Article 15 of Directive 73/239/EEC shall be replaced by the following:
1.The home Member State shall require every insurance undertaking to establish adequate technical provisions in respect of its entire business.
The amount of such technical provisions shall be determined in accordance with the rules laid down in Directive 91/674/EEC.
2.The home Member State shall require every insurance undertaking to cover the technical provisions in respect of its entire business by matching assets in accordance with Article 6 of Directive 88/357/EEC. In respect of risks situated within the European Community, those assets must be localized within the Community. Member States shall not require insurance undertakings to localize their assets in any particular Member State. The home Member State may, however, permit relaxations in the rules on the localization of assets.
3.If the home Member State allows any technical provisions to be covered by claims against reinsurers, it shall fix the percentage so allowed. In such cases, it may not specify the localization of the assets representing such claims.’
Article 15a of Directive 72/239/EEC shall be replaced by the following:
1.Member States shall require every insurance undertaking with a head office within their territories which underwrites risks included in class 14 in point A of the Annex (hereinafter referred to as “credit insurance”) to set up an equalization reserve for the purpose of offsetting any technical deficit or above-average claims ration arising in that class in any financial year.
2.The equalization reserve 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, which shall be regarded as equivalent.
3.Up to the amount calculated in accordance with the methods set out in point D of the Annex, the equalization reserve shall be disregarded for the purpose of calculating the solvency margin.
4.Member States may exempt insurance undertakings with head offices within their territories from the obligation to set up equalization reserves for credit insurance business where the premiums or contributions receivable in respect of credit insurance are less than 4 % of the total premiums or contributions receivable by them and less than ECU 2 500 000.’
Article 23 of Directive 88/357/EEC is hereby repealed.
The assets covering the technical provisions shall take account of the type of business carried on by an undertaking in such a way as to secure the safety, yield and marketability of its investments, which the undertaking shall ensure are diversified and adequately spread.
[F11. The home Member State may not authorise insurance undertakings to cover their technical provisions and equalisation reserves with any assets other than those in the following categories:]
Investments
debt securities, bonds and other money and capital market instruments;
loans;
shares and other variable yield participations;
units in undertakings for collective investment in transferable securities and other investment funds;
land, buildings and immovable property rights;
Debts and claims
[F1debts 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 (1) ;]
deposits with and debts owed by ceding undertakings;
debts owed by policyholders and intermediaries arising out of direct and reinsurance operations;
claims arising out of salvage and subrogation;
tax recoveries;
claims against guarantee funds;
Others
tangible fixed assets, other than land and buildings, valued on the basis of prudent amortization;
cash at bank and in hand, deposits with credit institutions and any other bodies authorized to receive deposits;
deferred acquisition costs;
accrued interest and rent, other accrued income and prepayments;
In the case of the association of underwriters know as Lloyd's, asset categories shall also include guarantees and letters of credit issued by credit institutions within the meaning of Directive 77/780/EEC(2) or by assurance undertakings, together with verifiable sums arising out of life assurance policies, to the extent that they represent funds belonging to members.
[F1The 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.]
In the determination and the application of the rules which it lays down, the home Member State shall, in particular, ensure that the following principles are complied with:
assets covering technical provisions shall be valued net of any debts arising out of their acquisition;
all assets must be valued on a prudent basis, allowing for the risk of any amounts' not being realizable. In particular, tangible fixed assets other than land and buildings may be accepted as cover for technical provisions only if they are valued on the basis of prudent amortization;
loans, whether to undertakings, to State authorities or international organizations, to local or regional authorities or to natural persons, may be accepted as cover for technical provisions only if there are sufficient guarantees as to their security, whether these are based on the status of the borrower, mortgages, bank guarantees or guarantees granted by insurance undertakings or other forms of security;
derivative instruments such as options, futures and swaps in connection with assets covering technical provisions may be used in so far as they contribute to a reduction of investment risks or facilitate efficient portfolio management. They must be valued on a prudent basis and may be taken into account in the valuation of the underlying assets;
transferrable securities which are not dealt in on a regulated market may be accepted as cover for technical provisions only if they can be realized in the short term;
debts owed by and claims against a third party may be accepted as cover for technical provisions only after deduction of all amounts owed to the same third party;
the value of any debts and claims accepted as cover for technical provisions must be calculated on a prudent basis, with due allowance for the risk of any amounts not being realizable. In particular, debts owed by policyholders and intermediaries arising out of insurance and reinsurance operations may be accepted only in so far as they have been outstanding for not more than three months;
where the assets held include an investment in a subsidiary undertaking which manages all or part of the insurance undertaking's investments on its behalf, the home Member State must, when applying the rules and principles laid down in this Article, take into account the underlying assets held by the subsidiary undertaking; the home Member State may treat the assets of other subsidiaries in the same way;
deferred acquisition costs may be accepted as cover for technical provisions only to the extent that that is consistent with the calculation of the technical provision for unearned premiums.
2.Notwithstanding paragraph 1, in exceptional circumstances and at an insurance undertaking's request, the home Member State may, temporarily and under a properly reasoned decision, accept other categories of assets as cover for technical provisions, subject to Article 20.
Textual Amendments
[F11. As regards the assets covering technical provisions and equalisation reserves, the home Member State shall require every insurance undertaking to invest no more than:]
(a)10 % of its total gross technical provisions in any one piece of land or building, or a number of pieces of land or buildings close enough to each other to be considered effectively as one investment;
(b)5 % 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 the same undertaking, or in loans granted to the same borrower, taken together, the loans being loans other than those granted to a State, regional or local authority or to an international organization of which one or more Member States are members. This limit may be raised to 10 % if an undertaking does not invest more than 40 % of its gross technical provisions in the loans or securities of issuing bodies and borrowers in each of which it invests more than 5 % of its assets;
(c)5 % of its total gross technical provisions in unsecured loans, including 1 % for any single unsecured loan, other than loans granted to credit institutions, assurance undertaking - in so far as Article 8 of Directive 73/239/EEC allows it - and investment undertakings established in a Member State;
(d)3 % of its total gross technical provisions in the form of cash in hand;
(e)10 % of its total gross technical provisions in shares, other securities treated as shares and debt securities, which are not dealt in on a regulated market.
2.The absence of a limit in paragraph 1 on investment in any particular category does not imply that assets in that category should be accepted as cover for technical provisions without limit. The home Member State shall lay down more detailed rules fixing the conditions for the use of acceptable assets. In particular it shall ensure, in the determination and the application of those rules, that the following principles are complied with:
assets covering technical provisions must be diversified and spread in such a way as to ensure that there is no excessive reliance on any particular category of asset, investment market or investment;
investment in particular types of asset which show high levels of risk, whether because of the nature of the asset or the quality of the issuer, must be restricted to prudent levels;
limitations on particular categories of asset must take account of the treatment of reinsurance in the calculation of technical provisions;
where the assets held include an investment in a subsidiary undertaking which manages all or part of the insurance undertaking's investments on its behalf, the home Member State must, when applying the rules and principles laid down in this Article, take into account the underlying assets held by the subsidiary undertaking; the home Member State may treat the assets of other subsidiaries in the same way;
the percentage of assets covering technical provisions which are the subject of non-liquid investments must be kept to a prudent level;
where the assets held include loans to or debt securities issued by certain credit institutions, the home Member State may, when applying the rules and principles laid down in this Article, take into account the underlying assets held by such credit institutions. This treatment may be applied only where the credit institution has its head office in a Member State, is entirely owned by that Member State and/or that State's local authorities and its business, according to its memorandum and articles of association, consists of extending, through its intermediary, loans to or guaranteed by the State or local authorities or loans to bodies closely linked to the State or to local authorities.
3.In the context of the detailed rules laying down the conditions for the use of acceptable assets, the Member State shall give more limitative treatment to:
any loan unaccompanied by a bank guarantee, a guarantee issued by an insurance undertaking, a mortgage or any other form of security, as compared with loans accompanied by such collateral,
Ucits not coordinated within the meaning of Directive 85/611/EEC(3) and other investment funds, as compared with Ucits coordinated within the meaning of that Directive,
securities which are not dealt in on a regulated market, as compared with those which are,
bonds, debt securities and other money and capitalmarket instruments not issued by States, local or regional authorities or undertakings belonging to Zone A as defined in Directive 89/647/EEC(4), or the issuers of which are international organizations not numbering at least one Community Member State among their member, as compared with the same financial instruments issued by such bodies.
4.Member States may raise the limit laid down in paragraph 1 (b) to 40 % in the case of certain debt securities when these are issued by a credit institution which has its head office in a Member State and is subject by law to special official supervision designed to protect the holders of those debt securities. In particular, sums deriving from the issue of such debt securities must be invested in accordance with the law in assets which, during the whole period of validity of the debt securities, are capable of covering claims attaching to the debt securities and which, in the event of failure of the issues, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest.
5.Member States shall not require insurance undertakings to invest in particular categories of assets.
6.Notwithstanding paragraph 1, in exceptional circumstances and at an insurance undertaking's request, the home Member State may, temporarily and under a properly reasoned decision, allow exceptions to the rules laid down in paragraph 1 (a) to (e), subject to Article 20.
Textual Amendments
Points 8 and 9 of Annex 1 to Directive 88/357/EEC shall be replaced by the following:
‘Insurance undertakings may hold non-matching assets to cover an amount not exceeding 20 % of their commitments in a particular currency.
A Member State may provide that when under the preceding procedures a commitment must be covered by assets expressed in a Member State's currency that requirement shall also be considered as satisfied when the assets are expressed in ecus’
.
Article 16 (1) of Directive 73/239/EEC shall be replaced by the following:
‘1.The home Member State shall require every insurance undertaking to establish an adequate solvency margin in respect of its entire business.
The solvency margin shall correspond to the assets of the undertaking free of any foreseeable liabilities less any intangible items. In particular the following shall be included:
the paid-up share capital or, in the case of a mutual insurance undertaking, the effective initial fund plus any members' accounts which meet all the following criteria:
the memorandum and articles of association must stipulate that payments may be made from these accounts to members only insofar as this does not cause the solvency margin to fall below the required level, or, after the dissolution of the undertaking, if all the undertaking's other debts have been settled;
the memorandum and articles of association must stipulate, with respect to any such payments 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 and
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 (a) and (b);
one-half of the unpaid share capital or initial fund, once the paid-up part amounts to 25 % of that share capital or fund,
reserves (statutory reserves and free reserves) not corresponding to underwriting liabilities,
any profits brought forward,
in the case of mutual or mutal-type association with variable contributions, any claim which it has against its members by way of a call for supplementary contribution, within the financial year, up to one-half of the difference between the maximum contributions and the contributions actually called in, and subject to a limit of 50 % of the margin,
at the request of and on the production of proof by the insurance undertaking, any hidden reserves arising out of the undervaluation of assets, insofar as those hidden reserves are not of an exceptional nature,
cumulative preferential share capital and subordinated loan capital may be included but, if so, only up to 50 % of the margin, no more than 25 % of which shall consist of subordinated loans with a fixed maturity, or fixed-term cumulative preferential share capital, if the following minimum criteria are met:
in the event of the bankruptcy or liquidation of the insurance undertaking, binding agreements must exist under which the subordinated loan capital or preferential share capital ranks after the claims of all other creditors and is not to be repaid until all other debts outstanding at the time have been settled.
Subordinated loan capital must fulfil the following additional conditions:
only fully paid-up funds may be taken into account;
for loans with a fixed maturity, the original maturity must be at least five years. No later than one year before the repayment date the insurance undertaking must submit to the competent authorities for their approval a plan showing how the 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 solvency margin is gradually reduced during at least the last five years before the repayment date. The competent authorities may authorize the early repayment of such loans provided application is made by the issuing insurance undertaking and its solvency margin will not fall below the required level;
loans the maturity of which is not fixed must be repayable only subject to five years' notice unless the loans are no longer considered a component of the solvency margin or unless the prior consent of the competent authorities is specifically required for early repayment. In the latter event the insurance undertaking must notify the competent authorities at least six months before the date of the proposed repayment, specifying the actual and required solvency margins both before and after that repayment. The competent authorities shall authorize repayment only if the insurance undertaking's solvency margin will not fall below the required level;
the loan agreement must not include any clause providing that in specified circumstances, other than the winding-up of the insurance undertaking, the debt will become repayable before the agreed repayment dates;
the loan agreement may be amended only after the competent authorities have declared that they have no objection to the amendment;
securities with no specified maturity date and other instruments that fulfil the following conditions, including cumulative preferential shares other than those mentioned in the preceding indent, up to 50 % of the margin for the total of such securities and the subordinated loan capital referred to in the preceding indent:
they may not be repaid on the initiative of the bearer or without the prior consent of the competent authority;
the contract of issue must enable the insurance undertaking to defer the payment of interest on the loan;
the lender's claims on the insurance undertaking must rank entirely after those of all non-subordinated creditors;
the documents governing the issue of the securities must provide for the loss-absorption capacity of the debt and unpaid interest, while enabling the insurance undertaking to continue its business;
only fully paid-up amounts may be taken into account.’
No more than three years after the date of application of this Directive the Commission shall submit a report to the Insurance Committee on the need for further harmonization of the solvency margin.
Article 18 of Directive 79/239/EEC shall be replaced by the following:
1.Member States shall not prescribe any rules as to the choice of the assets that need not be used as cover for the technical provisions referred to in Article 15.
2.Subject to Article 15 (2), Article 20 (1), (2), (3) and (5) and the last subparagraph of Article 22 (1), Member States shall not restrain the free disposal of those assets, whether movable or immovable, that form part of the assets of authorized insurance undertakings.
3.Paragraphs 1 and 2 shall not preclude any measures which Member States, while safeguarding the interests of the isured persons, are entitled to take as owners or members of or partners to the undertakings in question.’
OJ No L 322, 17. 12. 1977, p. 30. Last amended by Directive 89/646/EEC (OJ No L 386, 30. 12. 1989, p. 1).
OJ No L 375, 31. 12. 1985, p. 3. Amended by Directive 88/220/EEC (OJ No L 100, 19. 4. 1988, p. 31).