The Solvency ii
Directive
(11) In line with the latest developments in risk management, in
the context of the International Association
of Insurance Supervisors, the International Accounting Standards
Board and the International Actuarial Association
and with
recent developments in other financial sectors an
economic risk-based approach should
be adopted which provides incentives for insurance and reinsurance
undertakings to properly measure and manage their risks.
Harmonisation should be increased by providing specific rules for
the valuation of assets and liabilities, including technical
provisions.
(12) ---
(13)
The main objective of insurance and reinsurance regulation and
supervision is the adequate protection of policyholders and
beneficiaries. The term beneficiary is intended to cover any
natural or legal person who is entitled to a right under an
insurance contract.Financial stability and fair and stable markets
are other objectives of insurance and reinsurance regulation and
supervision which should also be taken into account but should not
undermine the main objective.
(13a) Solvency II is expected
to result in even better protection for policyholders. It will
require Member States to provide supervisory authorities with the
resources to fulfill their objectives as set out in this Directive.
This encompasses all necessary capacities, including financial and
human resources.
(14) The supervisory authorities of the
Member States should therefore have at their disposal all means
necessary to ensure the orderly pursuit of business by insurance and
reinsurance undertakings throughout the Community whether carried on
under the right of establishment or the freedom to provide services.
In order to ensure the effectiveness of the supervision all actions
taken by the supervisory authorities should be proportionate to the
nature and the complexity of the risks inherent to the business of
an insurance or reinsurance undertaking, regardless of the
importance of the undertaking concerned for the over-all financial
stability for the market.
(14a) The new solvency regime
should not be too burdensome for small and medium-sized insurance
undertakings. One of the tools to achieve
this objective is a proper application of the proportionality
principle. This principle should apply both to the
requirements on the insurance and reinsurance undertakings and on
the exercise of supervisory powers.
(14b) In particular, the
new solvency regime should not be too burdensome for insurance
undertakings that specialise in providing specific types of
insurance or providing services to specific customer segments, and
it should recognise that specialising in this way can be a valuable
tool for efficiently and effectively managing risk. In order to
achieve this objective, as well as the proper application of the
proportionality principle, provision should also be made to
specifically allow undertakings to use their own data to calibrate
the parameters in the underwriting risk modules of the standard
formula of the Solvency Capital Requirement.
(14c) The new
solvency regime should also take account
of the specific nature of captive insurance and reinsurance
undertakings. As those undertakings only cover risks
associated with the industrial or commercial group to which they
belong, appropriate approaches should thus be provided in line with
the principle of proportionality to reflect the nature, scale and
complexity of their business.
(14d) The supervision of
reinsurance activity should take account of the special
characteristics of reinsurance business, notably its global nature
and the fact that the policyholders are themselves insurance or
reinsurance undertakings.
(15) Supervisory authorities should
be able to obtain from insurance and reinsurance undertakings the
information which is necessary for the purposes of supervision,
including, where appropriate, elements publicly disclosed by an
insurance or reinsurance undertaking under financial reporting,
listing and other legal or regulatory requirements.
(16) The
supervisory authorities of the home
Member State should be responsible for monitoring the financial
health of insurance and reinsurance undertakings. To this end they
should carry out regular reviews and evaluations.
(16a)
Supervisory authorities may take account of the effects on risk and
asset management of voluntary codes of conduct and transparency
adhered to by the relevant institutions dealing in unregulated or
alternative investment instruments.
(17) The starting point
for the adequacy of the quantitative requirements in the insurance
sector is the Solvency Capital Requirement. Supervisory authorities
should therefore have the power to impose a capital add-on to the
Solvency Capital Requirement only
under exceptional circumstances in the cases listed in this
Directive following the supervisory review process. The Solvency
Capital Requirement standard formula is intended to reflect the risk
profile of most insurance and reinsurance undertakings. However,
there may be some cases where the standardised approach does not
adequately reflect the very specific risk profile of an undertaking.
(17a) The imposition of a capital add-on is exceptional in
the sense that it should only be used as a last resort measure, when
other supervisory measures are ineffective or inappropriate.
Furthermore, the term exceptional should be understood in the
context of the specific situation of each undertaking rather than in
relation to the number of capital add-ons imposed in a specific
market.
(17b) The capital add-on
should be kept as long as the circumstances under which it
was imposed are not remedied. In case of significant deficiencies in
the full or partial internal model or significant governance
failures the supervisory authorities should ensure that the
undertaking concerned makes all efforts to remedy the deficiencies
that led to the imposition of the capital add-on. However, where the
standardised approach does not adequately reflect the very specific
risk profile of an undertaking the capital add-on may remain over
consecutive years.
(18) Some risks may only be properly
addressed through governance requirements rather than through the
quantitative requirements reflected in the Solvency Capital
Requirement. An effective governance system is therefore essential
for the adequate management of the insurance undertaking and for the
regulatory system.
(18a) The
governance system includes the risk management function, the
compliance function, the internal audit function and the actuarial
function.
(18b) A function is an administrative capacity to
undertake particular governance tasks. The identification of a
particular function does not prevent the undertaking from freely
deciding how to organise this function in practice unless this is
otherwise specified in this Directive. This should not lead to
unduly burdensome requirements because account should be taken of
the nature, complexity and scale of the operations of the
undertaking. These functions can therefore be staffed by own staff
or can rely on advice from outside experts or can be outsourced to
experts within the limits set by this Directive.
(18c)
Furthermore, except regarding the internal audit function, in
smaller and less complex undertakings more than one function can be
carried out by one person or organisational unit.
(18d) The
functions included in the governance system are considered key
functions and consequently also important and critical functions.
(18e) All persons that perform key
functions should be fit and proper. However, only the key
function holders should be subject to notification requirements to
the supervisory authority.
(18f) For the purpose of assessing
the required level of competence, professional qualifications and
experience of those who effectively run the undertaking or have
other key functions should be taken into consideration as additional
factors.
(19) All insurance and
reinsurance undertakings should have, as an integrated part of their
business strategy, a regular practice of assessing their over-all
solvency needs with a view to their specific risk profile (own risk
and solvency assessment). This assessment does not require
the development of an internal model nor does it serve to calculate
a capital requirement different from the Solvency Capital
Requirement and the Minimum Capital Requirement. The results of each
assessment should be reported to the supervisory authority as part
of the information to be provided for supervisory purposes.
(20) In order to ensure effective supervision of outsourced
functions or activities, it is essential that the supervisory
authorities of the outsourcing insurance or reinsurance undertaking
have access to all relevant data held by the outsourcing service
provider, regardless of whether the latter is a regulated or
unregulated entity, as well as the right to conduct on-site
inspections. In order to take account of market developments and to
ensure that the conditions for outsourcing continue to be complied
with, the supervisory authorities should be informed prior to the
outsourcing of critical or important functions or activities. These
requirements take into account the work of the Joint Forum and are
consistent with the current rules and practices in the banking
sector and the Markets in Financial Instruments Directive and its
application to credit institutions.
 
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
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