheundertakings

should be able to be divulged in civil or commercial proceedings (Article

379(g))


tialinformationfromotherauthoritiesshouldonlyusethatinformation

inthecourseoftheirdutiesor






country (Article 379(h))

bull Arethesupervisoryauthoritiesofthethirdcountrypermittedtoexchange

informationreceivedfromsupervisoryauthoritiesinthedischargeof

theirfunctionsordetectionandinvestigationofbreachesofcompanylaw

with other authorities bodies or persons where that authority body or

personissubjecttoanobligationofprofessionalsecrecyinthethirdcoun-

tryandissuchinformationonlydisclosedoncetheexpressagreementof

theoriginator(s)hasbeenobtainedandwhereappropriatesolelyforthe

purposesforwhichtheoriginatorgaveitspermission(Article379(i))

Group supervision

(Article 260)

bull Thesupervisoryauthoritiesofthethirdcountryhavethenecessarymeans

andresourcesrelevantexpertiseandthemandatetoeffectivelyprotect

policyholdersandbeneficiarieswhereverlocated(Article 380(a))

bull Thesupervisoryauthoritiesofthethirdcountryareempoweredbylawor

regulation to

ndash determinewhichundertakingsfallunderthescopeofsupervisionat

grouplevel

ndash supervise(re)insurerswhicharepartofagroup and

ndash imposesanctionsortakeenforcementactionwherenecessary

(Article 380(b))

bull Thesupervisoryauthoritiesofthethirdcountryareabletoeffectively

assesstheriskprofileandsolvencyfinancialpositionof(re)insurers

whicharepartofagroupandthegrouprsquosbusinessstrategy(Article

380(c))

bull Supervisionatgrouplevelincludesallundertakingsoverwhichapartici-

patingundertakingexercisesdominantorsignificantinfluence(unless

notappropriateforgroupsupervisionobjectives)(Article 380(d))

bull Thesupervisoryauthoritiesofthethirdcountrymustdulyconsiderthe

potentialimpactoftheirdecisionsonthestabilityoffinancialsystems

globally particularly during emergency situations (Article 380(e))



thepro-cyclicaleffectsoftheiractionswhereexceptionalmovementsin

financialmarketsoccur(Article 380(f))

bull Theprudentialregimeofthethirdcountryrequiresaneffectivesystemof

governanceatgrouplevelwhichprovidesforsoundandprudentbusiness

management and prescribes

ndash that there must be an adequate transparent organisational structure

withclearallocationandappropriatesegregationofresponsibilities

ndash requirementstoensurethatpersonswhoeffectivelyruntheundertak-

ingarefitandproper


bothwithinthegroupandtotherelevantsupervisoryauthorities and

ndash requirementsforensuringthattheoutsourcedfunctionsoractivities

areeffectivelysupervised(Article 380(g))

bull Theprudentialregimeofthethirdcountryrequiresaneffectiverisk

management system at group level comprising at least

ndash the strategies processes and internal reporting procedures necessary

toidentifymeasuremonitormanageandreportrisksonacontinu-

ousbasistowhichthegroupiscouldbeexposedand

ndash aneffectiveinternalcontrolsystem(Article 380(h))

bull Theprudentialregimeofthethirdcountryshouldrequirethegroupto

have sound reporting and accounting procedures to monitor and manage

intra-grouptransactionsandriskconcentrations(Article 380(i))


establishandmaintaineffectiverisk-managementcomplianceinternal

auditandactuarialfunctions(Article 380(j))

bull Theprudentialregimeofthethirdcountryrequiresthegroupto

ndash providethirdcountrysupervisoryauthoritieswithanyinformation

thattheyneed

ndash reportsignificantriskconcentrationatthelevelofthegroupand

significantintra-grouptransactionsonatleastanannualbasisand

ndash disclose publicly at least annually a report on the solvency and

financialconditionofthegroup(Article 380(k))

bull Theprudentialregimeofthethirdcountrymustrequirethatproposed

changestothebusinesspolicyormanagementofthegroup(orqualifying

holdings in the group) are consistent with the sound and prudent man-

agementofthegroup(Article 380(l))

mayer brown 17

bull Assessmentofthefinancialpositionofthegroupshouldrelyonsound

economicprinciplesandassessmentofsolvencyshouldbebasedonan

economicvaluationofallassetsandliabilities(Article 380(m))


holdadequatefinancialresourcesincludingarequirementfor

ndash technical provisions with respect to all obligations towards policy-

holdersandbeneficiariesof(re)insuranceundertakingsinthegroup

ndash assets held to cover technical provisions to be invested in the best

interestsofallpolicyholdersandbeneficiaries(takingintoaccount

anydisclosedpolicyobjective)

ndash thegrouptoinvestonlyinassetsandinstrumentswhoserisksitcan


ndash the group to meet capital requirements at a level which ensures that in

theeventofsignificantlossespolicyholdersandbeneficiariesareade-

quatelyprotectedandcontinuetoreceivepaymentsastheybecomedue

ndash (re)insuranceundertakingswhicharepartofthegrouptomaintaina

minimumlevelofcapitalnon-compliancewithwhichtriggers

immediatesupervisoryinterventionand

ndash groupcapitalrequirementstobemetwithownfundsthatareofa

sufficientqualitytobeabletoabsorbsignificantlossesinbothagoing

concernandacaseofwindingup(Article 380(n))

bull Thecapitalrequirementsoftheprudentialregimeofthethirdcountry

shouldberisk-basedtocapturequantifiablerisksandwhereasignificant

riskisnotquantifiablethatriskshouldbeaddressedthroughanother

supervisory mechanism (Article 380(o))

bull Theprudentialregimeofthethirdcountryshouldensuretimelyinterven-

tionbythesupervisoryauthoritiesofthethirdcountryintheeventthat

capital requirements are not complied with (Article 380(p))

bull Thesupervisoryauthoritiesofthethirdcountryrestricttheuseofown-fund

itemsofarelated(re)insuranceundertakingwheretheitemscannoteffec-

tivelybemadeavailabletocoverthecapitalrequirementoftheparticipating

undertakingforwhichgroupsolvencyiscalculated(Article 380(q))

bull Thecalculationofgroupsolvencyinthethirdcountryrsquosprudentialregime

should produce a result that is at least equivalent to the result produced

byeitheroneoforacombinationofthecalculationmethodsinSolvency

II and the calculation method used should ensure that there is no double

useofownfundstomeetthegroupcapitalrequirementandthatthe

intra-groupcreationofcapitalthroughreciprocalfinancingiseliminated

(Article 380(r))


bull Theprudentialregimeofthethirdcountryshouldprovidethatallpersons

whoworkorhaveworkedforthesupervisoryauthoritiesofthethird

countryaswellasauditorsandexpertsactingonbehalfoftheauthorities

areboundbyobligationsofprofessionalsecrecywhichextendtoinforma-

tionreceivedfromallsupervisoryauthorities(Article 380(s))





allowidentificationofindividualundertakings(Article 380(t))

bull Theprudentialregimeofthethirdcountryshouldprovidethatwhere

a(re)insuranceundertakinghasbeendeclaredbankruptorisbeing


thirdpartiesinvolvedinattemptstorescuetheundertakingmaybe

divulged in civil or commercial proceedings (Article 380(u))

bull Thethirdcountrysupervisoryauthoritieswhichreceiveconfidential

informationfromothersupervisoryauthoritiesmustonlyusethat

informationinthecourseoftheirdutiesor






country (Article 380(v))

bull The third country supervisory authorities should be permitted to


dischargeoftheirsupervisoryfunctionsorthedetectionorinvestigation

ofbreachesofcompanylawwithotherauthoritiesbodiesorpersons

wherethatauthoritybodyorpersonissubjecttoanobligationofprofes-

sionalsecrecyintherelevantthirdcountryprovidedthattheinformation

isonlydisclosedwiththeexpressagreementoftheoriginatorandonlyfor

thepurposesforwhichsuchauthoritywasgiven(Article 380(w))


Annex 2

Potentially temporarily

provisionally equivalent area

Criteria to determine temporaryprovisional equivalence


(Article 172(4))

(a) The third country has committed to adopt and apply a solvency regime

thatiscapableofbeingassessedasfullyequivalentbeforetheendofthe

temporaryperiodofequivalenceends

(b)Thethirdcountryhasestablishedaworkprogrammetofulfil(a)

(c)Thethirdcountryhasallocatedsufficientresourcestofulfil(a)

(d)Thethirdcountryhasasolvencyregimethatisriskbasedand

establishes quantitative and qualitative solvency requirements and

requirements relating to supervisory reporting and transparency

(e) The third country has entered into written arrangements to cooperate

andexchangeconfidentialsupervisoryinformationwithEIOPAand

supervisory authorities

(f )Thethirdcountryhasanindependentsystemofsupervision

(g)Thethirdcountryhasestablishedobligationsofprofessionalsecrecyfor

allpersonsactingonbehalfofitssupervisoryauthorities(particularly

ontheexchangeofinformationwithEIOPAandsupervisory

authorities)

Solvency assessment

(Article 227(5))

(a) The third country either already has an equivalent solvency regime in

place or one may be adopted or applied

(b)Thethirdcountryhasasolvencyregimethatisriskbasedand



(c)Thethirdcountryrsquoslawinprincipleallowscooperationandexchange

ofconfidentialsupervisoryinformationwithEIOPAandsupervisory

authorities

(d)Thethirdcountryhasanindependentsystemofsupervision

(e)Thethirdcountryhasestablishedobligationsofprofessionalsecrecyfor

allpersonsactingonbehalfofitssupervisoryauthorities

Mayer Brown is a global legal services provider advising many of the worldrsquos largest companies including a significant portion of the Fortune 100 FTSE 100 DAX and Hang Seng Index companies and more than half of the worldrsquos largest banks Our legal services include banking and finance corporate and securities litigation and dispute resolution antitrust and competition US Supreme Court and appellate matters employment and benefits environmental financial services regulatory and enforcement government and global trade intellectual property real estate tax restructuring bankruptcy and insolvency and wealth management

Please visit wwwmayerbrowncom for comprehensive contact information for all Mayer Brown offices

This Mayer Brown publication provides information and comments on legal issues and developments of interest to our clients and friends The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice Readers should seek legal advice before taking any action with respect to the matters discussed herein

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the ldquoMayer Brown Practicesrdquo) The Mayer Brown Practices are Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnerships established in Illinois USA Mayer Brown International LLP a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359) Mayer Brown a SELAS established in France Mayer Brown Mexico SC a sociedad civil formed under the laws of the State of Durango Mexico Mayer Brown JSM a Hong Kong partnership and its associated legal practices in Asia and Tauil amp Chequer Advogados a Brazilian law partnership with which Mayer Brown is associated Mayer Brown Consulting (Singapore) Pte Ltd and its subsidiary which are affiliated with Mayer Brown provide customs and trade advisory and consultancy services not legal services ldquoMayer Brownrdquo and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions

ldquoMayer Brownrdquo and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions

copy 2015 The Mayer Brown Practices All rights reserved

0822fin

Group supervision

(Article 260(5))






(d)Thethirdcountryhasaprudentialregimethatisriskbasedand


requirements relating to supervisory reporting transparency and group

solvency



other supervisory authorities



allpersonsactingonbehalfofitssupervisoryauthoritiesinparticular

ontheexchangeofinformationwithEIOPAandothersupervisory

authorities


5 Inrespectofcategory(a)intheaboveparagraphnon-EEAreinsurerswritingreinsurancecontractswith

EEAentitiesmaybeaffectedbecauseSolvencyIIdoesnotpreventEEAregulatorsimposingadditional

regulatoryrequirementsoncontractsofreinsurancewrittenbyreinsurersfromacountryoutsidetheEEA

whichhasnotbeendeemedtohaveasolvencyregimeequivalenttoSolvencyIIArticles172(3)and173of

SolvencyIIpreventMemberStatesfromtreatingreinsurancecontractswrittenbyreinsurersfromoutside

theEEAlessfavourablythanthosewrittenbyEEAinsurersbutonlywhereanequivalencedecisionhasbeen

adoptedforthethirdcountryinwhichthenon-EEAreinsurerisbasedSointheabsenceofanequivalence

decisionMemberStatesmayimposeadditionalrequirementsonnon-EEAreinsurersThemostcommonly

imposedadditionalrequirementsrelatetocollateralanon-EEAreinsurercanbesubjecttoincreased

collateralrequirementswithintheEEAthusplacingthenon-EEAreinsureratacompetitivedisadvantageto

EEAreinsurers(andthosenon-EEAreinsurerswhosehomejurisdictionhasbeendeemedequivalent)who

areprotectedfromsuchextrarequirementsbySolvencyII

6 Inrelationtocategory(b)aboveArticle227ofSolvencyIIprimafacierequiresEEA(re)insurerstocalculate

consolidated group solvency across their global insurance business Where the EEA (re)insurer has a

subsidiary(orsubsidiaries)basedinanon-EEAjurisdictionthereislikelytobeadiscrepancybetweenthe

methodsofcalculationofsolvencyusedbythatsubsidiaryandthoseusedbytheEEApartsofthebusiness

thesubsidiarywilltypicallyusethelocallyacceptedmethodofitshomejurisdictionandtheEEA-based

entitieswillusethemethodsofSolvencyIIToavoidthisdiscrepancySolvencyIIrequiresthesubsidiaryto

useSolvencyIIformulaeforEuropeanreportingpurposesThiscreatesconsistencyacrossthegroupbutis

likelytocreateanadditionalandduplicativeburdenasthesubsidiarymayberequiredtocalculateandreport

solvency data on two bases

7 Ifthesubsidiaryisrequiredtousetwodifferentmethodsforcalculationofsolvencyitispossiblethatthe

resultsofthecalculationswilldifferbetweenthelocalregimeandtheSolvencyIIregimeForexamplea

subsidiarymightbegivencreditunderitslocalsystemforanticipatedincomeorcreditbutSolvencyIIis

basedonmarket-consistentprinciplesandsoitsformulaedonotgivecreditforanythingbasedonfuture

performanceTheliabilityandassetrequirementsforthesubsidiarycouldbethereforehigherunder

SolvencyIIthantheyhavebeenwhilethesubsidiarywassolelysubjecttothelocalsystemsuddenlyrequiring

thesubsidiarytofindormaintainmoreassetsandfewerliabilities

8 Ifthehomejurisdictionofthenon-EEAsubsidiaryhasbeendeemedequivalentthegroupmaytakeaccount

ofthatjurisdictionrsquossolvencycapitalrequirementandthecapitaleligibletomeetthatrequirementinthe

calculationofgroupsolvencyIfanequivalencedecisionhasnotbeentakenbytheCommissiontheEEA

group supervisor in collaboration with the European Insurance and Occupational Pensions Authority

(ldquoEIOPArdquo)andcollegemembersmayundertakeanequivalenceassessment6 on its own initiative or at the

requestofthe(re)insurerconcerned

9 Anon-EEA(re)insurancegroupwithanEEAsubsidiarybutnotanEEAsub-group(asmentionedin

paragraph 4(c)above)couldencounterdifferentproblemsunderSolvencyIISolvencyIIcontainsprovisions

regardingthesupervisionof(re)insurersthatarepartofagroupTheseprovisionspotentiallyapplytonon-

EEAgroupswithasubsidiaryintheEEAwhoseparentundertakingisheadquarteredoutsidetheEEAIn

theabsenceofanequivalencedeterminationinrespectofthenon-EEAjurisdictioninwhichthegroupis

headquartered an EEA supervisor may decide to apply the group provisions set out in Articles 218 to 235 and

Articles244to258totheworldwidegroupasifitwerebasedintheEEAAlternativelyEEAMemberStates

have a discretion to permit their supervisors to use ldquoother methodsrdquo which ensure appropriate supervision

6 See Article 227(2) Solvency II

mayer brown 3









options

































What is equivalence








Commission They are





supervision only














(Article 172)





Solvency assessment

(Article 227)





(Article 227)(1))


Group supervision

(Article260)




260(1)and261)



mayer brown 5











































SWITZERLAND






















counterparties














mayer brown 7










































































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 3









options

































What is equivalence








Commission They are





supervision only














(Article 172)





Solvency assessment

(Article 227)





(Article 227)(1))


Group supervision

(Article260)




260(1)and261)



mayer brown 5











































SWITZERLAND






















counterparties














mayer brown 7










































































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities


What is equivalence








Commission They are





supervision only














(Article 172)





Solvency assessment

(Article 227)





(Article 227)(1))


Group supervision

(Article260)




260(1)and261)



mayer brown 5











































SWITZERLAND






















counterparties














mayer brown 7










































































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 5











































SWITZERLAND






















counterparties














mayer brown 7










































































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities


SWITZERLAND






















counterparties














mayer brown 7










































































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 7










































































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities



































EEA sub-groups








mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 9

















invitedand









What happens next














LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities




LONDON

Alexandria Carr







US

David W Alberts

Partner(NewYork)


Lawrence R Hamilton

Partner (Chicago)


T +1 312 701 7055

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 11

Annex 1






(Article 172)




(Article 378(a))


























comprising




continuousbasisand







anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities



anceundertakingsto


supervisionand










378(k))



requirements to



contracts



policyobjective)






significantlosses


intervention)and








mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 13



































(Article 378(s))


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities


Solvency assessment

(Article 227)






to





policyobjective)






significantlosses


intervention)and







(Article 379(c))














mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 15





379(g))


















Group supervision

(Article 260)





regulation to


grouplevel



(Article 380(b))




380(c))

















ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities











ingarefitandproper



















thattheyneed









mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities

mayer brown 17







































(Article 380(r))



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities



































Annex 2





(Article 172(4))
















authorities)

Solvency assessment

(Article 227(5))








authorities










0822fin

Group supervision

(Article 260(5))









solvency








authorities







0822fin

Group supervision

(Article 260(5))









solvency








authorities

solvency ii: equivalence decisions

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