We believe the proposed definition of sole or mechanistic reliance on ratings is clear and reasonable.
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The consultation paper mentions a draft Solvency II rule – in delegated acts –in which rating is used to calculate spread risk. There is, also, a use of rating in the Solvency II draft delegated acts in calculating concentration risk. For that risk type, there is a specific rule when calculating concentration risk on an unrated insurance company, allowing for its solvency ratio to be used in determining the risk factor. Here, there is a possibility to avoid sole or mechanistic reliance on ratings by allowing the solvency ratio – the regulation’s own measure of capital strength – rather than ratings to be used in that calculation irrespective of whether the insurance company is rated. Also, the solvency ratio should be allowed to be used for exposures on groups headed by a holding company to which the group Solvency II rules apply and for which a group solvency ratio is calculated. Since the delegated acts are proposed by the Commission, we suggest that this proposal of ours is forwarded to the Commission.