1.Insurance and reinsurance undertakings may, subject to prior approval by their supervisory authority, apply a transitional deduction to technical provisions. That deduction may be applied at the level of homogeneous risk groups referred to in Article 80.
1a.After 30 January 2027, supervisory authorities shall only approve a transitional deduction to technical provisions in the following cases:
(a)during a period of 18 months preceding the approval, the rules of this Directive applied for the first time to the insurance or reinsurance undertaking requesting the approval after being exempted from the scope of this Directive pursuant to Article 4;
(b)during a period of six months preceding the approval, the insurance or reinsurance undertaking requesting the approval accepted a portfolio of insurance and reinsurance contracts, where the transferring insurance or reinsurance undertaking applied the transitional adjustment to the relevant risk-free interest rate term structure with respect to that portfolio of contracts prior to the transfer.
2.The transitional deduction shall correspond to a portion of the difference between the following two amounts:
(a)the technical provisions after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, calculated in accordance with Article 76 at the first date of the application of this Directive;
(b)the technical provisions after deduction of the amounts recoverable from reinsurance contracts calculated in accordance with the laws, regulations and administrative provisions which are adopted pursuant to Article 15 of Directive 73/239/EEC, Article 20 of Directive 2002/83/EC and Article 32 of Directive 2005/68/EC on the day before those Directives are repealed pursuant to Article 310 of this Directive.
The maximum portion deductible shall decrease linearly at the end of each year from 100 % during the year starting from 1 January 2016 to 0 % on 1 January 2032.
Where insurance and reinsurance undertakings apply at the first date of the application of this Directive the volatility adjustment referred to in the Article 77d, the amount referred to in point (a) shall be calculated with the volatility adjustment at that date.
3.Subject to prior approval by or on the initiative of the supervisory authority, the amounts of technical provisions, including where applicable the amount of the volatility adjustment, used to calculate the transitional deduction referred to in paragraph 2(a) and (b) may be recalculated every 24 months, or more frequently where the risk profile of the undertaking has materially changed.
4.The deduction referred to in paragraph 2 may be limited by the supervisory authority if its application could result in a reduction of the financial resources requirements that apply to the undertaking when compared with those calculated in accordance with the laws, regulations and administrative provisions which are adopted pursuant to Directive 73/239/EEC, Directive 2002/83/EC and Directive 2005/68/EC on the day before those Directives are repealed pursuant to Article 310 of this Directive.
5.Insurance and reinsurance undertakings applying paragraph 1 shall:
(a)not apply Article 308c;
(b)when they would not comply with the Solvency Capital Requirement without application of the transitional deduction, submit annually a report to their supervisory authority setting out measures taken and the progress made to re-establish at the end of the transitional period set out in paragraph 2 a level of eligible own funds covering the Solvency Capital Requirement or to reduce their risk profile to restore compliance with the Solvency Capital Requirement;
(c)aswithin the part of their report on their solvency and financial condition consisting of information targeted at market professionals referred to in Article 51,51(1b), publicly disclose that they apply the transitional deduction to the technical provisions, and the quantificationall of the impact of not applying that transitional deduction on their financial position.following:
(i)the fact that they apply the transitional deduction to the technical provisions;
(ii)the quantification of the impact of not applying that transitional deduction on their financial position;
(iii)where the undertaking would comply with the Solvency Capital Requirement without application of that transitional deduction, the reasons for its application;
(iv)an assessment of the dependency of the undertaking on that transitional deduction and, where applicable, a description of the measures taken or planned by the undertaking to reduce or remove the dependency.