Directive 2002/12/EC of the European Parliament and of the Council of 5 March 2002 amending Council Directive 79/267/EEC as regards the solvency margin requirements for life assurance undertakings
Date: 2002-03-05
Institutions: Council of the European Union, European Parliament
Subjects: approximation of laws, financial solvency, insurance company, life assurance

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Official Journal of the European Communities

L 77/11

DIRECTIVE 2002/12/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 5 March 2002

amending Council Directive 79/267/EEC as regards the solvency margin requirements for life
assurance undertakings

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

Council Directive 91/675/EEC (6) 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 79/267/EEC of 5 March 1979 on
the coordination of laws, regulations and administrative
provisions relating to the taking up and pursuit of the
business of direct life assurance (4) requires insurance
undertakings to have solvency margins.

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

79/267/EEC

The existing solvency margin rules as established by
Directive
substantially
unchanged by subsequent Community legislation and
Council Directive 92/96/EEC of 10 November 1992 on
the coordination of laws, regulations and administrative
life assurance (third life
provisions relating to direct
assurance Directive) (5)
required the Commission to
submit a report to the Insurance Committee set up by

(1) OJ C 96 E, 27.3.2001, p. 123.
(2) OJ C 193, 10.7.2001, p. 21.
(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 63, 13.3.1979, p. 1. Directive as last amended by Directive
(OJ L

the European Parliament and of

the Council

95/26/EC of
168, 18.7.1995, p. 7).

(5) OJ L 360, 9.12.1992, p. 1. Directive as last amended by Directive
2000/64/EC of the European Parliament and of the Council (OJ L
290, 17.11.2000, p. 27).

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.

(7)

(8)

(9)

(10)

There is a need to increase the existing minimum guar-
antee fund, in particular as a result of inflation in claim
levels and operational expenses since that requirement
was originally adopted.

To improve the quality of the solvency margin, the
possibility of including future profits in the available
solvency margin should be limited and subject to condi-
tions and should in any case cease after 2009.

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.

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.

(11)

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.

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

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(12)

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

(13) 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 hereby amended as follows:

1.

in Article 3, point 2 shall be replaced by the following:

‘2. mutual associations, where:

— 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

— the annual contribution income for the activities
covered by this Directive does not exceed EUR 5
million for three consecutive years. If this amount is
exceeded for three consecutive years this Directive
shall apply with effect from the fourth year.

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

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

‘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 which is at least equal to the require-
ments in this Directive.

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

less any intangible items,

including:

(a) the paid-up share capital or, in the case of a mutual
assurance 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
the competent
termination of membership,
authorities must be notified at least one month in

that

advance and can prohibit the payment within that
period;

(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;

(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
they have not been made available for distribution to
policy holders.

The available solvency margin shall be reduced by the
amount of its own shares directly held by the assurance
undertaking.

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 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.

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 assurance
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
competent
ment
authorise
such loans
early repayment of
provided application is made by the issuing assur-
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

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repayment,

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
available
solvency margin and the required solvency margin
both before
repayment. The
competent authorities shall authorise repayment
only
available
solvency margin will not fall below the required
level;

assurance undertaking's

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 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;

(b) securities with no specified maturity date and other
including cumulative preferential shares
instruments,
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 assurance
undertaking to defer the payment of interest on the
loan;

(iii) the lender's claims on the assurance 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 assur-
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.
the home
undertaking to the competent authority of
Member State and with the agreement of that competent
authority, the available solvency margin may also consist of:

(a) until 31 December 2009 an amount equal to 50 % of
the undertaking's future profits, but not exceeding 25 %
of the lesser of the available solvency margin and the
required solvency margin. The amount of the future
profits 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 net reserves referred to in point (c) has not
already been taken into account;

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

the sum of

(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;

(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.
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 (*).

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

Article 19

Subject to Article 20, the required solvency margin
1.
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 Article
2.
1(1)(a) and (b) other than assurances linked to investment
funds and for the operations referred to in Article 1(3),
the required solvency margin shall be equal to the sum
of the following two results:

(a) first result:

a 4 % fraction of the mathematical provisions, relating
to direct business and reinsurance acceptance gross of
reinsurance cessions shall be multiplied by the ratio,
for the last financial year, of the total mathematical
provisions net of reinsurance cessions to the gross
total mathematical provisions. That ratio may in no
case be less than 85 %;

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(b) second result:

for policies on which the capital at risk is not a nega-
tive figure, a 0,3 % fraction of such capital under-
written by the assurance undertaking shall be multi-
plied by the ratio, for the last financial year, of the
total capital at risk retained as the undertaking's liabi-
lity 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 %.

to the required solvency margin for

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

For permanent health insurance not

4.
cancellation referred to in Article 1(1)(d),
solvency margin shall be equal to:

subject
to
the required

(a) a 4 % fraction of the mathematical provisions, calcu-
lated in compliance with paragraph 2(a) of
this
Article; plus

(b) the required solvency margin for insurance undertak-
ings as laid down in Article 16a of Directive 73/
239/EEC, excluding the provisions of Article 17 of
that Directive. However,
the condition contained in
Article 16a(6)(b) of that Directive that a provision be
set up for increasing age may be substituted by a
requirement
the business be conducted on a
group basis.

that

For capital

redemption operations

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

For

tontines,

6.
the
required solvency margin shall be equal to 1 % of their
assets.

referred to in Article 1(2)(a),

For assurances covered by Article 1(1)(a) and (b)
the operations
the required
the

7.
linked to investment
funds
referred to in Article 1(2)(c),
solvency margin shall be equal
following:

and for
(d) and (e),

to the sum of

(a) in so far as the assurance undertaking bears an invest-
ment risk, a 4 % fraction of the technical provisions,
calculated in compliance with paragraph 2(a) of this
Article;

(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;

(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
net administrative expenses pertaining to such busi-
ness;

(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.

Article 20

1.
One third of the required solvency margin as speci-
fied in Article 19 shall constitute the guarantee fund. This
fund shall consist of the items listed in Article 18(2), (3)
and, with the agreement of the competent authority of
the home Member State, (4)(c).

The guarantee

2.
minimum of EUR 3 million.

fund may not be

less

than a

Any Member State may provide for a reduction of one-
quarter of the minimum guarantee fund in the case of
mutual associations and mutual-type associations and
tontines’;

3. the following Article shall be inserted:

‘Article 20a

1.
The amount in euro as laid down in Article 20(2)
shall be reviewed annually starting 20 September 2003,
in order to take account of 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.

2.
The Commission shall inform annually the European
Parliament and the Council of the review and the adapted
amount referred to in paragraph 1’;

4. the following Article shall be inserted:

‘Article 24a

shall ensure that

1. Member States
the competent
authorities have the power to require a financial recovery
plan for those insurance undertakings where competent
authorities consider that policyholders' rights are threat-
ened. The financial recovery plan must 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;

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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;

Article 2

Transitional period

(c) a forecast balance sheet;

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

and the

underwriting liabilities
margin;

territories

States may

allow assurance undertakings
1. Member
which at the entry into force of this Directive provide assur-
ance in their
the classes
referred to in the Annex to Directive 79/267/EEC, a period
of five years, commencing with the date of entry into force
in order to comply with the requirements
of this Directive,
set out in Article 1 of this Directive.

in one or more of

(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
required solvency margin shall be based on a
higher
financial recovery plan referred to in paragraph 1.

insurance undertaking is able

the

2. Member States may allow any undertakings referred to
the five-year
in paragraph 1, which upon the expiry of
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 24 of Directive 79/267/EEC, submitted for
the measures
the approval of
which they propose to take for such purpose.

the competent authorities,

Article 3

Transposition

shall ensure that

the competent
3. Member States
to revalue downwards all
authorities have the power
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.

shall ensure that

4. Member States
the competent
authorities have the powers to decrease the reduction,
based on reinsurance, to the solvency margin as deter-
mined in accordance with Article 19 where:

(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.

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

When Member States adopt
they shall
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
to in paragraph 1 shall
first apply to the supervision of
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.

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)(2) of
this Directive, Article 14(1)(a) of Council Directive 90/
619/EEC (*)
(second life assurance Directive) and Article
11(2) of Council Directive 92/96/EEC (**) (third life assur-
ance Directive) as long as they consider that policyhol-
ders' rights are threatened within the meaning of para-
graph 1.

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
need for
indicate
further harmonisation. The report shall
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
single
resulted in major
market.

supervisory differences

in the

(*) OJ L 330, 29.11.1990, p. 50. Directive as

amended
9.12.1992, p. 1).

by Directive

92/96/EEC (OJ

L

last
360,

(**) OJ L 360, 9.12.1992, p. 1. Directive as last amended
by Directive 2000/64/EC of the European Parliament
and of the Council (OJ L 290, 17.11.2000, p. 27).’

Article 4

Entry into force

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

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Article 5

Addressees

This Directive is addressed to the Member States.

Done at Brussels, 5 March 2002.

For the European Parliament

The President

P. COX

For the Council

The President

R. DE RATO Y FIGAREDO