Insurance and reinsurance
Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)
Known as Solvency II, it requires insurance companies to hold enough financial resources. It also sets out management and supervisory rules.
The directive covers non-life insurance, life insurance and reinsurance companies. It has applied since 1 January 2016.
An insurance company can conduct its activities after having obtained an authorisation from the supervisor of its country. The authorisation is valid throughout the EU.
Insurance companies have to hold capital in relation to their risk profiles to guarantee that they have sufficient financial resources to withstand financial difficulties. They have to comply with capital requirements:
the minimum capital requirement (MCR): the minimum level of capital below which policyholders would be exposed to a high level of risk;
the solvency capital requirement (SCR): the capital that an insurance company needs in cases where significant losses have to be absorbed. The amount of capital is calculated by taking into account different risks such as:
the market risk: the risk of loss or change of the financial situation resulting from markets fluctuations;
the operational risk: the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events.
If a company does not respect the two amounts of capital required, the supervisor has to take action.
Risk management system / adequate governance system
Insurance companies have to put in place an adequate and transparent governance system with a clear allocation of responsibilities. They must have the administrative capacity to deal with different issues including risk management, compliance with the legislation, and internal audit.
Own risk and solvency assessment
Insurance companies have to conduct their own risk and solvency assessment (ORSA) on a regular basis. This involves assessing the risk solvency needs in relation to their risk profiles, as well as their compliance with the financial resources required.
Supervision /supervision review
The legislation sets out a ‘Supervisory Review Process’ (SRP) that enables supervisors to review and evaluate insurance companies’ compliance with the rules. The aim is to help supervisors to identify companies that may enter difficulties. Insurance companies also have to disclose information publicly.
Each insurance group — a company with entities providing services in one or more European countries — must have a group supervisor that has specific responsibilities in close cooperation with the national supervisors involved.
Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, pp. 1-155)
Successive amendments and corrections to Directive 2009/138/EC have been incorporated in the basic text. This consolidated version is for reference purposes only.
Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (OJ L 236, 14.9.2017, pp. 14-21)
Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, pp. 35-80)
Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (OJ L 354, 23.12.2016, pp. 37-85)
Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 12, 17.1.2015, pp. 1-797).
Successive amendments and corrections to Delegated Regulation (EU) 2015/35 have been incorporated in the basic text. This consolidated version is for reference purposes only.
Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 in respect of the powers of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority) (OJ L 153, 22.5.2014, pp. 1-61)
Directive 2013/58/EU of the European Parliament and of the Council of 11 December 2013 amending Directive 2009/138/EC (Solvency II) as regards the date for its transposition and the date of its application, and the date of repeal of certain Directives (Solvency I) (OJ L 341, 18.12.2013, pp. 1-3)
Directive 2012/23/EU of the European Parliament and of the Council of 12 September 2012 amending Directive 2009/138/EC (Solvency II) as regards the date for its transposition and the date of its application, and the date of repeal of certain Directives (OJ L 249, 14.9.2012, pp. 1-2)
Directive 2011/89/EU of the European Parliament and of the Council of 16 November 2011 amending Directives 98/78/EC, 2002/87/EC, 2006/48/EC and 2009/138/EC as regards the supplementary supervision of financial entities in a financial conglomerate (OJ L 326, 8.12.2011, pp. 113-141)
Banks and investment firms — prudential supervision
Directive 2013/36/EU — banks and investment firms — prudential supervision
The capital requirements directive — known as ‘CRD IV’ — governs access to the deposit-taking activities of banks and investment firms.
It replaces the former capital requirements directives (2006/48/EC and 2006/49/EC).
It covers topics previously dealt with by those directives, including those relating to:
— access to the taking up and pursuit of the business of banks;
— the conditions for freedom of establishment; and
— the freedom to provide services.
In addition to the aspects covered by the previous capital requirements directives, the directive covers a number of new elements.
— Staff bonuses. To prevent banks from giving their staff incentives to take excessive risks, the directive provides for a maximum ratio between fixed and variable pay for all relevant staff. The bonus cannot exceed the identified staff member’s annual fixed pay, unless shareholders decide, subject to certain conditions, to allow bonuses that amount to up to twice the fixed pay. The new rules also include requirements on bonuses that promote a long-term approach to risk taking.
— Better governance and more transparency. The directive introduces rules to ensure effective oversight by the banks’ management bodies and to improve risk management. Diversity in board composition is required in order to contribute to their effective oversight. From January 2015, banks have to disclose certain information on a country-by-country basis, including their profits, taxes and public subsidies received.
— Additional capital to be held by banks. The directive provides for more capital requirements in addition to the ones foreseen in the capital requirements regulation (CRR). Known as capital buffers, they aim to protect a bank’s capital by setting safeguards and limits on the amount of dividend and bonus payments a bank can make. Each time a bank ‘eats’ into the buffer, the limits become stricter, thus preventing erosion of a bank’s capital.
— Reduced reliance on external ratings. The directive reduces, where possible, reliance by financial institutions on external credit ratings. For example, it requires that all banks’ investment decisions are based not only on ratings but also on their own internal credit opinion.
The CRR/CRD IV package provides for the adoption of delegated and implementing measures. These offer guidance on compliance with the package to the relevant national authorities and market participants.
From 17 July 2013. The deadline for transposition in EU countries’ national law is 31 December 2013.
The directive is part of a package of legislation that seeks to strengthen the resilience of the EU banking sector following the financial crisis in 2008. The package also includes Regulation (EU) No 575/2013, the capital requirements regulation (CRR), which establishes the supervisory requirements that banks need to respect.
Capital requirements regulation and directive — CRR/CRD IV
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, pp. 338-436)
Successive amendments and corrections to Directive 2013/36/EU have been incorporated into the basic text. This consolidated version is for reference only.
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, pp. 1-59). See consolidated version.
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, pp. 1-337). See consolidated version.
Insurance companies: annual accounts
Directive 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings
It aims to ensure that the balance sheets of all EU insurance companies have the same layout and the same item headings in order to ensure comparability.
The directive applies to all insurance companies or firms except small mutual associations not carrying out insurance business.
It complemented the Fourth Council Directive (Directive 78/660/EEC) on annual accounts of companies with limited liability which has since been repealed and replaced by Directive 2013/34/EU (annual and consolidated financial statements and related reports of certain types of undertakings).
Even if national accounting standards may differ across EU countries, the directive prescribes certain basic information in the interests of greater comparability of consolidated accounts. To this end, the content of the various balance sheet items is determined precisely.
To provide a proper understanding of the financial situation of an insurance companies, the current value of investments, as well as their value based upon the principle of the purchase price or production cost, must be disclosed; disclosure of the current value of investments is also required.
For life assurance provisions use may be made of actuarial methods which may be laid down in national law and with due regard for the actuarial principles recognised.
Lastly, for the calculation of the provision for claims outstanding, any implicit discounting or deduction is prohibited. On the other hand, in the interests of prudence and transparency, precise conditions for recourse to explicit discounting or deduction are defined.
To adapt accounting disclosures to insurance business models, certain requirements are set out relating to the content of the notes on the accounts, e.g. gross premiums broken down by category of activity (accident and health, motor, fire, etc.) and by geographical market.
It must be possible to obtain a copy of accounts and annual reports upon request at a price not exceeding their administrative cost.
Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings (OJ L 374, 31.12.1991, pp.7-31)
Successive amendments to Directive 91/674/EEC have been incorporated into the original document. This consolidated version is of documentary value only.It has applied since 23 December 1991 and had to become law in the EU countries by 1 January 1994.
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, pp. 19-76)
Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006 amending Council Directives 78/660/EEC on the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings (OJ L 224, 16.8.2006, pp. 1-7)
Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (OJ L 157, 9.6.2006, pp. 87-107)
Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings (OJ L 178, 17.7.2003, pp. 16-22)
Commission Recommendation of 30 May 2001 on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies (OJ L 156, 13.6.2001, pp. 33-42)