25 October 2000

Commission Proposals on Solvency Margin Requirements Directive

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These two directives have many common measures and for coherence should be read together. The basic purpose of these proposals is to improve the protection of insurance policyholders by upgrading the solvency margin requirements of life and non-life insurance undertakings. The directives have the following measures in common:

The proposed harmonised solvency margin (SM) rules are not to be considered strict. Member states are free to establish more stringent rules for the undertakings they authorise and allow national authorities to further strengthen RSM in line with their national market specificities.

Regulatory supervision is strengthened by endowing the competent authorities with the power to take remedial action where policyholders interests are threatened.

The different items eligible for the ASM is categorised into three groups according to their relative financial strength.

In addition the proposal on life insurance undertakings will reinforce the existing system by the following measures:

The MGF is strengthened and indexed in line with inflation. Transitional arrangements are foreseen (5 plus additional 2 years from entry into force).

The existing formula for the reinsurance reduction to the RSM is now based on a three year average (as opposed to a single year).
The proposal covers all insurance undertakings established as limited companies and all mutuals whose contribution income exceeds EUR 5 million.

The proposal on covering non-life insurance undertakings will additionally reinforce the existing system by the following measures:

The MGF's have been strengthened and indexed in line with inflation; so have the thresholds for the application of the split percentage rates for the premiums and claims. The number of MGF's has been simplified and reduced to 4 to 2. Transitional arrangements are foreseen (5 plus additional 2 years from entry into force).

A higher RSM is now established for non-life classes of business that have a particularly volatile risk profile. These are classes 11, 12 and 13 corresponding to marine, aviation and general liability. The proposal is to increase the current RSM by 50%;

The solvency margin requirement for run-off companies is now corrected by requiring a proportionate run-down in the RSM.

The existing formula for the reinsurance reduction to the RSM is now based on a three-year average (as opposed to one single year);

See also the press release for a short summary.

© European Commission