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SAM: 3rd Country Equivalence

SAM: 3rd Country Equivalence
30-04-13 / Staff Writer

SAM: 3rd Country Equivalence

Given South Africa's strong economic links to Europe it was decided to follow Solvency II as a conceptual basis for the move from a rules-based regulatory regime to a risk-based regulatory regime, underpinned by a number of sound guiding principles. The underlying criterion for meeting 3rd country equivalence is that the regulatory framework is fully risk-based. The equivalence assessment made by the European Commission will focus on the principles adopted by regulatory frameworks, rather than the parameters used in Solvency II.

Should the details of the SAM task groups proposals differ substantially from the methodology followed by Solvency II, the FSB will engage with the European Insurance and Occupational Pensions Authority (EIOPA) as to whether the particular issue has any impact on 3rd country equivalence assessments. While the likelihood is regarded as remote, should any such issues emerge, these will be resolved by engagement with EIOPA to help inform an assessment of the costs and benefits of identified options.

The Solvency II regime is currently scheduled for implementation in 2014 and as such is still under construction and the requirements for 3rd Country Equivalence have not yet been finalized. Due to time constrains it is highly unlikely that the European Commission will be able to make decisions on all the countries in respect of 3rd country equivalence before the Solvency II implementation date. As such the European Commission is considering transitional arrangements whereby countries may be deemed equivalent for a determined period of time from the implementation of Solvency II.

The European Commission has identified South Africa as one of seven countries where they have asked EIOPA to carry out a technical analysis on the regulatory regime for insurers. This technical analysis will assist the European Commission in making a decision on whether South Africa should qualify for these transitional arrangements. The FSB is currently working with EIOPA on this analysis, and it is expected that the European Commission will make a decision on which countries qualify for the transitional arrangements in 2013.

3RD Country Equivalence Methodology


In its letter dated 11 June 2010 the European Commission requested the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) to develop a fully consulted upon methodology for the way that 3rd countries will be assessed by November 2010. On the 12th November 2010 CEIOPS published a document entitled "The methodology for equivalence assessments by CEIOPS under Solvency II" This methodology has been developed for use in respect of assessments already undertaken by CEIOPS relating to the first wave of assessments, and in the future by EIOPA.

The European Commission will conduct three distinct types of equivalence assessments or determinations in terms of the Solvency II level 1 text, namely:

 Article 172 - equivalence for reinsurers

Article 227 - equivalence for 3rd country subsidiaries of European Economic Area (EEA) groups

Article 260 - equivalence of group supervision by a 3rd country regime

Overarching Principles

The following overarching principles will underpin equivalence assessments:

Equivalence assessments aim to determine whether the third country supervisory system provides a similar level of policyholder/beneficiary protection.

Supervisory cooperation & professional secrecy is a key, determinative element of a positive equivalence finding.

Equivalence is a flexible process based on principles and objectives.

Equivalence incorporates the proportionality principle.

An equivalence judgement can only be made in respect of the regime in existence and applied by a third country supervisory authority at the time of the assessment.

Equivalence assessments will be kept under review.

Operational aspects

The CEIOPS methodology paper sets out the main principle stages of equivalence assessments that will be followed by CEIOPS/EIOPA and are summarized below:

Equivalence assessments will be initiated upon receiving a Call for Advice from the Commission or upon CEIOPS Members' decisions.

CEIOPS will confirm as early as possible in the process that the third country supervisory authority is willing to participate in the assessment. This will be done by forwarding questionnaires to the Supervisors to confirm if the third country is interested in participating in the assessment.

CEIOPS will issue a Call for Evidence, once an equivalence process is initiated. The call for evidence is basically a request to interested parties to provide CEIOPS with all material/documents relevant for the assessment of the third country. Any input received via the call for evidence will not be replied to.

Assessment teams with the appropriate expertise, knowledge and experience will be put in place for the equivalence assessments.

On receipt of the third country response to CEIOPS' questionnaires on the assessment criteria, CEIOPS begins a desk-based assessment.

CEIOPS' equivalence assessments will utilise data/information from a variety of sources.

An on-site visit will be part of the assessment process.

CEIOPS will prepare its advice.

CEIOPS' Advice following an equivalence assessment can be one of the following:

a) Country A meets the criteria set out by the Commission.

b) Country A meets the criteria but with certain caveats.

c) Country A needs to undertake changes in the following areas in order to meet the Commission criteria for equivalence.

The entire equivalence assessment process from the time EIOPA receives the call for advice from the European Commission up until the time of approval of the final advice by CEIOPS'/EIOPA's Membership and submission to Commission could take up to 42 weeks to complete


Before EIOPA will undertake a technical and detailed equivalence assessment, a questionnaire will be sent to the third country which needs to confirm if the third country is interested in participating in the assessment.

As mentioned above Articles 172, 227 and 260 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II Directive) all contain provisions relating to the assessment of the equivalence of third country supervisory regimes

The methodology paper includes an annexure setting out a number of principles and suggested questions that the third country supervisor will be required to answer, pertaining to the particular article of the Solvency II Directive for which 3<sup>rd</sup> country equivalence is sought.

The paper makes it clear that these questions pertaining to the three articles are for illustrative purposes only and as such could be subject to change. The principles highlighted under each particular article will probably remain unchanged.

Once EIOPA has received detailed answers to the questions posed they will proceed to undertake a desk based review of these answers and a number of other considerations before determining the content and focus of their on-site visits.


The Solvency II regime is still being developed, and the requirements for 3rd country equivalence are not yet finalised.Despite these uncertainties the methodology paper provides some useful insight as to the principles, objectives and process that EIOPA will apply when assessing a third country for equivalence with Solvency II.

Please note: The EIOPA has subsequently replaced CEIOPS as from January 2011. The information used in the article is based on the methodology paper for equivalence assessments as issued by CEIOPS in November 2010. All future developments pertaining to 3rd country equivalence will be dealt with by EIOPA

*This article first appeared on the SAIA Bulletin, April 2012.

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