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.
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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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