Proposal for a Directive of the European Parliament and of the Council amending Council Directive 79/267/EEC as regards the solvency margin requirements for life assurance undertakings (COM(2000) 617 final — 2000/0249(COD)) (Text with EEA relevance)
Date: 2001-03-27
Institutions: European Commission
Subjects: consumer protection, financial solvency, insurance occupation, life assurance, provision

27.3.2001

EN

Official Journal of the European Communities

C 96 E/123

Proposal for a Directive of the European Parliament and of the Council amending Council
Directive 79/267/EEC as regards the solvency margin requirements for life assurance undertakings

(2001/C 96 E/03)

(Text with EEA relevance)

COM(2000) 617 final (cid:151) 2000/0249(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

(4) The existing solvency margin rules as established by
Directive 79/267/EEC have been substantially unchanged
by
legislation and Council
Directive 92/96/EEC of 10 November 1992 on the coor-
dination of laws, regulations and administrative provisions
relating to direct life assurance and amending Directives
assurance
79/267/EEC and
Directive) (2)
a
report
to the Insurance Committee set up by Council
Directive 91/675/EEC (3) on the need for further harmon-
isation of the solvency margin.

required the Commission to submit

90/619/EEC (third

life

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
the European Council
of State and Government at
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 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
life assurance (1) requires insurance
business of direct
undertakings to have solvency margins.

(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

(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.

(7) There is a need to increase the existing minimum
in particular as a result of inflation in
that

guarantee fund,
and
claim levels
requirement was originally adopted.

operational

expenses

since

(8) To avoid major and sharp increases in the amount of the
minimum guarantee fund in the future, a mechanism
should be established providing for its 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 360, 9.12.1992, p. 1; Directive as amended by Directive

(1) OJ L 63, 13.3.1979, p. 1; Directive as last amended by European
Parliament and Council Directive 95/26/EC (OJ L 168, 18.7.1995, p.
7).

95/26/EC.

(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

(11) 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
insurance
own
competent authorities.

undertakings

authorised

their

by

(12) Directive 79/267/EEC should be amended accordingly,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Amendments to Directive 79/267/EEC

Directive 79/267/EEC is amended as follows:

1. In Article 3, point (2) is replaced by the following:

(cid:145)2. mutual associations, where:

(cid:151) the articles of association contain provisions for calling
up additional contributions or reducing their benefits or
claiming assistance from other persons who have
undertaken to provide it; and

(cid:151) the annual contribution income for the activities covered

by this Directive does not exceed EUR 5 million.

Upon notification by the assurance 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 18, 19 and 20.(cid:146)

2. Articles 18, 19 and 20 are replaced by the following:

(cid:145)Article 18

Each Member State shall require of every assurance
1.
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 assurance undertaking free of any foreseeable
liabilities,
the
following shall be included:

less any intangible items.

In particular

(a) the paid-up share capital or,

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

the effective initial

(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
of the undertaking,
if all the undertaking’s other
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
the competent
termination of membership,
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;

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

(d) in so far as authorised under national

law, profit
reserves appearing in the balance sheet where they
may be used to cover any losses which may arise and
where
for
distribution to policy holders.

they have not been made

available

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

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
solvency margin and the 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 liquidation of the assurance undertaking,
binding agreements exist under which the subordinated
loan capital or preferential 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.

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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 assurance 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
the available solvency margin is
component of
gradually reduced during at
five
least
years before the repayment date. The competent
authorities may authorise the early repayment of
such loans provided application is made by the
issuing assurance undertaking and its available
solvency margin will not fall below the required
level;

the last

(iii) loans the maturity of which is not fixed must be
repayable only subject to five years’ notice unless
the loans are no longer considered as a component
of the available solvency margin or unless the prior
consent of the competent authorities is specifically
required for early repayment. In the latter event the
assurance undertaking must notify the competent
authorities at least six months before the date of
the proposed repayment, specifying the available
and required solvency margin both before and
that repayment. The competent authorities
after
shall authorise repayment only if
the assurance
undertaking’s available solvency margin will not
fall below the required level;

(iv) the loan agreement must not include any clause
providing that
in specified circumstances, other
than the winding-up of the assurance 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 fulfill the following:

the lesser of

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

consent of

the prior

bearer or without
competent authority;

(ii) the contract of

undertaking to defer the payment of
the loan;

issue must enable the assurance
interest on

(iii) the lender’s claims on the assurance 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
assurance 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:

the future profits

(a) an amount equal to 50 % of the undertaking’s future
profits. The amount of
shall be
obtained by multiplying the estimated annual profit by
a factor which represents the average period left to run
on policies. The factor used may not exceed 6. The
estimated annual profit shall not exceed the arithmetical
average of the profits made over the last five financial
years in the activities listed in point 1 of Article 1.

Competent authorities may only agree to include such
an amount for the available solvency margin:

(i) when an actuarial

submitted to the
report
competent authorities substantiating the likelihood
of emergence of these profits in the future; and

is

(ii) in so far as that part of future profits emerging
from hidden reserves referred to in point (c) have
not already been taken into account;

it

(b) where Zillmerizing is not practised or where,

if
practised,
is less than the loading for acquisition
costs included in the premium, the difference between
a non-Zillmerized or partially Zillmerized mathematical
provision and a mathematical provision Zillmerized at a
rate equal to the loading for acquisition costs included in
the premium. This figure may not, however, exceed
the differences between the
3,5 % of
relevant capital sums of
life assurance activities and
the mathematical provisions for all policies for which
Zillmerizing
shall be
reduced by the amount of any undepreciated acquisition
costs entered as an asset;

is possible. The difference

the sum of

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(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;

(d) 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.

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.

Article 19

Subject to Article 20, the minimum required solvency
1.
margin shall be determined as laid down in paragraphs 2 to
7 according to the classes of assurance underwritten.

For the kinds of assurance referred to in points (1)(a)
2.
linked to
and (b) of Article 1 other
investment
funds and for the operations referred to in
point (3) of Article 1, the required solvency margin shall
be equal to the sum of the following two results:

than assurances

(a) First result:

a 4 % fraction of the life assurance provision, relating to
direct business gross of reinsurance cessions and to rein-
surance acceptances shall be multiplied by the ratio, for
the last financial year, of the total life assurance provision
net of reinsurance cessions to the gross total life assurance
provision. That ratio may in no case be less than 85 %.

(b) Second result:

for policies on which the capital at risk is not a negative
figure, a 0,3 % fraction of such capital underwritten by the
assurance undertaking shall be multiplied by the ratio, for
the last financial year, of the total capital at risk retained as
the undertaking’s liability after reinsurance cessions and
retrocessions to the total capital at risk gross of reinsurance;
that ratio may in no case be less than 50 %.

For temporary assurance on death of a maximum term of
three years the fraction shall be 0,1 %. For such assurance of
a term of more than three years but not more than five
years the above fraction shall be 0,15 %.

For the supplementary insurance referred to in point
3.
(1)(c) of Article 1, the required solvency margin shall be
equal
to the minimum required solvency margin for
insurance undertakings as laid down in Article 16a of
Directive 73/239/EEC, excluding the provisions of Article
17 of that Directive.

4.
For permanent health insurance not subject to cancel-
lation referred to in point (1)(d) of Article 1, the required
solvency margin shall be equal to:

(a) a 4 % fraction of the technical provisions, calculated in
compliance with paragraph 2(a) of this Article; plus

(b) the minimum required solvency margin for insurance
undertakings as laid down in Article 16a of Directive
73/239/EEC, excluding the provisions of Article 17 of
that Directive. The minimum required solvency margin
shall be reduced to a third; if:

(i) the premiums paid are calculated on the basis of
according to the mathematical

tables

sickness
method applied in insurance;

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

business is conducted on a group basis;

(iii) an additional premium is collected in order to set
up a safety margin of an appropriate amount;

(iv) the insurance undertaking may cancel the contract
before the end of the third year of insurance at the
latest;

(v) the

contract provides

the possibility of
increasing premiums or reducing payments even
for current contracts.

for

5.
For capital redemption operations referred to in point
(2)(b) of Article 1, the required solvency margin shall be
equal to a 4 % fraction of the technical provisions calculated
in compliance with paragraph 2(a) of this Article.

For tontines, referred to in point (2)(a) of Article 1, the
6.
required solvency margin shall be equal to 1 % of their
assets.

For assurances covered by points (1)(a) and (b) of
7.
Article 1 linked to investment funds and for the operations
referred to in points (2)(c),
(d) and (e) of Article 1, the
required solvency margin shall be equal to the sum of the
following:

the assurance undertaking bears an
(a) in so far as
investment
technical
provisions, calculated in compliance with paragraph
2(a) of this Article;

a 4 % fraction of

risk,

the

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(b) in so far as the undertaking bears no investment risk but
the allocation to cover management expenses is fixed for
a period exceeding five years, a 1 % fraction of
the
technical provisions, calculated in compliance with
paragraph 2(a) of this Article;

4. The following Article 24a is inserted:

(cid:145)Article 24a

(c) in so far as the undertaking bears no investment risk
and the allocation to cover management expenses is not
fixed for a period exceeding five years, an amount
equivalent to 25 % of the last financial year’s relevant
overheads;

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:

(d) in so far as the assurance undertaking covers a death
risk, a 0,3 % fraction of the capital at risk calculated in
compliance with paragraph 2(b) of this Article.

(a) estimates of management expenses, in particular current

general expenses and commissions;

Article 20

(b) a plan setting out detailed estimates of

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

One third of the minimum required solvency margin
1.
as specified in Article 19 shall constitute the guarantee fund.
This fund shall consist of the items listed in Article 18(2),
(3) and (4)(c).

(c) a forecast balance sheet;

The guarantee fund may not be less than a minimum

2.
of 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 and tontines.(cid:146)

3. The following Article 20a is inserted:

(cid:145)Article 20a

1.
The amount in euro as laid down in Article 20(2) shall
be reviewed annually starting (18 months after the entry
in order to take account of
into force of this Directive),
changes
in the European Index of Consumer Prices
comprising all Member States as published by Eurostat.

The amount 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.

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

and the

underwriting liabilities
margin;

(e) the overall reinsurance policy.

solvency margin than provided

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
under
national law, in order to ensure that the insurance under-
taking is able to fulfil the solvency requirements in the near
future. The level of this higher required solvency margin
shall be based on a financial recovery plan referred to in
paragraph 1.

for

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 powers to decrease the reduction to the
solvency margin as determined in accordance with Article
19 where:

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

changed significantly since the last financial year;

2.
The Commission shall inform annually the European
Parliament and the Insurance Committee of the review and
the adapted amount referred to in paragraph 1.(cid:146)

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

surance programme.(cid:146)

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Article 2

Transitional period

1. Member States may allow assurance undertakings which
at the entry into force of this Directive provide assurance in
their territories in one or more of classes referred to in the
Annex to Directive 79/267/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
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 24 of Directive 79/267/EEC,
the
submitted for
approval of
the competent authorities, the measures which
they propose to take for such purpose.

Article 3

Transposition

1. Member States shall adopt by . . . (18 months after the
entry into force of this Directive) 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
their official publication.
reference on the occasion of

Member States shall determine how such reference is to be
made.

2. Member States shall provide that the provisions referred
first apply to the supervision of
to in paragraph 1 shall
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.

Not later than (3 years after the date in paragraph 2) the
4.
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 4

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 5

Addressees

This Directive is addressed to the Member States.