The Solvency ii
Directive
CHAPTER V
PURSUIT OF LIFE AND NON-LIFE INSURANCE ACTIVITY
Article 72
Pursuit of life and non-life insurance activity
1. Insurance undertakings may not be authorised to carry on life
and non-life insurance activities simultaneously.
2. By way
of derogation from paragraph 1, Member States may provide the
following:
(a) undertakings authorised to carry on life
insurance activity may also obtain authorisation for non-life
insurance activities for the risks listed in classes 1 and 2 in
point A of Annex I;
(b) undertakings authorised solely for
the risks listed in classes 1 and 2 in point A of Annex I may obtain
authorisation to carry on life insurance activity.
However,
each activity shall be separately managed in accordance with Article
73.
3. Member States may provide that the undertakings
referred to in paragraph 2 shall comply with the accounting rules
governing life insurance undertakings for all of their activities.
Pending
coordination in this respect, Member States may also provide that,
with regard to rules on winding-up, activities relating to the risks
listed in classes 1 and 2 in point A of Annex I carried on by the
those undertakings shall be governed by the rules applicable to life
insurance activities.
4. Where a non-life insurance
undertaking has financial, commercial or administrative links with a
life insurance undertaking, the supervisory authorities of the home
Member States shall ensure that the accounts of the undertakings
concerned are not distorted by agreements between these undertakings
or by any arrangement which could affect the apportionment of
expenses and income.
5. Undertakings which on the following
dates carried on simultaneously both life and non-life insurance
activities covered by this Directive may continue to carry on those
activities simultaneously, provided that each activity is separately
managed in accordance with Article 73:
(a) 1 January 1981 for
undertakings authorised in Greece;
(b) 1 January 1986 for
undertakings authorised in Spain and Portugal;
(c) 1 January
1995 for undertakings authorised in Austria, Finland and Sweden;
(d) 1 May 2004 for undertakings authorised in the Czech
Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta,
Poland, Slovakia, and Slovenia;
(e) 1 January 2007 for
undertakings authorised in Bulgaria and Romania;
(f) 15
March 1979 for all other undertakings.
The home Member State
may require insurance undertakings to cease, within a period to be
determined by that Member State, the simultaneous pursuit of life
and non-life insurance activities in which they were engaged on the
dates referred to in the first subparagraph.
Article 73
Separation of life and
non-life insurance management
1. The separate
management referred to in Article 72 shall be organised in such a
way that the life insurance activity is distinct from non-life
insurance activity.
The respective interests of life and
non-life policyholders may not be prejudiced and, in particular,
profits from life insurance shall benefit life policyholders as if
the life insurance undertaking only carried on the activity of life
insurance.
2. Without prejudice to Articles 100 and 126, the
insurance undertakings referred to in Article 72(2) and (5) shall
calculate both of the following:
(a) a notional life Minimum
Capital Requirement with respect to their life insurance or
reinsurance activity, calculated as if the undertaking concerned
only carried on that activity, on the basis of the separate accounts
referred to in paragraph 6;
(b) a notional non-life Minimum
Capital Requirement with respect to their non-life insurance or
reinsurance activity, calculated as if the undertaking concerned
only carried on that activity, on the basis of the separate accounts
referred to in paragraph 6.
3. As a minimum, the insurance
undertakings referred to in Article 72(2) and (5) shall cover the
following by an equivalent amount of eligible basic own fund items:
(a) the notional life Minimum Capital Requirement, in respect of
the life activity;
(b) the notional non-life Minimum Capital
Requirement, in respect of the non-life activity.
The minimum
financial obligations referred to in the first subparagraph,in
respect of the life insurance activity and the non-life insurance
activity, may not be borne by the other activity.
4. As long
as the minimum financial obligations referred to in paragraph 3 are
fulfilled and provided the supervisory authority is informed, the
undertaking may use to cover the Solvency Capital Requirement
referred to in Article 100, the explicit eligible own fund items
which are still available for one or the other activity.
5.
The supervisory authorities shall analyse the results in both life
and non-life insurance activities so as to ensure that paragraphs 1
to 5 is complied with.
6. Accounts shall be drawn up so as to
show the sources of the results for life and non-life insurance
separately.
All income, in particular
premiums, payments by re-insurers and investment income, and
expenditure, in particular insurance settlements, additions to
technical provisions, reinsurance premiums and operating expenses in
respect of insurance business, shall be broken down according to
origin.
Items common to both activities
shall be entered in the accounts in accordance with methods of
apportionment to be accepted by the supervisory authority.
Insurance undertakings shall, on the basis of the accounts, prepare
a statement in which the eligible basic own fund items covering each
notional Minimum Capital Requirement as referred to in paragraph 2
are clearly identified, in accordance with Article 98(5).
7.
If the amount of eligible basic own fund items with respect to one
of the activities is insufficient to cover the minimum financial
obligations referred to in first subparagraph of paragraph 3, the
supervisory authorities shall apply to the deficient activity the
measures provided for in this Directive, whatever the results in the
other activity.
By way of derogation from the second
subparagraph of paragraph 3, those measures may involve the
authorisation of a transfer of explicit eligible basic own fund
items from one activity to the other.
CHAPTER VI
RULES RELATING TO THE
VALUATION OF ASSETS AND LIABILITIES, TECHNICAL PROVISIONS, OWN
FUNDS, SOLVENCY CAPITAL REQUIREMENT, MINIMUM CAPITAL REQUIREMENT AND
INVESTMENT RULES
SECTION 1 - VALUATION OF ASSETS AND
LIABILITIES
Article 74
Valuation of assets and liabilities
1. Member States shall ensure that, unless otherwise stated,
insurance and reinsurance undertakings value assets and liabilities
as follows:
(a) assets shall be valued at the amount for
which they could be exchanged between knowledgeable willing parties
in an arm's length transaction;
(b) liabilities shall be
valued at the amount for which they could be transferred, or
settled, between knowledgeable willing parties in an arm's length
transaction.
When valuing liabilities, no adjustment to take
account of the own credit standing of the insurance or reinsurance
undertaking shall be made.
2. The Commission shall adopt,
implementing measures to set out the methods and assumptions to be
used in the valuation of assets and liabilities as laid down in
paragraph 1.
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).
SECTION 2 -
RULES RELATING TO TECHNICAL PROVISIONS
Article 75
General
provisions
1. Member States shall ensure that
insurance and reinsurance undertakings establish technical
provisions with respect to all of their insurance and reinsurance
obligations towards policyholders and beneficiaries of insurance or
reinsurance contracts.
2. The value of technical provisions
shall correspond to the current amount insurance and reinsurance
undertakings would have to pay if they were to transfer their
insurance and reinsurance obligations immediately to another
insurance or reinsurance undertaking.
3. The calculation of
technical provisions shall make use of and be consistent with
information provided by the financial markets and generally
available data on underwriting risks (market consistency).
4.
Technical provisions shall be calculated in a prudent, reliable and
objective manner.
4a. Following the principles set out in
paragraphs 2, 3 and 4 and taking into account the principles set out
in Article 74(1), the calculation of technical provisions shall be
carried out in accordance with Articles 76 to 81 and 85.
Article 76
Calculation of technical
provisions
1. The value of technical provisions shall
be equal to the sum of a best estimate and a risk margin as set out
in paragraphs 2 and 3.
2. The best estimate shall correspond
to the probability-weighted average of future cash-flows, taking
account of the time value of money (expected present value of future
cash-flows), using the relevant risk-free interest rate term
structure.
The calculation of the best estimate shall be
based upon up-to-date and credible information and realistic
assumptions and be performed using adequate, applicable and relevant
actuarial and statistical methods.
The cash-flow projection
used in the calculation of the best estimate shall take account of
all the cash in- and out-flows required to settle the insurance and
reinsurance obligations over the lifetime thereof.
The best
estimate shall be calculated gross, without deduction of the amounts
recoverable from reinsurance contracts and special purpose vehicles.
Those amounts shall be calculated separately, in accordance with
Article 80.
3. The risk margin shall be such as to ensure
that the value of the technical provisions is equivalent to the
amount insurance and reinsurance undertakings would be expected to
require in order to take over and meet the insurance and reinsurance
obligations.
4. Insurance and reinsurance undertakings shall
value the best estimate and the risk margin separately
However, where future cash flows associated with insurance or
reinsurance obligations can be replicated reliably using financial
instruments for which a reliable market value is observable, the
value of technical provisions associated with those future cash
flows shall be determined on the basis of the market value of those
financial instruments.
In this case,
separate calculations of the best estimate and the risk margin shall
not be required.
5. Where insurance and reinsurance
undertakings value the best estimate and the risk margin separately,
the risk margin shall be calculated by determining the cost of
providing an amount of eligible own funds equal to the Solvency
Capital Requirement necessary to support the insurance and
reinsurance obligations over the lifetime thereof.
The rate
used in the determination of the cost of providing that amount of
eligible own funds (Cost-of-Capital rate) shall be the same for all
insurance and reinsurance undertakings and shall be reviewed
periodically.
The Cost-of-Capital rate used shall be equal to
the additional rate, above the relevant risk-free interest rate,
that an insurance or reinsurance undertaking would incur holding an
amount of eligible own funds, as set out in Section 3, equal to the
Solvency Capital Requirement necessary to support the insurance and
reinsurance obligation over the lifetime of that obligation.
Article 77
Other elements to be taken
into account in the calculation of technical provisions
In addition to Article 76, when calculating technical
provisions, insurance and reinsurance undertakings shall take
account of the following:
(1) all expenses that will be
incurred in servicing insurance and reinsurance obligations;
(2) inflation, including expenses and claims inflation;
(3)
all payments to policyholders and beneficiaries, including future
discretionary bonuses, which insurance and reinsurance undertakings
expect to make, whether or not these payments are contractually
guaranteed, unless those payments fall under Article 90(2).
Article 78
Valuation of financial
guarantees and contractual options included in insurance and
reinsurance contracts
When calculating technical
provisions, insurance and reinsurance undertakings shall take
account of the value of financial guarantees and any contractual
options included in insurance and reinsurance policies.
Any
assumptions made by insurance and reinsurance undertakings with
respect to the likelihood that policyholders will exercise
contractual options, including lapses and surrenders, shall be
realistic and based on current and credible information. The
assumptions shall take account, either explicitly or implicitly, of
the impact that future changes in financial and non-financial
conditions may have on the exercise of those options.
Article 79
Segmentation
Insurance and reinsurance undertakings shall segment their insurance
and reinsurance obligations into homogeneous risk groups, and as a
minimum by lines of business, when calculating their technical
provisions.
Article 80
Recoverables from reinsurance contracts and special purpose vehicles
The calculation by insurance and reinsurance undertakings of
amounts recoverable from reinsurance contracts and special purpose
vehicles shall comply with Articles 75 to 79.
When
calculating amounts recoverable from reinsurance contracts and
special purpose vehicles, insurance and reinsurance undertakings
shall take account of the time difference between recoveries and
direct payments.
The result from that calculation shall be
adjusted to take account of expected losses due to default of the
counterparty. That adjustment shall be based on an assessment of the
probability of default of the counterparty and the average loss
resulting therefrom (loss-given-default).
Article 81
Data quality and
application of approximations, including case-by-case approaches,
for technical provisions
Member States shall ensure
that insurance and reinsurance undertakings have internal processes
and procedures in place to ensure the appropriateness, completeness
and accuracy of the data used in the calculation of their technical
provisions.
Where, in specific circumstances, insurance and
reinsurance undertakings have insufficient data of appropriate
quality to apply a reliable actuarial method to a set or subset of
their insurance and reinsurance obligations, or amounts recoverable
from reinsurance contracts and special purpose vehicles, appropriate
approximations, including case-by-case approaches, may be used in
the calculation of the best estimate.
Article 82
Comparison against
experience
Insurance and reinsurance undertakings
shall have processes and procedures in place to ensure that best
estimates, and the assumptions underlying the calculation of best
estimates, are regularly compared against experience.
Where
the comparison identifies systematic deviation between experience
and the best estimate calculations of insurance or reinsurance
undertakings, the undertaking concerned shall make appropriate
adjustments to the actuarial methods being used or the assumptions
being made.
Article 83
Appropriateness of the level of technical provisions
Upon request from the supervisory authorities, insurance and
reinsurance undertakings shall demonstrate the appropriateness of
the level of their technical provisions, as well as the
applicability and relevance of the methods applied, and the adequacy
of the underlying statistical data used.
Article 84
Increase of technical
provisions
To the extent that the calculation of
technical provisions of insurance and reinsurance undertakings does
not comply with Articles 75 to 82, the supervisory authorities may
require insurance and reinsurance undertakings to increase the
amount of technical provisions so that they correspond to the level
determined pursuant to those Articles.
Article 85
Implementing measures
The Commission shall adopt implementing measures laying down the
following:
(a) actuarial and statistical methodologies to
calculate the best estimate referred to in Article 76(2);
(b)
the relevant risk-free interest rate term structure to be used to
calculate the best estimate referred to in Article 76(2);
(c)
the circumstances in which technical provisions shall be calculated
as a whole, or as a sum of a best estimate and a risk margin, and
the methods to be used in the case where technical provisions are
calculated as a whole;
(d) the methods and assumptions to be
used in the calculation of the risk margin including the
determination of the amount of eligible own funds necessary to
support the insurance and reinsurance obligations and the
calibration of the Cost-of-Capital rate;
(e) the lines of
business on the basis of which insurance and reinsurance obligations
are to be segmented in order to calculate technical provisions;
(f) the standards to be met with respect to ensuring the
appropriateness, completeness and accuracy of the data used in the
calculation of technical provisions, and the specific circumstances
in which it would be appropriate to use approximations, including
case-by-case approaches, to calculate the best estimate;
(g)
the methodologies to be used when calculating the counterparty
default adjustment referred to in Article 80 designed to capture
expected losses due to default of the counterparty;
(h)
where necessary, simplified methods and techniques to calculate
technical provisions, in order to ensure the actuarial and
statistical methodologies referred to in points (a) and (d) are
proportionate to the nature, scale and complexity of the risks
supported by insurance and reinsurance undertakings including
captive insurance and reinsurance 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 of 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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