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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