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Insurance and reinsurance

Insurance and reinsurance

 

SUMMARY OF:

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

WHAT IS THE AIM OF THE DIRECTIVE?

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.

FROM WHEN DOES THE DIRECTIVE APPLY?

it has applied since 1 January 2016.

BACKGROUND

For more information, see:

MAIN DOCUMENT

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) (OJ L 335, 17.12.2009, pp. 1-155)

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 DOCUMENTS

Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (OJ L 236, 14.9.2017, pp. 14-21)

Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, pp. 35-80)

Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (OJ L 354, 23.12.2016, pp. 37-85)

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).

Successive amendments and corrections to Delegated Regulation (EU) 2015/35 have been incorporated in the basic text. This consolidated version is for reference purposes only.

Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 in respect of the powers of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority) (OJ L 153, 22.5.2014, pp. 1-61)

Directive 2013/58/EU of the European Parliament and of the Council of 11 December 2013 amending Directive 2009/138/EC (Solvency II) as regards the date for its transposition and the date of its application, and the date of repeal of certain Directives (Solvency I) (OJ L 341, 18.12.2013, pp. 1-3)

Directive 2012/23/EU of the European Parliament and of the Council of 12 September 2012 amending Directive 2009/138/EC (Solvency II) as regards the date for its transposition and the date of its application, and the date of repeal of certain Directives (OJ L 249, 14.9.2012, pp. 1-2)

Directive 2011/89/EU of the European Parliament and of the Council of 16 November 2011 amending Directives 98/78/EC, 2002/87/EC, 2006/48/EC and 2009/138/EC as regards the supplementary supervision of financial entities in a financial conglomerate (OJ L 326, 8.12.2011, pp. 113-141)

last update 05.10.2018

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