The Solvency ii
Directive
SECTION
5 - MINIMUM CAPITAL REQUIREMENT
Article 126
General
provisions
Member States shall require that insurance and
reinsurance undertakings hold eligible basic own funds, to cover the
Minimum Capital Requirement.
Article
127
Calculation of the Minimum Capital Requirement
1.
The Minimum Capital Requirement shall be calculated in accordance
with the following principles:
(a) it shall be calculated in
a clear and simple manner, and in such a way as to ensure that the
calculation can be audited;
(b) it shall correspond to an
amount of eligible basic own funds below which policyholders and
beneficiaries are exposed to an unacceptable level of risk if
insurance and reinsurance undertakings were allowed to continue
their operations;
(c) the linear function referred to in
paragraph 2 used to calculate the Minimum Capital Requirement
shall
be calibrated to the Value-at-Risk of the basic own funds of an
insurance or reinsurance undertaking subject to a confidence level
of
85 %
over a one-year period;
(d) it shall have an
absolute floor of
(i) 2 200 000 EUR for non-life insurance
undertakings, including captive insurance undertakings, except in
the case where all or some of the risks included in one of the
classes 10 to 15 listed in point A of Annex 1 are covered, in which
case it shall not be less than 3 200 000 EUR,
(ii) 3 200 000
EUR for life insurance undertakings, including captive insurance
undertakings,
(iii) 3 200 000 EUR for reinsurance
undertakings, except in the case of captive reinsurance
undertakings, in which case the Minimum Capital Requirement shall
not be less than a minimum of 1 000 000 EUR,
(iv) the sum of
the amounts set out in points (i) and (ii) for insurance
undertakings as referred to in Article 72(5).
1a. Subject to
paragraph 1b the Minimum Capital Requirement shall be calculated as
a linear function of a set or sub-set of the following variables:
the undertaking’s technical provisions, written premiums,
capital-at-risk, deferred tax and administrative expenses. The
variables used shall be measured net of reinsurance.
1b.
Without prejudice to point (d) of paragraph 1, the Minimum Capital
Requirement shall
not fall below 25% nor exceed 45%, of the
undertaking’s Solvency Capital Requirement,
calculated in accordance
with Chapter VI, Section 4, Sub-sections 2 or 3, and including any
capital add-on imposed in accordance with Article 37.
Member
States shall allow their supervisory authorities, for a period not
exceeding two years after the date referred to in Article 310(1), to
require an insurance or reinsurance undertaking to apply the
percentages referred to in the previous subparagraph exclusively to
the undertaking's Solvency Capital Requirement calculated in
accordance with Chapter VI, Section 4, Sub-section 2.
2.
Insurance and reinsurance undertakings shall calculate the Minimum
Capital Requirement at least quarterly and report the results of
that calculation to supervisory authorities.
If either of the
limits referred to in paragraph 1b determines an undertaking’s
Minimum Capital Requirement, the undertaking shall provide to the
supervisory authority information allowing a proper understanding of
the reasons for this.
2a. The Commission shall submit to the
European Parliament and the European Insurance and Occupational
Pensions Committee, at the latest five years after the date referred
to in Article 310(1), a report on Member States' rules and
supervisory authorities' practices adopted pursuant to paragraphs 1,
1a, 1b or 2.
That report shall address, in particular, the
use and level of the cap and the floor set out in paragraph 1b as
well as any problems faced by supervisory authorities and by
undertakings in the application of this Article.
Article
128
Implementing measures
The
Commission shall adopt
implementing measures specifying the calculation of the Minimum
Capital Requirement, referred to in Articles 126 and
127.
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 129
Transitional
arrangements regarding compliance with the Minimum Capital
Requirement
By way of derogation from Articles 137 and 142,
where insurance and reinsurance undertakings comply with the
Required Solvency Margin referred to in Article 28 of Directive
2002/83/EC,
Article 16 a of Directive 73/239/EC or Articles
37, 38 or 39 of Directive 2005/68/EC respectively on the date set
out in Article 310(1) but do not hold sufficient eligible basic own
funds to cover the Minimum Capital Requirement, the undertakings
concerned shall comply with Article 126 within one year from the
date as set out in Article 310(1).
If the undertaking
concerned fails to comply with Article 126 within the period set out
in the first paragraph, the authorisation of the undertaking shall
be withdrawn, subject to the applicable processes provided for in
the national legislation.
SECTION 6 -
INVESTMENTS
Article 130
"Prudent person"
principle
1. Member States shall ensure that insurance and
reinsurance undertakings invest all their assets in accordance with
the "prudent person" principle, as specified in paragraphs 2,3 and
4.
2. With respect to the whole portfolio of assets,
insurance and reinsurance undertakings shall only invest in assets
and instruments whose risks the undertaking concerned can properly
identify, measure, monitor, manage, control and report, and
appropriately take into account in the assessment of its overall
solvency needs in accordance with Article 44(1)(a).
All
assets, in particular those covering the Minimum Capital Requirement
and the Solvency Capital Requirement, shall be invested in such a
manner as to ensure the security, quality, liquidity and
profitability of the portfolio as a whole.
In addition the
localisation of those assets shall be such as to ensure their
availability.
Assets held to cover the technical provisions
shall also be invested in a manner appropriate to the nature and
duration of the insurance and reinsurance liabilities.
Those assets
shall be invested in the best interest of all policyholders and
beneficiaries taking into account any disclosed policy
objective.
In the case of a conflict of interest, insurance
undertakings, or the entity which manages their asset portfolio,
shall ensure that the investment is made in the best interest of
policyholders and beneficiaries.
3. Without prejudice to
paragraph 2, with respect to assets held in respect of life
insurance contracts where the investment risk is borne by the
policyholders, the second, third and fourth subparagraphs of this
paragraph shall apply.
Where the benefits provided by a
contract are directly linked to the value of units in an UCITS as
defined in Directive 85/611/EEC, or to the value of assets contained
in an internal fund held by the insurance undertakings, usually
divided into units, the technical provisions in respect of those
benefits must be represented as closely as possible by those units
or, in the case where units are not established, by those
assets.
Where the benefits provided by a contract are
directly linked to a share index or some other reference value other
than those referred to in the second subparagraph, the technical
provisions in respect of those benefits must be represented as
closely as possible either by the units deemed to represent the
reference value or, in the case where units are not established, by
assets of appropriate security and marketability which correspond as
closely as possible with those on which the particular reference
value is based.
Where the benefits referred to in the second
and third subparagraphs include a guarantee of investment
performance or some other guaranteed benefit, the assets held to
cover the corresponding additional technical provisions shall be
subject to paragraph 4.
4. Without prejudice to paragraph 2,
with respect to other assets than those covered by paragraph 3, the
second to fifth subparagraphs of this paragraph shall
apply.
The use of derivative instruments shall be possible
insofar as they contribute to a reduction of risks or facilitate
efficient portfolio management.
Investment and assets which
are not admitted to trading on a regulated financial market shall be
kept to prudent levels.
Assets shall be
properly diversified
in such a way as to avoid excessive reliance on any particular
asset, issuer or group of undertakings, or geographical area and
excessive accumulation of risk in the portfolio as a whole.
Investments in assets issued by the same issuer, or by
issuers belonging to the same group, shall not expose the insurance
undertakings to excessive risk concentration.
Article
131
Freedom of investment
1. Member States shall not
require insurance and reinsurance undertakings to invest in
particular categories of assets.
2. Member States shall not
subject the investment decisions of an insurance or reinsurance
undertaking or its investment manager to any kind of prior approval
or systemic notification requirements.
2a. This Article is
without prejudice to Member States' requirements restricting the
types of assets or reference values to which policy benefits may be
linked. Any such rules shall only be applied in the case where the
investment risk is borne by a policyholder who is a natural person
and shall not be more restrictive than those set out in the
Directive 85/611/EEC.
Article 132
Localisation of
assets and prohibition of pledging of assets
1. With respect
to insurance risks situated in the Community, Member States shall
not require that the assets held to cover the technical provisions
related to those risks are localised within the Community or in any
particular Member States.
With respect to recoverables from
reinsurance contracts against undertakings authorised in accordance
with this Directive or having their head office in a third country
whose solvency regime is deemed to be equivalent in accordance with
Article 170, Member States shall also not require the localisation
within the Community of the assets representing those
recoverables.
2. Member States shall not retain or
introduce for the establishment of technical provisions a system
with gross reserving which requires pledging of assets to cover
unearned premiums and outstanding claims provisions if the reinsurer
is an insurance or reinsurance undertaking authorised in accordance
with this Directive.
Article 133
Implementing
measures
1. In order to ensure the
uniform application of
this Directive, the Commission may adopt implementing measures
specifying qualitative requirements in the following
areas:
(a) the identification, measurement, monitoring,
managing and reporting of risks arising from investments in relation
to the first subparagraph of Article 130(2);
(b) the
identification, measurement monitoring, managing and reporting of
specific risks arising from investment in derivative instruments and
assets referred to in the second subparagraph of Article 130(4);
2. In order to ensure cross-sectoral consistency and to
remove misalignment between the interest of firms that "repackage"
loans into tradeable securities and other financial instruments
(originators) and insurance or reinsurance undertakings that invest
in these securities or instruments, the Commission shall adopt
implementing measures laying down requirements in the following
areas:
(a) the requirements that need to be met by the
originator in order for an insurance or reinsurance undertaking to
be allowed to invest in securities or instruments of this type
issued after 1 January 2011, including requirements that ensure that
the originator retains a net economic interest of not less than 5
per cent;
(b) qualitative requirements that must be met by
insurance or reinsurance undertakings that invest in these
securities or instruments.
3. 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).
CHAPTER
VII
INSURANCE AND REINSURANCE UNDERTAKINGS IN DIFFICULTY OR
IN AN IRREGULAR SITUATION
Article 134
Identification
and notification of deteriorating financial conditions by the
insurance and reinsurance undertaking
Insurance and
reinsurance undertakings shall have procedures in place to identify
deteriorating financial conditions and immediately notify the
supervisory authorities when such deterioration occurs.
Article 135
Non-Compliance with technical
provisions
If an insurance or reinsurance undertaking does
not comply with Chapter VI, Section 2, the supervisory authorities
of its home Member State may prohibit the free disposal of its
assets after having communicated their intentions to the supervisory
authorities of the host Member States.
The supervisory authorities
of the home Member State shall designate the assets to be covered by
such measures.
Article 136
Non-Compliance with
the Solvency Capital Requirement
1. Insurance and reinsurance
undertakings shall immediately inform the supervisory authority as
soon as they observe that the Solvency Capital Requirement is no
longer complied with, or where there is a risk of non-compliance in
the following three months.
2.
Within two months from the
observation of the non-compliance with the Solvency Capital
Requirement the insurance or reinsurance undertaking concerned shall
submit a realistic recovery plan for approval by the supervisory
authority.
3. The supervisory authority shall require the
insurance or reinsurance undertaking concerned to take the necessary
measures to achieve, within six months from the observation of the
non-compliance with the Solvency Capital Requirement, the
re-establishment of the level of eligible own funds covering the
Solvency Capital Requirement or the reduction of its risk profile to
ensure compliance with the Solvency Capital Requirement.
The
supervisory authority may, if appropriate, extend that period by
three months.
3a. In the event of an
exceptional fall in
financial markets, the supervisory authority may extend the period
set out in the second sub-paragraph of paragraph 3 by an appropriate
period of time taking into account all relevant factors.
The
insurance or reinsurance undertaking concerned shall submit
every 3
months a progress report to its supervisory authority setting out
the measures taken and the progress made to re-establish the level
of eligible own funds covering the Solvency Capital Requirement or
the reduction of the risk profile to ensure compliance with the
Solvency Capital Requirement.
The extension referred to in
subparagraph 1 shall be withdrawn if that progress report shows that
there was no significant progress in achieving the re-establishment
of the level of eligible own funds covering the Solvency Capital
Requirement or the reduction of its risk profile to ensure
compliance with the Solvency Capital Requirement between the date of
the observation of the non compliance of the Solvency Capital
Requirement and the date of the submission of the progress
report.
4. In exceptional circumstances, if the supervisory
authority is of the opinion that the financial situation of the
undertaking concerned will deteriorate further, it may also restrict
or prohibit the free disposal of the assets of that undertaking.
That supervisory authority shall inform the supervisory authorities
of the host Member States of any measures it has taken. Those
authorities shall, at the request of the supervisory authority of
the home Member State, take the same measures.
The supervisory
authority of the home Member State shall designate the assets to be
covered by such measures.
Article
137
Non-Compliance with the Minimum Capital
Requirement
1. Insurance and reinsurance undertakings shall
immediately inform the supervisory authority as soon as they observe
that the Minimum Capital Requirement is no longer complied with, or
where there is a risk of non-compliance in the coming
three
months.
2. Within one month
from the observation of the
non-compliance with the Minimum Capital Requirement the insurance or
reinsurance undertaking concerned shall submit, for approval by the
supervisory authority, a short-term realistic finance scheme to
restore, within three months from that observation, the eligible
basic own funds, at least to the level of the Minimum Capital
Requirement or to reduce its risk profile to ensure compliance with
the Minimum Capital Requirement.
3. The supervisory authority of
the home Member State may also restrict or prohibit the free
disposal of the assets of the insurance or reinsurance
undertaking.
It shall inform the supervisory authorities
of the host Member States accordingly.
Those authorities shall, at the request of the
supervisory authority of the home Member State, take the same
measures.
The supervisory authority of the home Member State shall
designate the assets to be covered by such measures.
Article 138
Prohibition of free disposal of
assets located within the territory of a Member State
Member
States shall take the measures necessary to be able, in accordance
with national law, to prohibit the free disposal of assets located
within their territory at the request, in the cases provided for in
Articles 135, 136, 137 and 142 (2) of the undertaking's home Member
State, which shall designate the assets to be covered by such
measures.
Article 139
Supervisory powers in
deteriorating financial conditions
Notwithstanding Articles
136 and 137 if the solvency position of the undertaking continues to
deteriorate, the supervisory authorities shall have the power to
take all measures necessary to safeguard the interests of
policyholders in the case of insurance contracts, or the obligations
arising out of reinsurance contracts.
Those measures shall be
proportionate and thus reflect the level and duration of the
deterioration of the solvency position of the insurance or
reinsurance undertaking concerned.
Article
140
Recovery plan and finance scheme
1. The recovery
plan referred to in Article 136(2) and the finance scheme referred
to in Article 137(2) shall, at least include particulars or evidence
concerning the following:
(a) estimates
of management
expenses, in particular current general expenses and
commissions;
(b) estimates of income and expenditure in
respect of direct business, reinsurance acceptances and reinsurance
cessions;
(c) a forecast balance sheet;
(d)
estimates of the financial resources intended to cover the technical
provisions and the Solvency Capital Requirement and the Minimum
Capital Requirement;
(da) the overall reinsurance
policy.
3. If the supervisory authorities have
required a recovery plan referred to in Article 136(2) or a finance
scheme referred to in Article 137(2) in accordance with paragraph 1,
they shall refrain from issuing a certificate in accordance with
Article 39 for as long as they consider that the rights of the
policyholders, or the contractual obligations of the reinsurance
undertaking are threatened.
Article 141
Implementing measures
The
Commission shall adopt
implementing measures specifying the factors to be taken into
account in accordance with Article 136 (3a) including the maximum
appropriate period of time, expressed in total number of months,
which shall be the same for all insurance and reinsurance
undertakings as referred to in the first sub-paragraph of Article
136(3a).
Where it is necessary to enhance convergence the
Commission may adopt implementing measures laying down further
specifications with respect to the recovery plan referred to in
Article 136(2) and the finance scheme referred to in Articles 137(2)
and 139, taking due care to avoid pro-cyclical effects.
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 142
Withdrawal
of authorisation
1. The supervisory authority of the home Member
State may withdraw an authorisation granted to an insurance or
reinsurance undertaking in the following cases:
(a) the
undertaking concerned does not make use of the authorisation within
12 months, expressly renounces it or ceases to carry on business for
more than six months, unless the Member State concerned has made
provision for authorisation to lapse in such cases;
(b) the
undertaking concerned no longer fulfils the conditions for
authorisation;
(c) ---
(d) the undertaking concerned
fails
seriously in its obligations under the regulations to which it is
subject.
The supervisory authority of the
home Member State
shall withdraw an authorisation granted to an insurance or
reinsurance undertaking in case the undertaking does not comply with
the Minimum Capital Requirement and the supervisory authority
considers that the finance scheme submitted is manifestly inadequate
or, the undertaking concerned fails to comply with the approved
scheme within three months from the observation of the
non-compliance with the Minimum Capital Requirement.
2.
In the event of the withdrawal or lapse of authorisation, the
supervisory authority of the home Member State shall notify
the
supervisory authorities of the other Member States accordingly, and
those authorities shall take appropriate measures to prevent the
insurance or reinsurance undertaking from commencing new operations
within their territories.
The supervisory authority of the
home Member State shall, together with those authorities, take all
measures necessary to safeguard the interests of insured persons
and, in particular, shall restrict the free disposal of the assets
of the insurance undertaking in accordance with Article 138.
3. Any decision to withdraw authorisation shall contain
detailed reasons and be communicated to the insurance or reinsurance
undertaking concerned.
 
Return to Index
Solvency ii Introduction (1) to (10)
Solvency ii Introduction (11) to (20)
Solvency ii Introduction (21) to (30)
Solvency ii Introduction (31) to (40)
Solvency ii Introduction (41) to (50)
Solvency ii Introduction (51) to (60)
Solvency ii Introduction (61) to (70)
Solvency ii Introduction (71) to (80)
Solvency ii Introduction (81) to (95)
Solvency ii Articles 1 to 10
Solvency ii Articles 11 to 20
Solvency ii Articles 21 to 30
Solvency ii Articles 31 to 39
Solvency ii Articles 40 to 49
Solvency ii Articles 50 to 62
Solvency ii Articles 63 to 71
Solvency ii Articles 72 to 85
Solvency ii Articles 86 to 99
Solvency ii Articles 100 to 125
Solvency ii Articles 126 to 142
Solvency ii Articles 143 to 159
Solvency ii Articles 160 to 173
Solvency ii Articles 174 to 203
Solvency ii Articles 204 to 215
Solvency ii Articles 216 to 233
Solvency ii Articles 234 to
262
Solvency ii Articles 263 to 298
Solvency ii Articles 300 to 313
Solvency ii ANNEX 1 to 3
Solvency ii ANNEX 4 to 5
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