Proposal for a Directive of the European Parliament and of the Council on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC and Directives 98/78/EC and 2002/83/EC {SEC(2004)443}
Date: 2004-04-21
Institutions: European Commission
Subjects: insurance company, insurance contract, insured risk, reinsurance

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 21.4.2004 
COM(2004) 273 final 

2004/0097 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC and Directives 
98/78/EC and 2002/83/EC 

{SEC(2004)443} 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
 
 
 
EXPLANATORY MEMORANDUM 

1. 

GENERAL COMMENTS1 

A single financial market in the EU will be a key factor in promoting the competitiveness of 
the European economy and the lowering the capital cost to companies. An integrated market, 
properly regulated and prudentially sound, will deliver major benefits to consumers and other 
market actors, through increased security against institutional default. The vehicle to achieve 
this  integrated  market  is  the  Financial  Services  Action  Plan.  The  Financial  Services  Action 
Plan announces a proposal for a directive on reinsurance supervision at the beginning of 2004. 

Reinsurance is a structured risk transfer between an insurance undertaking and a reinsurance 
company. Reinsurance fulfils the following functions for an insurance company: reduction of 
technical risks, permanent transfer of technical risks to the reinsurer, increase of homogeneity 
of  insurance  portfolio,  reduction  of  volatility  of  technical  results,  substitute  for  capital/own 
funds, supply of funds for financing purposes and supply of service provision. 

In  spite  of  its  obvious  connection  to  direct  insurance  business,  there  are  some  specific 
characteristics  of  reinsurance  that  may  be  important  to  highlight.  There  is  no  direct 
contractual relationship between the reinsurer and the original insured, and the policyholders 
have  normally  no  priority  to  the  assets  of  the  reinsurer  to  cover  their  claims.  Furthermore 
reinsurance is a business activity between professional parties. Reinsurance business is more 
international and has higher degrees of diversity in respect of geography and combinations of 
insured lines than direct insurance business. 

The reinsurance sector plays a key role in the economy by providing wholesale cover for the 
risks  assumed  by  insurance  companies  on  behalf  of  their  clients.  While  the  average  cession 
level  in  the  EU  is  rather  low  (i.e.  some  10%  of  all  insurance  premiums  are  reinsured),  the 
cession level is relatively high for certain activities (i.e. 18% of non-life insurance premiums 
are  reinsured,  compared  to  3%  for  life  insurance  premiums  on  average).  Besides  insuring 
insurers,  reinsurers  are  also  major  financial  intermediaries  and  institutional  investors  and 
reinsurers’  financial  assets  represented  1%  of  the  global  securities  market  in  20012. 
Accordingly,  the  stability  of  the  reinsurance  sector  is  not  only  vital  to  the  stability  of  the 
insurance  sector  generally  but  also  has  important  implications  for  the  financial  system  as  a 
whole.  

Recent  evidence  of  financial  strain  among  reinsurers  has  focused  the  attention  on  the  level 
and  nature  of  risk  assumed  within  the  sector.  Reinsurers  face  two  risks  in  addition  to  those 
faced by primary insurers. First, they are usually exposed to greater volatility in their financial 
results  because  they  protect  the  primary  market  against  peak  exposures  such  as  catastrophe 
risks. In consequence of this risk, they need to maintain relatively high levels of capitalisation. 
Second,  they  may  be  called  upon  to  support  ailing  subsidiaries,  as  they  are  often  the  top 
trading  company  in  a  group  structure.  Despite  these  additional  risks,  reinsurers  operate  in  a 
global market where their activities are often not subject to prudential oversight or the regime 
is lighter than that applying to primary insurers. Moreover, there is no global framework for 

1 

2 

For  more  extensive  presentation  of  the  issues  included  in  this  chapter,  see  the  Extended  Impact 
Assessment concerning the Proposal for a Reinsurance Directive available at the Commission website: 
http://europa.eu.int/comm/internal_market/insurance/reinsurance_en.htm  
Source: “Reinsurance – a systemic risk?”; Sigma 5/2003, Swiss Re. 

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reinsurance  supervision.  This  situation  has  raised  concern  about  potential  risks  in  the 
reinsurance industry. One the other hand, reinsurers can benefit from significant geographical 
and sectoral diversification effects to a greater extent than direct companies.  

Reinsurance is a highly international industry with  a  limited  number  of large companies. In 
2002, the total reinsurance  premium of the 40 largest reinsurance groups amounted  to USD 
138 601 200 000,  whereof  USD  58 544 000 000  stemmed  from  EU  reinsurers3.  In  the  EU, 
Germany has a dominant position with companies as Munich Re, Hannover Re and Allianz 
Re. Lloyd's is the largest UK writer of reinsurance, and SCOR together with Axa Re are the 
largest French reinsurers. 

1) The need for a European legal framework for reinsurance supervision 

There are currently no harmonised reinsurance supervision rules in the EU. The lack of an EU 
regulatory  framework  for  reinsurance  has  resulted  in  significant  differences  in  the  level  of 
supervision of reinsurance undertakings in the EU. The different national rules have created 
uncertainty for direct insurance companies (and their policyholders), barriers to trade within 
the internal market, administrative burden and costs as well as weakening the EU position in 
international trade negotiations:  

Uncertainty  for  direct  insurance  undertakings  (and  their  policyholders):  The  different 
reinsurance  supervision  regimes  in  the  EU  have  resulted  in  increased  difficulties  for  direct 
insurance  undertakings  to  choose  their  reinsurers  in  a  prudent  and  cost-efficient  way.  The 
selection  of  reinsurers  is  of  decisive  importance  for  an  insurance  company,  and  could  also 
affect the company's ability to pay claims towards policyholders. 

Barriers  to  trade:  Certain  EU  countries  use  systems  where  assets  of  the  reinsurer  must  be 
pledged (collateralised) in order to cover outstanding claims provisions. This makes optimal 
investment  management  more  difficult  and  thus  results  in  higher  operational  costs  for 
reinsurance undertakings. This could in fact increase the price the reinsurer charges for taking 
over risks from direct insurance companies. Reinsurance companies may also decide not to be 
active  in  markets  where  the  posting  of  collaterals  is  required,  and  consequently  the 
availability of reinsurance protection will be more restricted. 

Administrative  burden:  In  the  EU,  the  Comité  Européen  des  Assurances  (CEA)  and  the 
OECD have identified administrative impediments for cross-border reinsurance services. The 
lack of mutual recognition between EU supervisory authorities in reinsurance in certain cases 
means  that  reinsurance  undertakings  are  subject  to  different  supervisory  rules  in  several 
Member  States.  For  reinsurance  companies  this  could  lead  to  significant  double  work  and 
increased  administrative  burdens.  Examples  of  burdensome  administrative  measures  are  the 
multiple  fit  and  proper  checks  of  the  group's  highest  management,  double  requirement  for 
auditors’  confirmation  of  balances  as  well  as  the  obligation  for  branches  to  issue  financial 
statements according to local GAAP (generally accepted accounting principles) for the whole 
group. 

International trade negotiations: It is argued that the lack of a harmonised EU system makes 
international mutual recognition agreements more difficult. The absence of such agreements 
means  that  European  reinsurers  are  confronted  with  important  barriers  to  entry  into  foreign 

3 

Standard & Poor's, Global Reinsurance Highlights 2003 Edition, London/New York 2003. 

3 

 
 
  
 
                                                 
markets, such as the requirement of posting collateral for the value of their commitments in 
the foreign market where the reinsurer intends to conduct business. 

If  no  actions  are  taken  at  EU  level,  there  is  a  risk  that  the  internal  market  for  reinsurance 
services would continue to work in a suboptimal way, which would harm the EU reinsurance 
industry.  Negotiations  with  third  markets  on  mutual  recognition  agreements  could  be 
significantly more difficult.  

Internationally significant attention has been paid in recent years to reinsurance supervision. 
G7  and  the  IMF  have  expressed  concern  that  lack  of  reinsurance  regulation  could  impede 
international  financial  stability.  In  fact,  at  recent  Financial  Sector  Assessment  Programme 
(FSAP)  reviews  in  Member  States,  IMF  has  reiterated  the  need  for  legislation  in  this  field. 
The  FSF  (Financial  Stability  Forum)  has  repeatedly  expressed  concerns  about  the 
transparency  of  the  reinsurance  market and has therefore created a task force to address the 
issue.  The  OECD  has  ongoing  work  in  the  reinsurance  field,  particularly  as  concerns 
exchange of reinsurance company information between supervisors. The IAIS (International 
Association  of  Insurance  Supervisors)  reinsurance  work  is  closely  coordinated  with  the  EU 
fast-track project. A set of principles for minimum requirements for supervision of reinsurers 
as well as a standard on reinsurance supervision have been adopted. 

2) The approach of the Directive 

Early in the reinsurance supervision work, the Commission Services established three guiding 
principles for a future EU reinsurance supervision regime: 

•  The  system  should  establish  a  sound  and  prudent  regime  in  the  interest  of  insurance 
policyholders.  Strong  and  well-supervised  reinsurers  contribute  to  a  stronger  internal 
market and international financial stability. 

•  The  system  should  build  on  essential  coordination  of  Member  States'  legislation  and 
mutual  recognition  of  the  supervision  in  the  Member  State  where  the  reinsurance 
undertaking  is  licensed.  Once  licensed  by  its  home  Member  State  a  reinsurance 
undertaking should automatically be allowed to conduct reinsurance business all over the 
European  Community  under  the  freedom  of  establishment  and  the  freedom  to  provide 
services. No additional supervision of or checks on the reinsurance undertaking should be 
performed by supervisors in host Member States. This approach has shown its suitability 
during  many  years  in  the  direct  insurance  field,  where  it  was  introduced  by  the  Third 
Insurance Directives4. 

•  The  introduction  of  a  harmonised  system  for  reinsurance  supervision  should  lead  to  the 

abolition of systems with pledging of assets to cover outstanding claims provisions. 

After extensive consultation, the Commission has chosen to present a proposal for a directive 
with the following features: 

•  a supervisory approach based on harmonisation and mutual recognition 

•  fast-track approach for a directive based primarily on current direct supervision rules 

4 

Directive  92/49/EEC  (OJ  L  228,  11.8.1992,  p.  1,  as  last  amended  by  Directive  2002/87/EC  of  the 
European  Parliament  and  of  the  Council  (OJ  L  35,  11.2.2003,  p.  1),  and  Directive  92/96/EEC  (OJ  L 
360, 9.12.1992, p.1), this Directive has been recast by Directive 2002/83/EC (OJ L 19.12.2002, p. 1). 

4 

 
 
  
 
                                                 
•  mandatory licensing system 

•  solvency  margin  requirements  in  line  with  those  of  direct  insurance,  however  with  the 
possibility to increase this margin up to 50 % through comitology for non-life reinsurance 
when this is objectively justified. 

An  EU  supervisory  approach  should  be  based  on  harmonised  legal  rules  ensuring  mutual 
recognition  between  Member  States.  The  Commission  believes  that  insurance  and 
reinsurance supervision is a public concern and requires public regulation. Other systems (for 
example,  voluntary,  disclosure-based  approaches)  would  not  provide  sufficient  trust  in  the 
supervisory system. The lack of tangible sanctions in such a disclosure-based approach could 
make  the  system  less  efficient  when  addressing  potential  problems  in  reinsurance 
undertakings. 

The Commission believes that there is a need for expedient action to achieve tangible results 
in  a  short  to  medium-term  perspective.  Such  a  "fast-track"  solution  would  take  its  starting 
point  in  current  direct  supervision  rules  and  business  practice,  when  appropriate  with 
adjustments. The long-term project "Solvency II" for direct insurance will however also affect 
reinsurance, and this work could to a fairly large extent build on the achievements in a fast-
track project.  

The proposed Directive requires reinsurance undertakings – like direct insurance companies – 
to be licensed in order to conduct reinsurance business. The efficiency of a licensing system 
has  been  proved  by  its  wide  use  in  the  financial  sector.  Such  a  system  also  gives  a  clear 
mandate  to  supervisors,  including  the  power  to  remove  unsuited  companies  from  the 
reinsurance  market.  A  licensing  system  will  furthermore  ensure  consistent  treatment  of  all 
reinsurance entities in the EU, which would not have been the case had a so called "passport" 
solution  (in  which  a  company  itself  could  choose  whether  to  apply  for  a  passport)  been 
chosen.  Moreover,  this  system  will  increase  the  responsibility  of  the  Home  Member  State’s 
supervisory  authorities,  as  they  become  the  sole  competent  authority  for  the  prudential 
supervision  of  the  reinsurance  undertaking  within  the  Community.  The  system  will  require 
enhanced cooperation between Member States’ competent authorities. 

Insurance and reinsurance are related activities and consequently the solvency requirements 
for  the  two  activities  should  be  similar.  The  proposed  Directive  does  therefore  contain 
solvency  requirements  for  life  reinsurance  that  are  identical  to  those  of  life  insurance.  For 
non-life reinsurance the starting point is that similar rules should apply. However, for non-life 
reinsurance the proposed Directive contains a possibility for increased solvency requirement 
after a comitology decision. The Commission considers this "class enhancement" possibility 
for  certain  reinsurance  classes  or  types  of  reinsurance  contracts  (up  to  50%)  as  an  essential 
part  of  the  proposed  Directive.  It  will  provide  an  important  tool  to  fine-tune  the  solvency 
requirements to better fit the nature of reinsurance business. The comitology option will only 
be used after detailed analysis and extensive consultation with interested parties. In order to 
ensure  a  level  playing  field  between  reinsurance  undertakings  and  insurance  undertakings 
carrying on reinsurance activities, the proposal also provides for the subsequent adaptations to 
the  non-life  insurance  Directive  73/239/EEC  and  life  assurance  Directive  2002/83/EC. 
Accordingly,  insurance  undertakings  which  conduct  reinsurance  by  way  of  acceptances 
activities  shall  be  subject  to  the  provisions  of  the  reinsurance  directive  in  respect  of  the 
required  solvency  margin,  where  the  volume  of  their  reinsurance  activities  represents  a 
significant part of their entire business (Articles 57(5) and 59(8)). These provisions will only 
be  applicable  when  the  decision  adjusting  the  required  solvency  margin  for  non-life 
reinsurance activities has been adopted by the Commission. 

5 

 
 
  
 
2. 

CONSULTATION  OF  STAKEHOLDERS  AND  INTERESTED  PARTIES  AND  IMPACT 
ASSESSMENT  

a) Consultation of stakeholders and interested parties 

Stakeholders  have  been  consulted  regularly  during  the  project,  and  have  provided  the 
Commission with very important input. In the beginning of the project, a major hearing with 
over  100  participants  was  organised,  and  subsequently  all  participants  (as  well  as  other 
interested parties) were included in a mailing -list that received all documents produced under 
the project or a message stating that new documents have been posted on the Commission's 
reinsurance website. A study on reinsurance supervision was also published.5 

The  project  has  been  followed  by  interested  parties  from  a  broad  variety  of  sectors  and 
professions.  The  sectors  consulted  are  basically  the  following:  insurance  (commercial 
companies, mutuals, cooperatives etc), insurance associations (EU level as well as nationally), 
insurance  intermediaries  (brokers  etc),  accounting  associations,  actuarial  associations, 
industry  general  (UNICE),  analysts,  risk/captive  managers,  SME-organisation  (BEUC), 
consulting firms, banks, lawyer firms, rating agencies. 

The  Commission  has  benefited  significantly  from  the  input  given  by  stakeholders  and 
interested  parties,  particularly  as  the  project  has  involved  many  very  difficult  technical 
matters.  The  documents  send  out  for  comments  dealt  with  policy  issues  as  well  as  detailed 
matters.  

Comments received on the objectives of the reinsurance project  

Commentators  have  generally  been  very  supportive  of  all  the  three  major  objectives  of  the 
project.  A  few  Member  States  have  raised  comments  on  the  fact  that  the  essential 
coordination of national's legislation and mutual recognition would prohibit additional checks 
or  requirements  by  Host  States.  In  particular,  the  Member  States  that  currently  use 
collateralisation have obviously expressed objections to abolition of systems with pledging of 
assets to cover outstanding claims technical provisions. However all other stakeholders have 
unanimously  supported  the  objective  as  formulated  by  the  Commission  services.  Certain 
Member States have commented on the difference in collaterals between the life and non-life 
insurance fields. 

Comments received on the major policy issues  

Approach to a supervisory framework for reinsurance 

Most  commentators  have  been  in  favour  of  a  supervisory  approach  to  reinsurance.  Certain 
companies have argued in favour of voluntary solutions, but a greater number of companies 
and associations have stated that only a supervisory solution would give an additional quality 
mark to EU reinsurance. A status quo alternative has not been supported by any of the major 
stakeholders. 

Member States have argued in favour of a fast-track approach, and this has also been the clear 
view of the Insurance Committee. Other stakeholders have also been very supportive of a fast-
track  solution  based  on  current  direct  supervision  rules.  Technical  specialists  (like  actuaries 
and  accountants)  have  however  pointed  out  that  the  restricted  time  frame  scheduled  (2004) 

5 

http://europa.eu.int/comm/internal_market/insurance/studies/reins-sup_en.htm  

6 

 
 
  
 
                                                 
would limit the number of possible solutions, thereby postponing the introduction of certain 
methods until the Solvency II project is finalised. 

Solvency requirements for non-life reinsurance: The reactions from stakeholders on the level 
of the solvency requirements have been many and strong. There has been a large number of 
meetings  with  interested  parties,  particularly  the  insurance  industry,  the  captive  reinsurance 
industry,  risk  managers,  actuaries,  consultants  and  accountants.  Generally, 
industry 
representatives  and  insurance  consultants  have  argued  that  reinsurance  is  an  activity  that  is 
close  to  direct  insurance  and  therefore  the  same  solvency  requirements  should  apply.  Some 
insurance supervisors have however strongly taken the view that reinsurance is more volatile 
and  difficult  to  supervise  and  consequently  a  slightly  higher  requirement  would  be 
appropriate.  The  Commission  has  taken  account  of  the  different  views  expressed  when 
elaborating the solvency requirements laid down in the proposal for a Directive. (Articles 37 
and 40) 

Solvency  requirements  for  life  reinsurance:  This  issue  has  also  been  the  subject  of  much 
discussion,  both  as  regards  the  actual  requirements  as  the  calculation  methods.  The 
Commission's  Services  have  in  fact  consulted  on  different  solutions.  Considering  the 
comments  received,  the  Commission  has  concluded  that  the  same  approach  as  direct 
insurance  (use  direct  life  rules  for  life  reinsurance,  direct  non-life  rules  for  non-life 
reinsurance) would be preferable (Articles 38- 40). 

Comments received on detailed legal issues. 

During 2003 there have also been several consultations on detailed legal issues. The current 
proposal has been prepared taking account of comments from interested parties, in particular 
the  insurance  industry  and  the  actuarial  profession.  Some  of  the  submissions  were  very 
detailed and provided very useful input to the work of the Commission Services.  

b) Impact assessment 

An  extended  impact  assessment  has  been  carried  out  in  order  to  identify  whether  there  is  a 
need for action at EU level and in case of a positive reply, the action required. 

The  impact  assessment  shows  an  overall  agreement  on  the  need  for  such  an  action  if  the 
objectives referred to in Section 1 of this explanatory memorandum were to be achieved. 

With  regard  to  the  different  policy  alternatives  considered  to  reach  these  objectives,  three 
main options were considered:  

1. 

2. 

Status quo, i.e. no changes to the current situation 

Market  mechanism  solution/voluntary  disclosure  of  reinsurance  information, 

and alternatively a recommendation concerning indirect supervision practice. 

3. 

Supervisory solutions.  

As  stated  earlier  in  Section  2,  the  majority  of  Member  States  and  industry  organisations 
believe  that  there  is  a  need  for  supervisory  action  in  the  field.  Option  1  has  not  received 
support by practically no commentator. Option 2 was also thought as not providing sufficient 
trust  in  the  supervisory  system.  The  lack  of  tangible  sanctions  in  such  a  disclosure-based 
approach  could  make  the  system  less  efficient  when  addressing  potential  problems  in 
reinsurance undertakings. 

7 

 
 
  
 
 
 
 
As far as the option 3 is concerned (supervisory approach), two alternatives were considered:  

1. 

2. 

A voluntary passport system for companies wanting to adhere to the system 

A mandatory licensing system.  

After wide consultation with Member State, insurance industry and other interested parties the 
Commission has decided to propose a licensing system. A licensing system is in line with the 
approach carried out by the EU in order to achieve the internal market in the financial sector 
in  general  and  in  insurance  in  particular  (single  license  and  home  country  control  of 
prudential issues). Such a system has showed its efficiency since its establishment by the third 
insurance Directives in 1994. It ensures the financial soundness of reinsurance undertakings, 
and  therefore  the  stability  of  insurance  markets,  since  it  applies  to  any  Community 
reinsurance  undertaking  and  not  only  those  having  a  European  perspective.  A  licensing 
system  would  furthermore  lead  to  more  coordination  between  Member  States'  treatments  of 
all reinsurers and it will best suited to meet the objective of establishing a true internal market 
for  reinsurance.  Last  the  introduction  of  a  supervisory  regime  based  on  supervision  of  all 
reinsurance undertakings by public competent authorities is also in line with the direction of 
the ongoing reinsurance supervision project carried out by IAIS, to which all Member States 
and the European Commission are members.  

The  extended  impact  assessment  also  was  conducted  in  respect  of  quantitative  solvency 
requirements for reinsurance undertakings. Two basic possible approaches were discussed:  

1. 

alternatives  where  solvency  requirements  for  reinsurance  undertakings  are 

close to those required for direct insurance 

2. 

alternatives  where  solvency  requirements  for  reinsurance  undertakings  are 

higher than those required for direct insurance.  

The  Commission  has  finally  decided  to  set  up  a  regime  which  is  built  on  the  solvency 
requirements set out in existing insurance Directives. However, in order to take account of the 
specificities  of  some  types  of  reinsurance  contracts  or  specific  lines  of  business  in  non-life 
reinsurance,  the  proposal  provides  for  the  possibility  of  increasing  the  required  solvency 
margin up to 50% for classes other than liability risks. This increasing shall be made by the 
Commission, in the exercise of its implementing powers, after having consulted the Insurance 
Committee.  

3. 

LEGAL BASIS OF THE PROPOSAL 

This  proposal  is  based  on  Articles  47(2)  and  55  of  the  Treaty,  which  are  the  legal  basis  to 
adopt Community measures aimed at achieving the Internal Market in the services sector. The 
chosen instrument is the Directive, since it appears to be the most appropriate to achieve the 
objectives  pursued.  Moreover  the  legislative  action  of  the  European  Union  to  achieve  the 
internal  market  in  insurance  has  been  carried  out  by  means  of  Directives  based  on  these 
provisions  of  the  Treaty.  Last,  the  provisions  of  this  Directive  do  not  go  beyond  what  it  is 
necessary to achieve the objectives pursued.  

8 

 
 
  
 
 
 
 
 
4. 

COMMENTS ON THE ARTICLES 

This  Proposal  lays  down  a  supervisory  regime  for  reinsurance  which  is  consistent  with  the 
existing  legal  framework  for  insurance.  It  is  built  on  the  approach  followed  by  the  current 
existing insurance Directives. Some of the provisions of Directives 73/239/EEC, 92/49/EEC 
and 2002/83/EC which are reproduced in this Directive are long; this is in particular the case 
of  the  provisions  concerning  the  conditions  of  authorisation  of  a  reinsurance  undertaking, 
qualifying holdings, professional secrecy and solvency margin. This often results in complex 
provisions, which presentation may not be consistent with the current guidelines for drafting 
Community legislation. It is not necessary for the interpretation that a single article covers an 
entire aspect of the rules laid down in a legal act. Therefore the provisions of this Proposal are 
broken down in articles, which are grouped as appropriate in titles, chapters and sections, in 
order to facilitate their comprehension and clarity.  

Article 1: Purpose of the Directive - Scope 

The purpose of this Directive is to lay down the legal framework for prudential supervision of 
reinsurance  activities  in  the  Community.  As  stated  earlier,  there  is  currently  no  Community 
legislation dealing with reinsurance supervision. As a result, reinsurance undertakings which 
conduct  only  reinsurance  business  (professional  reinsurers)  are  not  subject  to  any  particular 
Community provisions.  

The Directive will thus fill a gap in the Community regime of supervision on insurance. It will 
apply  to  reinsurance  a  supervisory  regime  based  on  the  same  principles  applicable  to  direct 
insurance,  namely,  the  principles  of  single  license  and  prudential  supervision  of  the 
reinsurance undertaking by its home Member State's competent authorities. 

This Directive applies to reinsurance undertakings having their head office on the Community 
which  conduct  only  reinsurance  business  (professional  reinsurers).  The  Directive  does  not 
apply to those insurance undertakings already subject to non-life insurance and life assurance 
Directives6,  since  their  reinsurance  activity  by  means  of  acceptances  is  covered  by  these 
Directives. In addition, insurance undertakings and bodies which are excluded from the scope 
of  above  Directives  are  also  excluded  from  the  scope  of  the  present  Directive.  However 
provisions  of  this  Directive  concerning  the  calculation  of  the  required  solvency  margin 
(Articles  35-39)  may  be  applicable  to  insurance  undertakings  subject  to  non-life  and  life 
directives in respect of their reinsurance acceptances (See Articles 57(5) and 59(8)). 

In order to take account of a very special situation that might arise in a Member State where it 
is  not  possible  to  obtain  reinsurance  cover  in  the  commercial  market,  the  proposal  does  not 
apply to the provision of reinsurance cover conducted by a Member State, when it acts as a 
reinsurer of last resort for reasons of public interest. However this provision does not exempt 
the Member State from complying with Community provisions concerning competition rules 
and  state  aids.  An  example  is  the  situation  that  arose  in  the  air  insurance  sector  after  the 
attacks  of  11th  September  2001,  where  the  reinsurance  market  failed  to  provide  reinsurance 
cover for some risks. Member States were Member States were prompted to provide such a 
reinsurance cover. The schemes set up were examined under EU law and in particular  state 
aid rules before being authorised.  

Article 2: Definitions 

6 

Directives 73/239/EEC (OJ, L 228, 16.8.1973, p. 3), Directive 92/49/EEC (OJ L 228, 11.8.1992, p. 1), 
Directive 2002/83/EC (OJ L 345, 19.12.2002, p. 1) 

9 

 
 
  
 
                                                 
Article 2 contains definitions concerning the essential concepts employed in the proposal, in 
order to clarify their meaning and hence contribute to a better understanding. Most of these 
concepts have already been employed in other Community legal acts applicable to insurance, 
such as the Directives 2002/83/EC on life assurance, 73/239/EEC and 92/49/EEC on non-life 
insurance,  98/78/EC  on  the  supplementary  supervision  of  insurance  undertakings  in  an 
insurance group.  

A  definition  of  "captive  reinsurance  undertaking"  is  given  to  refer  to  those  reinsurance 
undertakings  which  are  owned  by  one  or  several  industrial  or  commercial  firms  or  by  a 
financial  undertaking  other  than  an  insurance  undertaking  or  a  reinsurance  undertaking  or  a 
group  of  insurance  or  reinsurance.  The  objective  of  such  undertakings  is  to  provide 
reinsurance cover exclusively concerning the risks of the undertaking or group of undertakings 
to which the captive reinsurer belongs or to an undertaking or group of undertakings of which 
the reinsurance captive is part. This definition is necessary since the proposal provides for a 
special regime for these undertakings in respect of the minimum guarantee fund required in 
Article 40 to conduct reinsurance business. 

Articles 3-14: Provisions relating to the taking-up of the business of reinsurance 

The  proposal  for  a  Directive  follows  the  approach  of  the  current  insurance  Directives  with 
regard the taking-up of reinsurance activities in the Community. The proposal lays down the 
principles  of  single  license  and  home  country  control  for  the  prudential  supervision  of 
reinsurance  undertakings.  This  is  possible  because  of  the  coordination  carried  out  of  the 
essential  aspects  regarding  the  supervision  of  reinsurance  undertakings,  which  permits  the 
mutual recognition of authorisations and prudential supervisory systems of Member States. 

Accordingly,  a  reinsurance  undertaking  shall  be  subject  to  a  prior  official  authorisation  that 
shall  be  granted  by  the  competent  authorities  of  its  home  Member  State.  The  proposal  lays 
down the minimum conditions necessary to obtain the official authorisation. The reinsurance 
undertaking must have a specific legal form, it must submit a scheme of operations providing 
essential information on the business plan, it has also to possess the minimum guarantee fund 
provided  for  in  Article  40.  The  Directive  also  requires  that  the  reinsurance  undertaking  be 
effectively  run  by  managers  who  have  adequate  technical  qualifications  or  experience.  The 
reinsurance  undertaking  must  limit  its  objects  to  the  business  of  reinsurance  and  related 
operations.  This  requirement  may  allow  a  reinsurance  undertaking  to  carry  on,  for  instance, 
activities  such  as  provision  of  statistical  or  actuarial  advice,  risk  analysis  or  research  for  its 
clients. It may also include a holding company function and activities with respect to financial 
sector activities within the meaning of Article 2 point 8 of Directive 2002/87/EC. The latter 
activities will be in any case subject to the provisions laid down on supplementary supervision 
of  insurance  or  reinsurance  groups  and  financial  conglomerates  laid  down  by  Directives 
98/78/EC and 2002/87/EC (Articles 5-11). 

Furthermore, before granting the authorisation, the competent authorities must be informed of 
the identity of the members or shareholders with a qualifying participation in the reinsurance 
undertaking. The purpose of this provision is to enable the competent authorities to assess the 
suitability of the shareholders, in order to ensure the sound and  prudent  management  of  the 
reinsurance undertaking. Should they not be satisfied as to these qualifications, they shall not 
grant the authorisation. Equally, where close links exist between the reinsurance undertaking 
and other natural or legal persons, the authorisation shall be refused when those links do not 
enable  the  competent  authorities  to  exercise  effectively  their  supervisory  functions.  These 
requirements  pursue  a  prudential  objective,  namely  to  ensure  both  that  there  is  in  place  a 
sound management and that the supervision of the reinsurance undertaking is effective. Other 

10 

 
 
  
 
objectives  based  on  considerations  such  as  industrial  or  economic  policy  of  the  country  or 
market needs are not covered by these provisions and should be prohibited when examining 
the application for authorisation as they would be in conflict with the principles of the Treaty 
(Articles 7, 9, 10 and 12). 

The application for authorisation has to be considered within a period of six months after it 
has been submitted by the reinsurance undertaking. The refusal as well as the withdrawal of 
the  authorisation  shall  be  motivated  stating  the  precise  grounds  for  such  a  rejection.  The 
reinsurance undertaking must have the right to apply to the courts for the legal review of the 
decision (Article 13). 

The  authorisation  granted  is  valid  for  the  whole  Community.  It  allows  the  reinsurance 
the  freedom  of 
thorough 
undertaking 
establishment and the free provision of services, without further formalities (Article 4).  

the  Community,  under 

to  conduct  business 

Articles  15-31:  Conditions  governing  the  business  of  reinsurance.  Principles  and 
methods of prudential supervision. 

A supervisory regime based upon a system of a single authorisation granted by the competent 
authorities  of  the  Home  Member  State  of  the  reinsurance  undertaking  and  valid  throughout 
the  entire  Community  calls  for  devolution  of  powers  to  supervision  on  the  competent 
authorities  which  granted  the  authorisation  so  as  to  guarantee  full  compliance  with  the 
conditions governing the pursuit of business by the reinsurance undertaking, whether it be by 
way of establishment or by way of freedom of services.  

Article  15  of  this  proposal  sets  out  the  exclusive  competence  of  the  home  Member  State's 
competent  authorities  in  respect  of  the  financial  supervision  of  the  reinsurance  undertaking, 
including the activities it carries on either through branches or by way of freedom of services. 

Because of the exclusive competence of the home Member State in respect of supervision of 
all  the  financial  aspects  of  a  reinsurance  undertaking,  the  competent  authorities  of  a 
reinsurance undertaking may not refuse a retrocession contract concluded by this reinsurance 
undertaking  with  a  Community  reinsurance  undertaking  covered  by  this  Directive7  on  the 
grounds  directly  related  to  the  financial  soundness  of  that  reinsurance  (or  insurance) 
undertaking. Such an indirect supervision of these undertakings would mean an interference 
with the supervisory powers of the competent authorities of these undertakings and would put 
into question the fundamental principle of the mutual recognition which is at the root of the 
legal framework laid down by this proposal.  

The  reinsurance  undertaking  must  have  sound  administrative  and  accounting  procedures  as 
well  as  adequate  internal  control  mechanisms.  This  is  needed  to  ensure  an  orderly  and 
financially  stable  pursuit  of  the  activities.  The  Home  Member  State  shall  establish  the 
conditions to ensure that this requirement is meet.  

Article 16 states the right of the Home Member State's competent authorities to carry out on-
the-spot  verification  of  branches  of  the  reinsurance  undertaking  in  other  Member  States.  It 

7 

Or  a  Community  insurance  undertaking  authorised  in  accordance  with  the  non-life  insurance  or  life 
assurance Directives (Directives 73/239/EEC and 2002/83/EC). 

11 

 
 
  
 
                                                 
lays down the procedure to carry out such verification. This provision is similar to those laid 
down in the non-life and life insurance Directives8. 

In  order  to  ensure  the  efficiency  of  the  supervision  carried  out  over  the  reinsurance 
undertaking,  the  competent  authorities  must  have  appropriate  powers  to  make  detailed 
enquiries  regarding  the  reinsurance  undertaking,  request  submission  of  documents,  or  take 
measures,  such  as  sanctions,  on  the  reinsurance  undertaking  or  its  directors  or  managers 
(Article 17). 

Articles 19-23 lay down specific provisions regarding the supervision of qualifying holdings 
in  a  reinsurance  undertaking.  Their  purpose  is  to  ensure  that  the  competent  authorities  are 
aware  of  the  ownership  structure  of  the  reinsurance  undertaking.  This  provision  is  the 
corollary  of  the  supervision  of  qualifying  shareholders  at  the  moment  of  considering  the 
application  for  the  authorisation  laid  down  in  Article  12.  This  regime  is  the  same  already 
applicable to insurance9 and other financial services.  

Articles  24-30  provide  for  the  confidentiality  of  information  held  by  competent  authorities. 
All  persons  working  or  having  worked  for  the  competent  authorities,  included  auditors  and 
experts  acting  on  behalf  of  the  competent  authorities,  shall  be  bound  by  the  obligation  of 
professional secrecy. The confidential nature of this information does not prevent competent 
authorities  from  exchanging 
the  supervision  of  reinsurance 
undertakings, since it aims at ensuring the proper supervision of the reinsurance undertaking. 
In any case the information exchanged is also subject to the confidentiality requirement and it 
may only be disclosed with the express consent of the competent authorities which forwarded 
that information. 

information  regarding 

Articles  28-30  also  sets  out  the  conditions  and  circumstances  under  which  this  information 
may be disclosed to authorities and bodies other than reinsurance supervisory authorities. The 
regime laid down is the same applicable to insurance undertakings10. 

Article 31 provides the duty for auditors to report promptly to the competent authority of the 
home Member State any fact or decision concerning the reinsurance undertaking, which affect 
the conditions governing the pursuit of reinsurance business and which they discover during 
the  performance  of  their  tasks  in  the  reinsurance  undertaking  or  in  any  undertaking  having 
close links with the reinsurance undertaking. The Directive follows the regime already applied 
to insurance undertakings.11 

Articles 32-34: Rules relating to technical provisions 

Technical provisions are a fundamental part of insurance technique. Indeed they must enable 
an insurance or reinsurance undertaking to meet its commitments arising out of insurance or 
reinsurance contracts. For that reason, requiring any insurance (or reinsurance) undertaking to 
establish  adequate  technical  provisions  is  a  core  principle  of  a  supervisory  regime  for 
insurance  or  reinsurance.  In  a  system  of  single  authorisation  granted  by  the  home  Member 
State, it is up to the competent authorities of the home Member State to require the insurance 

8 

9 
10 
11 

Directive 73/239/EEC, art. 16, as amended by Directive 92/49/EEC, art. 11 and Directive 2002/83/EC 
art. 11. 
Directive 92/49/EEC, art. 15 and Directive 2002/83/EC, art. 15. 
Directive 92/49/EEC, art.16 and Directive 2002/83/EC, art. 16. 
Directive 92/49/EEC, art 16a) inserted by Directive 95/26/EC (OJ L 168, 18.7.1995, p. 7) and Directive 
2002/83/EC, art. 17. 

12 

 
 
  
 
                                                 
reinsurance  undertaking  to  establish  adequate  technical  provisions  in  respect  of  the  whole 
business  of  the  undertaking,  including  those  carried  on  under  the  freedom  of  establishment 
and the free provision of services in the Community. Moreover the home Member State must 
verify  compliance  with  this  requirement  and  have  also  at  its  disposal  appropriate  means  to 
ensure such compliance.  

Article 32 lays down the principle of home country control for the definition and calculation 
of  the  technical  provisions  of  reinsurance  undertakings.  The  amount  of  such  technical 
provisions  shall  be  determined  in  accordance  with  the  rules  laid  down  in  Directive 
91/674/EEC on the annual accounts of insurance undertakings and consolidated accounts of 
insurance  undertakings12.  The  proposal  also  provides  that,  in  respect  of  life  reinsurance 
activities, the Home Member State may also lay down more specific rules for the calculation 
of the technical provisions in accordance with the principles set up in Article 20 of Directive 
2002/83/EC on life assurance. This provision sets out the actuarial principles to be followed to 
establish the technical provisions for life assurance activities. 

The  home  Member  State  shall  also  require  its  own  reinsurance  undertakings  to  set  up  an 
equalization  reserve  in  respect  of  credit  reinsurance  activities  (Article  33).  The  amount  of 
such  reserve  shall  be  calculated  in  accordance  with  the  rules  provided  for  in  Directive 
73/239/EEC, in particular the Annex, which sets out four methods regarded as equivalent. The 
home Member State may exempt reinsurance undertakings for which credit reinsurance does 
not represent an important part of their activity, from the obligation to set up the equalization 
reserve. 

The  home  Member  State  may  also  require  its  own  reinsurance  undertakings  to  set  up 
equalization reserves for classes of risks other than credit reinsurance, following the rules laid 
down  by  that  home  Member  State.  This  is  in  line  with  existing  legislation  on  insurance,  in 
particular Directive 73/239/EEC as well as Directive 91/674/EEC on insurance undertakings 
annual accounts. 

By  introducing  a  supervisory  regime  for  reinsurance  undertakings,  which  so  far  are  not 
subject to a Community legal framework, the corollary is the abolition of the requirement of 
pledging of assets used to cover unearned premiums and outstanding claims provisions of a 
reinsurance  undertaking  where  it  is  reinsured  by  a  reinsurance  undertaking  authorised  in 
accordance  with  this  Directive,  or  an  insurance  undertaking  authorised  in  accordance  with 
Directives  73/239/EEC  (non-life  insurance)  or  2002/83/EC  (life  assurance).  However  a 
Member  State  remain  competent  to  impose  pledging  of  assets  used  to  cover  the  above 
technical  provisions  of  its  own  reinsurance  undertakings  where  they  are  reinsured  by  non-
Community  reinsurance  undertakings,  since  these  later  are  not  subject  to  the  supervisory 
regime of single authorisation and mutual recognition of this Directive.  

Article  34  proposes  a  qualitative  approach  to  investment  rules.  Specificities  of  reinsurance 
business make such an approach preferable to the more quantitative method used in the direct 
insurance field. The article states that the assets should take account of the type of business 
carried  out  by  the  reinsurance  entity,  the  amount  and  the  duration  of  the  expected  claims 
payments  in  order  to  secure  sufficiency,  liquidity,  quality,  profitability  and  matching  of  the 
investments. For non-life reinsurance, the matching requirement should be seen in the light of 
business practices and the inherent complexity to determine the duration of the liability cash-

12 

OJ L 374, 31.12.1991 p.7. 

13 

 
 
  
 
                                                 
flows.  The  investments  should  furthermore  be  diversified  and  adequately  spread  in  order  to 
enable response to changing economic circumstances. 

Articles 35-41: Solvency margin of reinsurance undertakings 

A  solvency  margin  is  an  important  element  of  prudential  supervision.  This  proposal  lays 
down  solvency  requirements  for  reinsurance  undertakings  which  are  based  on  the  current 
rules for insurance undertakings. As it has been pointed out earlier, insurance and reinsurance 
are related activities and consequently the solvency requirements for the two activities should 
be similar. 

Wit regard to non-life reinsurance business, the proposal applies the requirements set out in 
the  non-life  insurance  Directive  73/239/EEC  (Article  37).  However,  due  to  the  particular 
nature  of  some  types  of  reinsurance  contracts  or  specific  lines  of  business,  the  proposal 
contains  the  possibility  of  increasing  the  required  solvency  margin.  Already  the  non-life 
insurance Directive provides for an increase of 50% for liability insurances, because they are 
subject  to  a  particularly  volatile  risk  profile.  The  proposal  provides  for  an  increasing  up  to 
50%  of  the  solvency  margin  in  respect  of  specific  types  or  classes  of  business  other  than 
liability  classes.  The  adjustment  of  the  solvency  margin  shall  be  made  by  the  Commission, 
after  consulting  the  Insurance  Committee,  in  the  exercise  of  its  implementing  powers 
conferred  on  by  the  Treaty.  These  measures  should  be  adopted  following  the  regulatory 
procedure provided for in Article 5 of Decision 1999/648/EC (Article 55). This enhancement 
of  the  solvency  margin  will  be  only  used  after  detailed  analysis  and  extensive  consultation 
with interested parties.  

In  order  to  ensure  a  level  playing  field  between  reinsurance  undertakings  and  insurance 
undertakings  carrying  on  reinsurance  activities,  the  proposal  provides  for  the  subsequent 
adaptations  to  the  non-life  insurance  Directive  73/239/EEC  and  life  assurance  Directive 
2002/83/EC.  Accordingly,  insurance  undertakings  which  conduct  reinsurance  by  way  of 
acceptances activities shall be subject to the provisions of the reinsurance directive in respect 
of the required solvency margin, where the volume of their reinsurance activities represents a 
significant  part  of  their  entire  business  (Articles  57(5)  and  59(8)).  These  provisions  will  be 
applicable when the decision adjusting the required solvency margin for non-life reinsurance 
activities has been adopted by the Commission (Article 43).  

As  far  as  life  reinsurance  is  concerned,  the  required  solvency  margin  shall  be  calculated  in 
accordance with the rules laid down in the life insurance Directive 2002/83/EC (Article 38).  

Where  a  reinsurance  undertaking  conducts  simultaneously  life  and  non-life  reinsurance 
business, the required solvency margin shall cover the total sum of required solvency margins 
in respect of both non-life and life reinsurance activities (Article 39). 

The  available  solvency  margin  shall  be  represented  by  the  assets  listed  in  Article  36.  The 
assets  allowed  are  those  already  authorised  by  non-life  and  life  insurance  Directives  to 
represent the solvency margin. 

Article  40  refers  to  the  minimum  guarantee  fund  required  to  conduct  reinsurance  activities. 
The guarantee fund refers to the minimum capital requirement that a reinsurance undertaking 
must  permanently  have  in  order  to  engage  in  reinsurance  business  with  the  appropriate 
financial soundness. The proposal fixes a guarantee fund which may not be less than EUR 3 
million.  However,  in  respect  of  captive  reinsurance  undertakings,  the  home  Member  State 
may set the guarantee fund as to EUR 1 million. This provision aims at taking account of the 

14 

 
 
  
 
special characteristics of captive reinsurance undertakings, and in particular the fact that they 
usually  are  medium/small  size  undertakings  and  their  activity  is  confined  exclusively  to  the 
cover risks concerning the undertakings to which the captive reinsurer belongs. 

Articles 42-44: Reinsurance undertakings in difficulty - Withdrawal of the authorisation 

The competent authorities of a reinsurance undertaking should have the appropriate powers to 
take  action  against  a  reinsurance  undertaking  where  its  financial  situation  deteriorates,  for 
instance,  where  it  does  not  establish  adequate  technical  provisions  or  the  solvency  margin 
does  not  attain  the  required  level.  In  such  cases,  the  competent  authorities  shall  have  the 
power to require a financial plan, a restoration plan a financial recovery plan or to prohibit the 
free disposal of assets of the reinsurance undertaking.  

Likewise,  it  is  essential  to  provide  that  the  authorisation  granted  to  the  reinsurance 
undertaking may be withdrawn in certain specific cases (i.e. non fulfilment of the conditions 
for  authorisation,  serious  failure  to  comply  with  the  conditions  and  regulations  to  conduct 
business, etc.).  

The  rules  laid  down  in  this  proposal  are  identical  to  those  already  applied  to  insurance 
undertakings. 

Articles  45-46:  Reinsurance  activities  conducted  by  means  of  the  freedom  of 
establishment and the free provision of services 

A reinsurance undertaking duly authorised by the competent authorities of the home Member 
State  is  entitled  to  carry  on  reinsurance  business  throughout  the  entire  Community,  under 
either the right of establishment or the freedom to provide services (Article 4(1)).  

Article  45  sets  out  provisions  concerning  the  case  where  a  reinsurance  undertaking,  acting 
under the freedom of establishment or the free provision of services, does not comply with the 
legal  provisions  applicable  in  the  host  Member  State.  The  regime  proposed,  which  is  also 
inspired by the regime laid down in insurance directives, is rooted in the cooperation between 
the competent authorities of the home and the host Member States. 

Article  46  establishes  the  principle  of  equality  of  treatment  of  all  reinsured  creditors  in  the 
event of the winding-up of a reinsurance undertaking, without any distinction being made on 
grounds relating to the manner in which reinsurance contracts were underwritten; i.e. freedom 
of establishment or free provision of services. However this provision does not introduce a co-
ordination  of  national  rules  on  winding-up.  Such  a  co-ordination  in  respect  of  insurance 
undertaking  has  been  carried  out  by  Directive  2001/17/EC  (insurance  winding-up 
Directive)13.  The  insurance  winding-up  Directive  may  also need to be adapted, after careful 
examination, at a later stage in order to bring into its scope reinsurance undertakings. 

Articles 47-50: Third country reinsurance undertakings.  

Reinsurance undertakings which have their head office in a third country and which conduct 
reinsurance  business  in  a  Member  State  shall  not  be  applied  a  treatment  which  is  more 
favourable than that afforded to reinsurance undertakings which have their head office in that 
Member State (Article 47). 

13 

OJ L L 110, 20.04.2001 p.28. 

15 

 
 
  
 
                                                 
Article 48 provides for the possibility to conclude agreements with third countries regarding 
the supervision of reinsurance undertakings. The purpose of these international agreements is, 
in  particular,  the  exchange  of  information  between  competent  authorities  of  the  EU  and  the 
third  countries  concerned  in  respect  of  reinsurance  undertakings  as  well  as  to  provide  for 
mutual recognition of supervisory rules and practices on reinsurance between the EU and the 
third countries. This provision would be of significant importance in order to tackle regulatory 
barriers  to  reinsurance  which  hinder  the  entry  of  Community  reinsurance  undertakings  into 
third countries.  

Articles  51-54:  Rights  acquired  by  existing  reinsurance  undertakings  -  Reinsurance 
undertakings in cessation of activities. 

A reinsurance undertaking which was entitled or authorised to conduct reinsurance business 
in  accordance  with  the  provisions  of  its  home  Member  State  before  the  date  of 
implementation of this Directive may continue to do so without requesting an authorisation. 
However,  the  reinsurance  undertaking  shall  be  subject  to  the  provisions  of  the  Directive,  in 
particular the requirements regarding the financial soundness of the reinsurance undertaking 
(technical  provisions,  solvency  margin  and  guarantee  fund),  the  professional  capacity  and 
good  repute  of  the  managers  or  the  suitability  of  the  qualifying  shareholders.  The  directive 
allows Member States to grant a transitional period of two years in order to avoid that existing 
reinsurance undertakings run into financial trouble because of the effort to comply with these 
requirements (Article 51). 

On the other hand, the Directive does not apply to reinsurance undertakings which at the time 
of implementation of the directive have stopped underwriting new reinsurance contracts and 
exclusively administer their existing portfolio in order to terminate their activity. However, as 
these  undertakings  shall  not  subject  to  the  single  authorisation  regime  laid  down  in  the 
Directive, it is essential for the sake of transparency and legal certainty, that Member States 
draw up the list of the reinsurance undertakings concerned and communicate to all Member 
States (Article 52).  

Lastly Article 53 provides the right for a reinsurance undertaking to apply for judicial review 
of any decision taken in  respect of  it  by competent authorities when applying their national 
rules adopted in implementation of this Directive. 

Articles 55-56: Implementing powers of the Commission to made technical adjustments 
to the directive. 

The proposal lays down the possibility to make technical adjustments to specific rules of the 
Directive.  The  Directive  confers  on  the  Commission  implementing  powers  in  respect  of  the 
provisions  expressly  listed  in  Article  56.  In  the  exercise  of  its  implementing  powers  the 
Commission is assisted by the Insurance Committee laid down by Directive 91/675/EEC. The 
measures  to  be  adopted  by  the  Commission  shall  be  subject  to  the  procedure  laid  down  in 
Article  5(6)  of  Decision  1999/648/EC  which  lays  down  the  procedures  for  the  exercise  of 
implementing powers conferred on the Commission.  

Implementing powers shall be in particular used to enhance the required solvency margin for 
specific  types  or  contracts  or  activities  in  classes  of  business  other  that  liability  classes 
(Article 37(3) and (4)).  

16 

 
 
  
 
Articles 57-60: Technical adaptations to Non-life, Life and Insurance Groups Directives 

The introduction of a Community regulatory framework for reinsurance has an impact on the 
existing directives on insurance (non-life, life and insurance groups)14. To the extent that the 
present proposal once adopted shall complete this legislative framework for insurance sector, 
it appears necessary to take account of it in order to ensure a consistent regulatory framework. 
Accordingly,  the  existing  insurance  directives  need  to  be  adapted.  This  is  the  case,  for 
instance, of the indirect supervision of a reinsurance undertaking carried out by the competent 
authorities  of  the  insurance  undertaking  who  has  concluded  a  reinsurance  contract  with 
Community  reinsurer  subject  to  this  Directive15.  The  competent  authority  of  the  insurance 
undertaking may not refuse such a reinsurance contract on the grounds directly related to the 
financial soundness of that reinsurer.  

The proposal also provides for the abolition of the requirement of pledging of assets used to 
cover  unearned  premiums  and  outstanding  claims  provisions  of  an  insurance  undertaking 
where  it  is  reinsured  by  a  reinsurance  undertaking  authorised  in  accordance  with  this 
Directive, or an insurance undertaking authorised in accordance with Directives 73/239/EEC 
(non-life insurance) or 2002/83/EC (life assurance).  

These  adaptations  are  also  prompted  by  the  purpose  of  submitting  direct  insurance 
undertakings accepting reinsurance to the solvency requirements which would be laid down 
for reinsurance undertakings and ensuring a level playing field amongst different undertakings 
writing inwards reinsurance business.  

The insurance groups Directive 98/78/EC is also adapted in order to take account of the fact 
that EU reinsurance undertakings shall be subject to supervision16. A subsequent adaptation of 
Directive 2002/87/EC relating the financial conglomerates17 will also be necessary.  

Furthermore the Directive 2001/17/EC may also need to be adapted in order to bring into its 
scope reinsurance undertaking since they are not currently subject to the insurance winding-
up Directive. Further work is necessary in this respect in order to identify the issues that need 
to be considered in order to make appropriate adaptations. 

14 

15 

16 
17 

Directives 

Non-Life: 
73/239/EEC, 
Life: Directive 2002/83/EEC; Insurance Groups: Directive 98/78/EEC (OJ L 330, 5.12.1998, p. 1).  
Or  a  Community  insurance  undertaking  authorised  in  accordance  with  the  non-life  insurance  or  life 
assurance Directives (Directives 73/239/EEC and 2002/83/EC). 
OJ L 330, 5.12.1998, p. 1. 
OJ L 35, 11.2.2003, p. 1. 

88/357/EEC, 

92/49/EEC;  

17 

 
 
  
 
                                                 
2004/0097 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC and Directives 
98/78/EC and 2002/83/EC 

(Text with EEA relevance) 

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 Commission18, 

Having regard to the opinion of the European Economic and Social Committee19, 

Having regard to the opinion of the Committee of the Regions20, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty21, 

Whereas: 

(1) 

(2) 

18 
19 
20 
21 
22 
23 

24 

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 assurance22, 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/EEC23 and 2002/83/EEC of the European Parliament and of 
the  Council  of  5  November  2002  concerning  life  assurance24  have  laid  down  the 
provisions relating to the taking-up and pursuit of direct insurance in the Community. 

Those  Directives  provide  for  the  legal  framework  for  insurance  undertakings  to 
conduct insurance business in the internal market, from the point of view both of the 
right of establishment and of the freedom to provide services, in order to make it easier 
for insurance undertakings with head offices in the Community to cover commitments 
situated  within  the  Community  and  to  make  it  possible  for  policy  holders  to  have 
recourse  not  only  to  insurers  established  in  their  own  country,  but  also  to  insurers 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ L 228, 16.8.1973, p.3. 
OJ  L  228,  11.8.1992  p.  1.  Directive  as  last  amended  by  Directive  2002/87/EC  of  the  European 
Parliament and of the Council (OJ L 35, 11.2.2003, p. 1) 
OJ L 345, 19.12.2002, p. 1. 

18 

 
 
  
 
                                                 
which have their head office in the Community and are established in other Member 
States.  

The regime laid down by those Directives applies to direct insurance undertakings in 
respect  of  their  entire  business  carried  on,  both  direct  insurance  activities  as  well  as 
reinsurance activities by way of acceptances; however reinsurance activities conducted 
by specialised reinsurance undertakings are neither subject to this regime nor any other 
regime provided for by Community law.  

Reinsurance is a major financial activity as it allows direct insurance undertakings, by 
facilitating  a  wider  distribution  of  risks  at  worldwide  level,  to  have  a  higher 
underwriting capacity to engage in insurance business and provide insurance cover and 
also  to  reduce  their  capital  costs;  furthermore  reinsurance  also  plays  a  fundamental 
role in financial stability, since it is an essential element to ensure the strength of the 
financial  soundness  and  the  stability  of  direct  insurance  markets  as  well  as  the 
financial system as a whole, because of its role of a major financial intermediary and 
institutional investor.  

Council Directive 64/225/EEC of 25 February 1964 on the abolition of restrictions on 
freedom  of  establishment  and  freedom  to  provide  services  in  respect  of  reinsurance 
and  retrocession25  has  removed  the  restrictions  to  the  right  of  establishment  and  the 
freedom  to  provide  services  related  to  the  nationality  or  residence  of  the  provider  of 
reinsurance.  It  has  not  however  removed  restrictions  caused  by  divergences  between 
national provisions as regards prudential regulation of reinsurance. This situation has 
resulted  in  significant  differences  in  the  level  of  supervision  of  reinsurance 
undertakings  in  the  Community,  which  create  barriers  to  the  pursuit  of  reinsurance 
business,  such  as  the  obligation  for  the  reinsurance  undertaking  to  pledge  assets  in 
order to cover its part of the technical provisions of the direct insurance undertaking, 
as well as the compliance by reinsurance undertakings with different supervisory rules 
in different Member States in which they conduct business or an indirect supervision 
of  the  different  aspects  of  a  reinsurance  undertaking  by  the  competent  authorities  of 
direct insurance undertakings. 

The  Action  Plan  for  Financial  Services  has  identified  reinsurance  as  a  sector  which 
needs  an  action  at  Community  level  in  order  to  complete  the  internal  market  for 
financial services. Moreover, major financial fora such as the International Monetary 
Fund  and  the  International  Association  of  Insurance  Supervisors  (IAIS)  have 
highlighted the lack of harmonised reinsurance supervision rules at Community level 
as  an  important  gap  in  the  financial  services  regulatory  framework  that  should  be 
filled.  

This Directive aims at establishing a prudential regulatory framework for reinsurance 
activities in the Community. It forms part of the body of Community legislation in the 
field of insurance aimed at establishing the Internal Market in the insurance sector. 

This Directive is consistent with major international work carried out on reinsurance 
prudential  rules,  in  particular  the  Insurance  Association  of  Insurance  Supervisors 
(IAIS). 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

25 

OJ 56, 4.4.1964 p.878. 

19 

 
 
  
 
                                                 
(9) 

This  Directive  follows  the  approach  of  Community  legislation  adopted  in  respect  of 
direct  insurance  by  carrying  out  the  harmonisation  which  is  essential,  necessary  and 
sufficient  to  ensure  the  mutual  recognition  of  authorisations  and  prudential  control 
systems, thereby making it possible to grant a single authorisation valid throughout the 
Community and apply the principle of supervision by the home Member State.  

(10)  As a result, the taking up and the pursuit of the business of reinsurance are subject to 
the  grant  of  a  single  official  authorisation issued  by  the  competent  authorities  of  the 
Member  State  in  which  a  reinsurance  undertaking  has  its  head  office.  Such 
authorisation enables an undertaking to carry on business throughout the Community, 
under the right of establishment or the freedom to provide services. The Member State 
of the branch or of the provision of services may not require a reinsurance undertaking 
which  wishes  to  carry  on  reinsurance  business  there  and  which  has  already  been 
authorised  in  its  home  Member  State  to  seek  fresh  authorisation.  Furthermore  a 
reinsurance undertaking which has already been authorised in its home Member State 
should  not  be  subject  to  additional  supervision  or  checks  related  to  its  financial 
soundness  which  are  performed  by  the  competent  authorities  of  an  insurance 
undertaking which is reinsured by that reinsurance undertaking. In addition, Member 
States  should  not  be  allowed  to  require  a  reinsurance  undertaking  authorised  in  the 
Community  to  post  collateral  of  assets  in  order  to  cover  its  part  of  the  cedent's 
technical  provisions.  The  conditions  for  the  granting  or  withdrawal  of  such 
authorisation  should  be  defined.  The  competent  authorities  should  not  authorise  or 
continue  the  authorisation  of  a  reinsurance  undertaking  which  do  not  fulfil  the 
conditions laid down in this Directive.  

(11)  This  Directive  should  apply  to  reinsurance  undertakings  which  conduct  exclusively 
reinsurance  business  and  do  not  engage  in  direct  insurance  business;  it  should  also 
apply  to  the  so-called  "captive"  reinsurance  undertakings  created  or  owned  by 
industrial,  commercial  or  financial  firms  other  than  undertakings  to  which  Directive 
98/78/EC  of  the  European  Parliament  and  of  the  Council  on  the  supplementary 
supervision of insurance undertakings in an insurance group26 applies, the purpose of 
which  is  to  provide  reinsurance  cover  exclusively  to  the  risks  of  the  firms  to  which 
they belong.  

(12)  This Directive should however not apply to insurance undertakings which are already 
subject  to  Directives  73/239/EEC  and  2002/83/EC;  however  in  order  to  ensure  the 
financial  soundness  of  insurance  undertakings  which  also  carry  on  reinsurance 
business  and  that  the  specific  characteristics  of  these  activities  is  duly  taken  into 
account  by  the  capital  requirements  of  these  insurance  undertakings,  the  provisions 
relating  the  solvency  margin  of  reinsurance  undertakings  contained  in  this  directive 
should apply to reinsurance business of these insurance undertakings, if the volume of 
their reinsurance activities represents a significant part of their entire business.  

(13)  This  Directive  should  clarify  the  powers  and  means  of  supervision  vested  in  the 
competent  authorities.  The  competent  authorities  of  the  reinsurance  undertaking's 
home  Member  State  should  be  responsible  for  monitoring  the  financial  health  of 
reinsurance  undertakings,  including  their  state  of  solvency,  the  establishment  of 
adequate technical provisions and the covering of those provisions by quality assets.  

26 

OJ L 330, 5.12.1998, p. 1. Directive as last amended by Directive 2002/87/EC (OJ L 35, 11.2.2003, p 
1). 

20 

 
 
  
 
                                                 
(14)  The  competent  authorities  of  the  Member  States  should  have  at  their  disposal  such 
means  of  supervision  as  are  necessary  to  ensure  the  orderly  pursuit  of  business  by 
reinsurance  undertakings  throughout  the  Community  whether  carried  on  under  the 
right of establishment or the freedom to provide services. In particular, they should be 
able  to  introduce  appropriate  safeguards  or  impose  sanctions  aimed  at  preventing 
irregularities and infringements of the provisions on reinsurance supervision.  

(15)  Provision  should  be  made  for  the  exchange  of  information  between  the  competent 
authorities  and  authorities  or  bodies  which,  by  virtue  of  their  function,  help  to 
strengthen  the  stability  of  the  financial  system.  In  order  to  preserve  the  confidential 
nature of the information forwarded, the list of addressees should remain within strict 
limits.  It  is  therefore  necessary  to  specify  the  conditions  under  which  the 
abovementioned  exchanges  of  information  are  authorised;  moreover,  where  it  is 
stipulated  that  information  may  be  disclosed  only  with  the  express  agreement  of  the 
competent authorities, these may, where appropriate, make their agreement subject to 
compliance  with  strict  conditions.  In  this  regard,  and  in  view  of  ensuring  the  proper 
supervision  of  reinsurance  undertakings  by  the  competent  authorities,  this  Directive 
should provide for rules enabling Member States to conclude agreements on exchange 
of information with third countries provided that the information disclosed is subject 
to appropriate guarantees of professional secrecy. 

(16)  For  the  purposes  of  strengthening  the  prudential  supervision  of  reinsurance 
undertakings,  it  should  be  stipulated  that  an  auditor  must  have  a  duty  to  report 
promptly  to  the  competent  authorities,  wherever,  as  provided  for  by  this  Directive, 
he/she  becomes  aware,  while  carrying  out  his/her  tasks,  of  certain  facts  which  are 
liable  to  have  a  serious  effect  on  the  financial  situation  or  the  administrative  and 
accounting  organisation  of  a  reinsurance  undertaking.  Having  regard  to  the  aim  in 
view, it is desirable for Member States to provide that such a duty should apply in all 
circumstances where such facts are discovered by an auditor during the performance 
of  his/her  tasks  in  an  undertaking  which  has  close  links  with  a  reinsurance 
undertaking.  The  duty  of  auditors  to  communicate,  where  appropriate,  to  the 
competent authorities certain facts and decisions concerning a reinsurance undertaking 
which  they  discover  during  the  performance  of  their  tasks  in  a  non-reinsurance 
undertaking does not in itself change the nature of their tasks in that undertaking nor 
the manner in which they must perform those tasks in that undertaking.  

(17)  Provision  should  be  made  to  define  the  application  of  this  Directive  to  existing 
reinsurance  undertakings  which  were  already  authorised  or  entitled  to  conduct 
reinsurance  business  in  accordance  with  the  provisions  of  the  Member  States  before 
the application of the Directive. 

(18) 

In  order  to  allow  a  reinsurance  undertaking  to  meet  its  commitments,  the  home 
Member State should require a reinsurance undertaking to establish adequate technical 
provisions.  The  amount  of  such  technical  provisions  should  be  determined  in 
accordance with Directive 91/674/EEC of 19 December 1991 on the annual accounts 
and  consolidated  accounts  of  insurance  undertakings27  and,  in  respect  of  life 
reinsurance  activities,  the  home  Member  State  should  also  be  allowed  to  lay  down 
more specific rules in accordance with Directive 2002/83/EC. 

27 

OJ  L 374, 31.12.1991, p. 7. Directive  amended by  Directive  2003/51/EC  of  the  European  Parliament 
and of the Council (OJ L 178, 17.7.2003, p. 16). 

21 

 
 
  
 
                                                 
(19)  A  reinsurance  undertaking  conducting  reinsurance  business  in  respect  of  credit 
insurance, whose credit reinsurance business amounts to more than a small proportion 
of its total business should be required to set up an equalization reserve which does not 
form  part  of  the  solvency  margin;  this  reserve  should  be  calculated  according  to  the 
one of the methods laid down in Directive 73/239/EEC and which are recognized as 
equivalent;  furthermore  this  Directive  should  allow  the  home  Member  State  to  also 
require reinsurance undertakings whose head office is situated within its territory to set 
up equalization reserves for classes of risks other than credit reinsurance, following the 
rules laid down by that home Member State. 

(20)  The  reinsurance  undertaking  should  have  assets  to  cover  technical  provisions  which 
shall take account of the type of business carried out by a reinsurance undertaking, in 
particular the nature, amount and duration of the expected claims payments, in such a 
way as to secure sufficiency, liquidity, security, quality, profitability and matching of 
its  investments,  which  the  undertaking  shall  ensure  are  diversified  and  adequately 
spread  and  which  gives  the  undertaking  the  possibilities  to  respond  adequately  to 
changing economic circumstances, in particular developments in the financial markets 
and real estate markets or large impact catastrophic events. 

(21) 

(22) 

It  is  necessary  that,  over  and  above  technical  provisions,  reinsurance  undertakings 
should  possess  a  supplementary  reserve,  known  as  the  solvency  margin,  represented 
by  free  assets  and,  with  the  agreement  of  the  competent  authority,  by  other  implicit 
assets,  which  shall  act  as  a  buffer  against  adverse  business  fluctuations.  This 
requirement is an important element of prudential supervision. Pending the revision of 
the existing solvency margin regime, which the Commission is carrying on under the 
so-called "Solvency II project", in order to determine the required solvency margin of 
reinsurance  undertakings  the  rules  provided  for  in  existing  legislation  in  the  field  of 
direct insurance should be applicable;  

In order to take account of the particular nature of some types of reinsurance contracts 
or  specific  lines  of  business,  provision  should  be  made  to  make  adjustments  to  the 
calculation of the required solvency margin; these adjustments should be made by the 
Commission,  after  consulting  the  Insurance  Committee,  set  up  by  Council  Directive 
91/675/EEC28 in the exercise of its implementing powers conferred on by the Treaty. 
These measures should be adopted by the use of the regulatory procedure provided for 
in  Article  5  of  Council  Decision  1999/468/EC  of  28  June  1999  laying  down  the 
procedures for the exercise of implementing powers conferred on the Commission 29.  

(23)  The list of items eligible to represent the available solvency margin laid down by this 
Directive should be that provided for in Directives 73/239/EEC and 2002/83/EC. 

(24)  Reinsurance undertakings should also possess a guarantee fund in order to ensure they 
possess adequate resources when they are set up and that in the subsequent course of 
business  the  solvency  margin  shall  in  no  event  fall  below  a  minimum  of  security; 
however  in  order  to  take  account  of  the  specificities  of  captive  reinsurance 
undertakings,  provision  should  be  made  to  allow  the  home  Member  State  to  set  the 
minimum  guarantee  fund  required  to  captive  reinsurance  undertakings  at  a  lower 
amount.  

28 
29 

OJ L 374, 31.12.1991, p. 32. 
OJ L 184, 17.7.1999 p. 23. 

22 

 
 
  
 
                                                 
(25)  Certain provisions of this Directive define minimum standards. A home Member State 
should be able to lay down stricter rules for reinsurance undertakings authorised by its 
own competent authorities, in particular with respect to solvency margin requirements. 

(26) 

It  is  necessary  to  provide  for  measures  in  cases  where  the  financial  position  of  the 
reinsurance undertaking becomes such that it is difficult for it to meet its underwriting 
liabilities. In specific situations, there is also 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  reinsurance  undertakings  of  the 
reasons motivating such supervisory action, in accordance with the principles of sound 
administration  and  due  process.  As  long  as  such  a  situation  exists,  the  competent 
authorities should be prevented from certifying that the reinsurance undertaking has a 
sufficient solvency margin.  

(27) 

It is necessary to make provision for cooperation between the competent authorities of 
the  Member  States  in  order  to  ensure  that  a  reinsurance  undertaking  carrying  on  its 
activities  under  the  freedom  of  establishment  and  the  free  provision  of  services 
complies with the provisions applicable to it in the host Member State.  

(28)  Provision should be made for the right to apply to the courts should an authorisation 

be refused or withdrawn. 

(29) 

(30) 

It is important to provide that reinsurance undertakings whose head office is situated 
outside  the  Community  and  conduct  reinsurance  business  in  the  Community  should 
not be subject to a treatment which results in a more favourable than that provided to 
reinsurance undertakings having their head office in a Member State.  

In order to take account of the international aspects of reinsurance, provision should be 
made to enable the conclusion of international agreements with a third country aimed 
at defining the means of supervision over reinsurance entities who conduct business in 
the territory of each contracting party.  

(31)  A  provision  should  be  made  for  a  flexible  procedure  to  make  it  possible  to  assess 
prudential  equivalence  with  third  countries  on  a  Community  basis,  so  as  to  improve 
liberalisation of reinsurance services in third countries, be it through establishment or 
cross-border provision of services. To that end, this Directive provides for procedures 
for negotiating with third countries. 

(32)  The Commission should be empowered to adopt implementing measures provided that 
these  do  not  modify  the  essential  elements  of  this  Directive.  These  implementing 
measures should enable the Community to take account of the future development of 
reinsurance.  The  measures  necessary  for  implementation  of  this  Directive  should  be 
adopted in accordance with Decision 1999/468/EC 

(33)  The existing Community legal framework for insurance should be adapted in order to 
take account of the new supervisory regime for reinsurance undertakings laid down, by 
this Directive and in order to ensure a consistent regulatory framework for the whole 
insurance  sector.  In  particular,  the  existing  provisions  which  permit  “indirect 
supervision”  of  reinsurance  undertakings  by  the  authorities  competent  for  the 
supervision  of  direct  insurance  undertakings  should  be  adapted.  Furthermore  the 
current provisions enabling Member States to require pledging of assets covering the 
technical  provisions  of  an  insurance  undertaking  when  the  insurer  is  reinsured  by  a 

23 

 
 
  
 
reinsurance  undertaking  authorised  pursuant  to  this  Directive  or  by  an  insurance 
undertaking  should  be  abolished.  Finally,  it  should  be  provided  that  the  solvency 
margin  required  to  insurance  undertakings  conducting  reinsurance  activities,  when 
such activities represent a significant part of their business, is subject to the solvency 
rules provided for reinsurance undertakings in this Directive. Directives 73/239/EEC, 
92/49/EEC and 2002/83/EC should therefore be amended accordingly. 

(34)  Directive  98/78/EC  should  be  amended  in  order  to  guarantee  that  reinsurance 
undertakings  in  an  insurance  or  a  reinsurance  group  are  subject  to  supplementary 
supervision in the same manner as insurance undertakings which are currently part of 
an insurance group. 

(35)  Since  the  objective  of  the  proposed  action,  namely  the  establishment  of  a  legal 
framework  for  the  taking  up  and  pursuit  of  reinsurance  activities,  cannot  be 
sufficiently achieved by the Member States and can therefore, by reason of the scale 
and the effects of the action, be better achieved at Community level, the Community 
may  adopt  measures,  in  accordance  with  the  principle  of  subsidiarity  as  set  out  in 
Article 5 of the Treaty. In accordance with the principle of proportionality, as set out 
in that Article, this Directive does not go beyond what is necessary in order to achieve 
this  objective.  Since  this  Directive  defines  minimum  standards,  Member  States  may 
lay down stricter rules.  

HAVE ADOPTED THIS DIRECTIVE: 

TITLE I – SCOPE AND DEFINITIONS 

Article 1 – Scope 

1. 

This  Directive  lays  down  rules  for  the  taking  up  and  pursuit  of  the  self-employed 
activity  of  reinsurance  carried  on  by  reinsurance  undertakings,  which  conduct  only 
reinsurance  activities,  and  which  are  established  in  a  Member  State  or  wish  to 
become established therein. 

2. 

This Directive shall not apply to the following: 

a) 

b) 

c) 

d) 

insurance  undertakings  to  which  Directives  73/239/EEC  and  2002/83/EC 
apply;  

activities  and  bodies  referred  to  in  Article  3(1)  and  (2)  of  Directive 
73/239/EEC;  

activities and bodies referred to in Article 3 of Directive 2002/83/EC; 

the  activity  of  reinsurance  conducted  by  the  government  of  a  Member  State 
when this is acting, for reasons of substantial public interest, in the capacity of 
reinsurer  of  last  resort  in  circumstances  where  such  a  role  is  required  by  a 
situation  in  the  market  in  which  it  is  objectively  impossible  to  obtain 
commercial cover. 

24 

 
 
  
 
1. 

For the purposes of this Directive the following definitions shall apply: 

Article 2 – Definitions 

(a) 

reinsurance  means  the  activity  consisting  in  accepting  risks  ceded  by  an 
insurance undertaking, by another reinsurance undertaking or by an institution 
for  occupational  retirement  provision  falling  under  the  scope  of  Directive 
2003/41/EC of the European Parliament and of the Council30. 

(b) 

reinsurance  undertaking  means  an  undertaking  which  has  received  official 
authorisation in accordance with Article 3; 

(c) 

branch means an agency or a branch of a reinsurance undertaking; 

(d) 

(e) 

establishment  means  the  head  office,  branch  of  a  reinsurance  undertaking, 
account being taken of point c);  

home Member State means the Member State in which the head office of the 
reinsurance undertaking is situated; 

(f)  Member State of the branch means the Member State in which the branch of a 

reinsurance undertaking is situated; 

(g) 

(h) 

(i) 

(j) 

(k) 

(l) 

host  Member  State  means  the  Member  State  in  which  a  reinsurance 
undertaking has a branch or provides services. 

control means the relationship between a parent undertaking and a subsidiary, 
as  defined  in  Article  1  of  Council  Directive  83/349/EEC31,  or  a  similar 
relationship between any natural or legal person and an undertaking; 

qualifying holding means a direct or indirect holding in an undertaking which 
represents 10% or more of the capital or of the voting rights or which makes it 
possible  to  exercise  a  significant  influence  over  the  management  of  the 
undertaking in which a holding subsists; 

parent undertaking means a parent undertaking as defined in Articles 1 and 2 of 
Directive 83/349/EEC; 

subsidiary  means  a  subsidiary  undertaking  as  defined  in  Articles  1  and  2  of 
Directive 83/349/EEC; 

competent authorities means the national authorities which are empowered by 
law or regulation to supervise reinsurance undertakings; 

(m) 

close links means a situation in which two or more natural or legal persons are 
linked by: 

participation, which shall mean the ownership, direct or by way of control, of 

(i) 
20% or more of the voting rights or capital of an undertaking, or 

30 
31 

OJ L 235, 23.9.2003, p. 10. 
OJ L 193, 18.7.1983, p. 1. 

25 

 
 
  
 
                                                 
(ii) 
control,  in  all  the  cases  referred  to  in  Article  1(1)  and  (2)  of  Directive 
83/349/EEC  or  a  similar  relationship  between  any  natural  or  legal  person  and  an 
undertaking;  

(n) 

captive  reinsurance  undertaking  means  a  reinsurance  undertaking  owned 
either-  by  a  financial  undertaking  other  than  an  insurance  undertaking  or  a 
reinsurance undertaking or a group of insurance or reinsurance undertakings to 
which  Directive  98/78/EC  applies,  or  by  one  or  several  non  financial 
undertakings, the purpose of which is to provide reinsurance cover exclusively 
to  the  risks  of  the  undertaking  or  undertakings  to  which  it  belongs  or  to  an 
undertaking  or  undertakings  of  the  group  of  which  the  captive  reinsurance 
undertaking makes part.  

2. 
For the purposes of paragraph 1(c) any permanent presence of an undertaking in the 
territory of a Member State shall be treated in the same way as an agency or branch, even if 
that presence does not take the form of a branch or agency, but consists merely of an office 
managed by the undertaking's own staff or by a person who is independent but has permanent 
authority to act for the undertaking as an agency would. 

For the purposes of paragraph 1(i) , and in the context of Articles 7 and 14 and of the other 
levels  of  holding  referred  to  in  Article  14,  the  voting  rights  referred  to  in  Article  92  of 
Directive 2001/34/EC32 shall be taken into account. 

For the purposes of paragraph 1(k), any subsidiary of a subsidiary undertaking shall also be 
regarded  as  a  subsidiary  of  the  undertaking  which  is  those  undertakings'  ultimate  parent 
undertaking. 

For the purposes of paragraph 1(m), any subsidiary undertaking of a subsidiary undertaking 
shall  be  considered  a  subsidiary  of  the  parent  undertaking  which  is  at  the  head  of  those 
undertakings.  

Fort the purposes of paragraph 1(m) a situation in which two or more natural or legal persons 
are  permanently  linked  to  one  and  the  same  person  by  a  control  relationship  shall  also  be 
regarded as constituting a close link between such persons. 

3. 
Wherever this Directive refers to the euro, the conversion value in national currency to 
be adopted shall, as from 31 December of each year, be that of the last day of the preceding 
month  of  October  for  which  euro  conversion  values  are  available  in  all  the  Community 
currencies. 

TITLE II – THE TAKING-UP OF THE BUSINESS OF REINSURANCE 
AUTHORISATION OF THE REINSURANCE UNDERTAKING 

Article 3 – Principle of authorisation 

The taking up of the business of reinsurance shall be subject to prior official authorisation. 

Such authorisation shall be sought from the competent authorities of the home Member State 
by: 

32 

OJ L 184, 6.7.2001 p. 66 

26 

 
 
  
 
                                                 
(a) any reinsurance undertaking which establishes its head office in the territory of that State;  

(b) any reinsurance undertaking which, having received the authorisation, extends its business 
to other reinsurance activities than those already authorised. 

Article 4 – Scope of authorisation 

1.  An  authorisation  pursuant  to  Article  3  shall  be  valid  for  the  entire  Community.  It  shall 
permit  a  reinsurance  undertaking  to  carry  on  business  there,  under  either  the  right  of 
establishment or the freedom to provide services. 

2. Authorisation shall be granted for non-life reinsurance activities, life reassurance activities 
or all kinds of reinsurance activities, according to the request made by the applicant.  

It  shall  be  considered  in  the  light  of  the  scheme  of  operations  to  be  submitted  pursuant 
Articles  6(b)  and  11  and  the  fulfilment  of  the  conditions  laid  down  for  authorisation  by  the 
Member State from which the authorisation is sought. 

Article 5 – Form of the reinsurance undertaking 

The  home  Member  State  shall  require  every  reinsurance  undertaking  for  which 

1. 
authorisation is sought to adopt one of the forms set out in Annex I. 

A reinsurance undertaking may also adopt the form of a European Company (SE) as defined 
in Council Regulation (EC) No 2157/200133. 

2. 
Member  States  may,  where  appropriate,  set  up  undertakings  in  any  public-law  form 
provided  that  such  bodies  have  as  their  objects  reinsurance  operations  under  conditions 
equivalent to those under which private-law undertakings operate. 

Article 6 – Conditions 

The home Member State shall require every reinsurance undertaking for which authorisation 
is sought to: 

a) 

limit  its  objects  to  the  business  of  reinsurance  and  related  operations;  this 
requirement  may  include  a  holding  company  function  and  activities  with 
respect to financial sector activities within the meaning of Article 2 point 8 of 
Directive 2002/87/EC34; 

b) 

submit a scheme of operations in accordance with Article 11; 

c) 

d) 

possess the minimum guarantee fund provided for in Article 40(2); 

be  effectively  run  by  persons  of  good  repute  with  appropriate  professional 
qualifications or experience. 

33 
34 

OJ L 294, 10.11.2001.p.1  
OJ L 35, 11.02.2003 p. 1 

27 

 
 
  
 
                                                 
Article 7 – Close links 

1. 
Where close links exist between the reinsurance undertaking and other natural or legal 
persons, the competent authorities shall grant authorisation only if those links do not prevent 
the effective exercise of their supervisory functions. 

The competent authorities shall refuse authorisation if the laws, regulations or administrative 
provisions  of  a  non-member  country  governing  one  or  more  natural  or  legal  persons  with 
which  the  reinsurance  undertaking  has  close  links,  or  difficulties  involved  in  their 
enforcement, prevent the effective exercise of their supervisory functions. 

2. 
The competent authorities shall require reinsurance undertakings to provide them with 
the  information  they  require  to  monitor  compliance  with  the  conditions  referred  to  in 
paragraph 1 on a continuous basis. 

Article 8 – Head office of the reinsurance undertaking 

Member States shall require that the head offices of reinsurance undertakings be situated in 
the same Member State as their registered offices 

Article 9 – Policy conditions and scales of premiums 

This  Directive  shall  not  prevent  Member  States  from  maintaining  in  force  or 
1. 
introducing  laws,  regulations  or  administrative  provisions  requiring  approval  of  the 
memorandum  and  articles  of  association  and  communication  of  any  other  documents 
necessary for the normal exercise of supervision. 

2. 
However,  Member  States  may  not,  however,  adopt  provisions  requiring  the  prior 
approval  or  systematic  notification  of  general  and  special  policy  conditions,  scales  of 
premiums and forms and other printed documents which a reinsurance undertaking intends to 
use in its dealings with ceding or retro-ceding undertakings. 

Article 10 - Economic requirements of the market 

Member  States  may  not  require  that  any  application  for  authorisation  be  considered  in  the 
light of the economic requirements of the market. 

Article 11 – Scheme of operations 

The  scheme  of  operations  referred  to  in  Article  6(b)  shall  include  particulars  or 

1. 
evidence of: 

(a) 

the nature of the risks which the reinsurance undertaking proposes to cover; 

(b)  the  kinds  of  reinsurance  arrangements  which  the  reinsurance  undertaking  proposes  to 
make with ceding undertakings; 

(c) the guiding principles as to retrocession; 

(d) the items constituting the minimum guarantee fund; 

28 

 
 
  
 
(e)  estimates  of  the  costs  of  setting  up  the  administrative  services  and  the  organisation  for 
securing business and the financial resources intended to meet those costs.  

In addition to the requirements in paragraph 1, the scheme of operations shall for the 

2. 
first three financial years contain: 

(a)  estimates  of  management  expenses  other  than  installation  costs,  in  particular  current 
general expenses and commissions; 

(b) estimates of premiums or contributions and claims; 

(c) a forecast balance sheet; 

(d)  estimates  of  the  financial  resources  intended  to  cover  underwriting  liabilities  and  the 
solvency margin. 

Article 12 – Shareholders and members with qualifying holdings 

The  competent  authorities  of  the  home  Member  State  shall  not  grant  an  undertaking 
authorisation  to  take  up  the  business  of  reinsurance  before  they  have  been  informed  of  the 
identities of the shareholders or members, direct or indirect, whether natural or legal persons, 
who have qualifying holdings in that undertaking and of the amounts of those holdings. 

The same authorities shall refuse authorisation if, taking into account the need to ensure the 
sound and prudent management of a reinsurance undertaking, they are not satisfied as to the 
qualifications of the shareholders or members. 

Article 13 - Refusal of authorisation 

Any decision to refuse an authorisation shall be accompanied by the precise grounds for doing 
so and notified to the undertaking in question.  

Each Member State shall make provision for a right to apply to the courts, pursuant to Article 
53, should there be any refusal. 

Such provision shall also be made with regard to cases where the competent authorities have 
not dealt with an application for an authorisation upon the expiry of a period of six months 
from the date of its receipt. 

Article 14 - Prior consultation with the competent authorities 
 of other Member States 

The competent authorities of the other Member State involved shall be consulted prior 

1. 
to the granting of an authorisation to a reinsurance undertaking, which is: 

a subsidiary of an insurance or reinsurance undertaking authorised in another Member 

a) 
State; or 

a  subsidiary  of  the  parent  undertaking  of  an  insurance  or  reinsurance  undertaking 

b) 
authorised in another Member State; or 

29 

 
 
  
 
controlled by the same person, whether natural or legal, who controls an insurance or 

c) 
reinsurance undertaking authorised in another Member State. 

2. 
The  competent  authority  of  a  Member  State  involved,  who  is  responsible  for  the 
supervision of credit institutions or investment firms shall be consulted prior to the granting of 
an authorisation to a reinsurance undertaking which is: 

a) 

a subsidiary of a credit institution or investment firm authorised in the Community; or 

a  subsidiary  of  the  parent  undertaking  of  a  credit  institution  or  investment  firm 

b) 
authorised in the Community; or 

controlled  by  the  same  person,  whether  natural  or  legal,  who  controls  a  credit 

c) 
institution or investment firm authorised in the Community. 

3. 
The relevant competent authorities referred to in paragraphs 1 and 2 shall in particular 
consult  each  other  when  assessing  the  suitability  of  the  shareholders  and  the  reputation  and 
experience of directors involved in the management of another entity of the same group. They 
shall  inform  each  other  of  any  information  regarding  the  suitability  of  shareholders  and  the 
reputation and experience of directors which is of relevance to the other competent authorities 
involved  for  the  granting  of  an  authorisation  as  well  as  for  the  ongoing  assessment  of 
compliance with operating conditions. 

TITLE III – CONDITIONS GOVERNING THE BUSINESS OF REINSURANCE 

Chapter 1 – Principles and methods of financial supervision 

SECTION 1- COMPETENT AUTHORITIES AND GENERAL RULES 

Article 15 – Competent authorities and object of supervision 

1. 
The financial supervision of a reinsurance undertaking, including that of the business 
it carries on either through branches or under the freedom to provide services, shall be the sole 
responsibility of the home Member State. 

If  the  competent  authorities  of  the  host  Member  State  have  reason  to  consider  that  the 
activities of a reinsurance undertaking might affect its financial soundness, they shall inform 
the  competent  authorities  of  the  reinsurance  undertaking's  home  Member  State.  The  latter 
authorities  shall  determine  whether  the  reinsurance  undertaking  is  complying  with  the 
prudential rules laid down in this Directive. 

2. 
The  financial  supervision  pursuant  to  paragraph  1shall  include  verification,  with 
respect  to  the  reinsurance  undertaking's  entire  business,  of  its  state  of  solvency,  of  the 
establishment of technical provisions and of the assets covering them in accordance with the 
rules laid down or practices followed in the home Member State under provisions adopted at 
Community level. 

3. 
The Home Member State of the reinsurance undertaking shall not refuse a retrocession 
contract concluded by the reinsurance undertaking with a reinsurance undertaking authorised 
in accordance with this Directive or an insurance undertaking authorised in accordance with 

30 

 
 
  
 
Directives  73/239/EEC  or  2002/83/EC  on  the  grounds  directly  related  to  the  financial 
soundness of that reinsurance undertaking or that insurance undertaking. 

4. 
The competent authorities of the home Member State shall require every reinsurance 
undertaking  to  have  sound  administrative  and  accounting  procedures  and  adequate  internal 
control mechanisms. 

Article 16 – Supervision of branches established in another Member State 

The  Member  State  of  the  branch  shall  provide  that  where  an  reinsurance  undertaking 
authorised  in  another  Member  State  carries  on  business  through  a  branch  the  competent 
authorities  of  the  home  Member  State  may,  after  having  first  informed  the  competent 
authorities  of  the  Member  State  of  the  branch,  carry  out  themselves  or  through  the 
intermediary  of  persons  they  appoint  for  that  purpose,  on-the-spot  verification  of  the 
information necessary to ensure the financial supervision of the undertaking. The authorities 
of the Member State of the branch may participate in that verification. 

Article 17 – Accounting, prudential and statistical information: Supervisory powers 

1) 
Each Member State shall require every reinsurance undertaking whose head office is 
situated  in  its  territory  to  produce  an  annual  account,  covering  all  types  of  operation,  of  its 
financial situation and of its solvency.  

2) 
Member  States  shall  require  reinsurance  undertakings  with  head  offices  within  their 
territories  to  render  periodically  the  returns,  together  with  statistical  documents,  which  are 
necessary for the purposes of supervision. The competent authorities shall provide each other 
with any documents and information that are useful for the purposes of supervision. 

3) 
Every  Member  State  shall  take  all  steps  necessary  to  ensure  that  the  competent 
authorities  have  the  powers  and  means  necessary  for  the  supervision  of  the  business  of 
reinsurance undertakings with head offices within their territories, including business carried 
on outside those territories,  

In particular, the competent authorities must be enabled to: 

(a) 
make detailed enquiries regarding an reinsurance undertaking's situation and the whole 
of its business, inter alia, by gathering information or requiring the submission of documents 
concerning  its  reinsurance  and  retrocession  business,  and  by  carrying  out  on-the-spot 
investigations at the reinsurance undertaking's premises; 

take any measures with regard to a reinsurance undertaking, its directors or managers 
(b) 
or  the  persons  who  control  it,  that  are  appropriate  and  necessary  to  ensure  that  that 
reinsurance  undertaking's  business  continues  to  comply  with  the  laws,  regulations  and 
administrative  provisions  with  which  the  reinsurance  undertaking  must  comply  in  each 
Member State; 

ensure  that  those  measures  are  carried  out,  if  need  be  by  enforcement  and  where 

(c) 
appropriate through judicial channels. 

Member  States  may  also  make  provision  for  the  competent  authorities  to  obtain  any 
information regarding contracts which are held by intermediaries. 

31 

 
 
  
 
Article 18 – Transfer of portfolio 

Under  the  conditions  laid  down  by  national  law,  each  Member  State  shall  authorise 
reinsurance  undertakings  with  head  offices  within  its  territory  to  transfer  all  or  part  of  their 
portfolios  of  contracts,  including  those  concluded  either  under  the  right  of  establishment  or 
the freedom to provide services, to an accepting office established within the Community, if 
the competent authorities of the home Member State of the accepting office certify that, after 
taking the transfer into account, the latter possesses the necessary solvency margin referred to 
in Chapter 3. 

SECTION 2- QUALIFYING HOLDINGS 

Article 19 – Acquisitions 

Member  States  shall  require  any  natural  or  legal  person  who  proposes  to  hold,  directly  or 
indirectly,  a  qualifying  holding  in  a  reinsurance  undertaking  first  to  inform  the  competent 
authorities of the home Member State, indicating the size of his intended holding. That person 
must likewise inform the competent authorities of the home Member State if he proposes to 
increase his qualifying holding so that the proportion of the voting rights or of the capital he 
holds would reach or exceed 20%, 33% or 50% or so that the reinsurance undertaking would 
become his subsidiary. 

The competent authorities of the home Member State shall have up to three months from the 
date of the notification provided for in the first subparagraph to oppose such a plan if, in view 
of  the  need  to  ensure  sound  and  prudent  management  of  the  reinsurance  undertaking  in 
question,  they  are  not  satisfied  as  to  the  qualification  of  the  person  referred  to  in  the  first 
subparagraph. If they do not oppose the plan in question, they may fix a maximum period for 
its implementation. 

Article 20 – Acquisitions by financial undertakings  

If  the  acquirer  of  the  holdings  referred  to  in  Article  19  is  an  insurance  undertaking,  a 
reinsurance  undertaking,  a  credit  institution  or  an  investment  firm  authorised  in  another 
Member  State,  or  the  parent  undertaking  of  such  an  entity,  or  a  natural  or  legal  person 
controlling such an entity, and if, as a result of that acquisition, the undertaking in which the 
acquirer proposes to hold a holding would become a subsidiary or subject to the control of the 
acquirer, the assessment of the acquisition must be subject to the prior consultation referred to 
in Article 14. 

Article 21 - Disposals  

Member States shall require any natural or legal person who proposes to dispose, directly or 
indirectly, of a qualifying holding in a reinsurance undertaking first to inform the competent 
authorities of the home Member State, indicating the size of his intended holding.  

Such  a  person  must  likewise  inform  the  competent  authorities  if  he  proposes  to  reduce  his 
qualifying holding so that the proportion of the voting rights or of the capital he holds would 
fall  below  20%,  33%  or  50%  or  so  that  the  reinsurance  undertaking  would  cease  to  be  his 
subsidiary. 

32 

 
 
  
 
Article 22 – Information to the competent authority by the 
reinsurance undertaking 

On becoming aware of them, reinsurance undertakings shall inform the competent authorities 
of their home Member States of any acquisitions or disposals of holdings in their capital that 
cause holdings to exceed or fall below any of the thresholds referred to in Articles 19 and 21. 

They shall also, at least once a year, inform them of the names of shareholders and members 
possessing qualifying holdings and the sizes of such holdings as shown, for example, by the 
information received at annual general meetings of shareholders or members or as a result of 
compliance with the regulations relating to companies listed on stock exchanges. 

Article 23 – Qualified holdings: 
Powers of the competent authority 

Member States shall require that, where the influence exercised by the persons referred to in 
Article  19  is  likely  to  operate  against  the  prudent  and  sound  management  of  a  reinsurance 
undertaking,  the  competent  authorities  of  the  home  Member  State  shall  take  appropriate 
measures  to  put  an  end  to  that  situation.  Such  measures  may  consist,  for  example,  in 
injunctions,  sanctions  against  directors  and  managers,  or  suspension  of  the  exercise  of  the 
voting rights attaching to the shares held by the shareholders or members in question. 

Similar measures shall apply to natural or legal persons failing to comply with the obligation 
to provide prior information imposed pursuant to Article 19. If a holding is acquired despite 
the opposition of the competent authorities, the Member States shall, regardless of any other 
sanctions to be adopted, provide either for exercise of the corresponding voting rights to be 
suspended, or for the nullity of votes cast or for the possibility of their annulment. 

SECTION 3 –PROFESSIONAL SECRECY AND 
EXCHANGES OF INFORMATION 

Article 24 – Obligation 

1. 
Member  States  shall  provide  that  all  persons  working  or  who  have  worked  for  the 
competent  authorities,  as  well  as  auditors  and  experts  acting  on  behalf  of  the  competent 
authorities, are bound by an obligation of professional secrecy 

Pursuant  to  that  obligation  no  confidential  information  which  they  may  receive  while 
performing  their  duties  may  be  divulged  to  any  person  or  authority  whatsoever,  except  in 
summary  or  aggregate  form,  such  that  individual  reinsurance  undertakings  cannot  be 
identified, without prejudice to cases covered by criminal law. 

2. 
However,  where  a  reinsurance  undertaking  has  been  declared  bankrupt  or  is  being 
compulsorily  wound  up,  confidential  information  which  does  not  concern  third  parties 
involved  in  attempts  to  rescue  that  undertaking  may  be  divulged  in  civil  or  commercial 
proceedings. 

33 

 
 
  
 
Article 25 – Exchange of information  
between competent authorities of Member States 

Article  24  shall  not  prevent  the  competent  authorities  of  different  Member  States  from 
exchanging  information  in  accordance  with  the  directives  applicable  to  reinsurance 
undertakings. Such information shall be subject to the conditions of professional secrecy laid 
down in Article 24. 

Article 26 – Co-operation agreements with 
third countries 

Member States may conclude co-operation agreements providing for exchange of information 
with  the  competent  authorities  of  third  countries  or  with  authorities  or  bodies  of  third 
countries  as  defined  in  Articles  28,  paragraphs  1  and  2  only  if  the  information  disclosed  is 
subject  to  guarantees  of  professional  secrecy  at  least  equivalent  to  those  referred  to  in  this 
Section.  Such  exchange  of  information  must  be  intended  for  the  performance  of  the 
supervisory task of the authorities or bodies mentioned. 

Where the information originates in another Member State, it may not be disclosed without 
the  express  agreement  of  the  competent  authorities  which  have  disclosed  it  and,  where 
appropriate, solely for the purposes for which those authorities gave their agreement. 

Article 27 – Use of confidential information 

Competent authorities receiving confidential information under Articles 24 and 25 may use it 
only in the course of their duties: 

(a) 
To check that the conditions governing the taking up of the business of reinsurance are 
met and to facilitate monitoring of the conduct of such business, especially with regard to the 
monitoring  of  technical  provisions,  solvency  margins,  administrative  and  accounting 
procedures and internal control mechanisms, 

(b) 

to impose sanctions, 

(c) 

in administrative appeals against decisions of the competent authorities, or 

(d) 
in court proceedings initiated under Article 53 or under special provisions provided for 
in  this  Directive  and  other  Directives  adopted  in  the  field  of  insurance  and  reinsurance 
undertakings. 

Article 28 – Exchange of information with  
other authorities  

Articles 24-27 shall not preclude the exchange of information within a Member State, 
1. 
where  there  are  two  or  more  competent  authorities  in  the  same  Member  State,  or,  between 
Member States, between competent authorities and: 

Authorities  responsible  for  the  official  supervision  of  credit  institutions  and  other 
a) 
financial organisations and the authorities responsible for the supervision of financial markets, 

34 

 
 
  
 
Bodies  involved  in  the  liquidation  and  bankruptcy  of  insurance  and  reinsurance 

b) 
undertakings and in other similar procedures, and 

Persons  responsible  for  carrying  out  statutory  audits  of  the  accounts  of  insurance 

c) 
undertakings, reinsurance undertakings and other financial institutions, 

in the discharge of their supervisory functions, or the disclosure to bodies which administer 
compulsory  winding-up  proceedings  or  guarantee  funds  of  information  necessary  to  the 
performance of their duties. The information received by those authorities, bodies and persons 
shall be subject to the conditions of professional secrecy laid down in Article 24. 

Notwithstanding  Articles  24-27,  Member  States  may  authorise  exchanges  of 

2. 
information between the competent authorities and: 

the  authorities  responsible  for  overseeing  the  bodies  involved  in  the  liquidation  and 

a) 
bankruptcy of insurance or reinsurance undertakings and other similar procedures, or 

b) 
the  authorities  responsible  for  overseeing  the  persons  charged  with  carrying  out 
statutory audits of  the  accounts  of  insurance or reinsurance undertakings, credit institutions, 
investment firms and other financial institutions, or 

independent  actuaries  of  insurance  or  reinsurance  undertakings  carrying  out  legal 

c) 
supervision of those undertakings and the bodies responsible for overseeing such actuaries. 

Member States which have recourse to the option provided for in the first subparagraph shall 
require at least that the following conditions are met: 

this exchange of information shall be for the purpose of carrying out the overseeing or 

a) 
legal supervision referred to in the first subparagraph; 

information received in this context shall be subject to the conditions of professional 

b) 
secrecy imposed in Article 24; 

c) 
where  the  information  originates  in  another  Member  State,  it  may  not  be  disclosed 
without  the  express  agreement  of  the  competent  authorities  which  have  disclosed  it  and, 
where  appropriate,  may  only  be  disclosed  for  the  purposes  for  which  those  authorities  gave 
their agreement. 

Member  States  shall  communicate  to  the  Commission  and  to  the  other  Member  States  the 
names of the authorities, persons and bodies which may receive information pursuant to this 
paragraph. 

Notwithstanding  Articles  24-27,  Member  States  may,  with  the  aim  of  strengthening 
3. 
the  stability,  including  integrity,  of  the  financial  system,  authorise  the  exchange  of 
information between the competent authorities and the authorities or bodies responsible under 
the law for the detection and investigation of breaches of company law. 

Member States which have recourse to the option provided for in the first subparagraph shall 
require at least that the following conditions are met: 

the information shall be for the purpose of performing the task referred to in the first 

a) 
subparagraph; 

35 

 
 
  
 
information received in this context shall be subject to the conditions of professional 

b) 
secrecy imposed in Article 24; 

c) 
where  the  information  originates  in  another  Member  State,  it  may  not  be  disclosed 
without  the  express  agreement  of  the  competent  authorities  which  have  disclosed  it  and, 
where appropriate, solely for the purposes for which those authorities gave their agreement. 

Where,  in  a  Member  State,  the  authorities  or  bodies  referred  to  in  the  first  subparagraph 
perform  their  task  of  detection  or  investigation  with  the  aid,  in  view  of  their  specific 
competence, of persons appointed for that purpose and not employed in the public sector, the 
possibility of exchanging information provided for in the first subparagraph may be extended 
to such persons under the conditions stipulated in the second subparagraph. 

In order  to implement  the final indent of the second subparagraph, the  authorities or bodies 
referred  to  in  the  first  subparagraph  shall  communicate  to  the  competent  authorities  which 
have disclosed the information the names and precise responsibilities of the persons to whom 
it is to be sent. 

Member  States  shall  communicate  to  the  Commission  and  to  the  other  Member  States  the 
names of the authorities or bodies which may receive information pursuant to this paragraph. 

Article 29 – Transmission of information to  
central banks and monetary authorities 

This  Section  shall  not  prevent  a  competent  authority  from  transmitting  to  central  banks  and 
other  bodies  with  a  similar  function  in  their  capacity  as  monetary  authorities,  and  where 
appropriate,  to  other  public  authorities  responsible  for  overseeing  payment  systems, 
information intended for the performance of their task. Nor shall it prevent such authorities or 
bodies from communicating to the competent authorities such information as they may need 
for the purposes of Article 27 .  

Information received in this context shall be subject to the conditions of professional secrecy 
imposed in this Section. 

Article 30 - Disclosure of information to  
government administrations  
responsible for financial legislation 

Notwithstanding Articles 24 and 27, Member States may, under provisions laid down by law, 
authorise  the  disclosure  of  certain  information  to  other  departments  of  their  central 
government  administrations  responsible  for  legislation  on  the  supervision  of  credit 
institutions,  financial 
insurance  or  reinsurance 
undertakings and to inspectors acting on behalf of those departments. 

investment  services  and 

institutions, 

However,  such  disclosures  may  be  made  only  where  necessary  for  reasons  of  prudential 
control. 

Member States shall, however, provide that information received under Articles 25 and 28 (1) 
and that obtained by means of the on-the-spot verification referred to in Article 16 may never 
be disclosed in the cases referred to in this paragraph except with the express consent of the 

36 

 
 
  
 
competent authorities which disclosed the information or of the competent authorities of the 
Member State in which on-the-spot verification was carried out. 

SECTION 4 – DUTIES OF AUDITORS 

Article 31 – Duties of auditors 

1. 
Member  States  shall  provide  at  least  that  any  person  authorised  in  accordance  with 
Council Directive 84/253/EEC35, performing in a reinsurance undertaking the task described 
in Article 51 of Council Directive 78/660/EEC36, Article 37 of Council Directive 83/349/EEC 
or Article 31 of Council Directive 85/611/EEC37 or any other statutory task, shall have a duty 
to  report  promptly  to  the  competent  authorities  any  fact  or  decision  concerning  that 
undertaking of which he has become aware while carrying out that task which is liable to: 

constitute a material breach of the laws, regulations or administrative provisions which 
a) 
lay down the conditions governing authorisation or which specifically govern pursuit of the 
activities of insurance or reinsurance undertakings, or 

b) 

c) 

affect the continuous functioning of the reinsurance undertaking, or 

lead to refusal to certify the accounts or to the expression of reservations; 

That person shall also have a duty to report any facts and decisions of which he/she becomes 
aware  in  the  course  of  carrying  out  a  task  as  described  in  the  first  subparagraph  in  an 
undertaking  having  close  links  resulting  from  a  control  relationship  with  the  reinsurance 
undertaking within which he/she is carrying out the abovementioned task. 

2) 
The disclosure to the competent authorities, by persons authorised in accordance with 
Directive  84/253/EEC,  of  any  relevant  fact  or  decision  referred  to  in  paragraph 1  shall  not 
constitute a breach of any restriction on disclosure of information imposed by contract or by 
any  legislative,  regulatory  or  administrative  provision  and  shall  not  involve  such  persons  in 
liability of any kind. 

Chapter 2 – Rules relating to technical provisions 

Article 32 – Establishment of technical provisions 

The  home  Member  State  shall  require  every  reinsurance  undertaking  to  establish 

1) 
adequate technical provisions in respect of its entire business. 

The amount of such technical provisions shall be determined in accordance with the rules laid 
down  in  Directive  91/674/EEC.  Where  applicable  the  home  Member  State  may  lay  down 
more specific rules in accordance with Article 20 of Directive 2002/83/EC. 

2) 
Member  States  shall  not  retain  or  introduce  a  system  with  gross  reserving  which 
requires pledging of assets to cover unearned premiums and outstanding claims provisions if 

35 
36 
37 

OJ L 126, 12.5.1984, p. 20. 
OJ L 222, 14.8.1978, p. 11. 
OJ L 375, 31.12.1985, p. 3. 

37 

 
 
  
 
                                                 
the reinsurer is a reinsurance undertaking authorised in accordance with this Directive or an 
insurance undertaking authorised in accordance with Directives 73/239/EEC or 2002/83/EC. 

3) 
When the home Member State allows any technical provisions to be covered by claims 
against  reinsurers  who  are  not  authorised  in  accordance  with  this  Directive  or  insurance 
undertakings  which  are  not  authorised  in  accordance  with  Directives  73/239/EEC  or 
2002/83/EC, it shall fix the percentage so allowed.  

Article 33 – Equalization reserves 

1. 
The home Member State shall require every reinsurance undertaking which reinsures 
risks  included  in  class  14  in  point  A  of  the  Annex  to  Directive  73/239/EEC  to  set  up  an 
equalization  reserve  for  the  purpose  of  offsetting  any  technical  deficit  or  above-average 
claims ratio arising in that class in any financial year. 

The equalization reserve for credit reinsurance shall be calculated in accordance with 
2. 
the rules laid down by the home Member State in accordance with one of the four methods set 
out in point D of the Annex to Directive 73/239/EEC, which shall be regarded as equivalent. 

The home Member State may exempt reinsurance undertakings from the obligation to 
3. 
set up equalization reserves for reinsurance of credit insurance business where the premiums 
or contributions receivable in respect of reinsurance of credit insurance are less than 4% of the 
total premiums or contributions receivable by them and less than EUR 2 500 000. 

4. 
The  home  Member  State  may  require  every  reinsurance  undertaking  to  set  up 
equalization  reserves  for  classes  of  risks  other  than  credit  reinsurance.  The  equalization 
reserves shall be calculated according to the rules laid down by the home Member State.  

Article 34 – Assets covering technical provisions 

The assets covering the technical provisions shall take account of the type of business carried 
out by a reinsurance undertaking, in particular the nature, the amount and the duration of the 
expected claims payments, in such a way as to secure sufficiency, liquidity, security, quality, 
profitability  and  matching  of  its  investments,  which  the  undertaking  shall  ensure  are 
diversified and adequately spread and which gives the undertaking the possibilities to respond 
adequately  to  changing  economic  circumstances,  in  particular  developments  in  the  financial 
markets and real estate markets or large impact catastrophic events. 

Chapter 3 – Rules relating to the solvency margin and to the guarantee fund 

SECTION 1 – AVAILABLE SOLVENCY MARGIN 

Article 35 – General rule 

Each  Member  State  shall  require  of  every  reinsurance  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 requirements in this Directive. 

38 

 
 
  
 
Article 36 – Eligible items 

The  available  solvency  margin  shall  consist  of  the  assets  of  the  reinsurance 

1. 
undertaking free of any foreseeable liabilities, less any intangible items, including: 

the  paid-up  share  capital  or,  in  the  case  of  a  mutual  reinsurance  undertaking,  the 

(a) 
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, 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 termination of 
membership,  that  the  competent  authorities  must  be  notified  at  least  one  month  in 
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 prejudice to the criteria stated in points (i) and 
(ii);  

(b) 

statutory and free reserves not corresponding to underwriting 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 

2. 
held by the reinsurance undertaking. 

For  those  reinsurance  undertakings  which  discount  or  reduce  their  non-life  technical 
provisions  for  claims  outstanding  to  take  account  of  investment  income  as  permitted  by 
Article 60(1)(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 to Directive 73/239/EEC, except for risks listed under classes 1 and 2 of that Annex. 
For classes other than 1 and 2 of that Annex, no adjustment need be made in respect of the 
discounting of annuities included in technical provisions. 

In addition to the deductions in subparagraphs 1 and 2, the available solvency margin shall be 
reduced by the following items: 

(a) 

participations which the reinsurance undertaking holds in the following entities: 

i) 
insurance  undertakings  within  the  meaning  of  Article  6  of  Directive 
73/239/EEC,  Article  4  of  Directive  2002/83/EC,  or  Article  1(b)  of  Directive 
98/78/EC, 

ii) 
reinsurance undertakings  within  the  meaning  of  Article  3  of  this  Directive  or 
non-member-country  reinsurance  undertaking  within  the  meaning  of  Article  1(l)  of 
Directive 98/78/EC, 

39 

 
 
  
 
insurance  holding  companies  within  the  meaning  of  Article  1(i)  of  Directive 

iii) 
98/78/EC, 

credit institutions and financial institutions within the meaning of Article 1(1) 

iv) 
and (5) of Directive 2000/12/EC, 

v) 
investment firms and financial institutions within the meaning of Article 1(2) 
of  Council  Directive  93/22/EEC38  and  of  Article  2(4)  and  (7)  of  Council  Directive 
93/6/EEC39;  

each of the following items which the reinsurance undertaking holds in respect of the 

(b) 
entities defined in (a) in which it holds a participation: 

i) 

instruments referred to in paragraph 4, 

ii) 

instruments referred to in Article 27(3) of Directive 2002/83/EC, 

subordinated claims and instruments referred to in Article 35 and Article 36(3) 

iii) 
of Directive 2000/12/EC. 

Where  shares  in  another  credit  institution,  investment  firm,  financial  institution, 
insurance  or  reinsurance  undertaking  or  insurance  holding  company  are  held 
temporarily  for  the  purposes  of  a  financial  assistance  operation  designed  to 
reorganise and save that entity, the competent authority may waive the provisions on 
deduction referred to under (a) and (b) of the fourth subparagraph. 

As an alternative to the deduction of the items referred to in (a) and (b) of the fourth 
subparagraph  which  the  reinsurance  undertaking  holds  in  credit  institutions, 
investment  firms  and  financial  institutions,  Member  States  may  allow  their 
reinsurance undertakings to apply mutatis mutandis methods 1, 2, or 3 of Annex I to 
Directive 2002/87/EC. Method 1 (Accounting consolidation) shall only be applied if 
the  competent  authority  is  confident  about  the  level  of  integrated  management  and 
internal  control  regarding  the  entities  which  would  be  included  in  the  scope  of 
consolidation. The method chosen shall be applied in a consistent manner over time. 

Member  States  may  provide  that,  for  the  calculation  of  the  solvency  margin  as 
provided  for  by  this  Directive,  reinsurance  undertakings  subject  to  supplementary 
supervision in accordance with Directive 98/78/EC or to supplementary supervision 
in accordance with Directive 2002/87/EC, need not deduct the items referred to in (a) 
and  (b)  of  the  fourth  subparagraph  which  are  held  in  credit  institutions,  investment 
firms,  financial  institutions,  insurance  or  reinsurance  undertakings  or  insurance 
holding companies which are included in the supplementary supervision. 

For  the  purposes  of  the  deduction  of  participations  referred  to  in  this  paragraph, 
participation  shall  mean  a  participation  within  the  meaning  of  Article  1(f)  of 
Directive 98/78/EC. 

3. 

The available solvency margin may also consist of: 

38 
39 

OJ L 141, 11.6.1993, p. 27. 
OJ L 141, 11.6.1993, p. 1. 

40 

 
 
  
 
                                                 
(a) 
cumulative preferential share capital and subordinated loan capital up to 50 % of the 
available solvency margin or the required solvency margin, whichever is the smaller, 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  reinsurance  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 reinsurance undertaking must 
submit  to  the  competent  authorities  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 
repayment  date.  The  competent  authorities  may  authorise  the  early  repayment  of 
such loans provided application is made by the issuing reinsurance 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  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  reinsurance 
undertaking must notify the competent authorities at least six months before the date 
of  the  proposed  repayment,  specifying  the  available  solvency  margin  and  the 
required  solvency  margin  both  before  and  after  that  repayment.  The  competent 
authorities shall authorise repayment only if the reinsurance 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  reinsurance  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 instruments, including cumulative 
preferential  shares  other  than  those  mentioned  in  point  (a),  up  to  50  %  of  the  available 
solvency  margin  or  the  required  solvency  margin,  whichever  is  the  smaller,  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 bearer or without the prior consent 
of the competent authority;  

(ii)  the  contract  of  issue  must  enable  the  reinsurance  undertaking  to  defer  the 
payment of interest on the loan;  

41 

 
 
  
 
(iii) the lender's claims on the reinsurance undertaking must rank entirely after those 
of all non-subordinated 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  reinsurance 
undertaking to continue its business;  

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

4. 
Upon  application,  with  supporting  evidence,  by  the  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 or fund, up to 50 % of the available solvency 
margin or the required solvency margin, whichever is the smaller; 

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

any hidden net reserves arising out of the valuation of assets, in so far as such 

(c) 
hidden net reserves are not of an exceptional nature. 

5. 
In  addition,  with  respect  to  life  reinsurance  activities,  the  available  solvency  margin 
may,  upon  application,  with  supporting  evidence,  by  the  undertaking  to  the  competent 
authority  of  the  home  Member  State  and  with  the  agreement  of  that  competent  authority, 
consist of: 

until 31 December 2009 an amount equal to 50 % of the undertaking's future profits, 
(a) 
but  not  exceeding  25  %  of  the  available  solvency  margin  or  the  required  solvency  margin, 
whichever is the smaller; 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  six;  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 Article 2(1) of Directive 2002/83/EC. 

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

(i)  when  an  actuarial  report  is  submitted  to  the  competent  authorities  substantiating  the 
likelihood of emergence of these profits in the future; and 

(ii)  in  so  far  as  that  part  of  future  profits  emerging  from  hidden  net  reserves  referred  to  in 
paragraph 5 (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-Zillmerised  or 

42 

 
 
  
 
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 sum of the differences between the relevant capital sums of life 
assurance activities and the mathematical 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. 

6 
Amendments  to  paragraphs  1  to  5  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 55(2) of this Directive. 

SECTION 2- REQUIRED SOLVENCY MARGIN 

Article 37 – Required solvency margin for non-life reinsurance activities 

1. 
The  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. 

In  the  case,  however,  of  reinsurance  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. 

Subject to Article 40, the amount of the required solvency margin shall be equal to the 

2. 
higher of the two results as set out in paragraphs 3 and 4. 

The premium basis shall be calculated using the higher of gross written premiums or 

3. 
contributions as calculated below, 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 to Directive 73/239/EEC shall be increased by 50%. 

Premiums or contributions in respect of classes other than 11, 12 and 13 listed in point A of 
the  Annex  to  Directive  73/239/EEC,  may  be  enhanced  up  to  50%,  for  specific  reinsurance 
activities or contract types, in order to take account of the specificities of these activities or 
contracts, in accordance with the procedure referred to in Article 55(2) of this Directive. The 
premiums or contributions, inclusive of charges ancillary to premiums or contributions, due in 
respect of reinsurance business in the last financial year shall be aggregated. 

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 first portion extending up to 
EUR  50  million,  the  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 reinsurance 
undertaking after deduction of amounts recoverable under retrocession and the gross amount 
of claims; this ratio may in no case be less than 50%. 

43 

 
 
  
 
With the approval of the competent authorities, statistical methods may be used to allocate the 
premiums or contributions.  

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  to  Directive  73/239/EEC,  claims,  provisions  and 
recoveries increased by 50%. 

Claims provisions and recoveries in respect of classes other than 11, 12 and 13 listed in point 
A  of  the  Annex  to  Directive  73/239/EEC,  may  be  enhanced  up  to  50%,  for  specific 
reinsurance  activities  or  contract  types,  in  order  to  take  account  of  the  specificities  of  these 
activities  or  contracts,  in  accordance  with  the  procedure  referred  to  in  Article  55(2)  of  this 
Directive. 

The amounts of  claims paid,  without any deduction of claims borne by retrocessionaires, in 
the periods specified in paragraph 1 shall be aggregated. 

To this sum there shall be added the amount of provisions for claims outstanding established 
at the end of the last financial year. 

From  this sum  there shall be deducted  the  amount of  recoveries  effected during the  periods 
specified in paragraph 1. 

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. If the period of reference established in paragraph 
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 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  retrocession  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 
claims, provisions and recoveries. 

If the required solvency margin as calculated in paragraphs 2, 3 and 4 is lower than the 
5. 
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 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 retrocession but the 
ratio may in no case be higher than 1. 

6. 
The  fractions  applicable  to  the  portions  referred  to  in  the  sixth  subparagraph  of 
paragraph 3 and the sixth subparagraph of paragraph 4 shall each be reduced to a third in the 

44 

 
 
  
 
case  of  reinsurance  of  health  insurance  practised  on  a  similar  technical  basis  to  that  of  life 
assurance, if 

the  premiums  paid  are  calculated  on  the  basis  of  sickness  tables  according  to  the 

(a) 
mathematical method applied in insurance;  

(b) 

a provision is set up for increasing age;  

an additional premium is collected in order to set up a safety margin of an appropriate 

(c) 
amount;  

the insurance undertaking may cancel the contract before the end of the third year of 

(d) 
insurance at the latest;  

the contract provides for the possibility of increasing premiums or reducing payments 

(e) 
even for current contracts.  

Article 38 – Required solvency margin for life reassurance activities 

Subject to Article 40, the required solvency margin for life reassurance activities shall 
1. 
be  determined  as  laid  down  in  paragraphs  2  to  7  according  to  the  classes  of  reinsurance 
underwritten. 

For  the  kinds  of  reinsurance  referred  to  in  Article  2(1)(a)  and  (b)  of  Directive 
2. 
2002/83/EC other than assurances linked to investment funds and for the operations referred 
to in Article 2(3), the required solvency margin shall be equal to the sum of the following two 
results: 

(a) first result: 

4% of the mathematical provisions relating to reinsurance acceptances gross of retro cessions 
shall be multiplied by the ratio, for the last financial year, of the total mathematical provisions 
net of retro cessions to the gross total mathematical provisions. 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,  0,3%  of  such  capital 
underwritten  by  the  reinsurance  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  retro 
cessions  to  the  total  capital  at  risk  gross  of  retro  cessions;  that  ratio  may  in  no  case  be  less 
than 50%. 

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

3. 
For reinsurance of supplementary insurance referred to in Article 2(1)(c) of Directive 
2002/83/EC the required solvency margin shall be equal to the required solvency margin for 
reinsurance undertakings as laid down in Article 37 of this Directive. 

45 

 
 
  
 
For reinsurance of permanent health insurance not subject to cancellation referred to in 

4. 
Article 2(1)(d) of Directive 2002/83/EC, the required solvency margin shall be equal to: 

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

(b) the required solvency margin for reinsurance undertakings as laid down in Article 37 of 
this  Directive.  However,  the  condition  contained  in  Article  37(6)(b)  of  this  Directive  that  a 
provision be set up for increasing age may be replaced by a requirement that the business be 
conducted on a group basis. 

5. 
For  reinsurance  of  capital  redemption  operations  referred  to  in  Article  2(2)(b)  of 
Directive 2002/83/EC, the required solvency margin shall be equal to 4% of the mathematical 
provisions calculated in compliance with paragraph 2(a) of this Article. 

For reinsurance of tontines, referred to in Article 2(2)(a) of Directive 2002/83/EC, the 

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

7. 
For  reinsurance  classes  of  assurances  business  covered  by  Article  2(1)(a)  and  (b)  of 
Directive 2002/83/EC linked to investment funds and for the operations referred to in Article 
2(2)(c), (d) and (e) of Directive 2002/83/EC, the required solvency margin shall be equal to 
the sum of the following: 

(a)  in  so  far  as  the  reinsurance  undertaking  bears  an  investment  risk,  4%  of  the  technical 
provisions, calculated in compliance with paragraph 2(a) of this Article;  

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

(c)  in  so  far  as  the  reinsurance  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 
business;  

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

Article 39 – Required solvency margin for a reinsurance undertaking conducting 
simultaneously non-life and life reinsurance  

The home Member State shall require that every reinsurance undertaking conducting 
1. 
both  non-life  reinsurance  and  life  reinsurance  business  shall  have  an  available  solvency 
margin to cover the total sum of required solvency margins in respect of both non-life and life 
reinsurance  activities  which  shall  be  determined  in  accordance  with  Articles  37  and  38 
respectively. 

If the available solvency margin does not reach the level required in paragraph 1, the 

2. 
competent authorities shall apply the measures provided for in Articles 42 and 43.  

46 

 
 
  
 
SECTION 3 – GUARANTEE FUND 

Article 40 – Amount of the guarantee fund 

1. 
One  third  of  the  required  solvency  margin  as  specified  in  Articles  37  to  39  shall 
constitute the guarantee fund. This fund shall consist of the items listed in Article 36(1) to (3) 
and, with the agreement of the competent authority of the home Member State, (4)(c). 

2. 

The guarantee fund may not be less than a minimum of EUR 3 million. 

Any  Member  State  may  provide  that  as  regards  captive  reinsurance  undertakings,  the 
minimum guarantee fund be not less than EUR 1 million. 

Article 41 – Review of the amount of the guarantee fund 

1. 
The amounts in euro as laid down in Article 40(2) shall be reviewed annually starting 
[date of implementation laid down in Article 61(1)] 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. 

The  Commission  shall  inform  annually  the  European  Parliament  and  the  Council  of 

2. 
the review and the adapted amounts referred to in paragraph 1. 

Chapter 4 – Reinsurance undertakings in difficulty or in an irregular situation and 
withdrawal of authorisation 

Article 42 – Reinsurance undertakings in difficulty 

1. 
If a reinsurance undertaking does not comply with Article 32, the competent authority 
of  its  home  Member  State  may  prohibit  the  free  disposal  of  its  assets  after  having 
communicated its intention to the competent authorities of the host Member States. 

2. 
For the purposes of restoring the financial situation of a reinsurance undertaking the 
solvency margin of which has fallen below the minimum required under Articles 37, 38 and 
39,  the  competent  authority  of  the  home  Member  State  shall  require  that  a  plan  for  the 
restoration of a sound financial situation be submitted for its approval. 

In  exceptional  circumstances,  if  the  competent  authority  is  of  the  opinion  that  the  financial 
situation of the reinsurance undertaking will deteriorate further, it may also restrict or prohibit 
the free disposal of the reinsurance undertaking's assets. It shall inform the authorities of other 
Member States within the territories of which the reinsurance undertaking carries on business 
of any measures it has taken and the latter shall, at the request of the former, take the same 
measures. 

47 

 
 
  
 
3) 
If  the  solvency  margin  falls  below  the  guarantee  fund  as  defined  in  Article  40,  the 
competent  authority  of  the  home  Member  State  shall  require  the  reinsurance  undertaking  to 
submit a short-term finance scheme for its approval. 

It may also restrict or prohibit the free disposal of the reinsurance undertaking's assets. It shall 
inform  the  authorities  of  all  other  Member  States  and  the  latter  shall,  at  the  request  of  the 
former, take the same measures. 

Each Member State shall take the measures necessary to be able, in accordance with 
4) 
its national law, to prohibit the free disposal of assets located within its territory at the request, 
in  the  cases  provided  for  in  paragraphs  1,  2  and  3,  of  the  reinsurance  undertaking's  home 
Member State, which shall designate the assets to be covered by such measures. 

Article 43 – Financial recovery plan 

Member States shall ensure that the competent authorities have the power to require a 
1) 
financial  recovery  plan  for  those  reinsurance  undertakings  where  competent  authorities 
consider that their obligations arising out of reinsurance contracts are threatened.  

The  financial  recovery  plan  must,  as  a  minimum,  include  particulars  or  proof 

2) 
concerning for the next three financial years: 

estimates of management expenses, in particular current general expenses and 

(a) 
commissions; 

a  plan  setting  out  detailed  estimates  of  income  and  expenditure  in  respect  of 

(b) 
reinsurance acceptances and reinsurance cessions; 

(c) 

a forecast balance sheet; 

estimates  of  the  financial  resources  intended  to  cover  underwriting  liabilities 

(d) 
and the required solvency margin; 

(e) 

the overall retrocession policy. 

3) 
Where  the  financial  position  of  the  reinsurance  undertaking  is  deteriorating  and  the 
contractual  obligations  of  the  reinsurance  undertaking  are  threatened,  Member  States  shall 
ensure  that  the  competent  authorities  have  the  power  to  oblige  reinsurance  undertakings  to 
have a higher required solvency margin, in order to ensure that the reinsurance undertaking 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. 

4) 
Member States shall ensure that the competent authorities 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. 

5) 
Member States shall ensure that the competent authorities have the power to decrease 
the reduction, based on retrocession, to the solvency margin as determined in accordance with 
Articles 37,38 and 39 where: 

48 

 
 
  
 
the nature  or quality of retrocession contracts  has changed significantly since 

(a) 
the last financial year;  

(b) 

there is no or an insignificant risk transfer under the retrocession contracts. 

If the competent authorities have required a financial recovery plan for the reinsurance 
6. 
undertaking  in  accordance  with  paragraph  1,  they  shall  refrain  from  issuing  a  certificate  in 
accordance  with  Article  18,  as  long  as  they  consider  that  its  obligations  arising  out  of 
reinsurance contracts are threatened within the meaning of paragraph 1. 

Article 44 – Withdrawal of authorisation 

Authorisation  granted  to  a  reinsurance  undertaking  by  the  competent  authority  of  its 

1. 
home Member State may be withdrawn by that authority if that undertaking: 

does  not  make  use  of  that  authorisation  within  12  months,  expressly  renounces  it  or 
(a) 
ceases to carry on business for more than 6 months, unless the Member State concerned has 
made provision for authorisation to lapse in such cases; 

(b) 

no longer fulfils the conditions for admission; 

has  been  unable,  within  the  time  allowed,  to  take  the  measures  specified  in  the 

(c) 
restoration plan or finance scheme referred to in Article 42; 

(d) 

fails seriously in its obligations under the regulations to which it is subject. 

In the event of the withdrawal or lapse of authorisation, the competent authority of the home 
Member State shall notify the competent authorities of the other Member States accordingly, 
and  they  shall  take  appropriate  measures  to  prevent  the  reinsurance  undertaking  from 
commencing new operations within their territories, under either the right of establishment or 
the freedom to provide services.  

Any decision to withdraw an authorisation shall be supported by precise reasons and 

2. 
communicated to the reinsurance undertaking in question. 

TITLE IV – PROVISIONS RELATING TO RIGHT OF ESTABLISHMENT AND 
FREEDOM TO PROVIDE SERVICES 

Article 45 – Reinsurance undertakings not complying 
 with the legal provisions 

If  the  competent  authorities  of  the  host  Member  State  establish  that  a  reinsurance 
1. 
undertaking  with  a  branch  or  carrying  on  business  under  the  freedom  to  provide  services 
within its territory is not complying with the legal provisions applicable to it in that State, they 
shall require the reinsurance undertaking concerned to remedy that irregular situation. At the 
same  time,  they  shall  refer  those  findings  to  the  competent  authority  of  the  home  Member 
State.  

If,  despite  the  measures  taken  by  the  competent  authority  of  the  home  Member  State  or 
because  such  measures  prove  inadequate,  the  reinsurance  undertaking  persists  in  infringing 
the legal provisions applicable to it in the host Member State, the latter may, after informing 

49 

 
 
  
 
the competent authority of the home Member State, take appropriate measures to prevent or 
penalize  further  infringements,  including  in  so  far  as  is  strictly  necessary,  preventing  that 
reinsurance  undertaking  from  continuing  to  conclude  new  reinsurance  contracts  within  its 
territory.  Member  States  shall  ensure  that  within  their  territories  it  is  possible  to  serve  the 
legal documents necessary for such measures on reinsurance undertakings.  

2) 
Any  measure  adopted  under  paragraph  1  involving  penalties  or  restrictions  on  the 
conduct  of  reinsurance  business  must  be  properly  reasoned  and  communicated  to  the 
reinsurance undertaking concerned. 

Article 46 – Winding-up 

In  the  event  of  a  reinsurance  undertaking’s  being  wound  up,  commitments  arising  out  of 
contracts underwritten through a branch or under the freedom to provide services shall be met 
in the same way as those arising out of that undertaking's other reinsurance contracts. 

TITLE V – REINSURANCE UNDERTAKINGS WHOSE HEAD OFFICES ARE 
OUTSIDE THE COMMUNITY AND CONDUCTING REINSURANCE ACTIVITIES 
IN THE COMMUNITY 

Article 47 – Principle and conditions for conducting reinsurance business 

A  Member  State  shall  not  apply  to  reinsurance  undertakings  having  their  registered  offices 
outside the Community and commencing or carrying out reinsurance activities in its territory, 
provisions  which  result  in  a  more  favourable  treatment  than  that  accorded  to  reinsurance 
undertakings having their head office in that Member State. 

Article 48 – Agreements with third countries 

1. 
The  Commission  may  submit  proposals  to  the  Council  for  the  negotiation  of 
agreements  with  one  or  more  third  countries  regarding  the  means  of  exercising  supervision 
over: 

reinsurance undertakings which have their head offices situated in a third country, and 

a) 
conduct reinsurance business in the Community, 

reinsurance undertakings which have their head offices in the Community and conduct 

b) 
reinsurance business in the territory of a third country. 

The  agreements  referred  to  in  paragraph  1  shall  in  particular  seek  to  ensure  under 
2. 
conditions  of  equivalence  of  prudential  regulation,  effective  market  access  for  reinsurance 
undertakings in the territory of each contracting party and provide for mutual recognition of 
supervisory rules and practices on reinsurance. They shall also seek that: 

a) 
the  competent  authorities  of  the  Member  States  are  able  to  obtain  the  information 
necessary  for  the  supervision  or  reinsurance  undertakings  situated  in  the  Community  and 
conduct business in the territory of third countries concerned,  

50 

 
 
  
 
b) 
the  competent  authorities  of  third  countries  are  able  to  obtain  the  information 
necessary  for  the  supervision  of  reinsurance  undertakings  the  head  offices  of  which  are 
situated within their territories and conduct business in the Community. 

Without prejudice to Articles 300(1) and (2) of the Treaty establishing the European 
3. 
Community, the Commission, shall, with the assistance of the Insurance Committee examine 
the outcome of the negotiations referred to in paragraph 1 and the resulting situation. 

TITLE VI – RULES APPLICABLE TO SUBSIDIARIES OF PARENT 
UNDERTAKINGS GOVERNED BY THE LAWS OF A THIRD COUNTRY AND TO 
ACQUISITIONS OF HOLDINGS BY SUCH PARENT UNDERTAKINGS 

Article 49 – Information from Member States to the Commission 

The competent authorities of the Member States shall inform the Commission:  

of any authorisation of a direct or indirect subsidiary, one or more parent undertakings 

(a) 
of which are governed by the laws of a third country.  

whenever  such  a  parent  undertaking  acquires  a  holding  in  a  Community  reinsurance 

(b) 
undertaking which would turn the latter into its subsidiary.  

The Commission shall inform the Insurance Committee accordingly.  

When  authorisation  is  granted  to  the  direct  or  indirect  subsidiary  of  one  or  more  parent 
undertakings  governed  by  the  law  of  third  countries,  the  structure  of  the  group  shall  be 
specified in the notification which the competent authorities shall address to the Commission. 

Article 50 – Third country treatment of 
 Community Reinsurance undertakings 

1. 
Member  States  shall  inform  the  Commission  of  any  general  difficulties  encountered 
by their reinsurance undertakings in establishing themselves and operating in a third country 
or carrying on activities to a third country.  

2. 
Periodically, the Commission shall draw up a report examining the treatment accorded 
to  Community  reinsurance  undertakings  in  third  countries,  in  the  terms  referred  to  in 
paragraph  3,  as  regards  the  establishment  of  Community  reinsurance  undertakings  in  third 
countries, the acquisition of holdings in third-country reinsurance undertakings, the carrying 
on of reinsurance activities by such established undertakings and the cross-border provision of 
reinsurance activities from the Community to third countries. The Commission shall submit 
those reports to the Council, together with any appropriate proposals or recommendations.  

3. 
Whenever it appears to the Commission, either on the basis of the reports referred to 
in  paragraph  2  or  on  the  basis  of  other  information,  that  a  third  country  is  not  granting 
Community  reinsurance  undertakings  effective  market  access,  the  Commission  may  submit 
recommendations  to  the  Council  for  the  appropriate  mandate  for  negotiation  with  a  view  to 
obtaining improved market access for Community reinsurance undertakings. 

Measures  taken  under  this  Article  shall  comply  with  the  Community's  obligations 

4. 
under any international agreements, in particular in the World Trade Organisation. 

51 

 
 
  
 
TITLE VII 
OTHER PROVISIONS 

Article 51 – Rights acquired by existing reinsurance undertakings 

1. 
Reinsurance undertakings subject to this Directive, which were authorised or entitled 
to  conduct  reinsurance  business  in  accordance  with  the  provisions  of  the  Member  States  in 
which they have their head offices before the date of entry into force of this Directive shall be 
deemed to be authorised, in accordance with Article 3.  

However, they shall be subject to fulfilment of the provisions of this Directive concerning the 
carrying on of the business of reinsurance and to the requirements set out in Articles 6(a), (c), 
(d), Articles 7, 8 and 12 and Articles 32 to 41 as from the date of implementation referred to 
in Article 61. 

Member States may allow reinsurance undertakings referred to in paragraph 1 which 
2. 
at the date of entry into force of this Directive do not comply with Articles 6 (a), 7, 8 and and 
Articles  32  to  40  a  period  of  [2  years]  after  the  date  referred  to  in  Article  61  in  order  to 
comply with these requirements. 

Article 52 – Reinsurance undertakings closing their activity 

1. 
Reinsurance undertakings which by [date of transposition of this Directive laid down 
in Article 61(1)] have ceased to conduct new reinsurance contracts and exclusively administer 
their existing portfolio in order to terminate their activity shall not be subject to this Directive. 

Member  States  shall  draw  up  the  list  of  the  reinsurance  undertakings  concerned  and 

2. 
they shall communicate that list to all the other Member States.  

Article 53 – Right to apply to the courts 

Member States shall ensure that decisions taken in respect of a reinsurance undertaking under 
laws, regulations and administrative provisions implementing this Directive are subject to the 
right to apply to the courts. 

Article 54 – Co-operation between the Member States and the Commission 

Member  States  shall  cooperate  with  each  other  for  the  purpose  of  facilitating  the 

1. 
supervision of reinsurance within the Community and the application of this Directive. 

2. 
The Commission and the competent authorities of the Member States shall collaborate 
closely  for  the  purpose  of  facilitating  the  supervision  of  reinsurance  within  the  Community 
and of examining any difficulties which may arise in the application of this Directive. 

Article 55 – Committee procedure 

The Commission shall be assisted by the Insurance Committee instituted by Article 1 

1) 
of Directive 91/675/EEC. 

52 

 
 
  
 
Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC 

2) 
shall apply, having regard to the provisions of Article 8 thereof. 

The period laid down in Article 5(6) of Decision 1999/468/EC shall be three months. 

3. 

The Committee shall adopt its rules of procedure. 

Article 56 – Implementing measures 

The following implementing measures to this Directive shall be adopted in accordance with 
the procedure referred to in Article 55(2): 

a) 

extension of the legal forms provided for in Annex I to this Directive, 

clarification of the items constituting the solvency margin listed in Article 36 to take 

b) 
account of the creation of new financial instruments, 

c) 
enhancement up to 50% the premiums or claims amounts used for the calculation of 
the required solvency margin provided for in Article 37(3) and (4), in classes other than 11, 
12  and  13  listed  in  point  A  of  the  Annex  to  Directive  73/239/EEC,  for  specific  reinsurance 
activities or contract types, to take account of the specificities of these activities or contracts, 

alteration of the minimum guarantee fund provided for in Article 40(2) to take account 

d) 
of economic and financial developments, 

clarification  of  the  definitions  in  Article  2  in  order  to  ensure  uniform  application  of 

e) 
this Directive throughout the Community. 

TITLE VIII - AMENDMENTS TO EXISTING DIRECTIVES 

Article 57 – Amendments to Directive 73/239/EEC 

Directive 73/239/EEC is amended as follows: 

(1) 

In Article 12a paragraphs 1 and 2 are replaced by the following: 

The competent authorities of the other Member State involved shall be consulted prior 

"1. 
to the granting of an authorisation to a non-life insurance undertaking, which is: 

a subsidiary of an insurance or reinsurance undertaking authorised in another Member 

a) 
State; or 

a  subsidiary  of  the  parent  undertaking  of  an  insurance  or  reinsurance  undertaking 

b) 
authorised in another Member State; or 

controlled by the same person, whether natural or legal, who controls an insurance or 

c) 
reinsurance undertaking authorised in another Member State. 

The competent authority of a Member State involved responsible for the supervision 
2. 
of  credit  institutions  or  investment  firms  shall  be  consulted  prior  to  the  granting  of  an 
authorisation to a non-life insurance undertaking which is: 

53 

 
 
  
 
a) 

a subsidiary of a credit institution or investment firm authorised in the Community; or 

a  subsidiary  of  the  parent  undertaking  of  a  credit  institution  or  investment  firm 

b) 
authorised in the Community; or 

controlled  by  the  same  person,  whether  natural  or  legal,  who  controls  a  credit 

c) 
institution or investment firm authorised in the Community.” 

(2) 

In Article 13 (2), the following third subparagraph is added: 

"The home Member State of the insurance undertaking shall not refuse a reinsurance contract 
concluded  by  the  insurance  undertaking  with  a  reinsurance  undertaking  authorised  in 
accordance  with  Directive  200./../EC  of  the  European  Parliament  and  of  the  Council* 
[reinsurance  Directive]  or  an  insurance  undertaking  authorised  in  accordance  with  this 
Directive  or  Directive  2002/83/EC  of  the  European  Parliament  and  of  the  Council**  on  the 
grounds  directly  related  to  the  financial  soundness  of  the  reinsurance  undertaking  or  the 
insurance undertaking. 

* OJ L… 

** OJ L 345, 19.12.2002, p. 1”  

(3) 

In Article 15, paragraph 3 is replaced by the following:  

"3.  Member  States  shall  not  retain  or  introduce  for  the  establishment  of  technical 
provisions  a  system  of  gross  reserving  which  requires  pledging  of  assets  to  cover  unearned 
premiums  and  outstanding  claims  provisions  by  the  reinsurer,  when  the  reinsurer  is  a 
reinsurance  undertaking  authorised  in  accordance  with  Directive  200./../EC  [reinsurance 
Directive] or an insurance undertaking or an insurance undertaking authorised in accordance 
with this Directive or Directive 2002/83/EC. 

When  the  home  Member  State  allows  any  technical  provisions  to  be  covered  by  claims 
against  a  reinsurer  who  is  neither  a  reinsurance  undertaking  authorised  in  accordance  with 
Directive  200./../EC  nor  an  insurance  undertaking  authorised  in  accordance  with  this 
Directive or Directive 2002/83/EC, it shall fix the percentage so allowed." 

(4) 

Article 16(2), the fourth subparagraph is replaced by the following:  

"The available solvency margin shall also be reduced by the following items: 

(a) participations which the insurance undertaking holds in 

insurance undertakings within the meaning of Article 6 of this Directive, Article 4 of 
- 
Directive 2002/83/EC, or Article 1(b) of Directive 98/78/EC of the European Parliament and 
of the Council*, 

reinsurance  undertakings  within  the  meaning  of  Article  3  of  Directive  200./..EC 
- 
[reinsurance directive] or non-member-country reinsurance undertakings within the meaning 
of article 1 (l) of Directive 98/78/EC, 

insurance  holding  companies  within  the  meaning  of  Article  1(i)  of  Directive 

- 
98/78/EC, 

54 

 
 
  
 
credit institutions and financial institutions within the meaning of Article 1(1) and (5) 

- 
of Directive 2000/12/EC of the European Parliament and of the Council**, 

- 
investment  firms  and  financial  institutions  within  the  meaning  of  Article  1(2)  of 
Council  Directive  93/22/EEC***  and  of  Article  2(4)  and  (7)  of  Council  Directive 
93/6/EEC****. 

* OJ L 330, 5.12.1998, p. 1 

** OJ L 126, 26.5.2000, p. 1 

*** OJ L 141, 11.6.1993, p.27 

**** OJ L 141, 11.6.1993, p.1” 

(5) 

The following Article 17b is inserted: 

“Article 17b 

If  the  Commission  decides,  pursuant  to  Article  56(c)  of  Directive  200./../EC  of  the 
1. 
European  Parliament  and  of  the  Council*  [reinsurance  directive]  to  enhance  the  amounts 
used for the calculation of the required solvency margin provided for in Article 37 (3) and (4) 
of that Directive, each Member State shall apply to insurance undertakings whose head office 
is situated within its territory the provisions of Articles 35-39 of that Directive in respect of 
their reinsurance acceptances activities, where one the following conditions is meet:  

a) the reinsurance premiums collected exceed 10% of their total premium;  

b) the reinsurance premiums collected exceed EUR 500 000;  

c) the technical provisions resulting from their reinsurance acceptances exceed 10% of their 
total technical provisions. 

2. 
An insurance undertaking to which paragraph 1 applies shall establish, in respect of its 
entire  business,  a  minimum  guarantee  fund  in  accordance  with  Article  40(2)  of  Directive 
200./../EC [reinsurance Directive]. 

* OJ L…..” 

Article 58 – Amendments to Directive 92/49/EEC 

Directive 92/49/EEC is amended as follows: 

(1) 

In Article 15, paragraph (1a) is replaced by the following: 

If the acquirer of the holdings referred to in paragraph 1 is an insurance undertaking, a 
"1a 
reinsurance  undertaking,  a  credit  institution  or  an  investment  firm  authorised  in  another 
Member  State,  or  the  parent  undertaking  of  such  an  entity,  or  a  natural  or  legal  person 
controlling such an entity, and if, as a result of that acquisition, the undertaking in which the 
acquirer proposes to hold a holding would become a subsidiary or subject to the control of the 
acquirer, the assessment of the acquisition must be subject to the prior consultation referred to 
in Article 12a).of Directive 73/239/EEC" 

55 

 
 
  
 
(2) 

In Article 16, paragraphs (4), (5) and (5a) are replaced by the following: 

Competent authorities receiving confidential information under paragraph 1 or 2 may 

"4. 
use it only in the course of their duties: 

–  to check that the conditions governing the taking up of the business of insurance are met 
and to facilitate monitoring of the conduct of such business, especially with regard to the 
monitoring  of  technical  provisions,  solvency  margins,  administrative  and  accounting 
procedures and internal control mechanisms, 

–  to impose sanctions, 

–  in administrative appeals against decisions of the competent authorities, or 

–  in court proceedings initiated under Article 53 or under special provisions provided for in 
this  Directive  and  other  Directives  adopted  in  the  field  of  insurance  undertakings  and 
reinsurance undertakings. 

5. 
Paragraphs 1 and 4 shall not preclude the exchange of information within a Member 
State,  where  there  are  two  or  more  competent  authorities  in  the  same  Member  State,  or, 
between Member States, between competent authorities and: 

–  authorities responsible for the official supervision of credit institutions and other financial 

organisations and the authorities responsible for the supervision of financial markets, 

–  bodies  involved  in  the  liquidation  and  bankruptcy  of  insurance  undertakings,  reinsurance 

undertakings and in other similar procedures, and 

–  persons  responsible  for  carrying  out  statutory  audits  of  the  accounts  of  insurance 

undertakings, reinsurance undertakings and other financial institutions, 

in the discharge of their supervisory functions, and the disclosure, to bodies which administer 
compulsory  winding-up  proceedings  or  guarantee  funds,  of  information  necessary  to  the 
performance of their duties. The information received by these authorities, bodies and persons 
shall be subject to the obligation of professional secrecy laid down in paragraph 1. 

Notwithstanding  paragraphs  1  to  4,  Member  States  may  authorise  exchanges  of 

5a. 
information between the competent authorities and: 

the  authorities  responsible  for  overseeing  the  bodies  involved  in  the  liquidation  and 
- 
bankruptcy of assurance undertakings, reinsurance undertakings and other similar procedures, 
or 

–  the authorities responsible for overseeing the persons charged with carrying out statutory 
audits  of  the  accounts  of  insurance  undertakings,  reinsurance  undertakings,  credit 
institutions, investment firms and other financial institutions, or 

–  independent actuaries  of insurance undertakings or reinsurance undertakings carrying out 
legal  supervision  of  those  undertakings  and  the  bodies  responsible  for  overseeing  such 
actuaries. 

Member States which have recourse to the option provided for in the first subparagraph shall 
require at least that the following conditions are met: 

56 

 
 
  
 
–  this information shall be for the purpose of carrying out the overseeing or legal supervision 

referred to in the first subparagraph, 

–  information  received  in  this  context  shall  be  subject  to  the  conditions  of  professional 

secrecy imposed in paragraph 1, 

–  where the information originates in another Member State, it may not be disclosed without 
the  express  agreement  of  the  competent  authorities  which  have  disclosed  it  and,  where 
appropriate, solely for the purposes for which those authorities gave their agreement. 

Member  States  shall  communicate  to  the  Commission  and  to  the  other  Member  States  the 
names of the authorities, persons and bodies which may receive information pursuant to this 
paragraph." 

Article 59 – Amendments to Directive 2002/83/EC 

Directive 2002/83/EC is amended as follows 

(1) 

In Article 1 (1), the following point (s) is added:  

(s)  "reinsurance  undertaking"  shall  mean  a  reinsurance  undertaking  within  the  meaning  of 
Article  2  point  (b)  of  Directive  200./../EC  of  the  European  Parliament  and  of  the  Council*. 
[Reinsurance Directive]  

* OJ L…” 

(2) 

The following Article 9a is inserted: 

"Article 9a 

Prior consultation with the competent authorities of other Member States 

The competent authorities of the other Member State involved shall be consulted prior 

1. 
to the granting of an authorisation to a life assurance undertaking, which is: 

a subsidiary of an insurance or reinsurance undertaking authorised in another Member 

a) 
State; or 

a  subsidiary  of  the  parent  undertaking  of  an  insurance  or  reinsurance  undertaking 

b) 
authorised in another Member State; or 

controlled by the same person, whether natural or legal, who controls an insurance or 

c) 
reinsurance undertaking authorised in another Member State. 

2. 
The competent authority of a Member State involved responsible for the supervision 
of  credit  institutions  or  investment  firms  shall  be  consulted  prior  to  the  granting  of  an 
authorisation to a life assurance undertaking which is: 

a) 

a subsidiary of a credit institution or investment firm authorised in the Community; or 

a  subsidiary  of  the  parent  undertaking  of  a  credit  institution  or  investment  firm 

b) 
authorised in the Community; or 

57 

 
 
  
 
controlled  by  the  same  person,  whether  natural  or  legal,  who  controls  a  credit 

c) 
institution or investment firm authorised in the Community. 

3. 
The relevant competent authorities referred to in paragraphs 1 and 2 shall in particular 
consult  each  other  when  assessing  the  suitability  of  the  shareholders  and  the  reputation  and 
experience of directors involved in the management of another entity of the same group. They 
shall  inform  each  other  of  any  information  regarding  the  suitability  of  shareholders  and  the 
reputation and experience of directors which is of relevance to the other competent authorities 
involved  for  the  granting  of  an  authorisation  as  well  as  for  the  ongoing  assessment  of 
compliance with operating conditions." 

(3) 

In Article 10(2), the following second subparagraph is added: 

"The home Member State of the insurance undertaking shall not refuse a reinsurance contract 
concluded  by  the  insurance  undertaking  with  a  reinsurance  undertaking  authorised  in 
accordance  with  Directive  200./../EC  [Reinsurance  Directive)  or  an  insurance  undertaking 
authorised in accordance with Directive 73/239/EEC or this Directive on the grounds directly 
related  to  the  financial  soundness  of  the  reinsurance  undertaking  or  the  insurance 
undertaking". 

(4) 

In Article 15, the following paragraph (1a) is inserted:  

"1a. 
If the acquirer of the holdings referred to in paragraph 1 is an insurance undertaking, a 
reinsurance  undertaking,  a  credit  institution  or  an  investment  firm  authorised  in  another 
Member  State,  or  the  parent  undertaking  of  such  an  entity,  or  a  natural  or  legal  person 
controlling such an entity, and if, as a result of that acquisition, the undertaking in which the 
acquirer proposes to hold a holding would become a subsidiary or subject to the control of the 
acquirer, the assessment of the acquisition must be subject to the prior consultation referred to 
in Article 9a)." 

(5) 

Article 16 is amended as follows: 

(a) paragraphs 4, 5 and 6 are replaced by the following  

Competent authorities receiving confidential information under paragraphs 1 or 2 may 

“4. 
use it only in the course of their duties: 

- 
to check that the conditions governing the taking-up of the business of assurance are 
met and to facilitate monitoring of the conduct of such business, especially with regard to the 
monitoring  of  technical  provisions,  solvency  margins,  administrative  and  accounting 
procedures and internal control mechanisms, or 

–  to impose sanctions, or 

–  in administrative appeals against decisions of the competent authority, or 

–  in court proceedings initiated pursuant to Article 67 or under special provisions provided 
for in this Directive and other directives adopted in the field of assurance undertakings and 
reinsurance undertakings. 

Paragraphs 1 and 4 shall not preclude the exchange of information within a Member 
5. 
State,  where  there  are  two  or  more  competent  authorities  in  the  same  Member  State,  or, 
between Member States, between competent authorities and: 

58 

 
 
  
 
–  authorities responsible for the official supervision of credit institutions and other financial 

organisations and the authorities responsible for the supervision of financial markets, 

–  bodies involved in  the  liquidation and bankruptcy of assurance undertakings, reinsurance 

undertakings and in other similar procedures, and 

–  persons  responsible  for  carrying  out  statutory  audits  of  the  accounts  of  assurance 

undertakings, reinsurance undertakings and other financial institutions, 

in the discharge of their supervisory functions, and the disclosure, to bodies which administer 
(compulsory)  winding-up  proceedings  or  guarantee  funds,  of  information  necessary  to  the 
performance of their duties. The information received by these authorities, bodies and persons 
shall be subject to the obligation of professional secrecy laid down in paragraph 1. 

Notwithstanding  paragraphs  1  to  4,  Member  States  may  authorise  exchanges  of 

6. 
information between the competent authorities and: 

–  the  authorities  responsible  for  overseeing  the  bodies  involved  in  the  liquidation  and 
bankruptcy  of  assurance  undertakings,  reinsurance  undertakings  and  other  similar 
procedures, or 

–  the authorities responsible for overseeing the persons charged with carrying out statutory 
audits  of  the  accounts  of  insurance  undertakings,  reinsurance  undertakings,  credit 
institutions, investment firms and other financial institutions, or 

–  independent actuaries of insurance undertakings and reinsurance undertakings carrying out 
legal  supervision  of  those  undertakings  and  the  bodies  responsible  for  overseeing  such 
actuaries. 

Member States which have recourse to the option provided for in the first subparagraph shall 
require at least that the following conditions are met: 

–  this information shall be for the purpose of carrying out the overseeing or legal supervision 

referred to in the first subparagraph, 

–  information  received  in  this  context  shall  be  subject  to  the  conditions  of  professional 

secrecy imposed in paragraph 1, 

–  where the information originates in another Member State, it may not be disclosed without 
the  express  agreement  of  the  competent  authorities  which  have  disclosed  it  and,  where 
appropriate, solely for the purposes for which those authorities gave their agreement. 

Member  States  shall  communicate  to  the  Commission  and  to  the  other  Member  States  the 
names of the authorities, persons and bodies which may receive information pursuant to this 
paragraph." 

(b) paragraph 8 is replaced by the following: 

"8. 

Paragraphs 1 to 7 shall not prevent a competent authority from transmitting 

–  to  central  banks  and  other  bodies  with  a  similar  function  in  their  capacity  as  monetary 

authorities, 

59 

 
 
  
 
–  where appropriate, to other public authorities responsible for overseeing payment systems 

information intended for the performance of their task, nor shall it prevent such authorities or 
bodies from communicating to the competent authorities such information as they may need 
for  the  purposes  of  paragraph  4. Information  received  in this context  shall  be subject  to the 
conditions of professional secrecy imposed in this Article". 

(6) 

Article 20(4) is replaced by the following: 

"4.  Member  States  shall  not  retain  or  introduce  for  the  establishment  of  technical 
provisions  a  system  of  gross  reserving  which  requires  pledging  of  assets  to  cover  unearned 
premiums and outstanding claims provisions by the reinsurer, authorised in accordance with 
Directive 200./../EC [reinsurance Directive] when the reinsurer is a reinsurance undertaking 
or  an  insurance  undertaking  authorised  in  accordance  with  Directives  73/239/EEC  or  this 
Directive. 

When  the  home  Member  State  allows  any  technical  provisions  to  be  covered  by  claims 
against  a  reinsurer  who  is  neither  a  reinsurance  undertaking  authorised  in  accordance  with 
Directive  200./../EC  nor  an  insurance  undertaking  authorised  in  accordance  with  Directives 
73/239/EEC or this Directive, it shall fix the percentage so allowed."  

In  Article  27(2),  the  following  second,  third,  fourth,  fifth,  sixth  and  seventh 

(7) 
subparagraphs are added:  

"The available solvency margin shall also be reduced by the following items: 

(a) participations which the assurance undertaking holds, in: 

–  insurance  undertakings  within  the  meaning  of  Article  4  of  this  Directive,  Article  6  of 
Directive 73/239/EEC, or Article 1(b) of  Directive  98/78/EC of the  European Parliament 
and of the Council*, 

–  reinsurance undertakings within the meaning of Article 3 of Directive 200./../EC or a non-
member-country reinsurance undertakings within the meaning of Article 1(l) of Directive 
98/78/EC, 

–  insurance holding companies within the meaning of Article 1(i) of Directive 98/78/EC, 

–  credit institutions  and financial institutions within  the meaning of Article 1(1) and (5) of 

Directive 2000/12/EC, 

–  investment firms and financial institutions within the meaning of Article 1(2) of Directive 

93/22/EEC and of Articles 2(4) and 2(7) of Council Directive 93/6/EEC**; 

(b)  each  of  the  following  items  which  the  assurance  undertaking  holds  in  respect  of  the 
entities defined in point (a) in which it holds a participation: 

–  instruments referred to in paragraph 3, 

–  instruments referred to in Article 16(3) of Directive 73/239/EEC, 

–  subordinated claims and instruments referred to in Article 35 and Article 36(3) of Directive 

2000/12/EC. 

60 

 
 
  
 
Where shares in another credit institution, investment firm, financial institution, insurance or 
reinsurance undertaking or insurance holding company are held temporarily for the purposes 
of a financial assistance operation designed to reorganise and save that entity, the competent 
authority may waive the provisions on deduction referred to in points (a) and (b) of the third 
subparagraph. 

As  an  alternative  to  the  deduction  of  the  items  referred  to  in  (a)  and  (b)  of  the  third 
subparagraph  which  the  insurance  undertaking  holds  in  credit  institutions,  investment  firms 
and  financial  institutions,  Member  States  may  allow  their  insurance  undertakings  to  apply 
mutatis  mutandis  methods  1,  2,  or  3  of  Annex  I  to  Directive  2002/87/EC  of  the  European 
Parliament and of the Council***. Method 1 (Accounting consolidation) shall only be applied 
if the competent authority is confident about the level of integrated management and internal 
control  regarding  the  entities  which  would  be  included  in  the  scope  of  consolidation.  The 
method chosen shall be applied in a consistent manner over time. 

Member States may provide that, for the calculation of the solvency margin as provided for 
by this Directive, insurance undertakings subject to supplementary supervision in accordance 
with  Directive  98/78/EC  or  to  supplementary  supervision  in  accordance  with  Directive 
2002/87/EC,  need  not  deduct  the  items  referred  to  in  (a)  and  (b)  of  the  third  subparagraph 
which  are  held  in  credit  institutions,  investment  firms,  financial  institutions,  insurance  or 
reinsurance  undertakings  or  insurance  holding  companies  which  are  included  in  the 
supplementary supervision. 

For the purposes of the deduction of participations referred to in this paragraph, participation 
shall mean a participation within the meaning of Article 1(g) of Directive 98/78/EC. 

* OJ L 330, 5.12.1998, p1. 

** OJ L 141, 11.6.1993, p.1. 

*** OJ L 35, 11.2.2003, p.1.” 

(8) 

The following Article 28a is inserted: 

“Article 28a 
Solvency margin for assurance undertakings conducting reinsurance activities 

If the Commission decides, pursuant to Article 56(c) of Directive 200./../EC of the European 
Parliament and of the Council* [reinsurance directive] to enhance the amounts used for the 
calculation  of  the  required  solvency  margin  provided  for  in  Article  37(3)  and  (4),  home 
Member  States  shall  apply  the  provisions  of  Articles  35  to  39  of  Directive  200./../EC 
[Reinsurance Directive] to assurance undertakings in respect of their reinsurance acceptances 
activities, where one of the following conditions is meet:  

a) the reinsurance premiums collected exceed 10% of their total premium;  

b) the reinsurance premiums collected exceed EUR 500 000;  

c) the technical provisions resulting from their reinsurance acceptances exceed 10% of their 
total technical provisions.” 

61 

 
 
  
 
Article 60 – Amendments to Directive 98/78/EC 

Directive 98/78/EC is amended as follows 

(1) 

The title is replaced by the following:  

“Directive 98/78/EC of the European Parliament and  of  the Council of 27 October 1998 on 
the supplementary supervision of insurance and reinsurance undertakings in an insurance or 
reinsurance group.” 

(2) 

Article 1 is amended as follows: 

(a) The points (c), (i), (j) and (k) are replaced by the following: 

“(c)  reinsurance  undertaking  means  an  undertaking,  which  has  received  official 
authorisation  in  accordance  with  Article  3  of  Directive  200./../EC  of  the  European 
Parliament and of the Council* [Reinsurance Directive]; 

(i)  ‘insurance  holding  company’  means  a  parent  undertaking,  the  main  business  of 
which  is  to  acquire  and  hold  participations  in  subsidiary  undertakings,  where  those 
insurance  undertakings, 
subsidiary  undertakings  are  exclusively  or  mainly 
reinsurance  undertakings  or  non-member-country  insurance  undertakings  or  non-
member-country  reinsurance  undertakings,  at 
least  one  of  such  subsidiary 
undertakings being an insurance undertaking, or a reinsurance undertaking and which 
is  not  a  mixed  financial  holding  company  within  the  meaning  of  Directive 
2002/87/EC of the European Parliament and of the Council**; 

(j)  'mixed-activity  insurance  holding  company'  means  a  parent  undertaking,  other 
than  an  insurance  undertaking,  a  non-member  country  insurance  undertaking,  a 
reinsurance  undertaking,  a  non-member  country  reinsurance  undertaking,  an 
insurance  holding  company  or  a  mixed  financial  holding  company  within  the 
meaning of Directive 2002/87/EC, which includes at least one insurance undertaking 
or a reinsurance undertaking among its subsidiary undertakings; 

(k) ‘competent  authorities’ means  the national authorities which are empowered by 
law or regulation to supervise insurance undertakings or reinsurance undertakings. 

* OJ L … 

** OJ L 35, 11.2.2003, p. 1” 

b) The following point (l) is added 

“(l)  ‘non-member-country  reinsurance  undertaking’  means  an  undertaking  which 
would  require  authorisation  in  accordance  with  Article  3  of  Directive  200./../EC 
[reinsurance Directive] if it had its registered office in the Community;” 

(3) 

Articles 2, 3 and 4 are replaced by the following: 

62 

 
 
  
 
“Article 2 
Cases of application of supplementary supervision 
of insurance undertakings and reinsurance undertakings  

1.  In  addition  to  the  provisions  of  Directives  73/239/EEC,  2002/83/EC  of  the  European 
Parliament and of the Council* and 200./…/EC [reinsurance directive], which lay down the 
rules  for  the  supervision  of  insurance  undertakings  and  reinsurance  undertakings,  Member 
States shall provide supervision of any insurance undertaking or any reinsurance undertaking, 
which  is  a  participating  undertaking  in  at  least  one  insurance  undertaking,  reinsurance 
undertaking,  non-member-country 
insurance  undertaking  or  a  non-member  country 
reinsurance  undertaking,  shall  be  supplemented  in  the  manner  prescribed  in  Articles  5,  6,  8 
and 9. 

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

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

Article 3 
Scope of supplementary supervision  

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

the  non-member-country 

insurance  undertaking, 

2. The supplementary supervision shall take into account the following undertakings referred 
to in Articles 5, 6, 8, 9 and 10: 

- related undertakings of the insurance undertaking or of the reinsurance undertaking, 

- participating undertakings in the insurance undertaking or in the reinsurance undertaking, 

-  related  undertakings  of  a  participating  undertaking  in  the  insurance  undertaking  or  in  the 
reinsurance undertaking, 

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

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

63 

 
 
  
 
-  if  the  undertaking  which  should  be  included  is  of  negligible  interest  with  respect  to  the 
objectives  of  the  supplementary  supervision  of  insurance  undertakings  or  reinsurance 
undertakings; 

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

Article 4 
Competent authorities for exercising supplementary supervision  

1. Supplementary supervision shall be exercised by the competent authorities of the Member 
State in which the insurance undertaking or the reinsurance undertaking has received official 
authorisation under Article 6 of Directive 73/239/EEC or Article 4 of Directive 2002/83/EC 
or Article 3 of Directive 200./../EC…. [reinsurance directive]. 

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

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

*OJ L 345, 19,12,2002, p.1” 

(4) In Article 5, paragraph 1 is replaced by the following: 

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

(5) 

Articles 6, 7 and 8 are replaced by the following: 

“Article 6 
Access to information  

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

64 

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

- the insurance undertaking subject to supplementary supervision, 

- the reinsurance undertaking subject to supplementary supervision, 

- subsidiary undertakings of that insurance undertaking, 

- subsidiary undertakings of that reinsurance undertaking, 

- parent undertakings of that insurance undertaking, 

- parent undertakings of that reinsurance undertaking, 

- subsidiary undertakings of a parent undertaking of that insurance undertaking. 

- subsidiary undertakings of a parent undertaking of that reinsurance undertaking. 

3.  Where,  in  applying  this  Article,  the  competent  authorities  of  one  Member  State  wish  in 
specific cases to verify important information concerning an undertaking situated in another 
Member State which is a related insurance undertaking, a related reinsurance undertaking, a 
subsidiary  undertaking,  a  parent  undertaking  or  a  subsidiary  of  a  parent  undertaking  of  the 
insurance undertaking or of the reinsurance undertaking subject to supplementary supervision, 
they must ask the competent authorities of that other Member State to have that verification 
carried  out.  The  authorities  which  receive  such  a  request  must  act  on  it  within  the  limits  of 
their  jurisdiction  by  carrying  out  the  verification  themselves,  by  allowing  the  authorities 
making the request to carry it out or by allowing an auditor or expert to carry it out. 

The  competent  authority  which  made  the  request  may,  if  it  so  wishes,  participate  in  the 
verification when it does not carry out the verification itself.  

Article 7 
Cooperation between competent authorities  

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

2. Where an insurance undertaking or a reinsurance undertaking and either a credit institution 
as  defined  in  Directive  2000/12/EC  of  the  European  Parliament  and  of  the  Council*  or  an 
investment firm as defined in Directive 93/22/EEC, or both, are directly or indirectly related 
or  have  a  common  participating  undertaking,  the  competent  authorities  and  the  authorities 
with  public  responsibility  for  the  supervision  of  those  other  undertakings  shall  cooperate 
closely. Without prejudice to their respective responsibilities, those authorities shall provide 
one  another  with  any  information  likely  to  simplify  their  task,  in  particular  within  the 
framework of this Directive. 

65 

 
 
  
 
3.  Information  received  pursuant  to  this  Directive  and,  in  particular,  any  exchange  of 
information  between  competent  authorities  which  is  provided  for  in  this  Directive  shall  be 
subject to the obligation of professional secrecy defined in Article 16 of Directive 92/49/EEC 
and  Article  16  of  Directive  2002/83/EC  and  Articles  24 
to  30  of  Directive 
200./../EC…[reinsurance directive]. 

Article 8 
Intra-group transactions  

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

(a) an insurance undertaking or a reinsurance undertaking and: 

(i)  a  related  undertaking  of  the  insurance  undertaking  or  of  the  reinsurance 
undertaking;  

(ii)  a  participating  undertaking  in  the  insurance  undertaking  or  in  the  reinsurance 
undertaking;  

(iii) a related undertaking of a participating undertaking in the insurance undertaking 
or in the reinsurance undertaking;  

(b) an insurance undertaking or a reinsurance undertakings and a natural person who holds a 
participation in: 

(i)  the  insurance  undertaking,  the  reinsurance  undertaking  or  any  of  its  related 
undertakings;  

(ii)  a  participating  undertaking  in  the  insurance  undertaking  or  in  the  reinsurance 
undertaking;  

(iii) a related undertaking of a participating undertaking in the insurance undertaking 
or in the reinsurance undertaking. 

These transactions concern in particular: 

- loans, 

- guarantees and off-balance-sheet transactions, 

- elements eligible for the solvency margin, 

- investments, 

- reinsurance and retrocession operations, 

- agreements to share costs. 

2. Member States shall require insurance undertakings and reinsurance undertakings to have 
in  place  adequate  risk  management  processes  and  internal  control  mechanisms,  including 
sound reporting and accounting procedures, in order to identify, measure, monitor and control 
transactions as provided for in paragraph 1 appropriately. Member States shall also require at 

66 

 
 
  
 
least  annual  reporting  by  insurance  undertakings  and  reinsurance  undertakings  to  the 
competent  authorities  of  significant  transactions.  These  processes  and  mechanisms  shall  be 
subject to overview by the competent authorities."  

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

* OJ L 126, 26.5.2000, p. 1” 

(6) In Article 9, paragraph 3 is replaced by the following: 

“3.  If  the  calculation  referred  to  in  paragraph  1  demonstrates  that  the  adjusted  solvency  is 
negative,  the  competent  authorities  shall  take  appropriate  measures  at  the  level  of  the 
insurance undertaking or the reinsurance undertaking in question.” 

(7) 

Article 10 is amended as follows: 

(a) 

the title is replaced by the following:  

“Insurance  holding  companies,  non-member-country  insurance  undertakings  and  non-
member-country reinsurance undertakings” 

(b) 

paragraphs 2 and 3 are replaced by the following: 

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

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

(8) 

Article 10a is amended as follows: 

(a) 

in paragraph 1, point (b) is replaced by the following: 

“(b) reinsurance undertakings which have, as participating undertakings, undertakings within 
the meaning of Article 2 which have their head office situated in a third country;  

(c)  non-member  country  insurance  undertakings  or  non-member  country  reinsurance 
undertakings  which  have,  as  participating  undertakings,  undertakings  within  the  meaning  of 
Article 2 which have their head office in the Community.” 

(b) 

paragraph 2 is replaced by the following: 

“2. The agreements referred to in paragraph 1 shall in particular seek to ensure both: 

(a)  that  the  competent  authorities  of  the  Member  States  are  able  to  obtain  the  information 
necessary  for  the  supplementary  supervision  of  insurance  undertakings  and  reinsurance 

67 

 
 
  
 
undertakings which have their head office in the Community and which have subsidiaries or 
hold participations in undertakings outside the Community; and 

(b)  that  the  competent  authorities  of  third  countries  are  able  to  obtain  the  information 
necessary  for  the  supplementary  supervision  of  insurance  undertakings  and  reinsurance 
undertakings which have their head office in their territories and which have subsidiaries or 
hold participations in undertakings in one or more Member States.” 

(9) 

Annexes I and II are replaced by the text set out in Annex II to this Directive. 

TITLE IX - FINAL PROVISIONS 

Article 61 – Transposition 

1) 
Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  at  the  latest  by..  They  shall  forthwith 
communicate to the Commission the texts of those provisions and a correlation table between 
those provisions and this Directive. 

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. 

Member States shall communicate to the Commission the text of the main provisions 

2) 
of national law which they adopt in the field covered by this Directive. 

Article 62 – Entry into force  

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

Article 63 - Addressees 

This Directive is addressed to the Member States. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

68 

 
 
  
 
 
 
Form of reinsurance undertakings: 

ANNEX I 

–  in the case of the Kingdom of Belgium: 'société anonyme/naamloze vennootschap', 'société 
en  commandite  par  actions/commanditaire  vennootschap  op  aandelen',  'association 
d'assurance mutuelle/onderlinge verzekeringsvereniging', 'société coopérative/coöperatieve 
vennootschap'; 

–  in the case of the Kingdom of Denmark: 'aktieselskaber', 'gensidige selskaber'; 

–  in the case of the Federal Republic of Germany: 'Aktiengesellschaft', 'Versicherungsverein 

auf Gegenseitigkeit', 'Öffentlich-rechtliches Wettbewerbsversicherungsunternehmen'; 

–  in  the  case  of  the  French  Republic:  'société  anonyme',  'société  d'assurance  mutuelle', 
'institution  de  prévoyance  régie  par  le  code  de  la  sécurité  sociale',  'institution  de 
prévoyance régie par le code rural' and 'mutuelles régies par le code de la mutualité'; 

–  in  the  case  of  Ireland:  incorporated  companies  limited  by  shares  or  by  guarantee  or 

unlimited; 

–  in the case of the Italian Republic: 'società per azioni'; 

–  in the case of the Grand Duchy of Luxembourg: 'société anonyme'; 

–  in  the  case  of  the  Kingdom  of  the  Netherlands:  'naamloze  vennootschap',  'onderlinge 

waarborgmaatschappij'; 

–  in  the  case  of  the  United  Kingdom:  incorporated  companies  limited  by  shares  or  by 
guarantee  or  unlimited,  societies  registered  under  the  Industrial  and  Provident  Societies 
Acts,  societies  registered  under  the  Friendly  Societies  Acts,  "the  association  of 
underwriters known as Lloyd's"; 

–  in 

the  case  of 

the  Hellenic  Republic:  "ανώνυµη  εταιρία",  "αλληλασφαλιστικός 

συνεταιρισµός"; 

–  in the case of the Kingdom of Spain: 'sociedad anónima'; 

–  in the case of the Portuguese Republic: 'sociedade anónima', 'mútua de seguros'; 

–  in  the  case  of  the  Republic  of  Austria:  'Aktiengesellschaft',  'Versicherungsverein  auf 

Gegenseitigkeit'; 

–  in 

the  case  of 
försäkringsbolag', 
'vakuutusyhdistys/försäkrings-förening'; 

the  Republic  of  Finland: 

'keskinäinen  vakuutusyhtiö/ömsesidigt 
'vakuutusosake-yhtiö/försäkringsaktiebolag', 

–  in the case of Kingdom of Sweden: 'försäkringsaktiebolag', 'ömsesidigt försäkringsbolag', 

'” 

69 

 
 
  
 
Annexes I and II to Directive 98/78/EC are replaced by the following 

ANNEX II 

"Annex I  

CALCULATION OF THE ADJUSTED SOLVENCY OF INSURANCE UNDERTAKINGS 
AND REINSURANCE UNDERTAKINGS  

1. CHOICE OF CALCULATION METHOD AND GENERAL PRINCIPLES  

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

B. Proportionality 

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

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

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

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

Where there are no capital ties between some of the undertakings in an insurance group or a 
reinsurance group, the competent authority shall determine which proportional share will have 
to be taken account of.  

C. Elimination of double use of solvency margin elements 

C.1. General treatment of solvency margin elements 

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

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

70 

 
 
  
 
-  the  value  of  any  asset  of  that  insurance  undertaking  or  reinsurance  undertaking  which 
represents  the  financing  of  elements  eligible  for  the  solvency  margin  of  one  of  its  related 
insurance undertakings or related reinsurance undertakings, 

- the value of any asset of a related insurance undertaking or a related reinsurance undertaking 
of  that  insurance  undertaking  or  reinsurance  undertaking  which  represents  the  financing  of 
elements  eligible  for  the  solvency  margin  of  that  insurance  undertaking  or  reinsurance 
undertaking  

- the value of any asset of a related insurance undertaking or related reinsurance undertaking 
of  that  insurance  undertaking  or  reinsurance  undertaking  which  represents  the  financing  of 
elements eligible for the solvency margin of any other related insurance undertaking or related 
reinsurance undertaking of that insurance undertaking or reinsurance undertaking 

C.2. Treatment of certain elements 

Without prejudice to the provisions of section C.1: 

- profit reserves and future profits arising in a related life assurance undertaking [or a related 
life  reinsurance  undertaking]of  the  insurance  undertaking  or  reinsurance  undertaking  for 
which the adjusted solvency is calculated, and 

-  any  subscribed  but  not  paid-up  capital  of  a  related  insurance  undertaking  or  a  related 
reinsurance undertaking of the insurance undertaking or of reinsurance undertaking for which 
the adjusted solvency is calculated, 

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

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

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

C.3. Transferability 

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

71 

 
 
  
 
C.4. The sum of the elements referred to in sections C.2 and C.3 may not exceed the solvency 
margin  requirement  of  the  related  insurance  undertaking  or  the  related  reinsurance 
undertaking 

D. Elimination of the intra-group creation of capital 

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

- a related undertaking, 

- a participating undertaking, 

- another related undertaking of any of its participating undertakings. 

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

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

E.  The  competent  authorities  shall  ensure  that  the  adjusted  solvency  is  calculated  with  the 
same  frequency  as  that  laid  down  by  Directives  73/239/EEC,  2002/83/EC  and  200./../EC 
(reinsurance  directive)  for  calculating  the  solvency  margin  of  insurance  undertakings  or 
reinsurance undertaking The value of the assets and liabilities shall be assessed according to 
the  relevant  provisions  of  Directives  73/239/EEC,  2002/83/EC,  200./../EC  (reinsurance 
directive) and 91/674/EEC. 

2. APPLICATION OF THE CALCULATION METHODS  

2.1. Related insurance undertakings and related reinsurance undertakings. The adjusted 
solvency  calculation  shall  be  carried  out  in  accordance  with  the  general  principles  and 
methods set out in this Annex. 

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

In  cases  of  successive  participations  (for  example,  where  an  insurance  undertaking  or  a 
reinsurance  undertaking  is  a  participating  undertaking  in  another  insurance  undertaking  or 
reinsurance undertaking which is also a participating undertaking in an insurance undertaking 
or  a  reinsurance  undertaking),  the  adjusted  solvency  calculation  shall  be  carried  out  at  the 
level  of  each  participating  insurance  undertaking  or  reinsurance  undertaking  which  has  at 
least one related insurance undertaking or one related reinsurance undertaking Member States 
may waive calculation of the adjusted solvency of an insurance undertaking or a reinsurance 
undertaking: 

72 

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

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

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

In each case, the waiver may be granted only if the competent authorities are satisfied that the 
elements  eligible  for  the  solvency  margins  of  the  insurance  undertakings  or  the  reinsurance 
undertakings 
those 
undertakings. 

the  calculation  are  adequately  distributed  between 

included 

in 

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

2.2. Intermediate insurance holding companies 

When  calculating  the  adjusted  solvency  of  an  insurance  undertaking  or  a  reinsurance 
undertaking  which  holds  a  participation  in  an  (related)  insurance  undertaking,  a  related 
reinsurance  undertaking,  or  a  non-member  country  insurance  undertaking  or  a  non-member 
country reinsurance undertaking, through an insurance holding company, the situation of the 
intermediate  insurance  holding  company  is  taken  into  account.  For  the  sole  purpose  of  this 
calculation, to be undertaken in accordance with the general principles and methods described 
in  this  Annex,  this  insurance  holding  company  shall  be  treated  as  if  it  were  an  insurance 
undertaking  or  reinsurance  undertaking  subject  to  a  zero  solvency  requirement  and  were 
subject  to  the  same  conditions  as  are  laid  down  in  Article  16  of  Directive  73/239/EEC,  in 
Article  27  of  Directive  2002/83/EC  or  in  Article  36  of  Directive  200./../EC  in  respect  of 
elements eligible for the solvency margin. 

2.3.  Related  non-member  country  insurance  undertakings  and  related  non-member 
country reinsurance undertakings 

When  calculating  the  adjusted  solvency  of  an  insurance  undertaking  or  a  reinsurance 
undertaking  which  is  a  participating  undertaking  in  a  non-member-country  insurance 
undertaking  or  in  a  non-member  country  reinsurance  undertaking,  the  latter  shall  be  treated 
solely for the purposes of the calculation, by analogy with a related insurance undertaking or a 

73 

 
 
  
 
related reinsurance undertaking, by applying the general principles and methods described in 
this Annex. 

However, where the non-member-country in which that undertaking has its registered office 
makes it subject to authorisation and imposes on it a solvency requirement at least comparable 
to that laid down in Directives 73/239/EEC, 2002/83/EC or 200./../EC (reinsurance directive), 
taking  into  account  the  elements  of  cover  of  that  requirement,  Member  States  may  provide 
that  the  calculation  shall  take  into  account,  as  regards  that  undertaking,  the  solvency 
requirement  and  the  elements  eligible  to  satisfy  that  requirement  as  laid  down  by  the  non-
member country in question. 

2.4. Related credit institutions, investment firms and financial institutions 

When  calculating  the  adjusted  solvency  of  an  insurance  undertaking  or  reinsurance 
undertaking  which  is  a  participating  undertaking  in  a  credit  institution,  investment  firm  or 
financial institution, the rules laid down in Article 16 of Directive 73/239/EEC, in Article 27 
of  Directive  2002/83/EC  and  in  Article  36  of  Directive  200./../EC  on  the  deduction  of  such 
participations shall apply mutatis mutandis, as well as the provisions on the ability of Member 
States under certain conditions to allow alternative methods and to allow such participations 
not to be deducted." 

2.5. Non-availability of the necessary information 

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

3. CALCULATION METHODS  

Method 1: Deduction and aggregation method 

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

(i) the sum of: 

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

b)  the  proportional  share  of  the  participating  insurance  undertaking  or  the  participating 
reinsurance  undertaking  in  the  elements  eligible  for  the  solvency  margin  of  the  related 
insurance undertaking or the related reinsurance undertaking 

and 

(ii) the sum of: 

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

74 

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

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

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

Method 2: Requirement deduction method 

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

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

and 

(ii) the sum of: 

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

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

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

Method 3: Accounting consolidation-based method 

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

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

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

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

75 

 
 
  
 
The provisions of Directives 73/239/EEC, 2002/83/EC, 200./..EC (reinsurance directive) and 
91/674/EEC  shall  apply  for  the  calculation  of  the  elements  eligible  for the  solvency  margin 
and of the solvency requirement based on consolidated data. 

ANNEX II  

SUPPLEMENTARY  SUPERVISION  FOR 
INSURANCE  UNDERTAKINGS  AND 
REINSURANCE  UNDERTAKINGS  THAT  ARE  SUBSIDIARIES  OF  AN  INSURANCE 
HOLDING  COMPANY,  A  NON-MEMBER-COUNTRY  INSURANCE  UNDERTAKING 
OR A NON-MEMBER COUNTRY REINSURANCE UNDERTAKING 

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

The  competent  authorities  shall  exercise  the  supplementary  supervision  with  the  same 
frequency  as  that  laid  down  by  Directives  73/239/EEC,  2002/83/EC  and  200./../EC  for 
calculating the solvency margin of insurance undertakings and reinsurance undertakings. 

2.  Member  States  may  waive  the  calculation  provided  for  in  this  Annex  with  regard  to  an 
insurance undertaking or a reinsurance undertaking: 

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

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

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

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

76 

 
 
  
 
3.  The  competent  authorities  shall  ensure  that  calculations  analogous  to  those  described  in 
Annex I are carried out at the level of the insurance holding company, non-member-country 
insurance undertaking or non-member-country reinsurance undertaking. 

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

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

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

-  a  solvency  requirement  determined  according  to  the  principles  of  section  2.3  of  Annex  I, 
where  it  is  a  non-member-country  insurance  undertaking  or  a  non-member  country-
reinsurance undertaking, 

and is subject to the same conditions as laid down in Article 16 of Directive 73/239/EEC in 
Article  27  of  Directive  2002/83/EC  and  in  Article  36  of  Directive  200/../EC  [reinsurance 
directive] as regards the elements eligible for the solvency margin. 

4. Non-availability of the necessary information 

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

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