How are groups supervised, if at all?
Insurance & Reinsurance
An Insurance Holding Company and an insurance company's major shareholders (i.e., shareholders holding 20% or more of the insurance company’s voting rights) are required to obtain approval from, and the large holders of the insurance voting rights (i.e., holders holding 5% or more of the insurance company’s voting rights) are required to make notification to, the FSA supervising such regulations.
The scope of business that subsidiaries of insurance companies may engage is restricted and is stipulated by law. Provided, however, that an insurance holding company’s subsidiary may, with the approval of the FSA, engage in any business that is not prescribed by law.
The arm’s length rule applies to inter-group transactions of an insurance company.
Supervision of the FSA for an insurance company group is based on laws and regulations as well as the Guidelines and the Financial Conglomerate Supervision Guidelines.
Insurance groups in Australia include any insurer with controlled entities and those insurers which are the subsidiary of an authorised non-operating holding company (NOHC). APRA supervises insurance groups by granting them authorisation to conduct a business of insurance similar to the authorisation process required for individual insurers. APRA has the ability to control the insurance group and to exercise enforcement powers over individual insurers. Where APRA does not have oversight over the subsidiaries of an insurer or NOHC, it can exercise oversight by directing the parent entity to take specified actions.
Under the EU Solvency II Directive, groups are subject to supplementary supervision in addition to the solo supervision of individual insurance companies. The EU Solvency II Directive sets out the circumstances in which group supervision is triggered.
In the event of group supervision, the participating insurance companies are required to calculate a group solvency capital requirement. The group's own funds must be transferable and fungible across the group. All related companies and all risks within the group must be included in the group solvency calculation.
In addition, group-wide governance, reporting and intra-group transaction and risk concentration monitoring shall apply.
The rules set out in the Solvency II Directive for the supervision of insurance and reinsurance undertakings taken individually continue to apply at the level of a group in order to ensure that own funds are appropriately distributed within the group and are available to protect policyholders and beneficiaries as needed. Insurance and reinsurance undertakings within a group should have sufficient own funds to cover their solvency capital requirements.
Group supervision applies in any case at the level of the ultimate parent undertaking that has its head office in the EU. The KNF (similar to other EU regulators in their jurisdictions) may also apply group supervision at a limited number of lower levels, where it deems it necessary.
The consolidated SCR for a group should take into account the global diversification of risks that exist across all the insurance and reinsurance undertakings in that group in order to properly reflect the risk exposures of that group.
Insurance and reinsurance undertakings belonging to a group may apply for approval of the internal model to be used for the solvency calculation at both group and individual levels.
Life insurance, non-life insurance and reinsurance groups generally are subject to the same regulations, however the requirements for obtaining a license differ.
Where an Irish-authorised (re)insurer is a member of a wider insurance group, the group is subject to group supervision in accordance with the Solvency II regime. The provisions relating to group supervision are quite complex, as supervision is required of the group’s solvency, governance and reporting obligations. The level of group supervision by the Central Bank will depend on the location of the ultimate insurance parent and the Solvency II regime permits the application of a tailored-approach by the local regulator in respect of group supervision.
Where a group is made up of several EEA insurers, one EEA regulator will act as the group supervisor, while the local regulators are responsible for supervision of the individual entity operating in their respective jurisdiction.
Where the ultimate insurance parent is located outside the EEA, the Central Bank is required to ensure appropriate supervision of the worldwide group. This may be done by extending the solvency capital requirements imposed on EEA insurers and reinsurers to non-EEA entities. Alternatively, it is open to the Central Bank to adopt “other methods” which ensure appropriate group supervision. Where a third-country has been recognised as having an equivalent prudential supervisory regime to that imposed under Solvency II, the Central Bank may rely on the supervision of the worldwide group by the relevant third-country regulator.
Under Solvency II groups are subject to supplementary supervision in addition to the solo supervision of individual insurance companies in order to protect policyholders against risks that might be present within a group but not necessarily apparent where only the individual insurance company is considered. The Solvency II Directive sets out the circumstances in which group supervision is triggered. Only one insurance entity within a corporate group need be headquartered in the UK (or elsewhere in the European Union) for group supervision to be applied.
Where a European headquartered Solvency II group is identified, it must hold eligible own funds equal to or in excess of a group SCR. Group own funds must be transferable and fungible across the group. The group capital requirement can be calculated using either a standard formula or an internal model (similar to individual entity capital requirements). The recognition of individual company own funds (in excess of any applicable solo capital requirement) at the group level depends on their availability and transferability between group entities. In addition, group-wide governance, reporting and intra-group transaction and risk concentration monitoring shall apply.
Where a group is headquartered outside the EU, Solvency II group supervision may still apply, either to a sub-group or to the worldwide group, depending, for example, on whether a finding of equivalence has been made in relation to relevant third country jurisdictions.
Swedish group supervision legislation aims to ensure the policyholders’ protection, regardless of an insurance company’s corporate structure. The group supervision rules are a complement to the regular supervision rules, meaning that an insurance company that is part of a group will be subject to both group supervision and individual supervision.
If a group is active in several EU member states a supervisory authority shall, as a general rule, be appointed ‘group supervisor’. It is generally the supervisory authority in the member state where the group head is established or where the group company with the largest balance-sheet total is established, that is appointed group supervisor. The group supervisor’s purpose is to cooperate with the other competent supervisory authorities and coordinate any necessary supervisory measures. The group supervisor’s supervisory measures are generally directed towards the company heading the group, though the financial conditions of the whole group, even companies established outside the EU, are taken into consideration, by requiring the group head to present a consolidated solvency balance sheet.
Solvency II introduced important new provisions to strengthen the supervision of insurance groups. The regulations on group supervision can be found in the VAG, in particular in Part 5 (Sections 245 et seq.). Accordingly, insurance undertakings which are part of a group are, in addition to individual supervision, subject to certain group supervision provisions.
Groups of financial institutions, including insurance companies, are regulated pursuant to specific regulations in chapter 17 of the Financial Institutions Act. A financial institutions group may only be established subject to an authorisation from the FSAN, provided that the organisation of the group is in accordance with the regulations of chapter 17.
The FSAN supervises financial institution groups as part of its regular supervision mandate, and may issue an order to the effect that circumstances in contravention of the regulations shall cease. The FSAN may also, based on its discretion, impose a coercive fine on the group in case the unlawful circumstances have not been corrected within its stipulated deadline.
Group life insurance is defined in the LCS (Article 202) as the insurance in which the insurance company is liable for the death or the length of the life of a specific person based on the belonging to a particular group or company, in exchange of a periodic premium. One of its particularities is that it does not request any medical requirement or exam from the insured to be covered.
In Mexico, group life insurance is regulated by the Rules for the Group Life Insurance and Health and Accident Collective Insurance (“Rules for Group Life Insurance”).
The Rules for Group Life Insurance define “group” as a group of people that belong to a same company or that share a common, lawful, prior and independent interest or bond. The individuals that are part of the insured group may contribute to the payment of the premium subject to the terms established in the policy.
The insurance companies that offer group life insurance must have the written consent from each member of the group, prior to their incorporation to the group and extending insurance coverage.
Such contract must consider at least what is the amount insured, or the manner in which such amount shall be determined and whom are the beneficiaries, when it is non-revocable.
As a special benefit for life group insurance granted as part of the benefit employment package, the Rules for the Group Life Insurance provide a benefit for the employee in case it terminates the labour relationship with the employer. In this case, the insurance company, only on one occasion, shall provide coverage to the employee leaving the company, without requesting any medical requirement, in any of the life insurance products that the insurance company offers, with the exception of term life insurance and subject to the limitations of age set forth by the insurance company and compliance of the requirements set forth by the Rules for the Group Life Insurance.
Groups are generally not supervised in the UAE at the group-wide level. Each licensed entity is supervised by the relevant regulator, and is expected to meet the regulatory requirements pursuant to its own available resources, notwithstanding that certain functions may be allowed to be either outsourced or are facilitated at the group level. In this event, the regulator may request that the licensee provide evidence that the outsourced or group allocated functions are being fulfilled according to regulations, thus extending the regulators’ purview beyond the entities’ individual structure, and permitting some inquiry into group functions.
In the DIFC, there is greater scrutiny of group structures, particularly at the licensing stage. The DFSA will inquire into the activities of a prospective licensee’s ultimate controlling owner, notwithstanding that the DFSA does not have actual regulatory jurisdiction over the group if such is located outside of the DIFC. The DFSA also reserves the right to investigate its licensees’ activities, and this may extend to their group structures should the DFSA believe that the licensees’ activities may be in breach of applicable regulation.
Most states’ regulation and supervision is focused on the individual insurance or underwriting companies that make up an insurance group or holding company rather than on the group or holding company. As for those groups or holding companies that own non-insurance company affiliates, states have, after the financial crisis in 2008, adopted NAIC model rules which establish walls between insurers and non-insurer affiliates to protect policyholders from insolvency risks relating to the non-insurer affiliates. That supervisory framework allows regulators to assess the potential impact of a group’s activities on the ability of its insurance members to pay claims.
The supervision of insurance groups is set out in Chapter 9 of the VAG (Articles 195 to 240). In particular, these rules relate to the supervision of a group’s solvency, its cluster risk and intragroup transactions as well as its governance system. Groups have already been supervised under previous versions of the VAG, but group supervision has received further attention under the revised Act, especially as regards group solvency requirements.
An individual group’s solvency requirements are calculated in accordance with Articles 202 to 214 VAG. In general, the calculation has to be consolidation-based. A calculation based on the deduction and aggregation method requires prior approval by the group supervisor respectively the FMA. Solvency calculations have to be carried out at least once a year.
Minimum capital requirements, on the other hand, are dealt with individually and not at group level.
Pursuant to Article 220 VAG, a significant risk concentration at group level has to be notified to the FMA. The FMA also, on a case-by-case basis, specifies the respective thresholds as to which risk concentrations are considered significant and require notification.
With regards to a group’s governance system, Article 222 VAG stipulates that the implementation of risk management, internal control and reporting systems shall be carried out consistently throughout all of a group’s companies, so as to ensure effective supervision at the group level.
There are rules regarding collective insurance which applies to insurance companies, brokers and other commercialization channels, including banks in respect of insurances associated to loans secured with mortgages. Policies shall establish the duty of informing policyholders about the terms of the insurance with the basic information regarding the insured and coverage and its amendments.
In respect of their portfolio of insurances associated to mortgaged loans, creditors or banking entities shall follow a bidding process, which is monitored by the regulator. The broker always has a duty to serve policyholders.
Groups and conglomerates are supervised in accordance with Art 62 et seq ISA (insurance groups) and Art 72 et seq (conglomerates of insurance).
Two or more companies are deemed an insurance group in accordance with Art 62 ISA if at least one of the companies is an insurance company, the “ensemble” of companies predominantly conducts insurance business and if the companies form an economic unit.
FINMA can bring such an insurance group under its supervision if the group is effectively managed from Switzerland. The same applies if the group is managed from abroad, provided that it is not subject to equivalent group supervision in the respective country, Art 65 ISA.
Group supervision becomes necessary when a group operates on an international scale and has a complex structure. Conglomerate supervision is used if the group also plays a key role in the financial services sector; this applies in particular to banks and securities dealers.
Group supervision applies in addition to the individual supervision of the insurance company, Art 66 ISA. Senior management must fulfil the same “fit and proper” criteria as the senior management of an insurance company (see question 13 below). Group supervision focusses on in particular on 3 main areas (see Art 191 et seq ISO for details):
- Organisation, group structure and internal processes.
- Risk management on a group level.
- Consolidated solvency on a group level (group SST).
A conglomerate of insurance companies (art 72 et seq LSA) is an insurance group (according to the criteria set out in Art 62 LSA) in which at least one of the group companies is a bank or a securities trader. The principles that apply for the supervision of conglomerates of insurance companies are equivalent to those that apply to insurance groups (see e.g. Art 204 ISO). FINMA has set out further details on group supervision in its Circular RS 2016/04.
Yes, the economic groups are monitored. Among the attributions of the SBS is to establish the existence of economic groups and exercise consolidated supervision of them. In order to carry out this supervision, the SBS is authorized to request the information that it deems relevant on all the companies that make up the economic group.
One of the most important aspects related to the supervision of economic groups is the application of limits to operations carried out between persons and/or related legal entities. In this sense, the total number of operations (transfers of resources, services, obligations or other such as credits, financial leases, investments or contingent, among others) that a financial system company makes with related natural and/or legal persons, may not exceed an amount equivalent to 30% of the effective equity of the company.
To avoid conflict of interest, ordinarily, two entities of the same group are not permitted to undertake the same line of insurance business. Furthermore, usually only one entity in a group will be granted a license/certificate of registration to act as an insurance intermediary.
The IRDAI does not currently regulate the group entities of insurers or insurance intermediaries. However there are some restrictions, where the IRDAI has discretion (in some cases) to determine the scope of a group:
- An Indian corporate group can have an insurer and an insurance broker in the same group, subject to certain conditions being fulfilled.
- Insurance brokers and corporate agents are not permitted in the same group.
- Web aggregators and telemarketers cannot be related parties (under Accounting Standard 18 and/or the Companies Act 2013) of an insurer.
- On his or her appointment, surveyors are required to inform interested parties regarding any conflict of interest that may prejudicially affect the interested parties.
- There is no express restriction on insurers and third party administrators (TPAs) operating in the same group.
- Insurers and insurance agents/insurance intermediaries are not permitted to have directors in common.
- Per the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations 2017, group entities of insurers or insurance intermediaries registered with the IRDAI shall ordinarily not be engaged for outsourcing any of the activities of an insurer.
Singapore insurance groups whose parent entity holds an insurance subsidiary operating in Singapore or is itself an insurance company operating in Singapore will come with the purview of the supervision of MAS.
Group-wide supervision of intermediate insurance groups whose parent entity is incorporated outside Singapore may also be carried out by MAS if it has significant operations in Singapore and the insurance group is not subject to group-wide supervision by the foreign home supervisor. The prudential requirements of MAS for an insurance group will be applied via the controlling parent of the group.
Some of the notable aspects of the group-wide supervision regime include:
- The parent entity should have a suitably qualified and competent board to discharge its oversight role objectively and free of undue influence;
- The parent entity must provide quarterly updates to MAS on matters such as the activities of unregulated entities in the group, key persons governing these unregulated entities, and intra-group transactions and exposures and risk concentrations;
- Obtaining prior approval from MAS before any direct or indirect acquisition of ≤ 10% of shares in issue or voting power in any company, and notifying MAS of any disposal of such stake even if the operation is not in Singapore; and
- Group level capital requirement in addition to the solo entity level requirements.
Insurers and reinsurers must be incorporated in the form of corporations. In relation to group companies, the Brazilian Law of Corporations prohibits mutual shareholding and any kind of advantage to companies of the same group. Specifically with respect to reinsurance, the Law authorizes the insurance regulator to establish limits and to monitor intergroup transactions, in line with regulations that established maximum percentage limits for such assignments.
The Commissioner of Insurance issued circulars protecting the interests of group Insureds (mainly in Life and Health Branches of Insurance).
Article 343 of the Supervision Act states that insurance and reinsurance undertakings under Belgian law which are part of a group are subject to supervision at group level, and this in accordance with Chapter II, Title IV of the Act, its implementing Decrees as well as with the implementing acts and measures of the Solvency II Directive.
The supervision at group level relates to group solvency (Articles 358-387), risk concentration and intragroup transactions (Articles 388-391), governance system at the level of the insurance or reinsurance group (Articles 392-398) and disclosure of information, meaning e.g. that a yearly report dealing with the solvency and financial position at the group level must be disclosed (Articles 399-406).
Solvency II provides for the supervision of groups of insurance companies. Group supervision applies to groups that have at least one insurance company operating within the European Union.
Groups are supervised by a single group supervisor, who is appointed in accordance with Article 247 of the Solvency II Directive. If the parent company is situated outside of the European Union, the ACPR will verify whether the group supervisor applies a control equivalent to that of the EU. Otherwise, the ACPR will oversee the group supervision on the EU parent company.
Group supervision is comparable to the supervision imposed upon single entities, in that it requires steps to be taken and systems to be implemented at group level in relation to capital requirements, risk concentration, intra-group transactions and governance.
Groups that control federally or provincially regulated insurers are often called upon to provide certain undertakings with respect to their financial institution subsidiaries (such as letters of comfort to regulators). Most groups are not treated as regulated entities themselves, although provision is made in the ICA for the creation of regulated insurance holding companies that would be supervised by OSFI.
The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
establishes that groups formed by the following will be subject to supervision: (i) insurers or
reinsurers which participate in at least an insurer or a reinsurer, even of a third country; (ii)
insurers or reinsurers whose parent is an insurance holding company or a mixed financial holding company domiciled in the EU or in a third country.
The Act 2015 provides that the Spanish General Directorate of Insurance shall be competent to supervise the entire group when all the entities of the group are domiciled in Spain and also in other cases such as where the head of the group in an insurance or reinsurance undertaking domiciled in Spain. In these cases, the Spanish General Directorate of Insurance shall have the following faculties and powers: coordination of the gathering and publication of information in relation to normal and emergency situations; supervision and assessment of the financial solvency of the group; supervision of compliance with solvency regulations; supervision of the corporate governance systems; etc. It is further stated that the General Directorate of Insurance shall have access to all the information required to conduct the supervision of the group and will be competent to inspect the entities forming the group.
PIRL sets forth that groups shall be subject to additional supervision which is supplementary to the individual supervision of insurance undertakings.
Group supervision is applicable to the following situations:
a. Insurance and reinsurance undertakings that hold a shareholding stake in at least one insurance or reinsurance undertaking from a third country;
b. Insurance and reinsurance undertakings whose parent is a holding company in the insurance sector or a mixed financial holding with registered office in the EU;
c. Insurance or reinsurance undertakings whose parent is a holding company in the insurance sector or a mixed financial holding with registered office outside the EU or an insurance or reinsurance undertaking from a third country;
d. Insurance and reinsurance undertakings whose parent is a mixed holding company.
Article 284 of PIRL sets forth the criteria to designate the supervisory entity responsible for the supervision of the group. ASF shall be responsible for supervising the group if the insurance or reinsurance undertakings which are a party thereto are already (individually) subject to the supervision of ASF, as well as in other situations, including in the event the leading entity of the group has been licensed by ASF.
The competent authority responsible for the supervision of the group has the following rights and obligations:
a. Coordinate the process of gathering relevant or essential information for the purposes of supervising the group;
b. Revise and evaluate the financial status of the group;
c. Supervise compliance with solvency requirements, risk concentration monitoring and evaluating intragroup transactions;
d. Evaluate the corporate governance systems.
IVASS carries out supervision of financial conglomerates and prudential control over national and cross-border insurance groups along with other EU authorities. As matter of fact, the new regulatory framework introduced by the Solvency II enhance the efficiency and effectiveness of supervision over cross-border groups, reinforce the cooperation among the supervisory authorities of various countries, the exchange of information, the planning and coordination of operational activities.