What changed between the draft committee report and the plenary report

Removed:Article 1 – paragraph 1 – point 13 – introductory part, Article 29e: (13) the following Articles 29a to 29d are inserted:

Added:(33b) Directive 2009/138/EC requires that the amount of eligible own funds necessary to support the insurance and reinsurance obligations be determined for the purpose of the risk margin calculation and that the Cost-of-Capital rate is equal to the additional rate, above the relevant risk-free interest rate, that an insurance or reinsurance undertaking would incur holding that amount of eligible own funds. Directive 2009/138/EC also requires that the Cost-of-Capital rate be reviewed periodically. For that purpose, the reviews should ensure that the Cost-of-Capital rate remains risk-based and is not set at an overly conservative level.

Removed:Directive 2009/138/EC

Added:(34) The determination of the relevant risk-free interest rate term structure should balance the use of information derived from relevant financial instruments with the ability of insurance and reinsurance undertakings to hedge interest rates derived from financial instruments. In particular, it can happen that smaller insurance and reinsurance undertakings do not have the capacities to hedge interest rate risk with instruments other than bonds, loans or similar assets with fixed cash-flows. The relevant risk-free interest rate term structure should therefore be extrapolated for maturities where the markets for bonds are no longer deep, liquid and transparent. However, the method for the extrapolation should make use of information derived from relevant financial instruments other than bonds, where such information is available from deep, liquid and transparent markets for maturities where the bond markets are no longer deep, liquid and transparent. To ensure certainty and harmonised application while also allowing for timely reaction to changes in market conditions, the Commission should adopt delegated acts to specify how the new extrapolation method should apply. Under market conditions similar to those at the date of entry into force of this amending Directive, the starting point for the extrapolation for the euro should be at a maturity of 20 years.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – title: Low-risk profile undertakings

Added:(35) The determination of the relevant risk-free interest rate term structure has a significant impact on the solvency position in particular for life insurance undertakings with long-term liabilities. In order to avoid a disruption to the existing insurance business and to allow for a smooth transition to the new extrapolation method, it is necessary to provide for a phasing in measure and a transitional measure. The transitional measures should aim to avoid market disruption and provide a transparent path to the final extrapolation method.

Removed:Directive 2009/138/EC

Added:(36) Directive 2009/138/EC provides for a volatility adjustment, which seeks to mitigate the effect of exaggerations of bond spreads and is based on reference portfolios for the relevant currencies of insurance and reinsurance undertakings and, in the case of the euro, on reference portfolios for national insurance markets. The use of a uniform volatility adjustment for entire currencies or countries can lead to benefits in excess of a mitigation of exaggerated bond spreads, in particular where the sensitivity of relevant assets of those undertakings to changes in credit spreads is lower than the sensitivity of the relevant best estimate to changes in interest rates. In order to avoid such excessive benefits from the volatility adjustment, the volatility adjustment should be subject to supervisory approval and its calculation should take into account undertaking-specific characteristics related to the spread sensitivity of assets and the interest rate sensitivity of the best estimate of technical provisions. In light of the additional safeguards, insurance and reinsurance undertakings should be allowed to add up to an increased proportion of 85% of the risk-corrected spread derived from the representative portfolios to the basic risk-free interest rate term structure.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – introductory part: Member States shall ensure that insurance undertakings are classified as low-risk profile undertakings, according to the process set out in Article 29b, where, for two consecutive financial years prior to such classification, they meet the following criteria:

Added:(37) Directive 2009/138/EC provides for a country component in the volatility adjustment that aims to ensure that exaggerations of bond spreads in a specific country are mitigated. However, the activation of the country component is based on an absolute threshold and a relative threshold with respect to the risk-adjusted spread of the country, which can lead to cliff-edge effects and therefore increase the volatility of own funds of insurance and reinsurance undertakings. In order to ensure that exaggerations of bond spreads in a specific Member State whose currency is the euro are mitigated effectively, the country component should be replaced by a macro component which is to be calculated based on the differences between the risk adjusted spread for the euro and the risk adjusted spread for the country. In order to avoid cliff-edge effects, the calculation should avoid discontinuities with respect to the input parameters.

Removed:Directive 2009/138/EC

Added:(38) In order to take account of developments in the investment practices of insurance and reinsurance undertakings, the Commission should be empowered to adopt delegated acts to set out criteria for the eligibility of assets to be included in the assigned portfolio of assets where the nature of the assets could lead to diverging practices with respect to the criteria for the application and the calculation of the matching adjustment.

Removed:Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 1 – introductory part

Added:(39) In order to ensure that the same treatment is applied to all insurance and reinsurance undertakings calculating the volatility adjustment, or to take account of market developments, the Commission should be empowered to adopt delegated acts specifying the calculation of undertaking-specific elements of the volatility adjustment. For currencies other than the euro, the calculation of currency-specific elements of the volatility adjustment should take account of the possibility of cash-flow matching across pairs of pegged currencies of Member States, under the condition that it reliably reduces the currency risk.

Removed:Article 1 – paragraph 1 – point 13: (a) For life insurance undertakings, all of the following criteria shall be met:

Added:(40) For the purposes of calculating their own funds under Regulation (EU) No 575/2013 of the European Parliament and of the Council, institutions which belong to financial conglomerates that are subject to Directive 2002/87/EC of the European Parliament and of the Council may be permitted not to deduct their significant investments in insurance or reinsurance undertakings, provided that certain criteria are met. There is a need to ensure that prudential rules applicable to insurance or reinsurance undertakings and credit institutions allow for an appropriate level-playing field between banking-led and insurance-led financial groups. Therefore, insurance or reinsurance undertakings should also be permitted not to deduct from their eligible own funds participations in credit and financial institutions, subject to similar conditions. In particular, either group supervision in accordance with Directive 2009/138/EC or supplementary supervision in accordance with Directive 2002/87/EC should apply to a group encompassing both the insurance or reinsurance undertaking and the related institution. In addition, the institution should be an equity investment of strategic nature for the insurance or reinsurance undertaking and supervisory authorities should be satisfied as to the level of integrated management, risk management and internal controls regarding the entities in the scope of group supervision or supplementary supervision.

Removed:Simplification of the proportionality regime.

Added:(41) The existing limits imposed on the level of the symmetric adjustment restrict the ability of this adjustment to mitigate potential pro-cyclical effects of the financial system and to avoid a situation in which insurance and reinsurance undertakings are unduly forced to raise additional capital or sell their investments as a result of unsustained adverse movements in financial markets, such as the ones triggered by the Covid-19 pandemic. Therefore, the symmetric adjustment should be amended so that it allows for larger changes to the standard equity capital charge and further mitigates the impact of sharp increases or decreases in stock markets.

Removed:Directive 2009/138/EC

Added:(42) To enhance the proportionality within the quantitative requirements, insurance and reinsurance undertakings should be granted the possibility to calculate the capital requirement for immaterial risks in the standard formula with a simplified approach for a period of no more than three years. Such a simplified approach should allow undertakings to estimate the capital requirement for an immaterial risk on the basis of an appropriate volume measure which varies over time. This approach should be based on common rules and subject to common criteria for the identification of immaterial risks.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 1 – point ii: (ii) business underwritten in Member States other than the home Member State where the undertaking received its authorisation in accordance with Article 14 is not higher than 25 % of its total annual gross written premium;

Added:(43) Insurance and reinsurance undertakings that use the matching adjustment have to identify, organise and manage the assigned portfolio of assets and obligations separately from other parts of the business and should therefore not be permitted to meet risks arising elsewhere in the business using the assigned portfolio of assets. However, the separated management of the portfolio does not result in an increase in correlation between the risks within that portfolio and those within the rest of the undertaking. Therefore, insurance and reinsurance undertakings which use the matching adjustment should be allowed to calculate their Solvency Capital Requirement based on the assumption of full diversification between the assets and liabilities of the portfolio and the rest of the undertaking, unless the portfolios of assets covering a corresponding best estimate of insurance or reinsurance obligations form a ring-fenced fund.

Removed:Cross-border business is not inherently riskier than national business.

Added:(43a) The need to properly reflect extremely low and negative interest rates in the insurance supervision has arisen due to what has been witnessed in recent years on the markets. This should be achieved via a recalibration of the interest rate risk sub-module to reflect the existence of a negative yield environment. At the same time, the methodology to be used should not result in unrealistically large decreases in the liquid part of the curve and that could be avoided by foreseeing an explicit floor to represent a lower bound of interest rates. In line with interest rates dynamics, the floor should not be flat but term-dependent.

Removed:Directive 2009/138/EC

Added:(43b) The Commission has bundled all empowerments provided for under Directive 2009/138/EC in Commission Delegated Regulation (EU) 2015/35. That approach has worked well for the implementation of that Directive and made ensuring compliance with that delegated regulation easier. Therefore, Delegated Regulation (EU) 2015/35 should be kept in force and all necessary amendments under existing empowerments as well as the implementation of new empowerments under this Directive should be effected exclusively as amending acts to Delegated Regulation (EU) 2015/35. However, bundling makes the execution of the co-legislators’ scrutiny rights under Article 290 TFEU more difficult. In order not to hinder effective scrutiny by the co-legislators, where such amendments are to be bundled in the future into one or more amending delegated acts, the Commission, in accordance with paragraph 31 of the Interinstitutional Agreement of 13 April 2016 on Better Law-Making, should consult the co-legislators beforehand on any proposal for one or more bundled amending delegated acts and provide objective justifications based on the substantive link between two or more empowerments.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 1 – point iii: (iii) the undertaking represents less than 10 % of the home Member State's life insurance market, where the market share is based on gross technical provisions;

Added:(44) As part of the supervisory review process, it is important for supervisory authorities to be able to compare information across the companies they supervise. Partial and full internal models allow to capture the individual risk of an undertaking better and Directive 2009/138/EC allows insurance and reinsurance undertakings to use them for determining capital requirements without limitations stemming from the standard formula. ▌

Removed:Directive 2009/138/EC

Added:(45) Directive 2009/138/EC provides for the possibility for insurance and reinsurance undertakings to calculate their Solvency Capital Requirement with an internal model subject to supervisory approval. Where an internal model is applied, that Directive does not prevent the insurance and reinsurance undertaking from taking into account the effect of credit spread movements on the volatility adjustment in its internal model. As the use of the volatility adjustment can lead to benefits in excess of a mitigation of exaggerated bond spreads in the calculation of the best estimate, such excessive benefits can also distort the calculation of the Solvency Capital Requirement where the effect of credit spread movements on the volatility adjustment is taken into account in the internal model. In order to avoid such distortion, the Solvency Capital Requirement should be floored, where supervisory authorities allow insurance and reinsurance undertaking to take into account the effect of credit spread movements on the volatility adjustment in their internal model, at a level below which benefits on the Solvency Capital Requirement in excess of a mitigation of exaggerated bond spreads are expected to occur.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 1 – point iv: (iv) investments in non-traditional investments do not represent more than 30% of total investments;

Added:(46) Insurance and reinsurance undertakings should be incentivised to build resilience for crisis situations. Where insurance and reinsurance undertakings take into account the effect of credit spread movements on the volatility adjustment in their internal model, while also considering the effect of credit spread movements on the macro volatility adjustment, this could undermine in a severe manner any incentives to build up resilience for crisis situations. Insurance and reinsurance undertakings should therefore be prevented from taking into account a macro volatility adjustment in their internal model.

Removed:Directive 2009/138/EC

Added:(47) National supervisory authorities should be able to collect relevant macroprudential information on the investment strategy of undertakings, analyse it together with other relevant information that might be available from other market sources, and incorporate a macroprudential perspective in their supervision of undertakings. This could include supervising risks related to specific credit cycles, economic downturns and collective or herding behaviour in investments.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 1 – point v: (v) the reinsurance business accepted by the undertaking does not exceed 50 % of its annual total gross written premium income.

Added:(48) Directive 2009/138/EC provides for an extension of the recovery period in cases of breaches of the Solvency Capital Requirement where the European Insurance and Occupational Pensions Authority (EIOPA) has declared the existence of exceptional adverse situations. The declarations can be made following requests by national supervisory authorities, who are required to consult the European Systemic Risk Board (ESRB) where appropriate before the request. The consultation with the ESRB in a decentralised manner by national supervisory authorities is less efficient than a consultation with the ESRB in a centralised manner by EIOPA. In order to ensure an efficient process, it should be EIOPA, and not the national supervisory authorities, that consults the ESRB before the declaration of the existence of exceptional adverse situations, where the nature of the situation allows such prior consultation.

Removed:Editorial correction.

Added:(49) Directive 2009/138/EC requires insurance and reinsurance undertakings to inform the supervisory authority concerned immediately where they observe a failure to comply, or a risk of non-compliance in the following three months, with the Minimum Capital Requirement. However, that Directive does not specify when the non-compliance with the Minimum Capital Requirement or the risk of non-compliance in the following three months can be observed and undertakings could delay informing supervisory authorities until the end of the relevant quarter when the calculation of the Minimum Capital Requirement to be formally reported to the supervisory authority takes place. In order to ensure that supervisory authorities receive timely information and are able to take necessary action, insurance and reinsurance undertakings should be required to immediately inform the supervisory authorities of a failure to comply with the Minimum Capital Requirement or a risk of non-compliance also where this has been observed on the basis of estimations or calculations between two dates of official calculations of the Minimum Capital Requirement, in the relevant quarter.

Removed:Directive 2009/138/EC

Added:(50) The protection of the interests of insured persons is a general objective of the prudential framework that should be pursued by competent supervisory authorities at every stage of the supervisory process, including in case of breaches or likely breaches of requirements by insurance or reinsurance undertakings that may give rise to the withdrawal of authorisation. That objective should be pursued before the withdrawal of authorisation, and in consideration of any legal implication for insured persons that may derive from it, after the withdrawal of authorisation as well.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 1 – point v a (new): (va) the Solvency Capital Requirement is complied with and a capital add-on in accordance with Article 37 has not been set.

Added:(51) National supervisory authorities should be equipped with tools to prevent the materialisation of risks for the financial stability in insurance markets, limit pro-cyclical behaviours by insurance and reinsurance undertakings and mitigate negative spillover effects within the financial system and into the real economy.

Removed:Undertakings should be in a sound financial position in order to be classified as a low-risk profile undertaking.

Added:(52) Recent economic and financial crises, in particular the crisis ensuing from the Covid-19 pandemic, have demonstrated that a sound liquidity management by insurance and reinsurance undertakings can prevent risks for the stability of the financial system. For this reason, insurance and reinsurance undertakings should be required to strengthen liquidity management and planning, especially in the context of adverse situations affecting a large part or the totality of the insurance and reinsurance market.

Removed:Directive 2009/138/EC

Added:(53) Whenever undertakings with particularly vulnerable profiles, such as those having liquid liabilities or holding illiquid assets, or with liquidity vulnerabilities which can affect the overall financial stability, do not appropriately remedy the situation, national supervisory authorities should be able to intervene to reinforce their liquidity position.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point a – subparagraph 2: deleted

Added:(54) Supervisory authorities should have the necessary powers to preserve the solvency position of specific insurance or reinsurance undertakings during exceptional situations such as adverse economic or market events affecting a large part or the totality of the insurance and reinsurance market, in order to protect policyholders and preserve financial stability. Those powers should include the possibility to restrict or suspend distributions to shareholders and other subordinated lenders of a given insurance or reinsurance undertaking before an actual breach of the Solvency Capital Requirement occurs. Those powers should be applied on a case-by-case basis, respect common risk-based criteria and not undermine the functioning of the internal market.

Removed:Directive 2009/138/EC

Added:(55) As the restriction or the suspension of distribution of dividends and other bonuses would affect, even on a temporary basis, the rights of shareholders and other subordinated creditors, supervisory authorities should duly take into account the principle of proportionality and necessity when taking such measures. Supervisory authorities should also ensure that none of the measures adopted entails disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole. In particular, supervisory authorities should only restrict capital distributions within an insurance and reinsurance group in exceptional circumstances, and when duly justified to preserve the stability of the insurance market and of the financial system as a whole.

Removed:Article 29a – paragraph 1 – subparagraph 1 – point b – subparagraph 1 – introductory part

Added:(56) Recent failures of insurance and reinsurance undertakings operating cross-border have underlined the need for supervisory authorities to be better informed on activities conducted by undertakings. Therefore, insurance and reinsurance undertakings should be required to notify the supervisory authority of their home Member State any material changes affecting their risk profile in relation to their ongoing cross-border insurance activities, and that information should be shared with the supervisory authorities of the host Member States concerned.

Removed:Article 1 – paragraph 1 – point 13: (b) For non-life insurance undertakings, all of the following criteria shall be met:

Added:(57) Under Directive 2009/138/EC, as amended by Directive (EU) 2019/2177 of the European Parliament and of the Council, EIOPA has the power to set up and coordinate collaboration platforms to enhance collaboration between the relevant supervisory authorities where an insurance or reinsurance undertaking carries out, or intends to carry out, activities which are based on the freedom to provide services or the freedom of establishment. However, the set-up and operation of collaboration platforms on an ad-hoc basis did not sufficiently address the need for coordination and collaboration between supervisory authorities. The increasing amount of cross-border business activities in the internal market and the difficulty of supervisors to spot such activities in a timely and adequate manner require strengthening of the collaboration platforms by making them mandatory for all significant cross-border activities. In view of EIOPA’s activities in establishing an IT tool to exchange information, that obligation should not lead to a higher administrative burden. However, in view of the complexity of the supervisory issues dealt with within those platforms, in several cases, national supervisory authorities fail to reach a common view on how to address issues related to an insurance or reinsurance undertaking which is operating on a cross-border basis. In the event that the supervisory authorities involved in the collaboration platforms cannot reach an agreement on issues related to an insurance or reinsurance undertaking which is operating on a cross-border basis, EIOPA should have the power to settle the disagreement in accordance with Article 19 of Regulation (EU) No 1094/2010. In order to improve the functioning of the platforms and the effective and efficient exchange of information, technology-based and digital solutions should be used. Standing digital collaboration platforms facilitated by EIOPA should enable the efficient exchange of available supervisory data, reports on the supervisory review process, coordination of supervisory activity and relevant market data.

Removed:Simplification of the regime.

Added:(58) Under Directive 2009/138/EC, insurance or reinsurance undertakings are not required to provide information on the conduct of their business to the supervisory authorities of the host Member States in a timely manner. Such information may only be obtained by requesting it to the supervisory authority of the home Member State. However, such an approach does not ensure access to information in a reasonable period of time. Therefore, the supervisory authorities of the host Member States, like the supervisory authority of the home Member State, should also have the power to directly request information to insurance or reinsurance undertakings in a timely manner.

Removed:Directive 2009/138/EC

Added:(59) Where an insurance or reinsurance undertaking carries out significant cross-border activities any concerned supervisory authority ▌ should have the power to request additional information, which is not already shared through the collaboration platform, from the supervisory authority of the home Member State on the solvency position of that insurance or reinsurance undertaking. Where a concerned supervisory authority ▌has serious concerns regarding the solvency position, it should have the power to request the carrying out of a joint on-site inspection together with the supervisory authority of the home Member State, where there is a ▌non-compliance with the Solvency Capital Requirement. The home supervisory authority should coordinate a joint on-site inspection inviting all concerned supervisory authorities and EIOPA. Supervisory authorities should agree on the objectives of the onsite inspection before it is carried out.. The home supervisory authority should inform all concerned supervisory authorities about the outcome of the inspection. Where supervisory authorities disagree on the opportunity to carry out a joint on-site inspection, its objectives or findings, EIOPA should have the power to settle the disagreement in accordance with Article 19 of Regulation (EU) No 1094/2010.

Removed:Article 1 – paragraph 1 – point 13, Article 29a – paragraph 1 – subparagraph 1 – point b – subparagraph 1 – point ii: (ii) business underwritten in Member States other than the home Member State where the undertaking received its authorisation in accordance with Article 14 is not higher than 25 % of its total annual gross written premium;

Added:(60) In order to be identified as an insurance holding company, a parent company should in particular have, as its main business, the acquisition and holding of participations in subsidiary undertakings, where those subsidiary undertakings are exclusively or mainly insurance or reinsurance undertakings, or thirdcountry insurance or reinsurance undertakings. Currently, supervisory authorities have different interpretations as to the meaning of “exclusively or mainly” in that context. Therefore, a clarification of that concept should be provided, similar to the clarification provided in Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/876 of the European Parliament and of the Council, for the banking sector. Subsidiary undertakings should be considered as “mainly insurance or reinsurance undertakings or third-country insurance or reinsurance undertakings” where such firms represent more than 50% of the insurance holding company’s equity, consolidated assets, revenues, personnel or other indicator considered relevant by the supervisory authority.