Deduction of indirect holdings of own funds instruments in insurance and reinsurance undertakings which are subsidiaries of insurance holding company from own funds

Should indirect holdings of own funds instruments in insurance and reinsurance undertakings which are subsidiaries of insurance holding company be subject to the exemption provided for in Article 15a(2)(a) of Commission delegated regulation No 241/2014?

Article 36(1)(i) CRR states that Institutions shall deduct the following from Common Equity Tier 1 items […] the applicable amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities. A similar deduction requirement from AT1 and T2 items of an institution is applicable under Articles 56(d) and 66(d) CRR in respect of institution’s direct, indirect and synthetic holdings of AT1 and T2 instruments of financial sector entities. As for the definition of indirect holdings (Article 4(1)(114) CRR), Article 15a(2)(a) CDR 141/2014 states that: Without prejudice to point (h) of paragraph 1, an ‘intermediate entity’ as referred to in Article 4(1)(114) of Regulation (EU) No 575/2013 does not comprise: (a) mixed activity holding companies, institutions, insurance undertakings, reinsurance undertakings; It is not clear why insurance holding companies are not mentioned in such provision and instead considered as an ‘intermediate entity’ as referred to in Article 4(1)(114) CRR while mixed activities holding companies are explicitly mentioned. The exclusion of insurance holding companies may have adverse effects on the application of Article 49(1) CRR. The conditions under the letter (a) and (e) of Article 49(1) CRR are the following: (a) the financial sector entity is an insurance undertaking, a reinsurance undertaking or an insurance holding company (e) the holdings in the entity belong to one of the following: (i) the parent credit institution; (ii) the parent financial holding company; (iii) the parent mixed financial holding company; (iv) the institution; (v) a subsidiary of one of the entities referred to in points (i) to (iv) that is included in the scope of consolidation pursuant to Chapter 2 of Title II of Part One Therefore, from the current wording of the CRR and RTS, it seems that an institution may be exempted from deduction from own funds of its direct holdings in an insurance undertaking, a reinsurance undertaking or an insurance holding company, while on the other hand it seems that indirect holdings in insurance and reinsurance undertakings which are subsidiaries of an subsidiary insurance holding company would not fulfil the condition for an exemption under Article 49(1)(e) CRR given that insurance holding companies are not included in the scope of consolidation pursuant to Chapter 2 of Title II of Part One as they do not meet the definition of financial institutions (Article 4(1)(26) CRR) and would therefore always need to be deducted, subject to thresholds in Article 48 CRR. On the contrary, indirect holdings of own funds instruments in insurance and reinsurance undertakings which are subsidiaries of mixed activity holding companies, institutions, insurance undertakings, reinsurance undertakings would not qualify as indirect holdings under Article 15a(2)(a) CDR 241/2014 and therefore would not need to be deducted from own funds.