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

In line with the economic whole balance-sheet approach where assets and liabilities are valued consistently adopted by Directive No 2009/138, the amount of available financial resources of the undertaking should cover its overall financial requirements, i.e. the sum of un-subordinated liabilities and capital requirements. 
Insurance and reinsurance undertakings must value assets and liabilities at …

Mandatory requirements

In line with the economic whole balance-sheet approach where assets and liabilities are valued consistently adopted by Directive No 2009/138, the amount of available financial resources of the undertaking should cover its overall financial requirements, i.e. the sum of un-subordinated liabilities and capital requirements. 

Insurance and reinsurance undertakings must value assets and liabilities at the amount for which they could be exchanged, transferred or settled between knowledgeable willing parties in an arm's length transaction (Article 75). 

Undertakings are also required to establish technical provisions with respect to all of their insurance and reinsurance obligations towards policy holders and beneficiaries of insurance or reinsurance contracts the value of which, pursuant to Article 76, must correspond to the current amount insurance and reinsurance undertakings would have to pay if they were to transfer their insurance and reinsurance obligations immediately to another insurance or reinsurance undertaking.

Insurance undertakings are also subject to requirements relative to own funds which constitute the sum of the basic own funds  which appear on the balance sheet, and ancillary own funds (items other than basic own funds which can be called up to absorb losses), which do not . Own-fund items are classified into three tiers according to whether they are basic own funds or ancillary own funds or according to their availability - permanent availability  or subordination , i.e. according to their availability to absorb the undertaking's losses (Art. 93). 

The supervisory regime provides moreover for (i) a risk-sensitive requirement, which is based on a prospective calculation to ensure accurate and timely intervention by supervisory authorities (the Solvency Capital Requirement) and (ii) a minimum level of security below which the amount of financial resources should not fall (the Minimum Capital Requirement). 

Thus, to enable them to absorb significant losses and give reasonable assurance to policy holders and beneficiaries that payments will be made as they fall due, Article 100 of the directive requires that insurance and reinsurance undertakings hold eligible own funds covering the Solvency Capital Requirement (SCR). The SCR is calibrated so as to ensure that all quantifiable risks to which an insurance or reinsurance undertaking is exposed are taken into account and covers at least the following risks: non-life underwriting risk; life underwriting risk; health underwriting risk; market risk; credit risk; operational risk (Art. 101). Insurance and reinsurance undertakings must calculate the Solvency Capital Requirement at least once a year and report the result of that calculation to the supervisory authorities. If their risk profile has altered significantly since the SCR was last reported, the supervisory authorities may require the undertaking concerned to recalculate it (Art. 102). The SCR is calculated on the basis of the standard formula set out in Articles 103 to 111, i.e. using an internal model subject to approval by the supervisory authorities on the basis of harmonized processes and standards in compliance with Articles 112 to 127.

Moreover, pursuant to Article 128, insurance and reinsurance undertakings are required to hold eligible basic own funds, to cover the Minimum Capital Requirement. Calculated in a clear and simple manner, and in such a way as to ensure that the calculation can be audited, the Minimum Capital Requirement shall correspond to an amount of eligible basic own funds below which policyholders and beneficiaries are exposed to an unacceptable level of risk if insurance and reinsurance undertakings were allowed to continue their operations. It has an absolute floor of EUR 2 200 000 for non-life insurance undertakings, EUR 3 200 000 for life insurance undertakings and EUR 3 200 000 for reinsurance undertakings (Art. 129). In any event, the Minimum Capital Requirement must not fall below 25% or exceed 45% of the undertaking's Solvency Capital Requirement.

Where an insurance or reinsurance undertaking does not comply with the requirements on technical provisions, the supervisory authorities of its home Member State may prohibit the free disposal of its assets after having communicated their intentions to the supervisory authorities of the host Member States (Art. 137). As soon as insurance and reinsurance undertakings observe that the Solvency Capital Requirement is no longer complied with, or where there is a risk of non-compliance in the following three months, they must immediately inform the supervisory authority. The undertaking then has six months in which to take the necessary measures to achieve the re-establishment of the level of eligible own funds covering the Solvency Capital Requirement or the reduction of its risk profile to ensure compliance with the Solvency Capital Requirement (Art. 138). Likewise, the undertaking must inform the supervisory authority immediately where it observes that the Minimum Capital Requirement is no longer complied with or where there is a risk of non-compliance in the following three months, and submit a short-term realistic finance scheme to restore, within three months of that observation, the eligible basic own funds, at least to the level of the Minimum Capital Requirement or to reduce its risk profile to ensure compliance with the Minimum Capital Requirement (Art. 139). Non-compliance of the Solvency Capital Requirement or the Minimum Capital Requirement authorizes the supervisory authority of the home Member State to restrict or prohibit the free disposal of the assets of that insurance or reinsurance undertaking notably if it is of the opinion that the financial situation of the undertaking concerned will deteriorate further. The supervisory authorities of the host Member State are informed of the measures adopted. 

Lastly, Article 141 of the directive gives the supervisory authorities the power to take all measures necessary to safeguard the interests of policy holders in the case of insurance contracts, or the obligations arising out of reinsurance contracts where the solvency position of the undertaking continues to deteriorate and under Article 144, an authorization granted may be withdrawn in the event that the undertaking does not comply with the Minimum Capital Requirement and the supervisory authority considers that the finance scheme submitted is manifestly inadequate or the undertaking concerned fails to comply with the approved scheme within three months from the observation of non-compliance with the Minimum Capital Requirement. In that case the supervisory authority of the home Member State notifies the supervisory authorities of the other Member States accordingly, and they take the appropriate measures to prevent the insurance or reinsurance undertaking from commencing new operations within their territories.

Where a reorganization measure is taken by the home Member State in the conditions provided by Articles 267 et seq. of the directive, Article 275 states that insurance claims take precedence over other claims against the insurance undertaking. With regard to assets representing the technical provisions, insurance claims take absolute precedence over any other claim on the insurance undertaking . On the other hand, with regard to the whole of the assets of the insurance undertaking, insurance claims take precedence over any other claim on the insurance undertaking with the exception of claims by employees arising from employment contracts and employment relationships; claims by public bodies on taxes; claims by social security systems and claims on assets subject to rights in rem.

Consisting of the excess of assets over liabilities and subordinated liabilities.

Such as unpaid share capital or initial fund that has not been called up, letters of credit and guarantees or any other legally binding commitments received by insurance and reinsurance undertakings.

The item is available, or can be called up on demand, to fully absorb losses on a going-concern basis, as well as in the case of winding-up.

In the case of winding-up, the total amount of the item is available to absorb losses and the repayment of the item is refused to its holder until all other obligations, including insurance and reinsurance obligations towards policy holders and beneficiaries of insurance and reinsurance contracts, have been met.

Compare with previous Directive No 2001/17 of 19 March 2001, on the reorganization and winding-up of insurance undertakings OJEC L 110 of 20 April 2001, 28-39, which allowed Member States to accord to certain categories of claims, in particular claims by employees of the insurance undertaking, a priority ranking above that of insurance claims, including assets representing the technical provisions where the priority of the insurance claims was not limited in its scope to the assets representing those provisions. For an example see Case C-28/03 Epikouriko kefalaio v Ypourgos Anaptyxis [2004] ECR I-8533, LawLex200900001374JBJ.

European Business Law

138. Mandatory requirements

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138. Mandatory requirements

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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