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Insurance and reinsurance

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Insurance and reinsurance

The European Union has adopted common rules to facilitate the activities of insurance companies throughout EU countries, to ensure that these companies can survive in difficult periods and to protect policyholders.

ACT

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)

SUMMARY

The European Union has adopted common rules to facilitate the activities of insurance companies throughout EU countries, to ensure that these companies can survive in difficult periods and to protect policyholders.

WHAT DOES THE DIRECTIVE DO?

Known as Solvency II, it requires insurance companies to hold enough financial resources. It also sets out management and supervisory rules.

KEY POINTS

The directive covers non-life insurance, life insurance and reinsurance companies.

Authorisation

An insurance company can conduct its activities after having obtained an authorisation from the supervisor of its country. The authorisation is valid throughout the EU.

Capital requirements

Insurance companies have to hold capital in relation to their risk profiles to guarantee that they have sufficient financial resources to withstand financial difficulties. They have to comply with capital requirements:

the minimum capital requirement (MCR): the minimum level of capital below which policyholders would be exposed to a high level of risk;

the solvency capital requirement (SCR): the capital that an insurance company needs in cases where significant losses have to be absorbed. The amount of capital is calculated by taking into account different risks such as:

the market risk: the risk of loss or change of the financial situation resulting from markets fluctuations;

the operational risk: the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events.

If a company does not respect the two amounts of capital required, the supervisor has to take action.

Risk management system

An adequate governance system

Insurance companies have to put in place an adequate and transparent governance system with a clear allocation of responsibilities. They must have the administrative capacity to deal with different issues including risk management, compliance with the legislation, and internal audit.

Own risk and solvency assessment

Insurance companies have to conduct their own risk and solvency assessment (ORSA) on a regular basis. This involves assessing the risk solvency needs in relation to their risk profiles, as well as their compliance with the financial resources required.

Supervision

Supervision review

The legislation sets out a ‘Supervisory Review Process’ (SRP) that enables supervisors to review and evaluate insurance companies' compliance with the rules. The aim is to help supervisors to identify companies that may enter difficulties. Insurance companies also have to disclose information publicly.

Group supervisor

Each insurance group - a company with entities providing services in one or more European countries - must have a group supervisor that has specific responsibilities in close cooperation with the national supervisors involved.

WHEN DOES THE DIRECTIVE APPLY?

The directive applies from 1 January 2016.

For more information, see the European Commission's Solvency II website.

REFERENCES

Act

Entry into force

Deadline for transposition in the Member States

Official Journal

Directive 2009/138/EC

6.1.2010

31.10.2012

OJ L 335, 17.12.2009, pp 1-155

Corrigendum

-

-

OJ L 219, 25.7.2014, pp. 66-66

Amending act(s)

Entry into force

Deadline for transposition in the Member States

Official Journal

Directive 2011/89/EU

9.12.2011

10.6.2013

OJ L 326, 8.12.2011, pp. 113-141

Directive 2012/23/EU

15.9.2012

30.6.2013

OJ L 249, 14.9.2012, pp 1-2

Directive 2013/58/EU

19.12.2013

31.3.2015

OJ L 341, 18.12.2013, pp. 1-3

Directive 2014/51/EU

23.5.2014

31.3.2015

OJ L 153, 22.5.2014, pp 1-61.

Successive amendments and corrections to Directive 2009/138/EC have been incorporated in the basic text. This consolidated version is for reference purposes only.

RELATED ACTS

Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 12, 17.1.2015, pp. 1-797).

Last updated: 15.05.2015

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