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

The rules of governance constitute the second part of the qualitative requirements of Directive No 2009/138. For the Commission, a robust governance system is of key importance for the effectiveness of the supervisory system as some risks can only be addressed through governance requirements rather than by setting quantitative requirements. A governance system includes compliance with the requirem …

Rules of governance

The rules of governance constitute the second part of the qualitative requirements of Directive No 2009/138. For the Commission, a robust governance system is of key importance for the effectiveness of the supervisory system as some risks can only be addressed through governance requirements rather than by setting quantitative requirements. A governance system includes compliance with the requirements on fit and proper risk management, the own risk and solvency assessment, internal control, internal audit, the actuarial function and outsourcing . 

The administrative, management or supervisory body of the insurance or reinsurance undertaking has the ultimate responsibility for the compliance, by the undertaking concerned, with the laws, regulations and administrative provisions concerned (Art. 40). Under Article 41 of the directive, insurance and reinsurance undertakings have to put in place an effective system of governance which provides for sound and prudent management of the business, which must at least include an adequate transparent organizational structure with a clear allocation and appropriate segregation of responsibilities and an effective system for ensuring the transmission of information. The system of governance is subject to regular internal review and must be proportionate to the nature, scale and complexity of the operations of the insurance or reinsurance undertaking. In addition, the persons who effectively run the undertaking or have other key functions must at all times posses adequate professional qualifications, knowledge and experience to enable sound and prudent management (fit) and be of good repute and integrity (proper) (Art. 42). The supervisory authority must be informed if any of those persons have been replaced and of any relevant information enabling the assessment of persons newly appointed to run the undertaking in respect of the “fit and proper” requirements .

Insurance and reinsurance undertakings must also have in place an effective risk-management system comprising strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report, on a continuous basis, the risks at an individual and at an aggregated level, to which they are or could be exposed, and their interdependencies (Art. 44). As part of its risk-management system every insurance undertaking and reinsurance undertaking shall conduct its own risk and solvency assessment (Art. 45), which must include at least the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy of the undertaking and the compliance, on a continuous basis, with the capital requirements and with the requirements regarding technical provisions, set out in the directive, and the significance with which the risk profile of the undertaking concerned deviates from the assumptions underlying the Solvency Capital Requirement as laid down in Article 101(3). 

The processes put in place by the insurance undertaking must be proportionate to the nature, scale and complexity of the risks inherent in its business and enable it to properly identify and assess the risks it faces in the short and long term and to which it is or could be exposed.

Lastly, insurance and reinsurance undertakings must have in place an effective internal control system which must at least include administrative and accounting procedures, an internal control framework, appropriate reporting arrangements at all levels of the undertaking and a compliance function (Art. 46) and put in place an effective internal audit function which includes an evaluation of the adequacy and effectiveness of the internal control system and other elements of the system of governance (Art. 47), as well as an effective actuarial function to, inter alia, coordinate the calculation of technical provisions and contribute to the effective implementation of the risk-management system referred to in Article 44.

Commission Explanatory Memorandum of 26 February 2008, on the proposal for a directive on the taking-up and pursuit of the business of insurance and reinsurance, COM(2008) 119 final.

On good repute and integrity, see Directive No 2009/138, Art. 43.

European Business Law

136. Rules of governance

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Les notions juridiques connexes

136. Rules of governance

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise