Implementing Solvency II—tips for SPVs

What’s next for special purpose reinsurance vehicles (SPVs) under the Solvency II Directive?

Hilary Evenett, insurance specialist and partner in the funds and investment management at Clifford Chance, comments on the EU’s Commissioning Regulations.

Original news

Official Journal of the European Union, L76, 20 March 2015—Regulation—Insurance, LNB News 20/03/2015 96

Commission Implementing Regulation (EU) 2015/462, which came into force on 21 March 2015, lays down implementing technical standards with regard to the procedures for supervisory approval to establish SPVs, for the cooperation and exchange of information between supervisory authorities regarding SPVs as well as to set out formats and templates for information to be reported by SPVs in accordance with Directive 2009/138/EC (Solvency II).

What is the background to these implementing regulations?

Solvency II, which is a framework directive, provides for the establishment of SPVs, and these Implementing Regulations provide more information about the way in which these SPVs will be approved and managed.

What do the implementing regulations cover?

The implementing regulations cover:

• procedures to be followed for granting approval for the establishment of an SPV
• procedures for cooperation and exchange of information between different EU supervisors, where the SPV is established in one member state and assumes risk from a (re)insurer established in another member state, and
• the format and templates for annual reporting by an SPV

What are the key provisions?

An SPV must seek authorisation from the supervisor of the member state where it wishes to establish its head office.

That supervisor must decide on applications for authorisation within six months of an application being made. When applying for approval for establishment, the SPV must demonstrate that the requirements of the Commission Delegated Regulation (EU) 2015/35, arts 318–324, 326, 327 are met—including the need for:

• the SPV to be fully funded
• there to be an effective transfer of risk, and
• there to be sound administrative and accounting procedures, adequate internal control mechanisms and risk management requirements

The SPV must also demonstrate that it is capable of meeting the requirements of the Commission Delegated Regulation, art 325 in relation to supervisory reports.

The implementing regulations specify the supporting documentation which must be provided with each application, which must cover:

• the proposed structure of the SPV
• details of the risks to be assumed, and
• details of the funding of the SPV

The supervisor may withdraw the authorisation of an SPV where it no longer fulfils the original conditions for authorisation, or breaches its obligations (in particular its obligation to remain fully funded).

There is a particular provision relating to multi arrangement SPVs. This is intended to ensure that the solvency of an SPV cannot be adversely affected by the insolvency of any one of the several insurance or reinsurance undertakings from whom it has assumed risks.

The implementing regulations also provide for ongoing cooperation between supervisors where risk is assumed from an insurer or reinsurer authorised in a different member state from the member state where an SPV is established. The implementing regulations provide for the two supervisors to exchange information relevant to supervision of the SPV, without delay.

The implementing regulations also provide in detail for the contents, both quantitative and qualitative, of the SPV’s annual report, which must include details of the risks assumed by the SPV, and information on debt instrument issued or other financing mechanisms entered into by the SPV.

What advice should professionals be giving to their clients as a result?

Advisers should note the contents of the implementing regulations and ensure that they are complied with when making applications for authorisation. The timetable for approval of application should also be noted as this may impact on timing of any risk transfer transactions using an SPV.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor