Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) Text with EEA relevance

Article 261a

Risk management for qualifying infrastructure investments or qualifying infrastructure corporate investments

1. Insurance and reinsurance undertakings shall conduct adequate due diligence prior to making a qualifying infrastructure investment or a qualifying infrastructure corporate investment, including all of the following:

• (a) a documented assessment of how the infrastructure entity satisfies the criteria set out in Article 164a or Article 164b, which has been subject to a validation process, carried out by persons that are free from influence from those persons responsible for the assessment of the criteria, and have no potential conflicts of interest with those persons;

• (b) a confirmation that any financial model for the cash flows of the infrastructure entity has been subject to a validation process carried out by persons that are free from influence from those persons responsible for the development of the financial model, and have no potential conflicts of interest with those persons.

Article 262

Overall solvency needs

• (a) risks the undertaking is or could be exposed to, taking into account potential future changes in its risk profile due to the undertaking's business strategy or the economic and financial environment, including operational risks;

• (b) the nature and quality of own fund items or other resources appropriate to cover the risks identified in point (a) of this paragraph.

• (a) the time periods that are relevant for taking into account the risks the undertaking faces in the long-term;

• (b) valuation and recognition bases that are appropriate for the undertaking's business and risk profile;

• (c) the undertaking's internal control and risk-management systems and approved risk tolerance limits.

Article 263

Alternative methods for valuation

Where alternative valuation methods in accordance with Article 10(5) are used, insurance and reinsurance undertakings shall:

• (a) identify the assets and liabilities to which that valuation approach applies;

- (b) justify the use of that valuation approach for the assets and liabilities referred to in point (a);

• (c) document the assumptions underlying that valuation approach;

• (d) assess the valuation uncertainty of the assets and liabilities referred to in point (a);

• (e) regularly compare the adequacy of the valuation of the assets and liabilities referred to in point (a) against experience.

Article 264

Valuation of technical provisions — validation

• (a) the appropriateness, completeness and accuracy of data used in the calculation of technical provisions as set out in Article 19 of this Regulation;

• (b) the appropriateness of any grouping of policies in accordance with Article 34 of this Regulation;

• (c) the remedies to limitations of the data referred to in Article 20 of this Regulation;

• (d) the appropriateness of approximations referred to in Article 21 of this Regulation for the purposes of calculating the best estimate;

• (e) the adequacy and realism of assumptions used in the calculation of technical provisions for the purposes of meeting the requirements in Articles 22 to 26 of this Regulation;

• (f) the adequacy, applicability and relevance of the actuarial and statistical methods applied in the calculation of technical provisions;

• (g) the appropriateness of the level of the technical provisions as referred to in Article 84 of Directive 2009/138/EC necessary to comply with Article 76 of that Directive.

Article 265

Valuation of technical provisions — documentation

• (a) the collection of data and analysis of its quality and other information that relates to the calculation of technical provisions;

- (b) the choice of assumptions used in the calculation of technical provisions, in particular the choice of relevant assumptions about the allocation of expenses;

• (c) the selection and application of actuarial and statistical methods for the calculation of technical provisions;

• (d) the validation of technical provisions.

2. For the purposes of point (a) of paragraph 1, the documentation shall include:

• (a) a directory of the data used in the calculation of the technical provisions, specifying their source, characteristics and usage;

• (b) the specification for the collection, processing and application of data referred to in Article 19(3)(e);

• (c) where data are not used consistently over time in the calculation of technical provisions, a description of the inconsistent use and its justification.

• (a) a directory of all the relevant assumptions that the calculation of technical provisions are based upon; this shall include assumptions on future management actions;

• (b) a justification for the choice of the assumption in accordance with Subsection 1 of Section 3 of Chapter III;

• (c) a description of the inputs on which the choice is based;

- (d) the objectives of the choice and the criteria used for determining the appropriateness of this choice;

- (e) any material limitations in the choice made;

• (f) a description of the processes in place to review the choice of assumptions;

• (g) a justification for the changes of assumptions from one period to another and an estimation of the impact of material changes;

• (h) the relevant deviations referred to in Article 23(2).

Article 266

Internal control system

The internal control system shall ensure the insurance and reinsurance undertaking's compliance with applicable laws, regulations and administrative provisions and the effectiveness and the efficiency of the undertaking's operations in light of its objectives as well as ensure the availability and reliability of financial and non-financial information.

Article 267

Internal control of valuation of assets and liabilities

• (a) provide sufficient resources, both in terms of quality and quantity, to develop, calibrate, approve and review valuation approaches used for solvency purposes;

• (b) establish internal control processes which include all of the following:
• (i) an independent review and verification on a regular basis of the information, data, and assumptions which are used in the valuation approach, its results, and the suitability of the valuation approach with respect to valuation of the items referred to in point (a) of Article 263;
• (ii) oversight by the persons who effectively run the undertaking of the internal processes for approval of those valuations and the process in place to take account of any external, independent valuation or verification of the value of material assets or liabilities.

SECTION 2 Functions

Article 268

Specific provisions

1. Insurance and reinsurance undertakings shall incorporate the functions and the associated reporting lines into the organisational structure in a way which ensures that each function is free from influences that may compromise the function's ability to undertake its duties in an objective, fair and independent manner. Each function shall operate under the ultimate responsibility of, and report to the administrative, management or supervisory body and shall, where appropriate, cooperate with the other functions in carrying out their roles.

Article 269

Risk management function

• (a) assisting the administrative, management or supervisory body and other functions in the effective operation of the risk management system;

• (b) monitoring the risk management system;

• (c) monitoring the general risk profile of the undertaking as a whole;

• (d) detailed reporting on risk exposures and advising the administrative, management or supervisory body on risk management matters, including in relation to strategic affairs such as corporate strategy, mergers and acquisitions and major projects and investments;

• (e) identifying and assessing emerging risks and sustainability risks.

1a. Emerging risks and sustainability risks as referred to in paragraph 1, point (e), and identified by the risk management function shall form part of the risks referred to in Article 262(1), point (a).

• (a) fulfil the requirements set out in Article 44(5) of Directive 2009/138/EC;

- (b) liaise closely with the users of the outputs of the internal model;

• (c) co-operate closely with the actuarial function.

Article 270

Compliance function

Article 271

Internal audit function

• (a) establish, implement and maintain an audit plan setting out the audit work to be undertaken in the upcoming years, taking into account all activities and the complete system of governance of the insurance or reinsurance undertaking;

• (b) take a risk-based approach in deciding its priorities;

• (c) report the audit plan to the administrative, management or supervisory body;

• (d) issue recommendations based on the result of work carried out in accordance with point (a) and submit a written report on its findings and recommendations to the administrative, management or supervisory body on at least an annual basis;

• (e) verifying compliance with the decisions taken by the administrative, management or supervisory body on the basis of those recommendations referred to in point (d).

Where necessary, the internal audit function may carry out audits which are not included in the audit plan.

Article 272

Actuarial function

• (a) apply methodologies and procedures to assess the sufficiency of technical provisions and to ensure that their calculation is consistent with the requirements set out in Articles 75 to 86 of Directive 2009/138/EC;

• (b) assess the uncertainty associated with the estimates made in the calculation of technical provisions;

• (c) ensure that any limitations of data used to calculate technical provisions are properly dealt with;

• (d) ensure that the most appropriate approximations for the purposes of calculating the best estimate are used in cases referred to in Article 82 of Directive 2009/138/EC;

• (e) ensure that homogeneous risk groups of insurance and reinsurance obligations are identified for an appropriate assessment of the underlying risks;

• (f) consider relevant information provided by financial markets and generally available data on underwriting risks and ensure that it is integrated into the assessment of technical provisions;

- (g) compare and justify any material differences in the calculation of technical provisions from year to year;

- (h) ensure that an appropriate assessment is provided of options and guarantees included in insurance and reinsurance contracts.

6. Regarding the underwriting policy, the opinion to be expressed by the actuarial function in accordance with Article 48(1)(g) of Directive 2009/138/EC shall at least include conclusions regarding the following considerations:

- (a) sufficiency of the premiums to be earned to cover future claims and expenses, notably taking into consideration the underlying risks (including underwriting risks), and the impact of options and guarantees included in insurance and reinsurance contracts on the sufficiency of premiums;

• (b) the effect of inflation, legal risk, sustainability risks, change in the composition of the undertaking’s portfolio, and of systems which adjust the premiums policy-holders pay upwards or downwards depending on their claims history (bonus-malus systems) or similar systems, implemented in specific homogeneous risk groups;

• (c) the progressive tendency of a portfolio of insurance contracts to attract or retain insured persons with a higher risk profile (anti-selection).

• (a) the undertaking's risk profile and underwriting policy;

• (b) reinsurance providers taking into account their credit standing;

• (c) the expected cover under stress scenarios in relation to the underwriting policy;

• (d) the calculation of the amounts recoverable from reinsurance contracts and special purpose vehicles.

SECTION 3 Fit and proper requirements

Article 273

SECTION 4 Outsourcing

Article 274

• (a) a detailed examination is performed to ensure that the potential service provider has the ability, the capacity and any authorisation required by law to deliver the required functions or activities satisfactorily, taking into account the undertaking's objectives and needs;

• (b) the service provider has adopted all means to ensure that no explicit or potential conflict of interests jeopardize the fulfilment of the needs of the outsourcing undertaking;

• (c) a written agreement is entered into between the insurance or reinsurance undertaking and the service provider which clearly defines the respective rights and obligations of the undertaking and the service provider;

• (d) the general terms and conditions of the outsourcing agreement are clearly explained to the undertaking's administrative, management or supervisory body and authorised by them;

• (e) the outsourcing does not entail the breaching of any law in particular with regard to rules on data protection;

• (f) the service provider is subject to the same provisions on the safety and confidentiality of information relating to the insurance or reinsurance undertaking or to its policyholders or beneficiaries that are applicable to the insurance or reinsurance undertaking.

• (a) the duties and responsibilities of both parties involved;

- (b) the service provider's commitment to comply with all applicable laws, regulatory requirements and guidelines as well as policies approved by the insurance or reinsurance undertaking and to cooperate with the undertaking's supervisory authority with regard to the outsourced function or activity;

- (c) the service provider's obligation to disclose any development which may have a material impact on its ability to carry out the outsourced functions and activities effectively and in compliance with applicable laws and regulatory requirements;

• (d) a notice period for the termination of the contract by the service provider which is long enough to enable the insurance or reinsurance undertaking to find an alternative solution;

• (e) that the insurance or reinsurance undertaking is able to terminate the arrangement for outsourcing where necessary without detriment to the continuity and quality of its provision of services to policyholders;

• (f) that the insurance or reinsurance undertaking reserves the right to be informed about the outsourced functions and activities and their performance by the services provider as well as a right to issue general guidelines and individual instructions at the address of the service provider, as to what has to be taken into account when performing the outsourced functions or activities;

• (g) that the service provider shall protect any confidential information relating to the insurance or reinsurance undertaking and its policyholders, beneficiaries, employees, contracting parties and all other persons;

• (h) that the insurance or reinsurance undertaking, its external auditor and the supervisory authority have effective access to all information relating to the outsourced functions and activities including carrying out on-site inspections of the business premises of the service provider;

• (i) that, where appropriate and necessary for the purposes of supervision, the supervisory authority may address questions directly to the service provider to which the service provider shall reply;

• (j) that the insurance or reinsurance undertaking may obtain information about the outsourced activities and may issue instructions concerning the outsourced activities and functions;

• (k) the terms and conditions, where applicable, under which the service provider may sub-outsource any of the outsourced functions and activities;

• (l) that the service provider's duties and responsibilities deriving from its agreement with the insurance or reinsurance undertaking shall remain unaffected by any sub-outsourcing taking place according to point (k).

• (a) ensure that relevant aspects of the service provider's risk management and internal control systems are adequate to ensure compliance with Article 49(2)(a) and (b) of Directive 2009/138/EC;

• (b) adequately take account of the outsourced activities in its risk management and internal control systems to ensure compliance with Article 49(2)(a) and (b) of Directive 2009/138/EC;

• (c) verify that the service provider has the necessary financial resources to perform the additional tasks in a proper and reliable way, and that all staff of the service provider who will be involved in providing the outsourced functions or activities are sufficiently qualified and reliable;

• (d) ensure that the service provider has adequate contingency plans in place to deal with emergency situations or business disruptions and periodically tests backup facilities where necessary, taking into account the outsourced functions and activities.

SECTION 5 Remuneration policy

Article 275

• (a) the remuneration policy and remuneration practices shall be established, implemented and maintained in line with the undertaking's business and risk management strategy, its risk profile, objectives, risk management practices and the long-term interests and performance of the undertaking as a whole and shall incorporate measures aimed at avoiding conflicts of interest;

• (b) the remuneration policy promotes sound and effective risk management and shall not encourage risk-taking that exceeds the risk tolerance limits of the undertaking;

• (c) the remuneration policy applies to the undertaking as a whole, and contains specific arrangements that take into account the tasks and performance of the administrative, management or supervisory body, persons who effectively run the undertaking or have other key functions and other categories of staff whose professional activities have a material impact on the undertaking's risk profile;

• (d) the administrative, management or supervisory body of the undertaking which establishes the general principles of the remuneration policy for those categories of staff whose professional activities have a material impact on the undertaking's risk profile is responsible for the oversight of its implementation;

• (e) there shall be clear, transparent and effective governance with regard to remuneration, including the oversight of the remuneration policy;

• (f) an independent remuneration committee shall be created, if appropriate in relation to the significance of the insurance or reinsurance undertakings in terms of size and internal organisation, in order to periodically support the administrative, management or supervisory body in overseeing the design of the remuneration policy and remuneration practices, their implementation and operation;

• (g) the remuneration policy shall be disclosed to each member of the undertaking's staff.

• (a) where remuneration schemes include both fixed and variable components, such components shall be balanced so that the fixed or guaranteed component represents a sufficiently high proportion of the total remuneration to avoid employees being overly dependent on the variable components and to allow the undertaking to operate a fully flexible bonus policy, including the possibility of paying no variable component;

• (b) where variable remuneration is performance-related, the total amount of the variable remuneration is based on a combination of the assessment of the performance of the individual and of the business unit concerned and of the overall result of the undertaking or the group to which the undertakings belongs;

- (c) the payment of a substantial portion of the variable remuneration component, irrespective of the form in which it is to be paid, shall contain a flexible, deferred component that takes account of the nature and time horizon of the undertaking's business: that deferral period shall not be less than three years and the period shall be correctly aligned with the nature of the business, its risks, and the activities of the employees in question;

- (d) financial and also non-financial criteria shall be taken into account when assessing an individual's performance;

• (e) the measurement of performance, as a basis for variable remuneration, shall include a downwards adjustment for exposure to current and future risks, taking into account the undertaking's risk profile and the cost of capital;

• (ea) the variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial situation of the undertaking as a whole, and justified on the basis of the performance of the undertaking, the business unit and the individual concerned;

• (f) termination payments shall be related to performance achieved over the whole period of activity and be designed in a way that does not reward failure;

- (g) persons subject to the remuneration policy shall commit to not using any personal hedging strategies or remuneration and liability-related insurance which would undermine the risk alignment effects embedded in their remuneration arrangement.

• (h) The variable part of remuneration of the staff engaged in the functions referred to in Articles 269 to 272 shall be independent from the performance of the operational units and areas that are submitted to their control;

For the purposes of point (c), remuneration payable under deferral arrangements shall vest no faster than on a pro rata basis.

For the purposes of the first subparagraph, point (ea), without prejudice to the general principles of national contract and labour law, the total variable remuneration shall generally be considerably contracted where subdued or negative financial performance of the undertaking occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements.

Up to 100 % of the total variable remuneration shall be subject to malus or clawback arrangements. Undertakings shall set specific criteria for the application of malus and clawback. Such criteria shall cover situations where the staff member:

- (i) participated in or was responsible for conduct which resulted in significant losses to the undertaking;

- (ii) is no longer considered as meeting appropriate standards of fitness and propriety.

2a. The deferral of a substantial portion of the variable remuneration component set out in paragraph 2, point (c), shall not apply where the annual variable remuneration of a member of the administrative, management or supervisory body, a person who effectively runs the undertaking or has other key functions, or person belonging to other categories of staff whose professional activities have a material impact on the undertaking’s risk profile, does not exceed EUR 50 000 and does not represent more than 1/3 of that staff member’s total annual remuneration.

2b. By way of derogation from paragraph 2a, a supervisory authority may decide that staff members entitled to annual variable remuneration below the threshold referred to in that paragraph shall not be subject to the exemption set out therein because of national market specificities in terms of remuneration practices, because of the nature of the responsibilities and job profile of those staff members or because of the specific risk profile of the undertaking.

SECTION 6 Investments

Article 275a

Integration of sustainability risks in the prudent person principle

1. When identifying, measuring, monitoring, managing, controlling, reporting and assessing risks arising from investments, as referred to in the first subparagraph of Article 132(2) of Directive 2009/138/EC, insurance and reinsurance undertakings shall take into account sustainability risks.

Article 275b

Transparency on investment and capital management

Taking into account the information from the regular supervisory reporting referred to in Article 304, EIOPA shall regularly report to the European Commission, the European Parliament and the Council, quantitative and qualitative information on:

• (a) the aggregated allocation of investments, broken down by sector and geographical area;

• (b) distributions to shareholders, including share buy-backs, and variable remuneration to members of the administrative, management or supervisory body, key function holders or senior management.

CHAPTER X **CAPITAL ADD-ON**

SECTION 1 Circumstances for imposing a capital add-on

Article 276

Assessment of a significant deviation as regards the SCR

For the purposes of Article 37(1)(a) and (b) of Directive 2009/138/EC, in concluding that the risk profile of an insurance or reinsurance undertaking deviates significantly from the assumptions underlying the Solvency Capital Requirement as calculated using the standard formula or an internal model, supervisory authorities shall take into account all relevant factors including all of the following:

• (a) the nature, type and size of the deviation;

• (b) the likelihood and severity of any adverse impact on policyholders and beneficiaries;

• (c) the level of sensitivity of the assumptions to which the deviation relates;

• (d) the anticipated duration and volatility of the deviation over the duration of the deviation.

Article 277

Assessment of a significant deviation as regards the governance

For the purposes of Article 37(1)(c) of Directive 2009/138/EC, in concluding that the system of governance of an insurance or reinsurance undertaking deviates significantly from the standards laid down in Title I, Chapter IV, Section 2 of that Directive, supervisory authorities shall take into account all relevant factors including all of the following:

• (a) the effect of the deviation from the governance standards as laid down in Title I, Chapter IV, Section 2 of Directive 2009/138/EC on the sound and prudent management of the business and whether the deviation arises from an inadequate implementation of a requirement relating to the system of governance or a failure to implement such a requirement;

• (b) the likelihood and severity of any adverse impact on policyholders and beneficiaries;

- (c) the different ways of organising an effective system of governance which is proportionate to the nature, scale and complexity of the risks inherent in the business of the undertaking;

• (d) the probable financial loss the undertaking could incur as a consequence of the deviation;

• (e) the anticipated duration of the deviation.

Article 278

Assessment of a significant deviation as regards adjustments to the relevant risk-free rate and transitional measures

• (a) the nature, type and size of the deviation;

- (b) the likelihood and severity of any adverse impact on policyholders and beneficiaries;

- (c) the level of sensitivity of the assumptions to which the deviation relates;

• (d) the anticipated duration and volatility of the deviation over the duration of the deviation;

• (e) the impact of the deviation on the Solvency Capital Requirement and own funds of the undertaking.

Article 279

Add-ons in relation to deviations from Solvency Capital Requirement assumptions

Article 280

Assessment of the requirement to use an internal model

Article 281

Appropriate timeframe for adapting the internal model

For the purposes of Article 37(1)(b) and (c) of Directive 2009/138/EC respectively, in concluding that the adaptation of the internal model to better reflect the given risk profile has failed or that the application of other measures is unlikely to improve deficiencies, supervisory authorities shall take account of all relevant factors in determining an appropriate timeframe, including the likelihood and severity of any adverse impact on policy holders and beneficiaries. That timeframe shall not exceed 6 months.

SECTION 2 Methodologies for calculating capital add-ons

Article 282

Calculation of add-ons in relation to deviations from SCR assumptions

For the purposes of imposing a capital add-on pursuant to Article 37(1)(a) or (b) of Directive 2009/138/EC, supervisory authorities shall calculate the capital add-on as the difference, at a given point in time, between the following:

• (a) the Solvency Capital Requirement of the insurance or reinsurance undertaking, excluding any previous or simultaneous capital add-on, that would be calculated if the standard formula or internal model, as appropriate, were modified so as to reflect the actual risk profile of the insurance or reinsurance undertaking and to ensure compliance with Article 101(3) of Directive 2009/138/EC;

• (b) the Solvency Capital Requirement of the insurance or reinsurance undertaking, excluding any previous or simultaneous capital add-on.

Article 283

Scope and approach of modifications as regards a deviation from SCR assumptions

2. For the purposes of paragraph 1, supervisory authorities shall modify the assumptions and parameters underlying the Solvency Capital Requirement as calculated using the standard formula or internal model in order for those assumptions or parameters to properly reflect the actual risk profile of the insurance or reinsurance undertaking and to ensure compliance with Article 101(3) of Directive 2009/138/EC.

7. Supervisory authorities shall not set off aspects of the risk profile deviation, which indicate that a lower Solvency Capital Requirement would better reflect the insurance or reinsurance undertaking's actual risk profile, against the other aspects which indicate that a higher Solvency Capital Requirement is appropriate, unless the insurance or reinsurance undertaking satisfies all of the following requirements:

• (a) a modification or a methodology exists which complies with the requirements set out in paragraph 4 to quantify the impact on the amount referred to in Article 282(a) of the aspects which indicate a lower Solvency Capital Requirement;

• (b) it would be inappropriate to address the aspects which indicate a lower Solvency Capital Requirement by replacing standard parameters by parameters specific to the undertaking in accordance with Article 104(7) of Directive 2009/138/EC or by using an internal model in accordance with Article 112 of that Directive;

• (c) the overall Solvency Capital Requirement that would result after setting off the risk profile deviations against each other complies with Article 101(3) of Directive 2009/138/EC.

Article 284

Calculation of add-ons in relation to adjustments to the relevant risk-free rate or transitional measures

For the purposes of imposing a capital add-on pursuant to Articles 37(1)(d) of Directive 2009/138/EC, supervisory authorities shall calculate the capital add-on as the sum, at a given point in time, of the following amounts:

• (a) the negative of the amount of eligible own funds that would be calculated if the adjustment or transitional measure was modified in a manner that the assumptions underlying the adjustment or transitional measure would fit the actual assets, liabilities and risk profile of the insurance or reinsurance undertaking;

• (b) the amount of the Solvency Capital Requirement, excluding any previous or simultaneous capital add-on, that would be calculated if the adjustment or transitional measure was modified in a manner that the assumptions underlying the adjustment or transitional measure would fit the actual assets, liabilities and risk profile of the insurance or reinsurance undertaking, and ensure compliance with Article 101(3) of Directive 2009/138/EC;

• (c) the amount of eligible own funds;

- (d) the negative of the amount of the Solvency Capital Requirement, excluding any previous or simultaneous capital add-on, of the insurance or reinsurance undertaking.

Article 285

Scope and approach of modifications as regards adjustments to the relevant risk-free rate and transitional measures

Article 286

Calculation of add-ons in relation to deviations from governance standards

For the purposes of calculating a capital add-on as referred to in Article 37(1)(c) of Directive 2009/138/EC, supervisory authorities shall take into account all relevant factors including all of the following:

• (a) where appropriate, the factors referred to in Article 277;

• (b) where appropriate, capital add-ons set previously for comparable deviations of other insurance or reinsurance undertakings with similar risk profiles provided that supervisory authorities ensure that the reasons for their decision to set a capital add-on are stated in accordance with Article 37(1) of Directive 2009/138/EC and this statement complies with the professional secrecy requirements set out in Article 64 of that Directive.

Article 287

Apportionment of add-ons for undertakings which simultaneously pursue life and non-life insurance activities

CHAPTER XI **EXTENSION OF THE RECOVERY PERIOD**

Article 288

Assessment of exceptional adverse situations

For the purposes of declaring the existence of an exceptional adverse situation affecting insurance and reinsurance undertakings representing a significant share of the market or affected lines of business, as referred to in Article 138(4) of Directive 2009/138/EC, EIOPA shall take into account all of the following factors and criteria:

• (a) the impact of possible subsequent decisions by supervisory authorities to extend the recovery period, on financial markets, on the availability of insurance and reinsurance products and on policy holders and beneficiaries;

• (b) the number, size and market share of the insurance and reinsurance undertakings affected by the exceptional adverse situation and whether the size and nature of those undertakings could, when taken together, have a negative effect on the financial markets or on insurance and reinsurance markets;

• (c) possible pro-cyclical effects of re-establishing compliance with the Solvency Capital Requirement, including distressed sales of assets on financial markets;

• (d) the possibility for insurance and reinsurance undertakings to raise additional own funds in financial markets;

- (e) the availability of an active market for assets held by insurance and reinsurance undertakings and the liquidity of that market;

- (f) the capacity of the reinsurance market to provide reinsurance or retrocession cover;

- (g) the availability in financial markets of adequate risk mitigation techniques, including financial instruments;

• (h) the availability in financial markets of other means to reduce the risk-exposure of insurance and reinsurance undertakings.

Article 289

Factors and criteria to determine the extension of the recovery period

For the purposes of deciding on an extension of the period referred to in Article 138(4) of Directive 2009/138/EC and determining its length for a given insurance or reinsurance undertaking, the supervisory authority shall take into account the factors and criteria mentioned in points (c) to (h) of Article 288 of this Regulation and the following factors and criteria specific to the undertaking:

- (a) the impact of an extension on policy holders and beneficiaries of the insurance and reinsurance undertaking;

• (b) the extent to which the insurance or reinsurance undertaking is affected by the exceptional adverse situation;

• (c) the means available to the undertaking to re-establish compliance with the Solvency Capital Requirement and the existence of a realistic recovery plan;

- (d) the causes and the degree of non-compliance with the Solvency Capital Requirement;

• (e) the composition of own funds held by the insurance or reinsurance undertaking;

• (f) the composition of the assets held by the insurance or reinsurance undertaking;

• (g) the nature and duration of technical provisions and other liabilities of the insurance or reinsurance undertaking;

• (h) when applicable, the availability of financial support from other undertakings of the group to which the insurance or reinsurance undertaking belongs;

• (i) any measures taken by the insurance or reinsurance undertaking to limit the outflow of capital and the deterioration of its solvency position.

CHAPTER XII **PUBLIC DISCLOSURE**

SECTION 1 Solvency and financial condition report: structure and contents

Article 290

Structure

Article 291

Materiality

For the purposes of this Chapter, the information or the changes to any information to be disclosed in the solvency and financial condition report shall be considered material where its omission or misstatement could influence the decision-making or the judgement of the users of that document, including the supervisory authorities.

Article 292

Information targeted at policy holders and beneficiaries

• (a) the name and legal form of the undertaking;

- (b) the name and contact details of the supervisory authority responsible for financial supervision of the undertaking;

• (c) a list of the shareholders of qualifying holdings in the undertaking;

• (d) where the insurance undertaking belongs to a group, the name of the group, its legal form, the jurisdiction of the group and where applicable, the supervisory authority responsible for financial supervision of the group;

• (e) any significant business development or other significant event that has occurred over the reporting period that has a material impact on the undertaking’s risk profile;

• (f) clear and simple information on the insurance undertaking’s underwriting and investment performance at an aggregate level over the reporting period.

• (a) a brief definition of the Solvency Capital Requirement and Minimum Capital Requirement;

• (b) the Solvency Capital Requirement and Minimum Capital Requirement, the eligible own funds, and the ratio of coverage both at the end of the reporting period and the previous reporting period;

• (c) regarding any non-compliance with the Minimum Capital Requirement or the Solvency Capital Requirement during the reporting period or at the time of disclosure, the period of each non-compliance, an explanation of its origin and consequences, any remedial measures taken, and an explanation of the effects of such remedial measures;

• (d) a description of the material risks the undertaking is exposed to, including in relation to sustainability risks, any material changes to those material risks over the reporting period, and a description of the applied risk mitigation techniques.

The description referred to in the first subparagraph, point (a), shall contain the following text:

‘Two capital requirements aim at measuring the financial soundness of the undertaking: the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR). The SCR should deliver a level of capital that enables an undertaking to absorb significant unforeseen losses over a one-year time horizon and should give reasonable assurance to policy holders that payments will be made as they fall due. The MCR is intended to provide a minimum level of security to be held at all times by the undertaking and below which the amount of financial resources (own funds) should not fall.

The capital requirements will need to be covered by capital (own funds) of sufficient quality to ensure that losses can be covered on a going-concern basis as well as in the event of winding-up’.

Compliance with the first subparagraph shall not result in an omission or the abridgement of the relevant information referred to in paragraphs 1 to 4.

Article 293

Information targeted at market professionals: Business and performance

• (a) the name and legal form of the undertaking, and, where available, the specific legal entity identifier referred to in Article 7(3), point (b), of Regulation (EU) 2023/2859 of the European Parliament and of the Council ([^E0026]);

• (b) the name and contact details of the supervisory authority responsible for the financial supervision of the undertaking and, where applicable, the name and contact details of the group supervisor of the group to which the undertaking belongs;

• (c) the name and contact details of the external auditor of the undertaking and the scope of the audit referred to in Article 51a of Directive 2009/138/EC;

• (d) a description of the holders of qualifying holdings in the undertaking, including their names;

• (e) where the undertaking belongs to a group, details of the undertaking’s position within the legal structure of the group, including a full organisational chart and, where appropriate, a simplified group organisational chart;

• (f) the undertaking’s material lines of business and material geographical areas where it carries out business;

- (g) any significant business or other events that have occurred over the reporting period that have had a material impact on the undertaking.

• (a) information on income and expenses arising from investments and, where necessary for a proper understanding of the income and expenses, the components of such income and expenses;

• (b) information about the nature and amount of any gains and losses recognised directly in equity;

• (c) information about the nature and amount of any investments in securitisation.

Article 294

Information targeted at market professionals: System of governance

• (a) a description of the structure of the undertaking’s administrative, management or supervisory body, of its main roles and responsibilities and of the segregation of responsibilities within those bodies, and in particular whether relevant committees exist within them, and a description of the main roles and responsibilities of key functions or, where a solvency and financial condition report has already been submitted, any material changes in the system of governance that have taken place compared to the previous reporting period;

• (b) information on the remuneration policy and practices regarding administrative, management or supervisory body and, unless otherwise stated, employees, including:
• (i) principles of the remuneration policy, with an explanation of at least the relative importance of the fixed and variable components of remuneration and deferral of variable component and how the remuneration policy is consistent with the integration of sustainability risks;
• (ii) information on the individual and collective performance criteria on which any entitlement to share options, shares or variable components of remuneration is based;
• (iii) a description of the main characteristics of supplementary pension or early retirement schemes for the members of the administrative, management or supervisory body and other key function holders;

• (c) information about material transactions during the reporting period with shareholders, with persons who exercise a significant influence on the undertaking, and with members of the administrative, management or supervisory body.

Article 296

Information targeted at market professionals: Valuation for solvency purposes

• (a) separately for each material class of assets, following the classification as set out in the solvency balance sheet, the value of the assets, and a description of the bases, methods and main assumptions used for valuation for solvency purposes, including, where relevant, the consideration of sustainability risks and factors in the valuation methods;

- (b) for material classes of assets, an explanation of any material differences between the bases, methods and main assumptions used by that undertaking for the valuation for solvency purposes and those used for its valuation in financial statements.

• (a) separately for each material line of business, the value of technical provisions, including the amount of the best estimate and the risk margin, and a description of the bases, methods and main assumptions used for its valuation for solvency purposes, including, where relevant, the consideration of sustainability risks and factors in the valuation methods;

• (b) a description of the level of uncertainty associated with the value of technical provisions;

• (c) for material lines of business, an explanation of any material differences between the bases, methods and main assumptions used by that undertaking for the valuation for solvency purposes and those used for their valuation in financial statements;

• (d) a statement on whether the phasing-in mechanism for extrapolation laid down in Article 77a(2) of Directive 2009/138/EC is used, and a quantification of the impact of not applying the phasing-in mechanism;

• (e) where the matching adjustment referred to in Article 77b of Directive 2009/138/EC is applied, a description of the matching adjustment and of the portfolio of obligations and assigned assets to which the matching adjustment is applied, and a quantification of the impact of a change to zero of the matching adjustment on the amount of technical provisions;

• (f) a statement on whether the volatility adjustment referred to in Article 77d of Directive 2009/138/EC is used by the undertaking, a description per currency of the volatility adjustment used and the amount of the best estimate it is applied to, and quantification of the impact of a change to zero of the volatility adjustment on the amount of technical provisions;