European Parliament legislative resolution of 22 April 2009 on the amended proposal for a directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (recast)

Own Risk and Solvency Assessment

(19) All insurance and reinsurance undertakings should have, as an integrated part of their business strategy, a regular practice of assessing their over-all solvency needs with a view to their specific risk profile (own risk and solvency assessment).

This assessment does not require the development of an internal model nor does it serve to calculate a capital requirement different from the Solvency Capital Requirement and the Minimum Capital Requirement.

The results of each assessment should be reported to the supervisory authority as part of the information to be provided for supervisory purposes.

Article 36
Supervisory review process

1. Member States shall ensure that the supervisory authorities review and evaluate the strategies, processes and reporting procedures which are established by the insurance and reinsurance undertakings to comply with the laws, regulations and administrative provisions adopted pursuant to this Directive.

That review and evaluation shall comprise the assessment of the qualitative requirements relating to the system of governance, the assessment of the risks which the undertakings concerned face or may face and the assessment of the ability of those undertakings to assess those risks taking into account the environment the undertakings are operating in.

2. The supervisory authorities shall in particular review and evaluate compliance with the following:

(a) the system of governance, including the own risk and solvency assessment

Article 44
Own risk and solvency assessment

1. As part of its risk management system every insurance or reinsurance undertaking shall conduct its own risk and solvency assessment.

That assessment shall include at least the following:

(a) the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy of the undertaking;

(b) the compliance, on a continuous basis, with the capital requirements, as laid down in Chapters VI, Sections 4 and 5 and with the requirements regarding technical provisions, as laid down in Chapter VI, Section 2;

(c) the significance with which the risk profile of the undertaking concerned deviatesfrom the assumptions underlying the Solvency Capital Requirement as laid down in Article 101(3), calculated with the standard formula in accordance with Chapter VI, Section 4, Subsection 2 or with its partial or full internal model in accordance with Chapter VI, Section 4, Subsection 3.

2. For the purposes of point (a) of paragraph 1, the undertaking concerned shall have in place processes, which are proportionate to the nature, scale and complexity of the risks inherent to its business, and which enable it to properly identify and assess the risks it faces in the short and long term and to which it is or could be exposed.

The undertaking shall demonstrate the methods used in this assessment.

3. In the case referred to in point (c) of paragraph 1 when an internal model is used, the assessment shall be performed together with the recalibration that transforms the internal risk numbers into the Solvency Capital Requirement risk measure and calibration.

4. The own risk and solvency assessment shall be an integral part of the business strategy and shall be taken into account on an ongoing basis in the strategic decisions of the undertaking.

5. Insurance and reinsurance undertakings shall perform the assessment referred to in paragraph 1 regularly and without any delay following any significant change in their risk profile.

6. The insurance and reinsurance undertakings shall inform the supervisory authorities of the results of each own risk and solvency assessment as part of the information reported under Article 35.

6a. The own risk and solvency assessment shall not serve to calculate a capital requirement. The Solvency Capital Requirement can only be adjusted in accordance with Articles 37, 229, 230, 231 and 236.

Article 250
Supervision of the system of governance

1. The requirements set out in TITLE I, Chapter IV, Section 2 shall apply mutatis mutandis at the level of the group.

Without prejudice to the first subparagraph, the risk management and internal control systems and reporting procedures shall be implemented consistently in all the undertakings included in the scope of group supervision pursuant to points (a) and (b) of Article 211(2) so that those systems and reporting procedures can be controlled at the level of the group.

2. Without prejudice to paragraph 1, the group internal control mechanisms shall include at least the following:

(a) adequate mechanisms as regards group solvency to identify and measure all material risks incurred and to appropriately relate eligible own funds to risks;

(b) sound reporting and accounting procedures to monitor and manage the intra-group transactions and the risk concentration.

3. The systems and reporting procedures referred to in paragraph 1 and 2 shall be subject to supervisory review by the group supervisor, in accordance with the rules laid down in Chapter III.

4. Member States shall require the participating insurance or reinsurance undertaking or the insurance holding company to undertake at the level of the group the assessment required by Article 44. The own risk and solvency assessment conducted at group level shall be subject to supervisory review by the group supervisor in accordance with Chapter III.

Where the calculation of the solvency at the level of the group is carried out in accordance with the accounting consolidation-based method referred to in Article 228, the participating insurance or reinsurance undertaking or the insurance holding company shall provide to the group supervisor a proper understanding of the difference between the sum of the Solvency Capital Requirements of all the related insurance or reinsurance undertakings of the group and the group consolidated Solvency Capital Requirement.

Where the participating insurance or reinsurance undertaking or the insurance holding company so decides, and subject to the agreement of the group supervisor, it may undertake any assessments required by Article 44 at the level of the group and at the level of any subsidiary in the group at the same time, and may produce a single document covering all the assessments.

Before granting the agreement in accordance with the third subparagraph, the group supervisor shall consult and duly take into account any views and reservations of the members of the college of supervisors referred to in Article 252.

Where the group exercises the option provided in the third subparagraph, it shall submit the document to all supervisory authorities concerned at the same time.

Exercising this option shall not remove from the subsidiaries concerned the obligation to ensure that the requirements of Article 44 are met.

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