Directive 2002/13/EC of the European Parliament and of the Council of 5 March 2002 amending Council Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance undertakings
Date: 2002-03-05
Institutions: Council of the European Union, European Parliament
Subjects: approximation of laws, financial solvency, insurance, insurance company

20.3.2002

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Official Journal of the European Communities

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DIRECTIVE 2002/13/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 5 March 2002

amending Council Directive 73/239/EEC as regards the solvency margin requirements for non-life
insurance undertakings

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

on the need for further harmonisation of the solvency
margin.

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

(5)

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
251 of the Treaty (3),

Whereas:

(1)

(2)

(3)

(4)

The financial services action plan, as endorsed by the
European Council meetings in Cologne on 3 and 4 June
1999 and in Lisbon on 23 and 24 March 2000, recog-
nises the importance of the solvency margin for insur-
ance undertakings to protect policyholders in the single
market by ensuring that insurance undertakings have
adequate capital requirements in relation to the nature of
their risks.

First Council Directive 73/239/EEC of 24 July 1973 on
the coordination of laws, regulations and administrative
provisions relating to the taking up and pursuit of the
business of direct insurance other than life assurance (4)
solvency
requires
margins.

insurance undertakings

to have

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 against adverse business fluctuations is an impor-
tant element in the system of prudential supervision for
the protection of insured persons and policyholders.

have

been

73/239/EEC

The existing solvency margin rules as established by
Directive
substantially
unchanged by subsequent Community legislation and
Council Directive 92/49/EEC of 18 June 1992 on the
laws, regulations and administrative
coordination of
provisions relating to direct insurance other than life
assurance (third non-life insurance Directive) (5) required
the Commission to submit a report to the Insurance
Committee set up by Council Directive 91/675/EEC (6),

(1) OJ C 96 E, 27.3.2001, p. 129.
(2) OJ C 193, 10.7.2001, p. 16.
(3) Opinion of

the European Parliament of 4 July 2001 (not yet
published in the Official Journal) and Decision of the Council of 14
February 2002.

(4) 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).

(5) OJ L 228, 11.8.1992, p. 1. Directive as last amended by Directive
2000/64/EC of European Parliament and of the Council (OJ L 290,
17.11.2000, p. 27).

(6) OJ L 374, 31.12.1991, p. 32.

The Commission has prepared that report 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.

(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
transparency, certain weaknesses have been identified in
specific cases, particularly for sensitive risk profiles.

(7)

(8)

(9)

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.

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.

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
in
the reasons motivating such supervisory action,
accordance with the principles of sound administration
and due process. As long as such a situation exists, the
competent authorities should be prevented from certi-
fying that the insurance undertaking has a sufficient
solvency margin.

(10)

In the light of market developments in the nature of
reinsurance cover purchased by primary insurers, there
is a need for the competent authorities to be empowered
to decrease the reduction to the solvency margin
requirement in certain circumstances.

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

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Official Journal of the European Communities

20.3.2002

(12)

(13)

(14)

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.

the impact of differing accounting and
To reflect
actuarial approaches,
it is appropriate to make corre-
sponding adjustments to the methodology for the calcu-
lation of the solvency margin requirement so that this is
calculated in a coherent and consistent manner, thus
placing insurance undertakings on an equal footing.

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

authorised

by

(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 hereby amended as follows:

1.

in Article 3, paragraph 1 shall be replaced by the following:

This Directive shall not apply to mutual associations

‘1.
which fulfil all the following conditions:

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

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

(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 activi-
ties covered by this Directive must come from persons
who are members of the mutual association.

This Directive shall not apply to undertakings which fulfil
all the following conditions:
— the undertaking does not pursue any activity falling
within the scope of this Directive other than the one
described in class 18 in point A of the Annex,
— this activity is carried out exclusively on a local basis

and consists only of benefits in kind, and

— the total annual

the
activity of assistance to persons who get into difficulties
does not exceed EUR 200 000.

income collected in respect of

Nevertheless, the provisions of this Article shall not prevent
from applying, or
insurance undertaking
a mutual
continuing, to be licensed under this Directive’;

2. Article 16 shall be replaced by the following:

‘Article 16

Each Member State shall require of every insurance
1.
undertaking whose head office is situated in its territory an
adequate available solvency margin in respect of its entire
business at all times, which is at least equal to the require-
ments in this Directive.

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

less any intangible items,

including:

(a) the paid-up share capital or, in the case of a mutual
insurance undertaking, the effective initial fund plus any
members' accounts which meet all the following criteria:

(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,
the undertaking's other debts
if all
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 prej-
udice to the criteria stated in points (i) and (ii);

(b) reserves (statutory and free) not corresponding to under-

writing liabilities;

(c) the profit or loss brought forward after deduction of

dividends to be paid.

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
account of
income as permitted by Article
60(1)(g) of Council Directive 91/674/EEC of 19 December
1991 on the annual accounts and consolidated accounts of
insurance undertakings (*), the available solvency margin
shall be reduced by the difference between the undiscounted
technical provisions or technical provisions before deduc-
tions 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.

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3.

The available solvency margin may also 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 insurance 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.

Subordinated loan capital must also fulfil the following
conditions:

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

(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
undertaking must submit to the competent authori-
ties for their approval a plan showing how the
available solvency margin will be kept at or brought
to the required level at maturity, unless the extent
to which the loan may rank as a component of the
available solvency margin is gradually reduced
during at least the last five years before the repay-
authorities may
ment
competent
authorise
such loans
early repayment of
provided application is made by the issuing insur-
ance undertaking and its available solvency margin
will not fall below the required level;

date. The
the

(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
insurance undertaking must notify the competent
authorities at least six months before the date of the
proposed
available
solvency margin and the required solvency margin
repayment. The
both before
competent authorities shall authorise repayment
only
available
solvency margin will not fall below the required
level;

insurance undertaking's

repayment,

and after

specifying

that

the

the

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;

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

(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

issue must enable the insurance
undertaking to defer the payment of interest on the
loan;

(iii) the lender's claims on the insurance undertaking
must rank entirely after those of all non-subordi-
nated creditors;

(iv) the documents governing the issue of the securities
must provide for the loss-absorption capacity of the
debt and unpaid interest, while enabling the insur-
ance undertaking to continue its business;

(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 available solvency margin may also consist of:

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

the lesser of

(b) in the case of mutual or mutual-type association with
variable contributions, any claim which it has against its
members by way of a call for supplementary contribu-
tion, 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. The competent national
authorities shall establish guidelines laying down the
conditions under which supplementary contributions
may be accepted;

(c) any hidden net reserves arising out of the valuation of
assets, in so far as such hidden net 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 Council Directive 91/675/EEC (**).

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

(*) OJ L 374, 31.12.1991, p. 7.
(**) OJ L 374, 31.12.1991, p. 32.’;

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3. the following Article shall be inserted:

‘Article 16a

The required solvency margin shall be determined
1.
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.

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 Article 17, the amount of the 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 as
calculated below, and gross earned premiums or contribu-
tions.

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

The premiums or contributions
(inclusive of charges
ancillary to premiums or contributions) due in respect of
direct business in the last financial year shall be aggre-
gated.

sum there

To this
amount of
premiums accepted for all reinsurance in the last financial
year.

added the

shall be

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.

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

these portions

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 contri-
butions in respect of the classes 11, 12 and 13.

The claims basis

4.
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 %.

shall be calculated, as

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

To this sum there shall be added the amount of claims
paid in respect of reinsurances or retrocessions accepted
during the same periods and 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 effected during the periods specified in para-
graph 1.

financial year

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

One-third, or one-seventh, of
the amount so obtained,
according to the period of reference established in para-
graph 1, shall be divided into two portions,
the first
second
extending up to EUR 35 million and the
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 accordance with the national provi-
sions of the home Member State.

If

the required solvency margin as calculated in
5.
paragraphs 2, 3 and 4 is
than the required
lower
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 financial year and the amount of
the technical provisions for claims outstanding at
the
beginning of the last financial year. In these calculations
technical provisions shall be calculated net of reinsurance
but the ratio may in no case be higher than 1.

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The fractions applicable to the portions referred to
6.
in the sixth subparagraph of paragraph 3 and the sixth
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 sick-
ness tables according to the mathematical method
applied in insurance;

(b) a provision is set up for increasing age;

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

a 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;

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

premiums or
contracts’;

4. Article 17 shall be replaced by the following:

‘Article 17

1.
One third of the required solvency margin as speci-
fied in Article 16a shall constitute the guarantee fund.
This fund shall consist of the items listed in Article 16(2),
(3) and, with the agreement of the competent authority
of the home Member State, (4)(c).

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

it shall be EUR 3 million.

some of

the

Any Member State may provide for a one-fourth reduc-
tion of
the minimum guarantee fund in the case of
mutual associations and mutual-type associations’;

5. the following Article shall be inserted:

‘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 20 September 2003 in order to take account of
changes
consumer prices
comprising all Member States as published by Eurostat.

in the European index of

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 Council of the review and the adapted
amounts referred to in paragraph 1;’;

6.

in Article 20(2), the term ‘Article 16(3)’ shall be replaced
by the term ‘Article 16a’;

7. the following Article shall be inserted:

‘Article 20a

1. Member States
the competent
authorities have the power to require a financial recovery
plan for those insurance undertakings where competent

shall ensure that

authorities consider that policyholders' rights are threat-
ened. The financial recovery plan shall as a minimum
include particulars or proof concerning for the next three
financial years:

(a) estimates of management

expenses,

in particular

current general expenses and commissions;

(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;

(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 because
the financial position of the undertaking is deteriorating,
Member States shall ensure that the competent authorities
have the power to oblige insurance undertakings to have
in order to ensure
a higher required solvency margin,
that
the
to fulfil
solvency requirements in the near future. The level of this
higher required solvency margin shall be based on the
financial recovery plan referred to in paragraph 1.

insurance undertaking is able

the

shall ensure that

the competent
3. Member States
to revalue downwards all
authorities have the power
elements eligible for
in
particular, where there has been a significant change in
the market value of these elements since the end of the
last financial year.

the available solvency margin,

shall ensure that

4. Member States
authorities have the power
based on reinsurance,
mined in accordance with Article 16a where:

the competent
to decrease the reduction,
to the solvency margin as deter-

(a) the nature or quality of

reinsurance contracts has

changed significantly since the last financial year;

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

reinsurance contracts.

the

they shall

If the competent authorities have required a finan-
5.
insurance undertaking in
recovery plan for
cial
accordance with paragraph 1,
refrain from
issuing a certificate in accordance with Article 10(3),
second subparagraph of this Directive, Article 16(1)(a) of
Council Directive 88/357/EEC (second non-life insurance
Directive) (*) and Article 12(2) of Council Directive 92/
49/EEC (third non-life insurance Directive) (**), as long as
they consider
rights are threatened
within the meaning of paragraph 1.

that policyholders

(*) OJ L 172, 4.7.1988, p. 1. 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).
(**) OJ L 228, 11.8.1992, p. 1. Directive as last amended
by Directive 2000/64/EC of the European Parliament
(OJ L 290, 17.11.2000, p. 27).’
and of the Council

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Article 2

Transitional period

States may

1. Member
allow insurance undertakings
which at the entry into force of this Directive provide insur-
ance 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 this
Directive, in order to comply with the requirements set out
in Article 1 of this Directive.

2. Member States may allow any undertakings referred to
in paragraph 1, which upon the expiry of
the five-year
period have not
fully established the required solvency
margin, a further period not exceeding two years in which
to do so provided that such undertakings have,
in accord-
ance with Article 20 of Directive 73/239/EEC, submitted for
the approval of
the measures
which they propose to take for such purpose.

the competent authorities

accounts for financial years beginning on 1 January 2004 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 1 January 2007 the Commission shall
submit to the European Parliament and the Council a report
on the application of this Directive and, if necessary, on the
indicate
further harmonisation. The report shall
need for
how Member States have made use of
the possibilities in
this Directive, and,
in particular, whether the discretionary
powers afforded to the national supervisory authorities have
resulted in major
single
market.

supervisory differences

in the

Article 4

Entry into force

Article 3

Transposition

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

1. Member States shall adopt by 20 September 2003 at
the latest the laws, regulations and administrative provisions
necessary to comply with this Directive. They shall forthwith
inform the Commission thereof.

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

these measures,

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

Article 5

Addressees

This Directive is addressed to the Member States.

Done at Brussels, 5 March 2002.

For the European Parliament

For the Council

The President

The President

P. COX

R. DE RATO Y FIGAREDO