Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE on the supplementary supervision of insurance undertakings in an insurance group
Date: 1995-10-04
Institutions: European Commission
Subjects: EU action, exchange of information, health policy, international cooperation, public health

COMMISSION OF THE EUROPEAN COMMUNITIES 

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Brussels,  04.10.1995 
COM(95) 406 final 

95/0245  (COD) 

Proposal  for a 
EUROPEAN PARLIAMENT  AND  COUNCIL DIRECTIVE 

on the supplementary  supervision  of  insurance  undertakings 
in  an insurance group 

(presented by the  Commission) 

EXPLANATORY  MEMORANDUM 

I.  Main objectifs  of  the proposal 

The main  objective  of  this proposal  is to  introduce  measures  that  will  make insurance 
supervisors  better  equipped  to  ascertain  the  true  solvency  of  an  insurance  undertaking 
that  is  part  of  an  insurance  group.  This  will  enhance  the  protection  of  policy  holders 
and  introduce  level  competitive  playing  fields  amongst  insurance  undertakings  in  the 
Community. 

The  competent  insurance  supervisory  authorities  of  the  Member  States  of  the 
European  Union  are  charged  by  national  laws  and  EC  directives  to  ensure  that  the 
insurance undertakings they supervise meet mandatory minimum solvency requirements. 
The  objective  is  to  ensure  that  insurance  undertakings  are  in  a  position  to  meet  the 
contractual  commitments  entered  into  with  policyholders.  The  Court  of  Justice  of  the 
EC  has  also  underlined  the  need  for  mandatory  rules  in  regard  of  a  permanent 
supervision  of the financial position  of insurance undertakings  "in view of the sensitive 
nature  of  the insurance  sector"(1). 

Although  insurance  undertakings  are  legally  indépendant  and  are  required  to  meet 
solvency  requirements  on  an  independent  basis,  the  solvency  and  general  financial 
position  of  an  insurance  undertaking  may  be  affected  and  come  under  pressure  if  it 
belongs to  a wider  group  of  undertakings.  This may  occur  if  an  insurance  undertaking 
sets-up  an  (insurance)  subsidiary  undertaking,  or  if  it  is  itself  a  subsidiary  of  another 
undertaking.  The  interest  of  insurance  supervisory  authorities  and  concern  about 
insurance  undertakings  that  are part  of  a group  is  therefore  evident. 

Insurance  undertakings may be part of groups which  have different  characteristics. For 
instance  a  group  which  predominantly  includes  insurance  undertakings,  or  a  group 
which  has  a  broader  financial  focus  and  also  comprises  credit  institutions  and 
investment  firms,  or  even  a  group  which  has  a  wider  area  of  activity  extending  to 
commercial  and  industrial  business.  The  present  discussion  is  limited  to  insurance 
undertakings  that  belong  to  groups  which  are  predominantly  composed  of  insurance 
undertakings.  Although  the  discussion  of  groups  with  a  broader  range  of  financial 
activity,  in  particular  those  also  involving  credit  institutions  and  investment  firms 
("financial  conglomerates")  clearly  pose equally  important  supervisory  questions, they 
will  be addressed  with Member  States seperately.  Although  a certain  connection  exists 
between  the present  subject  and that of financial  conglomerates, progress  on  insurance 
groups is equally  desirable  and in  many  respects technically  less complex.  It is evident 
that progress  in the  area of  insurance  groups  will  facilitate  the  discussion  on financial 
conglomerates. 

0) 

Case  205/84,  Commission  v  Germany,  [1986] ECR  3755, paras. 30-32. 

2 

The present state of EC coordination  and harmonization in the insurance  sector limits 
the  scope  of  supervisory  responsability  for the  solvency  of  insurance undertakings to 
the individual financial position  of  an insurance undertaking  ('solo' supervision).  The 
financial or  non-financial  influence  of  any  other  members  of  a  group  to  which  an 
insurance  undertaking  may  belong  are  not  taken  into  account  for  the  supervisory 
assessment  of  solvency. 

The  Third Non-Life  Insurance  Directive  (92/49/EEC)  and  the  Third  Life  Assurance 
Directive  (92/96/EEC)(2)  which  were  to  be  implemented  by  1st July  1994,  do  not 
modify  the  general  supervisory  approach  adopted  in  the  First-  and  Second  Life  and 
Non-Life  Directives in this respect.  Article 22  of Directive 92/49/EEC  and Article 22 
of  Directive  92/96/EEC  do  however  take  into  account,  the  existence  of  subsidiary 
undertakings of insurance undertakings for the application of the rules in the Directives 
concerning the diversification of assets backing the technical provisions. This is the  first 
acknowledgement  in the directives of the need to take a wider supervisory  view. 

A  specific  point  which  is  pertinent  in  the  case  of  insurance  companies  in  a  group 
concerns  the  potential  of  double  gearing  of  capital  which  may  arise.  This  practice, 
which is of concern to all competent authorities carrying-out the prudential  supervision 
of any financial institution, insurance undertaking, credit institution or investment  firm, 
was first discussed  in the  insurance  area by  the  Commission  in the  Council  working 
group  on  the  proposal  for  a  Third  Non-Life  Directive  in  November  1991.  Member 
States did not consider it opportune to seek solutions for the problem of double gearing 
at that particular point in time. The Commission did undertake however to address the 
problem  as soon  as possible  after  adoption of  the  Third Non-Life  and Life  Insurance 
Directives. 

The  Insurance  Committee(3),  which  is  composed  of  Member  States'  insurance 
supervisory  and  regulatory  authorities  has  unanimously  agreed  on  the  need  for  an 
adequate prudential response at Community level to address the most pressing concerns 
relating  to  insurance  groups.  In reaching  this  opinion,  the  Insurance  Committee  also 
took  into  account  the  fact  that  the  Third  Insurance  Directives  that  had  to  be 
implemented  by  1 July  1994,  are  based  on  the  mutual  recognition  of  minimum 
prudential  insurance  standards and that there is  a desire to maintain  level  competitive 
playing fields amongst insurance undertakings  in the Community. 

The prudential issues addressed in this paper relate directly to the solvency of insurance 
undertakings.  In  particular  measures  concerning  the  prevention  of  so-called  double 
gearing are additional  to the existing  solvency  rules that have been agreed at EC level 
in  Directives  73/239/EËC  and  79/267/EEC.  These  common  solvency  rules  are  the 
cornerstone of the principle of mutual  recognition of minimum prudential  standards as 
expressed in Directives 92/49/EEC and 92/96/EEC. Certain Member States have indeed 
at  their  own  initiative  already  adopted  measures  to  take  into  account  the  particular 
issues that arise  and to  ascertain  the true solvency  situation  of  an insurance company 
which  is part of  a group.  This in  itself  illustrates the  need  to have  measures in  place 
at Member State level. Minimum measures should be taken by all Member States. First, 
the level  of ultimate protection  of  policyholders could be  said to be lower in Member 
States that do not have in place a regulatory practice acknowledging the prudential risks 
that  a  wider  group  poses  to  an  insurer  standing  on  its  own.  Second,  solvency 
requirements  for undertakings from  Member  States  applying  regulatory  measures are 
stricter  than  in  other  States.  This  leads  to  an  intransparent  situation  as  regards  the 
approach to solvency  in insurance companies. 

(2) 

(3) 

Directive  92/49/EEC,  OJ  No  L  228,  11.8.1992,  p.  1;  Directive  92/96/EEC, 
OJNoL  360,  9.12.1992,  p.  1. 
Directive  91/675/EEC,  OJ No  L 374,  1991. 

It is essential that any approach  that seeks to take account of  supervisory  issues  arising 
from  the fact of being an entity belonging to a wider insurance group should build upon 
the principle of solo-supervision of individual insurance undertakings. This implies that 
solo  supervision  remains  the  most  important  approach  towards  prudential  supervision 
of  insurance  undertakings.  Any  new  requirements  to  take  account  of  the  effect  an 
insurance  group  may  have  on  an  insurance  undertaking's  financial  position  should  be 
regarded  as additional  to existing solo supervisory  requirements.  They  are not intended 
to replace  the principle  of  solo  supervision  or  solo  requirements. 

Although  the  phenomenon  of  insurance  groups  may  give  rise  to  many  supervisory 
issues  and  concerns,  the present  discussion  focusses  only  on those  issues  which  in  its 
opinion are the most pressing and require addressing at EU-level. The discussion should 
take account of the fact  that the aim is to define  minimum  rules so as to permit  mutual 
recognition  and  to  ensure  supervision  by  the  home  country.  Member  States  would 
naturally  continue  to  be  able  to  apply  stricter  rules  to  companies  established  in  their 
own jurisdisction. 

II.  Motivation  of  the  "insurance  groups  directive"  in  respect  of  the  principle  of 

subsidiarity 

The aim  of this directive is to complement  the existing  key  directives in the  insurance 
sectors.  These texts  aim  "to constitute  the  essential  instrument  for  the  achievement  of 
an internal  market for insurance a course determinated by the Single European  Act and 
set out  in timetable  form  in the Commission's White Paper,  from  the point  of  view  of 
both the freedom  of establishment and the freedom  to provide financial  services". They 
introduce  the  "European  passport"  for  insurance  undertakings  by  means  of  the 
mechanism  of  mutual  recognition  of  authorisation  and  the  essential  harmonisation  of 
the  prudential  control  systems,  in  applying  the  principle  of  control  by  the  home 
Member  State.  The  present  proposal  for  a  directive  aims  to  strengthen  the  prudential 
control  system  in  an  internal  market.  In this  way,  it  falls  under  the  obligations  which 
arise to  the Community  according  to  Article  57  of  the  EEC  Treaty. 

The measures  under  consideration  in this  directive  must  apply  to  all  the  institutions 
concerned  in the Community.  They  also aim in particular  at financial groups located 
in several Member States requiring cooperation and exchanges of information between 
prudential authorities of various countries in which such information is covered by rules 
on  confidentiality.  Certain  Member  States  have  already  included  in  their  national 
legislation  certain aspects of these measures, or are doing so. 

In  order  to  be  applied  in  a  coherent  manner,  it  is  desirable  that  this  legislation  is 
coordinated  at  Community  level.  The  absence  of  common  rules  affects  the  mutual 
confidence  between authorities responsible for  prudential  supervision. 

The envisaged measures bring considerable value to the strengthening of the prudential 
supervision of institutions in the insurance sectors, which contributes to the stability of 
financial  markets as a precondition to a robust economy in general. 

A directive forms the only possible method of sufficiently  constraining legal action for 
the Community. A recommendation  would be  insufficient. 

The directive will make it possible to apply the general principles of reinforcement  of 
prudential  supervision  of the companies referred  to above in the insurance  sector. A 
uniform  regulation  is  required  insofar  as  it  is  absolutely  necessary  in  this  directive 
(in terms  of  the  definitions,  methods  to  prevent  double  gearing  and  intra-group 
transactions). A certain degree of flexibility  can be accepted for the additional rules to 
be adopted  at the national  level  (e.g. the choice of methods to be applied  to prevent 
double  gearing,  more  precise  rules  for  intra-group  transactions,  etc.).  Concrete 
application measures, drawn up by the Member States, will be able to supplement this 
directive. 

III.  Comments on individual  Articles 

Article 1 

(i)  Parent undertaking  - subsidiary 

This  definition  refers  to  that  in  Articles  1 and  2  of  the  7th  Company  Law 
Directive (83/349/EEC). That definition is not completely adequate in the present 
context  because  when  seeking  to  determine  relationships  between  parent  and 
subsidiary companies for supervisory purposes, the aim is to determine the reality 
of control. There is therefore a desire to have a more flexible approach permitting 
authorities  to  consider  as  a  parent  undertaking  any  undertaking  which  in their 
view  effectively  exercises  a  dominant  influence  over  another  undertaking. 
Consequentially,  a  subsidiary  undertaking  would  not  only  be  limited  to  those 
defined  in Directive  83/349/EEC, but  also  any  other undertaking  over which a 
parent exercises a dominant influence  in the view of the supervisor. 

(ii) 

"Participation" 

The definition threshold for a participation in an another undertaking to determine 
at which  point  that undertaking  becomes  sufficiently  significant  for  the  purpose 
of insurance supervision  is important. The aim is to determine when a substantial 
link  exists for  any  substantial  influence  on  a company's  activities.  It is  therefore 
proposed to align this threshold with that already existing in the field of company 
law  (Article  17,  4th  Company  Law  Directive  78/660/EEC)  and  to  set  it  at 
holdings  of  capital  or voting  rights  in  another  undertaking  of  20% or  more. 

Article  2 

This  Article  clarifies  that  the  scope  of  application  of  the  measures  is  limited  to 
insurance  undertakings  with  their  registered  office  in the  Community. 

Article  3 

This  Article  requires  Member  States  to  extend  supervision  to  all  other  entities  that 
could  have a bearing  on the financial  and  operating position  of  a supervised  insurance 
undertaking.  It  also  differentiates  between  the  various  supervisory  measures  and  the 
group entities to which they may be applied. It includes the following  enterprises (apart 
from  other  supervised  insurance  undertakings)  with  which  an  insurer  may  have  a 
parent/subsidiary  relationship,  or  in which  a participation  exists. 

Reinsurance  undertakings; 

Holding  companies  (both  at  the  top  of  a group  or  in  an  intermediate  position), 
distingui sting between financial holding companies with principally or exclusively 
insurance  subsidiaries,  and mixed activity  holding companies with  a wider  scope 
of  activity; 

Other  unsupervised  enterprises  carrying  out  activities  that  are  a direct  extension 
of insurance or are ancillary  to insurance,  such  as asset  management  companies, 
real  estate  companies  or  companies  managing  data-processing  services. 

The  inclusion  of  such  unsupervised  entities  in  no  way  implies  that  a  supervisory 
function  is exercised  in relation to that entity  standing  on its own. An exception to this 
general  rule  is  the  case  in  which  reinsurance  undertakings  are  subject  to  direct 
supervision  in  certain  Member  States.  It  should  however  be  left  entirely  to  the 
discretion  of  each  Member  State  to  decide  whether  or  not  to  supervise  reinsurance 
undertakings.  This  Article  also  permits  to  exclude  application  of  the  measures  if  it 
would  be  inappropriate  or  if  the  undertakings  are  of  less  relevance  or  established  in 
third  countries  and  it  is difficult  to  obtain  relevant  information. 

Article  4 

This  Article  clarifies  that  the  authorities  that  should  be  charged  with  exercising  any 
additional  functions  when  an  insurance  undertaking  is  part  of  a group,  should  be  the 
competent  authorities  of the Member  States as  defined  in the Third  Life  (92/96/EEC) 
and Non-Life  Insurance  (92/49/EEC)  Directives.  Contrary  to  the  banking  sector 
(see  Directive  92/30/EEC) there is no need to provide for  a choice between  competent 
supervisory  authorities  if  a  number  of  insurance  undertakings  are  subsidiaries  of  a 
common  parent  company.  The measures  in the insurance  sector  should  apply  to every 
insurance  undertaking  in  addition  to  regular  solo  supervision:  banking  supervision 
allows  supervision  on  a  consolidated  basis  to  replace  solo  supervision  under  certain 
conditions. 

Article  5 

This Article requires that the relevant information  should be available to the supervisor. 
Adequate internal  procedures  should therefore  exist to produce relevant  information  in 
each  insurance  undertaking  or  financial  holding  company,  that  is  a  parent  or  holds  a 
participation  in  one  or  more  insurance  undertakings,  financial  holding  companies  or 
related  undertakings,  such  as e.g.  a reinsurance  company.  (Such  a requirement  indeed 
already  exists  for  insurance  undertakings  according  to  Articles  9  and  8  of  Directives 
92/49/EEC  and  92/98/EEC  respectively). 

Article  6 

In order to supervise in any meaningful  way the relevant links an insurance undertaking 
has  with  other  enterprises  it  is  important  that  insurance  supervisors  have  a  right  of 
direct  to any  relevant  information  in those  enterprises  ("droit  de suite"). It  is proposed 
that  this  right  should  therefore  apply  with  regard  to: 

any  undertaking  of  which  an  insurance  undertaking  is  a parent  or  a  subsidiary: 

any  undertaking  in  which  an  insurance  undertaking  holds  a  participation. 

With  regard  to the practical  enforcement  of  such  a right  to information  a large  margin 
of  flexibility  is  left  to  the  competent  authorities,  who  may  acquire  information  either 
directly,  or  through  a  supervised  insurance  undertaking. 

There may exist  a need  on the part of the competent  authorities also to verify,  on  spot, 
any  information  received.  Such verification  may also extend  to insurance  undertakings 
established  in  other Member  States,  e.g.  if  a financial holding  company  has  insurance 
subsidiaries  in  more  than  one  Member  State.  This  Article  therefore  introduces 
cooperation rules between competent authorities as to how to acquire such  information. 

Article  7 

Where an insurance undertaking  has a parent undertaking,  one or more subsidiaries,  or 
holds a participating interest in an enterprise  in another Member  State, or  States, there 
is also a clear need for  competent  authorities to cooperate with each other.  This Article 
requires the competent authorities to communicate to each other all relevant  information 
that  is  likely  to  simplify  their  task  and  allow  the  supervision  of  the  activity  and 
financial  situation  of  the  insurance  undertakings  that  fall  under  their  supervisory 
responsability  Any information  passed between competent authorities is already  subject 
to  the  principle  of  professional  secrecy  contained  in  Directives  92/49/EEC  and 
92/96/EEC 

Article  8 

Intra-group  transactions  can  have  an  important  effect  on  the  solvency  of  insurance 
undertakings  involved.  This is the reason  why  intra-group  transactions  are covered  by 
the  rules  on  asset  diversification  contained  in  the  Third  EEC-Insurance  Directives. 
These  rules  are,  however,  only  a partial  solution  as they  are  limited  to  assets  backing 
the technical provisions of a company. Extending the present asset-diversification  rules 
to this type  of  transactions  appears to be  an  over-restrictive  solution  with  undesirable 
side  effects  on  the  way  in  which  insurance  companies  conduct  their  business.  As  an 
alternative  it  is  proposed  that  Member  States  establish  in  principle  that  intra-group 
transaction  should  be  conducted  on  market  terms  ("at  arms'  length").  This  applies  to 
transactions between  an insurance undertaking  and  its parent  or subsidiary  enterprises, 
and  with  an  enterprise  in  which  an insurance  undertaking  holds  a  participation. 

Authorities  should be informed  of intra-group transactions at least by way  of an annual 
reporting  requirement.  In  the  view  of  the  Commission  the  precise  rules  on  the 
procedure to be followed,  the type of information  to be  supplied to the authorities and 
any  time  delay  involved  should  best  be  determined  by  the  Member  States  and  not  at 
EC-Level.  Regarding  the type  of  transactions  that  should  be  notified,  only  significant 
transactions  should  be  concerned. 

Article  9 

This  Article  requires Member  States to ensure that  an  adjusted  solvency  calculation  is 
carried  out.  The  objective  is  to  prevent  'double  gearing'  of  capital.  The  problem  of 
double  gearing  may  occur  when  an  insurance  undertaking  establishes  holdings  in 
undertakings.  Double  gearing  is  caused  by  using  the  same  capital  more  than  once  in 
covering  the required  regulatory  capital  for  insurance  undertakings  in the  same group. 
While each undertaking would meet its solo solvency requirements, a view of the group 
as  a  whole  may  reveal  that  its  solvency  has  been  eroded,  or  that  it  is  in  fact 
undercapitalized.  It  is  beyond  question  that  double  gearing  is  adverse  to  an  insurer's 
solvency. 

The Annex  I to the proposal  contains a description of three methods that can be applied 
to prevent  double gearing  occuring.  All  methods  are designed  to calculate  an  adjusted 
solvency  requirement  in  addition  to  existing  requirements. 

In  the  event  that  the  adjusted  solvency  requirement  is  negative,  the  supervisory 
authorities  would  be  required  to take  appropriate  measures  at the level  of  the  relevant 
insurance  undertaking. 

Article 10 

This  Article  requires  Member  States  to  take  account  of  the  fact  that  an  insurance 
holding  company  that  is placed  at the top of  a group or in an intermediate  position, 
may impact the financial  position  of  an insurance undertaking.  It is not the intention 
to  place  a  holding  under  direct  supervision  by  the  authorities:  a  holding  company 
remains on unsupervised  entity  as such. 

Annex  II to this  proposal  suggests two  methods to  apply  a  capital  test  to  a holding 
company  owning one or more insurance subsidiaries. The choice of method is left  to 
the Member States. In the case that the result of the methods indicates that the solvency 
of an insurance undertaking is under strain because of the position of its parent holding, 
and  because  the  holding  is  not  subject  to  supervision,  it  is  proposed  to  direct  any 
supervisory response to its insurance subsidiaries and to take adequate measures at that 
level. 

ANNEX 1 

Three different  approaches exist to prevent double gearing. All methods have as their 
objective to calculate the available supervisory capital in an insurance undertaking after 
elimination  of any  double gearing  effects.  This is in addition to the solo supervisory 
capital  requirements  as  required  by  the  relevant  EC-insurance  directives.  The 
application  of the three methods is described in Annex I: 

I.  Accounting consolidation-based  method 

The first method uses an accounting consolidation applied to the entire group for 
the calculation  of the supervisory  capital. 

II.  Requirement  deduction  method 

A second method avoids the process of accounting consolidation and requires that 
the supervisory  capital  of the supervised  undertaking has to equal  or exceed the 
sum of the supervisory capital requirements of the supervised undertaking and the 
related undertakings which are included  in the exercise . 

III.  Deduction  and aggregation  method 

Similar  to  the  "accounting  consolidation-based  method"  and  the  "requirement 
deduction  method",  this  method  requires  the  deduction  of  the  aggregated 
supervisory  capital  requirements from  the supervisory  capital. 

In order to take into account the existence of a reinsurance undertaking in a group 
to  avoid  any  double  gearing  of  capital  taking  place  (in  Member  States  that 
directly  supervise reinsurers) or equivalent  effects  (in Member  States that apply 
an indirect form  of supervision through  a direct insurer) it is suggested to apply 
in  practice  a  non-binding  solvency  calculation  to  a  reinsurance  subsidiary  or 
participation. In effect,  this approach introduces a "notional capital requirement" 
for  reinsurance undertakings, limited in its use and effects  to internal  prudential 
calculations in the present context. 

ANNEX  II 

Two methods may be applied by Member States to determine the financial  situation of 
a "financial holding company", i.e. a company, other than an insurance undertaking, the 
subsidiaries  of  which  are  exclusively  or mainly  insurance  undertakings.  The  holding 
company  may be at the top of a group or in an intermediate position. 

As both  methods may be applied by supervisory  authorities there may exist  situations 
in  which  the  insurance  subsidiaries  of  a financial  holding  company  are esablished  in 
different  Member  States.  This  Annex  requires  Member  States  to  ensure  that there  is 
coherence  between the methods applied in different  Member States. 

Proposal  for  a 
EUROPEAN  PARLIAMENT  AND  COUNCIL  DIRECTIVE 

on the  supplementary  supervision  of  insurance  undertakings 
in  an insurance  group 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 

Article  57(2)  thereof, 

Having  regard  to the  proposal  from  the  Commission(1), 

Having  regard  to the  opinion  of  the Economic  and  Social  Committee(2), 

Acting  in  accordance  with  the  procedure  referred  to in  Article  189b  of  the  Treaty(3), 
Whereas  Council  Directive  73/239/EEC  of  24  July  1973  on  the  coordination  of  laws, 
regulations and administrative provisions relating to the taking-up  and pursuit  of the business 
of direct insurance other than  life  assurance(4) and Council  Directive  79/267/EEC of 5 March 
1979  on  the  coordination  of  laws,  regulations  and  administrative  provisions  relating  to  the 
taking-up  and pursuit of the business of direct life assurance(5) require insurance undertakings 
to possess  a  solvency  margin, 

Whereas, as a result  of Council  Directive  92/49/EEC of  18 June  1992 on the coordination  of 
laws,  regulations  and  administrative  provisions  relating  to  direct  insurance  other  than  life 
assurance  and  amending  Directives  73/239/EEC  and  88/357/EEC  (third  non-life  assurance 
Directive)(6),  and  Council  Directive 92/96/EEC  of  10 November  1992 on the coordination  of 
laws, regulations and administrative provisions relating to direct life assurance and amending 
Directives  79/267/EEC  and  90/619/EEC  (third  life  assurance  Directive)(7), the taking  up  and 
the  pursuit  of  the  business  of  insurance  is  subject  to  the  granting  of  a  single  authorization 
issued  by  the competent  authorities  of the Member  State in which  an  insurance  undertaking 
has  its  head  office;  whereas  such  authorization  allows  an  undertaking  to  carry  on  business 
throughout  the  Community,  under  the  right  of  establishment  or  the  freedom  to  provide 
services;  whereas  the  competent  authorities  of  home  Member  States  are  responsible  for 
monitoring  the financial  health  of  insurance  undertakings,  including  their  state  of  solvency; 

Whereas measures involving supplementary  supervision  on insurance undertakings in a group 
should  enable  the  authorities  supervising  a  parent  insurance  undertaking  to  make  a  more 
soundly based judgement  about the financial  situation  of that insurance undertaking;  whereas 
supplementary  supervision  should  take into account certain  undertakings which  are presently 
not subject to supervision under Community  directives; whereas this Directive does not in any 
way  imply  that  Member  States  are  required  to  play  a  supervisory  role  in  relation  to  those 
undertakings  standing  alone; 

(,) 
(2) 
0) 
(4) 

OJ  No C 
OJ  No C 
OJ  No C 
OJ  No  L  228,  16.8.1973,  p.  3;  Directive  as  last  amended  by  Directive  95/26/EC. 
OJ  NoL  168,  18.7.1995, p. 7. 

tb>  OJ  No  L 63,  13.3.1979,  p.  1, Directive  as amended  by  Directive  95/26/EC. 
(6) 
OJ  No L  228,  11.8.1992,  p.  1, Directive  as amended  by  Directive  95/26/EC. 
f7) 
OJ No  L  360,  9.12.1992,  p.  1, Directive  as amended  by  Directive  95/26/EC, 

11 

Whereas  insurance  undertakings  in  a  single  insurance  market  engage  in  direct  competition 
with  each  other  and  the  standards  pertaining  to  capital  requirements  must  therefore  be 
equivalent; whereas, to that end, the criteria for  determining  supplementary  supervision  must 
not be left  solely to Member  States; whereas the adoption of common basic standards will be 
in  the best interests  of the  Community  in that  it will  prevent  distortions  of  competition  and 
will  strengthen the Community  insurance system; whereas it is necessary  to eliminate  certain 
differences  between  the  laws  of the Member  States  as regards the prudential  rules to  which 
insurance undertakings  that  are part  of  a group  are  subject; 

Whereas it is necessary to calculate an adjusted  solvency  situation for insurance undertakings 
in  a group; whereas different  methods are applied by  some authorities  in the  Community  to 
take into account the effects  on the financial  position of an insurance undertaking  in a group; 
whereas the principle  is accepted  that  these  methods  are prudentially  equivalent; 

Whereas the approach  adopted  consists in bringing  about  such harmonization  as is essential, 
necessary and sufficient  to achieve the mutual recognition of prudential control systems in this 
field; 

Whereas  certain  provisions  of  this  Directive  define  minimum  standards;  whereas  a  home 
Member  State may  lay  down  stricter  rules for  insurance undertakings  authorized  by  its own 
competent  authorities; 

Whereas  this  Directive  is  concerned  solely  with  cases  where  one  insurance  undertaking  is 
owned  wholly  or in part by  another  insurance undertaking  or  holding company;  whereas the 
supervision  of  individual  insurance  undertakings  by  the  competent  authories  remains  an 
essential  principle  of  insurance  supervision; 

Whereas  the  competent  authorities  must  at  least  have  the  means  of  obtaining  from  all 
undertakings within  a group the information  necessary  for  the performance  of their  function, 
whereas  cooperation  between  the  authorities  responsible  for  the  supervision  of  insurance 
undertakings  as  well  as between  the  authorities  responsible  for  the  supervision  of  different 
financial  sectors  must  be  established; 

Whereas  certain  types  of  intra-group  transactions  can  affect  the  financial  position  of  an 
insurance  undertaking;  whereas  the  competent  authorities  should  determine  whether  intra-
group transactions are concluded in principle according to normal market conditions; whereas 
the application of this general principle does not imply that intra-group transactions concluded 
on other terms should be prohibited  under all  circumstances;  whereas it is therefore  desirable 
that  the  competent  authorities  monitor  such  transactions; 

Whereas this Directive will, in particular, ensure the homogeneous application throughout the 
Community  of  prudential  rules  established  by  other Community  legislation  and  facilitate  the 
taking-up and pursuit of the business of insurance, whereas application  of this Directive must 
be  aimed  at,  in  particular,  protecting  the  interests  of  the  policyholders  of  insurance 
undertakings; 

Whereas the application  of this Directive  requires complicated  adaptations to be made to the 
laws  of  certain  Member  States  in  the  fields  of  prudential  supervision,  company  law  and 
taxation,  and  that these adaptations  therefore justify  that these Member  States may  apply  the 
definition  of  a  participation  in  another  undertaking  at the  level  of  25% of  the  capital  or  the 
voting  rights  until  1 July  2001  at the  latest, 

12 

HAVE  ADOPTED  THIS  DIRECTIVE: 

Article  1 

Definitions 

For  the purpose  of  this  Directive: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

"insurance undertaking" means an undertaking which has received official  authorization 
in  accordance  with  Article  6  of  Directive  73/239/EEC  or  Article  6  of 
Directive  79/267/EEC; 

"reinsurance undertaking"  means  an undertaking  which  only  accepts risks ceded by an 
insurance undertaking  or other reinsurance undertakings established  in the  Community 
or in  a third  country; 

"parent  undertaking"  means a parent undertaking within the meaning of Article  1(1) of 
Council  Directive  83/349/EEC(8)  and  any  undertaking  which,  in  the  opinion  of  the 
competent  authorities,  effectively  exercises  a  dominant  influence  over  another 
undertaking; 

"subsidiary"  means  a  subsidiary  undertaking  within  the  meaning  of  Article  1(1)  of 
Directive 83/349/EEC and any undertaking over which, in the opinion of the competent 
authorities,  a  parent  undertaking  effectively  exercises  a  dominant  influence.  All 
subsidiaries  of  subsidiary  undertakings  shall  also  be  considered  subsidiaries  of  the 
undertaking  that  is their  original  parent; 

'"participation"  means the ownership,  direct  or  indirect,  of  20% or more of  the voting 
rights  or  capital  of  an  undertaking; 

"participating undertaking"  means an  undertaking  which  is either  a parent  undertaking 
or  an  undertaking  which  holds  a  participation; 

"related  undertaking"  means  either  a  subsidiary  or  any  other  undertaking  in  which  a 
participation  is  held; 

"insurance  holding  company"  means  an  undertaking  other  than  an 
insurance 
undertaking,  the subsidiary  undertakings  of which  are  exclusively  or mainly  insurance 
or  reinsurance  undertakings,  one  at  least  of  such  subsidiaries  being  an  insurance 
undertaking; 

"mixed  activity  insurance holding company"  means a parent undertaking,  other than an 
insurance  holding  company  or  an  insurance  undertaking,  the  subsidiaries  of  which 
include  at  least  one  insurance  undertaking; 

"competent authorities" means the national  authorities which  are empowered  by  law or 
regulation  to  supervise  insurance  undertakings. 

Article 2 

Scope 

Subject  to  the  provisions  of  Article  3,  this  Directive  shall  apply  to  insurance  undertakings 
which  have  their  registered  offices  in the  Community 

(8) 

OJ  No  L  193,  18.7.1983, p. 1 

Article 3 

Supplementary  supervision  of  insurance  undertakings  in  a group 

1. 

2. 

3. 

4. 

In  addition  to the  provisions  of  Directives  73/2? 9/EEC  and  79/267/EEC  laying  down 
the  rules  for  the  supervision  of  insurance  undertakings,  Member  States  shall  provide 
that the  supervision  of  any  insurance undertaking which  is a participating  undertaking 
of at least one insurance undertaking or reinsurance undertaking  shall be  supplemented 
to the  extent  and  in the  manner  prescribed  in  Articles  5, 6,  8 and  9. 

Every  insurance undertaking  the  parent  undertaking  of which  is an  insurance  holding 
company  which  has  its  registered  office  in  the  Community  shall  be  subject,  to  the 
extent  and  in  the  manner  prescribed  in  Articles  5(2)^ 6,  8  and  10, to  supplementary 
supervision. 

Every  insurance  undertaking  the  parent  undertaking  of  which  is  a  mixed  activity 
insurance  holding  company  which  has its registered  office  in  the Community  shall  be 
subject,  to  the  extent  and  in  the  manner  prescribed  in  Articles  5(2),  6  and  8,  to 
supplementary  supervision. 

The exercise  of  supplementary  supervision  in accordance with this Article  shall  not in 
any way imply  that the competent authorities are required to play  a supervisory  role in 
relation to the insurance holding company or mixed activity insurance holding company 
or  reinsurance  undertaking  standing  alone. 

5.  Member  States  or  the  competent  authorities  responsible  for  exercising  supplementary 
supervision  may decide that in the cases listed below an insurance undertaking or other 
undertaking  which  is  a  subsidiary  or  in  which  a  participation  is  held  need  not  be 
included  in  the  supplementary  supervision: 

if  the  undertaking  that  should  be  included  is  situated  in  a  third  country  where 
there  are  legal  impediments  to  the transfer  of  the  necessary  information; 

if,  in  the  opinion  of  the  competent  authorities,  the  undertaking  that  should  be 
included  is of negligible interest only with  respect  to the objective  of monitoring 
insurance  undertakings;  or 

if,  in  the  opinion  of  the  competent  authorities,  the  inclusion  of  the  financial 
situation  of the  undertaking  in  the  calculation  of  the  adjusted  solvency  situation 
would  be 
inappropriate  or  misleading  as  far  as  the  objectives  of  the 
supplementary  supervision  of  insurance  undertakings  are  concerned. 

Article 4 

Competent  authorities  for  exercising  supplementary  supervision 

1 

The supervision  referred  to in Article 3 shall  be exercised by the competent  authorities 
of  the  Member  State  that  authorized  the  insurance  undertaking  under  Article  6  of 
Directive  73/239/EEC  or  Article  6 of  Directive  79/267/EEC. 

2  Where  Member  States  have  more  than  one  competent  authority  for  the  prudential 
supervision  of  insurance  undertakings  and  reinsurance  undertakings,  Member  States 
shall  take  the  requisite  measures to  organize  coordination  between  such  authorities. 

14 

Article 5 

Availability  and  quality  of  information 

Member  States  shall  prescribe that  the competent  authorities  shall  require that,  in  any 
insurance  undertaking,  which  is  a participating  undertaking  or  related  undertaking  of 
one  or  more  insurance  undertakings,  insurance  holding  companies  or  reinsurance 
undertakings, there are adequate internal control mechanisms for the production of any 
data  and  information  which  would  be  relevant  for  the  purposes  of  supervision  in 
accordance  with  this Directive. 

Member  States  shall  take  the  necessary  steps  to  ensure  that  there  are  no  legal 
impediments preventing the undertakings that are subject to the supervision referred  to 
in  Article  3,  and  their  related  undertakings  and  participating  undertakings,  from 
exchanging  amongst  themselves  any  information  which  would  be  relevant  for  the 
purposes  of  supervision  in  accordance  with  this Directive. 

Article  6 

Access to  information 

Member  States shall  provide that their competent  authorities responsible for  exercising 
the  supervision  referred  to  in  Article  3  shall  have  access  to  any  information  which 
would be relevant for the purpose of supervision  of an insurance undertaking which has 
participating undertakings, related undertakings or related undertakings of participating 
undertakings  in  the  insurance  undertaking.  The  competent  authorities  may  adress 
themselves to the undertakings  concerned  directly  to ensure the communication  of the 
required  information,  or  they  may  receive  such  information  through  the  insurance 
undertaking *£?• 

Member States shall provide that their competent authorities may carry out, within their 
territory,  themselves  or  through  the  intermediary  of  persons  they  appoint  for  that 
purpose,  on-the-spot  verification  of the information  received  under  paragraph  1. 

Where,  in  applying  paragraph  2,  the  competent  authorities  of  one Member  State wish 
in specific  cases to verify  the information  concerning an insurance undertaking  situated 
in  another  Member  State,  they  must  ask  the  competent  authorities  of  that  other 
Member  State to have that  verification  carried  out.  The authorities which  receive  such 
a  request,  must,  within  the  framework  of  their  competence,  act  upon  it  either  by 
carrying  out  the  verification  themselves,  by  allowing  the  authorities  who  made  the 
request  to  carry  it  out,  or by  allowing  an  auditor  or  expert  to  carry  it  out. 

Article  7 

Cooperation  between  competent  authorities 

Where  insurance  undertakings  are  directly  or  indirectly  related,  or  have  a  common 
participating undertaking and are established  in different  Member States, the competent 
authorities  of  each  Member  State  shall  communicate  to  each  other  all  relevant 
information  which  may  allow  or  aid  the  exercise  of  supervision  in  the  framework  of 
this  Directive. 

15 

or 

investment 

Where  an  insurance  undertaking  and  a  credit  institution  as  defined  in  Council 
Directive  77/780/EEC(9) 
in  Council 
Directive  93/22/EEC(10)  are  directly  or  indirectly  related,  or  have  a  common 
participating  undertaking,  the  competent  authorities  and  the  authorities  entrusted  with 
the public task of supervising those other undertakings shall cooperate closely. Without 
prejudice to their respective responsibilities, those authorities shall provide one another 
with any information  likely to simplify  their task, in particular in the framework  of this 
Directive. 

defined 

firm 

as 

Information  received  pursuant  to  this  Directive  and,  in  particular,  any  exchange  of 
information  between  competent authorities which is provided  for in this Directive shall 
be  subject  to  the  obligation  of  professional  secrecy  defined 
in  Article  16  of 
Directive  92/49/EEC  and  Article  15 of  Directive  92/96/EEC. 

Article  8 

Intra-group  transactions 

With a view to establishing whether transactions are, in principle, carried out according 
to normal market conditions, Member States shall provide that the competent authorities 
monitor: 

(a) 

the transactions referred  to in paragraph  2 between an insurance undertaking and: 

(i) 

a related  undertaking  of the  insurance  undertaking; 

(ii) 

a participating  undertaking  in  the  insurance  undertaking; 

(iii)  a related  undertaking  of  a participating  undertaking  in  the  insurance 

undertaking. 

(b) 

the transactions referred  to in paragraph  2 between the insurance undertaking and 
a  natural  person  which  holds  a participation  in: 

(i) 

the  insurance  undertaking  or  any  of  its  related  undertakings; 

(ii) 

a participating  undertaking  in  the  insurance  undertaking; 

(iii)  a  related  undertaking  of  a  participating  undertaking  in  the  insurance 

undertaking. 

Member  States  shall  require  at  least  an  annual  reporting  by  the  insurance  undertaking 
to the competent  authorities of the transactions as described  in paragraph  1, concerning 
in  particular  significant: 

loans, 

guarantees  and  other  off-balance  sheet  transactions; 

elements  eligible  for  the  solvency  margin; 

investments. 

OJ  No  L 322,  17.12.1977,  p. 30. 
O J N oL  141,  11.6.1993,  p. 27. 

(10) 

16 

Article  9 

Adjusted  solvency  requirement 

1. 

2. 

Subject  to  Article  3(1),  Member  States  shall  require  that  an  adjusted  solvency 
calculation  shall  be  carried  out  in  accordance  with  Annex  I. 

The calculation described in Annex I shall include a related undertaking or participating 
undertaking  which  has its registered  office  in  a third  country  and which  is: 

an  undertaking,  which,  if  it  were  established  in  the  Community,  would  be 
required 
in  accordance  with  Article  6  of 
Directive  73/239/EEC  or  Article  6 of  Directive  79/267/EEC; 

to  have  an  authorization 

a  reinsurance  undertaking;  or 

an insurance  holding  company. 

3. 

If  the  adjusted  solvency  situation  is  negative,  the  competent  authorities  shall  take 
appropriate  measures  at the  level  of the  relevant  insurance  undertaking. 

Article  10 

Insurance  holding  companies 

1. 

2 

.v 

In  the  case  referred  to  in  Article  3(2), Member  States  shall  require  the  application  of 
one  of  the  supplementary  methods  of  supervision  in  accordance  with  Annex  II. 

In  the  case  referred  to  in  Article  3(2),  the  calculation  shall  include  all  related 
undertakings  of  the  insurance  holding  company  referred  to  in  Article  9(2). 

If,  as a result,  the competent  authorities  are of the opinion  that the  state of  solvency  of 
a  related  insurance  undertaking  of  the  insurance  holding  company  is  affected,  the 
competent  authorities  shall  take  appropriate  measures  at  the  level  of  that  insurance 
undertaking. 

Article  11 

Implementation 

1  Member States shall adopt the laws, regulations and administrative provisions necessary 
to comply  with  this  Directive  no later than  1 January  1997, and bring  them  into  force 
no  later  than  1 July  1997.  They  shall  immediately  inform  the  Commission  thereof. 

2.  Member  States may  decide to apply  the definition  of a "participation" at a level  of  25% 

for  a  period  expiring  not  later  than  1 July 2001. 

3.  When Member  States adopt the measures referred  to in paragraph  1, these shall  contain 
a  reference  to this Directive,  or  shall  be  accompanied  by  such  reference  at the time of 
their  official  publication.  The  procedure  for  such  reference  shall  be  adopted  by 
Member  States 

4  Member  States shall  communicate to the Commission  the texts of the main  provisions 

of  national  law which  they  adopt  in  the  field  covered  by  this  Directive. 

17 

Article  12 

Entry  into force 

This Directive  shall  enter into force on the twentieth day following  that of its publication in 
the Official  Journal  of the European Communities. 

Article  13 

Addressees 

This Directive  is addressed to the Member States. 

Done  at Brussels, 

For the European  Parliament 
The President 

For the Council 
The President 

18 

ANNEX  I 

CALCULATION  OF  THE  ADJUSTED  SOLVENCY  SITUATION 

!• 

Choice  of  method  of  calculation  and  general  principles 

A.  One or more of the methods described below  shall be applied  for  the  calculation 
of  the  adjusted  solvency  situation  of  insurance  undertakings  referred  to  in 
Article  3(1). For this purpose, the elements eligible for the solvency margin shall 
be  adjusted  and  compared  with  an  adjusted  solvency  margin. 

B.  Regardless of the method applied, the intra-group creation of elements eligible for 
the  solvency  margin  must  be  eliminated  in  the  calculation  of  the  adjusted 
solvency  situation. 

For  this  purpose,  where  the  methods  do  not  already  provide  for  this,  for  the 
calculation  of the elements eligible for the adjusted  solvency  situation no account 
shall  be taken  of: 

(i) 

all  elements  eligible  for  the  solvency  margin  of  the insurance  undertaking 
for  which  the  adjusted  solvency  situation  is  calculated,  which  ultimately 
originate  from: 

a  related  undertaking  of  this insurance  undertaking;  or 

a  related  undertaking  of  a participating  undertaking  in the  insurance 
undertaking 

and 

(ii) 

all  elements  eligible  for  the  solvency  margin  of  a  related  insurance 
undertaking  or  the  notional  solvency  requirement  of  a  related  reinsurance 
undertaking, of a participating insurance undertaking for which the  adjusted 
solvency  situation  is  calculated,  originating  from 

the  participating  insurance  undertaking; 

related  undertakings  of  the participating  insurance  undertaking; 

related  undertaking  of  a  participating  undertaking 

a 
the 
participating  insurance  undertaking  for  which  the  adjusted  solvency 
situation  is  calculated. 

in 

Applying the same rules mutatis mutandis, the calculation  shall  also not take into 
account: 

all  subscribed  but  non  paid-in  parts  of  the  capital; 

profit  reserves  and  future  profits  of  life  assurance  undertakings. 

19 

C.  With  the  exception  of  calculating  a  solvency  deficit  in  a  subsidiary,  the 
calculation  shall  be  carried  out on  a proportional  basis(1) taking  into  account  the 
relevant  percentages  of the  mediating  participations. 

D 

The  competent  authorities  shall  ensure  that  the  adjusted  solvency  situation  is 
calculated  at  the  same  frequency  as  the  calculation  of  the  solvency  margin  for 
insurance undertakings according to Directives 73/239/EEC and 79/267/EEC. The 
value  of  the  assets  and  liabilities  shall  be  assessed  according  to  the  relevant 
provisions  of Directives  73/239/EEC  and Directive  79/267/EEC,  as amended  by 
Directives  92/49/EEC  and  92/96/EEC. 

2.  Methods  and  relevant  situations 

2.1  Related  insurance  undertakings 

In the case of an insurance undertaking which is a directly  participating undertaking in 
another insurance undertaking, the adjusted  solvency  calculation  shall be carried  out in 
accordance  with  one  of  the following  methods. 

In all methods and in the case that the insurance undertaking has more than one directly 
related  insurance undertaking,  the adjusted  solvency  calculation  shall be carried out by 
integrating  each  of  these  directly  related  undertakings. 

In  cases  of  successive  participations  (e.g.  an  insurance  undertaking  is  a  participating 
undertaking  in another insurance undertaking which is also a participating  undertaking 
in  an  insurance  undertaking)  the  adjusted  solvency  calculation  shall  be  carried  out  at 
the level  of  each participating  undertaking  which  has  at  least  one  related  insurance or 
reinsurance  undertaking. 

If method  3 is applied,  and without  prejudice  to  specific  provisions  contained  in  other 
Directives, Member  States may waive calculation  of the adjusted  solvency  situation  for 
an  insurance  undertaking,  if  this  undertaking  is  a  related  undertaking  of  another 
insurance undertaking in the same Member State, which calculates an adjusted  solvency 
situation  taking  into  account  its  related  insurance  undertakings  and  reinsurance 
undertakings.  The same waiver  shall be allowed where the participating  undertaking  is 
an  insurance  holding  company  which  has its head  office  in the same Member  State as 
the  insurance  undertaking,  provided  that  it  is  subject  to  the  same  standard  of 
supervision  as that exercised  over insurance undertakings.  In both  cases, steps must be 
taken  to ensure that  capital  is distributed  adequately  within  the insurance group,  and is 
genuinely  available  for  transfer  between  the  related  and  participating  undertaking  or 
undertakings  concerned. 
*&" 

METHOD  1: Deduction  and  aggregation  method 

The  adjusted  solvency  situation  of  the  participating  insurance  undertaking  is  the 
difference  between: 

(i) 

the  sum  of: 

the  elements  eligible  for 
undertaking; 

the  solvency  margin  of  the  participating 

(i) 

Where this  Annex refers  to a proportional  share or relevant  percentage, the  calculation 
shall  be  based  on  the  basis  of  the  percentage  used  for  the  establishment  of  the 
consolidated  accounts. 

20 

the  proportional  share  of  the  participating  undertaking  in  the  solvency 
margin  of the  related  undertaking,  which  originates  from  the  participating 
undertaking; 

and 

(ii) 

the  sum  of: 

the book value in the participating undertaking  of all elements eligible  for 
the  solvency  margin  of the related  undertaking; 

the  solvency  requirement  of  the participating  undertaking; 

the  proportional  share  of 
the  related 
undertaking;  if  the related  undertaking  is  a  subsidiary  and has  a  solvency 
deficit,  the total  requirement  has to be taken  into  account. 

the  solvency  requirement  of 

METHOD  2:  Requirement  deduction  method 

The  adjusted  solvency  situation  of  the  participating  insurance  undertaking  is  the 
difference  between<2): 

the  sum  of  the  elements  eligible  for  the  solvency  margin  of the  participating 
undertaking 

and 

the  sum  of 

(a) 

the  solvency  requirement  of  the participating  undertaking; 

(b) 

the proportional  share of  the  solvency  requirement  of the  related  undertaking;  if 
the  related  undertaking  is  a  subsidiary  and  has  a  solvency  deficit,  the  total 
requirement  has to be taken  into  account. 

METHOD  3: Accounting  consolidation-based  method 

The calculation  of the adjusted  solvency  situation  of the participating  undertaking  shall 
start  from  the  consolidated  accounts  in  order  to  calculate  the  consolidated  elements 
eligible  for  the  solvency  margin  of  the  participating  and  the  related  undertakings 
concerned  in  accordance  with  Directive  91/674/EEC  and  Directive  73/239/EEC  and 
Directive  79/267/EEC,  as  amended  by  Directives  92/49/EEC  and  92/96/EEC 

The  adjusted  solvency  situation  of  the  participating  undertaking  is  the  difference 
between: 

the  elements  eligible  for  the  solvency  margin  as  shown  in  the  consolidated  accounts, 

and 

the  sum  of  the  solvency  requirement  of  the  participating  undertaking,  and  the  full  or 
relevant  proportional  share  of  the  solvency  requirement  of  the  related  undertaking  If 
the  related  undertaking  is  a  subsidiary  and  has  a  solvency  deficit,  its  solvency 
requirement  shall  be taken  into  account  in  full. 

(2) 

The  participation  in  a  related  undertaking  must  be  included  at  the  net  asset  value  of 
shares. 

21 

2.2  Related  reinsurance  undertaking 

For  each  related  reinsurance  undertaking  of  an  insurance  undertaking,  a  notional 
solvency  requirement  shall  be  established  according  to  the  same  rules  that  have  been 
in  Article  16(3)  of  Directive  73/239/EEC  or  Article  18(3)  of 
laid  down 
Directive  79/267/EEC.  The  same  own  funds  elements  for  the  related  reinsurance 
undertaking  shall  be  recognized  as  eligible  for  its  notional  own  funds,  as  those 
according to the rules laid down in Article 24 of Directive 92/49/EEC  or Article 25 of 
Directive 92/96/EEC. The value of the assets and liabilities shall be assessed  according 
to  the  same  rules  that  have  been  laid  down  in  Directives  73/239/EEC  and 
Directive  79/267/EEC,  as amended  by  Directives  92/49/EEC  and  92/96/EEC. 

The  adjusted  solvency  situation  of  the participating  insurance  undertaking  is  obtained 
by  applying  the  methods  and  general  principles  described  above. 

2.3 

Intermediate  insurance  holding  company 

Methods  1 and  2 

For  each  participating  insurance  undertaking  in  an  insurance  holding  company  which 
is  a participating  undertaking  in  an  insurance  undertaking  or  reinsurance  undertaking, 
the  adjusted  solvency  situation  shall  be  calculated  applying  the  methods  rnd  general 
principles  described  above,  mutatis  mutandis. 

Method  3 

The  insurance  holding  company  shall  be  taken  into  account  in  the  assessment  by 
integration  in the accounting consolidation  applying the methods and general  principles 
described  above,  mutatis  mutandis. 

3, 

Undertakings  in  third  countries 

Where there  are legal  impediments to the transfer  of the information  necessary  for  the 
inclusion  of  a  related  undertaking  situated  in  a  third  country  as  referred  to  in  Article 
9  (2),  the  calculation  shall,  in  applying  the  methods  referred  to  in  this  Annex,  deduct 
from  the  elements  eligible  for  the  adjusted  solvency  margin  the  book  value  in  the 
participating  undertaking of all  elements eligible for the solvency  margin  of the related 
undertaking. 

4. 

Non  specified  cases 

The  competent  authorities  shall  require  in  cases  that  are  not  covered  in  2.1  -  2 3  an 
appropriate  combination  of  the  described  methods. 

22 

ANNEX  II 

SUPPLEMENTARY  SUPERVISORY  METHODS  FOR  INSURANCE  UNDERTAKINGS 
THAT  ARE  SUBSIDIARIES  OF  AN  INSURANCE  HOLDING  COMPANY  WHICH  IS 
THE  ULTIMATE  PARENT  OF  AN  INSURANCE  UNDERTAKING  IN  A  GROUP 

1. 

Choice  of  supplementary  supervisory  method 

One of  the  methods  described  below  shall  be  applied  in  order  to  check  that  its 
capital  is  sufficient. 

In  the  case  of  insurance  undertakings  referred  to  in  Article  3  paragraph  2, 
whichare  the  subsidiaries  of  an  insurance  holding  company  and  which  are 
established  in different  Member states, the competent authorities shall  ensure that 
the  methods  described  in  this  Annex  are applied  in  a coherent  manner. 

The  competent  authorities  shall  exercise  the  supplementary  supervision  in  the 
same  frequency  as  the  calculation  of  the  solvency  margin  for  insurance 
undertakings  according  to  Directives  73/239/EEC  and  79/267/EEC. 

2.  Methods 

2.1 

"Solvency  warning  test" 

The capital of an insurance holding company  shall  equal or exceed the sum of the 
solvency  requirements  of  its  related  insurance  undertakings  and  the  notional 
solvency  requirements  of  its  related  reinsurance  undertakings. 

2.2 

"Accounting  consolidation  test" 

The capital  situation  of  an insurance  holding  company  must  equal  or exceed  the 
sum  of  the  solvency  requirements  of  its  related  insurance  undertakings  and  the 
notional solvency requirements of its related reinsurance undertakings. The capital 
situation  of this insurance  holding  company  is calculated  in  accordance  with  the 
accounting  consolidation  method  in  Annex  I,  under  2.3, method  3. 

3. 

Undertakings  in  third  countries 

Where there are legal  impediments  to the transfer  of  the information  necessary  for  the 
inclusion  of  a  related  undertaking  situated  in  a  third  country  as  referred  to  in 
Article  10(2), the calculation  shall,  in  applying  the methods  referred  to in this  Annex, 
deduct  from  the  elements  eligible  for  the  adjusted  solvency  margin  the  book  value  of 
the  participation  and  of  all  other  elements  eligible  for  the  solvency  margin  of  the 
related  undertaking,  which  are  held  by  the  insurance  undertaking 

23 

ISSN 0254-1475 

COM(95) 406 final 

DOCUMENTS 

EN 

10 

Catalogue number  :  CB-CO-95-516-EN-C 

ISBN 92-77-94281-9 

Office  for Official  Publications of the European Communities 

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