Own funds shall comprise the sum of basic own funds, referred to in Article 88 and ancillary own funds referred to in Article 89.
Basic own funds shall consist of the following items:
the excess of assets over liabilities, valued in accordance with Article 75 and Section 2;
subordinated liabilities.
The excess amount referred to in point (1) shall be reduced by the amount of own shares held by the insurance or reinsurance undertaking.
1.Ancillary own funds shall consist of items other than basic own funds which can be called up to absorb losses.
Ancillary own funds may comprise the following items to the extent that they are not basic own-fund items:
(a)unpaid share capital or initial fund that has not been called up;
(b)letters of credit and guarantees;
(c)any other legally binding commitments received by insurance and reinsurance undertakings.
In the case of a mutual or mutual-type association with variable contributions, ancillary own funds may also comprise any future claims which that association may have against its members by way of a call for supplementary contribution, within the following 12 months.
2.Where an ancillary own-fund item has been paid in or called up, it shall be treated as an asset and cease to form part of ancillary own-fund items.
1.The amounts of ancillary own-fund items to be taken into account when determining own funds shall be subject to prior supervisory approval.
2.The amount ascribed to each ancillary own-fund item shall reflect the loss-absorbency of the item and shall be based upon prudent and realistic assumptions. Where an ancillary own-fund item has a fixed nominal value, the amount of that item shall be equal to its nominal value, where it appropriately reflects its loss-absorbency.
3.Supervisory authorities shall approve either of the following:
(a)a monetary amount for each ancillary own-fund item;
(b)a method by which to determine the amount of each ancillary own-fund item, in which case supervisory approval of the amount determined in accordance with that method shall be granted for a specified period of time.
4.For each ancillary own-fund item, supervisory authorities shall base their approval on an assessment of the following:
(a)the status of the counterparties concerned, in relation to their ability and willingness to pay;
(b)the recoverability of the funds, taking account of the legal form of the item, as well as any conditions which would prevent the item from being successfully paid in or called up;
(c)any information on the outcome of past calls which insurance and reinsurance undertakings have made for such ancillary own funds, to the extent that information can be reliably used to assess the expected outcome of future calls.
1.Surplus funds shall be deemed to be accumulated profits which have not been made available for distribution to policy holders and beneficiaries.
2.In so far as authorised under national law, surplus funds shall not be considered as insurance and reinsurance liabilities to the extent that they fulfil the criteria set out in Article 94(1).
1.The Commission shall adopt implementing measures specifying the following:
(a)the criteria for granting supervisory approval in accordance with Article 90;
(b)the treatment of participations, within the meaning of the third subparagraph of Article 212(2), in financial and credit institutions with respect to the determination of own funds.
Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 301(3).
2.Participations in financial and credit institutions as referred to in paragraph 1(b) shall comprise the following:
(a)participations which insurance and reinsurance undertakings hold in:
credit institutions and financial institutions within the meaning of Article 4(1) and (5) of Directive 2006/48/EC,
investment firms within the meaning of point 1 of Article 4(1) of Directive 2004/39/EC;
(b)subordinated claims and instruments referred to in Article 63 and Article 64(3) of Directive 2006/48/EC which insurance and reinsurance undertakings hold in respect of the entities defined in point (a) of this paragraph in which they hold a participation.
1.Own-fund items shall be classified into three tiers. The classification of those items shall depend upon whether they are basic own fund or ancillary own-fund items and the extent to which they possess the following characteristics:
(a)the item is available, or can be called up on demand, to fully absorb losses on a going-concern basis, as well as in the case of winding-up (permanent availability);
(b)in the case of winding-up, the total amount of the item is available to absorb losses and the repayment of the item is refused to its holder until all other obligations, including insurance and reinsurance obligations towards policy holders and beneficiaries of insurance and reinsurance contracts, have been met (subordination).
2.When assessing the extent to which own-fund items possess the characteristics set out in points (a) and (b) of paragraph 1, currently and in the future, due consideration shall be given to the duration of the item, in particular whether the item is dated or not. Where an own-fund item is dated, the relative duration of the item as compared to the duration of the insurance and reinsurance obligations of the undertaking shall be considered (sufficient duration).
In addition, the following features shall be considered:
(a)whether the item is free from requirements or incentives to redeem the nominal sum (absence of incentives to redeem);
(b)whether the item is free from mandatory fixed charges (absence of mandatory servicing costs);
(c)whether the item is clear of encumbrances (absence of encumbrances).
1.Basic own-fund items shall be classified in Tier 1 where they substantially possess the characteristics set out in Article 93(1)(a) and (b), taking into consideration the features set out in Article 93(2).
2.Basic own-fund items shall be classified in Tier 2 where they substantially possess the characteristic set out in Article 93(1)(b), taking into consideration the features set out in Article 93(2).
Ancillary own-fund items shall be classified in Tier 2 where they substantially possess the characteristics set out in Article 93(1)(a) and (b), taking into consideration the features set out in Article 93(2).
3.Any basic and ancillary own-fund items which do not fall under paragraphs 1 and 2 shall be classified in Tier 3.
Member States shall ensure that insurance and reinsurance undertakings classify their own-fund items on the basis of the criteria laid down in Article 94.
For that purpose, insurance and reinsurance undertakings shall refer to the list of own-fund items referred to in Article 97(1)(a), where applicable.
Where an own-fund item is not covered by that list, it shall be assessed and classified by insurance and reinsurance undertakings, in accordance with the first paragraph. That classification shall be subject to approval by the supervisory authority.
Without prejudice to Article 95 and Article 97(1)(a) for the purposes of this Directive the following classifications shall be applied:
surplus funds falling under Article 91(2) shall be classified in Tier 1;
letters of credit and guarantees which are held in trust for the benefit of insurance creditors by an independent trustee and provided by credit institutions authorised in accordance with Directive 2006/48/EC shall be classified in Tier 2;
any future claims which mutual or mutual-type associations of shipowners with variable contributions solely insuring risks listed in classes 6, 12 and 17 in Part A of Annex I may have against their members by way of a call for supplementary contributions, within the following 12 months, shall be classified in Tier 2.
In accordance with the second subparagraph of Article 94(2), any future claims which mutual or mutual-type associations with variable contributions may have against their members by way of a call for supplementary contributions, within the following 12 months, not falling under point (3) of the first subparagraph shall be classified in Tier 2 where they substantially possess the characteristics set out in Article 93(1)(a) and (b), taking into consideration the features set out in Article 93(2).
1.The Commission shall adopt implementing measures laying down the following:
(a)a list of own-fund items, including those referred to in Article 96, deemed to fulfil the criteria, set out in Article 94, which contains for each own-fund item a precise description of the features which determined its classification;
(b)the methods to be used by supervisory authorities, when approving the assessment and classification of own-fund items which are not covered by the list referred to in point (a).
Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 301(3).
2.The Commission shall regularly review and, where appropriate, update the list referred to in paragraph 1(a) in the light of market developments.
1.As far as the compliance with the Solvency Capital Requirement is concerned, the eligible amounts of Tier 2 and Tier 3 items shall be subject to quantitative limits. Those limits shall be such as to ensure that at least the following conditions are met:
(a)the proportion of Tier 1 items in the eligible own funds is higher than one third of the total amount of eligible own funds;
(b)the eligible amount of Tier 3 items is less than one third of the total amount of eligible own funds.
2.As far as compliance with the Minimum Capital Requirement is concerned, the amount of basic own-fund items eligible to cover the Minimum Capital Requirement which are classified in Tier 2 shall be subject to quantitative limits. Those limits shall be such as to ensure, as a minimum, that the proportion of Tier 1 items in the eligible basic own funds is higher than one half of the total amount of eligible basic own funds.
3.The eligible amount of own funds to cover the Solvency Capital Requirement set out in Article 100 shall be equal to the sum of the amount of Tier 1, the eligible amount of Tier 2 and the eligible amount of Tier 3.
4.The eligible amount of basic own funds to cover the Minimum Capital Requirement set out in Article 128 shall be equal to the sum of the amount of Tier 1 and the eligible amount of basic own-fund items classified in Tier 2.
The Commission shall adopt implementing measures laying down:
the quantitative limits referred to in Article 98(1) and (2);
the adjustments that should be made to reflect the lack of transferability of those own-fund items that can only be used to cover losses arising from a particular segment of liabilities or from particular risks (ring-fenced funds).
Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 301(3).