The Solvency ii
Directive
CHAPTER
IV
CONDITIONS GOVERNING BUSINESS
SECTION 1 –
RESPONSIBILITY OF THE ADMINISTRATIVE OR MANAGEMENT
BODY
Article 40
Responsibility of the administrative
or management body
Member States shall ensure that the
administrative or management body of the insurance or reinsurance
undertaking has the ultimate responsibility for the compliance, by
the undertaking concerned, with the laws, regulations and
administrative provisions adopted pursuant to this
Directive.
SECTION 2 - SYSTEM OF
GOVERNANCE
Article 41
General governance
requirements
1. Member States shall require all insurance and
reinsurance undertakings to have in place an effective system of
governance which provides for sound and prudent management of the
business.
That system shall at least include an adequate
transparent organisational structure with a clear allocation and
appropriate segregation of responsibilities and an effective system
for ensuring the transmission of information. It shall include
compliance with the requirements laid down in Articles 42 to
48.
The system of governance shall be subject to regular
internal review.
2. The system of governance shall be
proportionate to the nature, scale and complexity of the operations
of the insurance or reinsurance undertaking.
3. Insurance and
reinsurance undertakings shall have written policies in relation to
at least risk management, internal
control, internal audit and, where relevant, outsourcing.
They shall ensure that those policies
are implemented.
Those written policies shall be reviewed at
least annually. They shall be subject to
prior approval by the
administrative or management body and be adapted in view of any
significant change in the system or area concerned.
3a.
Insurance and reinsurance undertakings shall take reasonable steps
to ensure continuity and regularity in the performance of their
activities, including the development of contingency plans. To this
end the undertaking shall employ appropriate and proportionate
systems, resources and procedures.
4. The supervisory
authorities shall have appropriate means, methods and powers for
verifying the system of governance of the insurance and reinsurance
undertakings and for evaluating emerging risks identified by those
undertakings which may affect their financial soundness.
The
Member States shall ensure that the supervisory authorities have the
powers necessary to require that the system of governance be
improved and strengthened to ensure compliance with the requirements
set out in Articles 42 to 48.
Article 42
Fit and
proper requirements for persons who effectively run the undertaking
or have other key functions
1. Insurance and reinsurance
undertakings shall ensure that all persons who effectively run the
undertaking or have other key functions meet at all times the
following requirements:
(a) their professional
qualifications, knowledge and experience are adequate to enable
sound and prudent management (fit);
(b) they are of
good
repute and integrity (proper).
2. Insurance and reinsurance
undertakings shall notify the supervisory authority of any
changes
to the identity of the persons who effectively run the undertaking
or are responsible for other key functions, along with all
information needed to assess whether any new persons appointed to
manage the undertaking are fit and proper.
3. Insurance and
reinsurance undertakings shall notify their supervisory authority if
any of the persons mentioned in paragraphs 1 and 2 have been
replaced because they no longer fulfil the requirements referred to
in paragraph 1.
Article 42a
Proof of good
repute
1. Where a Member State requires of its own nationals
proof of good repute and proof of no previous bankruptcy, or proof
of either of these, that Member State shall accept as sufficient
evidence in respect of nationals of other Member States the
production of an extract from the "judicial record" or, failing
this, of an equivalent document issued by a competent judicial or
administrative authority in the home Member State or the Member
State from which the foreign national comes showing that these
requirements have been met.
2. Where the home Member State or
the Member State from which the foreign national concerned comes
does not issue the document referred to in paragraph 1, it
may be
replaced by a declaration on oath – or in Member States where there
is no provision for declaration on oath by a solemn declaration –
made by the foreign national concerned before a competent judicial
or administrative authority or, where appropriate, a notary in the
home Member State or the Member State from which that foreign
national comes.
Such authority or notary shall issue a
certificate attesting the authenticity of the declaration on oath or
solemn declaration.
The declaration referred to in the first
subparagraph in respect of no previous bankruptcy may also be made
before a competent professional or trade body in the Member State
concerned.
3. The documents and certificates referred to in
paragraphs 1 and 2 shall not be presented more than three months
after their date of issue.
4. Member States shall designate
the authorities and bodies competent to issue the documents referred
to in paragraphs 1 and 2 and shall forthwith inform the other Member
States and the Commission thereof.
Each Member State shall
also inform the other Member States and the Commission of the
authorities or bodies to which the documents referred to in
paragraphs 1 and 2 are to be submitted in support of an application
to carry on in the territory of this Member State the activities
referred to in Article 2.
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
45
Internal control
1. Insurance and reinsurance
undertakings shall have in place an effective internal control
system.
That system shall at least include
administrative and
accounting procedures, an internal control framework, appropriate
reporting arrangements at all levels of the undertaking and a compliance function.
2. The
compliance function shall
include advising the administrative or management body on compliance
with the laws, regulations and administrative provisions adopted
pursuant to this Directive.
It shall also include an assessment of
the possible impact of any changes in the legal environment on the
operations of the undertaking concerned and the identification and
assessment of compliance risk.
Article 46
Internal
audit
1. Insurance and reinsurance undertakings shall provide
for an effective internal audit function.
---
The
internal audit function shall include an evaluation of the adequacy
and effectiveness of the internal control system and other elements
of the governance system.
3. The internal audit function
shall be objective and independent from the operational functions.
4. Any findings and recommendations of the internal audit
shall be reported to the administrative or management body which
shall determine what actions shall be taken with respect to each of
the internal audit findings and recommendations and shall ensure
that these actions are carried out.
Article
47
Actuarial function
1. Insurance and reinsurance
undertakings shall provide for an effective actuarial function to
undertake the following:
(a) to coordinate the calculation of
technical provisions;
(b) to ensure the appropriateness of
the methodologies and underlying models used as well as the
assumptions made in the calculation of technical
provisions;
(c) to assess the sufficiency and quality of the
data used in the calculation of technical provisions;
(d) to
compare best estimates against experience;
(e) to inform the
administrative or management body of the reliability and adequacy of
the calculation of technical provisions;
(f) to oversee the
calculation of technical provisions in the cases set out in Article
81;
(g) to express an opinion on the overall underwriting
policy;
(h) to express an opinion on the adequacy of
reinsurance arrangements;
(i) to contribute to the effective
implementation of the risk management system referred to in Article
43, in particular with respect to the risk modelling underlying the
calculation of the capital requirements set out in Chapter VI,
Sections 4 and 5 and the assessment referred to in Article
44.
2. The actuarial function shall be carried out by persons
who have knowledge of actuarial and financial mathematics,
commensurate with the nature, scale and complexity of the risks
inherent in the business of the insurance or reinsurance
undertaking, and who are able to demonstrate their relevant
experience with applicable professional and other
standards.
Article 48
Outsourcing
1.
Member States shall ensure that, when insurance and reinsurance
undertakings outsource functions or any insurance or reinsurance
activities, the undertakings remain fully responsible for
discharging all of their obligations under this Directive.
2.
Outsourcing of critical or important operational functions or
activities shall not be undertaken in such a way as to lead to any
of the following:
(a) impairing materially the quality of the
governance system of the undertaking concerned;
(b)
increasing unduly the operational risk;
(c) impairing the
ability of the supervisory authorities to monitor the compliance of
the undertaking with its obligations;
(d) undermining
continuous and satisfactory service to policyholders.
3.
Insurance and reinsurance undertakings shall, in a timely manner,
notify the supervisory authorities prior to the outsourcing of
critical or important functions or activities as well as of any
subsequent material developments with respect to those
activities.
Article 49
Implementing
measures
1. The Commission shall adopt implementing
measures to further specify the following:
(a) the elements
of the systems referred to in Articles 41, 43, 45 and 46, and in
particular the areas to be covered by the asset – liability
management and investment policy, as referred to in Article 43(2),
of insurance and reinsurance undertakings;
(b) the functions
referred to in Articles 43, 45, 46 and 47;
(c) the
requirements set out in Article 42 and the functions subject
thereto;
(d) the conditions under which outsourcing, in
particular to service providers located in third countries, may be
performed.
2. Where it is necessary to ensure appropriate
convergence of the assessment referred to in Article 44 (1)(a), the
Commission may adopt implementing measures to further specify the
elements of that assessment.
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).
  
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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