1.As part of its risk-management system every insurance undertaking and reinsurance undertaking shall conduct its own risk and solvency assessment.
That assessment shall include at least the following:
(a)the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy of the undertaking;
(b)the compliance, on a continuous basis, with the capital requirements, as laid down in Chapter VI, Sections 4 and 5 and with the requirements regarding technical provisions, as laid down in Chapter VI, Section 2;
(c)the significance with which the risk profile of the undertaking concerned deviates from the assumptions underlying the Solvency Capital Requirement as laid down in Article 101(3), calculated with the standard formula in accordance with Chapter VI, Section 4, Subsection 2 or with its partial or full internal model in accordance with Chapter VI, Section 4, Subsection 3.3;
(d)consideration and analysis of the macroeconomic situation, and possible macroeconomic and financial markets’ developments;
(e)upon a reasoned request of the supervisory authority, consideration and analysis of:
(i)the macroprudential concerns that may affect the specific risk profile, the approved risk tolerance limits, the business strategy, the underwriting activities or the investment decisions, and the overall solvency needs of the undertaking referred to in point (a);
(ii)the activities of the undertaking that may affect the macroeconomic and financial markets’ developments, and have the potential to turn into sources of systemic risk;
(f)the overall capacity of the undertaking to settle its financial obligations towards policy holders and other counterparties when those obligations fall due, even under stressed conditions.
1a.For the purposes of paragraph 1, points (d) and (e), macroeconomic and financial markets’ developments shall include at least the following:
(a)the level of interest rates and spreads;
(b)the level of financial market indices;
(c)inflation;
(d)interconnectedness with other financial market participants;
(e)climate change, pandemics, other mass-scale events and other catastrophes which may affect insurance and reinsurance undertakings.
For the purposes of paragraph 1, point (e)(i), macroprudential concerns shall include, at least, plausible unfavourable future scenarios and risks related to the credit cycle and economic downturn, herding behaviour in investments or excessive exposure concentrations at the sectoral level.
1b.Member States shall ensure that the analysis required under paragraph 1, point (d), of this Article is commensurate with the nature of risks as well as the scale and complexity of the activities of undertakings. Member States shall ensure that small and non-complex undertakings and undertakings which have obtained prior supervisory approval, pursuant to Article 29d, are not obliged to conduct the analysis referred to in paragraph 1, point (e), of this Article.
2.For the purposes of paragraph 1(a), the undertaking concerned shall have in place processes which are proportionate to the nature, scale and complexity of the risks inherent in its business and which enable it to properly identify and assess the risks it faces in the short and long term and to which it is or could be exposed. The undertaking shall demonstrate the methods used in that assessment.
2a.Where the insurance or reinsurance undertaking applies the matching adjustment referred to in Article 77b, the volatility adjustment referred to in Article 77d or the transitional measures referred to in Article 77a(2), Articles 308c and 308d, theyor, where relevant, Article 111(1), second subparagraph, and Article 111(2a), it shall perform the assessment of compliance with the capital requirements referred to in paragraph 1(b)1, point (b), of this Article with and without taking into account those adjustments and transitional measures.
By way of derogation from the first subparagraph of this paragraph, the assessment requirement for the phasing-in mechanism referred to in Article 77a shall not apply to a currency for which any of the following applies:
(a)the share of future cash flows associated with insurance or reinsurance obligations in that currency relative to all future cash flows associated with insurance or reinsurance obligations does not exceed 5 %;
(b)with respect to future cash flows associated with insurance or reinsurance obligations in that currency, the share of future cash-flows pertaining to maturities where the relevant risk-free interest rate term structure is extrapolated relative to all future cash flows associated with insurance or reinsurance obligations does not exceed 10 %.
2b.Where the insurance or reinsurance undertaking applies the volatility adjustment referred to in Article 77d, the assessment referred to in paragraph 1 of this Article shall, in addition, include the significance with which the risk profile of the undertaking concerned deviates from the assumptions underlying the volatility adjustment.
3.In the case referred to in paragraph 1(c), when an internal model is used, the assessment shall be performed together with the recalibration that transforms the internal risk numbers into the Solvency Capital Requirement risk measure and calibration.
4.The own-risk and solvency assessment shall be an integral part of the business strategy and shall be taken into account on an ongoing basis in the strategic decisions of the undertaking.
5.Insurance and reinsurance undertakings shall perform the assessment referred to in paragraph 1 regularlyannually, and without any delay following any significant change in their risk profile.
By way of derogation from the first subparagraph of this paragraph, insurance and reinsurance undertakings may perform the assessment referred to in paragraph 1 at least every two years and without any delay following any significant change in their risk profile, unless the supervisory authority concludes on the basis of the specific circumstances of the undertaking that a more frequent assessment is needed, where either of the following conditions is met:
(a)the undertaking is classified as a small and non-complex undertaking;
(b)the undertaking is a captive insurance undertaking or a captive reinsurance undertaking that complies with all of the following criteria:
(i)the insured persons and beneficiaries are legal entities of the group of which the captive insurance undertaking or captive reinsurance undertaking is part or natural persons eligible to be covered under that group’s insurance policies and the business covering natural persons eligible to be covered under the group insurance policies remains below 5 % of technical provisions;
(ii)the insurance obligations and the insurance contracts underlying the reinsurance obligations of the captive insurance undertaking or captive reinsurance undertaking do not consist of any compulsory third-party liability insurance.
The exemption from the annual assessment shall not prevent the undertaking from identifying, measuring, managing, monitoring, and reporting risks on a continuous basis.
6.The insurance and reinsurance undertakings shall inform the supervisory authorities of the results of each own-risk and solvency assessment as part of the information reported under Article 35.
7.The own-risk and solvency assessment shall not serve to calculate a capital requirement. The Solvency Capital Requirement shall be adjusted only in accordance with Articles 37, 231 to 233 and 238.
8.For the purposes of paragraph 1, points (d) and (e), where authorities other than the supervisory authorities are entrusted with a macroprudential mandate, Member States shall ensure that the supervisory authorities share the findings of their macroprudential assessments of the own-risk and solvency assessment by insurance and reinsurance undertakings, as referred to in this Article, with the relevant national bodies and authorities with a macroprudential mandate.
Member States shall ensure that supervisory authorities cooperate with any national bodies and authorities with a macroprudential mandate to analyse the results and, where applicable, to identify any macroprudential concerns on how the activity of the undertakings may affect macroeconomic and financial markets’ developments.
Member States shall ensure that the supervisory authorities share any macroprudential concerns and input parameters relevant for the assessment with the undertaking concerned.
9.When deciding whether to request any of the analyses referred to in paragraph 1, point (e), of this Article to an insurance or reinsurance undertaking which is a subsidiary undertaking included in the scope of group supervision in accordance with Article 213(2), points (a) and (b), the supervisory authority shall consider whether any of those analyses is performed at group level by the participating insurance or reinsurance undertaking, the insurance holding company or mixed financial holding company which has its head office in the Union, and covers the specificities of that subsidiary undertaking.
National supervisory authorities shall notify on a yearly basis to both EIOPA and the European Systemic Risk Board (ESRB) established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council (15) the list of insurance and reinsurance undertakings and the list of groups for which they request the additional macroprudential measures.