European Business Law, the fourth volume in our series, shows how the European authorities simultaneously abolish all restrictions on access to and exercise of economic activities and support the growth of domestic markets, through the harmonization the internal legislation or the enactment of genuinely unified regulations.

European Business Law

As the first pillar of the qualitative requirements laid down in Directive No 2009/138, the main objective of prudential supervision is the protection of policy holders and beneficiaries (art. 27). However, the supervisory authorities in the exercise of their general duties must also consider the potential impact of their decisions on the stability of the financial systems concerned in the Europea …

Prudential supervision

As the first pillar of the qualitative requirements laid down in Directive No 2009/138, the main objective of prudential supervision is the protection of policy holders and beneficiaries (art. 27). However, the supervisory authorities in the exercise of their general duties must also consider the potential impact of their decisions on the stability of the financial systems concerned in the European Union, in particular in emergency situations, taking into account the information available at the relevant time especially in times of exceptional movements in the financial markets (Art. 28). Whereas the prudential supervision instituted by the previous directives relied mainly on quantitative solvency requirements and technical provisions, Directive No 2009/138 adopts a new prospective and risk-based approach which includes the verification on a continuous basis of the proper operation of the insurance or reinsurance business and of the compliance with supervisory provisions by insurance and reinsurance undertakings (Art. 29). In order to ensure that the prudential rules are not too burdensome for small and medium-sized insurance undertakings, they must be applied in a proportionate manner. 

The financial supervision of insurance and reinsurance undertakings, including that of the business they pursue either through branches or under the freedom to provide services, are the sole responsibility of the home Member State . The financial supervision of insurance or reinsurance undertakings, including those carried out through branches  or by virtue of the freedom to provide services, includes verification, with respect to the entire business of the insurance and reinsurance undertaking, of its state of solvency, of the establishment of technical provisions, of its assets and of the eligible own funds. However, if the supervisory authorities of the Member State in which the risk is situated or the Member State of the commitment or, in case of a reinsurance undertaking, the supervisory authorities of the host Member State, have reason to consider that the activities of an insurance or reinsurance undertaking might affect its financial soundness, they must inform the supervisory authorities of the home Member State of that undertaking (Art. 30).

In order to ensure effective control, the supervisory authorities must have the power to take preventive and corrective measures including those of an administrative or financial nature, with regard to insurance or reinsurance undertakings' compliance with their obligations arising out of the directive and in particular they must be able to require all information necessary to conduct supervision and to require that undertakings conduct tests to assess their ability to cope with possible events or future changes in economic conditions that could have unfavourable effects on their overall financial standing and carry out on-site investigations at the premises of the insurance and reinsurance undertakings (Art. 34) or their delegated service providers (Art. 38).

The supervisory authorities must also be able to assess compliance by the insurance undertakings with the qualitative requirements relating to the system of governance, the risks which they face or may face and the ability of those undertakings to assess those risks taking into account the environment in which they are operating. They must be able to assess the adequacy of the methods and practices of the undertakings designed to identify possible events or future changes in economic conditions that could have adverse effects on the overall financial standing and the ability of the undertakings to withstand those possible events (Art. 36). The supervisory authorities therefore need to have the necessary powers to take the necessary measures to ensure that the undertakings remedy weaknesses or deficiencies identified in the supervisory review process and in exceptional circumstances defined in Article 37 set a capital add-on for an insurance or reinsurance undertaking and ensure that the insurance or reinsurance undertaking makes every effort to remedy the deficiencies that led to the imposition of the measure.

And finally, under Article 39, Member States can authorize insurance and reinsurance undertakings with head offices within their territory to transfer all or part of their portfolios of contracts, concluded either under the right of establishment or the freedom to provide services, to an accepting undertaking established within the Union. The transfer is authorized only if the supervisory authorities of the home Member State of the accepting undertaking certify that after taking the transfer into account the accepting undertaking possesses the necessary eligible own funds to cover the Solvency Capital Requirement referred to in Article 100. Where a branch proposes to transfer all or part of its portfolio of contracts, the Member State where that branch is situated must be consulted. After obtaining the agreement of the authorities of the Member States where the contracts were concluded, the supervisory authorities of the home Member State of the transferring undertaking authorize the transfer either under the right of establishment or the freedom to provide services. Once the transfer has been published it is automatically valid against policy holders, the insured persons and any other person having rights or obligations arising out of the contracts transferred. However, Member States can give policy holders the option of cancelling contracts within a fixed period after a transfer .

Before the adoption of Directive No 2009/138, it was held that the principle of supervision of insurance undertakings by the home Member, which does not extend to all the commercial conduct of insurance undertakings, does not preclude the intervention of the authorities of the host Member State in connection with premium rates the purpose of which is to protect consumers: Case C-518/06 Commission v Italy [2009] ECR I-3491, LawLex200900002354JBJ.

Pursuant to Article 33, where an insurance or reinsurance undertaking authorized in another Member State carries on business through a branch, the supervisory authorities of the home Member State may, after having informed the supervisory authorities of the host Member State concerned, carry out themselves, or through the intermediary of persons appointed for that purpose, on-site verifications of the information necessary to ensure the financial supervision of the undertaking. 

See Case C-501/04 Commission v Spain [2007] ECR I-99, Summ. pub., holding that a Member may set up a separate system according to whether the transfer is to a national undertaking or an undertaking established in another Member State.

European Business Law

135. Prudential supervision

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Les décisions de justice citées dans ce paragraphe :

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135. Prudential supervision

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise