INSURANCE BUSINESS (GENERAL PROVISIONS OF SUPERVISION) REGULATIONS

SUBSIDIARY LEGISLATION 403.24

INSURANCE BUSINESS (GENERAL PROVISIONS

OF SUPERVISION) REGULATIONS

1st January, 2016 *

LEGAL NOTICE 407 of 2015, as amended by Legal Notices 35 of 2017

and 194 of 2023.

(1) The title of these regulations is the Insurance Business

(General Provisions of Supervision) Regulations.

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

28 to 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 and Article 10a(13) and 25a(13) of Directive

2009/103/EC of the European Parliament and of the Council of 16

September 2009 relating to insurance against civil liability in respect

of the use of motor vehicles, and the enforcement of the obligation to

insure against such liability.

(1)

In these regulations, unless the context otherwise

requires

"the Act" is 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;

"binding legal instruments" means any directly applicable measures,

including, but not limited to, any implementing technical standards,

any regulatory technical standards or any similar measures, issued

under European Union legislation;

"competent authority" shall have the same meaning assigned to it in

the Act;

"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

*see regulation 1(3) of these Regulations as originally promulgated.

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;

"the Motor Insurance Directive" - means Directive 2009/103/EC

relating to insurance against civil liability in respect of the use of

motor vehicles, and the enforcement of the obligation to insure against

such liability, as amended from time to time and includes any

delegated acts, any technical standards and any binding legal

instruments, guidelines and any other measures that have been or may

be issued thereunder;

"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

t he taki ng -u p and pu rsui t of t he b usi ness o f In surance 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

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

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 for

the financial supervision of an authorised insurance undertaking

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

r e i n s u r a n c e u n d e r t a k i n g , o f i t s s t a t e o f s o l v e n c y, o f t h e

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 auth ority consi ders 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.

(3) The information published in accordance with sub-

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

s up e r v i s o ry a p p r oa c h e s a do p te d b y t h e d iff e r e n t E u r o pe a n

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.

Pursuant to Article 32 of the Solvency II Directive, the

competent authority shall not refuse -

(a) a reinsurance contract concluded by an authorised

insurance undertaking whose head office is in Malta

with

(i)

an authorised reinsurance or insurance

undertaking whose head office is in Malta; or

(ii) a European reinsurance undertaking or a

European insurance undertaking; or

(b) a retrocession contract concluded by an authorised

reinsurance undertaking whose head office is in Malta

with

(i)

an authorised reinsurance or insurance

undertaking whose head office is in Malta; or

(ii) a European reinsurance undertaking

or

a

European insurance undertaking;

on grounds directly related to the financial soundness of the said

undertakings with which the reinsurance contract or the

retrocession contract, as applicable, is concluded.

(1) Where an authorised insurance undertaking or an

authorised reinsurance undertaking carries on business of insurance

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

branch, the competent authority may, after having informed the

European 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

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

authority shall ascertain that an authorised insurance undertaking

and an authorised reinsurance undertaking which outsources a

function or 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.

(1) Pursuant to

(a) Article 10a(1) and 25a(1) of the Motor Insurance

Directive, wherein a body shall be set up or authorised

and entrusted with the task of providing compensation

in terms of Article 10a and 25a of the Motor Insurance

Directive, at least up to the limits of the insurance

obligation, for damage to property or personal injuries

caused by a vehicle insured by an insurance

undertaking, from the moment when the insurance

undertaking is subject to winding up proceedings as

defined in Article 268(1), point (d) of the Solvency II

Directive; and

(b) Article 10a(13)(b) and 25a(13)(b) of the Motor

Insurance Directive, whereby an entity shall be

designated and empowered to negotiate and conclude

an agreement to which the body shall become a party

to when it is set up or authorised,

the competent authority is hereby being designated as the entity

e m p o w e r e d t o n e g o t i a t e a n d c o n c l u d e an a g r e e m e n t b y 2 3

December 2023.

(2) The body to be set up for the purposes of Article 10a(1) and

25a(1) aforesaid shall become a party to such an agreement once

such body is set up or authorised.

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

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

reinsurance, shall not operate under conditions which would result

in 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

prejudice to any agreements concluded by the Commission with

one 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

country reinsurance undertaking which is authorised under article 7

of the Act and which has also requested or obtained authorisation

from one or more European regulatory authorities, may apply for

approval to the competent authority to benefit from the following

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 third

country reinsurance undertaking has been granted an approval

under regulation 15

(a) the competent authority shall notify the European

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

INSURANCE BUSINESS

(GENERAL PROVISIONS OF SUPERVISION)

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,

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;

(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, 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

b ecom e a sub si diary of that th ird co unt ry und ertak ing , the

competent authority shall inform the Commission, EIOPA and the

European regulatory authorities concerned accordingly.

The competent authority shall inform the Commission and

EIOPA of any general difficulties encountered by an authorised

insurance undertaking or an authorised reinsurance undertaking

when establishing itself and operating in a third country or

pursuing activities in a third country.

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

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.