COMMON POSITION (EC) No 32/98 adopted by the Council on 30 March 1998 with a view to adopting European Parliament and Council Directive 98/.../EC of ..., on the supplementary supervision of insurance undertakings in an insurance group
Date: 1998-03-30
Institutions: Council of the European Union
Subjects: EU action, exchange of information, health policy, international cooperation, public health

30.6.98

EN

Official  Journal  of  the  European  Communities

C  204/1

I

(Information)

COUNCIL

COMMON  POSITION  (EC)  No  32/98

adopted  by  the  Council  on  30  March  1998

with  a  view  to  adopting  European  Parliament  and  Council  Directive  98/. . ./EC  of  . . .,  on  the
supplementary  supervision  of  insurance  undertakings  in  an  insurance  group

(98/C  204/01)

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  laid  down  in
Article  189b  of  the  Treaty (3),

(1)  Whereas the first Council Directive 73/239/EEC of
laws,
24  July  1973  on  the  coordination  of 
regulations  and  administrative  provisions  relating
to  the  taking  up  and  pursuit  of  the  business  of
direct  insurance  other  than  life  assurance (4)  and
the first Council Directive 79/267/EEC of 5 March

(1)  OJ  C  341,  19.12.1995,  p.  16.
(2)  OJ  C  174,  17.6.1996,  p.  16.
(3)  Opinion  of  the  European  Parliament  of  23  October  1997
(OJ  C  339,  10.11.1997,  p.  136),  Council  Common  Position
of 30 March 1998 and Decision of the European Parliament
of  . . . .  (not  yet  published  in  the  Official  Journal).

(4)  OJ  L  228,  16.8.1973,  p.  3.  Directive  as  last  amended  by

1979  on  the  coordination  of  laws,  regulations  and
administrative  provisions  relating  to  the  taking  up
and  pursuit  of 
life
assurance (5)  require 
insurance  undertakings  to
have solvency margins;

the  business  of  direct 

of 

(2)  Whereas, under 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
insurance  Directive) (6)  and  Council
non-life 
Directive 92/96/EEC of 10 November 1992 on the
coordination 
and
laws, 
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  are  subject  to  the  granting  of  a  single
official  authorisation  issued  by  the  authorities  of
insurance
the  Member  State 
undertaking  has 
(home
Member  State);  whereas  such  authorisation  allows
an  undertaking  to  carry  on  business  throughout

registered  office 

in  which  an 

regulations 

its 

(5)  OJ  L  63,  13.3.1979,  p.  1.  Directive  as  last  amended  by

Directive  95/26/EC.

(6)  OJ  L  228,  11.8.1992,  p.  1.  Directive  as  amended  by

Directive  95/26/EC.

(7)  OJ  L  360,  9.12.1992,  p.  1.  Directive  as  amended  by

Directive  95/26/EC  (OJ  L  168,  18.7.1995,  p.  7).

Directive  95/26/EC.

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EN

Official  Journal  of  the  European  Communities

30.6.98

the 

the  Community,  under  either 
right  of
establishment  or  the  freedom  to  provide  services;
whereas 
the  competent  authorities  of  home
Member  States  are  responsible  for  monitoring  the
insurance  undertakings,
financial  health  of 
including  their  solvency;

insurance  undertakings 

(3)  Whereas  measures  concerning  the  supplementary
supervision  of 
in  an
insurance  group  should  enable  the  authorities
supervising  an  insurance  undertaking  to  form  a
more  soundly  based  judgment  of  its  financial
situation;  whereas  such  supplementary  supervision
should  take  into  account  certain  undertakings
which  are  not  at  present  subject  to  supervision
under  Community  Directives;  whereas 
this
Directive  does  not  in  any  way  imply  that  Member
States  are  required  to  undertake  supervision  of
those  undertakings  considered  individually;

therefore  be 

(4)  Whereas  insurance  undertakings  in  a  common
insurance market engage in direct competition with
each  other  and  the  rules  concerning  capital
equivalent;
requirements  must 
whereas,  to  that  end,  the  criteria  applied  to
determine  supplementary  supervision  must  not  be
left  solely  to  the  discretion  of  Member  States;
whereas  the  adoption  of  common  basic  rules  will
be in the best interests of the Community in that it
will  prevent  distortions  of  competition;  whereas  it
is  necessary 
to  eliminate  certain  divergences
between  the  laws  of  the  Member  States  as  regards
insurance
the 
undertakings  that  are  part  of  an  insurance  group
are  subject;

to  which 

prudential 

rules 

supervision  of  any 

undertaking  or  non-member-country 
insurance
undertaking  and,  under  different  rules,  for  the
supplementary 
insurance
company whose parent undertaking is an insurance
holding  company,  a  reinsurance  undertaking,  a
non-member-country  insurance  undertaking  or  a
mixed-activity 
company;
whereas  the  supervision  of  individual  insurance
undertakings  by  the  competent  authorities  remains
the  essential  principle  of  insurance  supervision;

insurance 

holding 

(8)  Whereas  it  is  necessary  to  calculate  an  adjusted
solvency  situation 
insurance  undertakings
for 
forming  part  of  an  insurance  group;  whereas
different  methods  are  applied  by  the  competent
authorities  in  the  Community  to  take  into  account
the  effects  on  the  financial  situation  of  an
insurance  undertaking  attributable  to  the  fact  that
it  belongs  to  an  insurance  group;  whereas  this
Directive  lays  down  three  methods  to  effect  that
calculation;  whereas  the  principle  is  accepted  that
these  methods  are  prudentially  equivalent;

reinsurance 

undertaking 

(9)  Whereas  the  solvency  of  a  related  subsidiary
insurance  undertaking  of  an  insurance  holding
company, 
or
non-member-country  insurance  undertaking  may
be  affected  by  the  financial  resources  of  the  group
of  which  it  is  a  part  and  by  the  distribution  of
financial  resources  within  that  group;  whereas  the
competent  authorities  should  be  provided  with  the
means of exercising supplementary supervision and
of  taking  appropriate  measures  at  the  level  of  the
insurance undertaking where its solvency is or may
be  jeopardised;

(5)  Whereas the approach adopted consists in bringing
about such harmonisation as is essential, necessary
and  sufficient  to  achieve  the  mutual  recognition  of
prudential control systems in this field; whereas the
aim  of  this  Directive  is  in  particular  to  protect  the
interests  of  insured  persons;

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

(7)  Whereas 

this  Directive 

for 
the
supplementary 
insurance
company which is a participating undertaking in at
reinsurance
insurance  undertaking, 
least  one 

provides 
supervision  of  any 

(10)  Whereas  the  competent  authorities  should  have
access  to  all  the  information  relevant  to  the
exercise  of  supplementary  supervision;  whereas
cooperation between the authorities responsible for
the  supervision  of  insurance  undertakings  as  well
as  between  those  authorities  and  the  authorities
responsible  for  the  supervision  of  other  financial
sectors  should  be  established;

(11)  Whereas  intra-group  transactions  can  affect  the
financial  position  of  an  insurance  undertaking;
whereas  the  competent  authorities  should  be  in  a
to  exercise  general  supervision  over
position 
certain  types  of  such  intra-group  operations  and
take  appropriate  measures  at  the  level  of  the
insurance undertaking where its solvency is or may
be  jeopardised,

30.6.98

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HAVE  ADOPTED  THIS  DIRECTIVE:

Article  1

Definitions

For  the  purposes  of  this  Directive:

(a)  insurance  undertaking  means  an  undertaking  which
has  received  official  authorisation  in  accordance  with
Article  6  of  Directive  73/239/EEC  or  Article  6  of
Directive  79/267/EEC;

(b) non-member-country insurance undertaking means an
undertaking  which  would  require  authorisation  in
accordance with Article 6 of Directive 73/239/EEC or
Article  6  of  Directive  79/267/EEC  if  it  had  its
registered  office  in  the  Community;

an 

insurance 

(c)  reinsurance  undertaking  means  an  undertaking,  other
a
than 
non-member-country insurance undertaking, the main
business of which consists in accepting risks ceded by
insurance  undertaking,  a  non-member-country
an 
reinsurance
or 
insurance 
undertakings;

undertaking 

undertaking 

other 

or 

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

(e)  subsidiary 

a 

undertaking  means 

subsidiary
undertaking  within  the  meaning  of  Article  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  parent
undertaking  which 
those
is  at 
undertakings;

the  head  of 

(f)  participation  means  participation  within  the  meaning
of  Article  17, 
sentence,  of  Directive
78/660/EEC (2)  or  the  holding,  directly  or  indirectly,
of 20 % or more of the voting rights or capital of an
undertaking;

first 

(g)  participating  undertaking  means  an  undertaking
which  is  either  a  parent  undertaking  or  another
undertaking  which  holds  a  participation;

(1)  Seventh  Council  Directive  83/349/EEC  of  13  June  1983
based  on  Article  54(3)(g)  of  the  Treaty  on  consolidated
accounts  (OJ  L  193,  18.7.1983,  p.  1).  Directive  as  last
amended  by  the  1994  Act  of  Accession.

(2)  Fourth Council Directive 78/660/EEC of 25 July 1978 based
on  Article  54(3)(g)  of  the  Treaty  on  the  annual  accounts  of
certain  types  of  companies  (OJ  L  222,  14.8.1978,  p.  11).
Directive  as  last  amended  by  the  1994  Act  of  Accession.

(h) related undertaking means either a subsidiary or other

undertaking  in  which  a  participation  is  held;

(i)  insurance  holding 

company  means  a  parent
undertaking  the  main  business  of  which  is  to  acquire
and  hold  participations  in  subsidiary  undertakings,
where  those  subsidiary  undertakings  are  exclusively
reinsurance
or  mainly 
insurance  undertakings, 
undertakings  or  non-member-country 
insurance
least  of  such  subsidiary
undertakings,  one  at 
undertakings  being  an  insurance  undertaking;

than  an 
non-member-country 

(j)  mixed-activity  insurance  holding  company  means  a
insurance
parent  undertaking,  other 
insurance
a 
undertaking, 
undertaking,  a 
reinsurance  undertaking  or  an
insurance  holding  company,  which  includes  at  least
one 
its  subsidiary
undertakings;

insurance  undertaking  among 

(k) competent  authorities  means  the  national  authorities
law  or  regulation  to

which  are  empowered  by 
supervise  insurance  undertakings.

Article  2

Cases  of  application  of  supplementary  supervision  of
insurance  undertakings

to 

In  addition 

1.
the  provisions  of  Directives
73/239/EEC  and  79/267/EEC  which  lay  down  the  rules
for  the  supervision  of  insurance  undertakings,  Member
States  shall  provide  supervision  of  any 
insurance
undertaking  which  is  a  participating  undertaking  in  at
least one insurance undertaking, reinsurance undertaking,
or  non-member-country  insurance  undertaking  shall  be
supplemented in the manner prescribed in Articles 5, 6, 8
and  9.

2. Every  insurance  undertaking  the  parent  undertaking
of which is an insurance holding company, a reinsurance
undertaking  or 
insurance
undertaking shall be subject to supplementary supervision
in  the  manner  prescribed  in  Articles  5(2),  6,  8  and  10.

a  non-member-country 

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

Article  3

Scope  of  supplementary  supervision

supervision 

supplementary 

1. The  exercise  of 
in
accordance  with  Article  2  shall  in  no  way  imply  that  the
competent  authorities  are  required  to  play  a  supervisory
role  in  relation  to  the  non-member-country  insurance
undertaking, 
or
mixed-activity insurance holding company or reinsurance
undertaking  taken  individually.

insurance 

company 

holding 

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30.6.98

2. The  supplementary  supervision  shall 
account:

take 

into

—  related  undertakings  of  the  insurance  undertaking,

—  participating 
undertaking,

undertakings 

in 

the 

insurance

—  related undertakings of a participating undertaking in

the  insurance  undertaking

referred  to  in  Articles  5,  6,  8,  9  and  10.

3. Member  States  may  decide  not  to  take  into  account
in  the  supplementary  supervision  referred  to  in  Article  2
undertakings  having 
in  a
non-member  country  where  there  are  legal  impediments
to  the  transfer  of  the  necessary  information,  without
prejudice  to  the  provisions  of  Annex  I,  point  2.5,  and  of
Annex  II,  point  4.

registered  office 

their 

Furthermore,  the  competent  authorities  responsible  for
exercising  supplementary  supervision  may  in  the  cases
listed below decide on a case-by-case basis not to take an
undertaking 
supplementary
in 
into 
supervision  referred  to  in  Article  2:

account 

the 

—  if  the  undertaking  which  should  be  included  is  of
negligible interest with respect to the objectives of the
supplementary 
insurance
supervision 
undertakings,

of 

—  if  the  inclusion  of  the  financial  situation  of  the
undertaking  would  be  inappropriate  or  misleading
with  respect  to  the  objectives  of  the  supplementary
supervision  of  insurance  undertakings.

Article  4

Competent  authorities  for  exercising  supplementary
supervision

1. Supplementary  supervision  shall  be  exercised  by  the
competent  authorities  of  the  Member  State  in  which  the
insurance  undertaking  has  received  official  authorisation
under  Article  6  of  Directive  73/239/EEC  or  Article  6  of
Directive  79/267/EEC.

holding 

insurance 

2. Where  insurance  undertakings  authorised  in  two  or
more Member States have as their parent undertaking the
same 
reinsurance
undertaking,  non-member-country  insurance  undertaking
or  mixed-activity 
the
competent  authorities  of  the  Member  States  concerned
may  reach  agreement  as  to  which  of  them  will  be
responsible  for  exercising  supplementary  supervision.

insurance  holding  company, 

company, 

3. Where a Member State has more than one competent
authority  for  the  prudential  supervision  of  insurance
undertakings and reinsurance undertakings, such Member
State  shall  take  the  requisite  measures  to  organise
coordination  between  those  authorities.

Article  5

Availability  and  quality  of  information

1. Member  States  shall  prescribe  that  the  competent
authorities shall require that every insurance undertaking
subject to supplementary supervision shall have adequate
internal  control  mechanisms  in  place  for  the  production
of any data and information relevant for the purposes of
such  supplementary  supervision.

2. Member  States  shall  take  the  appropriate  steps  to
ensure  that  there  are  no  legal  impediments  within  their
jurisdiction  preventing  the  undertakings  that  are  subject
to  the  supplementary  supervision  and  their  related
undertakings  and  participating  undertakings 
from
exchanging  among  themselves  any  information  relevant
for  the  purposes  of  such  supplementary  supervision.

Article  6

Access  to  information

1. Member  States  shall  provide  that  their  competent
for  exercising  supplementary
authorities  responsible 
supervision  shall  have  access  to  any  information  which
would  be  relevant  for  the  purpose  of  supervision  of  an
insurance  undertaking  subject  to  such  supplementary
supervision.  The  competent  authorities  may  address
themselves  directly  to  the  relevant  undertakings  referred
to  in  Article  3(2)  to  obtain  the  necessary  information
only  if  such  information  has  been  requested  from  the
insurance  undertaking  and  has  not  been  supplied  by  it.

2. Member  States  shall  provide  that  their  competent
authorities  may  carry  out  within 
territory,
themselves or through the intermediary of persons whom
they appoint for that purpose, on-the-spot verification of
the  information  referred  to  in  paragraph  1  at:

their 

—  the  insurance  undertaking  subject  to  supplementary

supervision,

—  subsidiary 

undertakings 

of 

that 

insurance

undertaking,

—  parent  undertakings  of  that  insurance  undertaking,

—  subsidiary  undertakings  of  a  parent  undertaking  of

that  insurance  undertaking.

in  applying  this  Article,  the  competent
3. Where, 
authorities of one Member State wish in specific cases to
verify  important  information  concerning  an  undertaking
situated  in  another  Member  State  which  is  a  related
insurance undertaking, a subsidiary undertaking, a parent
undertaking  or  a  subsidiary  of  a  parent  undertaking  of
the 
insurance  undertaking  subject  to  supplementary
supervision,  they  must  ask  the  competent  authorities  of
that other Member State to have that verification carried

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out.  The  authorities  which  receive  such  a  request  must
act on it within the limits of their jurisdiction by carrying
out 
the
authorities  making  the  request  to  carry  it  out  or  by
allowing  an  auditor  or  expert  to  carry  it  out.

themselves,  by  allowing 

the  verification 

Article  7

Cooperation  between  competent  authorities

1. Where insurance undertakings established in different
Member States are directly or indirectly related or have a
common  participating  undertaking, 
the  competent
authorities  of  each  Member  State  shall  communicate  to
one  another  on  request  all  relevant  information  which
may  allow  or  facilitate  the  exercise  of  supervision
pursuant to this Directive and shall communicate on their
own initiative any information which appears to them to
be  essential  for  the  other  competent  authorities.

2. Where  an  insurance  undertaking  and  either  a  credit
institution  as  defined  in  Directive  77/780/EEC (1)  or  an
investment  firm  as  defined  in  Directive  93/22/EEC (2),  or
both, are directly or indirectly related or have a common
participating  undertaking,  the  competent  authorities  and
the  authorities  with  public  responsibility 
the
supervision  of  those  other  undertakings  shall  cooperate
closely.  Without 
respective
those  authorities  shall  provide  one
responsibilities, 
another with any information likely to simplify their task,
in  particular  within  the  framework  of  this  Directive.

prejudice 

their 

for 

to 

Information  received  pursuant  to  this  Directive  and,
3.
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.

(a) an  insurance  undertaking  and:

(i)  a 

related 
undertaking;

undertaking 

of 

the 

insurance

(ii)  a  participating  undertaking 

in  the 

insurance

undertaking;

(iii) a 

related  undertaking  of 

a  participating

undertaking  in  the  insurance  undertaking;

(b) an  insurance  undertaking  and  a  natural  person  who

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.

These  transactions  concern  in  particular:

—  loans,

—  guarantees  and  off-balance-sheet  transactions,

—  elements  eligible  for  the  solvency  margin,

—  investments,

—  reinsurance  operations,

—  agreements  to  share  costs.

2. To  this  end,  Member  States  shall  require  at  least
annual  reporting  by  the  insurance  undertakings  to  the
competent  authorities  of  significant  transactions  as
provided  for  in  paragraph  1.

If,  on  the  basis  of  this  information,  it  appears  that  the
solvency  of  the  insurance  undertaking  is,  or  may  be,
jeopardised, 
take
appropriate  measures  at  the  level  of  the  insurance
undertaking.

competent  authority 

shall 

the 

Article  8

Intra-group  transactions

Article  9

Adjusted  solvency  requirement

1. Member  States  shall  provide  that  the  competent
authorities  exercise  general  supervision  over  transactions
between:

(1)  First Council Directive 77/780/EEC of 12 December 1977 on
the  coordination  of  the  laws,  regulations  and  administrative
provisions  relating  to  the  taking  up  and  pursuit  of  the
business of credit institutions (OJ L 322, 17.12.1977, p. 30).
Directive  as  last  amended  by  Directive  96/13/EC  (OJ  L  66,
16.3.1996,  p.  15).

(2)  Council Directive 93/22/EEC of 10 May 1993 on investment
services  in  the  securities  field  (OJ  L  141,  11.6.1993,  p.  27).
Directive  as  last  amended  by  Directive  97/9/EC  (OJ  L  84,
26.3.1997,  p.  22).

In  the  case  referred  to  in  Article  2(1),  Member  States
1.
shall  require  that  an  adjusted  solvency  calculation  be
carried  out  in  accordance  with  Annex  I.

2. Any related undertaking, participating undertaking or
related  undertaking  of  a  participating  undertaking  shall
be  included  in  the  calculation  referred  to  in  paragraph
1.

If 

the  calculation  referred 

3.
in  paragraph  1
demonstrates  that  the  adjusted  solvency  is  negative,  the
competent  authorities  shall  take  appropriate  measures  at
the  level  of  the  insurance  undertaking  in  question.

to 

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30.6.98

Article  10

Reinsurance  undertakings,  insurance  holding  companies
and  non-member-country  insurance  undertakings

1.
In  the  case  referred  to  in  Article  2(2),  Member  States
shall require the method of supplementary supervision to
be  applied  in  accordance  with  Annex  II.

2.
In  the  case  referred  to  in  Article  2(2),  the  calculation
shall  include  all  related  undertakings  of  the  insurance
holding  company,  the  reinsurance  undertaking  or  the
non-member-country 
the
manner  provided  for  in  Annex  II.

insurance  undertaking, 

in 

3.
If,  on  the  basis  of  this  calculation,  the  competent
authorities  conclude  that  the  solvency  of  a  subsidiary
insurance undertaking of the insurance holding company,
the  reinsurance  undertaking  or  the  non-member-country
insurance  undertaking  is,  or  may  be,  jeopardised,  they
shall  take  appropriate  measures  at  the  level  of  that
insurance  undertaking.

3. When  Member  States  adopt  the  measures  referred  to
in  paragraph  1,  they  shall  contain  a  reference  to  this
Directive  or  shall  be  accompanied  by  such  reference  on
the occasion of their official publication. The methods of
making  such  reference  shall  be  laid  down  by  Member
States.

4. Member States shall communicate to the Commission
the  main  provisions  of  national  law  which  they  adopt  in
the  field  covered  by  this  Directive.

5. Not later than . . . (*) the Commission shall submit to
the  Insurance  Committee  a  report  on  the  application  of
this  Directive  and,  if  necessary,  on  the  need  for  further
harmonisation.

Article  12

Entry  into  force

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

Article  11

Implementation

Article  13

Addressees

1. Member  States  shall  adopt  not  later  than  . . . (*)  the
laws,  regulations  and  administrative  provisions  necessary
to  comply  with  this  Directive.  They  shall  immediately
inform  the  Commission  thereof.

2. Member  States  shall  provide  that  the  provisions
referred  to  in  paragraph  1  shall  first  apply  to  the
supervision of accounts for financial years beginning on 1
January  . . . (**)  or  during  that  calendar  year.

This  Directive  is  addressed  to  the  Member  States.

Done  at  . . .

For  the  European  Parliament

For  the  Council

The  President

The  President

(*)  18  months  after  the  entry  into  force  of  this  Directive.
(**) 1  January  of  the  year  following  the  year  mentioned  in

paragraph  1.

(*)  Five  years  after  the  date  referred  to  in  paragraph  2.

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ANNEX  I

CALCULATION  OF  THE  ADJUSTED  SOLVENCY  OF  INSURANCE  UNDERTAKINGS

1.  CHOICE  OF  CALCULATION  METHOD  AND  GENERAL  PRINCIPLES

A.  Member  States  shall  provide  that  the  calculation  of  the  adjusted  solvency  of  insurance
undertakings  referred  to  in  Article  2(1)  shall  be  carried  out  according  to  one  of  the  methods
described  in  point  3.  A  Member  State  may,  however,  provide  for  the  competent  authorities  to
authorise or impose the application of a method set out in point 3 other than that chosen by the
Member  State.

B.  Proportionality

The  calculation  of  the  adjusted  solvency  of  an  insurance  undertaking  shall  take  account  of  the
proportional  share  held  by  the  participating  undertaking  in  its  related  undertakings.

‘Proportional  share’  means  either,  where  method  1  or  method  2  described  in  point  3  is  used,  the
proportion  of  the  subscribed  capital  that  is  held,  directly  or  indirectly,  by  the  participating
undertaking  or,  where  method  3  described  in  point  3  is  used,  the  percentages  used  for  the
establishment  of  the  consolidated  accounts.

However, whichever method is used, when the related undertaking is a subsidiary undertaking and
has  a  solvency  deficit,  the  total  solvency  deficit  of  the  subsidiary  has  to  be  taken  into  account.

However,  where,  in  the  opinion  of  the  competent  authorities,  the  responsibility  of  the  parent
undertaking  owning  a  share  of  the  capital  is  limited  strictly  and  unambiguously  to  that  share  of
the  capital,  such  competent  authorities  may  give  permission  for  the  solvency  deficit  of  the
subsidiary  undertaking  to  be  taken  into  account  on  a  proportional  basis.

C.  Elimination  of  double  use  of  solvency  margin  elements

C.1. General  treatment  of  solvency  margin  elements

Regardless  of  the  method  used  for  the  calculation  of  the  adjusted  solvency  of  an  insurance
undertaking,  the  double  use  of  elements  eligible  for  the  solvency  margin  among  the  different
insurance  undertakings  taken  into  account  in  that  calculation  must  be  eliminated.

For  this  purpose,  when  calculating  the  adjusted  solvency  of  an  insurance  undertaking  and  where
the  methods  described  in  point  3  do  not  provide  for  it,  the  following  amounts  shall  be
eliminated:

—  the value of any asset of that insurance undertaking which represents the financing of elements

eligible  for  the  solvency  margin  of  one  of  its  related  insurance  undertakings,

—  the value of any asset of a related insurance undertaking of that insurance undertaking which
represents  the  financing  of  elements  eligible  for  the  solvency  margin  of  that  insurance
undertaking,

—  the value of any asset of a related insurance undertaking of that insurance undertaking which
represents  the  financing  of  elements  eligible  for  the  solvency  margin  of  any  other  related
insurance  undertaking  of  that  insurance  undertaking.

C.2. Treatment  of  certain  elements

Without  prejudice  to  the  provisions  of  section  C.1:

—  profit reserves and future profits arising in a related life assurance undertaking of the insurance

undertaking  for  which  the  adjusted  solvency  is  calculated,  and

—  any  subscribed  but  not  paid-up  capital  of  a  related  insurance  undertaking  of  the  insurance

undertaking  for  which  the  adjusted  solvency  is  calculated,

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may  only  be  included  in  the  calculation  in  so  far  as  they  are  eligible  for  covering  the  solvency
margin requirement of that related undertaking. However, any subscribed but not paid-up capital
which  represents  a  potential  obligation  on  the  part  of  the  participating  undertaking  shall  be
entirely  excluded  from  the  calculation.

Any  subscribed  but  not  paid-up  capital  of  the  participating  insurance  undertaking  which
represents  a  potential  obligation  on  the  part  of  a  related  insurance  undertaking  shall  also  be
excluded  from  the  calculation.

Any  subscribed  but  not  paid-up  capital  of  a  related  insurance  undertaking  which  represents  a
potential obligation on the part of another related insurance undertaking of the same participating
insurance  undertaking  shall  be  excluded  from  the  calculation.

C.3. Transferability

If  the  competent  authorities  consider  that  certain  elements  eligible  for  the  solvency  margin  of  a
related  insurance  undertaking  other  than  those  referred  to  in  section  C.2  cannot  effectively  be
made  available  to  cover  the  solvency  margin  requirement  of  the  participating  insurance
undertaking  for  which  the  adjusted  solvency  is  calculated,  those  elements  may  be  included  in  the
calculation only in so far as they are eligible for covering the solvency margin requirement of the
related  undertaking.

C.4. The sum of the elements referred to in sections C.2 and C.3 may not exceed the solvency margin

requirement  of  the  related  insurance  undertaking.

D.  Elimination  of  the  intra-group  creation  of  capital

When  calculating  adjusted  solvency,  no  account  shall  be  taken  of  any  element  eligible  for  the
solvency  margin  arising  out  of  reciprocal  financing  between  the  insurance  undertaking  and:

—  a  related  undertaking,

—  a  participating  undertaking,

—  another  related  undertaking  of  any  of  its  participating  undertakings.

Furthermore, no account shall be taken of any element eligible for the solvency margin of a related
insurance  undertaking  of  the  insurance  undertaking  for  which  the  adjusted  solvency  is  calculated
when the element in question arises out of reciprocal financing with any other related undertaking
of  that  insurance  undertaking.

In  particular,  reciprocal  financing  exists  when  an  insurance  undertaking,  or  any  of  its  related
undertakings, holds shares in, or makes loans to, another undertaking which, directly or indirectly,
holds  an  element  eligible  for  the  solvency  margin  of  the  first  undertaking.

E.  The  competent  authorities  shall  ensure  that  the  adjusted  solvency  is  calculated  with  the  same
frequency  as  that  laid  down  by  Directives  73/239/EEC  and  79/267/EEC  for  calculating  the
solvency margin of insurance undertakings. The value of the assets and liabilities shall be assessed
according  to  the  relevant  provisions  of  Directives  73/239/EEC,  79/267/EEC  and  91/674/EEC (1).

2.  APPLICATION  OF  THE  CALCULATION  METHODS

2.1.  Related  insurance  undertakings

The  adjusted  solvency  calculation  shall  be  carried  out  in  accordance  with  the  general  principles  and
methods  set  out  in  this  Annex.

(1)  Council  Directive  91/674/EEC  of  19  December  1991  on  the  annual  accounts  and  consolidated  accounts  of  insurance

undertakings  (OJ  L  374,  31.12.1991,  p.  7).

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

In  cases  of  successive  participations  (for  example,  where  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
insurance  undertaking  which  has  at  least  one  related  insurance  undertaking.

Member  States  may  waive  calculation  of  the  adjusted  solvency  of  an  insurance  undertaking:

—  if the undertaking is a related undertaking of another insurance undertaking authorised in the same
Member State, and that related undertaking is taken into account in the calculation of the adjusted
solvency  of  the  participating  insurance  undertaking,  or

—  if the insurance undertaking is a related undertaking either of an insurance holding company or of a
reinsurance  undertaking  which  has  its  registered  office  in  the  same  Member  State  as  the  insurance
undertaking,  and  both  the  holding  insurance  company  or  the  reinsurance  undertaking  and  the
related  insurance  undertaking  are  taken  into  account  in  the  calculation  carried  out.

Member States may also waive calculation of the adjusted solvency of an insurance undertaking if it is
a  related  insurance  undertaking  of  another  insurance  undertaking,  a  reinsurance  undertaking  or  an
insurance  holding  company  which  has  its  registered  office  in  another  Member  State,  and  if  the
competent  authorities  of  the  Member  States  concerned  have  agreed  to  grant  exercise  of  the
supplementary  supervision  to  the  competent  authority  of  the  latter  Member  State.

In each case, the waiver may be granted only if the competent authorities are satisfied that the elements
eligible  for  the  solvency  margins  of  the  insurance  undertakings  included  in  the  calculation  are
adequately  distributed  between  those  undertakings.

Member  States  may  provide  that  where  the  related  insurance  undertaking  has  its  registered  office  in  a
Member State other than that of the insurance undertaking for which the adjusted solvency calculation
is carried out, the calculation shall take account, in respect of the related undertaking, of the solvency
situation  as  assessed  by  the  competent  authorities  of  that  other  Member  State.

2.2.  Related  reinsurance  undertakings

When  calculating  the  adjusted  solvency  of  an  insurance  undertaking  which  is  a  participating
undertaking  in  a  reinsurance  undertaking,  this  related  reinsurance  undertaking  shall  be  treated,  solely
for  the  purposes  of  the  calculation,  by  analogy  with  a  related  insurance  undertaking,  applying  the
general  principles  and  methods  described  in  this  Annex.

To  this  end,  a  notional  solvency  requirement  shall  be  established  for  each  related  reinsurance
undertaking  on  the  basis  of  the  same  rules  as  are  laid  down  in  Article  16(2)  of  (5)  of  Directive
73/239/EEC  or  Article  19  of  Directive  79/267/EEC.  However,  in  the  event  of  significant  difficulty  in
applying these rules, the competent authorities may permit the notional life solvency requirement to be
calculated on the basis of the first result as set out in Article 16(3) of Directive 73/239/EEC. The same
elements  as  are  found  in  Article  16(1)  of  Directive  73/239/EEC  and  in  Article  18  of  Directive
79/267/EEC shall be recognised as eligible for the notional solvency margin. The value of the assets and
liabilities  shall  be  assessed  according  to  the  same  rules  as  are  laid  down  in  those  Directives  and  in
Directive  91/674/EEC.

2.3.  Intermediate  insurance  holding  companies

When calculating the adjusted solvency of an insurance undertaking which holds a participation in an
insurance  undertaking,  a  related  reinsurance  undertaking,  or  an  insurance  undertaking  in  a
non-member  country  through  an  insurance  holding  company,  the  situation  of  the  intermediate
insurance  holding  company  is  taken  into  account.  For  the  sole  purpose  of  this  calculation,  to  be
undertaken  in  accordance  with  the  general  principles  and  methods  described  in  this  Annex,  this
insurance  holding  company  shall  be  treated  as  if  it  were  an  insurance  undertaking  subject  to  a  zero
solvency  requirement  and  were  subject  to  the  same  conditions  as  are  laid  down  in  Article  16(1)  of
Directive  73/239/EEC  or  in  Article  18  of  Directive  79/267/EEC  in  respect  of  elements  eligible  for  the
solvency margin.

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2.4.  Related  insurance  or  reinsurance  undertakings  having  their  registered  office  in  non-member  countries

A.  Related  non-member  country  insurance  undertakings

When  calculating  the  adjusted  solvency  of  an  insurance  undertaking  which  is  a  participating
undertaking  in  a  non-member  country  insurance  undertaking,  the  latter  shall  be  treated  solely  for
the  purposes  of  the  calculation,  by  analogy  with  a  related  insurance  undertaking,  by  applying  the
general  principles  and  methods  described  in  this  Annex.

However, where the non-member country in which that undertaking has its registered office makes
it subject to authorisation and imposes on it a solvency requirement at least comparable to that laid
down  in  Directives  73/239/EEC  or  79/267/EEC,  taking  into  account  the  elements  of  cover  of  that
requirement,  Member  States  may  provide  that  the  calculation  shall  take  into  account,  as  regards
that  undertaking,  the  solvency  requirement  and  the  elements  eligible  to  satisfy  that  requirement  as
laid  down  by  the  non-member  country  in  question.

B.  Related  non-member  country  reinsurance  undertakings

Notwithstanding  section  2.2,  when  calculating  the  adjusted  solvency  of  an  insurance  undertaking
which  is  a  participating  undertaking  in  a  reinsurance  undertaking  with  its  registered  office  in  a
non-member  country,  and  subject  to  the  same  conditions  as  those  set  out  in  point  A  above,
Member  States  may  provide  that  the  calculation  shall  take  account,  as  regards  the  latter
undertaking,  of  the  own-funds  requirement  and  the  elements  eligible  to  satisfy  that  requirement  as
laid down by the non-member country in question. Where only the insurance undertakings of that
non-member  country  are  subject  to  such  provisions,  the  notional  own-funds  requirement  on  the
related  reinsurance  undertaking  and  the  elements  eligible  to  satisfy  that  notional  requirement  may
be  calculated  as  if  the  undertaking  in  question  were  a  related  insurance  undertaking  of  that
non-member  country.

2.5.  Non-availability  of  the  necessary  information

Where  information  necessary  for  calculating  the  adjusted  solvency  of  an  insurance  undertaking,
concerning a related undertaking with its registered office in a Member State or a non-member country,
is  not  available  to  the  competent  authorities,  for  whatever  reason,  the  book  value  of  that  undertaking
in the participating insurance undertaking shall be deducted from the elements eligible for the adjusted
solvency  margin.  In  that  case,  the  unrealised  gains  connected  with  such  participation  shall  not  be
allowed  as  an  element  eligible  for  the  adjusted  solvency  margin.

3.  CALCULATION  METHODS

Method  1:  Deduction  and  aggregation  method

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

(i)  the  sum  of:

(a)  the  elements  eligible  for  the  solvency  margin  of  the  participating  insurance  undertaking,  and

b)  the proportional share of the participating insurance undertaking in the elements eligible for the

solvency  margin  of  the  related  insurance  undertaking

and

(ii) the  sum  of:

(a)  the book value in the participating insurance undertaking of the related insurance undertaking,

and

(b) the  solvency  requirement  of  the  participating  insurance  undertaking,  and

(c)  the  proportional  share  of  the  solvency  requirement  of  the  related  insurance  undertaking.

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Where the participation in the related insurance undertaking consists, wholly or in part, of an indirect
ownership, then item (ii)(a) shall incorporate the value of such indirect ownership, taking into account
the relevant successive interests; and items (i)(b) and (ii)(c) shall include the corresponding proportional
shares of the elements eligible for the solvency margin of the related insurance undertaking and of the
solvency  requirement  of  the  related  insurance  undertaking,  respectively.

Method  2:  Requirement  deduction  method

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

(i)  the  sum  of  the  elements  eligible  for  the  solvency  margin  of  the  participating  insurance

undertaking

and

(ii) the  sum  of:

(a)  the  solvency  requirement  of  the  participating  insurance  undertaking,  and

(b) the  proportional  share  of  the  solvency  requirement  of  the  related  insurance  undertaking.

When  valuing  the  elements  eligible  for  the  solvency  margin,  participations  within  the  meaning  of  this
Directive are valued by the equity method, in accordance with the option set out in Article 59(2)(b) of
Directive  78/660/EEC.

Method  3:  Accounting  consolidation-based  method

The calculation of the adjusted solvency of the participating insurance undertaking shall be carried out
on  the  basis  of  the  consolidated  accounts.  The  adjusted  solvency  of  the  participating  insurance
undertaking  is  the  difference  between:

the  elements  eligible  for  the  solvency  margin  calculated  on  the  basis  of  consolidated  data,  and

(a)  either  the  sum  of  the  solvency  requirement  of  the  participating  insurance  undertaking  and  of  the
proportional  shares  of  the  solvency  requirements  of  the  related  insurance  undertakings,  based  on
the  percentages  used  for  the  establishment  of  the  consolidated  accounts,

(b) or  the  solvency  requirement  calculated  on  the  basis  of  consolidated  data.

The provisions of Directives 73/239/EEC, 79/267/EEC and 91/674/EEC shall apply for the calculation
of the elements eligible for the solvency margin and of the solvency requirement based on consolidated
data.

ANNEX  II

SUPPLEMENTARY  SUPERVISION  FOR  INSURANCE  UNDERTAKINGS  THAT  ARE  SUBSIDIARIES
INSURANCE  HOLDING  COMPANY,  A  REINSURANCE  UNDERTAKING  OR  A
OF  AN 

NON-MEMBER  COUNTRY  INSURANCE  UNDERTAKING

1.  In the case of two or more insurance undertakings referred to in Article 2(2) which are the subsidiaries
of  an  insurance  holding  company,  a  reinsurance  undertaking  or  a  non-member-country  insurance
undertaking and which are established in different Member States, the competent authorities shall ensure
that  the  method  described  in  this  Annex  is  applied  in  a  consistent  manner.

The competent authorities shall exercise the supplementary supervision with the same frequency as that
laid  down  by  Directives  73/239/EEC  and  79/267/EEC  for  calculating  the  solvency  margin  of  insurance
undertakings.

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2.  Member  States  may  waive  the  calculation  provided  for  in  this  Annex  with  regard  to  an  insurance

undertaking:

—  if  that  insurance  undertaking  is  a  related  undertaking  of  another  insurance  undertaking  and  if  it  is
taken  into  account  in  the  calculation  provided  for  in  this  Annex  carried  out  for  that  other
undertaking,

—  if  that  insurance  undertaking  and  one  or  more  other  insurance  undertakings  authorised  in  the  same
Member  State  have  as  their  parent  undertaking  the  same  insurance  holding  company,  reinsurance
undertaking  or  non-member-country  insurance  undertaking,  and  the  insurance  undertaking  is  taken
into  account  in  the  calculation  provided  for  in  this  Annex  carried  out  for  one  of  these  other
undertakings,

—  if  that  insurance  undertaking  and  one  or  more  other  insurance  undertakings  authorised  in  other
Member  States  have  as  their  parent  undertaking  the  same  insurance  holding  company,  reinsurance
undertaking  or  non-member-country  insurance  undertaking,  and  an  agreement  granting  exercise  of
the  supplementary  supervision  covered  by  this  Annex  to  the  supervisory  authority  of  another
Member  State  has  been  concluded  in  accordance  with  Article  4(2).

In  the  case  of  successive  participations  (for  example:  an  insurance  holding  company  or  a  reinsurance
undertaking which is itself owned by another insurance holding company, a reinsurance undertaking or
a  non-member  country  insurance  undertaking),  Member  States  may  apply  the  calculations  provided  for
in this Annex only at the level of the ultimate parent undertaking of the insurance undertaking which is
an  insurance  holding  company,  a  reinsurance  undertaking  or  a  non-member-country  insurance
undertaking.

3.  The  competent  authorities  shall  ensure  that  calculations  analogous  to  those  described  in  Annex  I  are
insurance  holding  company,  reinsurance  undertaking  or

the 

the 

carried  out  at 
non-member-country  insurance  undertaking.

level  of 

The  analogy  shall  consist  in  applying  the  general  principles  and  methods  described  in  Annex  I  at  the
level  of  the  insurance  holding  company,  reinsurance  undertaking  or  non-member-country  insurance
undertaking.

For  the  sole  purpose  of  this  calculation,  the  parent  undertaking  shall  be  treated  as  if  it  were  an
insurance  undertaking  subject  to:

—  a  zero  solvency  requirement  where  it  is  an  insurance  holding  company,

—  a notional solvency requirement as provided for in section 2.2 of Annex I where it is a reinsurance
undertaking,  or  as  provided  for  in  section  2.4(B)  of  Annex  I  where  it  is  a  reinsurance  undertaking
with  its  registered  office  in  a  non-member  country,

—  a solvency requirement determined according to the principles of section 2.4(A) of Annex I, where

it  is  a  non-member-country  insurance  undertaking,

and  is  subject  to  the  same  conditions  as  laid  down  in  Article  16(1)  of  Directive  73/239/EEC  or  in
Article  18  of  Directive  79/267/EEC  as  regards  the  elements  eligible  for  the  solvency  margin.

4.  Non-availability  of  the  necessary  information

Where  information  necessary  for  the  calculation  provided  for  in  this  Annex,  concerning  a  related
undertaking  with  its  registered  office  in  a  Member  State  or  a  non-member  country,  is  not  available  to
the  competent  authorities,  for  whatever  reason,  the  book  value  of  that  undertaking  in  the  participating
undertaking shall be deducted from the elements eligible for the calculation provided for in this Annex.
In  that  case,  the  unrealised  gains  connected  with  such  participation  shall  not  be  allowed  as  an  element
eligible  for  the  calculation.

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STATEMENT  OF  THE  COUNCIL’S  REASONS

I. 

INTRODUCTION

On 4 October 1995 the Commission submitted a proposal for a Directive based on Article
57(2)  of  the  EC  Treaty.

The  Economic  and  Social  Committee  delivered  its  opinion  on  27  March  1996.

The  European  Parliament  delivered  its  opinion  on  23  October  1997.

Further  to  that  opinion,  the  Commission  submitted  an  amended  proposal  on  28  January
1998.

The Council adopted its common position, under Article 189b of the Treaty, on 30 March
1998.

II.  OBJECTIVE

The  proposal  is  designed  to  provide  insurance  supervision  authorities  with  more  effective
means  of  ascertaining  the  true  solvency  of  an  insurance  undertaking  which  is  part  of  an
insurance group in order to preclude circumvention of the solvency margin requirements by
groups, in particular by means of double gearing of capital. The proposal imposes no new
introduces  supervision
capital  requirements  on 
mechanisms.

insurance  undertakings  but  simply 

III.  COMMON  POSITION

In  its  first-reading  opinion,  the  European  Parliament  proposed  24  amendments.  The
Commission’s  amended  proposal  accepted  14  amendments  in  their  entirety  and  four  in
part.  The  Council’s  common  position  is  close  to  the  Commission’s  position  on  the
amendments,  incorporating  (at  least  in  part)  the  substance  of  19  of  them.

Of  the  five  amendments  disallowed:

—  one  (amendment  No  8)  was  unacceptable  because  it  unduly  restricted  the  scope  of  the
Directive by limiting supplementary supervision to parent-subsidiary relations within an
insurance  group,

—  four  were  unacceptable  because  they  introduced  factors  extraneous  to  the  text  as  it

stands.

IV.  ANALYSIS  OF  THE  COMMON  POSITION

1.  Recitals

The  European  Parliament  did  not  amend  any  of  the  recitals.

The  Council  made  the  amendments  it  considered  necessary  to  align  them  with  the
content  of  the  Articles,  at  the  same  time  trying  to  maintain  overall  consistency.

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2.  Non-member-country  insurance  undertaking  (Article  1  of  the  common  position)

The Council inserted a definition of ‘non-member-country insurance undertaking’, the
concept  having  been  introduced  into  the  Directive  further  to  European  Parliament
amendments  Nos  6  and  7.

3.  Definition of ‘parent undertaking’ and ‘subsidiary undertaking’ (Article 1(d) and (e) of

the  common  position)

‘parent  undertaking’  and 

The  Council  widened  the  concepts  of 
‘subsidiary
undertaking’  as  requested  by  the  European  Parliament  in  amendments  Nos  1  and  2,
i. e.  by  referring  to  Article  1  of  Directive  83/349/EEC  as  a  whole  and  not  just  to
paragraph  1  as  in  the  initial  proposal.  However,  the  Council  thought  that  the  last
sentence  of  the  initial  proposal  should  stand,  so  that  the  competent  authorities  could
consider whether a dominant influence existed in cases other than those referred to in
Article  1  of  Directive  83/349/EEC.

4.  Definition  of  ‘participation’  (Article  1(f))

The  Council  adopted  a  definition  of  participation  which  takes  partial  account  of
European Parliament amendment No 4 by introducing a reference to the first sentence
of Article 17 of Directive 78/660/EEC and adopting the criterion of a ‘durable link’. In
addition,  the  holding,  directly  or  indirectly,  of  20 %  or  more  of  an  undertaking’s
voting  rights  or  capital  is  regarded  as  ‘participation’  within  the  meaning  of  the
Directive.  The  Council  adopted  this  wording  on  the  grounds  that  legal  certainty  is
essential  in  a  concept  which  determines  whether  or  not  the  Directive  applies.

5.  Definition  of  ‘insurance  holding  company’  and  ‘mixed-activity  insurance  holding

company’  (Article  1(i)  and  (j))

The  Council  incorporated  the  European  Parliament’s  proposed  amendments  Nos  6
and  7  in  full.

6.  Scope  (Article  2)

The  Council  decided  that  Article  2  of  the  initial  proposal  duplicated  Article  3(1),  (2)
and  (3)  thereof,  which  clearly  indicated  which  insurance  undertakings  are  subject  to
the  supplementary  supervision  established  by  the  Directive.  The  Council  therefore
deleted  the  proposed  text  of  Article  2  and  replaced  it  with  the  first  three  paragraphs
taken  from  Article  3  of  the  initial  proposal.

As  regards  the  text  of  paragraph  1,  the  Council,  as  indicated  under  section  III,  was
unable to endorse European Parliament amendment No 8, designed to limit the scope
of the Directive to parent-subsidiary relations within a group. The proposed restriction
would  limit  the  effectiveness  of  the  Directive  considerably  and  make  it  easier  to
circumvent.

In  addition,  the  Council  amended  paragraphs  1  and  2  to  include  in  the  Directive’s
scope  insurance  groups  in  which  a  non-member-country  insurance  undertaking  is  a
parent or related undertaking of an insurance undertaking. The Council saw no reason
why,  in  a  world  of  ever-increasing  globalisation,  they  should  be  excluded.

In  paragraph  2,  reinsurance  undertakings  which  are  the  ‘parent’  of  an  insurance
undertaking were also included. This approach makes for more standardised treatment
of  mixed  insurance-reinsurance  groups,  whatever  the  position  of  the  reinsurance
undertaking  within  the  group.

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7.  Scope  of  supplementary  supervision  (Article  3)

A  new  paragraph  2  was  inserted  in  Article  3  to  make  the  scope  of  supplementary
supervision  explicit.  This  paragraph  does  not  alter  the  scope  of  supplementary
supervision  but  simply  spells  out  what  was  implicit  in  the  text  of  the  initial
proposal.

In  paragraph  3,  the  Council  took  account  of  the  concerns  expressed  in  European
Parliament  amendment  No  9  by  clarifying  the  powers  of  the  Member  States  and  the
competent  authorities  in  exceptional  cases  of  non-application  of  supplementary
supervision.

8.  Competent  authorities  responsible  for  exercising  supplementary  supervision  (Article

4)

The Council inserted a new paragraph 2 to establish which authorities are competent
where  insurance  undertakings  authorised  in  two  Member  States  and  subject  to
supplementary  supervision  have  the  same  parent  undertaking.

9.  Availability  and  quality  of  information  (Article  5)

This  Article  was  slightly  recast  for  clarity’s  sake,  but  is  unchanged  in  substance.

10.  Access  to  information  (Article  6)

Article 6(1) was amended to take account of European Parliament amendment No 10
by  stipulating  that  the  competent  authorities  may  address  themselves  directly  to
undertakings  in  the  group  only  if  the  necessary  information  requested  has  not  been
supplied  by  the  insurance  undertaking.

In  paragraph  2  the  Council  wished  to  make  clear  which  undertakings  are  liable  to
on-the-spot  verification  in  order  to  avoid  future  problems  of  interpretation.

11.  Cooperation  between  competent  authorities  (Article  7)

In  paragraph  1,  the  Council  specified  the  extent  of  the  obligations  of  the  competent
authorities  regarding  reciprocal  communication.  The  text  of  the  common  position
therefore  distinguishes  between  relevant  information,  to  be  communicated  at  the
request  of  the  competent  authorities  of  another  Member  State,  and  essential
information,  which  the  competent  authorities  must  communicate  on  their  own
initiative.

Paragraph  2  was  slightly  altered  to  allow  for  the  possibility  of  an  insurance
undertaking  being  related  at  the  same  time  to  a  credit  institution  and  an  investment
firm. The Council took the view that this possibility was already implicit in the text of
the  original  proposal.

12.  Intra-group  transactions  (Article  8)

The  Council  considered  that  supplementary  supervision  of  intra-group  transactions
should  not  have  the  sole  aim  of  checking  that  transactions  are  conducted  under
normal  market  conditions,  but  should  also  check  any  transaction  that  could  have  a
negative  effect  on  the  solvency  of  the  insurance  undertaking,  even  if  conducted  on
normal  market  conditions.  The  common  position  therefore  establishes  general
supervision  of  intra-group  transactions  and  stipulates  that  the  competent  authority
shall take appropriate measures at the level of the insurance undertaking if it appears
that  the  solvency  of  the  insurance  undertaking  is,  or  may  be,  jeopardised.

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The  layout  of  Article  8  was  also  slightly  altered  for  the  sake  of  clarity.

13.  Adjusted  solvency  requirement  (Article  9)

The  Council  incorporated  European  Parliament  amendment  No  11  in  Article  9(1).

It  amended  paragraph  2  to  take  account  of  the  definitions  in  Article  1,  which
necessitate  a  reference  to  non-member-country  undertakings  here,  and  of  the  new
wording  of  Article  3(2).

14.  Application of the method of supplementary supervision in accordance with Annex II

(Article  10)

The wording of this Article was adjusted in line with the new wording of Article 2(2)
and  Annex  II.  The  Council  regards  these  as  purely  formal  amendments.

15.  Implementation  (Article  11)

Article  11  allows  18  months  for  transposition  of  the  Directive  into  national  law  and
states  that  it  is  to  apply  to  the  first  accounting  year  following  transposition.  The
former paragraph 2, providing for a transitional period for the participation threshold
definition,  was  dropped  because  Member  States  indicated  that  they  did  not  intend  to
avail  themselves  of  such  a  period.  Finally,  a  new  paragraph  5  was  inserted,  in
substance reproducing European Parliament amendment No 12, although the report is
to  be  submitted  five,  not  three,  years  after  the  date  of  application  of  the  Directive.

16.  Annex  I,  point  1

Annex I was extensively recast and supplemented to set out clearly all the principles to
be  taken  into  account  in  applying  the  calculation  methods,  in  particular:

(i)  Point  1  A:  The  Council  thought  it  necessary  to  spell  out  how  and  by  whom  the
method  should  be  chosen.  In  addition,  to  take  account  of  Parliament’s
amendment  No  13,  it  introduced  a  reference  to  Article  2(1),  where  the  first
insurance  Directives  are  cited.

(ii)  Point  1  B:  Here  the  principle  of  proportionality  is  established,  in  the  spirit  of

Parliament’s  amendment  No  15.

(iii)  Point  1  C:  This  point  deals  with  the  general  treatment  of  solvency  margin
elements,  taking  partial  account  of  amendment  No  14  on  the  treatment  of  some
of  those  elements,  and  stating  more  explicitly  the  need  to  eliminate  the  double
gearing of capital and the conditions of transferability of the elements to be used
in  calculating  the  solvency  margin.

(iv)  Point  1  D:  This  point  reproduces  point  B  of  the  original  proposal  on  the

elimination  of  the  intra-group  creation  of  capital.

(v)  Point  1  E:  This  point  reproduces  the  former  point  D,  with  the  addition  of  a
reference  to  Directive  91/674/EEC  as  requested  in  Parliament’s  amendment  No
16.

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17.  Annex  I,  point  2

Point  2  was  recast  so  that  all  the  general  provisions  on  application  of  the  calculation
methods are set out before the methods come to be described (point 3 now does this).
The  following  amendments  were  also  made:

(i)  Point  2.1:  The  fourth  and  sixth  paragraphs  take  account  of  Parliament’s
amendment No 17 by providing for the derogation in the original proposal to be
extended  to  cross-border  situations.

(ii)  Point  2.2:  A  derogation  is  provided  for  in  the  event  of  major  difficulties  in

applying  the  calculation  rules.

(iii)  Point  2.3:  Parliament’s  amendments  Nos  18  and  19  were  inserted,  with  slight

adjustments  for  the  sake  of  clarity.

(iv)  Point  2.4:  2.4(A)  sets  out  the  exact  treatment  to  be  accorded  to  related
in  Parliament’s

insurance  undertakings,  as  requested 

non-member-country 
amendment  No  27.

A similar provision on related non-member-country reinsurance undertakings was
inserted.

(v)  Point  2.5:  Covers  cases  where  the  information  necessary  for  calculating  the

adjusted  solvency  is  not  available.

(vi)  Point  4  of  the  text  of  the  proposal  was  deleted  in  response  to  Parliament’s

amendment  No  21.

19.  Annex  I,  point  3

The  description  of  the  methods  was  improved  and  slightly  expanded  to  include
interpretative explanations.

20.  Annex  II

Annex II was simplified; it lays down a single method of calculation, sufficient for the
purposes  of  supplementary  supervision  of  the  insurance  undertakings  covered.
Calculations  analogous  to  those  described  in  Annex  I  are  provided  for.