20.3.2015   

EN

Official Journal of the European Union

L 76/13

(1)

Insurance and reinsurance undertakings need to comply with Directive 2009/138/EC requirements for internal models. They may change their internal model in accordance with the approved policy for changing the model pursuant to Article 115 of Directive 2009/138/EC.

(2)

Major changes to the internal model, a combination of minor changes that is considered a major change, and changes to the policy for changing the model are subject to prior supervisory approval. Rules with regard to the procedure to be followed concerning the approval process for internal models should apply in a consistent manner to the approval of major changes to the internal model and to any changes to the policy for changing the model.

(3)

The inclusion of new elements in the internal model, such as the inclusion of additional risks not included in the scope of the internal model or business units, are subject to supervisory approval as laid down in Article 112 of Directive 2009/138/EC.

(4)

Due to interdependencies between different approval applications under Directive 2009/138/EC, when applying for approval of an internal model, the insurance or reinsurance undertaking should inform the supervisory authority of other applications for approval of the items listed in Article 308a(1) of Directive 2009/138/EC, which are currently ongoing or foreseen within the next 6 months. Such a requirement is necessary to ensure supervisory assessments are based on transparent and unbiased information.

(5)

The procedure to be followed for the approval of an internal model and major changes to the internal model should envisage ongoing communication between the supervisory authorities and the insurance or reinsurance undertaking. It is appropriate to begin the communication before the formal application is submitted to the supervisory authorities. That communication should continue after the internal model or major change is approved through the supervisory review process.

(6)

During the approval process supervisory authorities should be able to request adjustments to the internal model or for a transitional plan as set out in Article 113 of Directive 2009/138/EC.

(7)

The provisions set out in this Regulation on the procedures to be followed concerning the approval, the approval of changes to the internal model and the approval of the policy for changing the model for internal models used at individual level should apply in a consistent manner to the procedures for internal models for the calculation of the consolidated group Solvency Capital Requirement and for group internal models.

(8)

This Regulation is based on the draft implementing technical standards submitted by the European Insurance and Occupational Pensions Authority to the European Commission.

(9)

The European Insurance and Occupational Pensions Authority has conducted open public consultations on the draft implementing technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1094/2010 of the European Parliament and of the Council (2).

(10)

In order to enhance legal certainty about the supervisory regime during the phasing-in period provided for in Article 308a of Directive 2009/138/EC, which will start on 1 April 2015, it is important to ensure that this Regulation enters into force as soon as possible, on the day after that of its publication in the Official Journal of the European Union,

(a)

the procedure referred to in Article 112 of Directive 2009/138/EC as regards the approval of applications submitted by insurance and reinsurance undertakings to use full and partial internal models for the calculation of the Solvency Capital Requirement;

(b)

the procedure as regards the approval of applications submitted by insurance and reinsurance undertakings for a major change to the internal model and of changes to the policy for changing the internal model according to Article 115 of Directive 2009/138/EC.

(a)

a cover letter including:

(b)

an explanation of how the internal model covers all the material and quantifiable risks of the insurance or reinsurance undertaking. Where the application for the approval relates to a partial internal model, the explanation shall be limited to the material and quantifiable risks within the scope of the partial internal model and the insurance or reinsurance undertaking shall also provide an explanation of how the additional conditions referred to in Article 113 of Directive 2009/138/EC have been satisfied;

(c)

an explanation of the adequacy and effectiveness of the integration of the internal model into the risk management system and the role it plays in the system of governance, including how the internal model allows the insurance or reinsurance undertaking to identify, measure, monitor, manage and report risks on a continuous basis; for this purpose, the application shall include the relevant extracts of the risk management policy referred to in Article 41(3) of Directive 2009/138/EC;

(d)

an assessment and a justification by the insurance or reinsurance undertaking of the material strengths, weaknesses, and limitations of the internal model, including a self-assessment of the compliance with the requirements referred to in paragraph 2; the insurance or reinsurance undertaking shall also outline its plan for the future improvement of the internal model in order to address identified weaknesses or limitations or to develop or extend the internal model;

(e)

where the insurance or reinsurance undertaking is part of a group using an internal model for the calculation of the Solvency Capital Requirement or where an application to use any internal model for calculating the consolidated group Solvency Capital Requirement was submitted without having received the notification of the decision, a justification on why the group internal model is not fit for the risk profile of the undertaking and the differences between the internal model to be used at individual level and the group internal model;

(f)

the technical specifications of the internal model, including a detailed description of the structure of the internal model, together with a list and justification of the assumptions underlying the internal model where an adjustment to these assumptions would have a significant impact on the Solvency Capital Requirement;

(g)

an explanation of the adequacy of the internal control system of the insurance or reinsurance undertaking taking into account the structure and coverage of the model;

(h)

an explanation of the adequacy of the resources, skills and objectivity of the personnel responsible for the development and validation of the internal model;

(i)

the policy for changing the internal model referred to in Article 115 of Directive 2009/138/EC;

(j)

a description of the process which ensures the consistency between the methods used to calculate the probability distribution forecast with the methods used to calculate technical provisions according to Article 121(2) of Directive 2009/138/EC;

(k)

a directory of data used in the internal model, specifying their source, characteristics and usage and a description of the process which ensures that data are accurate, complete and appropriate;

(l)

the results of the last profit and loss attribution and the specification of the profit and loss attribution in accordance with Article 123 of Directive 2009/138/EC including the profit and loss, the major business units of the undertaking and the attribution of the overall profit or loss to the risk categories and major business units;

(m)

a description of the independent validation process of the internal model and a report of the results of the last validation in accordance with Article 124 of Directive 2009/138/EC, including what recommendations were made and how they were acted upon;

(n)

the inventory of the documents that form part of the documentation of the internal model set out in Article 125 of Directive 2009/138/EC;

(o)

where an insurance or reinsurance undertaking uses a model or data obtained from a third party as referred to in Article 126 of Directive 2009/138/EC, a demonstration that the use of such external model or data does not impair the ability of the insurance or reinsurance undertaking to meet the requirements set out in Articles 101 and 120 to 125 of that Directive and in the case of a partial internal model pursuant to Article 113 of that Directive, the suitability for the use of that model or data within the internal model and an explanation of the preference of external models or data to internal models or data;

(p)

an estimation of the Solvency Capital Requirement calculated with the internal model at the most granular level according to the insurance or reinsurance undertaking risk categorisation, and an estimation of the Solvency Capital Requirement calculated with the standard formula at the most granular level of the standard formula for the last point in time prior to the date of the submission of the application where the Solvency Capital Requirement was calculated with the standard formula. In case of an application before any Solvency Capital Requirement is calculated, the estimation of the Solvency Capital Requirement according to the standard formula shall be calculated with the standard formula parameters and not parameters specific to the insurance or reinsurance undertaking;

(q)

an identification of those parts of the business of the insurance or reinsurance undertaking which have been classified as a major business unit and a justification for this classification;

(r)

in the case of partial internal models, an explanation of how the integration technique proposed fulfils the requirements set out in Article 113(1) of Directive 2009/138/EC, and, in case of a technique different from the default one referred to in Article 239(1) of the Commission Delegated Regulation (EU) 2015/35 (3), a justification of the integration technique proposed.

(a)

where the supervisory authority approves the application, the starting date from which the model shall be used to calculate the Solvency Capital Requirement;

(b)

where the supervisory authority approves the application, any terms and conditions related to the approval decision together with the reasons for those terms and conditions;

(c)

where the supervisory authority rejects the application, the reasons on which the decision is based;

(d)

where the supervisory authority has requested a transitional plan in accordance with Article 113 of Directive 2009/138/EC, a decision about the approval of the transitional plan referred to in Article 6.

(a)

extend the time period to implement the plan;

(b)

extend the time period to implement the plan, subject to amendments to the plan;

(c)

require the insurance or reinsurance undertaking to calculate the Solvency Capital Requirement according to the standard formula set out in Articles 103 to 111 of Directive 2009/138/EC;

(d)

allow the use of a partial internal model with a more limited scope than the minimum scope referred to in paragraph 1.