ICP 23 Group-wide Supervision

The group-wide supervisor, in cooperation and coordination with other involved supervisors, identifies the insurance group and determines the scope of group supervision.

23.1

The group-wide supervisor, in cooperation and coordination with other involved supervisors, identifies all legal entities that are part of the insurance group.

23.1.1    

To ascertain the identity of an insurance group, supervisors should first identify all insurance legal entities within the corporate structure.

23.1.2    

Supervisors should then identify all entities which have control over those insurance legal entities in the meaning provided for in the definition in ICP 6 (Changes in Control and Portfolio Transfers). If this results in only one identified entity, this entity is the head of the insurance group. If there is more than one entity with control over the insurance legal entities, supervisors should identify the head of the insurance group such as the entity which has the greatest level of control over the insurance business.

23.1.3    
A practical method for determining the entities within the insurance group is often to start with entities included in the consolidated accounts. The head of an insurance group including an insurance-led financial conglomerate is at least one of the following:
  • an insurance legal entity; or
  • a holding company.
The identified insurance group includes the head of the insurance group and all the legal entities controlled by the head of the insurance group. Legal entities within a group could include:
  • operating and non-operating holding companies (including intermediate holding companies);
  • other regulated entities such as banks and/or securities companies;
  • non-regulated entities; and
  • special purpose entities.
In addition to considering the consolidated accounts, the supervisor should consider other relationships such as
  • common Directors;
  • membership rights in a mutual or similar entity;
  • involvement in the policy-making process; and
  • material transactions.
The insurance group may be
  • a subset/part of a bank-led or securities-led financial conglomerate; or
  • a subset of a wider group, such as a larger diversified conglomerate with both financial and non-financial entities.

​23.1.4     
Examples of the types of group structures that could be captured by the definition of insurance groups are provided in the diagrams below (Figure 23.1, 23.2, 23.3 and 23.4). These examples are for purposes of illustration only, and are not intended to set forth all possible forms of insurance groups.

​23.1.5     
The ICPs’ definition of “insurance group” may be different from the definitions used in other contexts, such as accounting or tax purposes.

​CF 23.1.a     
The group-wide supervisor identifies the Head of the IAIG as the legal entity which controls all of the insurance legal entities within the group and non-insurance legal entities which pose risk to the insurance operations.

​CF 23.1.b    
When identifying the Head of the IAIG, the group-wide supervisor considers both control as defined in ICP 6 (Changes in control and portfolio transfers) and operational control.

​CF 23.1.b.1    
Operational control means the ability in practice, whether or not a legal right exists, to do some or all of the following:
  • select, appoint, or remove Board Members of related entities;
  • determine remuneration of Board Members of related entities;
  • set or influence capital expenditure and investment plans;
  • set a dividend strategy and levels of surplus capital to be retained;
  • determine new lines of business to be undertaken;
  • set risk management policies and processes; and
  • require reporting of management information.

​CF 23.1.c    
When identifying the Head of the IAIG, if there is more than one entity which controls all of the insurance legal entities, the group-wide supervisor determines the Head of the IAIG to be the entity that exercises the greatest level of control over all the insurance legal entities by considering the following factors:
  • the proportion of the insurance business relative to other businesses it controls;
  • the degree of operational control; and
  • the degree of shareholder control.

​CF 23.1.c.1    
Considering the above factors is particularly relevant when an IAIG has a vertical structure with several intermediate holding companies, is a financial or industrial conglomerate, or has several insurance sub-groups.

​CF 23.1.c.2    
Consideration of which entity controls the greatest proportion of insurance business relative to other business may lead the group-wide supervisor to determine that the Head of the IAIG is an intermediate holding company rather than the ultimate parent of the group.

​CF 23.1.c.3    
Consideration of where operational control is greatest may lead the group-wide supervisor to determine that the Head of the IAIG is an intermediate holding company rather than the ultimate parent of the group. It may also lead the group-wide supervisor to determine that one insurance legal entity is the Head of the IAIG by virtue of its operational control over another insurance legal entity even where it does not own that entity.

​CF 23.1.c.4     
Consideration of where shareholder control is greatest may lead the group-wide supervisor to determine that the ultimate parent in a conglomerate is the Head of the IAIG rather than an intermediate holding company.

​CF 23.1.d    
The group-wide supervisor considers that a non-insurance legal entity within the group poses risk to the insurance operations where there is:
  • a linkage between the insurance operations and the non-insurance legal entity (other than an investment in or from the non-insurance legal entities) that could adversely affect the insurance operations; and
  • a lack of adequate safeguards, including additional capital, to mitigate risks arising from any such linkages.

​CF 23.1.d.1    
Consideration of the control exerted over non-insurance legal entities within the group may lead the group-wide supervisor to determine that the Head of the IAIG is the ultimate parent of the group rather than an intermediate holding company.

​CF 23.1.d.2     
A parent of the insurance legal entities is less likely to pose a risk to the insurance operations if the only linkage between it and the insurance legal entities is of the nature of a passive investment and so no operational control is being exerted.

​CF 23.1.d.3     
The group-wide supervisor should be able to require preventive or corrective measures at the same level at which all the risks to insurance operations in the group (including funding risks) are mitigated by capital.

​CF 23.1.e     
Where a legal entity controls all insurance legal entities within the group and non-insurance legal entities which pose risks to the insurance operations, the group-wide supervisor has discretion to identify a subsidiary of that entity as the Head of the IAIG if:
  • prudential supervision is exercised by another financial sector supervisor over that entity; and
  • the group-wide supervisor can rely on the other financial sector supervisor to provide sufficient information concerning risk that this entity and the legal entities it controls pose to the insurance operations.

​CF 23.1.e.1    
 The Head of an IAIG should not be a bank when:
  • that bank is subject to prudential supervision exercised by another financial supervisor; and
  • the group-wide supervisor is able to rely on this other financial sector supervisor to obtain information on the wider group and to ensure that the group is adequately capitalised.

​CF 23.1.e.2    
If this precludes there being a single Head of the IAIG which controls all the insurance legal entities, then the group may be supervised as two or more separate IAIGs even if separately those IAIGs would not meet the size and international activity criteria.

​CF 23.1.f    
 The group-wide supervisor provides the supervisory college with the main reasons and judgements it made when identifying the Head of the IAIG.

​CF 23.1.f.1     
As the supervisory college may qualify as a crisis management group for the IAIG (IAIG CMG), when identifying the Head of the IAIG, the group-wide supervisor should understand where resolution powers are applicable. The Head of the IAIG identified for prudential supervision purposes may not be the same as the entity at the level of which resolution powers will apply.

23.2

The group-wide supervisor, in cooperation and coordination with other involved supervisors, determines the scope of group-wide supervision.


23.2.1    

Involved supervisors should consult and agree on the scope of group-wide supervision of the insurance group to ensure that there are no gaps and no unnecessary duplication in supervision among jurisdictions.

23.2.2    

A practical method to determine the entities to capture within the scope of group-wide supervision is to start with entities included in the consolidated accounts. Entities that are not included in consolidated accounts should be included if they are relevant from the perspective of risk (non-consolidated entities also subject to supervision) or control. The entities that may be captured within the scope of group-wide supervision may either be incorporated or unincorporated.

23.2.3    

In considering the risks to which the insurance group is exposed it is important to take account of those risks that emanate from the wider group within which the insurance group operates.

23.2.4    

Individual entities within the insurance group may be excluded from the scope of group-wide supervision if the risks from those entities are negligible or group-wide supervision is impractical.

23.2.5    

The exclusion or inclusion of entities within the scope of group-wide supervision should be regularly re-assessed.

​23.2.6     
It should be noted that the supervisory approach to entities/activities within the insurance group may vary depending on factors such as their types of business, legal status and/or nature, scale and complexity of risks. Although an insurance group as a whole should be subject to group-wide supervision, not all quantitative and qualitative supervisory requirements applied to an insurance legal entity should necessarily be applied to other entities within the group, to the insurance group as a whole, or to a sub-group collectively.

​CF 23.2.a    
In conducting group-wide supervision, the group-wide supervisor obtains information necessary to apply standards to the Head of the IAIG concerning all the legal entities controlled by the Head of the IAIG (the IAIG) including from:
  • the Head of the IAIG;
  • with the cooperation of other involved supervisors, insurance legal entities controlled by the Head of the IAIG; and
  • other non-insurance legal entities, whether or not controlled by the Head of the IAIG.
The group-wide supervisor decides from which legal entities information should be sought.

CF 23.2.a.1    
The group-wide supervisor may need to obtain information about related group entities, such as:
  • any intermediate holding company or ultimate parent of the Head of the IAIG;
  • any significant owner of the IAIG;
  • any person exerting significant influence over the IAIG;
  • any financial entity which is subject to supervision by an authority other than an insurance supervisor; or
  • entities excluded from the consolidated data used to assess group solvency.

​CF 23.2.a.2    
Where there are entities related to the Head of the IAIG from which information is necessary for supervisory purposes, then the group-wide supervisor should obtain that information from those entities or from other sources, for example:
  • the Head of the IAIG (insofar as the Head of the IAIG can legally procure that information);
  • any supervisor of a related non-insurance financial entity; or
  • the members of the Board, Senior Management and Key Persons in Control Functions involved in the insurance business, irrespective of the entity employing those persons.

​CF 23.2.a.3    
The group-wide supervisor should understand how risks in non-regulated related group entities affect, for example, the risk management and capital adequacy of the IAIG. However this does not require the group-wide supervisor to supervise directly such entities.

23.3

The group-wide supervisor and other involved supervisors do not narrow the identification of the insurance group or the scope of group-wide supervision due to lack of legal authority or supervisory power over particular legal entities.


23.3.1    

In some jurisdictions, the supervisor may not be granted legal authority or supervisory power for the direct supervision of some entities within the identified insurance group or the scope of group-wide supervision. These may include legal entities regulated in another sector or non-regulated entities within the same jurisdiction.

23.3.2    
Where a supervisor has no direct legal power over certain legal entities in the scope of the group-wide supervision, the supervisor will use its power over regulated entities and/or consult with other involved supervisors to obtain similar supervisory outcomes.

Illustrations to assist the identification of insurance groups
 
Figure 23.1 Insurance Group

Figure 23.2 Financial Conglomerate

Figure 23.3 Insurance-led Financial Conglomerate

Figure 23.4 Wider group