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The Solvency and Financial Condition Report
from the Solvency ii Association
the largest Association of Solvency ii Professionals in the world
 
 
What is the Solvency and Financial Condition Report?
 
From the Amended Proposal for a Directive on the taking-up and pursuit of the business of Insurance and Reinsurance (SOLVENCY II)
 
Public Disclosure - Articles 50 to 55
The proposal requires undertakings to disclose annually a report covering essential and
concise information on their solvency and financial condition.
 
An exception is possible for individual capital add-ons for a transitional period.
 
Undertakings are required to update the information disclosed where appropriate (specific provisions address cases of non compliance with Minimum Capital Requirement or Solvency Capital Requirement), and they are allowed to disclose additional information on a voluntary basis.
 
Undertakings are required to have a policy on public disclosure, and must obtain approval from their administrative or management body on the solvency and financial condition report before publication.
 
Finally, the proposal allows the adoption of implementing measures with a view to ensuring
convergence as appropriate.
 
 
Article 54
Report on Solvency and financial condition: policy and approval
 
1. Member States shall require insurance and reinsurance undertakings to have appropriate systems and structures in place to fulfil the requirements laid down in Articles 50, 52 and 53(1), as well as to have a written policy ensuring the on-going appropriateness of any information disclosed in accordance with Articles 50, 52 and 53.
 
2. The solvency and financial condition report shall be subject to approval by the
administrative or management body of the insurance or reinsurance undertaking and
be published only after that approval.
 
 
Article 55
Solvency and financial condition report: implementing measures
 
The Commission shall adopt implementing measures further specifying the information which must be disclosed and the means by which this is to be achieved.
 
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 304(3).
 
 
Article 260
Group solvency and financial condition report
 
1. Member States shall require participating insurance and reinsurance undertakings or
insurance holding companies to publicly disclose, on an annual basis, a report on the
solvency and financial condition at the level of the group.
 
Articles 50 and 52 to 54 shall apply mutatis mutandis.
2. Where a participating insurance or reinsurance undertaking or an insurance holding company so decides, and subject to the agreement of the group supervisor, it may provide a single solvency and financial condition report which shall comprise the following:
 
(a) the information at the level of the group which must be disclosed in accordance
with paragraph 1;
 
(b) the information for any of the subsidiaries within the group which must be
disclosed in accordance with Articles 50 and 52 to 54.
 
3. Where the report referred to in paragraph 2 fails to include information which the
supervisory authority having authorised a subsidiary within the group requires comparable undertakings to provide, and where the omission is material, the supervisory authority concerned shall have the power to require the subsidiary concerned to disclose the necessary additional information.
 
     

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


Article 54
Report on solvency and financial condition: policy and approval


1. Member States shall require insurance and reinsurance undertakings to have appropriate systems and structures in place to fulfil the requirements laid down in Articles 50, 52 and 53(1), as well as to have a written policy ensuring the on-going appropriateness of any information disclosed in accordance with Articles 50, 52 and 53.

2. The solvency and financial condition report shall be subject to approval by the administrative or management body of the insurance or reinsurance undertaking and be published only after that approval.


Article 55
Solvency and financial condition report: implementing measures


The Commission shall adopt implementing measures further specifying the information which must be disclosed and the means by which this is to be achieved.

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 304(3).


Article 260
Group solvency and financial condition report


1. Member States shall require participating insurance and reinsurance undertakings or insurance holding companies to publicly disclose,
on an annual basis, a report on the solvency and financial condition at the level of the group.
Articles 50 and 52 to 54 shall apply mutatis mutandis.

2. Where a participating insurance or reinsurance undertaking or an insurance holding company so decides, and subject to the agreement of the group supervisor, it may provide a single solvency and financial condition report which shall comprise the following:

(a) the information at the level of the group which must be disclosed in accordance with paragraph 1;

(b) the information for any of the subsidiaries within the group which must be individually identifiable and disclosed in accordance with Articles 50 and 52 to 54.

Before granting the agreement in accordance with the first 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.

3. Where the report referred to in paragraph 2 fails to include information which the supervisory authority having authorised a subsidiary within the group requires comparable undertakings to provide, and where the omission is material, the supervisory authority concerned shall have the power to require the subsidiary concerned to disclose the necessary additional information.

3a. The Commission shall adopt implementing measures further specifying the information which must be disclosed and the means by which this is to be achieved as regards the single solvency and financial condition report.

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 304(3).

 
     
 
Is the Solvency and Financial Condition Report (of Solvency ii) in line with the international standards?
 
INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS (IAIS)
GUIDANCE PAPER ON ENTERPRISE RISK MANAGEMENT FOR CAPITAL ADEQUACY AND SOLVENCY PURPOSES - OCTOBER 2007


Supervisors should require appropriate information on risk management and risk and solvency assessments from each insurer they regulate.
 
This not only provides supervisors with a long-term assessment of capital adequacy to aid in their assessment of insurers, but encourages insurers to use risk management effectively.
 
This could also be achieved by, for instance, a supervisor requiring or encouraging insurers to provide a solvency and financial condition report.
 
Such a report could include a description of the relevant material categories of risk that the insurer faces, its overall financial resource needs, its economic capital and regulatory capital requirements, and projections of how such factors will develop in future.
 
Where an insurer fails to report adequate information about its risk management practices, processes and procedures from which the supervisor can monitor the insurer, the supervisor should intervene or apply penalties appropriately.
 
In addition, an insurer should have a duty to report to the supervisor a breach in regulatory requirements as soon as it occurs.

Any requirements for public disclosure of information on risk management, including possible disclosure of elements of a solvency and financial condition report, should be carefully considered by supervisors taking into account the proprietary nature of the information, whether it is commercially sensitive and the potential for its publication to have adverse effects on insurers, distort competition or give some insurers an unfair advantage.
 
On the other hand, requiring insurers to disclose sufficient financial information would enhance market discipline and market confidence in insurers.

 

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Solvency Capital Requirement
According to the Solvency ii Directive, The Solvency Capital Requirement reflects a level of eligible own funds that enables insurance and reinsurance undertakings to absorb significant losses and that gives reasonable assurance to policyholders and beneficiaries that payments will be made as they fall due.
www.solvency-capital-requirement.com

Minimum Capital Requirement
According to the Solvency ii Directive, when the amount of eligible basic own funds falls below the Minimum Capital Requirement, the authorisation of insurance and reinsurance undertakings should be withdrawn, if those undertakings are unable to re-establish the amount of eligible basic own funds at the level of the Minimum Capital Requirement within a short period of time.
www.minimum-capital-requirement.com