Regulations, 2015

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 19,509, 10 ta’ Diċembru, 2015

L.N. 407 of 2015

INSURANCE BUSINESS ACT

(CAP. 403)

Insurance Business (General Provisions of Supervision)

Regulations, 2015

IN exercise of the powers conferred by article 64 of the

Insurance Business Act, the Minister of Finance, after consultation

with the Malta Financial Services Authority, has made the following

regulations:-

Preliminary

(1) The title of these regulations is the Insurance Citation, scope

and

Business (General Provisions of Supervision) Regulations, 2015.

commencement.

(2) The purpose of these regulations is to implement Articles

28, 29, 30, 31, 33, 34(4) (in part), 34(6), 36(3), 38(1), 41(5), 52(1),

69, 71(1), 77f(1), 167, 170, 172(3) and (6), 173, 174 176 and 177(1)

of the Solvency II Directive.

(3) These regulations shall come into force on the 1st January

2016.

In these regulations, unless the context otherwise requires - Interpretation.

"the Act" means the Insurance Business Act;

"authorised insurance undertaking" means an undertaking which

has received authorisation pursuant to article 7 of the Act to carry on

direct general business and, or long term business, and includes an

undertaking authorised to carry on direct and reinsurance business;

"authorised reinsurance undertaking" means an undertaking

which has received authorisation pursuant to article 7 of the Act to

carry on business restricted to reinsurance;

"EIOPA" means the European Insurance and Occupational

Pensions Authority as established in terms of article 1 of Regulation

(EU) No. 1094/2010;

"EU Regulation" means the Commission Delegated Regulation

(EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/

EC of the European Parliament and of the Council on the taking-up

and pursuit of the business of Insurance and Reinsurance (Solvency

II);

"European insurance undertaking" means an undertaking having

its head office in a Member State or an EEA State, other than Malta,

pursuing the activity of direct insurance within the meaning of Article

2 of the Solvency II Directive, which has received authorisation in

accordance with Article 14 of the Solvency II Directive;

"European regulatory authority" means the supervisory

authority or supervisory authorities as defined in Article 13 of the

Solvency II Directive, designated by a Member State or EEA State,

other than Malta, empowered by law or regulation to supervise

insurance or reinsurance undertakings;

"European reinsurance undertaking" means an undertaking

having its head office in a Member State or an EEA State, other than

Malta, pursuing business restricted to reinsurance within the meaning

of Article 2 of the Solvency II Directive which has received

authorisation in accordance with article 14 of the Solvency II

Directive;

"parent undertaking" has the same meaning as that assigned to

the words “parent company” in article 2 of the Companies Act;

"Solvency II Directive" means Directive 2009/138/EC of the

European Parliament and of the Council of 25 November 2009 on the

taking-up and pursuit of the business of Insurance and Reinsurance

(Solvency II) (recast), as amended from time to time, and includes

any delegated acts and any technical standards that have been or may

be issued thereunder;

"third country" means a country which is not a Member State or

EEA State.

(2) Words and expressions used in these regulations which are

also used in the Act but which are not defined herein, shall have the

same meaning assigned to them as in the Act.

PART I

General Supervisory Powers

(1) Without prejudice to article 4(1) of the Act, the

competent authority shall, in the exercise of its general duties, duly

consider the potential impact of its decisions on the stability of the

financial system in the European Union, in particular, in emergency

situations, based on the information available at the relevant time

Provided that, in times of exceptional movements in the

financial markets, the competent authority shall take into account the

potential pro-cyclical effects of its actions.

(2) In exercising its functions and duties under the Act, the

competent authority shall also take into account a European Union

dimension.

(1) Without prejudice to article 3 of the Act, supervision General

by the competent authority shall be based on a prospective and risk- principles

supervision.

based approach. It shall include the verification on a continuous basis

of the proper operation of the business of insurance and of the

compliance by authorised insurance undertakings and authorised

reinsurance undertakings with the Act, regulations and Insurance

Rules issued thereunder, and any other delegated acts and any

technical standards that have been or may be issued under the

Solvency II Directive.

(2) Supervision by the competent authority of authorised

insurance undertakings and authorised reinsurance undertakings shall

be carried out in a timely and proportionate manner and shall

comprise an appropriate combination of off-site and on-site

supervision.

(3) The competent authority shall apply the requirements laid

down in the Act, regulations and Insurance Rules issued thereunder in

a manner which is proportionate to the nature, scale and complexity

of the risks inherent in the business of the authorised insurance

undertaking and the authorised reinsurance undertaking concerned.

(1) The competent authority shall be solely responsible Scope of

for the financial supervision of an authorised insurance undertaking supervision.

and an authorised reinsurance undertaking, including the business

carried on by that undertaking in a Member State or EEA State, either

through establishment or under the freedom to provide services.

(2) For the purposes of sub-regulation (1) "financial

supervision" includes verification, with respect to the entire business

of the authorised insurance undertaking and authorised reinsurance

undertaking, of its state of solvency, of the establishment of technical

provisions, of its assets and of the eligible own funds, in accordance

with the Act, regulations and Insurance Rules issued thereunder.

(3) Where the authorised insurance undertaking concerned is

authorised to cover risks classified in class 18 of Part I of the Third

Schedule to the Act, supervision shall extend to the monitoring of the

technical resources which the authorised insurance undertaking has at

its disposal for the purposes of carrying out the assistance activities it

has undertaken to perform.

(4) Where the competent authority receives information -

(a) in the case of an authorised insurance undertaking,

from the European regulatory authority of the Member State or

EEA State, other than Malta, in which the risk is situated or the

Member State or EEA State of the commitment; or

(b) in the case of an authorised reinsurance undertaking,

from the European regulatory authority of the host Member

State,

that such European regulatory authority considers that the activities

of the authorised insurance undertaking or the authorised reinsurance

undertaking might affect the undertaking’s financial soundness, the

competent authority shall determine whether that undertaking is

complying with the prudential principles laid down in the Act,

regulations and Insurance Rules issued thereunder.

(1) The competent authority shall carry on its duties in a

transparent and accountable manner taking into account the

protection of confidential information.

(2) The competent authority shall publish the following

information, in accordance with any delegated acts and implementing

technical standards adopted by the Commission pursuant to Article

31(4) and (5) of the Solvency II Directive

(a)

the texts of laws, regulations, administrative rules

and general guidance adopted in Malta in the field of insurance

regulation;

(b) the general criteria and methods, including the tools

to be used in the supervisory review process;

(c)

without prejudice to the confidentiality provisions

contained in the Act, aggregate statistical data on key aspects of

the application of the prudential framework in Malta;

(d) the manner of exercise of the options provided for in

the Solvency II Directive;

(e)

the objectives of its supervision and its main

functions and activities.

(2) The information published in accordance with sub-

regulation (1) shall be sufficient to enable a comparison of the

supervisory approaches adopted by the different European regulatory

authorities, including the competent authority. The information shall

be published following a common format and updated regularly. The

information referred to in paragraphs (a) to (e) shall be accessible at a

single electronic location.

(1) Where an authorised insurance undertaking or an Supervision of

authorised reinsurance undertaking carries on business of insurance branches

established in

in a Member State or EEA State, other than Malta, through a branch, another

State or EEA

the competent authority may, after having informed the European State.

regulatory authority concerned, carry out itself or through an

intermediary it appoints for that purpose, on-site verification of the

information necessary to ensure the financial supervision of that

undertaking.

(2) Where the competent authority has informed the European

regulatory authority that it intends to carry out an on-site verification

in accordance with sub-regulation (1) and where the competent

authority is prohibited from exercising its right to carry out that on-

site verification, the competent authority may refer the matter to

EIOPA and request its assistance in accordance with Article 19 of

Regulation (EU) No.1094/2010.

(3) Information obtained by means of an on-site verification

referred to in sub-regulation (1) may be disclosed only with the

express consent of the competent authority or the European

regulatory authority, as applicable.

When carrying out the supervisory review process referred Supervisory

review process.

to in article 31B of the Act, the competent authority

(a) shall have in place appropriate monitoring tools that

enable it to identify deteriorating financial conditions in an

authorised insurance undertaking or an authorised reinsurance

undertaking and to monitor how that deterioration is remedied;

(b) may develop, where appropriate, the necessary

quantitative tools under the supervisory review process to assess

the ability of an authorised insurance undertaking or an

authorised reinsurance undertaking to cope with possible events

or future changes in economic conditions that could have

unfavourable effects on its overall financial standing.

Without prejudice to article 18I of the Act, the competent Supervision of

authority shall ascertain that an authorised insurance undertaking and outsourced

functions and

an authorised reinsurance undertaking which outsources a function or activities.

an insurance or reinsurance activity, takes the necessary steps to

ensure that

(a)

the service provider undertakes to cooperate with

the competent authority in connection with the outsourced

function or activity and provide effective access to its business

premises in order for the competent authority to be able to

exercise those rights of access; and

(b) the authorised insurance undertaking and authorised

reinsurance undertaking, its auditors and the competent

authority have effective access to data related to the outsourced

functions or activities.

(1) The competent authority shall have appropriate

means, methods and powers for verifying the system of governance

of authorised insurance undertakings and authorised reinsurance

undertakings and for evaluating emerging risks identified by those

undertakings which may affect their financial soundness.

(2) The competent authority shall, if the circumstances so

warrant, require that the system of governance of an authorised

insurance undertaking or an authorised reinsurance undertaking be

improved and strengthened to ensure compliance with the

requirements set out in article 18I(2) and (3) of the Act.

PART II

Reinsurance

Reinsurance contracts concluded with a third-country

insurance undertakings or a third-country reinsurance undertaking

shall be treated in the same manner as reinsurance contracts

concluded with an authorised insurance undertaking, an authorised

reinsurance undertaking, a European insurance undertaking or a

European reinsurance undertaking, where

(a) the solvency regime of the third country has been

deemed to be equivalent to that laid down in the Solvency II

Directive, in accordance with delegated acts adopted by the

Commission pursuant to Article 172(2) of the Solvency II

Directive;

(b) the solvency regime of the third country has been

deemed to be temporarily equivalent to that laid down in the

Solvency II Directive, in accordance with delegated acts

adopted by the Commission pursuant to Article 172(4) of the

said Directive.

Where the reinsurer is -

(a) a third country insurance undertaking or a third

country reinsurance undertaking with its head office in a third

country whose solvency regime is deemed to be equivalent to

that laid down in the Solvency II Directive in accordance with

Article 172 of the said Directive;

(b) a third country reinsurance undertaking with its head

office in a third country whose solvency regime is deemed to be

temporarily equivalent in accordance with Article 172(4) of the

Solvency II Directive,

in each case, the competent authority shall not retain or introduce for

the establishment of technical provisions a system with gross

reserving which requires pledging of assets to cover unearned

premiums and outstanding claims provisions.

A third country reinsurance undertaking authorised under Principle and

article 7 of the Act, carrying on in Malta business restricted to conditions

conducting

reinsurance, shall not operate under conditions which would result in reinsurance

activity.

a more favourable treatment than that granted to an authorised

reinsurance undertaking whose head office is in Malta.

The provisions of regulations 11 to 13 shall be without Agreements

prejudice to any agreements concluded by the Commission with one with

countries.

or more third countries in terms of Article 175 of the Solvency II

Directive.

PART III

Third Country Undertakings

(1) A third country insurance undertaking or a third Advantages to

country reinsurance undertaking which is authorised under article 7 third

undertakings

of the Act and which has also requested or obtained authorisation authorised

more than one

from one or more European regulatory authorities, may apply for Member State or

approval to the competent authority to benefit from the following EEA State.

advantages, which may be granted only jointly

(a)

calculate its Solvency Capital Requirement

(i) in relation to the entire business which it

pursues within Member States or EEA States; and

(ii) taking account only of the operations effected

by the branches established within Member States or EEA

States;

(b)

lodge the deposit required under article 11(4) of the

Act in only one of those Member States or EEA States in which

it has requested or obtained authorisation; and

(c)

hold the assets required to satisfy the Minimum

Capital Requirement in any one of the Member States or EEA

States in which it pursues its activities.

(2) The application to be submitted in terms of sub-regulation

(1) shall

(a) state the authority of the Member State or EEA State

which in future is to supervise the solvency of the entire

business of the branches established within the Union,

("solvency supervisor");

(b) give reasons for the choice of the authority made by

the undertaking; and

(c)

demonstrate to the competent authority that the said

application has also been made to all the European regulatory

authorities concerned.

(3) The competent authority shall only approve an application

made in terms of sub-regulation (1) where the competent authority

and all the European regulatory authorities in which the third country

insurance undertaking or third country reinsurance undertaking has

requested or obtained authorisation agree that the undertaking should

benefit from the approval.

(4) On granting the approval under sub-regulation (3), the

competent authority shall require the undertaking to lodge the deposit

referred to in sub-regulation (1)(b) in the Member State or EEA State

of the selected solvency supervisor.

(5) Where the competent authority is the selected solvency

supervisor and it approves an application submitted in terms of sub-

regulation (1), the advantages applied for shall take effect from the

time the competent authority informs all the European regulatory

authorities concerned that it will supervise the state of solvency of the

entire business of the branches within the European Union.

(6) Where the competent authority is the selected solvency

supervisor it shall request any information from the European

regulatory authorities concerned, that is necessary for the supervision

of the overall solvency of all of the branches established in Member

States or EEA States.

(7) Where the competent authority is not the selected solvency

supervisor, the competent authority shall take reasonable steps to

provide the European regulatory authority which is the selected

solvency supervisor, with any information in relation to the branches

of the undertaking in Malta, necessary to supervise the overall

solvency of the branches of the undertaking.

(8) The competent authority may vary an approval granted in

accordance with sub-regulation (3), where the competent authority

and all the European regulatory authorities in which the third country

insurance undertaking or third country reinsurance undertaking has

requested or obtained authorisation, agree that the undertaking should

benefit from the proposed variation.

(9) The competent authority may withdraw an approval

granted in accordance with sub-regulation (3) where it considers that

there are reasonable grounds for the approval to be withdrawn.

(10) The competent authority shall withdraw an approval

granted in accordance with sub-regulation (3), where withdrawal is

requested by a European regulatory authority in which the third

country insurance undertaking or third country reinsurance

undertaking has requested or obtained authorisation.

(11) Before the competent authority withdraws an approval

granted in accordance with sub-regulation (3), the competent

authority shall

(a) where the approval is withdrawn under sub-

regulation (9), request all the European regulatory authorities

concerned to withdraw the advantages referred to in Article

167(1) of the Solvency II Directive which have been granted to

the undertaking; and

(b) take reasonable steps to ensure that the approval is

withdrawn at the same time as the European regulatory

authorities concerned withdraw those advantages from the

undertaking.

(1) Where a third-country insurance undertaking or Revocation of

third country reinsurance undertaking has been granted an approval authorisation

a third country

under regulation 15

undertaking

authorised in

more than one

(a) the competent authority shall notify the European Member

EEA State.

regulatory authorities where such undertaking operates, where

(i) the competent authority is the authority

responsible for supervising the solvency of the entire

business of the branches of the undertaking; and

(ii) it revokes the authorisation granted to that

undertaking under article 7 of the Act;

(b) the competent authority shall, without prejudice to

the powers granted to it under the Act, revoke the authorisation

granted to that undertaking under article 7 of the Act, if a

European regulatory authority responsible for supervising the

solvency of the entire business of the branches of the

undertaking

(i) notifies the competent authority that it has

withdrawn the undertaking’s authorisation pursuant to

Article 162 of the Solvency II Directive; and

(ii) the reason given for the withdrawal is the

inadequacy of the undertaking’s overall state of solvency

as determined by the competent authority and all the

European regulatory authorities concerned which agreed to

the request, referred to in regulation 15(3).

PART IV

General Provisions

(1) Without prejudice to Article 35 of Regulation (EU)

No 1094/2010, the competent authority shall provide the following

information to EIOPA on an annual basis

(a) the average capital add-on per undertaking and the

distribution of capital add-ons imposed by the competent

authority during the previous year, measured as a percentage of

the Solvency Capital Requirement, shown separately for

(i) authorised insurance

undertakings

and

authorised reinsurance undertakings;

(ii) authorised insurance undertakings carrying

on long-term business of insurance;

(iii) authorised insurance undertakings carrying

on general business of insurance;

(iv) authorised insurance undertakings carrying

on general business and long-term business of insurance;

(v)

authorised reinsurance undertakings;

(b)

for each of the disclosures set out in paragraph (a),

the proportion of capital add-ons imposed under article 31C

(1)(a), (b) and (c) of the Act, respectively;

(c)

the number of authorised insurance undertakings

and authorised reinsurance undertakings benefiting from the

limitation from regular supervisory reporting and the number of

authorised insurance undertakings and authorised reinsurance

undertakings benefiting from the exemption of reporting on an

item-by-item basis referred to in Insurance Rules issued

pursuant to article 32 of the Act, together with their volume of

capital requirements, premiums, technical provisions and assets,

respectively measured as percentages of the total volume of

capital requirements, premiums, technical provisions and assets

of authorised insurance undertakings and authorised reinsurance

undertakings;

(d) the number of groups benefiting from the limitation

from regular supervisory reporting and the number of groups

benefiting from the exemption of reporting on an item-by-item

basis referred to in regulation 39 of the Insurance Business

(Supervision of Insurance and Reinsurance Undertakings in a

Group) Regulations, 2015, together with their volume of capital

requirements, premiums, technical provisions and assets,

respectively measured as percentages of the total volume of

capital requirements, premiums, technical provisions and assets

of all the groups.

(2) The competent authority shall, on an annual basis and until

1 January 2021, provide the following information to EIOPA on

annual basis

(a)

the availability of long-term guarantees in insurance

products in the Maltese market and the behaviour of authorised

insurance undertakings and authorised reinsurance undertakings

as long-term investors;

(b) the number of authorised insurance undertakings

and authorised reinsurance undertakings applying the matching

adjustment, the volatility adjustment, the extension of the

recovery period in accordance with Article 138(4) of the

Solvency II Directive, the duration-based equity risk sub-

module and the transitional measures set out in regulations 15

and 16 of the Insurance Business (Solvency II Transitional

Provisions) Regulations, 2015;

(c)

the impact, at a national level, of the matching

adjustment, the volatility adjustment, the symmetric adjustment

mechanism to the equity capital charge, the duration-based

equity risk sub-module and the transitional measures set out in

regulations 15 and 16 of the Insurance Business (Solvency II

Transitional Provisions) Regulations, 2015, on the financial

position of authorised insurance undertakings and authorised

reinsurance undertakings, anonymised in respect of each

undertaking;

(d) the effect of the matching adjustment, the volatility

adjustment, the symmetric adjustment mechanism to the equity

capital charge and the duration-based equity risk sub-module on

the investment behaviour of authorised insurance undertakings

and authorised reinsurance undertakings and whether any of

these measures provide undue capital relief;

(e)

its assessment of the effect of any extension of the

recovery period in accordance with Article 138(4) of the

Solvency II Directive on the efforts of authorised insurance and

reinsurance undertakings to re-establish the required level of

eligible own funds covering the Solvency Capital Requirement

or to reduce the risk profile in order to ensure compliance with

the Solvency Capital Requirement;

(f)

where authorised insurance undertakings and

authorised reinsurance undertakings apply the transitional

measures set out in regulations 15 and 16 of the Insurance

Business (Solvency II Transitional Provisions) Regulations,

2015, whether they comply with the phasing-in plans referred to

in regulation 17 of the said regulations and the prospects of such

undertakings reducing their dependency on these transitional

measures, including measures that have been taken or are

expected to be taken by the undertakings and the competent

authority, taking into account the Maltese regulatory

environment.

(1) The competent authority shall inform the

Commission, EIOPA and the European regulatory authorities

concerned of any authorisation issued by the competent authority

pursuant to article 7 of the Act, to a direct or indirect subsidiary, one

or more of whose parent undertakings are governed by the law of a

third country. The information to be provided shall also contain an

indication of the structure of the group concerned.

(2) Where a third country insurance undertaking or a third

country reinsurance undertaking acquires a holding in an authorised

insurance undertaking or an authorised reinsurance undertaking

which would result in that authorised undertaking to become a

subsidiary of that third country undertaking, the competent authority

shall inform the Commission, EIOPA and the European regulatory

authorities concerned accordingly.

The competent authority shall inform the Commission and Third-country

EIOPA of any general difficulties encountered by an authorised treatment

Community

insurance undertaking or an authorised reinsurance undertaking when insurance

reinsurance

establishing itself and operating in a third country or pursuing undertakings.

activities in a third country.

(1) For the better carrying out of these regulations, the Insurance Rules.

competent authority may, from time to time, issue Insurance Rules.

(2) Such Insurance Rules may contain such incidental,

supplementary and consequential provisions as appear to the

competent authority to be expedient for the purposes of these

regulations.

B

€0.63