Legalize / European Union / Delegated Regulation

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

Type Delegated Regulation

Publication 2015-01-17

Last updated 2027-01-30

State In force

Department European Commission

Source EUR-Lex

articles 421

Reform history JSON API

Supervisory authorities shall take all of the following into account for the purposes of the assessment of the counterparties' ability to pay referred to in Article 90(4)(a) of Directive 2009/138/EC:

(a) the risk of default of the counterparties;

(b) the risk that default arises from a delay in the counterparties satisfying their commitments under the ancillary own funds item.

In relation to paragraph 1(a), the supervisory authorities shall assess the risk of default of the counterparties by examining the probability of default of the counterparties and the loss given default, taking into account all of the following criteria:

(a) the credit standing of the counterparties, provided that this appropriately reflects the counterparties' ability to satisfy their commitments under the ancillary own funds item;

(b) whether there are any current or foreseeable practical or legal impediments to the counterparties' satisfaction of their commitments under the ancillary own funds item;

(c) whether the counterparties are subject to legal or regulatory requirements that reduce the counterparties' ability to satisfy their commitments under the ancillary own funds item;

(d) whether the legal form of the counterparties prejudice the counterparties' satisfaction of their commitments under the ancillary own funds item;

(e) whether the counterparties are subject to other exposures which reduce the counterparties' ability to satisfy their commitments under the ancillary own funds item;

(f) whether, in relation to their commitment under the ancillary own fund item, the contractual terms of the arrangement under any applicable law are such that the counterparties have rights to set-off amounts they owe against any amounts owed to them by the insurance or reinsurance undertaking.

In relation to paragraph 1(b), the supervisory authorities shall assess the liquidity position of the counterparties, taking into account all of the following:

(a) whether there are any current or foreseeable practical or legal impediments to the counterparties' ability to promptly satisfy their commitments under the ancillary own funds item;

(b) whether the counterparties are subject to legal or regulatory requirements that may reduce the counterparties' ability to promptly satisfy their commitments under the ancillary own funds item;

(c) whether the legal form of the counterparties prejudices the counterparties' prompt satisfaction of their commitments under the ancillary own funds item.

Supervisory authorities shall take all of the following into account for the purposes of the assessment of the counterparties' willingness to pay referred to in Article 90(4)(a) of Directive 2009/138/EC:

(a) the range of circumstances under which the ancillary own funds item can be called up to absorb losses;

(b) whether incentives or disincentives exist which may affect the counterparties' willingness to satisfy their commitments under the ancillary own funds item;

(c) whether previous transactions between the counterparties and the insurance or reinsurance undertaking, including the counterparties' previous satisfaction of their commitments under ancillary own funds items, give an indication as to the counterparties' willingness to satisfy their current commitments under the ancillary own funds item.

The supervisory authorities shall, in assessing the counterparties' ability and willingness to pay, consider any other factors relevant to the status of the counterparties including, where relevant, the insurance or reinsurance undertaking's business model.

Where an ancillary own-fund item concerns a group of counterparties, supervisory authorities and insurance and reinsurance undertakings may assess the status of the group of counterparties as though it were a single counterparty provided that all of the following conditions are fulfilled:

(a) the counterparties are individually non-material;

(b) the counterparties included in that group are sufficiently homogeneous;

(c) the assessment of a group of counterparties does not overestimate the ability and willingness to pay of the counterparties included in that group.

A counterparty shall be considered as material where the status of that single counterparty is likely to have a significant effect on the assessment of the group of counterparties' ability and willingness to pay.

Article 64

Assessment of the application — Recoverability of the funds

Supervisory authorities shall take all of the following into account for the purposes of the assessment of the recoverability of the funds referred to in Article 90(4)(b) of Directive 2009/138/EC:

(a) whether the recoverability of the funds is increased as a result of the availability of collateral or an analogous arrangement that complies with Articles 209 to 214;

(b) whether there is any current or foreseeable practical or legal impediment to the recoverability of the funds;

(d) the ability of the insurance or reinsurance undertaking to take action to enforce the counterparties' satisfaction of their commitments under the ancillary own funds item.

Article 65

Assessment of the application — Information on the outcome of past calls

Supervisory authorities shall take all of the following into account for the purposes of the assessment of the information on the outcome of past calls referred to in Article 90(4)(c) of Directive 2009/138/EC:

(a) whether the insurance or reinsurance undertaking has made past calls from the same or similar counterparties under the same or similar circumstances;

(b) whether that information is relevant and reliable as regards the expected outcome of future calls.

Article 66

Specification of amount relating to an unlimited amount of ancillary own funds

The supervisory authorities shall not approve an unlimited amount of ancillary own funds.

Where the supervisory authorities approve an amount of ancillary own funds, the decision of the supervisory authorities shall specify whether the amount that has been approved is the amount for which the insurance or reinsurance undertaking has applied or a lower amount.

Article 67

Specification of amount and timing relating to the approval of a method

Where the supervisory authorities approve a method to determine the amount of each ancillary own fund item, the supervisory authorities' decision shall set out all of the following:

(a) the initial amount of the ancillary own funds item that has been calculated using that method at the date the approval is granted;

(b) the minimum frequency of recalculation of the amount of ancillary own funds item using that method where it is more frequent than annual, and the reasons for that frequency;

Subsection 2 Own funds treatment of participations

Article 68

Treatment of participations in the determination of basic own funds

For the purpose of determining the basic own funds of insurance and reinsurance undertakings, basic own funds as referred to in Article 88 of Directive 2009/138/EC shall be reduced by the full value of participations, as referred to in Article 92(2) of that Directive, in a financial and credit institution that exceeds 10 % of items included in points (a) (i), (ii), (iv) and (vi) of Article 69.

For the purpose of determining the basic own funds of insurance and reinsurance undertakings, basic own funds as referred to in Article 88 of Directive 2009/138/EC shall be reduced by the part of the value of all participations, as referred to in Article 92(2) of that Directive, in financial and credit institutions, other than participations referred to in paragraph 1, that exceeds 10 % of items included in points (a) (i), (ii), (iv) and (vi) of Article 69.

Paragraphs 1 and 2 shall not apply to strategic participations as referred to in Article 171 of this Regulation, where the participating insurance or reinsurance undertaking has obtained the permission referred to in Article 92(1a), second subparagraph of Directive 2009/138/EC.

The deductions set out in paragraph 2 shall be applied on a pro-rata basis to all participations referred to in that paragraph.

The deductions set out in paragraphs 1 and 2 shall be made from the corresponding tier in which the participation has increased the own funds of the related undertaking as follows:

(a) holdings of Common Equity Tier 1 items of financial and credit institutions shall be deducted from the items included in points (a) (i), (ii), (iv) and (vi) of Article 69;

(b) holdings of Additional Tier 1 instruments of financial and credit institutions shall be deducted from the items included in points (a)(iii) and (v) and point (b) of Article 69;

(c) holdings of Tier 2 instruments of financial and credit institutions shall be deducted from the basic own-fund items included in Article 72.

SECTION 2 Classification of own funds

Article 69

Tier 1 — List of own-fund items

The following basic own-fund items shall be deemed to substantially possess the characteristics set out in Article 93(1)(a) and (b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive, and shall be classified as Tier 1, where those items display all of the features set out in Article 71:

(a) the part of excess of assets over liabilities, valued in accordance with Article 75 and Section 2 of Chapter VI of Directive 2009/138/EC, comprising the following items:
(i) paid-in ordinary share capital and the related share premium account;
(ii) paid-in initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings;
(iii) paid-in subordinated mutual member accounts;
(iv) surplus funds that are not considered as insurance and reinsurance liabilities in accordance with Article 91(2) of Directive 2009/138/EC;
(v) paid-in preference shares and the related share premium account;
(vi) a reconciliation reserve;

(b) paid-in subordinated liabilities valued in accordance with Article 75 of Directive 2009/138/EC.

Article 70

Reconciliation Reserve

The reconciliation reserve referred to in point (a)(vi) of Article 69 equals the total excess of assets over liabilities reduced by all of the following:

(a) the amount of own shares held by the insurance and reinsurance undertaking;

(b) foreseeable dividends, distributions and charges;

(d) the basic own-fund items not included in points (a)(i) to (v) of Article 69, point (a) of Article 72 and point (a) of Article 76, which have been approved by the supervisory authority in accordance with Article 79;

(e) the restricted own-fund items that meet one of the following requirements:
(i) exceed the notional Solvency Capital Requirement in the case of ring-fenced funds determined in accordance with Article 81(1);
(ii) that are excluded in accordance with Article 81(2);

(f) the amount of participations held in financial and credit institutions as referred to in Article 92(2) of Directive 2009/138/EC deducted in accordance with Article 68, to the extent that this is not already included in points (a) to (e).

The excess of assets over liabilities referred to in paragraph 1 includes the amount that corresponds to the expected profit included in future premiums set out in paragraph 2 of Article 260.

The determination of whether, and to what extent, the reconciliation reserve displays the features set out in Article 71 shall not amount to an assessment of the features of the assets and liabilities that are included in computing the excess of assets over liabilities or the underlying items in the undertakings' financial statements.

Article 70a

Foreseeable dividends and distributions

For the purposes of Article 70(1), point (b), the amount of foreseeable dividends and distributions shall be determined in accordance with the accrual approach set out in paragraphs 2 to 6 of this Article.

The amount of dividends and distributions shall be deemed foreseeable where the administrative, management or supervisory body or the other persons who effectively run the undertaking have formally taken a decision or proposed a decision to the relevant body regarding the amount of dividend or distributions to be paid out.

Before the administrative, management or supervisory body, or the other persons who effectively run the undertaking, have formally taken a decision or proposed a decision to the relevant body regarding the amount of dividend or distributions to be paid out, the amount of foreseeable dividend or distributions for the financial year under consideration shall be equal to the sum of the following:

(a) the full amount of the likely dividend or distributions to be paid during the course of the ongoing financial year, corresponding to profits of the previous financial years;

(b) either of the following:
(i) the product of the dividend or distributions pay-out ratio and the cumulative interim profits realised or estimated, as the case may be, between the beginning of the ongoing financial year and the reference date for the calculation of the reconciliation reserve;
(ii) the product of the estimated amount of dividend or distributions corresponding to profits for the entire ongoing financial year and the fraction of that financial year that has elapsed up to the reference date for the calculation of the reconciliation reserve.

For the purposes of the first subparagraph, ‘profits’ shall have the same meaning as under the applicable accounting framework.

For the purposes of paragraph 3, point (b), the dividend or distributions pay-out ratio or pay-out amount shall be determined on the basis of the dividend or distributions policy approved by the administrative, management or supervisory body. Where the dividend or distributions policy contains a pay-out range instead of a fixed value, the upper end of the range shall be used.

In the absence of an approved dividend or distribution policy referred to in paragraph 4, or when, in the opinion of the supervisory authority, it is likely that the undertaking will not apply its dividend or distribution policy, or where that policy is not a prudent basis upon which to determine the amount of deduction, the dividend or distribution pay-out ratio or pay-out amount shall be based on the most prudent approach among the following:

(a) the average dividend or distribution pay-out ratio or amount over the three financial years prior to the ongoing financial year;

(b) the dividend or distribution pay-out ratio or amount of the financial year preceding the ongoing financial year;

The undertaking may exclude from the calculation of the dividends or distributions pay-out ratio or pay-out amount as referred to in paragraph 4, points (a) and (b), exceptional payment or non-payment of dividends or distributions, provided it can demonstrate to the satisfaction of the supervisory authority, that such payment or non-payment is not representative of its dividend or distributions policy or past distribution practices.

Article 70b

Repayment and redemption requirements for the classification as own funds

For the purposes of this Section, any transaction or arrangement which has the same economic effect as a repayment or redemption regarding the loss-absorbing capacity or the amount of eligible own funds shall be treated as a repayment or redemption.

For the purposes of paragraph 1, share buy-backs shall be considered to have the same economic effect as repayment or redemption, unless the shares which are bought back are used to exercise stock options, either immediately or within no more than one month from the date of the execution of the share buy-back programme.

Article 71

Tier 1 — Features determining classification

The features referred to in Article 69 shall be the following:

(a) the basic own fund item:
(i) in the case of items referred to in points (a) (i) and (ii) of Article 69, ranks after all other claims in the event of winding-up proceedings regarding the insurance or reinsurance undertaking;
(ii) in the case of items referred to in points (a)(iii) and (v) and point (b) of Article 69, ranks to the same degree as, or ahead of, the items referred to in points (a)(i) and (ii) of Article 69, but after items listed in Articles 72 and 76 that display the features set out in Article 73 and 77 respectively and after the claims of all policy holders and beneficiaries and non-subordinated creditors;

(b) the basic own-fund item does not include features which may cause the insolvency of the insurance or reinsurance undertaking or may accelerate the process of the undertaking becoming insolvent;

(d) the basic own-fund item absorbs losses at least once there is non-compliance with the Solvency Capital Requirement and does not hinder the recapitalisation of the insurance or reinsurance undertaking;

(e) the basic own-fund item, in the case of items referred to in points (a)(iii) and (v) and point (b) of Article 69, possesses one of the following principal loss absorbency mechanisms to be triggered at the trigger event specified in paragraph 8:
(i) the nominal or principal amount of the basic own-fund item is written down as set out in paragraphs 5 and 5a;
(ii) the basic own-fund item automatically converts into a basic own-fund item listed in point (a)(i) or (ii) of Article 69 as set out in paragraphs 6 and 6a of this Article;
(iii) a principal loss absorbency mechanism that achieves an equivalent outcome to the principal loss absorbency mechanisms set out in points (i) or (ii);

(f) the basic own-fund item meets one of the following criteria:
(i) in the case of items referred to in points (a)(i) and (ii) of Article 69, the item is undated or, where the insurance or reinsurance undertaking has a fixed maturity, is of the same maturity as the undertaking;
(ii) in the case of items referred to in points (a)(iii) and (v) and point (b) of Article 69, the item is undated; the first contractual opportunity to repay or redeem the basic own-fund item does not occur before 5 years from the date of issuance;

(g) the basic own-fund item referred to in points (a)(iii) and (v) and point (b) of Article 69 may only allow for repayment or redemption of that item between 5 and 10 years after the date of issuance where the undertaking's Solvency Capital Requirement is exceeded by an appropriate margin taking into account the solvency position of the undertaking including the undertaking's medium-term capital management plan;

(h) the basic own-fund item, in the case of items referred to in points (a)(i), (ii), (iii) and (v) and point (b) of Article 69, is only repayable or redeemable at the option of the insurance or reinsurance undertaking and the repayment or redemption of the basic own-fund item is subject to prior supervisory approval;

(i) the basic own-fund item, in the case of items referred to in points (a)(i), (ii), (iii) and (v) and point (b) of Article 69, does not include any incentives to repay or redeem that item that increase the likelihood that an insurance or reinsurance undertaking will repay or redeem that basic own-fund item where it has the option to do so;

(j) the basic own-fund item, in the case of items referred to in points (a)(i), (ii), (iii) and (v) and point (b) of Article 69, provides for the suspension of repayment or redemption of that item where there is non-compliance with the Solvency Capital Requirement or repayment or redemption would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the repayment or redemption would not lead to non-compliance with the Solvency Capital Requirement;

(k) notwithstanding point (j), the basic own-fund item may only allow for repayment or redemption of that item where there is non-compliance with the Solvency Capital Requirement or repayment or redemption would lead to such non-compliance, where all of the following conditions are met:
(i) the supervisory authority has exceptionally waived the suspension of repayment or redemption of that item;
(ii) the item is exchanged for or converted into another Tier 1 own-fund item of at least the same quality;
(iii) the Minimum Capital Requirement is complied with after the repayment or redemption.

(l) the basic own-fund item meets one of the following criteria:
(i) in the case of items referred to in points (a)(i) and (ii) of Article 69(1), either the legal or contractual arrangements governing the basic own-fund item or national legislation allow for the cancellation of distributions in relation to that item where there is non-compliance with the Solvency Capital Requirement or the distribution would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the distribution would not lead to non-compliance with the Solvency Capital Requirement;
(ii) in the case of items referred to in points (a)(iii) and (v) and point (b) of Article 69 the terms of the contractual arrangement governing the basic own-fund item provide for the cancellation of distributions in relation to that item where there is non-compliance with the Solvency Capital Requirement or the distribution would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the distribution would not lead to non-compliance with the Solvency Capital Requirement;

(m) the basic own-fund item may only allow for a distribution to be made where there is non-compliance with the Solvency Capital Requirement or the distribution on a basic-own fund item would lead to such non-compliance, where all of the following conditions are met:
(i) the supervisory authority has exceptionally waived the cancellation of distributions;
(ii) the distribution does not further weaken the solvency position of the insurance or reinsurance undertaking;
(iii) the Minimum Capital Requirement is complied with after the distribution is made.

(n) the basic own fund item, in the case of items referred to in points (a)(i), (ii), (iii) and (v) and point (b) of Article 69, provides the insurance or reinsurance undertaking with full flexibility over the distributions on the basic own-fund item;

(o) the basic own-fund item is free from encumbrances and is not connected with any other transaction, which when considered with the basic own-fund item, could result in that basic own-fund item not complying with Article 94(1) of Directive 2009/138/EC.

For the purposes of this Article, the exchange or conversion of a basic own-fund item into another Tier 1 basic own-fund item or the repayment or redemption of a Tier 1 own-fund item out of the proceeds of a new basic own-fund item of at least the same quality shall not be deemed to be a repayment or redemption, provided that the exchange, conversion, repayment or redemption is subject to the approval of the supervisory authority.

For the purposes of point (n) of paragraph 1, in the case of basic own-fund items referred to in points (a)(i) and (ii) of Article 69, full flexibility over the distributions is provided where all of the following conditions are met:

(a) there is no preferential distribution treatment regarding the order of distribution payments and the terms of the contractual arrangement governing the own-fund item do not provide preferential rights to the payment of distributions;

(b) distributions are paid out of distributable items;

(c) the level of distributions is not determined on the basis of the amount for which the own-fund item was purchased at issuance and there is no cap or other restriction on the maximum level of distribution;

(d) notwithstanding point (c), in the case of instruments issued by mutual and mutual-type undertakings, a cap or other restriction on the maximum level of distribution may be set, provided that cap or other restriction is not an event linked to distributions being made, or not made, on other own fund items;

(e) there is no obligation for an insurance or reinsurance undertaking to make distributions;

(f) non-payment of distributions does not constitute an event of default of the insurance or reinsurance undertaking;

(g) the cancellation of distributions imposes no restrictions on the insurance or reinsurance undertaking.

For the purposes of point (n) of paragraph 1, in the case of basic own-fund items referred to in points (a)(iii) and (a)(v) and point (b) of Article 69 full flexibility over the distributions is provided where all of the following conditions are met:

(a) distributions are paid out of distributable items;

(b) insurance and reinsurance undertakings have full discretion at all times to cancel distributions in relation to the own-fund item for an unlimited period and on a non-cumulative basis and the undertakings may use the cancelled payments without restriction to meet its obligations as they fall due;

(d) there is no obligation to make distributions in the event of a distribution being made on another own fund item;

(e) non-payment of distributions does not constitute an event of default of the insurance or reinsurance undertaking;

(f) the cancellation of distributions imposes no restrictions on the insurance or reinsurance undertaking.

For the purposes of paragraph (1)(e)(i), the nominal or principal amount of the basic own-fund item shall be written down in such a way that all of the following are reduced:

(a) the claim of the holder of that item in the event of winding-up proceedings;

(b) the amount required to be paid on repayment or redemption of that item;

5a. For the purposes of point (i) of point (e) of paragraph 1, the provisions governing the write-down of the nominal or principal amount of the basic own-fund item shall provide for all of the following:

a) if the trigger event specified in paragraph 8 has occurred in the circumstances described in point (c) of the second subparagraph of that paragraph and a partial write-down would be sufficient to re-establish compliance with the Solvency Capital Requirement, there is a partial write-down of the nominal or principal amount for an amount that is at least sufficient to re-establish compliance with the Solvency Capital Requirement;

b) if the trigger event specified in paragraph 8 has occurred in the circumstances described in point (c) of the second subparagraph of that paragraph and a partial write-down would not be sufficient to re-establish compliance with the Solvency Capital Requirement, the nominal or principal amount as determined at the time of original issuance of the basic own-fund item is written down at least on a linear basis in a manner which ensures that full write-down will occur when 75 % coverage of the Solvency Capital Requirement is reached, or prior to that event;

c) if the trigger event specified in paragraph 8 has occurred in the circumstances described in point (a) or point (b) of the second subparagraph of that paragraph, the nominal or principal amount is written down in full;

d) following a write-down in accordance with point (b) of this paragraph (‘the initial write-down’):
(i) if the trigger event specified in paragraph 8 subsequently occurs in the circumstances described in point (a) or point (b) of the second subparagraph of that paragraph, the nominal or principal amount is written down in full;
(ii) if, by the end of the period of three months from the date of the trigger event that resulted in the initial write-down, no trigger event has occurred in the circumstances described in point (a) or point (b) of the second subparagraph of paragraph 8 but the solvency ratio has deteriorated further, the nominal or principal amount as determined at the time of original issuance of the basic own-fund item is written down further in accordance with point (b) of this paragraph to reflect that further deterioration in the solvency ratio;
(iii) a further write-down is made in accordance with point (ii) for each subsequent deterioration in the solvency ratio at the end of each subsequent period of three months until the insurance or reinsurance undertaking has re-established compliance with the Solvency Capital Requirement. For the purposes of this paragraph, ‘solvency ratio’ means the ratio of the eligible amount of own funds to cover the Solvency Capital Requirement and the Solvency Capital Requirement, using the latest available values.

For the purposes of paragraph (1)(e)(ii), the provisions governing the conversion into basic own-fund items listed in points (a) (i) or (ii) of Article 69 shall specify either of the following:

(a) the rate of conversion and a limit on the permitted amount of conversion;

(b) a range within which the instruments will convert into the basic own funds item listed in points (a)(i) or (ii) of Article 69.

6a. For the purposes of point (ii) of point (e) of paragraph 1, the provisions governing the conversion into basic own-fund items listed in points (i) or (ii) of point (a) of Article 69 shall provide for all of the following:

a) if the trigger event specified in paragraph 8 has occurred in the circumstances described in point (c) of the second subparagraph of that paragraph and a partial conversion would be sufficient to re-establish compliance with the Solvency Capital Requirement, there is a partial conversion of the item for an amount that is at least sufficient to re-establish compliance with the Solvency Capital Requirement;

b) if the trigger event specified in paragraph 8 has occurred in the circumstances described in point (c) of the second subparagraph of that paragraph and a partial conversion would not be sufficient to re-establish compliance with the Solvency Capital Requirement, the item is converted in such a way that the remaining nominal or principal amount of the item decreases at least on a linear basis ensuring that full conversion will occur when 75 % coverage of the Solvency Capital Requirement is reached, or prior to that event;

c) if the trigger event specified in paragraph 8 has occurred in the circumstances described in point (a) or point (b) of the second subparagraph of that paragraph, the item is converted in full;

d) following a conversion in accordance with point (b) of this paragraph (‘the initial conversion’):
(i) if the trigger event specified in paragraph 8 subsequently occurs in the circumstances described in point (a) or point (b) of the second subparagraph of that paragraph, the item is converted in full;
(ii) if, by the end of the period of three months from the date of the trigger event that resulted in the initial conversion, no trigger event has occurred in the circumstances described in point (a) or point (b) of the second subparagraph of paragraph 8 but the solvency ratio has deteriorated further, the item is converted further in accordance with point (b) of this paragraph to reflect that further deterioration in the solvency ratio;
(iii) a further conversion is made in accordance with point (ii) for each subsequent deterioration in the solvency ratio at the end of each subsequent period of three months until the insurance or reinsurance undertaking has re-established compliance with the Solvency Capital Requirement. For the purposes of this paragraph, ‘solvency ratio’ has the same meaning as it has for the purposes of paragraph 5a.

The nominal or principal amount of the basic own-fund item shall absorb losses at the trigger event. Loss absorbency resulting from the cancellation of, or a reduction in, distributions shall not be deemed to be sufficient to be considered to be a principal loss absorbency mechanism in accordance with paragraph (1)(e).

The trigger event referred to in paragraph (1)(e) shall be significant non-compliance with the Solvency Capital Requirement.

For the purposes of this paragraph, non-compliance with the Solvency Capital Requirement shall be considered significant where any of the following conditions is met:

(a) the amount of own-fund items eligible to cover the Solvency Capital Requirement is equal to or less than the 75 % of the Solvency Capital Requirement;

(b) the amount of own-fund items eligible to cover the Minimum Capital Requirement is equal to or less than Minimum Capital Requirement;

(c) compliance with the Solvency Capital Requirement is not re-established within a period of three months of the date when non-compliance with the Solvency Capital Requirement was first observed.

Insurance and reinsurance undertakings may specify, in the provisions governing the instrument, one or more trigger events in addition to the events referred to in points (a) to (c).

For the purposes of points (d), (j) and (l) of paragraph 1, references to the Solvency Capital Requirement shall be read as references to the Minimum Capital Requirement where non-compliance with the Minimum Capital Requirement occurs before non-compliance with the Solvency Capital Requirement.

10.

Notwithstanding the requirement in point (e) of paragraph 1 for the principal loss absorbency mechanism to be triggered at the trigger event specified in paragraph 8, the basic own-fund item may allow for the principal loss absorbency mechanism not to be triggered at that event where all of the following conditions are met:

a) the trigger event occurs in the circumstances described in point (c) of the second subparagraph of paragraph 8;

b) there have been no previous trigger events in the circumstances described in point (a) or (b) of the second subparagraph of that paragraph;

c) the supervisory authority agrees exceptionally to waive the triggering of the principal loss absorbency mechanism on the basis of both of the following pieces of information:
(i) projections provided to the supervisory authority by the insurance or reinsurance undertaking when that undertaking submits the recovery plan required by Article 138(2) of Directive 2009/138/EC, that demonstrate that triggering the principal loss absorbency mechanism in that case would be very likely to give rise to a tax liability that would have a significant adverse effect on the undertaking's solvency position;
(ii) certificate issued by that undertaking's statutory auditors certifying that all of the assumptions used in the projections are realistic.

11.

Notwithstanding the requirement in point (ii) of point (f) of paragraph (1), the basic own-fund item may allow for repayment or redemption earlier than that period where all of the following conditions are met:

(a) the undertaking's Solvency Capital Requirement, after the repayment or redemption, will be exceeded by an appropriate margin taking into account the solvency position of the undertaking, including the undertaking's medium-term capital management plan;

(b) the circumstances are as described in point (i) or point (ii):
(i) there is a change in the regulatory classification of the basic own-fund item which would be likely to result in its exclusion from own funds or reclassification as a lower tier of own funds, and both of the following conditions are met:
— the supervisory authority considers such a change to be sufficiently certain;
— the undertaking demonstrates to the satisfaction of the supervisory authority that the regulatory reclassification of the basic own-fund item was not reasonably foreseeable at the time of its issuance;
(ii) there is a change in the applicable tax treatment of the basic own-fund item which the undertaking demonstrates to the satisfaction of the supervisory authority is material and was not reasonably foreseeable at the time of its issuance.

Article 72

Tier 2 Basic own-funds — List of own-fund items

The following basic own-fund items shall be deemed to substantially possess the characteristics set out in Article 93(1)(b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive, and shall be classified as Tier 2 where the following items display all of the features set out in Article 73:

(a) the part excess of assets over liabilities, valued in accordance with Article 75 and Section 2 of Chapter VI of Directive 2009/138/EC, comprising the following items:
(i) ordinary share capital and the related share premium account;
(ii) initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings;
(iii) subordinated mutual member accounts;
(iv) preference shares and the related share premium account;

(b) subordinated liabilities valued in accordance with Article 75 of Directive 2009/138/EC.

Article 73

Tier 2 Basic own-funds — Features determining classification

The features referred to in Article 72 shall be either those set out in points (a) to (i) or those set out in point (j):

(a) the basic own-fund item ranks after the claims of all policy holders and beneficiaries and non-subordinated creditors;

(b) the basic own-fund item does not include features which may cause the insolvency of the insurance or reinsurance undertaking or may accelerate the process of the undertaking becoming insolvent;

(c) the basic own-fund item is undated or has an original maturity of at least 10 years; the first contractual opportunity to repay or redeem the basic own-fund item does not occur before 5 years from the date of issuance;

(d) the basic own-fund item is only repayable or redeemable at the option of the insurance or reinsurance undertaking and the repayment or redemption of the basic own-fund item is subject to prior supervisory approval;

(e) the basic own-fund item may include limited incentives to repay or redeem that basic own-fund item, provided that these do not occur before 10 years from the date of issuance;

(f) the basic own-fund item provides for the suspension of repayment or redemption of that item where there is non-compliance with the Solvency Capital Requirement or repayment or redemption would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the repayment or redemption would not lead to non-compliance with the Solvency Capital Requirement;

(g) the basic own-fund item meets one of the following criteria:
(i) in the case of items referred to in points (a)(i) and (ii) of Article 72, either the legal or contractual arrangements governing the basic own-fund item or national legislation allow for the distributions in relation to that item to be deferred where there is non-compliance with the Solvency Capital Requirement or the distribution would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the distribution would not lead to non-compliance with the Solvency Capital Requirement;
(ii) in the case of items referred to in points (a)(iii) and (iv) and point (b) of Article 72 the terms of the contractual arrangement governing the basic own-fund item provide for the distributions in relation to that item to be deferred where there is non-compliance with the Solvency Capital Requirement or the distribution would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the distribution would not lead to non-compliance with the Solvency Capital Requirement;

(h) the basic own-fund item may only allow for a distribution to be made where there is non-compliance with the Solvency Capital Requirement or the distribution on a basic-own fund item would lead to such non-compliance, where all of the following conditions are met:
(i) the supervisory authority has exceptionally waived the deferral of distributions;
(ii) the payment does not further weaken the solvency position of the insurance or reinsurance undertaking;
(iii) the Minimum Capital Requirement is complied with after the distribution is made.

(i) the basic own-fund item is free from encumbrances and is not connected with any other transaction, which when considered with the basic own-fund item, could result in that basic own-fund item not complying with the first subparagraph of Article 94(2) of Directive 2009/138/EC.

(j) the basic own-fund item displays the features set out in Article 71 that are relevant for basic own-fund items referred to in points (a)(iii), (v) and (b) of Article 69, but exceeds the limit set out in Article 82(3).

Notwithstanding point (f), the basic own-fund item may only allow for the repayment or redemption of that item where there is non-compliance with the Solvency Capital Requirement or repayment or redemption would lead to such non-compliance, where all of the following conditions are met:

(i) the supervisory authority has exceptionally waived the suspension of repayment or redemption of that item;

(ii) the item is exchanged for or converted into another Tier 1 or Tier 2 basic own-fund item of at least the same quality;

(iii) the Minimum Capital Requirement is complied with after the repayment or redemption.

For the purposes of this Article, the exchange or conversion of a basic own-fund item into another Tier 1 or Tier 2 basic own-fund item or the repayment or redemption of a Tier 2 basic own-fund item out of the proceeds of a new basic own-fund item of at least the same quality shall not be deemed to be a repayment or redemption, provided that the exchange, conversion, repayment or redemption is subject to the approval of the supervisory authority.

For the purposes of points (f) and (g) of paragraph 1, references to the Solvency Capital Requirement shall be read as references to the Minimum Capital Requirement where non-compliance with the Minimum Capital Requirement occurs before non-compliance with the Solvency Capital Requirement.

For the purposes of point (e) of paragraph 1, undertakings shall consider incentives to redeem in the form of an interest rate step-up associated with a call option as limited where the step-up takes the form of a single increase in the coupon rate and results in an increase in the initial rate that is no greater than the higher of the following amounts:

(a) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis;

(b) 50 % of the initial credit spread, less the swap spread between the initial index basis and the stepped-up index basis.

Notwithstanding the requirement in point (c) of paragraph 1, the basic own-fund item may allow for repayment or redemption before 5 years where all of the following conditions are met:

(a) the undertaking's Solvency Capital Requirement, after the repayment or redemption, will be exceeded by an appropriate margin, taking into account the solvency position of the undertaking, including the undertaking's medium-term capital management plan;

(b) the circumstances are as described in point (i) or point (ii):
(i) there is a change in the regulatory classification of the basic own-fund item which would be likely to result in its exclusion from own funds or reclassification as a lower tier of own funds, and both of the following conditions are met:
— the supervisory authority considers such a change to be sufficiently certain;
— the undertaking demonstrates to the satisfaction of the supervisory authority that the regulatory reclassification of the basic own-fund item was not reasonably foreseeable at the time of its issuance;
(ii) there is a change in the applicable tax treatment of the basic own-fund item which the undertaking demonstrates to the satisfaction of the supervisory authority is material and was not reasonably foreseeable at the time of its issuance.

Article 74

Tier 2 Ancillary own-funds — List of own-fund items

Without prejudice to Article 96 of Directive 2009/138/EC, the following ancillary own-fund items shall be deemed to substantially possess the characteristics set out in Article 93(1)(b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive, and shall be classified as Tier 2, where the following items display all of the features set out in Article 75:

(a) unpaid and uncalled ordinary share capital callable on demand;

(b) unpaid and uncalled initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings, callable on demand;

(d) a legally binding commitment to subscribe and pay for subordinated liabilities on demand;

(e) letters of credit and guarantees which are held in trust for the benefit of insurance creditors by an independent trustee and provided by credit institutions authorised in accordance with Article 8 of Directive 2013/36/EU;

(f) letters of credit and guarantees provided that the items can be called up on demand and are clear of encumbrances;

(g) any future claims which mutual or mutual-type associations of shipowners with variable contributions solely insuring risks listed in classes 6, 12 and 17 in Part A of Annex 1 of Directive 2009/138/EC may have against their members by way of a call for supplementary contributions, within the following 12 months;

(h) any future claims which mutual or mutual-type associations may have against their members by way of a call for supplementary contributions, within the following 12 months, provided that a call can be made on demand and is clear of encumbrances;

(i) other legally binding commitments received by the insurance or reinsurance undertaking, provided that the item can be called up on demand and is clear of encumbrances.

Article 75

Tier 2 Ancillary own-funds — Features determining classification

In order to be classified as Tier 2, the ancillary own-fund items listed in Article 74 shall display the features of a basic own fund item classified in Tier 1 in accordance with Articles 69 and 71 once that item has been called up and paid in.

Article 76

Tier 3 Basic own-funds– List of own-fund items

The following basic own-fund items shall be deemed to possess the characteristics set out in Article 93(1)(b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive, and shall be classified as Tier 3 where the following items display all of the features set out in Article 77:

(a) the part excess of assets over liabilities, valued in accordance with Sections 1 and 2 of Chapter VI of Directive 2009/138/EC, comprising the following items:
(i) subordinated mutual member accounts;
(ii) preference shares and the related share premium account;
(iii) an amount equal to the value of net deferred tax assets;

(b) subordinated liabilities valued in accordance with Article 75 of Directive 2009/138/EC.

Article 77

Tier 3 Basic own-funds– Features determining classification

The features referred to in Article 76 shall be the following:

(a) the basic own-fund item, in the case of items referred to in points (a)(i) and (ii) and point (b) of Article 76, ranks after the claims of all policy holders and beneficiaries and non-subordinated creditors;

(b) the basic own-fund item does not include features which may cause the insolvency of the insurance or reinsurance undertaking or may accelerate the process of the undertaking becoming insolvent;

(c) the basic own-fund item, in the case of items referred to in points (a)(i) and (ii) and point (b) of Article 76, is undated or has an original maturity of at least 5 years, where the maturity date is the first contractual opportunity to repay or redeem the basic own-fund item;

(d) the basic own-fund item, in the case of items referred to in points (a)(i) and (ii) and point (b) of Article 76, is only repayable or redeemable at the option of the insurance or reinsurance undertaking and the repayment or redemption of the basic own-fund item is subject to prior supervisory approval;

(e) the basic own-fund item, in the case of items referred to in points (a)(i) and (ii) and point (b) of Article 76, may include limited incentives to repay or redeem that basic own-fund item;

(f) the basic own-fund item, in the case of items referred to in points (a)(i) and (ii) and point (b) of Article 76, provides for the suspension of repayment or redemption where there is non-compliance with the Solvency Capital Requirement or repayment or redemption would lead to such non-compliance until the undertaking complies with the Solvency Capital Requirement and the repayment or redemption would not lead to non-compliance with the Solvency Capital Requirement;

(g) the basic own-fund item, in the case of items referred to in points (a)(i) and (ii) and point (b) of Article 76, provides for the deferral of distributions where there is non-compliance with the Minimum Capital Requirement or the distribution would lead to such non-compliance until the undertaking complies with the Minimum Capital Requirement and the distribution would not lead to non-compliance with the Minimum Capital Requirement;

(h) the basic own-fund item is free from encumbrances and is not connected with any other transaction, which could undermine the features that the item is required to possess in accordance with this Article.

(i) the supervisory authority has exceptionally waived the suspension of repayment or redemption of that item;

(ii) the item is exchanged for or converted into another Tier 1, Tier 2 basic own-fund item or Tier 3 basic own-fund item of at least the same quality;

(iii) the Minimum Capital Requirement is complied with after the repayment or redemption.

For the purposes of this Article, the exchange or conversion of a basic own-fund item into another Tier 1, Tier 2 basic own-fund item or Tier 3 basic own-fund item or the repayment or redemption of a Tier 3 basic own-fund item out of the proceeds of a new basic own-fund item of at least the same quality shall not be deemed to be a repayment or redemption, provided that the exchange, conversion, repayment or redemption is subject to the approval of the supervisory authority.

For the purposes of point (f) of paragraph 1, references to the Solvency Capital Requirement shall be read as references to the Minimum Capital Requirement where non-compliance with the Minimum Capital Requirement occurs before non-compliance with the Solvency Capital Requirement.

(a) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis;

(b) 50 % of the initial credit spread, less the swap spread between the initial index basis and the stepped-up index basis.

Notwithstanding the requirement in point (c) of paragraph 1, the basic own-fund item may allow for repayment or redemption sooner than 5 years after the date of issuance where all of the following conditions are met:

(a) the undertaking's Solvency Capital Requirement, after the repayment or redemption, will be exceeded by an appropriate margin, taking into account the solvency position of the undertaking, including the undertaking's medium-term capital management plan;

(b) the circumstances are as described in point (i) or point (ii):
(i) there is a change in the regulatory classification of the basic own-fund item which would be likely to result in its exclusion from own funds, and both of the following conditions are met:
— the supervisory authority considers such a change to be sufficiently certain;
— the undertaking demonstrates to the satisfaction of the supervisory authority that the regulatory reclassification of the basic own-fund item was not reasonably foreseeable at the time of its issuance;
(ii) there is a change in the applicable tax treatment of the basic own-fund item which the undertaking demonstrates to the satisfaction of the supervisory authority is material and was not reasonably foreseeable at the time of its issuance.

Article 78

Tier 3 Ancillary own-funds– List of own-funds items

Ancillary own-fund items that have been approved by the supervisory authority in accordance with Article 90 of Directive 2009/138/EC, and which do not display all of the features set out in Article 75 shall be classified as Tier 3 ancillary own funds.

Article 79

Supervisory Authorities approval of the assessment and classification of own-fund items

Without prejudice to Article 90 of Directive 2009/138/EC, where an own-fund item is not included in the list of own-funds items set out in Articles 69, 72, 74, 76 and 78, insurance or reinsurance undertakings shall only consider that item as own funds where an approval of the item's assessment and classification has been received from the supervisory authority.

The supervisory authority shall assess the following, on the basis of documents submitted by the insurance or reinsurance undertaking, when approving the assessment and classification of own-fund items not included in the list of own-fund items set out in Articles 69, 72, 74, 76 and 78:

(a) where the undertaking is applying for approval for classification as Tier 1, whether the basic own-fund item substantially possesses the characteristics set out in Article 93(1)(a) and (b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive;

(b) where the undertaking is applying for classification as Tier 2 basic own funds, whether the basic own-fund item substantially possesses the characteristics set out in Article 93(1)(b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive;

(c) where the undertaking is applying for classification as Tier 2 ancillary own funds, whether the ancillary own-fund item substantially possesses the characteristics in Article 93(1)(a) and (b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive;

(d) where the undertaking is applying for classification as Tier 3 basic own funds, whether the basic own-fund item possesses the characteristics set out in Article 93(1)(b) of Directive 2009/138/EC, taking into consideration the features set out in Article 93(2) of that Directive;

(e) the legal enforceability of the contractual terms of the own-fund item in all relevant jurisdictions;

(f) whether the own-fund item has been fully paid-in.

Basic own-fund items not included in the list of own-fund items set out in Articles 69, 72 and 76 shall only be classified as Tier 1 basic own funds where they are fully paid-in.

The inclusion of own-fund items approved by the supervisory authority in accordance with this Article shall be subject to quantitative limits set out in Article 82.

SECTION 3 Eligibility of own funds

Subsection 1 Ring-fenced funds

Article 80

Ring-fenced funds requiring adjustments

A reduction of the reconciliation reserve referred to in Article 70(1)(e) shall be required where own-fund items within a ring-fenced fund have a reduced capacity to fully absorb losses on a going-concern basis due to their lack of transferability within the insurance or reinsurance undertaking for any of the following reasons:

(a) the items can only be used to cover losses on a defined portion of the insurance or reinsurance undertaking's insurance or reinsurance contracts;

(b) the items can only be used to cover losses in respect of certain policy holders or beneficiaries;

The own-fund items referred to in paragraph 1, (hereinafter referred to as ‘restricted own-fund items’), shall not include the value of future transfers attributable to shareholders.

Article 81

Adjustment for ring-fenced funds

For the purposes of calculating the reconciliation reserve, insurance and reinsurance undertakings shall reduce the excess of assets over liabilities referred to in Article 70 by comparing the following amounts:

(a) the restricted own-fund items within the ring-fenced fund;

(b) the notional Solvency Capital Requirement for the ring-fenced fund.

Where the insurance or reinsurance undertaking calculates the Solvency Capital Requirement using the standard formula, the notional Solvency Capital Requirement shall be calculated in accordance with Article 217.

Where the undertaking calculates the Solvency Capital Requirement using an internal model, the notional Solvency Capital Requirement shall be calculated using that internal model, as if the undertaking pursued only the business included in the ring-fenced fund.

By way of derogation from paragraph 1, where the assets, the liabilities and the risk within a ring-fenced fund are not material, insurance and reinsurance undertakings may reduce the reconciliation reserve by the total amount of restricted own-fund items.

Subsection 2 Quantitative limits

Article 82

Eligibility and limits applicable to Tiers 1, 2 and 3

As far as compliance with the Solvency Capital Requirement is concerned, the eligible amounts of Tier 2 and Tier 3 items shall be subject to all of the following quantitative limits:

(a) the eligible amount of Tier 1 items shall be at least one half of the Solvency Capital Requirement;

(b) the eligible amount of Tier 3 items shall be less than 15 % of the Solvency Capital Requirement;

(c) the sum of the eligible amounts of Tier 2 and Tier 3 items shall not exceed 50 % of the Solvency Capital Requirement.

As far as compliance with the Minimum Capital Requirements is concerned, the eligible amounts of Tier 2 items shall be subject to all of the following quantitative limits:

(a) the eligible amount of Tier 1 items shall be at least 80 % of the Minimum Capital Requirement;

(b) the eligible amounts of Tier 2 items shall not exceed 20 % of the Minimum Capital Requirement.

Within the limit referred to in point (a) of paragraph 1 and point (a) of paragraph 2, the sum of the following basic own-fund items shall make up less than 20 % of the total amount of Tier 1 items:

(a) items referred to in point (a)(iii) of Article 69;

(b) items referred to in point (a)(v) of Article 69;

(d) items that are included in Tier 1 basic own funds under the transitional arrangement set out in Article 308b(9) of Directive 2009/138/EC.

CHAPTER V SOLVENCY CAPITAL REQUIREMENT STANDARD FORMULA

SECTION 1 General provisions

Subsection 1 Scenario based calculations

Article 83

Where the calculation of a module or sub-module of the Basic Solvency Capital Requirement is based on the impact of a scenario on the basic own funds of insurance and reinsurance undertakings, all of the following assumptions shall be made in that calculation:

(a) the scenario does not change the amount of the risk margin included in technical provisions;

(b) the scenario does not change the value of deferred tax assets and liabilities;

(d) no management actions are taken by the undertaking during the scenario.

The calculation of technical provisions arising as a result of determining the impact of a scenario on the basic own funds of insurance and reinsurance undertakings as referred to in paragraph 1 shall not change the value of future discretionary benefits, and shall take account of all of the following:

(a) without prejudice to point (d) of paragraph 1, future management actions following the scenario, provided they comply with Article 23;

(b) any material adverse impact of the scenario or the management actions referred to in point (a) on the likelihood that policy holders will exercise contractual options.

Insurance and reinsurance undertakings may use simplified methods to calculate the technical provisions arising as a result of determining the impact of a scenario as referred to in paragraph 1, provided that the simplified method does not lead to a misstatement of the Solvency Capital Requirement that could influence the decision-making or the judgement of the user of the information relating to the Solvency Capital Requirement, unless the simplified calculation leads to a Solvency Capital Requirement which exceeds the Solvency Capital Requirement that results from the calculation according to the standard formula.

The calculation of assets and liabilities arising as a result of determining the impact of a scenario as referred to in paragraph 1 shall take account of the impact of the scenario on the value of any relevant risk mitigation instruments held by the undertaking which comply with Articles 209 to 215.

Where the scenario would result in an increase in the basic own funds of insurance and reinsurance undertakings, the calculation of the module or sub-module shall be based on the assumption that the scenario has no impact on the basic own funds.

Subsection 2 Look-through approach

Article 84

The Solvency Capital Requirement shall be calculated on the basis of each of the underlying assets of collective investment undertakings and other investments packaged as funds (look-through approach).

The look-through approach referred to in paragraph 1 shall also apply to the following:

(a) indirect exposures to market risk other than collective investment undertakings and investments packaged as funds;

(b) indirect exposures to underwriting risk;

Where Article 88 is complied with and the look-through approach cannot be applied to collective investment undertakings or investments packaged as funds, the Solvency Capital Requirement may be calculated on the basis of the target underlying asset allocation or, if the target underlying asset allocation is not available to the undertaking, on the basis of the last reported asset allocation, of the collective investment undertaking or fund, provided that, in either case, the underlying assets are managed in accordance with that target allocation or last reported asset allocation, as applicable, and that exposures and risks are not expected to vary materially over a short period of time.

For the purposes of that calculation, data groupings may be used provided they enable all relevant sub-modules and scenarios of the standard formula to be calculated in a prudent manner, and that they do not apply to more than 20 % of the total value of the insurance or reinsurance undertaking's assets.

3a. For the purposes of determining the percentage of assets where data groupings are used as referred to in paragraph 3, insurance or reinsurance undertakings shall not take into account underlying assets of the collective investment undertaking, or the investments packaged as funds, backing unit-linked or index-linked obligations for which the market risk is borne by the policyholders.

Paragraph 2 shall not apply to investments in related undertakings, other than investments in respect of which all of the following conditions are met:

(a) the main purpose of the related undertaking is to hold and manage assets on behalf of the participating undertaking or of any other undertaking of the group to which the participating undertaking belongs;

(b) the related undertaking supports the operations of the participating undertaking related to investment activities, following a specific and documented investment mandate;

(c) the related undertaking does not carry on any significant business other than investing for the benefit of the participating undertaking or for any other undertaking of the group to which the participating undertaking belongs.

For the purposes of this paragraph, ‘related undertaking’ and ‘participating undertaking’ shall have the meaning given to those terms in Article 212(1) and (2) of Directive 2009/138/EC.

Subsection 3 Regional governments and local authorities

Article 85

The conditions for a categorisation of regional governments and local authorities shall be that there is no difference in risk between exposures to these and exposures to the central government, because of the specific revenue-raising power of the former, and specific institutional arrangements exist, the effect of which is to reduce the risk of default.

Subsection 4 Material basis risk

Article 86

Notwithstanding Article 210(2), where insurance or reinsurance undertakings transfer underwriting risk using reinsurance contracts or special purpose vehicles that are subject to material basis risk from a currency mismatch between underwriting risk and the risk-mitigation technique, insurance or reinsurance undertakings may take into account the risk-mitigation technique in the calculation of the Solvency Capital Requirement according to the standard formula, provided that the risk-mitigation technique complies with Article 209, Article 210(1), (3) and (4) and Article 211, and the calculation is carried out as follows:

(a) the basis risk stemming from a currency mismatch between underwriting risk and the risk-mitigation technique shall be taken into account in the relevant underwriting risk module, sub-module or scenario of the standard formula at the most granular level by adding 25 % of the difference between the following to the capital requirement calculated in accordance with the relevant module, sub-module or scenario:
(i) the hypothetical capital requirement for the relevant underwriting risk module, sub-module or scenario that would result from a simultaneous occurrence of the scenario set out in Article 188;
(ii) the capital requirement for the relevant underwriting risk module, sub-module or scenario.

(b) where the risk-mitigation technique covers more than one module, sub-module or scenario, the calculation referred to in point (a) shall be carried out for each of those modules, sub-modules and scenarios. The capital requirement resulting from those calculations shall not exceed 25 % of the capacity of the non-proportional reinsurance contract or special purpose vehicle.

Subsection 5 Calculation of the basic solvency capital requirement

Article 87

The Basic Solvency Capital Requirement shall include a risk module for intangible asset risk. and shall be equal to the following:

Image omitted; see official source

where:

(a) the summation, Corri,j, SCRi and SCRj are specified as set out in point (1) of Annex IV to Directive 2009/138/EC;

(b) SCRintangibles denotes the capital requirement for intangible asset risk referred to in Article 203.

Subsection 6 Proportionality and simplifications

Article 88

Proportionality

For the purposes of Article 109 of Directive 2009/138/EC, insurance and reinsurance undertakings shall determine whether the simplified calculation is proportionate to the nature, scale and complexity of the risks by carrying out an assessment which shall include all of the following:

(a) an assessment of the nature, scale and complexity of the risks of the undertaking falling within the relevant module or sub-module;

(b) an evaluation in qualitative or quantitative terms, as appropriate, of the error introduced in the results of the simplified calculation due to any deviation between the following:
(i) the assumptions underlying the simplified calculation in relation to the risk;
(ii) the results of the assessment referred to in point (a).

A simplified calculation shall not be considered to be proportionate to the nature, scale and complexity of the risks where the error referred to in point (b) of paragraph 1 leads to a misstatement of the Solvency Capital Requirement that could influence the decision-making or the judgement of the user of the information relating to the Solvency Capital Requirement, unless the simplified calculation leads to a Solvency Capital Requirement which exceeds the Solvency Capital Requirement that results from the standard calculation.

Article 89

General provisions for simplifications for captives

Captive insurance undertakings and captive reinsurance undertakings as defined in points (2) and (5) of Article 13 of Directive 2009/138/EC may use the simplified calculations set out in Articles 90, 103, 105 and 106 of this Regulation where Article 88 of this Regulation is complied with and all of the following requirements are met:

(a) in relation to the insurance obligations of the captive insurance undertaking or captive reinsurance undertaking, all insured persons and beneficiaries are legal entities of the group of which the captive insurance or captive reinsurance undertaking is part;

Reading this document does not replace reading the official text published in the Official Journal of the European Union. We assume no responsibility for any inaccuracies arising from the conversion of the original to this format.

This text is published under EUR-Lex's own terms of reuse, not a Legalize or public-domain licence. EUR-Lex
Creative Commons Attribution 4.0 International (CC BY 4.0)
© European Union, https://eur-lex.europa.eu — Source: EUR-Lex (Publications Office of the European Union). Reused under the Creative Commons Attribution 4.0 International (CC BY 4.0) licence. Only EU legislation published in the printed Official Journal of the European Union is deemed authentic; consolidated texts are reproduced here for documentation purposes and have been reformatted to Markdown.