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Stand:updated on 20.01.2016 | Topic Solvency Solvency II: Application procedure

Under Solvency II, since 1 April 2015 the supervisory authorities have been able to decide on approvals in a series of application procedures. As part of these procedures, European legislators have published implementing technical standards, which contain the specifications for supervisory approval and which must be complied with by undertakings preparing any such applications. BaFin provides further guidance notes here on the various application procedures.

In accordance with Article 308a(1) of the Solvency II Directive (Directive 2009/138/EC), as of 1 April 2015 the Member States of the European Union must ensure that their supervisory authorities are authorised to decide on a series of application procedures provided by the new supervisory regime. For BaFin, this authority is laid down in section 355 (1) of the Act to Modernise Financial Supervision of Insurance Undertakings (Gesetz zur Modernisierung der Finanzaufsicht über Versicherungen – Tenth Amendment to the VAG), which transposes the Solvency II Directive into German law. In addition to the approval of internal full or partial models for calculating the Solvency Capital Requirement (SCR), the Act also applies to the approval of undertaking-specific and group-specific parameters in the SCR standard formula, use of the volatility adjustment, application of transitional measures on risk-free interest rates and technical provisions and the approval of ancillary own funds.

Implementing technical standards containing provisions on the approval process were published for the application procedures for internal models, ancillary own funds and undertaking-specific parameters. These include, for instance, specifications on the documentation to be submitted for the application along with the deadlines to be met.

Undertaking-specific parameters

In accordance with section 109 (2) of the Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) and following approval by the supervisory authorities, insurance undertakings can replace a sub-group of parameters with undertaking-specific parameters when calculating the technical risk modules in the SCR standard formula. A corresponding regulation also applies to the calculation of the SCR standard formula at group level. BaFin recommends that undertakings wishing to make such an application contact it beforehand to communicate the status of preparations and agree on a timetable.

Use of the volatility adjustment

Under Article 77d (1) of the Solvency II Directive, the Member States may require insurance undertakings to obtain prior approval by the supervisory authorities for the application of a volatility adjustment to the relevant risk-free interest rate term structure when calculating the best estimate for the insurance obligations. The current state of implementation of the Solvency II Directive indicates that German legislators have made use of this option and stipulate BaFin’s approval as a condition for use of the volatility adjustment (see section 82 (1) of the VAG).

Application of the transitional measures on risk-free interest rates and technical provisions

The Solvency II Directive provides two transitional measures in connection with the assessment of technical provisions: section 351 of the VAG contains provisions for the transitional measure on risk-free interest rates which permit insurance undertakings to apply a temporary adjustment to the relevant risk-free interest rate term structure with due regard to admissible insurance obligations. Section 352 of the VAG governs the application of the transitional measure on technical provisions. According to this, insurance undertakings may apply a transitional deduction to technical provisions. Both these measures are subject to prior supervisory approval and may not be applied together.

Ancillary own funds

Pursuant to section 90 (1) of the VAG, the amounts of the ancillary own-fund items and the methods for determining these amounts are subject to prior supervisory approval.

Internal models

Pursuant to sections 111, 112, 261 (2) or 262 of the VAG, insurance undertakings may, following approval by the supervisory authorities, use a (partial) internal model for the calculation of the (group) Solvency Capital Requirement (SCR).

BaFin recommends that undertakings wishing to make such an application contact it beforehand and take advantage of the offer of a pre-application phase.

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