Under Solvency II, the notion of third countries equivalence plays an important role in the supervision of groups with activities outside the EEA. Third-country equivalence implies that the supervisory regime of a non-EEA country has been declared equivalent to the European Solvency II regime.
A decision to this effect can be taken for three areas of supervision: the supervision of reinsurers (Article 172 of the Solvency II Directive), group supervision (Article 260) and supervision of insurance entities (Article 227).
The presence of a positive equivalence decision may make a significant difference to the way in which group supervision or the calculation of the solvency requirement is organised. For example, a positive equivalence decision is a prerequisite for institutions to be allowed to use the balance sheet and capital requirement according to local rules in calculating the group's solvency for activities outside the EEA. In the absence of such a decision, the balance sheet and capital requirement must be drawn up on the basis of Solvency II. The purpose of this rule is to ensure that the overall balance sheet is drawn up in a sufficiently prudent manner and to avoid intra-group supervisory arbitrage.
The Solvency II Directive provides that the European Commission may take a binding decision on the equivalence of a third country, assisted by EIOPA. An overview of all equivalence decisions is available on the European Commission’s website.
In the absence of a European equivalence decision on a country, insurers can apply for a decision with the group supervisor. The group supervisor will then come to a decision in consultation with EIOPA and other EU Member States concerned.
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