1.Insurance and reinsurance undertakings shall have in place an effective risk-management system comprising strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report, on a continuous basis the risks, at an individual and at an aggregated level, to which they are or could be exposed, and their interdependencies.
That risk-management system shall be effective and well integrated into the organisational structure and in the decision-making processes of the insurance or reinsurance undertaking with proper consideration of the persons who effectively run the undertaking or have other key functions.
2.The risk-management system shall cover the risks to be included in the calculation of the Solvency Capital Requirement as set out in Article 101(4) as well as the risks which are not or not fully included in the calculation thereof.
The risk-management system shall cover at least the following areas:
underwriting and reserving;
asset–liability management;
investment, in particular derivatives and similar commitments;
liquidity and concentration risk management;
operational risk management, including cybersecurity as defined in Article 2, point (1), of Regulation (EU) 2019/881 of the European Parliament and of the Council 13;
reinsurance and other risk-mitigation techniques.
The written policy on risk management referred to in Article 41(3) shall comprise policies relating to points (a) to (f) of the second subparagraph of this paragraph.
Where insurance or reinsurance undertakings apply the matching adjustment referred to in Article 77b or the volatility adjustment referred to in Article 77d, they shall set up a liquidity plan projecting the incoming and outgoing cash flows in relation to the assets and liabilities subject to those adjustments.
Where insurance or reinsurance undertakings apply the volatility adjustment referred to in Article 77d, their liquidity plans shall take into account the use of the volatility adjustment and assess whether liquidity constraints may arise which are not consistent with the use of the volatility adjustment.
Insurance and reinsurance undertakings shall take into account the short-, medium- and long-term horizon when assessing sustainability risks.
For the purposes of the assessment referred to in the fifth subparagraph, the supervisory authorities shall ensure that undertakings, as part of their risk management, have strategies, policies, processes and systems for the identification, measurement, management and monitoring of sustainability risks over the short, medium and long term.
2a.As regards asset-liability management, insurance and reinsurance undertakings shall regularly assess:
the sensitivity of their technical provisions and eligible own funds to the assumptions underlying the extrapolation of the relevant risk-free interest rate term structure referred to in Article 77a;
where the matching adjustment referred to in Article 77b is applied:
the sensitivity of their technical provisions and eligible own funds to the assumptions underlying the calculation of the matching adjustment, including the calculation of the fundamental spread referred to in Article 77c(1), point (b);
the sensitivity of their technical provisions and eligible own funds to changes in the composition of the assigned portfolio of assets;
where the volatility adjustment referred to in Article 77d is applied, the sensitivity of their technical provisions and eligible own funds to changes in the economic conditions that would affect the risk-corrected spread referred to in Article 77d(3).
Insurance and reinsurance undertakings shall submit the assessments referred to in points (a), (b) and (c) of the first subparagraph annually to the supervisory authority as part of the information reported under Article 35. Where the reduction of the matching adjustment or the volatility adjustment to zero would result in non-compliance with the Solvency Capital Requirement, the undertaking shall also submit an analysis of the measures it could apply in such a situation to re-establish the level of eligible own funds covering the Solvency Capital Requirement or to reduce its risk profile to restore compliance with the Solvency Capital Requirement.
Where the volatility adjustment referred to in Article 77d is applied, the written policy on risk management referred to in Article 41(3) shall take account of the volatility adjustment.
2b.Member States shall ensure that insurance and reinsurance undertakings develop and monitor the implementation of specific plans that include quantifiable targets and processes to monitor and address the financial risks arising in the short, medium, and long term from sustainability factors, including those arising from the process of adjustment and from transition trends in the context of the relevant Union and Member State regulatory objectives and legal acts in relation to sustainability factors, in particular those set out in Regulation (EU) 2021/1119 of the European Parliament and of the Council 14.
The quantifiable targets and processes to address the sustainability risks included in the plans referred to in the first subparagraph of this paragraph shall consider the latest reports and measures prescribed by the European Scientific Advisory Board on Climate Change, in particular in relation to the achievement of the climate targets of the Union. Where the undertaking discloses information on sustainability matters in accordance with Directive 2013/34/EU, the plans referred to in the first subparagraph of this paragraph shall be consistent with the plans referred to in Article 19a or Article 29a of that Directive and shall in particular include actions with regard to the business model and strategy of the undertaking that are consistent across both plans. Where relevant, the methodologies and assumptions sustaining the targets, the commitments and strategic decisions disclosed by undertakings to the public shall be consistent with the methodologies and assumptions included in the plans referred to in the first subparagraph of this paragraph.
The targets, processes and actions to address the sustainability risks included in the plans referred to in the first subparagraph of this paragraph shall be proportionate to the nature, scale, and complexity of the sustainability risks of the business model of the insurance and reinsurance undertakings, in accordance with Article 29(3).
2c.In order to ensure consistent application of this Article, EIOPA shall develop draft regulatory technical standards to further specify:
the minimum standards and reference methodologies for the identification, measurement, management and monitoring of sustainability risks;
the elements to be covered in the plans to be prepared in accordance with paragraphs 2b and 2e of this Article, which shall include specific timelines and intermediate quantifiable targets and milestones, in order to monitor and address the financial risks arising from sustainability factors, as well as the interlinkages with the requirements laid down in Articles 45 and 45a;
supervisory approaches in relation to the plans, quantifiable targets and processes referred to in paragraphs 2b and 2e;
the elements of the plans referred to in paragraphs 2b and 2e of this Article to be disclosed, including the relevant quantifiable targets, in accordance with Article 51.
EIOPA shall submit the draft regulatory technical standards referred to in the first subparagraph to the Commission by 29 January 2026.
Power is conferred on the Commission to supplement this Directive by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1094/2010.
2d.The undertaking shall disclose on an annual basis the quantifiable targets included in the plans referred to in paragraphs 2b and 2e.
2e.Where a participating insurance or reinsurance undertaking, insurance holding company or mixed financial holding company which has its head office in the Union is required to draw up a plan in accordance with paragraph 2b of this Article at the level of the group, Member States shall ensure that insurance and reinsurance subsidiaries which are covered by that plan and in the scope of group supervision in accordance with Article 213(2), points (a) and (b), are exempted from drawing up a plan at individual level in accordance with paragraph 2b of this Article.
3.As regards investment risk, insurance and reinsurance undertakings shall demonstrate that they comply with Chapter VI, Section 6.
4.Insurance and reinsurance undertakings shall provide for a risk-management function which shall be structured in such a way as to facilitate the implementation of the risk-management system.
4a.In order to avoid overreliance on external credit assessment institutions when they use external credit rating assessment in the calculation of technical provisions and the Solvency Capital Requirement, insurance and reinsurance undertakings shall assess the appropriateness of those external credit assessments as part of their risk management by using additional assessments wherever practicably possible in order to avoid any automatic dependence on external assessments.
In order to ensure uniform conditions of application of this paragraph, EIOPA shall develop draft implementing technical standards on the procedures for assessing external credit assessments.
EIOPA shall submit those draft implementing technical standards to the Commission by 30 June 2015.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the second subparagraph in accordance with Article 15 of Regulation (EU) No 1094/2010.
5.For insurance and reinsurance undertakings using a partial or full internal model approved in accordance with Articles 112 and 113 the risk-management function shall cover the following additional tasks:
to design and implement the internal model;
to test and validate the internal model;
to document the internal model and any subsequent changes made to it;
to analyse the performance of the internal model and to produce summary reports thereof;
to inform the administrative, management or supervisory body about the performance of the internal model, suggesting areas needing improvement, and up-dating that body on the status of efforts to improve previously identified weaknesses.