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
Solvency ii Articles 300 to 313
Solvency ii ANNEX 1 to 3
Solvency ii ANNEX 4 to 5
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