The Solvency Capital Requirement (SCR)
from the Solvency ii Association, the largest Association
of Solvency ii Professionals in the world
What is the
Solvency Capital Requirement (SCR)?
The Solvency Capital Requirement
(SCR)
should reflect a level of eligible own funds that enables insurance
and reinsurance undertakings to absorb
significant losses and that gives
reasonable assurance to policyholders and
beneficiaries that payments will be made as they fall due.
In order to promote good risk management, and align
regulatory capital requirements with industry practices, the
Solvency Capital Requirement should be
determined as the economic capital to be held
by insurance and reinsurance undertakings in order to ensure that
ruin occurs no more often than once every 200
years.
That economic capital should be calculated on the
basis of the true risk profile of those undertakings, taking account
of the impact of possible risk mitigation techniques, as well as
diversification effects.
The quantitative requirements applicable to (re)insurance
undertakings ("Pillar I" of the Solvency II framework) are laid down
in six sections:
1. Valuation of assets and liabilities 
2. Technical provisions
3. Own funds
4. Solvency Capital Requirement
5. Minimum Capital Requirement
6. Investments.
The Pillar I requirements are based on an economic total
balance sheet approach. This approach relies on an appraisal of the
whole balance-sheet of insurance and reinsurance undertakings, on an
integrated basis, where assets and liabilities are valued
consistently.
Such an approach implies that the amount of available financial
resources of insurance and reinsurance undertakings should cover its
overall financial requirements, i.e. the sum of un-subordinated
liabilities and capital requirements.
As a consequence of this approach, eligible
own funds must be higher than the Solvency Capital Requirement.
Capital add-ons – Article 37
The starting point for the adequacy of the
quantitative requirements in the (re)insurance sector is the
solvency capital requirement.
Supervisory authorities may therefore require (re)insurance
undertakings only under strictly defined exceptional circumstances to
have more capital following the Supervisory Review Process.
Even though the standard formula aims at capturing the
risk profile of most (re)insurance undertakings in the Community,
there may be some cases where the standardised approach might not
entirely reflect the very specific risk profile of an undertaking.
In case of material deficiencies in the full or
partial internal model or material governance failures it is essential
that the supervisory authorities ensure that the undertaking concerned
makes all efforts to remedy the deficiencies that led to the
imposition of the capital add-on for the sake of policyholder
protection.
The supervisory authority is obliged to examine the
undertaking's progress in addressing its deficiencies
at least once a year.
Only in case the deviation of such an undertaking's
risk profile is material and the development of a partial or full
internal model is inefficient, the capital add-on may have a permanent
character.
The more harmonised and economic approach adopted for
the (re)insurance sector as compared to the Capital Requirements
Directive duly justifies the more harmonised approach of capital
increases.
Own Risk and Solvency Assessment (ORSA) – Article 44
As part of their risk management system, all (re)insurance
undertakings should have, as an integral part of their business
strategy, a regular practice of assessing their overall solvency needs
with a view to their specific risk profile.
The ORSA has a twofold nature.
It is an internal assessment process within the undertaking and
is as such embedded in the strategic decisions of the undertaking. It
is also a supervisory tool for the supervisory authorities, which must
be informed about the results of the own risk and solvency assessment
of the undertaking.
The ORSA does not require an undertaking to develop or
apply a full or partial internal model. However, if the undertaking
already uses an approved full or partial internal model for the
calculation of the SCR, the output of the model should be used in the
ORSA.
The ORSA does not create a third
solvency capital requirement.
The ORSA should not be overly burdensome on small or
less complex undertakings. The supervisory authority reviews the own
risk and solvency assessment as part of the supervisory review process
of the undertaking. The results of each ORSA conducted shall be
reported to the supervisory authority as part of the information to be
provided for supervisory purposes.
Solvency Capital Requirement – Articles 100 to 125
Section 4 on the Solvency
Capital Requirement is divided in three
parts:
1. The general presentation of that capital
requirement
2. The Solvency Capital Requirement standard formula
3. The use of internal models for solvency purposes.
General provisions for the
Solvency Capital Requirement, using the standard formula or an
internal model
The Solvency Capital Requirement
corresponds to the economic capital a (re)insurance undertaking needs
to hold in order to limit the probability of ruin to 0.5%, i.e. ruin
would occur once every 200 years
The Solvency Capital Requirement
is calculated using Value-at-Risk
techniques, either in accordance with the standard formula, or using
an internal model: all potential losses, including adverse revaluation
of assets and liabilities, over the next 12 months are to be assessed.
The Solvency Capital Requirement
reflects the true risk profile of the undertaking, taking account of
all quantifiable risks, as well as the net impact of risk mitigation
techniques.
The Solvency Capital Requirement
is to be calculated at least once a year, monitored on a continuous
basis, and recalculated as soon as the risk profile of the undertaking
deviates significantly; the Solvency Capital Requirement is to be
covered by an equivalent amount of eligible own funds.
Solvency Capital Requirement standard formula
Articles 103 to 109 describe the objectives,
architecture and overall calibration of the Solvency Capital
Requirement standard formula.
The "modular" architecture, based on linear
aggregation techniques, is further specified in Annex IV of the
Directive.
The risks captured in the various modules and
sub-modules of the standard formula are defined in Articles 13, 104
and 105. The detailed specifications of those modules and sub-modules
will be adopted through implementing measures, as they are likely to
evolve over time.
The Solvency Capital Requirement standard formula aims
at achieving the right balance between risk-sensitivity and
practicality. It allows both for the use of undertaking-specific
parameters, where appropriate and standardised simplifications for
SMEs.
As the new valuation standards take due account of
credit and liquidity characteristics of assets, as the Solvency
Capital Requirement captures all quantifiable risks, and as all
investments are subject to the "prudent person" principle,
quantitative investment limits and asset eligibility criteria will not
be maintained.
However, in the light of market developments, if new
risks emerge which are not covered by the Solvency Capital Requirement
standard formula, Article 109(2) enables the Commission to adopt
temporary implementing measures laying down investment limits and
asset eligibility criteria whilst the formula is being updated.
Internal models
Articles 110 to 125 describe the requirements applying
to (re)insurance undertakings using or wishing to use a full or
partial internal model in the calculation of the Solvency Capital
Requirement.
Before approval by the supervisory authorities is
given to use an internal model, (re)insurance undertakings must submit
an application approved by the administrative or management body of
the undertaking, demonstrating that they meet
the use test, statistical quality standards, calibration standards,
validation standards, and documentation standards.
Supervisory authorities must decide whether to
accept or reject the application within six months of receipt of a
complete application from an (re)insurance undertaking.
With respect to the use of partial internal models
additional requirements are introduced that are designed to prevent
cherry-picking by (re)insurance undertakings.
Article 117 gives supervisory authorities the power to
require an (re)insurance undertaking calculating the Solvency Capital
Requirement using the standard formula, to develop a partial or full
internal model in the event that the Solvency Capital Requirement
standard formula does not accurately capture the risk profile of that
undertaking.
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From the European Parliament
legislative resolution of 22 April 2009 on the
amended proposal for a directive of the European Parliament and of
the Council on the taking-up and pursuit of the business of
Insurance and Reinsurance (recast)
(14b) The new solvency regime should
not be too burdensome for insurance
undertakings that specialise in providing specific types of
insurance or providing services to specific customer segments, and
it should recognise that specialising in this way can be a valuable
tool for efficiently and effectively managing risk.
In order to achieve this objective, as
well as the proper application of the proportionality principle,
provision should also be made to specifically allow undertakings
to use their own data to calibrate the
parameters in the underwriting risk modules of the standard formula
of the Solvency Capital Requirement.
(17) The
starting point for the adequacy of
the quantitative requirements in the insurance sector is the
Solvency Capital Requirement.
Supervisory authorities should
therefore have the power to impose a capital
add-on to the Solvency Capital Requirement only under exceptional
circumstances in the cases listed in this Directive following
the supervisory review process.
The Solvency
Capital Requirement standard formula is intended to reflect
the risk profile of most insurance and reinsurance undertakings.
However, there may be some cases where the standardised approach
does not adequately reflect the very specific risk profile of an
undertaking.
(18) Some risks may
only be properly addressed
through governance requirements rather than through the quantitative
requirements reflected in the Solvency Capital Requirement.
An effective governance system is
therefore essential for the adequate management of the insurance
undertaking and for the regulatory system.
(19) All insurance and reinsurance undertakings should have, as an
integrated part of their business strategy, a regular practice of
assessing their over-all solvency needs with a view to their
specific risk profile (own risk and solvency assessment).
This assessment does not require the
development of an internal model nor does it serve to
calculate a capital requirement different from
the Solvency Capital Requirement and the Minimum Capital
Requirement.
The results of each assessment should
be reported to the supervisory authority as part of the information
to be provided for supervisory purposes.
(29b) Not all assets within an undertaking are unrestricted.
In some Member States, specific
products origin some ring-fenced fund structures which give one
class of policyholders greater rights to assets within their own
"fund".
Although these assets are included in
computing the excess of assets over liabilities for own-funds
purposes they cannot in fact be made available to meet the risks
outside the ring-fenced fund.
To be consistent with the economic
approach, the assessment of own-funds needs to be adjusted to
reflect the different nature of assets, which form part of a
ring-fenced arrangement.
Similarly, the
Solvency Capital Requirement calculation should reflect the
reduction in pooling/diversification related to those ring-fenced
funds.
(35) The supervisory regime should provide for a risk-sensitive
requirement, which is based on a prospective calculation to ensure
accurate and timely intervention by
supervisory authorities (the Solvency Capital Requirement), and a
minimum level of security below which the amount of financial
resources should not fall (the Minimum Capital Requirement).
Both capital requirements should be
harmonised throughout the Community in order to achieve a uniform
level of protection for policyholders. For the good functioning of
the Solvency II regime, there should be an adequate ladder of
intervention between the Minimum Capital
Requirement and the Solvency Capital Requirement.
(35a) In order to mitigate undue potential
pro-cyclical effects of the financial system and avoid that
insurance and reinsurance undertakings are unduly forced to raise
additional capital or sell their investments as a result of
unsustained adverse movements in financial markets, the market risk
module of the standard formula for the
Solvency Capital Requirement should include a symmetric
adjustment mechanism with respect to changes in the level of equity
prices.
In addition, in the event of
exceptional falls in financial markets, and
where that symmetric adjustment mechanism is not sufficient to
enable insurance and reinsurance undertakings to comply with their
Solvency Capital Requirement, provision should be made to
allow supervisory authorities to extend the time period within which
insurance and reinsurance undertakings have to re-establish the
level of eligible own funds covering the Solvency Capital
Requirement.
(36) The Solvency Capital Requirement should
reflect a level of eligible own funds that enables insurance and
reinsurance undertakings to absorb significant losses and
that gives reasonable assurance to policyholders and beneficiaries
that payments will be made as they fall due.
(36a) In order to ensure that insurance and reinsurance undertakings
hold eligible own funds that cover the
Solvency Capital Requirement on an on-going basis, taking
into account any changes in their risk profile, those undertakings
should calculate the Solvency Capital Requirement at least once a
year, monitor it continuously and recalculate it whenever the risk
profile alters significantly.
(37) In order to promote good risk management, and align regulatory
capital requirements with industry practices, the
Solvency Capital Requirement should be
determined as the economic capital to be held by insurance and
reinsurance undertakings in order to ensure that ruin occurs
no more often than
once in every 200 cases or,
alternatively, that those undertakings will still be in a position,
with a probability of at least
99,5%,
to meet their obligations to policyholders and beneficiaries
over the forthcoming 12 months.
That economic capital should be
calculated on the basis of the true risk profile of those
undertakings, taking account of the impact of possible risk
mitigation techniques, as well as diversification effects.
(38) Provision should be made to lay down a standard formula for the
calculation of the Solvency Capital
Requirement, to enable all insurance and reinsurance undertakings to
assess their economic capital.
For the structure of the standard
formula, a modular approach should be adopted, which means that the
individual exposure to each risk category should be assessed in a
first step and then aggregated in a second step.
Where the use of undertaking-specific
parameters allows for the true underwriting risk profile of the
undertaking to be better reflected, this should be allowed, provided
such parameters are derived using a standardised methodology.
(39) In order to
reflect the specific
situation of small and medium sized undertakings, simplified
approaches to the calculation of the Solvency Capital Requirement in
accordance with the standard formula should be provided for.
(41a) In accordance with the risk-oriented approach to the Solvency
Capital Requirement it should be possible, in specific
circumstances, to use partial or full internal models for the
calculation of that requirement instead of the standard formula.
In order to provide policyholders and
beneficiaries with an equivalent level of protection, such internal
models should be subject to prior supervisory approval on the basis
of harmonised processes and standards.
(43) The Minimum Capital Requirement should ensure a minimum level
below which the amount of financial resources should not fall. It is
necessary that it is calculated in accordance with a simple formula,
which is subject to a defined floor and cap
based on the risk-based Solvency Capital Requirement in order to
allow for an escalating ladder of supervisory intervention, and that
it is based on the data which can be audited.
(53) An insurance undertaking offering assistance contracts should
possess the means necessary to provide the benefits in kind which it
offers within an appropriate period of time.
Special
provisions should be laid down for calculating the Solvency Capital
Requirement and the absolute floor of the Minimum Capital
Requirements which such undertaking should possess.
(68a) The consolidated Solvency Capital
Requirement for a group should take into account the global
diversification of risks that exists across all the insurance
entities in that group in order to reflect properly the risk
exposures of that group.
(70) It is necessary to ensure that own funds are appropriately
distributed within the group and available to protect policyholders
and beneficiaries where needed.
To this end
insurance and reinsurance undertakings within a group should have
sufficient own funds to cover their solvency capital requirement.
Article 18
Conditions for authorisation
1. The home Member State shall require every undertaking for which
authorisation is sought to:
(a) as far as insurance undertakings are concerned, limit their
objects to the business of insurance and operations arising directly
there from, to the exclusion of all other commercial business;
(b) as far as reinsurance undertakings are concerned, limit their
objects to the business of reinsurance and related operations; this
requirement may include a holding company function and activities
with respect to financial sector activities within the meaning of
Article 2(8) of Directive 2002/87/EC;
(c) submit a scheme of operations in accordance with Article 23;
(d) hold the eligible basic own funds to cover the absolute floor of
the Minimum Capital Requirement provided for in point (d) of Article
127(1);
(e) show evidence that it will be in a
position to hold eligible own funds to cover the
Solvency Capital Requirement, as
provided for in Article 100, going forward;
(f) show evidence that it will be in a position to hold eligible
basic own funds to cover the Minimum Capital Requirement, as
provided for in Article 125, going forward;
(g) show evidence that it will be in a position to comply with the
system of governance referred to in Chapter IV, Section 2;
(h) as far as non-life insurance is concerned communicate the name
and address of all claims representatives appointed pursuant to
Article 4 of Directive 2000/26/EC in each Member State other than
the Member State in which the authorisation is sought if the risks
to be covered are classified in class 10 of point A of Annex I,
other than carrier's liability.
2. An insurance undertaking seeking authorisation to extend its
business to other classes or to extend an authorisation covering
only some of the risks pertaining to one class shall be required to
submit a scheme of operations in accordance with Article 23.
It shall, in addition, be required to show proof that it possesses
the eligible own funds to cover the Solvency
Capital Requirement and Minimum Capital Requirement provided for in
Articles 100(1) and 126.
3. Without prejudice to paragraph 2, an insurance undertaking
carrying on life activities, and seeking authorisation to extend its
business to the risks listed in classes 1 or 2 in point A of Annex I
as referred to in Article 72, shall demonstrate the following:
(a) that it possesses the eligible basic own funds to cover the
absolute floor of the Minimum Capital Requirement for life insurance
undertakings and the absolute floor of the Minimum Capital
Requirement for non-life insurance undertakings, as referred to in
point (d) of Article 127(1);
(b) that it undertakes to cover the minimum financial obligations
referred to in Article 73, going forward.
4. Without prejudice to paragraph 2, an insurance undertaking
carrying on non-life activities for the risks listed in classes 1 or
2 in point A of Annex I, and seeking authorisation to extend its
business to life insurance risks as referred to in Article 72, shall
demonstrate that the following:
(a) that it possesses the eligible basic own funds to cover the
absolute floor of the Minimum Capital Requirement for life insurance
undertakings and the absolute floor of the Minimum Capital
Requirement for non-life insurance undertakings, as referred to in
point (d) of Article 127(1);
(b) that it undertakes to cover the minimum financial obligations
referred to in Article 73(3) going forward.
Article 34
General supervisory powers
1. Member States shall ensure that the supervisory authorities have
the power to take preventive and corrective measures to ensure that
insurance and reinsurance undertakings comply with the laws,
regulations and administrative provisions with which they have to
comply with in each Member State.
2. The supervisory authorities shall have the power to take any
necessary measures, including where appropriate, those of an
administrative or financial nature, with regard to insurance or
reinsurance undertakings, and the members of their administrative or
management body or the persons who control that body.
3. Member States shall ensure that supervisory authorities have the
power to require all information necessary to conduct supervision in
accordance with Article 35.
4. Member States shall ensure that supervisory authorities have the
power to develop, in addition to the
calculation of the Solvency Capital Requirement and where
appropriate, and necessary quantitative tools under the
supervisory review process to assess the ability of the insurance or
reinsurance undertakings to cope with possible events or future
changes in economic conditions that could have unfavourable effects
on their overall financial standing.
The supervisory authorities shall have
the power to require that such tests are performed by the
undertakings.
5. The supervisory authorities shall have the power to carry out
on-site investigations at the premises of the insurance and
reinsurance undertakings.
6. Supervisory powers shall be applied in a timely and proportionate
manner.
7. The powers with regard to insurance and reinsurance undertakings
referred to in paragraphs 1 to 5 shall also be available with regard
to outsourced activities of insurance and reinsurance undertakings.
8. The measures set out in paragraphs 1 to 5 and 7 shall be carried
out, if need be by enforcement, where appropriate, through judicial
channels.
Article 37
Capital add-on
1. Following the supervisory review process supervisory authorities
may in exceptional circumstances set a capital
add-on for an insurance or reinsurance undertaking by a
decision stating the reasons.
That possibility shall only exist in
the following cases:
(a) the supervisory authority concludes that the risk profile of the
insurance or reinsurance undertaking deviates significantly from the
assumptions underlying the Solvency Capital
Requirement, as calculated using the standard formula in
accordance with Chapter VI, Section 4, Subsection 2 and:
(i) the requirement to use an internal model under Article 117 is
inappropriate or has been ineffective; or
(ii) while a partial or full internal model is being developed in
accordance with Article 117;
(b) the supervisory authority concludes that the risk profile of the
insurance or reinsurance undertaking deviates significantly from the
assumptions underlying the Solvency Capital
Requirement, as calculated using an internal model or partial
internal model in accordance with Chapter VI, Section 4, Subsection
3, because certain quantifiable risks are captured insufficiently
and the adaptation of the model to better reflect the given risk
profile has failed within an appropriate timeframe;
(c) the supervisory authority concludes that the system of
governance of an insurance or reinsurance undertaking deviates
significantly from the standards laid down in Chapter IV, Section 2,
that those deviations prevent it from being able to properly
identify, measure, monitor, manage and report the risks that it is
or could be exposed to and the application of other measures is in
itself unlikely to improve the deficiencies sufficiently within an
appropriate timeframe.
2. In the cases set out in points (a) and (b) of paragraph 1 of this
Article the capital add-on shall be calculated in such a way as to
ensure that the undertaking complies with Article 101(3).
In the cases set out in point (c) of paragraph 1 of this Article the
capital add-on shall be proportionate to the material risks arising
from the deficiencies which gave rise to the decision of the
supervisory authority to set the add-on.
3. In the cases set out in points (b) and (c) of paragraph 1 the
supervisory authority shall ensure that the insurance or reinsurance
undertaking makes all efforts to remedy the deficiencies that led to
the imposition of the capital add-on.
4. The capital add-on referred to in paragraph 1 shall be reviewed
at least once a year by the supervisory authority and be removed
when the undertaking has remedied the deficiencies which led to its
imposition.
5. The Solvency Capital Requirement including
the capital add-on imposed shall replace the inadequate Solvency
Capital Requirement.
Notwithstanding subparagraph 1 the Solvency
Capital Requirement should not include the capital add-on imposed in
accordance with point (c) of paragraph 1 for the purposes of the
calculation of the risk margin referred to in Article 76(5).
6. The Commission shall adopt implementing measures laying down
further specifications for the circumstances under which a capital
add-on may be imposed and the methodologies for the calculation
thereof.
Those measures designed to amend non-essential elements of this
Directive by supplementing it, shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
304(3).
Article 43
Risk management
1. Insurance and reinsurance undertakings shall have in place an
effective risk management system comprising strategies, processes
and reporting procedures necessary to identify, measure, monitor,
manage and report, on a continuous basis the risks, on an individual
and aggregated level, to which they are or could be exposed, and
their interdependencies.
That risk management system shall be effective and well integrated
into the organisational structure and in the decision making
processes of the insurance or reinsurance undertaking with proper
consideration of the persons who effectively run the undertaking or
have other key functions.
2. The risk management system shall cover the
risks to be included in the calculation of the Solvency Capital
Requirement as set out in Article 101(4) as well as the risks
which are not or not fully included in the calculation thereof.
It shall cover at least the following areas:
(a) underwriting and reserving;
(b) asset – liability management;
(c) investment, in particular derivatives and similar commitments;
(d) liquidity and concentration risk management;
(da) operational risk management;
(e) reinsurance and other risk mitigation techniques.
The written policy on risk management referred to in Article 41(3)
shall comprise policies relating to points (a) to (e) of the second
subparagraph of this paragraph.
3. As regards investment risk, insurance and reinsurance
undertakings shall demonstrate that they comply with Chapter VI,
Section 6.
4. Insurance and reinsurance undertakings shall provide for a risk
management function which shall be structured in such a way as to
facilitate the implementation of the risk management system.
5. For insurance and reinsurance undertakings using a partial or
full internal model approved in accordance with Articles 110 and 111
the risk management function shall cover the following additional
tasks:
(a) to design and implement the internal model;
(b) to test and validate the internal model;
(c) to document the internal model and any subsequent changes made
to it;
(d) to inform the administrative or management body about the
performance of the internal model, suggesting areas needing
improvement, and up-dating that body on the status of efforts to
improve previously identified weaknesses;
(e) to analyse the performance of the internal model and to produce
summary reports thereof.
Article 44
Own risk and solvency assessment
1. As part of its risk management system every insurance or
reinsurance undertaking shall conduct its own risk and solvency
assessment.
That assessment shall include at least the following:
(a) the overall solvency needs taking into account the specific risk
profile, approved risk tolerance limits and the business strategy of
the undertaking;
(b) the compliance, on a continuous basis, with the capital
requirements, as laid down in Chapters VI, Sections 4 and 5 and with
the requirements regarding technical provisions, as laid down in
Chapter VI, Section 2;
(c) the significance with which the risk
profile of the undertaking concerned deviates from the assumptions
underlying the Solvency Capital Requirement as laid down in
Article 101(3), calculated with the standard formula in accordance
with Chapter VI, Section 4, Subsection 2 or with its partial or full
internal model in accordance with Chapter VI, Section 4, Subsection
3.
2. For the purposes of point (a) of paragraph 1, the undertaking
concerned shall have in place processes, which are proportionate to
the nature, scale and complexity of the risks inherent to its
business, and which enable it to properly identify and assess the
risks it faces in the short and long term and to which it is or
could be exposed. The undertaking shall demonstrate the methods used
in this assessment.
3. In the case referred to in point (c) of paragraph 1 when an
internal model is used, the assessment shall be performed together
with the recalibration that transforms the internal risk numbers
into the Solvency Capital Requirement risk measure and calibration.
4. The own risk and solvency assessment shall be an integral part of
the business strategy and shall be taken into account on an ongoing
basis in the strategic decisions of the undertaking.
5. Insurance and reinsurance undertakings shall perform the
assessment referred to in paragraph 1 regularly and without any
delay following any significant change in their risk profile.
6. The insurance and reinsurance undertakings shall inform the
supervisory authorities of the results of each own risk and solvency
assessment as part of the information reported under Article 35.
6a. The own risk and solvency assessment shall not serve to
calculate a capital requirement. The Solvency Capital Requirement
can only be adjusted in accordance with Articles 37, 229, 230, 231
and 236.
Article 50
Report on solvency and financial condition: contents
1. Member States shall, taking into account the principles set out
in paragraphs 3 and 4 of Article 35, require insurance and
reinsurance undertakings to publicly disclose, on an annual basis, a
report on their solvency and financial condition.
That report shall contain the following information, either in full
or by way of references to equivalent information, both in nature
and scope, disclosed publicly under other legal or regulatory
requirements:
(a) a description of the business and the performance of the
undertaking;
(b) a description of the system of governance and an assessment of
its adequacy for the risk profile of the undertaking;
(c) a description, separately for each category of risk, of the risk
exposure, concentration, mitigation and sensitivity;
(d) a description, separately for assets, technical provisions, and
other liabilities, of the bases and methods used for their
valuation, together with an explanation of any major differences in
the bases and methods used for their valuation in financial
statements;
(e) a description of the capital management, including at least the
following:
(i) the structure and amount of own funds, and their quality;
(ii) the amounts of the Minimum Capital
Requirement and of the Solvency Capital Requirement;
(iia) the option set out in Article 305b used for the calculation of
the Solvency Capital Requirement;
(iii) information allowing a proper
understanding of the main differences between the underlying
assumptions of the standard formula and those of any internal model
used by the undertaking for the calculation of its Solvency Capital
Requirement;
(iv) the amount of any non-compliance with the Minimum Capital
Requirement or any significant non-compliance with the Solvency
Capital Requirement during the reporting period, even if
subsequently resolved, with an explanation of its origin and
consequences as well as any remedial measures taken.
2. The description referred to in point (e)(i) of paragraph 1 shall
include an analysis of any significant changes as compared to the
previous reporting period and an explanation of any major
differences in relation to the value of such elements in financial
statements, and a brief description of the capital transferability.
The disclosure of the Solvency Capital
Requirement referred to in point (e)(ii) of paragraph 1 shall
show separately the amount calculated in accordance with Chapter VI,
Section 4, Subsections 2 and 3 and any capital add-on imposed in
accordance with Article 37 or the impact of the specific parameters
the insurance or reinsurance undertaking is required to use in
accordance with Article 108a, together with concise information on
its justification by the supervisory authority concerned.
However, and without prejudice to any disclosure mandatory under any
other legal or regulatory requirements, Member States may provide
that, although the total Solvency Capital
Requirement referred to in point (e)(ii) of paragraph 1 is
disclosed, the capital add-on or the impact of the specific
parameters the insurance or reinsurance undertaking is required to
use in accordance with Article 108a need not be separately disclosed
during a transitional period not exceeding five years after the date
referred to in Article 310.
The disclosure of the Solvency Capital
Requirement shall be accompanied, where applicable, by an indication
that its final amount is still subject to supervisory assessment.
Article 71
Duties of auditors
1. Member States shall provide at least that persons authorised
within the meaning of Eighth Council Directive 84/253/EEC of 10
April 1984 based on Article 54 (3) (g) of the Treaty on the approval
of persons responsible for carrying out the statutory audits of
accounting documents , who perform in an insurance or reinsurance
undertaking the statutory audit referred to in Article 51 of Fourth
Council Directive 78/660/EEC of 25 July 1978 based on Article 54 (3)
(g) of the Treaty on the annual accounts of certain types of
companies , Article 37 of Directive 83/349/EEC or Article 31 of
Directive 85/611/EEC or any other statutory task, shall have a duty
to report promptly to the supervisory authorities any fact or
decision concerning that undertaking of which they have become aware
while carrying out that task and which is liable to bring about any
of the following:
(a) a material breach of the laws, regulations or administrative
provisions which lay down the conditions governing authorisation or
which specifically govern pursuit of the activities of insurance and
reinsurance undertakings;
(b) the impairment of the continuous functioning of the insurance or
reinsurance undertaking;
(c) the refusal to certify the accounts or to the expression of
reservations;
(d) the non-compliance with the Solvency
Capital Requirement;
(e) the non-compliance with the Minimum Capital Requirement.
The persons referred to in the first subparagraph shall likewise
have a duty to report any facts and decisions of which they have
become aware in the course of carrying out a task as described in
the first subparagraph in an undertaking which has close links
resulting from a control relationship with the insurance or
reinsurance undertaking within which they are carrying out that
task.
2. The disclosure in good faith to the supervisory authorities, by
persons authorised within the meaning of Directive 84/253/EEC, of
any fact or decision referred to in paragraph 1 shall not constitute
a breach of any restriction on disclosure of information imposed by
contract or by any legislative, regulatory or administrative
provision and shall not involve such persons in liability of any
kind.
SECTION 4 - SOLVENCY CAPITAL REQUIREMENT
SUBSECTION 1 - GENERAL PROVISIONS FOR THE SOLVENCY CAPITAL
REQUIREMENT USING THE STANDARD FORMULA OR AN INTERNAL MODEL
Article 100
General provisions
Member States shall require that insurance and reinsurance
undertakings hold eligible own funds covering
the Solvency Capital Requirement.
The Solvency Capital Requirement shall be
calculated, either in accordance with the standard formula in
Subsection 2 or using an internal model, as set out in Subsection 3.
Article 101
Calculation of the Solvency Capital Requirement
1. The Solvency Capital Requirement shall be calculated in
accordance with paragraphs 2 to 5:
2 The Solvency Capital Requirement shall be
calculated on the presumption that the undertaking will carry on its
business as a going concern.
3. The Solvency Capital Requirement shall be calibrated so as to
ensure that all quantifiable risks to which an insurance or
reinsurance undertaking is exposed are taken into account. It shall
cover existing business, as well as the new business expected to be
written over the next twelve months. With respect to existing
business, it shall cover unexpected losses only.
It shall
correspond to the Value-at-Risk of the basic own funds of an
insurance or reinsurance undertaking subject to a confidence level
of 99,5 % over a one-year period.
4. The Solvency Capital Requirement shall
cover at least the following risks:
(a) non-life underwriting risk;
(b) life underwriting risk;
(c) health underwriting risk;
(d) market risk;
(e) credit risk;
(f) operational risk.
Operational risk as referred to in point (f) of the first
subparagraph shall include legal risks, and exclude risks arising
from strategic decisions, as well as reputation risks.
5 When calculating the Solvency Capital Requirement, insurance and
reinsurance undertakings shall take account of the effect of risk
mitigation techniques, provided that credit risk and other risks
arising from the use of such techniques are properly reflected in
the Solvency Capital Requirement.
Article 102
Frequency of calculation
1. Insurance and reinsurance undertakings shall
calculate the Solvency Capital Requirement at
least once a year and report the result of that calculation
to the supervisory authorities.
Insurance and reinsurance undertakings shall ensure that they hold
eligible own funds which cover the last reported Solvency Capital
Requirement.
Insurance and reinsurance undertakings shall monitor the amount of
eligible own funds and the Solvency Capital Requirement on an
on-going basis.
If the risk profile of an insurance or
reinsurance undertaking deviates significantly from the assumptions
underlying the last reported Solvency Capital Requirement,
the undertaking concerned shall recalculate the Solvency Capital
Requirement without delay and report it to the supervisory
authorities.
2. Where there is evidence to suggest that the risk profile of the
insurance or reinsurance undertaking has altered significantly since
the date on which the Solvency Capital Requirement was last
reported, the supervisory authorities may require the undertaking
concerned to recalculate the Solvency Capital Requirement.
SUBSECTION 2 - SOLVENCY CAPITAL REQUIREMENT – STANDARD FORMULA
Article 103
Structure of the standard formula
The Solvency Capital Requirement calculated on the basis of the
standard formula
shall be
the sum of the following items:
(a) the Basic Solvency Capital Requirement,
as laid down in Article
104;
(b) the capital requirement for operational risk,
as laid down in
Article 106;
(c) the adjustment for the loss-absorbing capacity of technical
provisions and deferred taxes, as laid down in Article 107.
Article 104
Design of the Basic Solvency Capital Requirement
1. The Basic
Solvency Capital Requirement
shall comprise individual risk modules, which are aggregated in
accordance with point 1 of Annex IV.
It shall consist of at least the following risk modules:
(a) non-life underwriting risk;
(b) life underwriting risk;
(c) health underwriting risk;
(d) market risk,
(e) counterparty default risk.
2. For the purposes of points (a), (b) and (c) of paragraph 1,
insurance or reinsurance operations shall be allocated to the
underwriting risk module that best reflects the technical nature of
the underlying risks.
3. The correlation coefficients for the aggregation of the risk
modules referred to in paragraph 1, as well as the calibration of
the capital requirements for each risk module, shall result in an
overall Solvency Capital Requirement which complies with the
principles set out in Article 101.
4. Each of the risk modules referred to in paragraph 1 shall be
calibrated using a Value-at-Risk measure, with a 99.5% confidence
level, over a one year period.
Where appropriate, diversification effects shall be taken into
account in the design of each risk module.
5. The same design and specifications for the
risk modules shall be used for all insurance and reinsurance
undertakings, both with respect to the Basic Solvency Capital
Requirement and to any simplified calculations as laid down in
Article 108.
6. With regard to risks arising from catastrophes, geographical
specifications may, where appropriate, be used for the calculation
of the life, non-life and health underwriting risk modules.
7. Subject to approval by the supervisory authorities, insurance and
reinsurance undertakings may, within the design of the standard
formula, replace a subset of its parameters by parameters specific
to the undertaking concerned when calculating the life, non-life and
health underwriting risk modules.
Such parameters shall be calibrated on the basis of the internal
data of the undertaking concerned, or of data which is directly
relevant for the operations of that undertaking using standardised
methods.
When granting supervisory approval, supervisory authorities shall
verify the completeness, accuracy and appropriateness of the data
used.
Article 105
Calculation of the Basic Solvency Capital Requirement
1. The Basic Solvency Capital Requirement
shall be calculated in accordance with paragraphs 2 to 6.
2. The non-life underwriting risk module shall reflect the risk
arising from non-life insurance obligations, in relation to the
perils covered and the processes used in the conduct of business.
It shall take account of the uncertainty in the results of insurance
and reinsurance undertakings related to the existing insurance and
reinsurance obligations as well as to the new business expected to
be written over the forthcoming twelve months.
It shall be calculated, in accordance with point 2 of Annex IV, as a
combination of the capital requirements for at least the following
sub-modules:
(a) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from fluctuations in the timing, frequency
and severity of insured events, and in the timing and amount of
claim settlements (non-life premium and reserve risk);
(b) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from significant uncertainty of pricing and
provisioning assumptions related to extreme or exceptional events
(non-life catastrophe risk).
3. The life
underwriting risk module shall reflect the risk arising
from life insurance obligations, in relation to the perils covered
and the processes used in the conduct of business.
It shall be calculated, in accordance with
point 3 of Annex IV, as a combination of the capital requirements
for at least the following sub-modules:
(a) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from changes in the level, trend, or
volatility of mortality rates, where an increase in the mortality
rate leads to an increase in the value of insurance liabilities
(mortality risk);
(b) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from changes in the level, trend, or
volatility of mortality rates, where a decrease in the mortality
rate leads to an increase in the value of insurance liabilities
(longevity risk);
(c) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from changes in the level, trend or
volatility of disability, sickness and morbidity rates
(disability –
morbidity risk);
(d) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from changes in the level, trend, or
volatility of the expenses incurred in servicing insurance or
reinsurance contracts (life expense risk);
(e) the risk of loss, or of adverse change in the value of insurance
liabilities resulting from fluctuations in the level, trend, or
volatility of the revision rates applied to annuities, due to
changes in the legal environment or in the state of health of the
person insured (revision risk);
(f) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from changes in the level or volatility of
the rates of policy lapses, terminations, renewals and surrenders
(lapse risk);
(g) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from the significant uncertainty of pricing
and provisioning assumptions related to extreme or irregular events
(life catastrophe risk).
4. The health underwriting risk module shall reflect the risk
arising from the underwriting of health insurance obligations,
whether it is pursued on a similar technical basis to that of life
insurance or not, following from both the perils covered and the
processes used in the conduct of business.
It shall cover at least the following risks:
(a) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from changes in the level, trend, or
volatility of the expenses incurred in servicing insurance or
reinsurance contracts;
(b) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from fluctuations in the timing, frequency
and severity of insured events, and in the timing and amount of
claim settlements at the time of provisioning;
(c) the risk of loss, or of adverse change in the value of insurance
liabilities, resulting from the significant uncertainty of pricing
and provisioning assumptions related to outbreaks of major
epidemics, as well as the unusual accumulation of risks under such
extreme circumstances.
5. The market
risk module shall reflect the risk arising from the level or
volatility of market prices of financial instruments which have an
impact upon the value of the assets and liabilities of the
undertaking.
It shall properly reflect the
structural mismatch between assets and liabilities, in particular
with respect to the duration thereof.
It shall be calculated, in accordance with
point 5 of Annex IV, as a combination of the capital requirements
for at least the following sub-modules:
(a) the sensitivity of the values of assets, liabilities and
financial instruments to changes in the term structure of interest
rates, or in the volatility of interest rates (interest rate risk);
(b) the sensitivity of the values of assets, liabilities and
financial instruments to changes in the level or in the volatility
of market prices of equities (equity risk);
(c) the sensitivity of the values of assets, liabilities and
financial instruments to changes in the level or in the volatility
of market prices of real estate (property risk);
(d) the sensitivity of the values of assets, liabilities and
financial instruments to changes in the level or in the volatility
of credit spreads over the risk-free interest rate term structure
(spread risk);
(e) the sensitivity of the values of assets, liabilities and
financial instruments to changes in the level or in the volatility
of currency exchange rates (currency risk);
(f) additional risks to an insurance or reinsurance undertaking
stemming, either from lack of diversification in the asset
portfolio, or from large exposure to default risk by a single issuer
of securities or a group of related issuers (market risk
concentrations).
6. The
counterparty default risk module shall reflect possible
losses due to unexpected default, or deterioration in the credit
standing, of the counterparties and debtors of insurance and
reinsurance undertakings over the forthcoming
twelve months.
The counterparty default risk module
shall cover risk-mitigating contracts, such as reinsurance
arrangements, securitisations and derivatives, and receivables from
intermediaries, as well as any other credit exposures which are not
covered in the spread risk sub-module.
It shall take appropriate account of
collateral or other security held by or for the account of the
insurance or reinsurance undertaking and the risks associated
therewith.
For each counterparty, the counterparty default risk module shall
take account of the overall counterparty risk exposure of the
insurance or reinsurance undertaking concerned to that counterparty,
irrespective of the legal form of its contractual obligations to
that undertaking.
Article 105a
Calculation of the equity risk sub-module: symmetric adjustment
mechanism
1. The equity risk sub-module calculated in accordance with the
standard formula shall include a symmetric adjustment to the equity
capital charge applied to cover the risk arising from changes in the
level of equity prices.
2. The symmetric adjustment made to the standard equity capital
charge, calibrated in accordance with Article 104(4), covering the
risk arising from changes in the level of equity prices shall be
based on a function of the current level of an appropriate equity
index and a weighted average level of that index. The weighted
average shall be calculated over an appropriate period of time which
shall be the same for all insurance and reinsurance undertakings.
3. The symmetric adjustment made to the standard equity capital
charge covering the risk arising from changes in the level of equity
prices shall not result in an equity capital charge being applied
that is more than 10 percentage points lower or 10 percentage points
higher than standard equity capital charge.
Article 106
Capital requirement for operational risk
1. The capital requirement for operational risk shall reflect
operational risks to the extent they are not already reflected in
the risk modules referred to in Article 104. That requirement shall
be calibrated in accordance with Article 101(3).
2. With respect to life insurance contracts where the investment
risk is borne by the policyholders, the calculation of the capital
requirement for operational risk shall take account of the amount of
annual expenses incurred in respect of those insurance obligations.
3. With respect to insurance and reinsurance operations other than
those referred to in paragraph 2, the calculation of the capital
requirement for operational risk shall take account of the volume of
those operations, in terms of earned premiums and technical
provisions which are held in respect of those insurance and
reinsurance obligations. In this case, the capital requirement for
operational risks
shall not exceed 30%
of the Basic Solvency Capital Requirement
relating to those insurance and
reinsurance operations.
Article 107
Adjustment for the loss-absorbing capacity of technical provisions
and deferred taxes
The adjustment referred to in point (c) paragraph 1 of Article 103
for the loss-absorbing capacity of technical
provisions and deferred taxes
shall reflect potential compensation of
unexpected losses through a simultaneous decrease in
technical provisions or deferred taxes or a combination of both.
That adjustment shall take account of
the risk mitigating effect provided by
future discretionary benefits of insurance contracts, to the extent
insurance and reinsurance undertakings can establish that a
reduction in such benefits may be used to cover unexpected losses
when they arise.
The risk mitigating effect provided by
future discretionary benefits shall be
no higher than the sum of technical provisions and deferred taxes
relating to these future discretionary benefits.
For the purpose of the second paragraph, the value of future
discretionary benefits under adverse circumstances shall be compared
to the value of such benefits under the underlying assumptions of
the best-estimate calculation.
Article 108a
Significant deviations from the assumptions underlying the standard
formula calculation
Where it is inappropriate to calculate the
Solvency Capital Requirement in accordance with the standard
formula, as set out in Subsection 2, because the risk profile
of the insurance and reinsurance undertakings concerned deviates
significantly from the assumptions underlying the standard formula
calculation, the supervisory authorities may, by a decision stating
the reasons, require the undertakings concerned to replace a subset
of the parameters used in the standard formula calculation by
parameters specific to those undertakings when calculating the life,
non-life and health underwriting risk modules, as set out in Article
104(7).
Those specific parameters shall be
calculated in such a way to ensure that the undertaking complies
with Article 101(3).
Article 109
Implementing measures
1. In order to ensure that the same treatment is applied to all
insurance and reinsurance undertakings calculating the Solvency
Capital Requirement on the basis of the standard formula, or to take
account of market developments, the Commission shall adopt
implementing measures laying down the following:
(-a) a standard formula in accordance with the provisions of
Articles 101 and 103 to 108;
(a) any sub-modules necessary or covering more precisely the risks
which fall under the respective risk modules referred to in Article
104 as well as any subsequent updates;
(b) the methods, assumptions and standard parameters to be used,
when calculating each of the risk modules or sub-modules of the
Basic Solvency Capital Requirement laid
down in Articles 104 and 105, the symmetric adjustment mechanism and
the appropriate period of time, expressed in the number of months,
as referred to in Articles 105a and 305b, as well as the appropriate
approach for integrating the method referred to in Article 305b
related to the use of this method in the Solvency Capital
Requirement as calculated in accordance with the standard formula;
(c) the correlation parameters, including, if necessary, those set
out in Annex IV, and the procedures for the updating of those
parameters;
(d) where insurance and reinsurance undertakings
use risk mitigation techniques, the
methods and assumptions to be used to assess the changes in the risk
profile of the undertaking concerned and
adjust the calculation of the Solvency Capital Requirement;
(e) the qualitative criteria that the risk mitigation techniques
referred to in point (d) must meet in order to ensure that the risk
has been effectively transferred to a third party;
(f) the methods and parameters to be used when assessing the capital
requirement for operational risk set out in Article 106, including
the percentage referred to in paragraph 3 of Article 106;
(fa) the methods and adjustments to be used to reflect the reduced
scope for risk diversification of insurers related to ring-fenced
funds;
(g) the method to be used when calculating the adjustment for the
loss-absorbing capacity of technical provisions, as laid down in
Article 107;
(h) the subset of standard parameters in the life, non-life and
health underwriting risk modules that may be replaced by
undertaking-specific parameters as set out in Article 104(7);
(i) the standardised methods to be used by the insurance or
reinsurance undertaking to calculate the undertaking-specific
parameters referred to in point (h), and any criteria with respect
to the completeness, accuracy, and appropriateness of the data used
that must be met before supervisory approval is given;
(j) the simplified calculations provided for specific sub-modules
and risk modules, as well as the criteria that insurance and
reinsurance undertakings, including captive insurance and
reinsurance undertakings, shall be required to meet in order to be
entitled to use each of these simplifications, as set out in Article
108;
(ja) the approach to be used with respect to
related undertakings within the meaning of Article 210 in the
calculation of the Solvency Capital Requirement, in particular the
calculation of the equity risk sub-module referred to in
Article 105(5), taking into account the likely reduction in the
volatility of the value of those related undertakings arising from
the strategic nature of those investments and the influence
exercised by the participating undertaking on those related
undertakings.
Those measures designed to amend non-essential elements of this
Directive, by supplementing it, shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
304(3).
2. The Commission may adopt implementing measures laying down
quantitative limits and asset eligibility criteria in order to
address risks which are not adequately covered by a sub-module. Such
implementing measures shall apply to assets covering technical
provisions, excluding assets held in respect of life insurance
contracts where the investment risk is borne by the policyholders.
Those measures shall be reviewed by the Commission in the light of
developments in the standard formula and financial markets.
Those measures designed to amend non-essential elements of this
Directive, by supplementing it shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
304(3).
SUBSECTION 3 -
SOLVENCY CAPITAL REQUIREMENT – FULL AND PARTIAL INTERNAL MODELS
Article 110
General provisions for the approval of full and partial internal
models
1. Member States shall ensure that insurance or reinsurance
undertakings may calculate the Solvency Capital Requirement using a
full or partial internal model as approved by the supervisory
authorities.
2. Insurance and reinsurance undertakings may use partial internal
models for the calculation of one or more of the following:
(a) one or more risk modules, or sub-modules, of the
Basic Solvency Capital Requirement, as
set out in Articles 104 and 105;
(b) the capital requirement for operational risk as laid down in
Article 106;
(c) the adjustment referred to in Article 107.
In addition, partial modelling may be applied to the whole business
of insurance and reinsurance undertakings, or only to one or more
major business units.
3. In any application for approval, insurance and reinsurance
undertakings shall submit, as a minimum, documentary evidence that
the internal model meets the requirements set out in Articles 118 to
123.
Where the application for that approval relates to a partial
internal model, the requirements set out in Articles 118 to 123
shall be adapted to take account of the limited scope of the
application of the model.
4. The supervisory authorities shall decide on the application
within six months from the receipt of the complete application.
5. Supervisory authorities shall give approval to the application
only if they are satisfied that the systems of the insurance or
reinsurance undertaking for identifying, measuring, monitoring,
managing and reporting risk are adequate and in particular, that the
internal model complies with the requirements referred to in
paragraph 3.
6. Any decision by the supervisory authorities to reject the
application for the use of an internal model shall be accompanied by
the reasons therefore.
7. After having received approval from supervisory authorities to
use an internal model, insurance and reinsurance undertakings may,
by a decision stating the reasons, be required to provide
supervisory authorities with an estimate of the Solvency Capital
Requirement determined in accordance with the standard formula, as
set out in Subsection 2.
Article 111
Specific provisions for the approval of partial internal models
1. In the case of a partial internal model, supervisory approval
shall only be given if that model complies with the requirements set
out in Article 110 and the following additional conditions:
(a) the reason for the limited scope of application of the model is
properly justified by the undertaking;
(b) the resulting Solvency Capital Requirement
reflects more
appropriately the risk profile of the undertaking and in particular
meets the principles set out in Subsection 1;
(c) its design is consistent with the principles set out in
Subsection 1 so as to allow the partial internal model to be fully
integrated into the Solvency Capital Requirement Standard Formula.
2. When assessing an application for the use of a partial internal
model which only covers certain sub-modules of a specific risk
module, or some of the business units of an insurance or reinsurance
undertaking with respect to a specific risk module, or parts of
both, supervisory authorities may require the insurance and
reinsurance undertakings concerned to submit a realistic
transitional plan to extend the scope of the model.
The transitional plan shall set out the manner in which insurance
and reinsurance undertakings plan to extend the scope of the model
to other sub-modules or business units, in order to ensure that the
model covers a predominant part of their insurance operations with
respect to that specific risk module.
Article 214
Ultimate parent undertaking at national level
1. Where the participating insurance or reinsurance undertaking or
the insurance holding company which has its head office in the
Community, referred to in points (a) and (b) of Article 211(2), does
not have its head office in the same Member State as the ultimate
parent undertaking at Community level referred to in Article 213,
Member States may allow their supervisory authorities to decide,
after consultation with the group supervisor and that
ultimate parent undertaking
at Community level, to subject to group supervision the ultimate
parent insurance or reinsurance undertaking or insurance holding
company at national level.
In such a case, the supervisory authority shall explain its decision
to both the group supervisor and the ultimate parent undertaking at
Community level.
Articles 216 to 262 shall apply mutatis mutandis, subject to the
provisions set out in paragraphs 2 to 6.
2. The supervisory authority may restrict group supervision of the
ultimate parent undertaking at national level to one or several
sections of Chapter II.
3. Where the supervisory authority decides to apply to the ultimate
parent undertaking at national level Chapter II, Section 1, the
choice of method made in accordance with Article 218 by the group
supervisor in respect of the ultimate parent undertaking at
Community level referred to in Article 213 shall be recognised as
determinative and applied by the supervisory authority in the Member
State concerned.
4. Where the supervisory authority decides to apply to the ultimate
parent undertaking at national level Chapter II, Section 1, and
where the ultimate parent undertaking at Community level referred to
in Article 213 has obtained, in accordance with Articles 229 or
231(5), the permission to calculate the group
Solvency Capital Requirement, as well as the Solvency Capital
Requirement of insurance and reinsurance undertakings in the group,
on the basis of an internal model, that decision shall be
recognised as determinative and applied by the supervisory authority
in the Member State concerned.
In such a situation, where the supervisory authority considers that
the risk profile of the ultimate parent undertaking at national
level deviates significantly from the internal model approved at
Community level, and as long as that undertaking does not properly
address the concerns of the supervisory authority, that supervisory
authority may decide to impose a capital add-on to the
group Solvency Capital Requirement of
that undertaking resulting from the application of such model, or,
in exceptional circumstances where such capital add-on would not be
appropriate, to require that undertaking to calculate its group
Solvency Capital Requirement on the basis of the standard formula.
The supervisory authority shall explain such decisions to both the
undertaking and the group supervisor.
5. Where the supervisory authority decides to apply to the ultimate
participating undertaking at national level Chapter II, Section 1,
that undertaking shall not be allowed to introduce, in accordance
with Articles 234 or 247, an application for permission to subject
any of its subsidiaries to Articles 236 to 238.
6. Where Member States allow their supervisory authorities to make
the decision referred to in paragraph 1, they shall provide that no
such decisions can be made or maintained where the ultimate
participating undertaking at national level is a subsidiary of the
ultimate participating undertaking at Community level referred to in
Article 213 and the latter has obtained in accordance with Articles
235 or 247 permission for that subsidiary to be subject to Articles
236 to 238.
7. The Commission may adopt implementing measures specifying the
circumstances under which the decision referred to in paragraph 1
can be made.
Those measures designed to amend non-essential elements of this
Directive by supplementing it shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
304(3).
Article 216
Supervision of group solvency
1. Supervision of the group solvency
shall be exercised in accordance with paragraphs 2 and 3, Article
250 and Chapter III.
2. In the case referred to in point (a) of Article 211(2), Member
States shall require the participating insurance or reinsurance
undertakings to ensure that eligible own funds are available in the
group which are always at least equal to the group Solvency Capital
Requirement as calculated in accordance with Subsections 2, 3 and 4.
3. In the case referred to in point (b) of Article 211(2), Member
States shall require insurance and reinsurance undertakings in a
group to ensure that eligible own funds are available in the group
which are always at least equal to the group
Solvency Capital Requirement as calculated in accordance with
Subsection 5.
4. The requirements referred to in paragraphs 2 and 3 shall be
subject to supervisory review by the group supervisor in accordance
with Chapter III. The provisions set out in Article 134 and in
paragraphs 1, 2 and 3 of Article 136 shall apply by analogy.
4a. As soon as the participating undertaking has observed and
informed the group supervisor that the group
Solvency Capital Requirement is no longer complied with or
that there is a risk of non-compliance in the following three
months, the group supervisor shall inform the other supervisory
authorities within the college, which shall analyse the situation of
the group.
Articles 217
Frequency of calculation
1. The group supervisor shall ensure that the calculations referred
to in Article 216(2) and (3) are carried out at least once a year,
either by the participating insurance or reinsurance undertakings or
by the insurance holding company.
The relevant data for and the results of that calculation shall be
submitted to the group supervisor by the participating insurance or
reinsurance undertaking, or, where the group is not headed by an
insurance or reinsurance undertaking, by the insurance holding
company or by the undertaking in the group identified by the group
supervisor after consultation with the other supervisory authorities
concerned and with the group itself.
2. Insurance and reinsurance undertakings and insurance holding
company shall monitor the group Solvency
Capital Requirement on an on-going basis.
If the risk profile of the group deviates significantly from the
assumptions underlying the last reported group Solvency Capital
Requirement, the group Solvency Capital Requirement shall be
recalculated without delay and reported to the group supervisor.
Where there is evidence to suggest that the
risk profile of the group has altered significantly since the date
on which the group Solvency Capital Requirement was last reported,
the group supervisor may require a recalculation of the group
Solvency Capital Requirement.
Article 220
Elimination of double use of eligible own funds
1. The double use of own funds eligible for
the Solvency Capital Requirement among the different
insurance or reinsurance undertakings taken into account in that
calculation shall not be allowed.
For that purpose, when calculating the group solvency and where the
methods described in Subsection 4 do not provide for it, the
following amounts shall be excluded:
(a) the value of any asset of the
participating insurance or reinsurance undertaking which represents
the financing of own funds eligible for the Solvency Capital
Requirement of one of its related insurance or reinsurance
undertakings;
(b) the value of any asset of a related
insurance or reinsurance undertaking of the participating insurance
or reinsurance undertaking which represents the financing of own
funds eligible for the Solvency Capital Requirement of that
participating insurance or reinsurance undertaking;
(c) the value of any asset of a related
insurance or reinsurance undertaking of the participating insurance
or reinsurance undertaking which represents the financing of own
funds eligible for the Solvency Capital Requirements of any other
related insurance or reinsurance undertaking of that participating
insurance or reinsurance undertaking.
2. Without prejudice to paragraph 1, the following may only be
included in the calculation in so far as they are
eligible for covering the Solvency Capital
Requirement of the related undertaking concerned:
(a) surplus funds falling under Article 90(2) arising in a related
life insurance or reinsurance undertaking of the participating
insurance or reinsurance undertaking for which the group solvency is
calculated;
(b) any subscribed but not paid-up capital of a related insurance or
reinsurance undertaking of the participating insurance or
reinsurance undertaking for which the group solvency is calculated.
However, the following shall in any case be
excluded from the calculation:
(a) any subscribed but not paid-up capital which represents a
potential obligation on the part of the participating undertaking;
(b) any subscribed but not paid-up capital of the participating
insurance or reinsurance undertaking which represents a potential
obligation on the part of a related insurance or reinsurance
undertaking;
(c) any subscribed but not paid-up capital of a related insurance or
reinsurance undertaking which represents a potential obligation on
the part of another related insurance or reinsurance undertaking of
the same participating insurance or reinsurance undertaking.
3. If the supervisory authorities consider that
certain own funds eligible for the Solvency
Capital Requirement of a related insurance or reinsurance
undertaking other than those referred to in paragraph 2
cannot effectively be made available to cover
the Solvency Capital Requirement of the participating
insurance or reinsurance undertaking for which the group solvency is
calculated, those own funds may be included in the calculation only
in so far as they are eligible for covering the Solvency Capital
Requirement of the related undertaking.
4. The sum of the own funds referred to in paragraphs 2 and 3
may not exceed the Solvency Capital
Requirement of the related insurance or reinsurance undertaking.
5. Any eligible own funds of a related insurance or reinsurance
undertaking of the participating insurance or reinsurance
undertaking for which the group solvency is calculated that are
subject to prior authorisation from the supervisory authority in
accordance with Article 89 may only be included in the calculation
in so far as they have been duly authorised by the supervisory
authority responsible for the supervision of that related
undertaking.
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