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

Directive No 2009/138 requires insurance and reinsurance undertakings to submit to the supervisory authorities the information which is necessary for the purposes of supervision and to disclose publicly in order to improve market discipline and shareholder confidence. 

According to Article 35, undertakings must submit to the supervisory authorities the information which is necessary to assess the system of governance applied by them, the business they are pursuing, the valuation principles applied for solvency purposes, the risks faced and the risk-management systems and their capital structure, needs and management. That information comprises qualitative or quantitative elements, or any appropriate combination thereof; historic, current or prospective elements, or any appropriate combination thereof and data from internal or external sources, or any appropriate combination thereof. It must reflect the nature, scale and complexity of the business of the undertaking concerned and in particular the risks inherent in that business, be accessible, complete in all material respects, comparable and consistent over time and be relevant, reliable and comprehensible.

For disclosure to the public, Article 51 requires insurance and reinsurance undertakings to disclose publicly, on an annual basis, a report on their solvency and financial condition, which contains a description of the business and the performance of the undertaking; a description of the system of governance and an assessment of its adequacy for the risk profile of the undertaking; a description, separately for each category of risk, of the risk exposure, concentration, mitigation and sensitivity; a description, separately for assets, technical provisions, and other liabilities, of the bases and methods used for their valuation, together with an explanation of any major differences in the bases and methods used for their valuation in financial statements and a description of the capital management, including in particular, in the event of any non-compliance with the Minimum Capital Requirement or any significant non-compliance with the Solvency Capital Requirement during the reporting period, the amount of the non-compliance even if subsequently resolved, with an explanation of its origin and consequences as well as any remedial measures taken.

Undertakings are however permitted not to disclose certain information where by doing so their competitors would gain significant undue advantage or there are obligations to policy holders or other counterparty relationships binding an undertaking to secrecy or confidentiality (Art. 53). In the event of any major development  significantly affecting the relevance of the information publicly disclosed, the undertaking must disclose appropriate information on the nature and effects of that major development. It may also disclose, on a voluntary basis, any information or explanation related to its solvency and financial condition which is not already required to be disclosed by the directive. In any event, the solvency and financial condition report is subject to approval by the administrative, management or supervisory body of the insurance or reinsurance undertaking and is published only after that approval (Art. 55).

Under Art. 54, a major development may be non-compliance with the Minimum Capital Requirement and the supervisory authorities either consider that the undertaking will not be able to submit a realistic short-term finance scheme or do not obtain such a scheme within one month of the date when non-compliance was observed or significant non-compliance with the Solvency Capital Requirement is observed and the supervisory authorities do not obtain a realistic recovery plan within two months of the date when non-compliance was observed.

137. Reporting procedures and public disclosure