Directive 2005/68/EC of the European Parliament and of the Council of  16 November 2005  on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC as well as Directives 98/78/EC and 2002/83/EC   (Text with EEA relevance)
Date: 2005-11-16
Institutions: Council of the European Union, European Parliament
Subjects: exchange of information, financial control, financial solvency, freedom to provide services, insurance company, reinsurance, right of establishment

9.12.2005

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I

(Acts whose publication is obligatory)

DIRECTIVE 2005/68/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 16 November 2005

on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC as well as 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 Commission,

Having regard to the opinion of the European Economic and
Social Committee (1),

After consulting the Committee of the Regions,

Acting in accordance with the procedure laid down in
Article 251 of the Treaty (2),

Whereas:

(1) Council Directive 73/239/EEC of 24 July 1973 on the
coordination of
laws, regulations and administrative
provisions relating to the taking-up and pursuit of the
business of direct insurance other than life assurance (3),
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 (4) and Directive 2002/83/EC of the European
Parliament and of the Council of 5 November 2002
concerning life assurance (5) have laid down the provi-
sions relating to the taking-up and pursuit of direct
insurance in the Community.

(1) OJ C 120, 20.5.2005, p. 1.
(2) Opinion of the European Parliament of 7 June 2005 (not yet
published in the Official Journal) and Decision of the Council of
17 October 2005.

(3) OJ L 228, 16.8.1973, p. 3. Directive as last amended by
Directive 2005/1/EC of the European Parliament and of the
Council (OJ L 79, 24.3.2005, p. 9).

(4) OJ L 228, 11.8.1992, p. 1. Directive as last amended by

Directive 2005/1/EC.

in order

(2) 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,
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 which have their head office in the
Community and are established in other Member States.

to make it easier

for

(3) 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 that
regime nor any other regime provided for by Community
law.

(4) Reinsurance is a major financial activity as it allows direct
insurance undertakings, by facilitating a wider distribu-
to have a higher
tion of risks at worldwide level,
underwriting capacity to engage in insurance business
and provide insurance cover and also to reduce their
capital costs; furthermore, reinsurance plays a funda-
mental role in financial stability, since it is an essential
element in ensuring the financial soundness and the
stability of direct
insurance markets as well as the
financial system as a whole, because it involves major
financial intermediaries and institutional investors.

(5) 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 retrocession (6) has removed the restrictions on 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 reinsur-
ance. This situation has resulted in significant differences

(5) OJ L 345, 19.12.2002, p. 1. Directive as last amended by

Directive 2005/1/EC.

(6) OJ 56, 4.4.1964, p. 878.

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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 the various Member States in which they conduct
business or an indirect supervision of the various aspects
of a reinsurance undertaking by the competent autho-
rities of direct insurance undertakings.

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
pledge assets in order to cover its part of the cedant'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
does not fulfil the conditions laid down in this Directive.

(6) The Action Plan for Financial Services has identified
reinsurance as a sector which requires 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.

(7) 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.

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

(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 in its
territory 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 performed by the

insurance or

(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 either a financial undertaking other
than an insurance or reinsurance undertaking or a group
reinsurance undertakings to which
of
Directive 98/78/EC of the European Parliament and of
the Council of 27 October 1998 on the supplementary
supervision of insurance undertakings in an insurance
group (1) applies, or by one or several non-financial
to provide
the purpose of which is
undertakings,
reinsurance cover exclusively for
the
undertakings
to which they belong. When in this
Directive reference is made to reinsurance undertakings,
it
should include captive reinsurance undertakings,
except where special provision is made for captive
reinsurance undertakings. Captive reinsurance under-
takings do not cover risks deriving from the external
direct insurance or reinsurance business of an insurance
or reinsurance undertaking belonging to the group.
Furthermore,
reinsurance undertakings
belonging to a financial conglomerate may not own a
captive undertaking.

the risks of

insurance or

(12) This Directive should however not apply to insurance
undertakings which are already subject to Directives 73/
239/EEC or 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
those activities is duly taken into
account by the capital requirements of those insurance
undertakings, the provisions relating to the solvency
margin of reinsurance undertakings contained in this
Directive should apply to reinsurance business of those
insurance undertakings, if the volume of their reinsur-
ance activities represents a significant part of their entire
business.

(13) This Directive should not apply to the provision of
reinsurance cover carried out or fully guaranteed by a
Member State for reasons of substantial public interest, in
the capacity of reinsurer of
in particular
where because of a specific situation in a market, it is not
in this
feasible to obtain adequate commercial cover;

last resort,

(1) OJ L 330, 5.12.1998, p. 1. Directive as last amended by

Directive 2005/1/EC.

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regard, a lack of ‘adequate commercial cover’ should
mainly mean a market failure which is characterised by
an evident lack of a sufficient range of insurance offers,
although excessive premiums should not per se imply
inadequacy of that commercial cover. Article 1(2)(d) of
this Directive also applies to arrangements between
insurance undertakings to which Directives 73/239/EEC
or 2002/83/EC apply and which aim to pool financial
claims ensuing from major risks such as terrorism.

(14) Reinsurance undertakings are to limit their 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 of the European Parliament and of
the Council of 16 December 2002 on the supplementary
supervision of credit institutions, insurance undertakings
and investment firms in a financial conglomerate (1). In
any case, this requirement does not allow the carrying on
of unrelated banking and financial activities.

(15) 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 monitor-
ing the financial health of reinsurance undertakings,
including their state of solvency, the establishment of
adequate technical provisions and equalisation reserves
and the covering of those provisions and reserves by
quality assets.

(16) 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
penalties aimed at preventing irregularities and infringe-
ments of the provisions on reinsurance supervision.

(17) The provisions governing transfers of portfolios should
be in line with the single authorisation provided for in
this Directive. They should apply to the various kinds of
transfers of portfolios between reinsurance undertakings,
such as transfers of portfolios resulting from mergers
between reinsurance undertakings or other instruments
of company law or transfers of portfolios of outstanding
losses in run-off to another reinsurance undertaking.
transfers of
Moreover,

the provisions

governing

portfolios should include provisions specifically con-
cerning the transfer to another reinsurance undertaking
of the portfolio of contracts concluded under the right of
establishment or the freedom to provide services.

It

limits.

(18) Provision should be made for the exchange of informa-
tion 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
is therefore necessary to specify the
conditions under which the abovementioned exchanges
of information are authorised; moreover, where it is laid
down 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
with a view to 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 informa-
tion with third countries provided that the information
disclosed is subject to appropriate guarantees of profes-
sional secrecy.

(19) For the purposes of strengthening the prudential super-
vision of reinsurance undertakings,
it should be laid
down that an auditor has 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 adminis-
trative 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 under-
taking 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.

(1) OJ L 35, 11.2.2003, p. 1. Directive as amended by Directive

2005/1/EC.

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

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(21)

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 Council
Directive 91/674/EEC of 19 December 1991 on the
annual accounts and consolidated accounts of insurance
undertakings (1) and,
life reinsurance
activities, the home Member State should also be allowed
to lay down more specific rules in accordance with
Directive 2002/83/EC.

in respect of

in respect of credit

(22) A reinsurance undertaking conducting reinsurance busi-
ness
insurance, whose credit
reinsurance business amounts to more than a small
proportion of its total business, should be required to set
up an equalisation reserve which does not form part of
the solvency margin; that reserve should be calculated
according to one of the methods laid down in Directive
73/239/EEC and which are recognised as equivalent;
furthermore,
this Directive should allow the home
Member State also to require reinsurance undertakings
whose head office is situated within its territory to set up
equalisation reserves for classes of risks other than credit
reinsurance, following the rules laid down by that home
Member State. Following the
the
International Financial Reporting Standards (IFRS 4),
this Directive should clarify the prudential treatment of
equalisation reserves established in accordance with this
Directive. However, since supervision of reinsurance
needs to be reassessed under the Solvency II project, this
Directive does not pre-empt any future reinsurance
supervision under Solvency II.

introduction of

(23) A reinsurance undertaking should have assets to cover
technical provisions and equalisation reserves which
should take account of the type of business that it carries
out in particular the nature, amount and duration of the
expected claims payments, in such a way as to secure the
liquidity, security, quality, profitability and
sufficiency,
matching of
its investments, which the undertaking
should ensure are diversified and adequately spread and
which gives the undertaking the possibility of responding
adequately to changing economic circumstances,
in
particular developments in the financial markets and
real estate markets or major catastrophic events.

(24)

It is necessary that, over and above technical provisions,
reinsurance undertakings should possess a supplemen-
tary reserve, known as the solvency margin, represented
by free assets and, with the agreement of the competent
authority, by other implicit assets, which is to act as a
fluctuations. This
buffer

adverse business

against

is an important element of prudential
requirement
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.

(25)

In the light of the similarities between life reassurance
covering mortality risk and non-life reinsurance,
in
particular the cover of insurance risks and the duration
of the life reassurance contracts, the required solvency
margin for life reassurance should be determined in
laid down in this
accordance with the provisions
Directive for the calculation of the required solvency
margin for non-life reinsurance; the home Member State
should however be allowed to apply the rules provided
for in Directive 2002/83/EC for the establishment of the
required solvency margin in respect of life reassurance
activities which are linked to investment
funds or
participating contracts.

(26)

reinsurance contracts or

In order to take account of the particular nature of some
types of
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 European Insurance and Occupational
Pensions Committee, set up by Commission Decision
2004/9/EC (2) in the exercise of its implementing powers
conferred by the Treaty.

(27) 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 (3).

(28) The list of

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

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

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

(2) OJ L 3, 7.1.2004, p. 34.
(3) OJ L 184, 17.7.1999, p. 23.

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(30) Certain provisions of

this Directive define minimum
standards. A home Member State should be able to lay
reinsurance undertakings
down stricter
rules
authorised by its own competent
in
particular with respect to solvency margin requirements.

authorities,

for

(31) This Directive should be applicable to finite reinsurance
activities; therefore, a definition of finite reinsurance for
the purposes of this Directive is necessary; owing to the
special nature of this line of reinsurance activity, the
home Member State should be given the option of laying
finite
down specific provisions
reinsurance activities. These provisions could differ from
the general regime laid down in this Directive on a
number of specific points.

the pursuit of

for

(32) This Directive should provide for rules concerning those
special purpose vehicles that assume risks from insurance
and reinsurance undertakings. The special nature of such
special purpose vehicles, which are not insurance or
reinsurance undertakings, calls for the establishment of
specific provisions in Member States. Furthermore, this
Directive should provide that the home Member State
should lay down more detailed rules in order to set the
conditions under which outstanding amounts from a
special purpose vehicle can be used as assets covering
technical provisions by an insurance or a reinsurance
undertaking. This Directive should also provide that
recoverable amounts from a special purpose vehicle may
be considered as amounts deductible under reinsurance
or retrocession contracts within the limits set out in this
Directive, subject to an application by the insurance
undertaking or reinsurance undertaking to the compe-
tent authority and after agreement by that authority.

(33)

for it

to meet

It is necessary to provide for measures in cases where the
reinsurance undertaking
the
financial position of
its
is difficult
it
becomes such that
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.

(34)

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 right of establishment
and the freedom to provide services complies with the
provisions applicable to it in the host Member State.

(35) Provision should be made for the right to apply to the
courts should an authorisation be refused or withdrawn.

(36)

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

(37)

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 which conduct business
in the
territory of each contracting party.

(38) 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 should provide for
procedures for negotiating with third countries.

(39) 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
this
Directive should be adopted in accordance with Decision
1999/468/EC.

implementation of

for

(40) 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
the supervision of direct
insurance undertakings should be adapted. Furthermore,
it is necessary to abolish the current provisions enabling
Member States to require pledging of assets covering the
technical provisions of an insurance undertaking, what-
ever form this requirement might take, when the insurer
is reinsured by a reinsurance undertaking authorised
pursuant to this Directive or by an insurance under-
taking. Finally, provision should be made for the solvency
margin required for insurance undertakings conducting
reinsurance activities, when such activities represent a
significant part of their business, to be 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.

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(41) 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 under-
takings which are currently part of an insurance group.

(42) The Council, in accordance with paragraph 34 of the
Interinstitutional agreement on better law-making (1),
should encourage Member States
for
themselves and in the interest of the Community, their
own tables, illustrating, as far as possible, the correlation
between this Directive and the transposition measures,
and to make them public.

to draw up,

and pursuit of reinsurance activities, cannot be suffi-
ciently achieved by the Member States and can therefore,
by reason of the scale and 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.

(44) Since this Directive defines minimum standards, Member

States may lay down stricter rules,

(43) Since the objective of

this Directive, namely the
establishment of a legal framework for the taking up

HAVE ADOPTED THIS DIRECTIVE:

TITLE I

SCOPE AND DEFINITIONS

Article 1

Scope

Article 2

Definitions

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)

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

(b)

activities and bodies referred to in Articles 2 and 3 of
Directive 73/239/EEC;

(c)

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

(d)

the activity of reinsurance conducted or fully guaranteed
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,
including in circumstances
where such a role is required by a situation in the market
in which it is not feasible to obtain adequate commercial
cover.

(1) OJ C 321, 31.12.2003, p. 1.

For

1.
definitions shall apply:

the purposes of

this Directive,

the following

(a)

(b)

(c)

(d)

(e)

‘reinsurance’ means the activity consisting in accepting
risks ceded by an insurance undertaking or by another
reinsurance undertaking. In the case of the association of
underwriters known as Lloyd's, reinsurance also means
the activity consisting in accepting risks, ceded by any
member of Lloyd's, by an insurance or reinsurance
undertaking other than the association of underwriters
known as Lloyd's;

‘captive reinsurance undertaking’ means a reinsurance
undertaking owned either by a financial undertaking
other than an insurance or a reinsurance undertaking or
a group of insurance or reinsurance undertakings to
which Directive 98/78/EC applies, or by a non-financial
to provide
undertaking,
the purpose of which is
reinsurance cover exclusively for
the
undertaking or undertakings to which it belongs or of
an undertaking or undertakings of the group of which
the captive reinsurance undertaking is a member;

the risks of

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

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

‘establishment’ means the head office or a branch of a
reinsurance undertaking, account being taken of point
(d);

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(f)

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

(o)

‘financial undertaking’ means one of
entities:

the following

‘Member State of the branch’ means the Member State in
which the branch of a reinsurance undertaking is
situated;

(i)

institution or an
a credit institution, a financial
ancillary banking services undertaking within the
meaning of Article 1(5) and (23) of Directive 2000/
12/EC (2),

‘host Member State’ means the Member State in which a
reinsurance undertaking has a branch or provides
services;

(ii)

an insurance undertaking, a reinsurance under-
taking or an insurance holding company within the
meaning of Article 1(i) of Directive 98/78/EC,

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

(iii) an investment firm or a financial institution within
the meaning of point 1 of Article 4(1) of Directive
2004/39/EC (3),

(g)

(h)

(i)

(j)

‘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;

(k)

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

(l)

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

(m)

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

(n)

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

(i)

(ii)

participation, which shall mean the ownership,
direct or by way of control, of 20 % or more of the
voting rights or capital of an undertaking, or

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;

(p)

(q)

(iv) a mixed financial holding company within the
meaning of Article 2(15) of Directive 2002/87/EC;

‘special purpose vehicle’ means any undertaking, whether
incorporated or not, other than an existing insurance or
reinsurance undertaking, which assumes
from
insurance or reinsurance undertakings and which fully
funds its exposure to such risks through the proceeds of
a debt issuance or some other financing mechanism
where the repayment rights of the providers of such debt
or other financing mechanism are subordinated to the
reinsurance obligations of such a vehicle;

risks

‘finite reinsurance’ means reinsurance under which the
explicit maximum loss potential, expressed as
the
maximum economic risk transferred, arising both from
a significant underwriting risk and timing risk transfer,
exceeds the premium over the lifetime of the contract by
a limited but significant amount, together with at least
one of the following two features:

(i)

explicit and material consideration of the time value
of money,

(ii)

contractual provisions to moderate the balance of
economic experience between the parties over time
to achieve the target risk transfer.

(1)

Seventh Council Directive 83/349/EEC of 13 June 1983 based
on the Article 54(3)(g) of the Treaty on consolidated accounts
(OJ L 193, 18.7.1983, p. 1). Directive as last amended by
Directive 2003/51/EC.

(2) Directive 2000/12/EC of the European Parliament and of the
Council of 20 March 2000 relating to the taking up and pursuit
of the business of credit institutions (OJ L 126, 26.5.2000,
p. 1). Directive as last amended by Directive 2005/1/EC.
(3) Directive 2004/39/EC of the European Parliament and of the
Council of 21 April 2004 on markets in financial instruments
(OJ L 145, 30.4.2004, p. 1).

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For the purposes of paragraph 1(a) of this Article, the
2.
provision of cover by a reinsurance undertaking to an
institution for occupational retirement provision falling under
the scope of Directive 2003/41/EC (1) where the law of the
institution's home Member State permits such provision, shall
also be considered as an activity falling under the scope of this
Directive.

For the purposes of paragraph 1(d), any permanent presence
of a reinsurance 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(l), 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(n):

— any subsidiary undertaking of a subsidiary undertaking
shall be considered a subsidiary of the parent under-
taking which is at the head of those undertakings;

— 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.

For the purposes of paragraph 1(j) of this Article, and in the
context of Articles 12 and 19 to 23 and of the other levels of
holding referred to in Article 19 to 23, the voting rights
referred to in Article 92 of Directive 2001/34/EC (2) shall be
taken into account.

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.

THE TAKING-UP OF THE BUSINESS OF REINSURANCE AND AUTHORISATION OF THE REINSURANCE
UNDERTAKING

TITLE II

Article 3

Article 4

Principle of authorisation

Scope of authorisation

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

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

from the competent

(a)

any undertaking which establishes its head office in the
territory of that State;

(b)

any reinsurance undertaking which, having received the
authorisation,
to reinsurance
activities other than those already authorised.

its business

extends

1. An authorisation pursuant to Article 3 shall be valid for
the entire Community. It shall permit a reinsurance under-
taking 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 to 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.

(1) Directive 2003/41/EC of the European Parliament and of the
Council of 3 June 2003 on the activities and supervision of
institutions for occupational retirement provision (OJ L 235,
23.9.2003, p. 10).

(2) Directive 2001/34/EC of the European Parliament and of the
Council of 28 May 2001 on the admission of securities to
official stock exchange listing and on information to be
published on those securities (OJ L 184, 6.7.2001, p. 1).
Directive as last amended by Directive 2005/1/EC.

Article 5

Form of the reinsurance undertaking

1. The home Member State shall require every reinsurance
undertaking for which authorisation is sought to adopt one of
the forms set out in Annex I.

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A reinsurance undertaking may also adopt the form of a
European Company (SE), as defined in Regulation (EC)
No 2157/2001 (1).

2. Member States may, where appropriate, set up under-
takings 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 8

Head office of the reinsurance undertaking

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

shall

Article 6

Conditions

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

(a)

(b)

(c)

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/EC;

submit a scheme of operations in accordance with
Article 11;

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

Article 9

Policy conditions and scales of premiums

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

2. However, Member States may not 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
retroceding undertakings.

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

Article 10

Article 7

Close links

1. Where close links exist between the reinsurance under-
taking 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.

2. 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.

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

shall

(1)

Council Regulation (EC) No 2157/2001 of 8 October 2001 on
the Statute for a European company (SE) (OJ L 294, 10.11.2001,
p. 1). Regulation as amended by Regulation (EC) No 885/2004
(OJ L 168, 1.5.2004, p. 1).

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

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

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(d)

the items constituting the minimum guarantee fund;

(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.

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

2.
the
In addition to the requirements in paragraph 1,
scheme of operations shall for the first three financial years
contain:

Prior consultation with the competent authorities of
other Member States

(a)

estimates of management expenses other than installa-
tion costs,
in particular current general expenses and
commissions;

1. The competent authorities of the other Member State
involved shall be consulted prior to the granting of an
authorisation to a reinsurance undertaking, which is:

(b)

estimates of premiums or contributions and claims;

(a)

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

(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 to an undertaking an 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 manage-
ment 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.

(b)

(c)

a subsidiary of the parent undertaking of an insurance or
reinsurance undertaking authorised in another Member
State; or

controlled by the same person, whether natural or legal,
who controls an insurance or reinsurance undertaking
authorised in another Member State.

2. The competent authority of a Member State involved,
which 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

(b)

(c)

the parent undertaking of a credit
a subsidiary of
institution or investment firm authorised in the Com-
munity; or

controlled by the same person, whether natural or legal,
who controls a credit institution or investment firm
authorised in the Community.

authorities

competent

referred to in
3. The
relevant
paragraphs 1 and 2 shall
in particular consult each other
when assessing the suitability of the shareholders and the
involved in the
reputation and experience of directors
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.

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TITLE III

CONDITIONS GOVERNING THE BUSINESS OF REINSURANCE

CHAPTER 1

Article 16

Principles and methods of financial supervision

Supervision of branches established in another Member
State

S e c t i o n 1

C o m p e t e n t a u t h o r i t i e s a n d g e n e r a l r u l e s

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.

that

If the competent authorities of the host Member State have
reason to consider
the activities of a reinsurance
undertaking might affect its financial soundness, they shall
inform the competent authorities of the reinsurance under-
taking'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 1 shall
include verification, with respect to the reinsurance under-
the
taking's entire business, of
the assets
establishment of
covering them in accordance with the rules laid down or
practices followed in the home Member State under provisions
adopted at Community level.

technical provisions and of

its state of solvency, of

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 Directives 73/239/
EEC or 2002/83/EC on 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.

through a branch,

The Member State of the branch shall provide that, where a
reinsurance undertaking authorised in another Member State
carries on business
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
that purpose, on-the-spot
for
of persons
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.

they appoint

Article 17

Accounting, prudential and statistical information:
supervisory powers

Each Member State shall

1.
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 business of
reinsurance undertakings with head offices within their
territories,
including business carried on outside those
territories.

the supervision of

In particular, the competent authorities shall be enabled

4.
to:

(a) make detailed enquiries regarding a reinsurance under-
taking'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;

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(b)

take any measures with regard to a reinsurance under-
taking,
its directors or managers 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;

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 paragraph 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 qualifications of the person referred to in the first
paragraph. If they do not oppose the plan in question, they
may fix a maximum period for its implementation.

(c)

ensure that those measures are carried out, if need be, by
enforcement and where appropriate through judicial
channels.

Article 20

Acquisitions by financial undertakings

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

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.

S e c t i o n 2

Q u a l i f y i n g h o l d i n g s

Article 19

Acquisitions

If the acquirer of the holdings referred to in Article 19 is an
insurance undertaking, a reinsurance undertaking, a credit
firm authorised in another
institution or an investment
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
the undertaking in which the
acquirer proposes to acquire such a holding would become a
the
subsidiary or subject
assessment of the acquisition must be subject to the prior
consultation referred to in Article 14.

to the control of

that acquisition,

the acquirer,

Article 21

Disposals

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

Such a person shall 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.

Article 22

Information to the competent authority by the
reinsurance undertaking

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
the home Member State if he
competent authorities of
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.

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

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and the sizes of such holdings as shown, for example, by the
information received at annual general meetings of share-
holders or members or as a result of compliance with the
regulations relating to companies listed on stock exchanges.

involved in attempts to rescue that undertaking may be
divulged in civil or commercial proceedings.

Article 25

Article 23

Qualifying holdings: powers of the competent authority

shall

Member States
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, penalties 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
If a holding is acquired
imposed pursuant to Article 19.
despite the opposition of
the
Member States shall, regardless of any other penalties 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.

the competent authorities,

S e c t i o n 3

P r o f e s s i o n a l s e c r e c y a n d e x c h a n g e s o f
i n f o r m a t i o n

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
to the
undertakings. Such information shall be subject
conditions of professional secrecy laid down in Article 24.

Article 26

Cooperation agreements with third countries

exchange of

information with the

Member States may conclude cooperation agreements provid-
ing for
competent
authorities of third countries or with authorities or bodies
of third countries as defined in Article 28(1) and (2) only if
the
to guarantees of
professional secrecy at least equivalent to those referred to
in this Section. Such exchange of
information shall be
intended for the performance of the supervisory task of the
authorities or bodies mentioned.

information disclosed is

subject

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,
for which those
authorities gave their agreement.

the purposes

solely for

Article 24

Obligation

Article 27

Use of confidential information

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

Pursuant to that obligation, and without prejudice to cases
covered by criminal law, 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.

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

receiving confidential

(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 proce-
dures and internal control mechanisms,

(b)

to impose penalties,

2. However, where a reinsurance undertaking has been
is being compulsorily wound up,
declared bankrupt or
confidential information which does not concern third parties

(c)

in administrative appeals against decisions of
competent authorities, or

the

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(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

1. Articles 24 and 27 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:

(a)

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

responsible for

(b) bodies involved in the liquidation and bankruptcy of
insurance and reinsurance undertakings and in other
similar procedures, and

(c)

persons responsible for carrying out statutory audits of
the accounts of
insurance undertakings, reinsurance
undertakings and other financial institutions,

their supervisory functions, or

in the discharge of
the
disclosure to bodies which administer compulsory winding-
information
up proceedings or guarantee
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.

schemes of

2. Notwithstanding Articles 24 to 27, Member States may
authorise exchanges of information between the competent
authorities and:

(a)

(b)

(c)

the authorities responsible for overseeing the bodies
involved in the liquidation and bankruptcy of insurance
or reinsurance undertakings and other similar proce-
dures, or

the authorities responsible for overseeing the persons
charged with carrying out
the
accounts of insurance or reinsurance undertakings, credit
institutions,
financial
institutions, or

statutory audits of

and other

investment

firms

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

insurance or

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

least

that

(a)

(b)

this exchange of 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
Article 24;

(c) where the information originates in another Member
the express
it may not be disclosed without
State,
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.

3. Notwithstanding Articles 24 to 27, Member States may,
with the aim of strengthening the stability,
including the
integrity, of the financial system, authorise the exchange of
information between the competent authorities and the
the
the law for
authorities or bodies responsible under
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
the
following conditions are met:

least

that

(a)

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

(b)

information received in this context shall be subject to
the conditions of professional
secrecy imposed in
Article 24;

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

Where, in a Member State, the authorities or bodies referred to
in the first subparagraph perform their task of detection or
investigation with the
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 laid down in
the second subparagraph.

in view of

their

aid,

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In order to implement point (c) 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 responsi-
bilities 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
to this
bodies which may receive information pursuant
paragraph.

Article 29

Transmission of information to central banks and
monetary authorities

to other public 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,
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

S e c t i o n 4

D u t i e s o f a u d i t o r s

Article 31

Duties of auditors

1. Member States shall provide at least that any person
authorised in accordance with Directive 84/253/EEC (1),
performing in a reinsurance undertaking the task described
in Article 51 of Directive 78/660/EEC (2), Article 37 of
Directive 83/349/EEC or Article 31 of Directive 85/611/
EEC (3) 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/she has become
aware while carrying out that task which is liable to:

(a)

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

the activities of

(b)

the continuous functioning of

affect
undertaking, or

the reinsurance

Disclosure of information to government
administrations responsible for financial legislation

(c)

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

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
institutions,
institutions,
credit
reinsurance under-
investment services and insurance or
takings and to inspectors acting on behalf of
those
departments.

financial

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 Article
except with the express consent of the competent authorities
which disclosed the information or of
the competent
the Member State in which on-the-spot
authorities of
verification was carried out.

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.

(1)

(2)

(3)

Eighth Council Directive 84/253/EEC of 10 April 1984 based
on Article 54(3)(g) of the Treaty on the approval of persons
responsible for carrying out the statutory audits of accounting
documents (OJ L 126, 12.5.1984, p. 20).
Fourth Council Directive 78/660/EEC of 25 July 1978 based on
Article 54(3)(g) of the Treaty on the annual accounts of certain
types of companies (OJ L 222, 14.8.1978, p. 11). Directive as
last amended by Directive 2003/51/EC.
Council Directive 85/611/EEC of 20 December 1985 on the
coordination of laws, regulations and administrative provisions
relating to undertakings for collective investment in transfer-
able securities (UCITS) (OJ L 375, 31.12.1985, p. 3). Directive as
last amended by Directive 2005/1/EC.

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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 of this
Article 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

2. The equalisation reserve for credit reinsurance shall be
calculated in accordance with 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.

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

insurance are less than 4 % of

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

1. The home Member State shall require every reinsurance
undertaking to establish adequate technical provisions in
respect of its entire business.

Article 34

Assets covering technical provisions

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.

1. The home Member State shall require every reinsurance
undertaking to invest
the assets covering the technical
provisions and the equalisation reserve referred to in Article 33
in accordance with the following rules:

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 the
reinsurer is a reinsurance undertaking authorised in accor-
dance 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,
the
conditions for accepting such claims.

shall

set

it

Article 33

Equalisation reserves

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

(a)

(b)

(c)

(d)

the assets 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 the sufficiency,
liquidity, security, quality, profitability and matching of
its investments;

the reinsurance undertaking shall ensure that the assets
are diversified and adequately spread and allow the
undertaking to respond adequately to changing eco-
nomic circumstances, in particular developments in the
financial markets and real estate markets or major
catastrophic events. The undertaking shall assess the
impact of irregular market circumstances on its assets
and shall diversify the assets in such a way as to reduce
such impact;

investment in assets which are not admitted to trading on
a regulated financial market shall in any event be kept to
prudent levels;

investment in derivative instruments shall be possible
insofar as they contribute to a reduction of investment
risks or facilitate efficient portfolio management. They
shall be valued on a prudent basis, taking into account
the underlying assets, and included in the valuation of
the institution's assets. The institution shall also avoid
excessive risk exposure to a single counterparty and to
other derivative operations;

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(e)

the assets shall be properly diversified in such a way as to
avoid excessive reliance on any one particular asset,
issuer or group of undertakings and accumulations of
risk in the portfolio as a whole. Investments in assets
issued by the same issuer or by issuers belonging to the
same group shall not expose the undertaking to excessive
risk concentration.

Member States may decide not to apply the requirements
referred to in point (e) to investment in government bonds.

2. Member States shall not require reinsurance undertakings
situated in their territory to invest in particular categories of
assets.

3. Member States shall not subject the investment decisions
of a reinsurance undertaking situated in their territory or its
to any kind of prior approval or
investment manager
systematic notification requirements.

4. Notwithstanding paragraphs 1 to 3, the home Member
State may, for every reinsurance undertaking whose head
office is situated in its territory,
lay down the following
quantitative rules, provided that they are prudentially justified:

(a)

investments of gross technical provisions in currencies
other than those in which technical provisions are set
should be limited to 30 %;

(b)

(c)

investments of gross technical provisions in shares and
other negotiable securities treated as shares, bonds and
debt securities which are not admitted to trading on a
regulated market should be limited to 30 %;

the home Member State may require every reinsurance
undertaking to invest no more than 5 % of its gross
technical provisions in shares and other negotiable
securities treated as shares, bonds, debt securities and
other money and capital market instruments from the
same undertaking, and no more than 10 % of its total
gross technical provisions in shares and other negotiable
securities treated as shares, bonds, debt securities and
other money and capital market
instruments from
undertakings which are members of the same group.

Furthermore, the home Member State shall

5.
lay down
more detailed rules setting the conditions for the use of
amounts outstanding from a special purpose vehicle as assets
covering technical provisions pursuant to this Article.

CHAPTER 3

Rules relating to the solvency margin and to the guarantee
fund

S e c t i o n 1

Av a i l a b l e s o l v e n c y m a r g i n

Article 35

General rule

Each Member State shall require of every reinsurance under-
taking 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 of this
Directive.

Article 36

Eligible items

1. The available solvency margin shall consist of the assets of
the reinsurance undertaking free of any foreseeable liabilities,
less any intangible items, including:

(a)

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

(i)

(ii)

the memorandum and articles of association shall
stipulate that payments may be made from those
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
if all the undertaking's other debts
undertaking,
have been settled;

the dissolution of

the memorandum and articles of association shall
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;

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(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 which neither correspond to
underwriting liabilities nor are classified as equalisation
reserves;

(c)

the profit or loss brought forward after deduction of
dividends to be paid.

(iv) credit institutions and financial institutions within
the meaning of Article 1(1) and (5) of Directive
2000/12/EC,

(v)

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

(b)

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

(i)

instruments referred to in paragraph 4,

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

(ii)

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

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 point A of that Annex. For classes other than 1 and 2
listed in point A 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 the first and second
subparagraphs, the available solvency margin shall be reduced
by the following items:

(a)

participations which the reinsurance undertaking holds
in the following entities:

(i)

(ii)

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,

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

(iii)

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

(iii)

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

As an alternative to the deduction of the items referred to in
(a) and (b) of the third 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 accor-
dance with Directive 98/78/EC or to supplementary super-
vision in accordance with Directive 2002/87/EC need not

(1)

(2)

Council Directive 93/22/EEC of 10 May 1993 on investment
services in the securities field (OJ L 141, 11.6.1993, p. 27).
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).
Council Directive 93/6/EEC of 15 March 1993 on the capital
adequacy of investments firms and credit institutions (OJ L 141,
11.6.1993, p. 1). Directive as last amended by Directive 2005/1/
EC.

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the items referred to in (a) and (b) of

the third
deduct
subparagraph which are held in credit institutions, investment
firms, financial institutions, insurance or reinsurance under-
takings or insurance holding companies which are included in
the supplementary supervision.

solvency margin and the required solvency margin
both before and after that repayment. The compe-
tent authorities shall authorise repayment only if
the reinsurance undertaking's available solvency
margin will not fall below the required level;

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:

(a)

the required solvency margin, whichever

cumulative preferential share capital and subordinated
loan capital up to 50 % of the available solvency margin
or
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 that, 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 shall also fulfil the following
conditions:

(i)

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

(ii)

(iii)

for loans with a fixed maturity, the original maturity
shall be at least five years. No later than one year
before the repayment date the reinsurance under-
taking shall 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 that application
is made by the issuing reinsurance undertaking and
that its available solvency margin will not fall below
the required level;

loans the maturity of which is not fixed shall 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 shall notify the competent
authorities at least six months before the date of the
available
proposed repayment,

specifying

the

(iv)

the loan agreement shall not include any clause
in specified circumstances, other
providing that
the reinsurance under-
than the winding-up of
taking, 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 referred to 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 that they fulfil the following:

(i)

(ii)

they may not be repaid on the initiative of the
bearer or without
the
competent authority;

the prior consent of

the contract of issue shall enable the reinsurance
undertaking to defer the payment of interest on the
loan;

(iii)

the lender's claims on the reinsurance undertaking
shall rank entirely after those of all non-subordi-
nated creditors;

(iv)

the documents governing the issue of the securities
shall 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
reinsurance 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;

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(b)

its members by way of a call

in the case of a non-life mutual or mutual-type
association with variable contributions, any claim which
it has against
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 estab-
lish guidelines laying down the conditions under which
supplementary contributions may be accepted;

difference shall be reduced by the amount of any
undepreciated acquisition costs entered as an asset.

6. Amendments to paragraphs 1 to 5 of this Article 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).

(c)

any hidden net reserves arising out of the valuation of
assets, in so far as such hidden net reserves are not of an
exceptional nature.

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

(a)

until 31 December 2009, an amount equal to 50 % of
the undertaking's future profits, 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:

S e c t i o n 2

R e q u i r e d s o l v e n c y m a r g i n

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 contribu-
tions, or of the average burden of claims for the past three
financial years.

However,
in the case 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.

2.
Subject to Article 40, the amount of the required solvency
margin shall be equal to the higher of the two results as set out
in paragraphs 3 and 4 of this Article.

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

(i) when an actuarial

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

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 %.

(ii)

insofar as that part of future profits emerging from
hidden net reserves referred to in paragraph 4(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 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
reassurance activities and the mathematical provisions
for all policies for which Zillmerising is possible; the

Premiums or contributions in respect of classes other than
classes 11, 12 and 13 listed in point A of the Annex to
Directive 73/239/EEC may be increased by 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 that 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.

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The amount so obtained shall be divided into two portions,
the first portion extending up to EUR 50 000 000, 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 recover-
able under retrocession and the gross amount of claims; that
ratio may in no case be less than 50 %. Upon application, with
supporting evidence, by the reinsurance undertaking to the
competent authority of the home Member State and with the
agreement of that authority, amounts recoverable from special
purpose vehicles as referred to in Article 46 may also be
deducted as retrocession.

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

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 classes 11, 12 and 13 listed in point A of the Annex to
Directive 73/239/EEC, may be increased by up to 50 %, for
specific reinsurance activities or contract types, in order to
take account of the specificities of those 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,
specified in
paragraph 1 shall be aggregated.

in the periods

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; that ratio may in
no case be less than 50 %. Upon application, with supporting
evidence, by the reinsurance undertaking to the competent
authority of the home Member State and with the agreement
of that authority, amounts recoverable from special purpose
vehicles as referred to in Article 46 may also be deducted as
retrocession.

With the approval of the competent authorities, statistical
methods may be used to allocate claims, provisions and
recoveries.

If

the

required solvency margin as

5.
calculated in
paragraphs 2, 3 and 4 is lower than the required solvency
margin of the year before, the required solvency margin shall
be at least equal to the required solvency margin of the year
before multiplied by the ratio between 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.
shall be
calculated net of retrocession but the ratio may in no case
be higher than 1.

In these calculations

technical provisions

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

(a)

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

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

(b)

a provision is set up for increasing age;

From that 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 reference
period 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 reference period established in paragraph 1,
shall be divided into two portions, the first extending up to
EUR 35 000 000 and the second comprising the excess; 26 %

(c)

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

(d)

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

(e)

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

Article 38

Required solvency margin for life reassurance activities

1. The
activities shall be determined in accordance with Article 37.

required solvency margin for

reassurance

life

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2. Notwithstanding paragraph 1 of this Article, the home
Member State may provide that for reinsurance classes of
assurance business covered by Article 2(1)(a) of Directive
2002/83/EC linked to investment
funds or participating
contracts and for the operations referred to in Article 2(1)(b),
2(2)(b), (c), (d) and (e) of Directive 2002/83/EC, the required
solvency margin is to be determined in accordance with
Article 28 of Directive 2002/83/EC.

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.

Article 39

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

1. The home Member State shall require every reinsurance
undertaking conducting both non-life and life reinsurance
business to 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
2.
required in paragraph 1 of
the competent
authorities shall apply the measures provided for in Articles 42
and 43.

this Article,

S e c t i o n 3

G u a r a n t e e f u n d

Article 40

Amount of the guarantee fund

1. One third of the required solvency margin as specified in
Articles 37, 38 and 39 shall constitute the guarantee fund.
This fund shall consist of the items listed in Article 36(1), (2)
and (3) and, with the agreement of the competent authority of
the home Member State, in Article 36(4)(c).

2. The guarantee fund shall not be less than a minimum of
EUR 3 000 000.

Any Member State may provide that as regards captive
reinsurance undertakings, the minimum guarantee fund shall
not be not less than EUR 1 000 000.

Article 41

Review of the amount of the guarantee fund

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

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

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

the free disposal of

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.

1. The amounts in euro as laid down in Article 40(2) shall
be reviewed annually as from 10 December 2007 in order to

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.

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the
It may also restrict or prohibit
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.

the free disposal of

in order to ensure that the reinsurance
solvency margin,
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.
Each Member State shall take the measures necessary to
be able, in accordance with 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.

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
those
elements since the end of the last financial year.

Article 43

Financial recovery plan

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

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:

(a)

the nature or quality of
changed significantly since the last financial year;

retrocession contracts has

(b)

there is no or a limited risk transfer under
retrocession contracts.

the

2. The financial recovery plan shall, as a minimum, include
particulars or proof
three financial years
concerning:

the next

for

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

its obligations arising out of

that

(a)

estimates of management expenses, in particular current
general expenses and commissions;

(b)

a plan setting out detailed estimates of
income and
expenditure in respect of reinsurance acceptances and
reinsurance cessions;

Article 44

Withdrawal of authorisation

(c)

a forecast balance sheet;

1. Authorisation granted to a reinsurance undertaking by
the competent authority of its home Member State may be
withdrawn by that authority if that undertaking:

(d)

estimates of the financial resources intended to cover
underwriting liabilities and the required solvency margin;

(a)

does not make use of
that authorisation within 12
months, expressly renounces it or 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;

(e)

the overall retrocession policy.

3. Where the financial position of the reinsurance under-
taking 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

(c)

has been unable, within the time allowed, to take the
measures specified in the restoration plan or finance
scheme referred to in Article 42;

(b) no longer fulfils the conditions for admission;

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(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 other Member States
the competent authorities of
take appropriate measures to
accordingly, and they shall

prevent the reinsurance undertaking from commencing new
operations within their territories, under either the right of
establishment or the freedom to provide services.

2. Any decision to withdraw an authorisation shall be
supported by precise reasons and communicated to the
reinsurance undertaking in question.

PROVISIONS RELATING TO FINITE REINSURANCE AND SPECIAL PURPOSE VEHICLES

TITLE IV

Article 45

Finite reinsurance

In the interests of

transparency, Member States shall
2.
communicate the text of any measures laid down by their
national
the purposes of paragraph 1 to the
law for
Commission without delay.

1. The home Member State may lay down specific provisions
concerning the pursuit of finite reinsurance activities regard-
ing:

Article 46

Special purpose vehicles

— mandatory conditions for

inclusion in all contracts

issued;

1. Where a Member State decides to allow the establishment
within its territory of special purpose vehicles within the
meaning of
it shall require prior official
authorisation thereof.

this Directive,

— sound administrative and accounting procedures, ade-
quate internal control mechanisms and risk management
requirements;

2. The Member State where the special purpose vehicle is
established shall lay down the conditions under which the
activities of such an undertaking shall be carried on.
In
particular, that Member State shall lay down rules regarding:

— accounting, prudential

and

statistical

information

requirements;

— scope of authorisation;

— the establishment of technical provisions to ensure that

they are adequate, reliable and objective;

— mandatory conditions for

inclusion in all contracts

issued;

— investment of assets covering technical provisions in
order to ensure that they take account of the type of
business carried on by the reinsurance undertaking, in
particular
the
expected claims payments, in such a way as to secure
the
security, profitability and
sufficiency,
matching of its assets;

the nature, amount and duration of

liquidity,

— the good repute and appropriate professional qualifica-
tions of persons running the special purpose vehicle;

— fit and proper requirements for shareholders or members
having a qualifying holding in the special purpose
vehicle;

— rules relating to the available solvency margin, required
solvency margin and the minimum guarantee fund that
the reinsurance undertaking shall maintain in respect of
finite reinsurance activities.

— sound administrative and accounting procedures, ade-
quate internal control mechanisms and risk management
requirements;

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— accounting, prudential

and

statistical

information

requirements;

— the solvency requirements of special purpose vehicles.

In the interests of

transparency, Member States shall
3.
communicate the text of any measures laid down by their
national
to the
law for
Commission without delay.

the purposes of paragraph 2,

PROVISIONS RELATING TO RIGHT OF ESTABLISHMENT AND FREEDOM TO PROVIDE SERVICES

TITLE V

Article 47

Reinsurance undertakings not complying with the legal
provisions

1.
If the competent authorities of the host Member State
establish that a reinsurance 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 the competent authority of the
home Member State, take appropriate measures to prevent or
penalise further infringements, including, insofar as is strictly

reinsurance undertaking from
necessary, preventing that
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
reinsurance
restrictions on the conduct of
business shall be properly reasoned and communicated to
the reinsurance undertaking concerned.

Article 48

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 VI

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

Article 49

Article 50

Principle and conditions for conducting reinsurance
business

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:

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

(a)

reinsurance undertakings which have their head offices
situated in a third country, and conduct reinsurance
business in the Community,

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(b)

reinsurance undertakings which have their head offices in
the Community and conduct reinsurance business in the
territory of a third country.

2. The agreements referred to in paragraph 1 shall
in
particular seek to ensure under 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 to ensure that:

(a)

the competent authorities of the Member States are able
to obtain the information necessary for the supervision
reinsurance undertakings which have their head
of

offices situated in the Community and conduct business
in the territory of third countries concerned,

(b)

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

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

SUBSIDIARIES OF PARENT UNDERTAKINGS GOVERNED BY THE LAWS OF A THIRD COUNTRY AND
ACQUISITIONS OF HOLDINGS BY SUCH PARENT UNDERTAKINGS

TITLE VII

Article 51

undertakings in establishing themselves and operating in a
third country or carrying on activities in a third country.

Information from Member States to the Commission

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

(a)

of any authorisation of a direct or indirect subsidiary, one
or more parent undertakings of which are governed by
the laws of a third country;

(b) whenever such a parent undertaking acquires a holding
in a Community reinsurance undertaking which would
turn the latter into its subsidiary.

When an authorisation as referred to in point (a) is granted to
the direct or indirect subsidiary of one or more parent
undertakings governed by the laws of a third country, the
structure of the group shall be specified in the notification
which the
to the
Commission.

competent authorities

shall address

Article 52

Third country treatment of Community reinsurance
undertakings

1. Member States shall
general

difficulties

inform the Commission of any
reinsurance
their

encountered

by

2. The Commission shall, periodically, 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
the
carrying on of reinsurance activities by such established
undertakings and the cross-border provision of reinsurance
from the Community to third countries. The
activities
Commission shall submit
those reports to the Council,
together with any appropriate proposals or recommendations.

in third-country reinsurance undertakings,

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.

4. Measures taken under this Article shall comply with the
Community's obligations under any international agreements,
in particular in the World Trade Organisation.

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TITLE VIII

OTHER PROVISIONS

Article 53

Right to apply to the courts

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

3. The Committee shall adopt its Rules of Procedure.

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

Article 54

Cooperation between the Member States and the
Commission

1. Member States shall cooperate with each other for the
purpose of facilitating the 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 Com-
munity and of examining any difficulties which may arise in
the application of this Directive.

Article 55

Committee procedure

1. The Commission shall be assisted by the European
Insurance and Occupational Pensions Committee.

2. Where reference is made to this paragraph, Articles 5 and
7 of Decision 1999/468/EC shall apply, having regard to the
provisions of Article 8 thereof.

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,

(b)

(c)

(d)

(e)

clarification of
margin listed in Article 36 to take account of
creation of new financial instruments,

the items constituting the solvency
the

increase by up to 50 % of
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 classes 11, 12 and 13 listed in point A of the
Annex to Directive 73/239/EEC, for specific reinsurance
activities or contract
the
specificities of those activities or contracts,

to take account of

types,

alteration of the minimum guarantee fund provided for
in Article 40(2)
to take account of economic and
financial developments,

clarification of the definitions in Article 2 in order to
ensure uniform application of this Directive throughout
the Community.

TITLE IX

AMENDMENTS TO EXISTING DIRECTIVES

Article 57

an authorisation to a non-life insurance undertaking,
which is:

Amendments to Directive 73/239/EEC

Directive 73/239/EEC is hereby amended as follows:

(a)

a subsidiary of an insurance or reinsurance under-
taking authorised in another Member State; or

1.

In Article 12a, paragraphs 1 and 2 shall be replaced by
the following:

‘1.
The competent authorities of the other Member
State involved shall be consulted prior to the granting of

(b)

a subsidiary of
the parent undertaking of an
insurance or reinsurance undertaking authorised
in another Member State; or

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(c)

controlled by the same person, whether natural or
legal, who controls an insurance or reinsurance
undertaking authorised in another Member State.

may, however, allow the rules on the localisation of assets
to be relaxed.

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

(a)

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

(b)

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

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
2005/68/EC 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
which is neither a reinsurance undertaking authorised in
accordance with Directive 2005/68/EC nor an insurance
undertaking authorised in accordance with this Directive
or Directive 2002/83/EC, it shall set the conditions for
accepting such claims.’

(c)

controlled by the same person, whether natural or
legal, who controls a credit institution or invest-
ment firm authorised in the Community.’

4. Article 16(2) is hereby amended as follows:

2.

In Article 13(2), the following subparagraph shall be
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 2005/68/EC of
the European Parliament
the Council of
16 November 2005 on reinsurance (*) or an insurance
undertaking authorised in accordance with this Directive
or Directive 2002/83/EC of the European Parliament and
of the Council of 5 November 2002 concerning life
assurance (**), on grounds directly related to the financial
soundness of
the
insurance undertaking.

the reinsurance undertaking or

and of

(*) OJ L 323, 9.12.2005, p. 1.
(**) OJ L 345, 19.12.2002, p. 1. Directive as last
amended by Directive 2005/1/EC (OJ L 79,
24.3.2005, p. 9).’

3.

In Article 15, paragraphs 2 and 3 shall be replaced by the
following:

shall

require

The home Member State

‘2.
every
insurance undertaking to cover the technical provisions
and the equalisation reserve referred to in Article 15a of
this Directive by matching assets in accordance with
Article 6 of Directive 88/357/EEC. In respect of risks
situated within the Community, those assets must be
localised within the Community. Member States shall not
require insurance undertakings to localise their assets in
any particular Member State. The home Member State

(a)

point (b) of the first subparagraph shall be replaced
by the following:

‘(b)

reserves (statutory and free reserves) which
neither correspond to underwriting liabilities
nor are classified as equalisation reserves;’;

(b)

the introductory wording and point (a) of the fourth
subparagraph shall be replaced by the following:

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

(a)

participations which the insurance undertak-
ing holds in:

— insurance undertakings within the mean-
ing 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 2005/
68/EC or non-member country reinsur-
ance 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,

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— credit institutions and financial

institu-
tions within the meaning of Article 1(1)
and (5) of Directive 2000/12/EC of the
European Parliament and of the Council,

guarantee fund in accordance with Article 40 of Directive
2005/68/EC, where one of the following conditions is
met:

— investment

firms and financial

institu-
tions 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’.

5. Article 16a is hereby amended as follows:

(a)

in paragraph 3, the seventh subparagraph shall be
replaced by the following:

‘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 reinsur-
ance and the gross amount of claims; that ratio may
in no case be less than 50 %. Upon application, with
supporting evidence, by the insurance undertaking
to the competent authority of the home Member
State and with the agreement of that authority,
amounts recoverable from special purpose vehicles
referred to in Article 46 of Directive 2005/68/EC
may be deducted as reinsurance.’;

(b)

in paragraph 4, the seventh subparagraph shall be
replaced by the following:

‘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 reinsur-
ance and the gross amount of claims; that ratio may
in no case be less than 50 %. Upon application, with
supporting evidence, by the insurance undertaking
to the competent authority of the home Member
State and with the agreement of that authority,
amounts recoverable from special purpose vehicles
referred to in Article 46 of Directive 2005/68/EC
may be deducted as reinsurance.’

6.

The following Article shall be inserted:

‘Article 17b

(a)

the reinsurance premiums collected exceed 10 % of
its total premium;

(b)

the reinsurance premiums collected exceed EUR
50 000 000;

(c)

the technical provisions resulting from its reinsur-
ance acceptances exceed 10 % of its total technical
provisions.

2.
Each Member State may choose to apply to such
insurance undertakings as are referred to in paragraph 1
of this Article and whose head office is situated within its
territory the provisions of Article 34 of Directive 2005/
68/EC in respect of
acceptance
their
activities, where one of the conditions laid down in the
said paragraph 1 is met.

reinsurance

In that case, the relevant Member State shall require that
all assets employed by the insurance undertaking to cover
the technical provisions corresponding to its reinsurance
acceptances shall be ring-fenced, managed and organised
separately from the direct insurance activities of
the
insurance undertaking, without
any possibility of
In such a case, and only as far as their
transfer.
insur-
reinsurance acceptance activities are concerned,
ance undertakings shall not be subject to Articles 20, 21
and 22 of Directive 92/49/EEC (*) and Annex I
to
Directive 88/357/EEC.

Each Member State shall ensure that their competent
authorities verify the separation provided for in the
second subparagraph.

3.
If the Commission decides, pursuant to Article 56(c)
of Directive 2005/68/EC to increase the amounts used
the required solvency margin
for the calculation of
provided for in Article 37(3) and (4) of that Directive,
each Member State shall apply to such insurance
undertakings as are referred to in paragraph 1 of this
Article the provisions of Articles 35 to 39 of
that
reinsurance acceptance
Directive in respect of
activities.

their

1.
Each Member State shall require that an insurance
undertaking whose head office is situated within its
reinsurance activities
territory and which conducts
establishes, in respect of its entire business, a minimum

(*) Council Directive 92/49/EEC of 18 June 1992 on
the coordination of laws, regulations and adminis-
trative provisions relating to direct insurance other
than life assurance (third non-life insurance Direc-
tive) (OJ L 228, 11.8.1992, p. 1). Directive as last
amended by Directive 2005/1/EC.’

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7.

In Article 20a, paragraph 4 shall be replaced by the
following:

‘4. Member States shall ensure that
the competent
authorities have the power to decrease the reduction,
based on reinsurance,
to the solvency margin as
determined in accordance with Article 16a where:

(a)

the nature or quality of reinsurance contracts has
changed significantly since the last financial year;

(b)

there is no, or a limited, risk transfer under the
reinsurance contracts.’

Article 58

Amendments to Directive 92/49/EEC

Directive 92/49/EEC is hereby amended as follows:

1.

In Article 15, paragraph 1a shall be replaced by the
following:

‘1a.
If the acquirer of the holdings referred to in
paragraph 1 of this Article is an insurance undertaking, a
institution or an
reinsurance undertaking, a credit
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 shall be subject to the prior
consultation referred to in Article 12a of Directive 73/
239/EEC’.

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

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
insurance undertakings, reinsurance undertak-

of
ings and in other similar procedures, and

— persons responsible for carrying out statutory audits
of the accounts of insurance undertakings, reinsur-
ance 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 informa-
tion necessary to the performance of their duties. The
information received by those authorities, bodies and
persons shall be subject to the obligation of professional
secrecy laid down in paragraph 1.

2.

In Article 16, paragraphs 4, 5 and 6 shall be replaced by
the following:

6. Notwithstanding paragraphs 1 to 4, Member States
may authorise exchanges of information between the
competent authorities and:

‘4. Competent authorities receiving confidential infor-
mation under paragraph 1 or 2 may 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
such
facilitate monitoring of
business, especially with regard to the monitoring
of technical provisions, solvency margins, adminis-
trative and accounting procedures and internal
control mechanisms,

the conduct of

— to impose penalties,

— in administrative appeals against decisions of the

competent authorities, or

— 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, reinsur-
ance undertakings, credit institutions,
investment
firms and other financial institutions, or

— independent actuaries of insurance undertakings or
reinsurance undertakings carrying out legal super-
those undertakings and the bodies
vision of
responsible for overseeing such actuaries.

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

4.

In Article 22(1),
replaced by the following:

the introductory wording shall be

— 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

in another
information originates
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.’

3. Article 21(1) is hereby amended as follows:

(a)

the introductory wording shall be replaced by the
following:

‘1.
The home Member State may not authorise
technical
insurance undertakings to cover
provisions and equalisation reserves with any assets
other than those in the following categories:’;

their

(b) point

(f) of point

(B) shall be replaced by the

following:

‘(f)
debts owed by reinsurers, including reinsurers
shares of technical provisions, and by the special
purpose vehicles
referred to in Article 46 of
Directive 2005/68/EC of the European Parliament
and of
the Council of 16 November 2005 on
reinsurance (*).

(*) OJ L 323, 9.12.2005, p. 1.’

(c)

the third subparagraph of point (C) shall be replaced
by the following:

‘The inclusion of any asset or category of assets
listed in the first subparagraph shall not mean that
all those assets should automatically be accepted as
cover for technical provisions. The home Member
State shall lay down more detailed rules setting the
conditions for the use of acceptable assets.’

‘1. As regards the assets covering technical provisions
and equalisation reserves, the home Member State shall
require every insurance undertaking to invest no more
than:’.

Article 59

Amendments to Directive 98/78/EC

Directive 98/78/EC is hereby amended as follows:

1.

The title shall be 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 hereby amended as follows:

(a)

the points (c), (i), (j) and (k) shall be replaced by the
following:

“reinsurance undertaking” means an under-
‘(c)
taking, which has received official authorisation in
accordance with Article 3 of Directive 2005/68/EC
of the European Parliament and of the Council of
16 November 2005 on reinsurance (*);

(*) OJ L 323, 9.12.2005, p. 1.’

“insurance holding company” means a parent
‘(i)
undertaking,
the main business of which is to
acquire and hold participations in subsidiary under-
takings, where those subsidiary undertakings are
exclusively or mainly insurance undertakings,
reinsurance undertakings or non-member country
insurance undertakings or non-member country
reinsurance undertakings, at
least one of such
subsidiary undertakings being an insurance under-
taking, 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 of 16 December
2002 on the supplementary supervision of credit
institutions, insurance undertakings and investment
firms in a financial conglomerate (*);

a parent undertaking, other

“mixed-activity insurance holding company”
(j)
than an
means
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

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undertaking or a reinsurance undertaking among its
subsidiary undertakings;

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

(*) OJ L 35, 11.2.2003, p. 1. Directive as amended
by Directive 2005/1/EC (OJ L 79, 24.3.2005,
p. 9).;’

the competent authorities are required to play a super-
visory role in relation to the non-member country
insurance undertaking, the non-member country rein-
surance undertaking,
insurance holding company or
mixed-activity insurance holding company taken indivi-
dually.

2. The supplementary supervision shall
account
Articles 5, 6, 8, 9 and 10:

the following undertakings

take into
referred to in

(b)

the following point shall be added:

— related undertakings of the insurance undertaking

or of the reinsurance undertaking,

‘(l)
“non-member country reinsurance undertak-
ing” means an undertaking which would require
authorisation in accordance with Article 3 of
Directive 2005/68/EC if it had its head office in
the Community;’.

3. Articles 2, 3 and 4 shall be replaced by the following:

‘Article 2

Cases of application of supplementary supervision
of insurance undertakings and reinsurance
undertakings

1.
In addition to the provisions of Directive 73/239/
EEC, Directive 2002/83/EC of the European Parliament
and of the Council of 5 November 2002 concerning life
assurance (*) and Directive 2005/68/EC, which lay down
the rules for the supervision of insurance undertakings
shall
and reinsurance undertakings, Member States
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 insur-
ance undertaking or non-member country reinsurance
undertaking, shall be supplemented in the manner
prescribed in Articles 5, 6, 8 and 9 of this Directive.

Every insurance undertaking or reinsurance under-
2.
taking 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.

— participating undertakings in the insurance under-

taking 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 super-
vision referred to in Article 2:

— if the undertaking which should be included is of
negligible interest with respect to the objectives of
the supplementary supervision of insurance under-
takings 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 reinsur-
ance undertakings.

3.
Every insurance undertaking or reinsurance under-
taking 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 4

Article 3

Scope of supplementary supervision

supplementary supervision in
1. The
accordance with Article 2 shall in no way imply that

exercise of

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

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L 323/33

Directive 73/239/EEC or Article 4 of Directive 2002/83/
EC or Article 3 of Directive 2005/68/EC.

2. Where insurance undertakings or reinsurance under-
takings 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-
the competent
activity insurance holding company,
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.

2. Member States shall provide that their competent
authorities may carry out within their territory, them-
selves 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 supplemen-

tary supervision,

— subsidiary undertakings of that insurance under-

taking,

— subsidiary undertakings of that reinsurance under-

taking,

— parent undertakings of that insurance undertaking,

(*) OJ L 345, 19.12.2002, p. 1. Directive as last

amended by Directive 2005/1/EC.’

— parent undertakings of

that reinsurance under-

taking,

4.

In Article 5, paragraph 1 shall be replaced by the
following:

‘1. Member States shall prescribe that the competent
authorities are to require that every insurance under-
taking or reinsurance undertaking subject to supplemen-
tary supervision shall have adequate internal control
mechanisms in place for the production of any data and
information relevant for the purposes of such supple-
mentary supervision.’

5. Articles 6, 7 and 8 shall be replaced by the following:

‘Article 6

Access to information

1. Member States shall provide that their competent
authorities
responsible for exercising supplementary
supervision are to 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 compe-
tent 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.

— subsidiary undertakings of a parent undertaking of

that insurance undertaking.

— subsidiary undertakings of a parent undertaking of

that reinsurance undertaking.

in applying this Article,

the competent
3. Where,
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 under-
takings established in different Member States are directly
or indirectly related or have a common participating

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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 informa-
tion 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 of 20 March 2000 relating to the taking up
and pursuit of the business of credit institutions (*) or an
investment firm as defined in Council Directive 93/22/
EEC of 10 May 1993 on investment services in the
securities field (**), 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 under-
takings 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.

Information received pursuant to this Directive and,
3.
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 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 (third non-life
insurance Directive) (***) and Article 16 of Directive
2002/83/EC and Articles 24 to 30 of Directive 2005/68/
EC.

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 under-
taking and:

(i)

a related undertaking of the insurance under-
taking 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 under-
taking in the insurance undertaking or in the
reinsurance undertaking;

(b)

an insurance undertaking or a reinsurance under-
taking and a natural person who holds a participa-
tion in:

(i)

the reinsurance
the insurance undertaking,
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 under-
taking 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 mechan-
isms, including sound reporting and accounting proce-
dures, in order to identify, measure, monitor and control
transactions as provided for in paragraph 1 appropri-
ately. Member States shall also require at 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 under-
taking.

(*) OJ L 126, 26.5.2000, p. 1. Directive as last amended

by Directive 2005/1/EC.

(**) OJ L 141, 11.6.1993, p. 27. Directive as last

amended by Directive 2002/87/EC.

(***) OJ L 228, 11.8.1992, p. 1. Directive as last amended

by Directive 2005/1/EC.’

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6.

In Article 9, paragraph 3 shall be replaced by the
following:

(b) paragraph 2 shall be replaced by the following:

If

‘3.
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 hereby amended as follows:

(a)

the title shall be replaced by the following:

‘Insurance holding companies, non-member coun-
try insurance undertakings and non-member coun-
try reinsurance undertakings’;

The agreements referred to in paragraph 1

‘2.
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 undertakings which
have their head office in the Community and which
have subsidiaries or hold participations in under-
takings outside the Community; and

(b)
that the competent authorities of third coun-
tries 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 under-
takings in one or more Member States.’

(b) paragraphs 2 and 3 shall be replaced by the

following:

9. Annexes I and II to Directive 98/78/EC shall be replaced

by Annex II to this Directive.

‘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.

that calculation,

If, on the basis of

3.
the
competent authorities conclude that the solvency
of a subsidiary insurance undertaking or a reinsur-
ance undertaking of the insurance holding com-
pany,
insurance
undertaking or the non-member country reinsur-
ance undertaking is, or may be, jeopardised, they
shall take appropriate measures at the level of that
insurance undertaking or reinsurance undertaking.’

non-member

country

the

Article 60

Amendments to Directive 2002/83/EC

Directive 2002/83/EC is hereby amended as follows:

1.

In Article 1(1), the following point shall be added:

‘(s)
“reinsurance undertaking” shall mean a reinsurance
undertaking within the meaning of Article 2 point (c) of
Directive 2005/68/EC of the European Parliament and of
the Council of 16 November 2005 on reinsurance (*) ’

(*) OJ L 323, 9.12.2005, p. 1.

8. Article 10a is hereby amended as follows:

2.

The following Article shall be inserted:

(a)

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

‘Article 9a

Prior consultation with the competent authorities of
other Member States

‘(b)

(c)

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

the other Member
1. The competent authorities of
State involved shall be consulted prior to the granting of
an authorisation to a life assurance undertaking, which is:

non-member country insurance undertakings
or non-member country reinsurance under-
takings which have, as participating under-
takings, undertakings within the meaning of
Article 2 which have their head office in the
Community.’;

(a)

a subsidiary of an insurance or reinsurance under-
taking authorised in another Member State; or

(b)

a subsidiary of
the parent undertaking of an
insurance or reinsurance undertaking authorised
in another Member State; or

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(c)

controlled by the same person, whether natural or
legal, who controls an insurance or reinsurance
undertaking authorised in another Member State.

5. Article 16 is hereby amended as follows:

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

(b)

(c)

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

controlled by the same person, whether natural or
legal, who controls a credit institution or invest-
ment 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
shareholders and the reputation and
suitability of
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 subparagraph shall be
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 2005/68/EC or
an insurance undertaking authorised in accordance with
this Directive on grounds
Directive 73/239/EEC or
directly related to the financial
the
reinsurance undertaking or the insurance undertaking.’

soundness of

4.

In Article 15, the following paragraph shall be inserted:

‘1a.
If the acquirer of the holdings referred to in
paragraph 1 of this Article 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.’

(a)

paragraphs 4, 5 and 6 shall be replaced by the
following:

‘4. Competent authorities receiving confidential
information under paragraphs 1 or 2 may 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 pro-
cedures and internal control mechanisms, or

— to impose penalties, 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.

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 super-
vision of credit institutions and other financial
organisations and the authorities responsible
for the supervision of financial markets,

— bodies involved in the liquidation and bank-
ruptcy of assurance undertakings, reinsurance
undertakings and in other similar procedures,
and

— persons responsible for carrying out statutory
audits of
the accounts of assurance under-
takings, reinsurance undertakings and other
financial institutions,

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

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6. Notwithstanding paragraphs 1 to 4, Member
States may authorise exchanges of
information
between the competent authorities and:

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

— the authorities responsible for overseeing the
persons charged with carrying out statutory
audits of
insurance under-
takings, reinsurance undertakings, credit insti-
tutions, investment firms and other financial
institutions, or

the accounts of

— independent actuaries of insurance undertak-
ings 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 super-
vision referred to in the first subparagraph,

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

subject
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 Commis-
sion and to the other Member States the names of
the authorities, persons and bodies which may
receive information pursuant to this paragraph.’;

— 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) shall be 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
2005/68/EC when the reinsurer is a reinsurance under-
taking or an insurance undertaking authorised in
accordance with Directive 73/239/EEC or this Directive.

When the home Member State allows any technical
provisions to be covered by claims against a reinsurer
which is neither a reinsurance undertaking authorised in
accordance with Directive 2005/68/EC nor an insurance
undertaking authorised in accordance with Directive 73/
239/EEC or this Directive, it shall set the conditions for
accepting such claims.’

7.

Article 23 is hereby amended as follows:

(a)

in paragraph 1(B), point (f) shall be replaced by the
following:

debts owed by reinsurers, including reinsurers'
technical provisions, and by special
referred to in Article 46 of

‘(f)
shares of
purpose vehicles
Directive 2005/68/EC;’

(b) paragraph 8 shall be replaced by the following:

(b)

in paragraph 3,
replaced by the following:

the first subparagraph shall be

Paragraphs 1 to 7 shall not prevent a

‘8.
competent authority from transmitting:

— to central banks and other bodies with a
similar function in their capacity as monetary
authorities,

‘3.
The inclusion of any asset or category of assets
listed in paragraph 1 shall not mean that all these
assets should automatically be accepted as cover for
technical provisions. The home Member State shall
lay down more detailed rules setting the conditions
for the use of acceptable assets.’

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8.

In Article 27(2), the following subparagraphs shall be
added:

— subordinated claims and instruments referred
to in Article 35 and Article 36(3) of Directive
2000/12/EC.

‘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 of 27 October 1998 on the
insurance
supervision
supplementary
undertakings in an insurance group (*),

of

— reinsurance undertakings within the meaning
of Article 3 of Directive 2005/68/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 mean-
ing 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 of the European Parlia-
ment and of the Council of 20 March 2000
relating to the taking up and pursuit of the
business of credit institutions (**),

— investment

institutions
firms and financial
within the meaning of Article 1(2) of Council
Directive 93/22/EEC of 10 May 1993 on
investment services in the securities field (***)
and of Articles 2(4) and 2(7) of Council
Directive 93/6/EEC of 15 March 1993 on the
investments firms and
capital adequacy of
credit institutions (****);

financial

institution,

insurance or

Where shares in another credit institution, investment
firm,
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.

firms and financial

As an alternative to the deduction of the items referred to
the third subparagraph which the
in (a) and (b) of
institutions,
insurance undertaking holds
in credit
investment
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 of 16 December 2002 on the supplementary
supervision of credit institutions, insurance undertakings
and investment firms in a financial conglomerate (*****).
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 super-
vision 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 of this Article 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.

(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,

(*)

(**)

OJ L 330, 5.12.1998, p. 1. Directive as last
amended by Directive 2005/1/EC (OJ L 79,
24.3.2005, p. 9).
OJ L 126, 26.5.2000, p. 1. Directive as last
amended by Directive 2005/1/EC.

(***) OJ L 141, 11.6.1993, p. 27. Directive as last
amended by Directive 2002/87/EC (OJ L 35,
11.2.2003,p. 1).

(****) OJ L 141, 11.6.1993, p. 1. Directive as last

amended by Directive 2005/1/EC.

(*****) OJ L 35, 11.2.2003, p. 1. Directive as last

amended by Directive 2005/1/EC.’

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9. Article 28(2) is hereby amended as follows:

(a)

point (a) shall be replaced by the following:

the provisions of Articles 35 to 39 of Directive 2005/68/
EC in respect of their reinsurance acceptance activities,
where one of the following conditions is met:

‘(a)

first result:

(a)

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

a 4 % fraction of the mathematical provisions
relating to direct business and reinsurance
acceptances gross of reinsurance cessions shall
be multiplied by the ratio, for the last financial
year, of the mathematical provisions net of
reinsurance cessions to the gross total math-
ematical provisions. That ratio may in no case
be less than 85 %. Upon application, with
supporting evidence, by the insurance under-
taking to the competent authority of the home
that
Member State and with agreement of
authority,
from the
special purpose vehicles referred to in Arti-
cle 46 of Directive 2005/68/EC may be
deducted as reassurance.’;

recoverable

amounts

(b)

in point (b), the first subparagraph shall be replaced
by the following:

‘(b)

second result:

the total capital at

for policies on which the capital at risk is not a
negative figure, a 0,3 % fraction of such capital
underwritten by the assurance undertaking
shall be multiplied by the ratio, for the last
financial year, of
risk
retained as the undertaking's liability after
reinsurance cessions and retrocessions to the
total capital at risk gross of reinsurance; that
ratio may in no case be less than 50 %. Upon
application, with supporting evidence, by the
insurance undertaking to the
competent
authority of the home Member State and with
the agreement of
that authority, amounts
recoverable from the special purpose vehicles
referred to in Article 46 of Directive 2005/68/
EC may be deducted as reassurance.’

10. The following Article shall be inserted:

‘Article 28a

(b)

the reinsurance premiums collected exceed EUR
50 000 000;

(c)

technical provisions

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

2.
Each Member State may choose to apply to
assurance undertakings referred to in paragraph 1 of
this Article and whose head office is situated within its
territory the provisions of Article 34 of Directive 2005/
68/EC in respect of
acceptance
their
activities, where one of the conditions laid down in the
said paragraph 1 is met.

reinsurance

In that case, the respective Member State shall require
that all assets employed by the assurance undertaking to
the technical provisions corresponding to its
cover
reinsurance acceptances shall be ring-fenced, managed
and organised separately from the direct assurance
activities of
the assurance undertaking, without any
possibility of transfer. In such a case, and only as far as
their reinsurance acceptance activities are concerned,
assurance undertakings shall not be subject to Articles 22
to 26.

Each Member State shall ensure that their competent
authorities verify the separation provided for in the
second subparagraph.’

11. Article 37(4) shall be replaced by the following:

‘4. Member States shall ensure that
the competent
authorities have the power to decrease the reduction,
to the solvency margin as
based on reinsurance,
determined in accordance with Article 28 where:

Solvency margin for assurance undertakings
conducting reinsurance activities

(a)

the nature or quality of reinsurance contracts has
changed significantly since the last financial year;

Each Member State shall apply to insurance under-
1.
takings whose head office is situated within its territory,

(b)

there is no, or a limited, risk transfer under the
reinsurance contracts.’

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TITLE X

TRANSITIONAL AND FINAL PROVISIONS

Article 61

Article 15(3) of Directive 73/239/EEC and of the provision
of Article 60(6) of this Directive until 10 December 2008.

Right 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 10 December 2005 shall be
deemed to be authorised in accordance with Article 3.

However, they shall be obliged to comply with the provisions
of this Directive concerning the carrying on of the business of
reinsurance and with the requirements set out in Article 6(a),
(c), (d), Articles 7, 8 and 12 and Articles 32 to 41 as from
10 December 2007.

2. Member States may allow reinsurance undertakings
referred to in paragraph 1 which at 10 December 2005 do
not comply with Articles 6(a), 7, 8 and Articles 32 to 40 a
period until 10 December 2008 in order to comply with such
requirements.

Article 62

Reinsurance undertakings closing their activity

1. Reinsurance undertakings which by 10 December 2007
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.

2. Member States shall draw up the list of the reinsurance
undertakings concerned and they shall communicate that list
to all the other Member States.

Article 63

Article 64

Transposition

1. Member States shall bring into force the laws, regulations
and administrative provisions necessary to comply with this
Directive by 10 December 2007. They shall
forthwith
communicate to the Commission the texts of those measures.

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

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

Article 65

Entry into force

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

Article 66

Addressees

This Directive is addressed to the Member States.

Transitional period for Articles 57(3) and 60(6)

A Member State may postpone the application of
provisions of Article 57(3) of

the
this Directive amending

Done at Strasbourg, 16 November 2005.

For the European Parliament
The President
J. BORRELL FONTELLES

For the Council
The President
Bach of LUTTERWORTH

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ANNEX I

Forms of reinsurance undertakings:

— 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 verzekerings-
vereniging’, ‘société coopérative/coöperatieve vennootschap’;

— in the case of the Czech Republic: ‘akciová společnost’;

— 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 Republic of Estonia: ‘aktsiaselts’;

— 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 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 Republic of Cyprus: ‘Εταιρεία Περιορισμένης Ευθύνης με μετοχές’ ή ‘Εταιρεία Περιορισμένης

Ευθύνης με εγγύηση’;

— in the case of the Republic of Latvia: ‘akciju sabiedrība’, ‘sabiedrība ar ierobežotu atbildību’;

— in the case of the Republic of Lithuania: ‘akcinė bendrovė’, ‘uždaroji akcinė bendrovė’;

— in the case of the Grand Duchy of Luxembourg:

‘société anonyme’,

‘société en commandite par actions’,

‘association d'assurances mutuelles’, ‘société coopérative’;

— in the case of the Republic of Hungary: ‘biztosító részvénytársaság’, ‘biztosító szövetkezet’, ‘harmadik országbeli

biztosító magyarországi fióktelepe’;

— in the case of the Republic of Malta: ‘limited liability company/kumpannija tà responsabbiltà limitata’;

— in the case of the Kingdom of the Netherlands: ‘naamloze vennootschap’, ‘onderlinge waarborgmaatschappij’;

— in the case of the Republic of Austria: ‘Aktiengesellschaft’, ‘Versicherungsverein auf Gegenseitigkeit’;

— in the case of the Republic of Poland: ‘spółka akcyjna’, ‘towarzystwo ubezpieczeń wzajemnych’;

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— in the case of the Portuguese Republic: ‘sociedade anónima’, ‘mútua de seguros’;

— in the case of the Republic of Slovenia: ‘delniška družba’;

— in the case of the Slovak Republic: ‘akciová spoločnost’;

— in the case of the Republic of Finland: ‘keskinäinen vakuutusyhtiö/ömsesidigt försäkringsbolag’, ‘vakuutuso-

sakeyhtiö/försäkringsaktiebolag’, ‘vakuutusyhdistys/försäkringsförening’;

— in the case of the Kingdom of Sweden: ‘försäkringsaktiebolag’, ‘ömsesidigt försäkringsbolag’;

— 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 or incorporated under
the Friendly Societies Acts, ‘the association of underwriters known as Lloyd's’.

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ANNEX II

Annexes I and II to Directive 98/78/EC shall be replaced by the following:

‘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 that 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:

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— 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.

the participating insurance undertaking or the
Any subscribed but not paid-up capital of
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 or reinsurance 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.

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

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reinsurance undertaking and:

— 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.

reciprocal

In particular,
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, 91/674/EEC, 2002/83/EC and 2005/68/EC
for calculating the solvency margin of insurance undertakings or reinsurance undertakings. The
value of the assets and liabilities shall be assessed in accordance with the relevant provisions of
Directives 73/239/EEC, 91/674/EEC, 2002/83/EC and 2005/68/EC.

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:

— if the insurance undertaking or reinsurance 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.

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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 included in the calculation are adequately distributed between those undertakings.

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 a related insurance undertaking, a related reinsurance undertaking, a
non-member country insurance undertaking or a non-member country reinsurance undertaking,
the intermediate insurance holding
through an insurance holding company, the situation of
company is taken into account. For the sole purpose of that 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 2005/68/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 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 2005/68/EC, 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 2005/68/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.

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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

(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.

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Method 2: Requirement deduction method

The adjusted solvency of
undertaking is the difference between:

the participating insurance undertaking or the participating reinsurance

(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)

(b)

the solvency requirement of the participating insurance undertaking or the participating
reinsurance undertaking, and

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
the related insurance undertakings or the related reinsurance undertaking, based on the
of
percentages used for the establishment of the consolidated accounts,

(b)

or the solvency requirement calculated on the basis of consolidated data.

The provisions of Directives 73/239/EEC, 91/674/EEC, 2002/83/EC and 2005/68/EC shall apply for the
calculation of the elements eligible for the solvency margin and of the solvency requirement based on
consolidated data.

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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, 91/674/EEC, 2002/83/EC and 2005/68/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.

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.

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For the sole purpose of that 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 in accordance with 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 2005/68/EC 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.’