Proposal for a directive of the European parliament and of the Council amending Council Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance undertakings
Date: 2000-10-25
Institutions: European Commission
Subjects: administrative check, approximation of laws, financial solvency, insurance occupation, right of establishment

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Proposal for a Directive of the European Parliament and of the Council amending Council
Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance under-
takings

(2001/C 96 E/04)

(Text with EEA relevance)

COM(2000) 634 final (cid:151) 2000/0251(COD)

(Submitted by the Commission on 25 October 2000)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Articles 47(2) and 55 thereof,

Having regard to the proposal from the Commission,

subsequent Community

by
legislation and 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
Insurance Directive) (2)
required the Commission to
submit a report to the Insurance Committee set up by
Council Directive 91/675/EEC (3), on the need for further
harmonisation of the solvency margin.

Having regard to the opinion of
Committee,

the Economic and Social

Acting in accordance with the procedure laid down in Article
251 of the Treaty,

(5) The Commission has prepared that report (4) in the light
of the recommendations of the Report on the Solvency of
Insurance Undertakings prepared by the Conference of the
Insurance Supervisory Authorities of the Member States of
the European Union.

Whereas:

(1) The Financial Services Action Plan, as endorsed by Heads
of State and Government at
the European Council
meetings in Cologne on 3 and 4 June 1999 and in
Lisbon on 23 and 24 March 2000,
the
importance of the solvency margin for insurance under-
takings to protect policyholders in the single market by
insurance undertakings have adequate
ensuring that
capital requirements in relation to the nature of
their
risks.

recognises

(2) First Council Directive 73/239/EEC of 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 (1)
requires insurance undertakings to have solvency margins.

laws,

(3) The requirement

that

insurance undertakings establish,
over and above the technical provisions to meet their
underwriting liabilities, a solvency margin to act as a
buffer
an
important element in the system of prudential supervision
for the protection of insured persons and other policy-
holders.

adverse business

fluctuations

against

is

(4) The existing solvency margin rules as established by
Directive 73/239/EEC have been substantially unchanged

(1) OJ L 228, 16.8.1973, p. 3; Directive as last amended by Directive
2000/26/EC of the European Parliament and of the Council (OJ L
181, 20.7.2000, p. 65).

(6) While the report concluded that the simple, robust nature
of the current system has operated satisfactorily and is
based on sound principles benefiting from wide trans-
parency, certain weaknesses have been identified in
specific cases, particularly for sensitive risk profiles.

(7) There is a need to simplify and increase the existing
minimum guarantee funds,
in particular as a result of
inflation in claim levels and operational expenses since
their original adoption. The thresholds above which the
lower percentage rate applies for the determination of the
solvency margin requirement on the premiums and claims
basis should also be increased accordingly.

(8) To avoid major and sharp increases in the amount of the
minimum guarantee funds and the thresholds in the
future, a mechanism should be established providing for
their
increase in line with the European Index of
Consumer Prices.

(9) In specific situations where policyholders’

rights are
threatened, there is a need for the competent authorities
to be empowered to intervene at a sufficiently early stage,
but in the exercise of those powers, competent authorities
should inform the insurance undertakings of the reasons
motivating such supervisory action,
in accordance with
the principles of sound administration and due process.

(2) OJ L 228, 11.8.1992, p. 1 (Article 25); Directive as amended by
European Parliament and Council Directive 95/26/EC (OJ L 168,
18.7.1995, p. 7).

(3) OJ L 374, 31.12.1991, p. 32.
(4) COM(97) 398 final.

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(10) In the light of market developments in the nature of
reinsurance cover purchased by primary insurers, there
is
to be
empowered to decrease the reduction to the solvency
margin requirement in certain circumstances.

authorities

competent

a need

the

for

(c) the annual contribution income for the activities covered
by this Directive must not exceed EUR 5 million; and

(d) at

least half of

the contribution income from the
activities covered by this Directive must come from
persons who are members of the mutual association.

(11) Where an insurer substantially reduces or ceases the
writing of new business, there is a need to establish an
the residual
adequate solvency margin in respect of
liabilities for existing business as reflected by the level
of technical provisions.

Upon notification by an insurance undertaking to the
competent authority of the home Member State, however,
and with the agreement of that competent authority, this
undertaking shall be concerned by this Directive, once it
fulfils the provisions of Articles 16, 16a and 17.(cid:146)

(12) For specific classes of non-life business which are subject
to a particularly volatile risk profile, the existing solvency
margin requirement should be substantially increased so
that the required solvency margin is better matched to the
true risk profile of the business.

2. Article 16 is replaced by the following:

(cid:145)Article 16

it

(13) To reflect the impact of differing accounting and actuarial
approaches,
is appropriate to make corresponding
adjustments to the methodology for the calculation of
the solvency margin requirement so that this is calculated
in a coherent and consistent manner,
thus placing
insurance undertakings on an equal footing.

1.
Each Member State shall require of every insurance
undertaking whose head office is situated in its territory
an adequate available solvency margin in respect of
its
entire business at all times.

2.
the
The available solvency margin shall consist of
assets of the insurance undertaking free of any foreseeable
the
liabilities,
following shall be included:

less any intangible items.

In particular

(14) This Directive should lay down minimum standards for
the solvency margin requirements and home Member
rules for
States should be able to lay down stricter
own
insurance
competent authorities.

undertakings

authorised

their

by

(a) the paid-up share capital or,

in the case of a mutual
fund plus
insurance undertaking,
any members’ accounts which meet all the following
criteria:

the effective initial

(15) Directive 73/239/EEC should be amended accordingly,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Amendments to Directive 73/239/EEC

Directive 73/239/EEC is amended as follows:

1. In Article 3, paragraph 1 is replaced by the following:

This Directive does not apply to mutual associations

(cid:145)1.
in so far as they fulfil all the following conditions:

(a) the articles of association must contain provisions for
calling up additional contributions or reducing their
benefits;

(i) the memorandum and articles of association must
stipulate that payments may be made from these
accounts to members only in so far as this does
not cause the available solvency margin to fall
below the required level, or, after the dissolution
if all the undertaking’s other
of the undertaking,
debts have been settled;

(ii) the memorandum and articles of association must
stipulate, with respect to any payments referred to
in point (i) for reasons other than the individual
termination of membership,
the competent
authorities must be notified at least one month in
advance and can prohibit the payment within that
period;

that

(iii) the relevant provisions of

the memorandum and
articles of association may be amended only after
the competent authorities have declared that they
have no objection to the amendment, without
prejudice to the criteria stated in points (i) and (ii);

(b) reserves (statutory reserves and free reserves) not corre-

sponding to underwriting liabilities;

(b) their business does not cover liability risks or credit and
suretyship risks unless these constitute ancillary cover
within the meaning of subparagraph (c) of the Annex;

(c) the financial result brought forward after deduction of
dividends to be paid in respect of the last financial year.

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The available solvency margin shall be reduced by the
amount of own shares directly held by the insurance under-
taking.

investment

For those insurance undertakings which discount or reduce
their technical provisions for claims outstanding to take
income as permitted by Article
account of
60(g) of Directive 91/674/EEC,
the available solvency
margin shall be reduced by the difference between the
undiscounted technical provisions or technical provisions
before deductions as disclosed in the notes on the
accounts, and the discounted or technical provisions after
deductions. This adjustment shall be made for all risks listed
in point A of the Annex, except for risks listed under classes
1 and 2. For classes other than 1 and 2, no adjustment need
be made in respect of the discounting of annuities included
in technical provisions.

3.

The solvency margin may consist of:

(a) cumulative preferential share capital and subordinated
loan capital up to 50 % of the lesser of the available
and required solvency margin, no more than 25 % of
which shall consist of subordinated loans with a fixed
maturity, or fixed-term cumulative preferential share
capital, provided in the event of the bankruptcy or liqui-
dation of the insurance undertaking, binding agreements
exist under which the subordinated loan capital or pref-
erential share capital ranks after the claims of all other
creditors and is not to be repaid until all other debts
outstanding at the time have been settled.

Subordinated loan capital must also fulfil the following
conditions:

(i) only fully paid-up funds may be taken into account;

their

approval

(ii) for loans with a fixed maturity, the original maturity
must be at least five years. No later than one year
before the repayment date the insurance under-
taking must submit to the competent authorities
for
a plan showing how the
available solvency margin will be kept at or
brought to the required level at maturity, unless
to which the loan may rank as a
the extent
component of
the available solvency margin is
gradually reduced during at least the last five years
before the repayment date. The competent auth-
orities may authorise the early repayment of such
loans provided application is made by the issuing
insurance undertaking and its available solvency
margin will not fall below the required level;

(iii) loans the maturity of which is not fixed must be
repayable only subject to five years’ notice unless
the
a
loans
the available solvency margin or
component of

considered

longer

are

no

as

unless the prior consent of the competent auth-
orities is specifically required for early repayment.
In the latter event the insurance undertaking must
notify the competent authorities at least six months
before the date of the proposed repayment, spec-
ifying the available and required solvency margin
both before
repayment. The
shall authorise repayment
competent authorities
only
available
the
solvency margin will not fall below the required
level;

insurance undertaking’s

after

that

and

if

(iv) the loan agreement must not include any clause
providing that
in specified circumstances, other
than the winding-up of the insurance undertaking,
the debt will become repayable before the agreed
repayment dates;

(v) the loan agreement may be amended only after the
competent authorities have declared that they have
no objection to the amendment;

including cumulative preferential

(b) securities with no specified maturity date and other
instruments,
shares
other than those mentioned in point (a), up to 50 %
of
the available and required solvency
margin for the total of such securities and the subor-
dinated loan capital referred to in point (a) provided
they fulfil the following:

the lesser of

(i) they may not be repaid on the initiative of
consent of

the prior

bearer or without
competent authority;

the
the

(ii) the contract of

undertaking to defer the payment of
the loan;

issue must enable the insurance
interest on

(iii) the lender’s claims on the insurance undertaking
must rank entirely after those of all non-subor-
dinated creditors;

(iv) the documents governing the issue of the securities
must provide for the loss-absorption capacity of the
debt
enabling the
insurance undertaking to continue its business;

and unpaid interest, while

(v) only fully paid-up amounts may be taken into

account.

Upon application, with supporting evidence, by the
4.
undertaking to the competent authority of
the home
Member State and with the agreement of that competent
authority, the solvency margin may consist of:

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(a) one half of the unpaid share capital or initial fund, once
the paid-up part amounts to 25 % of that share capital
or fund, up to 50 % of the lesser of the available and
required solvency margin.

by way of

(b) in the case of mutual or mutual-type association with
variable contributions, any claim which it has against its
members
supplementary
a
contribution, within the financial year, up to one-half
of the difference between the maximum contributions
and the contributions actually called in, and subject to a
limit of 50 % of
the lesser of the available solvency
margin and the required solvency margin.

call

for

(c) any hidden reserves arising out of the under-valuation of
assets, in so far as such hidden reserves are not of an
exceptional nature.

5.
Amendments to paragraphs 2, 3 and 4 to take into
account developments that justify a technical adjustment of
the elements eligible for the available solvency margin, shall
be adopted in accordance with the procedure laid down in
Article 2 of Directive 91/675/EEC.(cid:146)

3. The following Article 16a is inserted:

(cid:145)Article 16a

To this sum there shall be added the amount of premiums
accepted for all reinsurance in the last financial year.

From this sum there shall
then be deducted the total
amount of premiums or contributions cancelled in the last
financial year, as well as the total amount of taxes and levies
pertaining to the premiums or contributions entering into
the aggregate.

The amount so obtained shall be divided into two portions,
the
the first portion extending up to EUR 50 million,
second comprising the excess; 18 % and 16 % of
these
portions respectively shall be calculated and added together.

The sum so obtained shall be multiplied by the ratio
existing in respect of the sum of the last three financial
years between the amount of claims remaining to be
borne by the undertaking after deduction of amounts
recoverable under reinsurance and the gross amount of
claims; this ratio may in no case be less than 50 %.

With the approval of the competent authorities, statistical
methods may be used to allocate the premiums or
contributions in respect of the classes 11, 12 and 13.

4.
The claims basis shall be calculated, as follows, using
in respect of the classes 11, 12 and 13 listed in point A of
the Annex, claims, provisions and recoveries increased by
50 per cent.

1.
The minimum required solvency margin shall be
determined on the basis either of the annual amount of
premiums or contributions, or of the average burden of
claims for the past three financial years.

The amounts of claims paid in respect of direct business
(without any deduction of claims borne by reinsurers and
in the periods specified in paragraph 1
retrocessionaires)
shall be aggregated.

In the case, however, of
insurance undertakings which
essentially underwrite only one or more of the risks of
credit, storm, hail or frost, the last seven financial years
shall be taken as the reference period for the average
burden of claims.

2.
Subject to the provisions of Article 17, the amount of
the minimum required solvency margin shall be equal to the
higher of the two results as set out in paragraphs 3 and 4:

3.
The premium basis shall be calculated using the higher
of gross written premiums or contributions, and gross
earned premiums or contributions.

Premiums or contributions in respect of the classes 11, 12
and 13 listed in point A of the Annex shall be increased by
50 per cent.

The premiums or
charges
ancillary to premiums or contributions) due in respect of
direct business in the last financial year shall be aggregated.

(inclusive of

contributions

To this sum there shall be added the amount of claims paid
in respect of reinsurances or retrocessions accepted during
the same periods.

To this sum there shall be added the amount of provisions
for claims outstanding established at the end of the last
financial year both for direct business and for reinsurance
acceptances.

From this sum there shall be deducted the amount of
recoveries
in
paragraph 1.

specified

effected

periods

during

the

From the sum then remaining, there shall be deducted the
amount of provisions for claims outstanding established at
the commencement of the second financial year preceding
the last financial year for which there are accounts, both for
the
direct business and for
reference established in paragraph 1 equals
period of
seven years,
claims
outstanding established at the commencement of the sixth
financial year preceding the last financial year for which
there are accounts shall be deducted.

reinsurance acceptances.

amount of provisions

the

for

If

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the amount so obtained,
One-third, or one-seventh, of
according to the period of
established in
reference
paragraph 1, shall be divided into two portions, the first
extending up to EUR 35 million and the second comprising
the excess; 26 % and 23 % of these portions respectively
shall be calculated and added together.

The sum so obtained shall be multiplied by the ratio
existing in respect of the sum of the last three financial
years between the amount of claims remaining to be
borne by the undertaking after deduction of amounts
recoverable under reinsurance and the gross amount of
claims; this ratio may in no case be less than 50 %.

With the approval of the competent authorities, statistical
methods may be used to allocate the claims, provisions and
recoveries in respect of the classes 11, 12 and 13. In the case
of the risks listed under class 18 in point A of the Annex,
the amount of claims paid used to calculate the claims basis
shall be the costs borne by the insurance undertaking in
respect of assistance given. Such costs shall be calculated in
the home
accordance with the national provisions of
Member State.

If

5.
the required solvency margin as calculated in
paragraphs 2, 3 and 4 is lower than the required solvency
margin of the year before, the required solvency margin
shall be at least equal to the required solvency margin of
the year before multiplied by the ratio of the amount of the
technical provisions for claims outstanding at the end of the
last
the technical
provisions for claims outstanding at the beginning of the
last financial year.

financial year and the amount of

6.
The fractions applicable to the portions referred to in
the sixth subparagraph of paragraph 3 and the seventh
subparagraph of paragraph 4 shall each be reduced to a
third in the case of health insurance practised on a similar
technical basis to that of life assurance, if

(a) the premiums paid are calculated on the basis of
sickness tables according to the mathematical method
applied in insurance;

4. Article 17 is replaced by the following:

(cid:145)Article 17

1.
One third of the minimum required solvency margin
as specified in Article 16a shall constitute the guarantee
fund. This fund shall consist of the items listed in Article
16(2), (3) and (4)(c).

2.
The guarantee fund may not be less than EUR 2
million. Where, however, all or some of the risks included
in one of the classes 10 to 15 listed in point A of the Annex
are covered, it shall be EUR 3 million.

Any Member State may provide for a one-fourth reduction
of
the minimum guarantee fund in the case of mutual
associations and mutual-type associations.(cid:146)

5. The following Article 17a is inserted:

(cid:145)Article 17a

1.
The amounts in euro as laid down in Article 16a (3)
and (4) and Article 17(2) shall be reviewed annually starting
(18 months after the entry into force of this Directive), in
order to take account of changes in the European Index of
Consumer Prices comprising all Member States as published
by Eurostat.

The amounts shall be adapted automatically by increasing
the base amount in euro by the percentage change in that
Index over the period between the entry into force of this
Directive and the review date and rounded up to a multiple
of EUR 100 000.

If the percentage change since the last adaptation is less
than 5 %, no adaptation shall take place.

2.
The Commission shall inform annually the European
Parliament and the Insurance Committee of the review and
the adapted amounts.(cid:146)

6. In Article 20(2), the term (cid:145)Article 16(3)(cid:146) is replaced by the

term (cid:145)Article 16a(cid:146).

(b) a provision is set up for increasing age or the business is

conducted on a group basis;

7. The following Article 20a is inserted:

(c) an additional premium is collected in order to set up a

(cid:145)Article 20a

safety margin of an appropriate amount;

(d) the insurance undertaking may cancel

the contract
before the end of the third year of insurance at the
latest;

1. Member States shall ensure that the competent auth-
orities have the power to require a financial recovery plan
for those insurance undertakings where competent auth-
orities consider that policyholders’ rights are threatened.
The financial recovery plan may include particulars or
proof concerning for the next three financial years:

(e) the contract provides for the possibility of increasing
reducing payments even for current

premiums or
contracts.(cid:146)

(a) estimates of management expenses, in particular current

general expenses and commissions;

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(b) a plan setting out detailed estimates of

income and
expenditure in respect of direct business, reinsurance
acceptances and reinsurance cessions;

(c) a forecast balance sheet;

fully established the required solvency margin, a
have not
further period not exceeding two years in which to do so
in accordance with
provided that such undertakings have,
Article 20 of Directive 73/239/EEC,
the
submitted for
the competent authorities the measures which
approval of
they propose to take for such purpose.

(d) estimates of the financial resources intended to cover
required solvency

and the

underwriting liabilities
margin;

(e) the overall reinsurance policy.

2. Where policyholders’ rights are threatened, Member
States shall ensure that the competent authorities have the
power to oblige insurance undertakings to have a higher
required solvency margin than provided for under national
law, in order to ensure that the insurance undertaking is
able to fulfil the solvency requirements in the near future.
The level of this higher required solvency margin shall be
based on the
recovery plan referred to in
paragraph 1.

financial

3. Member States shall ensure that the competent auth-
orities have the power to revalue downwards all elements
eligible for the available solvency margin,
in particular,
where there has been a significant change in the market
value of these elements since the end of the last financial
year.

4. Member States shall ensure that the competent auth-
orities have the power to decrease the reduction to the
solvency margin as determined in accordance with Article
16a where:

(a) the nature or quality of a reinsurance programme has

changed significantly since the last financial year;

(b) there is no or insignificant risk transfer under the rein-

surance programme.(cid:146)

Article 3

Transposition

1. Member States shall adopt by (18 months after the entry
into force of this Directive) at the latest the laws, regulations
and administrative provisions necessary to comply with this
Directive. They shall forthwith inform the Commission thereof.

When Member States adopt those provisions, they shall contain
a reference to this Directive or be accompanied by such a
reference on the occasion of
their official publication.
Member States shall determine how such reference is to be
made.

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 (of the
year
following the date in paragraph 1) or during that
calendar year.

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

4.
Not later than (three years after the date in paragraph 2)
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 2

Transitional period

Article 4

Entry into force

1. Member States may allow insurance undertakings which
at the entry into force of this Directive provide insurance in
their territories in one or more of classes referred to in the
Annex to Directive 73/239/EEC, a period of
five years,
commencing with the date of entry into force of the present
Directive, in order to comply with the requirements set out in
Article 1 of the present Directive.

2. Member States may allow any undertakings referred to in
paragraph 1, which upon the expiry of the five-year period

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

Article 5

Addressees

This Directive is addressed to the Member States.