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What are the EU’s new requirements for insurance and reinsurance undertakings? Hilary Evenett, insurance specialist and partner in the funds and investment management at Clifford Chance, says advisers should take particular note of the timetable for the approval process under the Commission’s implementing regulations.
Official Journal of the European Union, L76, 20 March 2015—Regulation—Insurance, LNB News 20/03/2015 85
Commission Implementing Regulation (EU) 2015/461, which came into force on 21 March 2015, lays down implementing technical standards with regard to the process to reach a joint decision on the application to use a group internal model in accordance with Directive 2009/138/EC (Solvency II).
Official Journal of the European Union, L76, 20 March 2015—Regulation—Insurance, LNB News 20/03/2015 83
Commission Implementing Regulation (EU) 2015/460, which entered into force on 21 March 2015, lays down implementing technical standards with regard to the procedure concerning the approval of an internal model in accordance with Solvency II.
What is the background to these implementing regulations?
The Solvency II framework Directive provides that insurance and reinsurance undertakings may use a bespoke internal model for the calculation of their capital requirements, instead of a standard model provided for in Solvency II and the Commission Delegated Regulation (EU) 2015/35. The use of such an internal model is subject to approval from the relevant supervisor.
What do these implementing regulations cover?
These implementing regulations deal with the process for applying for approval to use an internal model, and the procedures to be followed by the supervisory authorities in reaching a joint decision on an application for permission to use a group internal model to calculate group solvency requirements where a group includes more than one (re)insurance undertaking in different jurisdictions.
What are the key provisions?
Applications for approval to use internal models must be made in writing to the relevant supervisory authority, accompanied by documentary evidence setting out how the internal model fulfils the requirements set out in Solvency II for the calculation of the solvency capital requirement. The application must include:
The supervisor has 30 days from the date of receipt of the application to determine whether or not it is complete. If it is complete, there is then a six-month period within which approval must be given or refused. The supervisor may only approve the application if it is satisfied that the systems of the insurer for identifying, measuring, monitoring, managing and reporting risk are adequate and, in particular, if it is satisfied that the internal model fulfils the requirements of Solvency II referred to above.
When an application for approval of an internal model is made on behalf of a group, the supervisory authorities in each member state where the relevant insurance and reinsurance undertakings comprising the group have their head office are allowed to give their input on the proposal for a decision to the group supervisor.
What advice should professionals be giving to their clients as a result?
Advisers should note the content of the application for approval, and the timetable for the approval process.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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