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202004 Q2(iii)

O

OnionII

Member
Hi guys, for Q2 (iii)'s Option 4: Allow insurance companies to follow either regulation; provided they can demonstrate they are at least equivalent to Country Y insurance regulations.

For the discussion of this Option as an insurer, one of the solution's point is
• Are free to choose least expensive regulation [½]

When i am able to demonstrate that they are at least equivalent, i've assumed that they should be yielding reserves/ capital at least as prudent, so it doesnt sound like i'm free to choose a least expensive regulation, can someone shed some light on this point please? Thank you.
 
OnionII said:
Hi guys, for Q2 (iii)'s Option 4: Allow insurance companies to follow either regulation; provided they can demonstrate they are at least equivalent to Country Y insurance regulations.

For the discussion of this Option as an insurer, one of the solution's point is
• Are free to choose least expensive regulation [½]

When i am able to demonstrate that they are at least equivalent, i've assumed that they should be yielding reserves/ capital at least as prudent, so it doesnt sound like i'm free to choose a least expensive regulation, can someone shed some light on this point please? Thank you.
Click to expand...

This is a good question. Equivalent does not necessarily mean the same. For example, the reserving or capital number between the EEA and Bermuda is not the same (even though the EU consider Bermuda as an Equivalent Solvency II Jurisdiction). The cost of regulatory compliance between jurisdictions could also differ, e.g. meeting reporting requirements, maintaining internal models etc.

If memory serves me correctly, the concept of 'regulatory aligmnment' was key in getting the UK / EU Withdrawal Agreement signed. Regulatory aligment implies consistency (but not necessarily the same) of standards.
 
Mugono is absolutely right. The examiners were thinking about the costs of compliance as well as the solvency capital requirements. If two schemes are 'equivalent' in the eyes of the regulator, but one has slightly lower maintenance expenses, or slightly lower capital requirements, the insurer should be able to choose the scheme that is least expensive for them.

Remember OnionII, this is just one point on the marking schedule. Don't worry if you wouldn't have thought of this idea, you could have scored well without it :)
 
Many thanks Mugono and Sarah for taking the time to reply me. Appreciate it.
 
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