(1)

With around EUR 10 trillion of assets under management, insurance and reinsurance undertakings are a mainstay of the financial system. In view of the long-term nature of their business, they are particularly well-placed to provide stable funding to the real economy, including small and medium-sized enterprises (SMEs). Due to their pivotal socio-economic role, insurance and reinsurance undertakings are subject to comprehensive prudential rules, set out in Directive 2009/138/EC and Commission Delegated Regulation (EU) 2015/35 (2).

(2)

To enhance the ability of the sector to support the real economy, the green and digital transitions, and other Union priorities, while preserving prudential soundness and financial stability, Directive 2009/138/EC was amended by Directive (EU) 2025/2 of the European Parliament and of the Council (3) which entered into force on 28 January 2025. Directive (EU) 2025/2 improves the design of long-term guarantee measures and introduces a preferential treatment for long-term investments in equity. Those amendments will increase undertakings’ available capital in excess of the Solvency Capital Requirement, and thereby strengthen their capacity to support the objectives of the Savings and Investments Union and the European Green Deal. Directive (EU) 2025/2 also enhances proportionality of prudential rules, by introducing a new category of ‘small and non-complex undertakings’ which can automatically benefit from identified proportionality measures on reporting, disclosure, governance, revision of written policies, calculation of technical provisions, own-risk and solvency assessment, and liquidity risk management plans. At the same time, recognising the need to maintain a robust supervisory framework, Directive (EU) 2025/2 strengthens cooperation requirements between supervisory authorities, enhances the coordination role and the supervisory powers of the European Insurance and Occupational Pensions Authority (EIOPA), and expands the macroprudential toolkit available to national supervisory authorities.

(3)

To become fully operational, the new regime requires further specifications of key quantitative parameters in delegated acts. Therefore, Delegated Regulation (EU) 2015/35 should be amended. The amendments to Delegated Regulation (EU) 2015/35 should contribute to the implementation of the Unions’ policy agenda on the Savings and Investments Union, and should help insurers enhance the competitiveness of the economy of the Union, as outlined in the Commission’s Competitiveness Compass (4). In particular, the potential of insurers to mobilise additional private capital in support of key Union objectives, including when investing together with public funds in the real economy, in particular through significant public guarantees or subsidies, should be recognised.

(4)

Current prudential calibrations ensure a high level of policyholder protection and contribute significantly to financial stability. However, those calibrations can also be overly conservative, limiting insurers’ capacity to engage in long-term investments. To address that issue, the prudential framework should be revised to remove unjustified layers of prudence. While such revisions may result in higher own funds in excess of the solvency capital requirements, insurance and reinsurance undertakings are expected to support the Union’s broader policy objectives, by directing additional capital towards productive investments in the real economy.

(5)

The Union faces massive financing needs to deliver on its already-agreed objectives on innovation, sustainable growth and defence (5). Directive (EU) 2025/2 has amended Directive 2009/138/EC, inter alia to ensure that the level of available capital in excess of the Solvency Capital Requirement is increased. It is important that national supervisory authorities and EIOPA monitor the use of that newly available capital considering the impact on the capital position of insurers over time. Expectations are that insurers direct excess capital to productive investments, including securitisation positions, that contribute to the funding of companies and the economy of the Union. The Commission will monitor whether such expectations are fulfilled and will assess the effectiveness of the reforms in particular as regards their impact on increasing the insurance sector participation in productive investments contributing to the funding of companies and the economy of the Union. In this context, EIOPA should regularly report to the European Commission, the European Parliament and the Council on (i) the allocation of assets, broken down by sector and geographical area; (ii) increases in distributions to shareholders, including share buy-backs, as well as variable remuneration to the administrative, management or supervisory body, key function holders or senior management, taking into account the newly available capital in excess of the Solvency Capital Requirement stemming from Directive (EU) 2025/2 and from this Regulation. The first report should be submitted by 31 December 2028.

(6)

The Commission, together with EIOPA, will assess how sustainability risks related to fossil fuel assets and activities, including transition risks currently associated with high emissions but on a trajectory towards alignment with the Paris Agreement objectives, are managed by insurance and reinsurance undertakings. Where appropriate, the Commission will consider possible amendments to ensure that these emerging risks are adequately reflected in the prudential framework, taking into account developments in the framework for credit institutions, and the report delivered by EIOPA pursuant to Article 304c(1) of Directive 2009/138/EC. The Commission will also consider, as part of the forthcoming European Climate Adaptation Plan, whether prudential rules can be more conducive to issuances of or investments in catastrophe bonds and other green bonds.

(7)

The requirement to obtain two credit assessments from nominated external credit assessment institutions (ECAIs) is in general justified by the complexity of assessing in a reliable manner the credit risk of securitisation positions. However, securitisations meeting the criteria of simplicity, transparency and standardisation (STS) are subject to a specific regulatory framework designed to ensure comparability and to reduce information asymmetries. For that reason, and to support the Union’s efforts to address unjustified administrative and compliance costs, it is appropriate to lift the double-rating requirement for STS securitisations, while maintaining it for other securitisations.

(8)

Climate change related risks are long-term in nature, non-linear and systemic, making them challenging for insurance and reinsurance undertakings to estimate solely based on past data. Directive (EU) 2025/2 introduced new requirements on the management of climate change related risks and sustainability risks more generally. In particular, Article 45a of Directive 2009/138/EC as amended by Directive (EU) 2025/2 requires undertakings to identify any material exposure to climate change risks and, where relevant, to assess the impact of long-term climate change scenarios on their business. However, when it comes to the valuation or computation of capital requirements with an internal model, insurance and reinsurance undertaking often use data from past events to inform predictions on risks materialising in the future. Data from past events may not sufficiently capture climate change related trends. Forward looking assessments, including plausible climate scenarios, may therefore be necessary to assess how the risks evolve and to mitigate possible impacts. Where an insurance or reinsurance undertaking relies too heavily on past data, its best estimate for obligations to policy holders or its internal model, where applied, may underestimate obligations or relevant risks. It is therefore necessary to require undertakings to have in place internal procedures to avoid overreliance on data from past events in relation to climate-change related trends.

(9)

The risk margin is currently calibrated conservatively. Directive (EU) 2025/2 reduces the cost-of-capital rate underlying the risk margin calculation, leading to an overall reduction in its level by approximately 21 %. Despite that amendment, the calculation formula set out in Delegated Regulation (EU) 2015/35 does not adequately reflect the natural decline of certain risks over time and may result in the double counting of such risks, including lapse and mortality. It is therefore necessary to introduce an exponential and time-dependent factor, which ensures an annual reduction of risks of at least 3,5 %. That adjustment is intended to correct the conservative bias in the current calibration, thereby reducing technical provisions of insurance and reinsurance undertakings, and, as a result, increasing the capital available to cover the Solvency Capital Requirement. However, to ensure that the risk margin continues to reflect an appropriate level of prudence and does not compromise policyholder protection, the reduction in the quantification of future risks resulting from that factor should be capped at 50 %.

(10)

Directive (EU) 2025/2 amended the method for the extrapolation of risk-free interest rates. In particular, that Directive changed the approach for identifying the starting maturity of extrapolation (‘first smoothing point’). Article 77a(1) of Directive 2009/138/EC provides that the first smoothing point should correspond to a maturity for which the volume of outstanding bonds of that or a longer maturity is sufficiently high. Article 77a(3) of that Directive further specifies that the first smoothing point for the euro should be at a maturity of 20 years on 28 January 2025. Currently, the percentage threshold for determining a sufficient volume of bonds is set at 6 % for the euro. However, due to the increase in outstanding long-maturity bonds in recent years, that threshold may no longer point to a 20-year first smoothing point going forward. In addition, EIOPA will need to decide which data source it will use for that assessment, including the publication of information pursuant to Article 77e(1a) of Directive 2009/138/EC. To avoid market disruption, it is important that the percentage threshold is in such a way that it also results in a first smoothing point of 20 years at the application date of Directive (EU) 2025/2, regardless of the data source used by EIOPA. Therefore, the currency-related threshold used for the euro to assess whether the percentage of outstanding bonds with maturities equal to or greater than the first smoothing point referred to in Article 77a of Directive 2009/138/EC is sufficiently high, should be calculated as follows. A ‘safety margin’ of 1,5 % should be applied to the minimum percentage that results in a 20-year first smoothing point on 28 January 2025, based on the data source that EIOPA will use at the application date of new rules. The obtained percentage should be rounded up to the closest half-integer or integer percentage.

(11)

The extrapolated forward rate should be equal to a weighted average between a liquid forward rate and the ultimate forward rate (UFR). Article 77a(1) of Directive 2009/138/EC provides that for maturities of at least 40 years past the first smoothing point, the weight of the UFR should be at least 77,5 %. That implies that the parameter determining the speed of the convergence of the forward rates towards the UFR of the extrapolation should not be lower than 11 %. Therefore, such value should be used. However, due to the specificities of the Swedish bond market, and as explained by EIOPA in its Opinion on the Solvency II review (6), the use of such a value for the Swedish krona, would result in a significant and unintended distortion of the risk-free interest rate term structure. To preserve the integrity of the risk-free interest term structure, a convergence parameter of 40 % should apply for that currency.

(12)

Directive (EU) 2025/2 amended the rules governing the volatility adjustment by requiring that the volatility adjustment is subject to supervisory approval and by requiring that its calculation takes into account undertaking-specific characteristics related to the spread sensitivity of assets and the interest rate sensitivity of the best estimate of technical provisions. In addition, the volatility adjustment is not to reflect the portion of the spreads that is attributable to a realistic assessment of expected losses or unexpected credit or other risk. Article 77d(3) of Directive 2009/138/EC as amended by Directive (EU) 2025/2 provides that such portion is to be calculated as percentage of the spreads, and is to decrease as spreads increase. Empirical economic studies confirm that for corporate bonds, the major part of spreads reflect genuine credit risk, in particular where spreads are at low-to-medium levels. Therefore, where spreads on corporate bonds and loans do not exceed their long-term average, the percentage applied to determine the risk correction should not be lower than 50 %.

(13)

To ensure the volatility adjustment operates in a countercyclical manner, the risk correction should not exceed an appropriate share of long-term average spreads. Where that percentage is too low, the volatility adjustment could unduly neutralise an increase in spreads stemming from genuine deterioration of the credit worthiness of bond issuers, thereby overstating the solvency position of insurance or reinsurance undertakings during periods of short-term market stress. Therefore, to ensure that the volatility adjustment effectively stabilises the solvency position of insurance or reinsurance undertakings without distorting risk sensitivity, the maximum level of the risk correction should not be set too low.

(14)

Article 70(1) Delegated Regulation (EU) 2015/35 provides that when calculating their available own funds, insurance and reinsurance undertakings are to deduct foreseeable dividends, distribution and charges from the excess of assets over liabilities. However, Delegated Regulation (EU) 2015/35 does not specify how the deduction should be made. In particular, while certain undertakings progressively accrue foreseeable dividends during the financial year, others immediately deduct the full amount of yearly foreseeable dividends. To ensure a level-playing field, insurers should use an accrual approach when determining the amount of foreseeable dividends to be deducted when calculating their available own funds.

(15)

Article 69, point (a)(i), of Delegated Regulation (EU) 2015/35 provides that paid-in ordinary shares capital and the related share premium account are eligible as tier 1 basic own-fund items where their repayment or redemption is subject to prior supervisory approval. Such a requirement may create undue administrative and regulatory burden where an insurance or reinsurance undertaking executes a share buy-back programme with the objective of immediately using the bought shares for the exercise stock options. It should therefore be specified that where the repayment or redemption of basic own fund items aims at exercising stock option rights within no more than one month from the date of the share buyback, such repayment or redemption should not be subject to prior supervisory approval.

(16)

Pursuant to Article 77b(1), point (b), of Directive 2009/138/EC, insurance and reinsurance undertakings that use the matching adjustment have to identify, organise and manage the assigned portfolio of assets and obligations separately from other parts of the business and are therefore not permitted to meet risks arising elsewhere in the business using the assigned portfolio of assets. However, the separated management of the portfolio does not result in an increase in correlation between the risks within that portfolio and those within the rest of the undertaking. Therefore, insurance and reinsurance undertakings which use the matching adjustment should not be required to calculate a distinct notional solvency capital requirement for the portfolio of assets and obligations to which the matching adjustment is applied, unless the portfolios of assets covering a corresponding best estimate of insurance or reinsurance obligations form a ring-fenced fund.

(17)

Article 84(4) of Delegated Regulation (EU) 2015/35 provides that the ‘look-through’ approach should apply to related undertakings that mainly act as investment vehicles on behalf of the participating insurance or reinsurance undertaking. However, that wording may unduly exclude related undertakings that manage assets on behalf of several undertakings within the same insurance or reinsurance group. That creates a regulatory gap and risks inconsistent application of the ‘look-through’ principle. Article 84(4) of Delegated Regulation (EU) 2015/35 should therefore be amended to specify that the ‘look-through’ approach also applies where the related investment vehicle manages assets on behalf of multiple undertakings within the group, and not only on behalf of the participating undertaking itself.

(18)

Rules governing the calculation of the counterparty default risk module, including the risk-mitigating effect of derivatives, reinsurance arrangements or insurance securitisation can prove to be very complex. Such complex calculations may not always be commensurate to the nature, scale, and complexity of the risks of an insurance or reinsurance undertaking. Therefore, to reduce compliance costs for smaller undertakings, an additional simplified calculation of the risk-mitigating effect of derivatives, reinsurance arrangements or securitisation should be introduced.

(19)

Insurance and reinsurance undertakings may opt to transfer risks using non-proportional reinsurance arrangements. However, where the standard formula is used, such type of reinsurance arrangement is not appropriately reflected as a risk-mitigation technique to reduce the Solvency Capital Requirements. It is therefore necessary to lay down that certain forms of reinsurance, in particular adverse development covers allowing to transfer reserve risk, can be recognised in a simple manner under the standard formula.

(20)

Article 164(3) of Delegated Regulation (EU) 2015/35 provides that the correlation between standard formula spread risk and interest rate risk in the interest rate downward scenario is 50 %. However, economic analysis conducted by the European Insurance and Occupational Pensions Authority (‘EIOPA’) demonstrates that such calibration is overly conservative (7). In particular, empirical data shows that the largest interest rate decreases did not occur at the same time as the largest spread widening in bond markets. Therefore, the correlation between spread risk and interest rate risk in the interest rate downward scenario should be decreased to 25 %.

(21)

Capital requirements for interest rate risk under the standard formula are calculated separately for each currency. However, for insurance and reinsurance undertakings the head office of which is in a Member State whose local currency is pegged to the euro, that approach results in disproportionately high capital requirements that do not reflect the actual economic risks. It is therefore necessary to lay down that capital requirement for interest rate risk under the standard formula may be calculated jointly for the euro and the pegged currency of the Member state in which insurance or reinsurance undertakings have their head office.

(22)

The extrapolation method used to value long-term liabilities contributes to smoothening the effect of changes in interest rates on the best estimate of insurance liabilities. The current standard formula capital requirements to interest rate risk do, however, not reflect the extrapolation of long-term interest rates. It is therefore necessary to require that stressed interest rates at maturities beyond the first smoothing point are extrapolated.

(23)

Under current rules, the standard formula interest rate risk assumes that positive interest rates cannot become negative and that negative interest rates cannot decrease further. However, historical developments in financial markets showed that such assumption may significantly underestimate exposures to interest rate risk by insurance or reinsurance undertakings. Therefore, the standard formula should be amended to appropriately reflect the risk of low or negative interest rates. That should be achieved via a recalibration of the interest rate risk sub-module to reflect the existence of a negative yield environment.

(24)

Amendments to standard formula for interest rate risk should not result in unjustified increase in capital requirements when rates are low. In particular, the calibration of downward shock should not assume interest rate levels to fall significantly below historically observed values across major currencies. Therefore, to ensure proportionality and consistency with past market behaviours, a maturity-dependent floor should be introduced to limit the extent of assumed negative interest rates, increasing with maturity to reflect the lower plausibility of extreme long-term rates.

(25)

As underlined in the Commission’s Communication on a Savings and Investment Union (8), institutional investors, such as insurance and reinsurance undertakings, are uniquely placed to invest with a long-term perspective and support the equitisation of Union firms in priority areas, including defence, research and innovation or the green and digital transitions. Encouraging equity financing is central to strengthening the Union’s economic resilience and competitiveness, notably by enabling innovative firms to access stable and patient capital. Article 105a of Directive 2009/138/EC lays down a preferential capital requirement applicable to long-term equity investments. Specifically, paragraph 1, point (d), of that Article provides that, to benefit from the preferential treatment, insurance and reinsurance undertakings should demonstrate, to the satisfaction of the supervisory authorities, that they are able to avoid forced sales of equity investments for a period of five years, on an ongoing basis and under stressed conditions. To ensure that this requirement is applied in a consistent manner, the approaches to demonstrate an undertaking’s ability to avoid forced sales of equity investments should be specified. In addition, to avoid unjustified administrative burden and to accommodate differences in the complexity of undertakings’ risk profiles, insurance and reinsurance undertakings should be allowed to select the most appropriate approach from several methods, depending on their business model and sophistication. That can increase the usability and effectiveness of the preferential treatment across diverse categories of undertakings. However, to prevent arbitrary or opportunistic switching between approaches over time, it is necessary to set out clear safeguards and supervisory monitoring requirements, ensuring consistency, transparency, and supervisory convergence, while maintaining prudent risk management and policyholder protection.

(26)

By default, where long-term equity investments are made through collective investment undertakings, the criteria set out in Article 105a(1) of Directive 2009/138/EC should be assessed at the level of each underlying asset. However, Article 105a(2) of that Directive provides that, for certain types of collective investment undertakings presenting a lower risk profile, those criteria set out in Article 105a(1) of that Directive may be assessed at the level of the fund rather than at the level of the underlying assets held within that fund. Article 168(6) of Delegated Regulation (EU) 2015/35 already identifies certain collective investment undertakings as type 1 equities, which are subject to lower risk factors for equity risk than type 2 equities. These include European Social Entrepreneurship Funds, European Venture Capital Funds, European Long-Term Investment Funds, and closed-ended alternative investment funds with no leverage. As for closed-ended alternative investment funds with no leverage, the use of derivative instruments for hedging purposes, as well as temporary borrowing arrangements that are fully covered by contractual capital commitments from investors in the alternative investment fund, are excluded from the leverage calculation. All such type 1 funds should also be considered as presenting a lower risk profile for the purposes of identifying long-term equity investments, including when they are invested in qualifying infrastructure equities or qualifying infrastructure corporate equities. Where the conditions set out in Article 105a(1) of Directive 2009/138/EC are met at the level of such funds with lower risk profile, the preferential 22 % risk factor referred to in paragraph 4 of Article 105a of that Directive should by default only apply to the equity exposures held within such funds, and not to other financial assets.

(27)

The current limits on the symmetric adjustment reduce its effectiveness in mitigating the potential pro-cyclical effects of the financial system. In particular, they may lead insurance and reinsurance undertakings to raise additional capital or sell assets in response to short-lived adverse market movements, including those triggered by geopolitical instability. In line with Directive (EU) 2025/2, Article 172 of Delegated Regulation (EU) 2015/35 should be amended to allow the symmetric adjustment to generate greater variations in the standard equity capital charge, thereby enhancing its capacity to dampen the impact of sharp market fluctuations.

(28)

In the banking sector, Article 133(5) Regulation (EU) No 575/2013 of the European Parliament and of the Council (9) allows credit institutions, under certain conditions and subject to prior supervisory approval, to apply a preferential risk weight to equity exposures acquired under specific legislative programmes. Those programmes should provide significant subsidies or guarantees, involve government oversight and impose some restrictions on the types of equity investments. To foster a cross-sectoral level playing field and to strengthen the contribution of insurance and reinsurance undertakings to equity financing of the real economy, it is appropriate to replicate the approach in the standard formula for calculating the Solvency Capital Requirements under Delegated Regulation (EU) 2015/35. Equity investments made under comparable legislative programmes, including those which support one or more economic sectors listed in the Communication on the Competitiveness Compass for the Union or in the ReArm Europe plan/Readiness 2030 (10), should be recognised as having the potential to reduce risk and may therefore justify a lower capital requirement, subject to the approval of the supervisory authority.

(29)

To ensure consistency between banking and insurance regulations, and to promote convergence in supervisory practices, legislative programmes deemed to meet the eligibility conditions under Article 133(5) of Regulation (EU) No 575/2013 should also be recognised as legislative programmes under Delegated Regulation (EU) 2015/35, based on the same criteria. The Commission may maintain a public register of such programmes for the purposes of Article 133(5) of Regulation (EU) No 575/2013, thereby enhancing transparency and predictability. Where such a register exists, the inclusion of a programme therein should constitute a presumption that such programme qualifies under the insurance framework as well.

(30)

Investments made under legislative programmes may also qualify as long-term equity investments. Therefore, it is necessary that the calculation of solvency Capital Requirements allow reflecting the combined risk-reducing features of both types of investments.

(31)

A well-functioning securitisation market provides additional funding sources to capital markets, thus improving the funding capacity of the real economy and contributing to delivering on the Savings and Investments Union. It also provides alternative investment opportunities to insurance and reinsurance undertakings, which need to diversify their portfolios to boost returns and reduce idiosyncratic risk. As institutional investors, insurance and reinsurance undertakings should therefore be fully integrated into the Union’s securitisation market.

(32)

Commission Delegated Regulation (EU) 2018/1221 (11) introduced into Delegated Regulation (EU) 2015/35 specific risk factors for spread risk of STS securitisations. However, the risk factors for senior tranches of STS securitisations remained above those applicable to corporate bonds or covered bonds with the same credit quality step. However, contrary to corporate or covered bonds, STS securitisations with a comparable credit quality are subject to specific due diligence and transparency requirements under Regulation (EU) 2017/2402 of the European Parliament and of the Council (12). Those requirements ensure that insurance or reinsurance undertakings have a better understanding and management of the risks related to STS securitisations. Therefore, to improve consistency across asset classes with comparable risk profiles, risk factors for senior tranches of STS securitisations should be further aligned with those applicable to corporate or covered bonds.

(33)

Delegated Regulation (EU) 2015/35 does not distinguish between senior tranches and non-senior tranches of non-STS securitisations. That lack of risk-sensitivity results in overestimating the spread risks underlying investments in the highest-quality tranches of non-STS securitisation. In addition, the difference in capital requirements for insurance or reinsurance undertakings between STS and non-STS securitisations is much more significant than that applicable to credit institutions. Therefore, to preserve that difference, lower risk factors should be introduced for senior tranches of non-STS securitisations.

(34)

The amounts expressed in euro in Delegated Regulation (EU) 2015/35 have not been revised since its entry into force in 2014. The cumulative inflation since then is approaching 35 %. Therefore, the amounts expressed in euro in that Regulation should be revised, by increasing the base amount in euro by the percentage change in the Harmonised Indices of Consumer Prices of all Member States as published by the Commission (Eurostat).

(35)

Article 192(4) of Delegated Regulation (EU) 2015/35 provides that where the loan-to-value on a mortgage loan does not exceed 60 %, the standard formula capital requirement for counterparty default risk is null. That treatment unduly underestimates the actual risks of such exposures, and results in an uneven playing field with the banking sector where such exposures are risk weighted. Therefore, a floor to the loss-given default on mortgage loans should be introduced.

(36)

Article 176(4) of Delegated Regulation (EU) 2015/35 sets out the risk factors applicable to loans for which a credit assessment by a nominated External Credit Assessment Institutions (ECAI) is not available and for which debtors have not posted collateral that meet the criteria set out in Article 214 of that Regulation. However, those applicable risk factors substantially underestimate the level of potential losses on default of forborne loans. It is therefore necessary to adapt those risk factors to better reflect the level of potential losses on default of forborne loans.

(37)

Central clearing counterparties (CCPs) have developed new access models which enable insurance or reinsurance undertakings to become direct clearing members while a sponsor undertaking is responsible for default fund contributions. To date, no insurance or reinsurance undertaking has decided to use those new access models. That is partly due to the prudential treatment of direct exposures to qualifying CCPs, which can be higher than the prudential treatment applicable to an insurance or reinsurance undertaking which acts as an indirect clearing member. Delegated Regulation (EU) 2015/35 does not fully reflect the risk-reducing effect of central clearing for insurance or reinsurance undertakings. To address that issue and to remove obstacles to the participation of insurance or reinsurance undertakings as direct clearing members, capital requirements for direct exposures to qualifying CCP should be lowered and aligned with those of indirect exposures.

(38)

Insurance and reinsurance undertakings may decide to use repurchase transactions, or securities lending or borrowing transactions, to manage liquidity or to increase asset returns. However, the capital requirements associated with such transactions are currently treated too conservatively, as they are classified as type 2 exposures for the calculation of capital requirements under the counterparty default risk module. Therefore, Delegated Regulation (EU) 2015/35 should be amended to reclassify those transactions as type 1 exposures. In addition, the Commission will assess, in coordination with EIOPA, whether and how to reflect in capital requirements for counterparty default risk the risk-mitigating effect of central clearing through qualifying CCPs.

(39)

In some cases, insurance and reinsurance undertakings can significantly reduce their Solvency Capital Requirement by using risk mitigation techniques, including reinsurance, but those risk mitigation techniques do not always result in a significant transfer of risk. In particular, some reinsurance agreements are designed to cover only the extreme scenarios modelled in the standard formula, while offering little or no protection against more moderate but more likely events. Therefore, to ensure that the risk profile of insurance and reinsurance undertakings is more accurately assessed, it should be specified that the reduction in the Solvency Capital Requirement resulting from the use of risk mitigation techniques is to be commensurate with the amount of risks effectively transferred.

(40)

To ensure that risk-mitigation techniques that are recognised in the standard formula calculation of the Solvency Capital Requirement do not include material basis risk, insurance and reinsurance undertakings should assess the effective performance of the risk mitigation under a comprehensive set of risk scenarios that are relevant for the risk-mitigation technique considered. For proportional reinsurance, effective performance should be shown by a close mirroring in all scenarios. For non-proportional reinsurance, the assessment should focus on scenarios featuring losses between attachment and detachment points and should observe a close mirroring of those losses.

(41)

Article 275(2), point (c), of Delegated Regulation provides that the payment of a substantial portion of the variable remuneration component to staff whose professional activities have a material impact on the undertaking’s risk profile should be subject to deferral. However, the cost of applying such a requirement may exceed its prudential benefits in cases where a member of that category of staff has a low level of variable remuneration, as such remuneration levels are unlikely to create incentives for excessive risk-taking. Therefore, in such cases, the requirement on deferral set out in Article 275(2), point (c), of Delegated Regulation should not apply.

(42)

Directive 2009/138/EC requires the regular disclosure of essential information through the solvency and financial condition report. That report is targeted at policy holders and beneficiaries on the one hand, and analysts and other market professionals on the other hand. To address the needs and the expectations of those two different groups, Directive (EU) 2025/2 amending Directive 2009/138/EC requires that the content of the report should be divided into two parts, clearly identified but disclosed jointly. The first part, addressed mainly to policy holders and beneficiaries, should contain the key information on business, performance, capital management and risk profile. The second part, addressed to market professionals, should contain detailed information on the business and on the system of governance, specific information on technical provisions and other liabilities, the solvency position as well as other data relevant for specialised analysts. Therefore, Delegated Regulation (EU) 2015/35 should be amended to reflect that new structure and content.

(43)

Certain information to be included in the part of the solvency and financial condition report targeted at market professionals may already be publicly available in other reports published by insurance or reinsurance undertakings. Where that is the case, insurance and reinsurance undertakings should not be required to duplicate that information in their solvency and financial condition report, but should instead be allowed to provide direct references, including through internet links, to the relevant section or page of the other report. To ensure accessibility over time, insurance or reinsurance undertakings should ensure that such links remain functional for a minimum of five years, even where website structures or document locations change.

(44)

The part of the solvency and financial condition report targeted at policy holders and beneficiaries should be concise, accessible and easily understandable by a layperson. To achieve that objective, it should only contain simple information focused on the needs of targeted policy holders and beneficiaries, and it should not exceed five pages in length.

(45)

To ensure that policy holders and beneficiaries can understand the part of the solvency and financial condition report targeted at them, that part should be made available in the languages used by the insurance or reinsurance undertaking in its operations under the freedom of establishment or the freedom to provide services. However, to avoid excessive administrative and legal costs, undertakings should not be required to obtain certified translations of that part.

(46)

Pursuant to Directive 2009/138/EC, supervisory authorities are entitled to receive from each supervised insurance and reinsurance undertaking and their groups, at least every three years, a regular narrative report with information on the business and performance, system of governance, risk profile, capital management and other relevant information for solvency purposes. The requirements regarding narrative information to be included in the regular supervisory report may however overlap with information already provided in quantitative reporting templates or in the Own Risk and Solvency Assessment (ORSA) report. That duplication increases reporting costs without clear added value for supervision. The requirements for narrative information to be included in the regular supervisory report should therefore be limited to what is necessary for prudential supervision.

(47)

As part of its efforts to make the economy of the Union more competitive, the Commission aims to deliver an unprecedented simplification effort. Against that background, the review of Delegated Regulation (EU) 2015/35 should aim to achieve the objectives of Directive (EU) 2025/2 in the simplest, most targeted, most effective and least burdensome way. In particular, amendments to that Regulation should contribute to the targets for burden reduction, including reporting burden.

(48)

Article 330(4) of Delegated Regulation (EU) 2015/35 provides that any minority interest in a subsidiary exceeding the contribution of that subsidiary to the group Solvency Capital Requirement, where the subsidiary is an insurance or reinsurance undertaking, a third country insurance or reinsurance undertaking, an insurance holding company or a mixed financial holding company, should be considered unavailable. Actually, minority interests represent one of the main sources of deductions from group own funds. However, that Delegated Regulation does not set out how such minority interests should be calculated. That results in inconsistent approaches by groups across the Union and raises level playing field issues. It is therefore necessary to lay down rules governing the calculation of minority interests for solvency purposes.

(49)

Insurance prudential rules can prove to be very complex, and may generate significant compliance costs, in particular for smaller undertakings. While Directive 2009/138/EC embeds an overarching principle of proportionality, its practical implementation is insufficient to effectively reduce the regulatory burden for smaller undertakings, for whom certain requirements may be disproportionately costly and complex given the nature, scale and complexity of their risks. In addition to the new proportionality framework applicable for undertakings classified as small and non-complex, Directive (EU) 2025/2 introduced Article 29d into Directive 2009/138/EC, allowing insurance and reinsurance undertakings to benefit from the application of proportionality measures, subject to prior supervisory approval and a case-by-case analysis. To ensure a level-playing field and predictability for the sector, the conditions based on which a supervisory authority may refuse to grant that approval should be exhaustively specified.

(50)

Directive (EU) 2025/2 introduced several changes and clarifications to the rules governing the calculation of the solvency position of insurance groups, including with regard to own funds and solvency capital requirements. In particular, it clarifies that insurance holding companies and mixed financial holding companies are to be treated as insurance or reinsurance undertakings for the sole purposes of group solvency calculations. That entails the calculation of notional capital requirements for such entities under both method 1, including in the context of the assessment of the availability of own funds, and method 2. Delegated Regulation (EU) 2015/35 should therefore be amended to reflect those changes to Directive 2009/138/EC.

(51)

For own fund items issued by a related undertaking to qualify as group own funds, they are to satisfy the requirements set out in Articles 71, 73, and 77 of Delegated Regulation (EU) 2015/35, with the reference to the ‘Solvency Capital Requirement’ in those Articles interpreted as applying to both the Solvency Capital Requirement of the issuing related undertaking and the group Solvency Capital Requirement. In the context of mergers and acquisitions, that requirement may prevent recognition of own fund instruments issued by an undertaking before it became part of the acquiring group, even where those instruments continue to meet all relevant prudential standards at the level of the undertaking itself. Such a limitation can create disproportionate capital costs associated with external growth, ultimately impairing the international competitiveness of Union insurance and reinsurance groups. To address that issue, it should be allowed, on a transitional and time-limited basis, to recognise such own fund items as non-available group own funds following the acquisition of the issuing undertaking.

(52)

While prudential consolidation serves different objectives than accounting consolidation, excessive divergence between the two frameworks may impose an undue regulatory burden on insurance and reinsurance groups. In particular, the current treatment of joint operations and joint ventures under Delegated Regulation (EU) 2015/35 deviates from international accounting standards by requiring proportional consolidation of undertakings that would otherwise be treated under the equity method, and conversely requiring the application of an equity method for undertakings that would otherwise be subject to proportional consolidation. That inconsistency increases reporting costs, creates operational inefficiencies, and may discourage legitimate business structures. Greater consistency with international accounting consolidation rules in the treatment of joint arrangements should therefore be achieved, provided that such alignment does not compromise policy holder protection or financial stability.

(53)

For an equity portfolio to be treated as long-term equity, insurance or reinsurance undertakings are to demonstrate that they fulfil the conditions set out in Article 105a(1) of Directive 2009/138/EC. Where such an undertaking belongs to a group, it would be too burdensome for that group to reassess the conditions for long-term equity at group level. Therefore, unless there are significant group-wide liquidity risks not captured at the level of individual undertakings or significant intragroup transactions, equity investments which are treated as long-term equities by an insurance or reinsurance undertaking should also be treated as such when calculating the solvency capital requirement of the group to which that undertaking belongs.

(54)

Directive 2009/138/EC provides for the possibility for insurance and reinsurance groups to calculate their Solvency Capital Requirement with a full or partial internal model subject to prior supervisory approval. Any integration technique of a partial internal model into the standard formula to calculate the group Solvency Capital Requirement is part of that internal model and is to, together with the other components of the partial internal model, to comply with the relevant requirements of Directive 2009/138/EC. The integration techniques set out in Annex XVIII to Delegated Regulation (EU) 2015/35 are primarily designed for the integration of risks and not for the integration of entire undertakings within an internal model at group level. Therefore, it should be specified that in cases where undertakings are integrated as a whole, Article 239(4) of that Regulation applies.

(55)

Delegated Regulation (EU) 2015/35 does not specify under which conditions the use of ‘method 2’, as referred to in Article 233 of Directive 2009/138/EC, is to take precedence over integration techniques. To address that gap, insurance and reinsurance groups should demonstrate the appropriateness of the integration techniques they apply and should justify to the satisfaction of their supervisory authority why those integration techniques are more suitable than the application of method 2.

(56)

Natural disasters and extreme weather events are increasing across the world due to climate change, and so are the losses related to them. To ensure the continued protection of policy holders and the overall stability of the Union insurance sector amid more erratic and damaging weather patterns, it is important that insurers’ capital requirements for natural catastrophe underwriting risk adequately reflect the impact of natural catastrophe events. In view of the new available data and models, risk factors for several regions across natural hazards such as floods, windstorms, hail, earthquakes and subsidence should be amended.

(57)

Directive (EU) 2025/2 introduces new prerogatives and powers for supervisory authorities to grant proportionality measures or to waive group supervision as a result of excluding an undertaking from group supervision in accordance with Article 214 of Directive 2009/138/EC. It is important for the sector and the wider audience to know whether and how those new powers and prerogatives have been used in practice. Therefore, the aggregated statistical data which national supervisory authorities should be disclosed on key aspects of the application of the prudential framework should be extended to cover those new areas.

(58)

Delegated Regulation (EU) 2015/35 should therefore be amended accordingly,

(1)

Article 1 is amended as follows:

(2)

Article 6 is replaced by the following:

(3)

in Article 16(1), the following subparagraph is added:

‘By way of derogation from the first subparagraph, insurance and reinsurance undertakings that are classified as small and non-complex undertakings may value short-term deposits with maturities of less than 1 year at cost or amortised cost provided that the use of such valuation methods meets one of the following conditions:

(4)

in Article 18(3), the third subparagraph is replaced by the following:

‘However, in the case of life insurance obligations where an individual risk assessment of the obligations relating to the insured person of the contract is carried out at the inception of the contract and the undertaking does not have the right to repeat the assessment before amending the premiums or benefits, insurance and reinsurance undertakings shall only take into account the right to assess at the level of the contract whether the premiums fully reflect the risk for the purposes of point (c).’;

(5)

in Article 20, the following subparagraph is added:

‘Insurance and reinsurance undertakings shall put in place internal procedures to avoid overreliance on data from past events with respect to climate change-related trends, including, where appropriate, by using climate scenarios.’;

(6)

in Article 31, paragraph 4 is replaced by the following:

(7)

the following Article 34a is inserted:

(8)

in Article 37(1), in the first subparagraph, the formula is replaced by the following:

‘

(9)

Article 39 is replaced by the following:

(10)

Article 43 is amended as follows:

(11)

the following Article 43a is inserted:

(12)

Article 44 is replaced by the following:

(13)

in Article 45, the first sentence is replaced by the following:

‘Where an adjustment for credit risk is applied pursuant to Article 44(1), the adjustment shall be determined in a transparent, prudent, reliable and objective manner that is consistent over time.’;

(14)

Article 46 is amended as follows:

(b)

the following paragraphs 1a, 1b and1c are inserted: ‘1a.   The extrapolated relevant risk-free interest rates for a currency shall be equal to the following: where: (a) FSP denotes the first smoothing point as referred to in Article 77a(1) of Directive 2009/138/EC; (b) h denotes the number of years exceeding the first smoothing point; (c) r FSP denotes the annualised discretely compounded relevant risk-free interest rate at a maturity equal to the first smoothing point; (d) denotes the annualised discretely compounded relevant risk-free interest rate at a maturity equal to the sum of the first smoothing point and h; (e) f h denotes the annualised continuously compounded forward rate calculated in accordance with paragraph 1b; (f) exp( ) denotes the exponential function. 1b.   For the purposes of paragraph 1a, point (e), the forward rate fh shall be equal to the following: where: (a) UFR denotes the ultimate forward rate referred to in Article 47; (b) LLFR denotes the last liquid forward rate determined in accordance with paragraph 1c; (c) α denotes the parameter determining the speed of the convergence towards the ultimate forward rate UFR; (d) ln( ) denotes the natural logarithm; (e) exp( ) denotes the exponential function. The parameter α referred to in point (c) of the first subparagraph shall be equal to 40 % for the Swedish Krona and 11 % for other currencies. 1c.   For the purposes of paragraph 1b, the last liquid forward rate for a currency as referred to in point (b) of that paragraph shall be a weighted average of the following forward rates: (a) the annualised continuously compounded forward rate derived from the basic risk-free interest rate term structure for the period up to the first smoothing point and beginning at the closest shorter maturity where the basic risk-free interest rate term structure is derived on the basis of interest rate swap rates or government bonds; (b) the annualised continuously compounded forward rate derived from the basic risk-free interest rate term structure and risk-adjusted interest rate swap rates or, as applicable, government bond rates for the periods from the first smoothing point to the maturities after the first smoothing point where interest rate swap rates or, as applicable, government bond rates are available from deep, liquid and transparent financial markets. For the calculation of the weighted average referred to in the first subparagraph, the relevant annualised continuously compounded forward rates shall be weighted by the average notional amount of traded contracts of the interest rate swaps of the relevant maturity. For currencies where no interest rate swap rates are available from deep, liquid and transparent financial markets for maturities after the first smoothing point, the last liquid forward rate shall be equal to the annualised continuously compounded forward rate determined in accordance with point (a) of the first sub-paragraph. Notwithstanding the first subparagraph, where an insurance or reinsurance undertaking applies the volatility adjustment to calculate the weighted average referred to in the first paragraph, the volatility adjustment shall be added to the annualised continuously compounded forward rate referred to in point (a) of that subparagraph.’ ;

(15)

the following Article 46a is inserted:

(16)

in Article 47(1), the first sentence is replaced by the following:

‘For each currency, the ultimate forward rate referred to in Article 46(1b), point (a) shall be stable over time and shall only change as a result of changes in long-term expectations.’;

(17)

in Article 49, paragraph 1 is replaced by the following:

(18)

Articles 50 and 51 are replaced by the following:

Article 51

Risk-corrected spread

1.   For the purposes of Article 77d(3) and (4) of Directive 2009/138/EC, the portion of the average currency spread that is attributable to a realistic assessment of expected losses, unexpected credit risk or any other risk (“risk correction”) shall be calculated in accordance with paragraphs 2 to 4 of this Article.

2.   The risk correction on government bonds issued by Member States of the EEA shall be equal to the following:

RC = 30 %

min(S+; LTAS+) + 20 %

max {0; min(S+ – LTAS+; LTAS+)} + 15 % 

 max(0; S+ – 2 

 LTAS+)

where:

(a)	S + denotes the maximum of zero and the average spread of government bonds issued by Member States of the European Economic Area of the same duration, credit quality and asset class in the representative portfolio, as observed in financial markets;

(b)	LTAS + denotes the maximum of 0 and the long-term average spread of government bonds issued by Member States of the European Economic Area of the same duration, credit quality and asset class in the representative portfolio, as observed in financial markets.

Without prejudice to the first subparagraph, the risk correction on government bonds issued by Member States of the European Economic Area shall never exceed the maximum of zero and 65 % of the long-term average spread of government bonds issued by Member States of the European Economic Area of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets.

3.   The risk correction on bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations in the representative portfolio, shall be equal to the following:

RC = 50 %

min(S+; LTAS+) + 40 %

max {0; min(S+ – LTAS+, LTAS+)} + 30 % 

 max(0; S+ – 2 

 LTAS+)

where:

(a)	S + denotes the maximum of zero and the average spread of bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets;

(b)

LTAS + denotes the maximum of 0 and the long-term average spread of bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets.

Without prejudice to the first subparagraph, the risk correction on bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class shall never exceed the maximum of zero and 125 % of the long-term average spread of bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets.

4.   The long-term average spreads referred to in paragraph 2, point (b), and paragraph 3, point (b), shall be based on data relating to the last 30 years. Where a part of those data is not available, that part shall be replaced by constructed data. The constructed data shall be based on the available and reliable data relating to the last 30 years. Data that are not reliable shall be replaced by constructed data using that methodology. The constructed data shall be based on prudent assumptions.’

(19)

the following Articles 51a and 51b are inserted:

‘Article 51a

Credit spread sensitivity ratio

1.   For each currency, the credit spread sensitivity ratio referred to in Article 77d, paragraph (3), point (b), and paragraph (4), point (b), shall be equal to the following:

CSSR = max [min (

; 1); 0]

where:

(a)	CSSR denotes the credit spread sensitivity ratio of the insurance or reinsurance undertaking for a currency;

(b)	PVBP(MVFI) denotes the price value of a basis point of the value of the investments in bonds, loans and securitisations of the insurance or reinsurance undertaking, calculated in accordance with paragraph 2;

(c)	PVBP(BEL) denotes the price value of a basis point of the value of the best estimate of liabilities of the insurance or reinsurance undertaking, calculated in accordance with paragraph 3.

By way of derogation from the first subparagraph, where PBVP(BEL) for a given currency is equal to 0 or is negative, the credit spread sensitivity ratio for that currency shall be equal to 1.

2.   For each currency, the price value of a basis point of the investments in bonds, loans and securitisations of an insurance or reinsurance undertaking shall be equal to the following:

PVBP(MVFI) =

where:

(a)	MV FI denotes the value of the investments in bonds, loans and securitisations of the insurance or reinsurance undertaking denominated in the given currency;

(b)	VA* denotes the notional volatility adjustment, calculated in accordance with Article 77d(3) of Directive 2009/138/EC, under the assumption that the credit spread sensitivity ratio is equal to 1;

(c)

MVFI* denotes the value of investments in bonds, loans and securitisations of the insurance or reinsurance undertaking denominated in the given currency, under the assumption that for each asset the spread increases by an amount equal to the value of the notional volatility adjustment for all maturities.

For the purposes of points (a) and (c), in relation to unit-linked business, the insurance or reinsurance undertaking shall exclude fixed income investments which give rise to no or immaterial credit spread risk exposure for the undertaking.

3.   For each currency, the price value of a basis point of the best estimate of liabilities of an insurance or reinsurance undertaking shall be equal to the following:

PVBP(BEL) =

where:

(a)	BEL denotes the value of the best estimate of liabilities of the insurance or reinsurance undertaking denominated in the given currency without a volatility adjustment, where the value is determined in accordance with Article 75 of Directive 2009/138/EC;

(b)	VA* denotes the notional volatility adjustment, calculated in accordance with Article 77d(3) of Directive 2009/138/EC, under the assumption that the credit spread sensitivity ratio is equal to 1;

(c)

BEL* denotes the value of the best estimate of liabilities of the insurance or reinsurance undertaking denominated in the given currency, where the value is determined in accordance with Article 75 of Directive 2009/138/EC, under the assumption that the notional volatility adjustment is applied to the relevant risk-free interest rate term structure.

For the purposes of point (c), the best estimate shall be revaluated, taking into account the effect of future discretionary benefits. However, for that revaluation, no impact of a change in credit spreads on the value of assets held by the undertaking shall be taken into account.

4.   Where the credit spread sensitivity ratio for a given currency was most recently calculated less than one year before the reference date for valuing the best estimate of liabilities, insurance and reinsurance undertakings shall not be required to recalculate the ratio, provided that they are able to demonstrate to the satisfaction of their supervisory authority that the ratio has not materially changed.

Article 51b

Credit spread sensitivity ratio for pegged currencies

1.   By way of derogation from Article 51a, where the domestic currency of a Member State is pegged to the euro, and the basic risk-free interest rate term structure for the euro, adjusted for currency risk, is used to calculate the best estimate with respect to insurance or reinsurance obligations denoted in that currency in accordance with Article 48(1), insurance and reinsurance undertakings may calculate one single credit spread sensitivity ratio for the euro and that currency. In that case, the credit spread sensitivity ratio shall be equal to the following:

CSSReuro, pegged currency = max [min (

; 1); 0]

where:

(a)	CSSReuro, pegged currency denotes the credit spread sensitivity ratio of the insurance or reinsurance undertaking for both the euro and the pegged currency;

(b)	PVBP(MVFI) denotes the price value of a basis point of the value of the investments in bonds, loans and securitisations of the insurance or reinsurance undertaking denominated in both the euro and the pegged currency, calculated in accordance with paragraph 2;

(c)	PVBP(BEL) denotes the price value of a basis point of the value of the best estimate of liabilities of the insurance or reinsurance undertaking, denominated in both the euro and the pegged currency, calculated in accordance with paragraph 3.

By way of derogation from the first subparagraph, where PBVP(BEL) for a given currency pegged to the euro is equal to 0 or is negative, the credit spread sensitivity ratio for that currency pegged to the euro shall be equal to 1.

2.   For both the euro and the pegged currency considered jointly, the price value of a basis point of the investments in bonds, loans and securitisations of an insurance or reinsurance undertaking shall be equal to the following:

PVBP(MVFI) =

where:

(a)	MV FI denotes the value of the investments in bonds, loans and securitisations of the insurance or reinsurance undertaking denominated in both the euro and the pegged currency, where the value is determined in accordance with Article 75 of Directive 2009/138/EC;

(b)	VA* denotes the maximum of the notional volatility adjustment for the euro and the notional volatility adjustment for the pegged currency, calculated in accordance with Article 77d(3) of Directive 2009/138/EC, under the assumption that the credit spread sensitivity ratio is equal to 1;

(c)

MVFI* denotes the value of investments in bonds, loans and securitisations of the insurance or reinsurance undertaking denominated in both the euro and the pegged currency, where the value is determined in accordance with Article 75 of Directive 2009/138/EC, under the assumption that for each asset the spread increases by an amount equal to the value of the notional volatility adjustment for all maturities.

For the purposes of points (a) and (c), in relation to unit-linked business, the insurance or reinsurance undertaking shall exclude fixed income investments which give rise to no or immaterial credit spread risk exposure for the undertaking.

3.   For both the euro and the pegged currency considered jointly, the price value of a basis point of the best estimate of liabilities of an insurance or reinsurance undertaking shall be equal to the following:

PVBP(BEL) =

where:

(a)

BEL denotes the sum of the value of the best estimate of liabilities of the insurance or reinsurance undertaking denominated in euro without a volatility adjustment and the value of the best estimate of liabilities denoted in the pegged currency without a volatility adjustment, and for which the basic risk-free rate term structure for the euro, adjusted for currency risk, is used in accordance with Article 48(1) of this Regulation, where both values are determined in accordance with Article 75 of Directive 2009/138/EC;

(b)	VA* denotes the maximum of the notional volatility adjustment for the euro and the notional volatility adjustment for the pegged currency, calculated in accordance with Article 77d(3) of Directive 2009/138/EC, under the assumption that the credit spread sensitivity ratio is equal to 1;

(c)

BEL* denotes the sum of the value of the best estimate of liabilities of the insurance or reinsurance undertaking denominated in euro, and the value of the best estimate of liabilities denominated in the pegged currency and for which the basic risk free rate term structure for the euro, adjusted for currency risk, is used in accordance with Article 48(1), where both values are determined in accordance with Article 75 of Directive 2009/138/EC, under the assumption that the notional volatility adjustment is applied to the relevant risk-free interest rate term structures.

For the purposes of point (c), a revaluation of the best estimate shall be performed, taking into account the effect of future discretionary benefits. However, for that revaluation, no impact of a change in credit spreads on the value of assets held by the undertaking shall be taken into account.

4.   Where the credit spread sensitivity ratio for a given currency was most recently calculated less than one year before the reference date for valuing the best estimate of liabilities, insurance and reinsurance undertakings shall not be required to recalculate the ratio, provided that they are able to demonstrate to the satisfaction of their supervisory authority that the ratio is not materially changed.’

(20)

the following Article 54a is inserted:

(21)

in Article 68, paragraph 3 is replaced by the following:

(22)

in Article 70(1), point (e), point (i) is replaced by the following:

(23)

the following Articles 70a and 70b are inserted:

(24)

Article 81 is amended as follows:

(25)

in Article 84, paragraph 4, the first subparagraph is amended as follows:

(26)

the following Article 89a is inserted:

‘Article 89a

Simplified calculation for immaterial risk module or sub-module

1.   To assess whether one or several risk modules or sub-modules meet the conditions set out in Article 109(2) and (3) of Directive 2009/138/EC, insurance and reinsurance undertakings shall calculate each of such modules or sub-modules separately.

For the purposes of the first subparagraph, insurance and reinsurance undertakings may use a simplified calculation, provided that they comply with Article 88 and 89 of this Regulation, but not for the market risk module or any risk sub-module within that risk module.

2.   Where one or several risk modules or sub-modules, other than the market risk module or any risk sub-module within the market risk module, meet the conditions set out in Article 109(2) and (3) of Directive 2009/138/EC, the value of each of such risk modules or sub-modules may be calculated, for each reference date no later than three years from the reference date of the calculation referred to in paragraph 1 of this Article, as follows:

where:

(a)	denotes the solvency capital requirement for a given risk-module or sub-module k which meets the conditions set out in Article 109(2) of Directive 2009/138/EC, at the reference date t;

(b)	denotes the outcome of the calculation of the risk-module or sub-module k, referred to in paragraph 1;

(c)	denotes the undertaking-specific volume measure for the risk module or sub-module k, at the reference date t;

(d)	f k denotes the risk factor for the risk module or sub-module k, calculated in accordance with paragraph 3.

For the purposes of the first subparagraph, point (c), the insurance or reinsurance undertaking shall justify, to the satisfaction of the supervisory authority, the appropriateness of the undertaking-specific volume measure used.

3.   The risk factor referred to in paragraph 2, first subparagraph, point (d), shall be calculated as follows:

where

denotes the undertaking-specific volume measure for the risk module or sub-module k, at the reference date of the calculation of paragraph 1.’

(27)

in Article 90b, the following paragraph 6 is added:

(28)

the following Article 107a is inserted:

‘Article 107a

Simplified calculation of the risk mitigating effect for reinsurance arrangements, derivatives, or securitisations

1.   Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the risk-mitigating effect on underwriting and market risk of a reinsurance arrangement, securitisation or derivative referred to in Article 196 with an external counterparty i as follows:

where:

(a)	denotes the sum of the absolute values of the exposures at default of the reinsurance arrangement, special purpose vehicle, securitisation and derivative towards each external counterparty CE;

(b)	denotes the absolute value of the exposure at default of the reinsurance arrangement, special purpose vehicle, securitisation and derivative towards the external counterparty i;

(c)	RMtotal denotes the total risk-mitigating effect calculated in accordance with paragraph 3;

(d)	the sum covers all counterparty exposures.

2.   For the purposes of paragraph 1, points (a) and (b), the value of the exposure at default of a reinsurance arrangement and securitisation towards a counterparty shall be the value of the best estimate of the amounts recoverable from the reinsurance arrangement and securitisation towards that counterparty.

3.   For the purposes of paragraph 1, point (c), the total risk mitigating effect shall be equal to the difference between the following capital requirements:

(a)

the hypothetical basic solvency capital requirement under the assumptions that the counterparty default risk module is equal to 0 and that the reinsurance arrangement, special purpose vehicle, securitisation or derivative included in the scope of the simplified calculation referred to in paragraph 1 did not exist;

(b)	the hypothetical basic solvency capital requirement under the assumptions that the counterparty default risk module is equal to 0.’

(29)

Article 117 is amended as follows:

(c)

the following paragraphs 4 and 5 are added: ‘4.   For all segments set out in Annex II, the standard deviation for non-life reserve risk of a particular segment shall be equal to the product of the standard deviation for non-life gross reserve risk of the segment set out in Annex II and the adjustment factor for non-proportional reinsurance, where such non-proportional reinsurance is in place for that particular segment, or a factor of 100 % in other cases. Where the non-proportional reinsurance is an adverse development cover that meets the conditions set out in the third subparagraph, the adjustment factor for non-proportional reinsurance referred to in the first subparagraph shall be equal to the following: Adjust(NP,s) = max(0 ; ) where: (a) V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover; (b) denotes the standard deviation for non-life reserve risk of segment s as set out in Annex II; (c) ADC(rec,s) denotes the adverse development cover recovery under the reserve risk scenario; (d) Par denotes the maximum of the additional reinsurance premium, or the equivalent thereof, and zero; (e) C denotes the cession to the reinsurer, expressed as percentage of the claim amounts between attachment and detachment points that the reinsurance covers; (f) Pr denotes the prudency factor, which shall be equal to 100 %. The adverse development covers referred to in the second subparagraph shall meet the following conditions: (a) each adverse development cover is only applied to one specific group of policies with the same risk characteristics within the same segment, and has a separate and distinct attachment and detachment point; (b) the attachment point referred to in point (a) does not exceed the product of V(net,res,s) referred to in point (a) of the second subparagraph and the sum of 1 and σ(res,s, annex) referred to in point (b) of that subparagraph. For non-proportional reinsurance other than those referred to in the second subparagraph, the adjustment factor shall be 100 %. 5.   The adverse development cover recovery referred to in paragraph 4, second subparagraph, point (c) shall be equal to the following: ADC(rec,s) = min [ · (1 + 3 · σ(res,s,annex)) – R(ap); R(cs)] where: (a) V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover; (b) σ(res,s,annex) denotes the standard deviation for non-life reserve risk of segment s as set out in Annex II; (c) R(ap) denotes the reinsurance structure attachment point; (d) R(cs) denotes the size of the adverse development cover that is available to the insurance or reinsurance undertaking.’ ;

(30)

in Article 120, the following paragraph 1a is inserted:

(31)

in Article 123(7), the formula is replaced by the following:

‘ SI(flood,r,i) = SI(property,r,i) + SI(onshore-property, r,i) + 1,5

(32)

in Article 124(7), the formula is replaced by the following:

‘ SI(hail,r,i) = SI(property,r,i) + SI(onshore-property, r,i) + 10

(33)

Article 125 is replaced by the following:

‘Article 125

Subsidence risk sub-module

1.   The capital requirement for subsidence risk shall be equal to the following:

where:

(a)	the sum includes all possible combinations (r,s) of the regions set out in Annex VIIIa;

(b)	CorrS(r,s) denotes the correlation coefficient for subsidence risk for region r and region s as set out in Annex VIIIa;

(c)	SCR(subsidence,r) and SCR(subsidence,s) denote the capital requirements for subsidence risk in region r and s respectively;

(d)	SCR(subsidence, other) denotes the capital requirement for subsidence risk in regions other than those set out in Annex XIII.

2.   For all regions set out in Annex VIIIa, the capital requirement for subsidence risk in a particular region r shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is equal to the following:

where:

(a)	the sum includes all possible combinations of risk zones (i,j) of region r set out in Annex IX;

(b)	Corr(subsidence,r,i,j) denotes the correlation coefficient for subsidence risk in risk zones i and j of region r set out in Annex XXVI;

(c)	WSI(subsidence,r,i) and WSI(subsidence,r,j) denote the weighted sums insured for subsidence risk in risk zones i and j of region r set out in Annex IX.

3.   For all regions set out in Annex VIIIa and all risk zones of those regions set out in Annex IX, the weighted sum insured for subsidence risk in a particular risk zone i of a particular region r shall be equal to the following:

WSI(subsidence,i) = Q(subsidence,r) · W(subsidence,r,i) · SI(subsidence,r,i)

where:

(a)	W(subsidence,r,i) denotes the risk weight for subsidence risk in risk zone i of region r set out in Annex X;

(b)	SI(subsidence,r,i) denotes the sum insured of the insurance or reinsurance undertaking for lines of business 7 and 19 as set out in Annex I in relation to contracts that cover subsidence risk of residential buildings in subsidence zone i of region r;

(c)	Q(subsidence,r) denotes the subsidence risk factor for region r as set out in Annex VIIIa.

Where the amount determined for a particular risk zone in accordance with the first subparagraph exceeds an amount (referred to in this subparagraph as “the lower amount”) equal to the sum of the potential losses, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, that the insurance or reinsurance undertaking could suffer for subsidence risk in that risk zone, taking into account the terms and conditions of its specific policies, including any contractual payment limits, the insurance or reinsurance undertaking may, as an alternative calculation, determine the weighted sum insured for subsidence risk in that risk zone as the lower amount.’

(34)

Article 129(1) is amended as follows:

(a)	the formula is replaced by the following: ‘ Lmotor = max (8 100 000; 67 500 ’;

(35)

Article 130 is amended as follows:

(36)

in Article 131, the following subparagraph is added:

‘For the calculation of the hypothetical capital requirement referred to in Article 196(a), the identification of the set of aircrafts corresponding to the largest sum insured in accordance with this Article shall take into account the existence of reinsurance arrangements, special purpose vehicles and securitisations.’;

(37)

in Article 132, the following paragraph 4 is added:

(38)

in Article 142(6), the second subparagraph is replaced by the following:

‘The events referred to in the first subparagraph shall apply uniformly to all insurance and reinsurance contracts concerned. In relation to reinsurance contracts, the event referred to in points (a) and (b) of the first subparagraph shall apply to the underlying insurance contracts.’;

(39)

Article 148 is amended as follows:

(c)

the following paragraphs 4 and 5 are added: ‘4.   For all segments set out in Annex XIV, the standard deviation for NSLT reserve risk of a particular segment shall be equal to the product of the standard deviation for NSLT gross reserve risk of the segment set out in Annex XIV and the adjustment factor for non-proportional reinsurance, where such non-proportional reinsurance is in place for that particular segment, or a factor of 100 % in other cases. Where the non-proportional reinsurance is an adverse development cover that meets the conditions set out in the fourth subparagraph, the adjustment factor for non-proportional reinsurance referred to in the first subparagraph shall be equal to the following: Adjust(NP,s) = max (0; ) where: (a) V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment net of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover; (b) denotes the standard deviation for NSLT health reserve risk of segment s as set out in Annex XIV; (c) ADC(rec,s) denotes the adverse development cover recovery under the reserve risk scenario; (d) Par denotes the maximum of the additional reinsurance premium, or the equivalent thereof, and zero; (e) C denotes the cession to the reinsurer, expressed as percentage of the claim amounts between attachment and detachment points that the reinsurance covers; (f) Pr denotes the prudency factor, which shall be equal to 100 %. The adverse development covers referred to in the second subparagraph shall meet the following conditions: (a) each adverse development cover is only applied to one specific group of policies with the same risk characteristics within the same segment, and has a separate and distinct attachment and detachment point; (b) the attachment point referred to in point (a) does not exceed the product of V(net,res,s) referred to in the second subparagraph, point (a), and the sum of 1 and σ(res,s,annex) referred to in point (b) of that subparagraph. For non-proportional reinsurance other than those referred to in the second subparagraph, the adjustment factor shall be 100 %. 5.   The adverse development cover recovery referred to in paragraph 4, second subparagraph, point (c) shall be equal to the following: ADC(rec,s) = min[ · (1 + 3 · σ(res,s,annex)) – R(ap); R(cs)] where: (a) V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment net of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover; (b) R(ap) denotes the reinsurance structure attachment point; (c) R(cs) denotes the size of the adverse development cover that is available to the insurance or reinsurance undertaking; (d) denotes the standard deviation for NSLT health reserve risk of segment s as set out in Annex XIV.’ ;

(40)

Article 157 is replaced by the following:

(41)

in Article 164, paragraph 3 is replaced by the following:

(42)

in Article 165, paragraph 1 is replaced by the following:

(43)

Article 166 is amended as follows:

(a)

paragraphs 1 and 2 are replaced by the following: ‘1.   The capital requirement for the risk of an increase in the term structure of interest rates for a given currency shall be equal to the loss in the basic own funds that would result from an instantaneous increase in basic risk-free interest rates for that currency at different maturities. The increased basic risk-free interest rate for a given maturity shall be calculated in accordance with paragraphs 2 and 2a. 2.   For a given currency and for maturities up to and including the first smoothing point, the increased basic risk-free interest rate shall be equal to the following: where: (a) m denotes the maturity in years; (b) denotes the increased risk-free interest rate at maturity m; (c) rm denotes the current risk-free interest rate at maturity m; (d) shall be calculated as follows: (i) for maturities m lower than one year, shall be equal to 61 % and shall be equal to 2,14 %; (ii) for maturities m expressed in years which are an integer number between 1 and 50 years, shall take values in accordance with the following table: Maturity m (in years) 1 61  % 2,14  % 2 53  % 1,86  % 3 49  % 1,72  % 4 46  % 1,61  % 5 45  % 1,58  % 6 41  % 1,44  % 7 37  % 1,30  % 8 34  % 1,19  % 9 32  % 1,12  % 10 30 % 1,05  % 11 30  % 1,05  % 12 30  % 1,05  % 13 30  % 1,05  % 14 29  % 1,02  % 15 28  % 0,98  % 16 28  % 0,98  % 17 27  % 0,95  % 18 26  % 0,91  % 19 26  % 0,91  % 20 25  % 0,88  % 21 25  % 0,87  % 22 24  % 0,85  % 23 24  % 0,82  % 24 23  % 0,80  % 25 22  % 0,78  % 26 22  % 0,76  % 27 21  % 0,74  % 28 21  % 0,72  % 29 20  % 0,70  % 30 20  % 0,69  % 31 20  % 0,70  % 32 20  % 0,71  % 33 20  % 0,71  % 34 20  % 0,71  % 35 20  % 0,71  % 36 20  % 0,72  % 37 21  % 0,72  % 38 21  % 0,72  % 39 21  % 0,73  % 40 21  % 0,73  % 41 21  % 0,74  % 42 21  % 0,74  % 43 21  % 0,75  % 44 21  % 0,75  % 45 21  % 0,75  % 46 21  % 0,75  % 47 21  % 0,75  % 48 21  % 0,74  % 49 21  % 0,74  % 50 21  % 0,73  % (iii) for maturities m of at least 60 years, shall be equal to 0 %; for maturities of at least 90 years, shall be equal to 20 %; (iv) for other maturities m not specified in points (i) to (iii), the values of and shall be linearly interpolated.’ ;

(44)

Article 167 is amended as follows:

(a)

paragraphs 1 and 2 are replaced by the following: ‘1.   The capital requirement for the risk of a decrease in the term structure of interest rates for a given currency shall be equal to the loss in the basic own funds that would result from an instantaneous decrease in basic risk-free interest rates for that currency at different maturities where the decreased basic risk-free interest rate for a given maturity shall be calculated in accordance with paragraphs 2 and 2a. In any case, no decreased basic risk-free interest rate shall be lower than a term-dependent floor. The floor shall be determined as follows: (a) for maturities between 1 and 7 years, the floor shall be equal to – 1,25 %; (b) for maturities of at least 20 years, the floor shall be equal to – 0,893 %; (c) for maturities between 7 years and 20 years, the floor shall be linearly interpolated. 2.   For a given currency and for maturities up to and including the first smoothing point, the decreased basic risk-free interest rate shall be equal to the following: where: (a) m denotes the maturity in years; (b) denotes the decreased risk-free interest rateat maturity m; (c) rm denotes the current risk-free interest rate at maturity m; (d) and shall be calculated as follows: (i) for maturities m lower than one year, shall be equal to 58 % and shall be equal to 1,16 %; (ii) for maturities m expressed in years which are an integer number between 1 and 50 years, and shall take values in accordance with the following table: Maturity m (in years) 1 58  % 1,16  % 2 51  % 0,99  % 3 44  % 0,83  % 4 40  % 0,74  % 5 40  % 0,71  % 6 38  % 0,67  % 7 37  % 0,63  % 8 38  % 0,62  % 9 39  % 0,61  % 10 40  % 0,61  % 11 41  % 0,60  % 12 42  % 0,60  % 13 43  % 0,59  % 14 44  % 0,58  % 15 45  % 0,57  % 16 47  % 0,56  % 17 48  % 0,55  % 18 49  % 0,54  % 19 49  % 0,52  % 20 50  % 0,50  % 21 49  % 0,49  % 22 50  % 0,49  % 23 51  % 0,48  % 24 51  % 0,48  % 25 52  % 0,47  % 26 52  % 0,46  % 27 53  % 0,45  % 28 53  % 0,44  % 29 53  % 0,42  % 30 53  % 0,41  % 31 53  % 0,40  % 32 53  % 0,39  % 33 54  % 0,37  % 34 54  % 0,36  % 35 54  % 0,35  % 36 54  % 0,34  % 37 55  % 0,33  % 38 55  % 0,32  % 39 56  % 0,31  % 40 57  % 0,30  % 41 57  % 0,29  % 42 58  % 0,28  % 43 59  % 0,27  % 44 61  % 0,26  % 45 62  % 0,25  % 46 62  % 0,23  % 47 63  % 0,22  % 48 64  % 0,21  % 49 64  % 0,19  % 50 65  % 0,18  % (iii) for maturities m of at least 60 years, shall be equal to 0 %; for maturities of at least 90 years, shall be equal to 20 %; (iv) for other maturities m not specified in points (i) to (iii), the values of and shall be linearly interpolated.’ ;

(45)

in Article 168a(1), point (f) is replaced by the following:

(46)

Article 169 is amended as follows:

(47)

Article 170 is amended as follows:

(48)

in Article 171, the introductory wording is replaced by the following:

‘For the purposes of Article 169(1), point (a), 169(2), point (a), 169(3), point (a), and 169(4), point (a), and of Article 170(1), point (b), 170(2), point (b), 170(3), point (b) and 170(4), point (b), equity investments of a strategic nature shall mean equity investments to which the look-through approach does not apply and for which the participating insurance or reinsurance undertaking demonstrates the following:’;

(49)

Article 171a is replaced by the following:

(50)

the following Articles 171b, 171c, and 171d are inserted:

(51)

in Article 172, paragraph 4 is replaced by the following:

(52)

Article 173 is replaced by the following:

(53)

in Article 176, paragraph 1 is replaced by the following:

(54)

in Article 176a(3), point (g), point (v) is replaced by the following:

(55)

in Article 176c(3), point (e) is replaced by the following:

(56)

Article 178 is amended as follows:

(a)

in paragraph 3, the table is replaced by the following: ‘Credit quality step 0 1 2 3 4 5 and 6 Duration stress i ai bi ai bi ai bi ai bi ai bi ai bi (duri ) up to 5 min [bi duri ; 1] — 0,7 % — 0,9 % — 1,4 % — 2,5 % — 4,5 % — 7,5 % More than 5 and up to 10 min [ai + bi (duri – 5); 1] 3,5 % 0,5 % 4,5 % 0,6 % 7,0 % 0,7 % 12,5 % 1,5 % 22,5 % 2,5 % 37,5 % 4,2 % More than 10 and up to 15 min [ai + bi (duri – 10); 1] 6,0 % 0,5 % 7,5 % 0,5 % 10,5 % 0,5 % 20,0 % 1,0 % 35,0 % 1,8 % 58,5 % 0,5 % More than 15 and up to 20 min [ai + bi (duri – 15); 1] 8,5 % 0,5 % 10,0 % 0,5 % 13,0 % 0,5 % 25,0 % 1,0 % 44,0 % 0,5 % 61,0 % 0,5 % More than 20 min [ai + bi (duri – 20); 1] 11,0 % 0,5 % 12,5 % 0,5 % 15,5 % 0,5 % 30,0 % 0,5 % 46,5 % 0,5 % 63,5 % 0,5 %’

(b)

in paragraph 4, the table is replaced by the following: ‘Credit quality step 0 1 2 3 4 5 and 6 Duration stress i ai bi ai bi ai bi ai bi ai bi ai bi (duri ) up to 5 min [bi duri ; 1] — 2,0 % — 2,6 % — 4,0 % — 7,1 % — 12,7 % — 21,3 % More than 5 and up to 10 min [ai + bi (duri – 5); 1] 9,8 % 1,1 % 12,8 % 1,4 % 20,2 % 2,0 % 35,3 % 4,2 % 63,5 % 7,3 % 100,0 % 0,0 % More than 10 and up to 15 min [ai + bi (duri – 10); 1] 15,3 % 1,1 % 19,8 % 1,1 % 30,2 % 1,4 % 56,3 % 2,9 % 100,0 % 0,0 % 100,0 % 0,0 % More than 15 and up to 20 min [ai + bi (duri – 15); 1] 20,8 % 1,1 % 25,3 % 1,1 % 37,2 % 1,4 % 70,8 % 2,9 % 100,0 % 0,0 % 100,0 % 0,0 % More than 20 min [ai + bi (duri – 20); 1] 26,3 % 1,1 % 30,8 % 1,1 % 44,2 % 1,4 % 85,3 % 1,5 % 100,0 % 0,0 % 100,0 % 0,0 %’

(57)

Article 180 is amended as follows:

(58)

Article 182 is amended as follows:

(59)

in Article 184(2), the following point (g) is added:

(60)

Article 187 is amended as follows:

(61)

Article 189 is amended as follows:

(62)

Article 191 is amended as follows:

(63)

Article 192 is amended as follows:

(a)

paragraph 2, second subparagraph, is replaced by the following: ‘Where the reinsurance arrangement is with an insurance or reinsurance undertaking or a third country insurance or reinsurance undertaking and 60% or more of that counterparty’s assets are subject to collateral arrangements, the loss-given-default shall be equal to the following: LGD = max[90 % (Recoverables + 50 % * RMre) – F’’’ . Collateral; 0] where F’’’ denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in the case of a credit event related to the counterparty.’;