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L.S. 403.23 Regolamenti dwar Insurance Business (Solvency II Transitional Provisions) Regulations

INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) [ S.L.403.23 1 SUBSIDIARY LEGISLATION 403.23 INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) REGULATIONS 1st January, 2016 * LEGAL NOT

sub-regulations

(2)and
(3)of regulation 9 of the Insurance Business (Supervision of Insurance and Reinsurance Undertakings in a Group) Regulations, where an authorised insurance undertaking or an authorised reinsurance undertaking is subject to group supervision, the transitional measures referred to in sub-regulations
(1),
(2)and
(3)shall apply mutatis mutandis. 9.
(1)

Article 94

of the Solvency II Directive, basic own fund items held by an authorised insurance undertaking or an authorised reinsurance undertaking shall be included in Tier 1 for up to 10 years after 1 January 2016, provided that those items: INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) [ S.L.403.23 7 (

  1. a)were issued prior to 1 January 2016 or prior to the entry into force of the delegated acts and regulatory technical standards referred to in Article 97 of the Solvency II Directive, whichever is the earlier; (
  2. b)on the 31 December 2015 could be used to meet the available solvency margin up to 50% of the solvency margin according to Article 16

(3)of Directive 73/239/ EEC, Article 1 of Directive 2002/13/EC, Article 27
(3)of Directive 2002/83/EC and Article 36
(3)of Directive 2005/68/EC; (c) would not otherwise be classified in Tier 1 or Tier 2 in accordance with Article 94 of the Solvency II Directive.
(2)

Article 94

of the Solvency II Directive, basic own fund items held by an authorised insurance undertaking or an authorised reinsurance undertaking shall be included in Tier 2 basic own funds for up to 10 years after 1 January 2016, provided that those items: (

  1. a)were issued prior to 1 January 2016 or prior to the entry into force of the delegated acts and regulatory technical standards referred to in Article 97 of the Solvency II Directive, whichever is the earlier; (
  2. b)on the 31 December 2015 could be used to meet the available solvency margin up to 25% of the solvency margin according to Article 16

(3)of Directive 73/239/ EEC, Article 1 of Directive 2002/13/EC, Article 27
(3)of Directive 2002/83/EC and Article 36
(3)of Directive 2005/68/EC.
(3)

sub-regulations

(2)and
(3)of regulation 9 of the Insurance Business (Supervision of Insurance and Reinsurance Undertakings in a Group) Regulations, where an authorised insurance undertaking or an authorised reinsurance undertaking is subject to group supervision, the transitional measures referred to in sub-regulations
(1)and
(2)shall apply mutatis mutandis at the level of the group. 10.
(1)Where an authorised insurance undertaking or an authorised reinsurance undertaking invests in tradeable securities or other financial instruments based on repackaged loans that were issued before the 1 January 2011, the requirements referred to in Article 135
(2)of the Solvency II Directive shall apply only in circumstances where new underlying exposures were added or substituted after the 31 December 2014.
(2)

sub-regulations

(2)and
(3)of regulation 9 of the Insurance Business (Supervision of Insurance and Reinsurance Undertakings in a Group) Regulations, where an authorised insurance undertaking or authorised reinsurance undertaking is subject to group supervision, the transitional measure referred to in sub-regulation
(1)shall apply mutatis mutandis at the level of the group. S.L.403.17 Transitional measures on repackaged loans. S.L.403.17 8 [ S.L.403.23 Transitional measures on concentration risk sub-module and the spread risk submodule. INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) 11.
(1)

the Solvency Capital Requirement in accordance with Articles 100, 101

(3)and 104 of the Solvency II Directive, the standard parameters to be used when calculating the concentration risk sub-module and the spread risk sub-module in accordance with the standard formula shall be adjusted as follows: (
  1. a)until the 31 December 2017, the standard parameters shall be the same in relation to exposures to Member States’ or EEA States’ central governments or central banks denominated and funded in the domestic currency of any Member State or EEA State as the ones that would be applied to such exposures denominated and funded in their domestic currency; (
  2. b)from 1 January 2018, the standard parameters shall be reduced by 80% in relation to exposures to Member States’ or EEA States’ central governments or central banks denominated and funded in the domestic currency of any other Member State or EEA State; (
  3. c)from 1 January 2019, the standard parameters shall be reduced by 50% in relation to exposures to Member States’ or EEA States’ central governments or central banks denominated and funded in the domestic currency of any other Member State or EEA State; S.L.403.17 Transitional measures on equity risk sub-module. (
  4. d)from 1 January 2020, the standard parameters shall not be reduced in relation to exposures to Member States’ or EEA States’ central governments or central banks denominated and funded in the domestic currency of any other Member State or EEA State.
(2)

sub-regulations

(2)and
(3)of regulation 9 of the Insurance Business (Supervision of Insurance and Reinsurance Undertakings in a Group) Regulations, where an authorised insurance or reinsurance undertaking is subject to group supervision, the transitional measure referred to in sub-regulation
(1)shall apply mutatis mutandis at the level of the group. 12.
(1)

the Solvency Capital Requirement in accordance with Articles 100, 101

(3)and 104 of the Solvency II Directive, the standard parameters to be used for equities that an authorised insurance undertaking or an authorised reinsurance undertaking purchased on or before 1 January 2016, when calculating the equity risk sub-module in accordance with the standard formula shall be calculated as the weighted averages of: (a) the standard parameter to be used when calculating the equity risk sub-module in accordance with subregulation
(3); (b) the standard parameter to be used when calculating the equity risk sub-module in accordance with the standard formula.
(2)The weight for the parameter expressed in sub-regulation
(1)(b) shall increase at least linearly at the end of each year from 0% during 2016 up to 100% on 1 January 2023. INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) [ S.L.403.23
(3)The equity risk sub-module, for the purposes of subregulation
(1)(a) shall be calibrated using a Value-at-Risk measure, over a time period, which is consistent with the typical holding period of equity investments for the undertaking concerned, with a confidence level providing the policyholders and beneficiaries with a level of protection equivalent to that set out in Article 101 of the Solvency II Directive. 13.
(1)

Article 138

(3)of the Solvency II Directive and without prejudice to Article 138
(4)of the said Directive, an authorised insurance undertaking or an authorised reinsurance undertaking which complies with the Required Solvency Margin in accordance with Article 16a of Directive 73/ 239/EEC, Article 28 of Directive 2002/83/EC or Article 37, 38 or 39 of Directive 2005/68/EC on the 31 December 2015, but does not comply with the Solvency Capital Requirement in the first year of application of the Solvency II Directive, the competent authority shall require the undertaking concerned to: (
  1. a)Transitional measures on Solvency Capital Requirement. take the necessary measures to achieve the establishment of the level of eligible own funds covering the Solvency Capital Requirement or the reduction of its risk profile to ensure compliance with the Solvency Capital Requirement by the 31 December 2017; (
  2. b)submit a progress report, every three months setting out the measures taken and the progress made to establish the level of eligible own funds covering the Solvency Capital Requirement or the reduction of the risk profile to ensure compliance with the Solvency Capital Requirement.
(2)Where the progress report referred to in sub-regulation
(1)shows that there was no significant progress in achieving the reestablishment of the level of eligible own funds covering the Solvency Capital Requirement or the reduction of the risk profile to ensure compliance with the Solvency Capital Requirement, between the date of the observation of non-compliance of the Solvency Capital Requirement and the date of the submission of the progress report, the extension referred to in sub-regulation
(1)(a) shall be withdrawn.
(3)

sub-regulations

(1)to
(4)and
(5)(
  1. d)of regulation 9 and regulation 11(
  2. b)of the Insurance Business (Supervision of Insurance and Reinsurance Undertakings in a Group) Regulations, the transitional measure referred to in subregulation
(1)shall apply mutatis mutandis at the level of the group, and where the participating insurance or reinsurance undertakings or the authorised insurance undertaking and authorised reinsurance undertakings in a group comply with the Adjusted Solvency referred to in Article 9 of Directive 98/78/EC, but do not comply with the group Solvency Capital Requirement. 14. Where an authorised insurance undertaking or an authorised reinsurance undertaking and the ultimate parent insurance or reinsurance undertaking are both established in Malta, the ultimate S.L.403.17 Approval of an internal group model. 9 10 [ S.L.403.23 INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) parent undertaking may, during a period until the 31 March 2022, apply to the competent authority for the approval of an internal group model applicable to this part of the group, if this forms a distinct part having a significantly different risk profile from the rest of the group. Transitional measures on the transitional adjustment to the relevant risk-free interest rate term structure. 15.
(1)An authorised insurance undertaking or an authorised reinsurance undertaking may, subject to the prior approval of the competent authority, apply a transitional adjustment to the relevant risk-free interest rate term structure with respect to admissible insurance and reinsurance obligations.
(2)Where the authorised insurance undertaking or authorised reinsurance undertaking has received an approval pursuant to subregulation
(1), such undertaking shall calculate the adjustment for each currency as a portion of the difference between: (
  1. a)the interest rate as determined by the authorised insurance or reinsurance undertaking in accordance with Article 20 of Directive 2002/83/EC as at 31 December 2015; and (
  2. b)the annual effective rate, calculated as the single discount rate that, where applied to the cash flows of the portfolio of admissible insurance and reinsurance obligations, results in a value that is equal to the value of the best estimate of the portfolio of admissible insurance and reinsurance obligations where the time value of money is taken into account using the relevant risk-free interest rate term structure referred to in Article 77
(2)of the Solvency II Directive.
(3)Where the authorised insurance undertaking or authorised reinsurance undertaking has received an approval pursuant to subregulation
(1), the interest rate structure referred to in subregulation
(2)(a) shall be determined using the methods used by the authorised insurance or reinsurance undertaking as at 31 December 2015. This portion 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.
(4)Where an authorised insurance undertaking and authorised reinsurance undertaking applies the volatility adjustment pursuant to Article 77d of the Solvency II Directive, the relevant risk-free interest rate term structure referred to in sub-regulation
(2)(b) shall be the adjusted relevant risk-free interest rate term structure set out in Article 77d of the Solvency II Directive.
(5)An authorised insurance undertaking or an authorised reinsurance undertaking which applies the risk-free interest rate term structure pursuant to sub-regulation
(1)shall comprise only of those insurance or reinsurance obligations that meet the following requirements: (
  1. a)the contracts that give rise to the insurance and reinsurance obligations were concluded before the 31 December 2015, excluding contract renewals on or after that date; INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) [ S.L.403.23 11 (
  2. b)until the 31 December 2015, technical provisions for insurance and reinsurance obligations were determined in accordance with Article 20 of Directive 2002/83/EC as at the last date of application of the said Directive; (
  3. c)Article 77b of the Solvency II Directive is not applied to insurance and reinsurance obligations.
(6)An authorised insurance undertaking or an authorised reinsurance undertaking which applies the risk-free interest rate pursuant to sub-regulation
(1)shall: (
  1. a)not include the admissible insurance and reinsurance obligations in the calculation of the volatility adjustment pursuant to Article 77d of the Solvency II Directive; (
  2. b)not apply regulation 16; (
  3. c)as part of their report on their solvency and financial condition referred to in Insurance Rules issued pursuant to article 18F of the Act, publicly disclose that they apply the transitional risk-free interest rate term structure, and the quantification of the impact of not applying this transitional measure on their financial position. 16.
(1)An authorised insurance undertaking or an authorised reinsurance undertaking may subject to the prior approval of the competent authority: (
  1. a)apply a transitional deduction to its technical provisions or to such of its technical provisions as are contained within homogeneous risk groups as referred to in Article 80 of the Solvency II Directive; (
  2. b)or on the request of the competent authority, recalculate the amount of technical provisions, including where applicable the amount of volatility adjustment, used to calculate the transitional deduction pursuant to sub-regulation
(3)every 24 months, or more frequently where the risk profile of the undertaking has materially changed.
(2)The transitional deduction shall correspond to a portion of the difference between the following two amounts: (
  1. a)the technical provisions after deduction of the amounts recoverable from reinsurance contracts and reinsurance special purpose vehicles, calculated in accordance with Article 76 of the Solvency II Directive as at 1 January 2016; (
  2. b)the technical provisions after deduction of the amounts recoverable from reinsurance contracts calculated in accordance with Article 15 of Directive 73/239/EC, Article 20 of Directive 2002/83/EC and Article 32 of Directive 2005/68/EC as at 31 December 2015.
(3)The competent authority may limit the deduction referred to in sub-regulation
(2)if its application could result in a reduction of Transitional measures on the technical provisions. 12 [ S.L.403.23 INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) the financial resources requirements that apply to the insurance or reinsurance undertaking when compared with those calculated in accordance with Directive 73/239/EEC, Directive 2002/83/EC and Directive 2005/68/EC on 31 December 2015.
(4)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.
(5)Where an authorised insurance undertaking or an authorised reinsurance undertaking applies on 1 January 2016 the volatility adjustment referred to in Article 77d of the Solvency II Directive, the amount referred to in sub-regulation
(2)(a) shall be calculated with the volatility adjustment at that date.
(6)An authorised insurance or reinsurance undertaking applying the transitional deduction referred to in sub-regulation
(1)(
  1. a)shall: (
  2. a)not apply regulation 15; (
  3. b)when such undertaking does not comply with the Solvency Capital Requirement without the application of the transitional deduction, submit annually a report to the competent authority setting out measures taken and the progress made to re-establish at the end of the transitional period set out in sub-regulation
(2)a level of eligible own funds covering the Solvency Capital Requirement or to reduce its risk profile to restore compliance with the Solvency Capital Requirement; (c) as part of its report on its solvency and financial condition referred to in Insurance Rules issued pursuant to article 18F of the Act, publicly disclose that it applies the transitional deduction to the technical provisions, and the quantification of the impact of not applying that transitional deduction on its financial position. Phasing-in plan on transitional measures on risk free interest rates and technical provisions. 17.
(1)An authorised insurance undertaking and an authorised reinsurance undertaking which has obtained the approval of the competent authority to apply the transitional measures in regulation 15 or 16 shall: (
  1. a)immediately inform the competent authority as soon as such undertaking observes that it would not comply with the Solvency Capital Requirement without the application of these transitional measures; (
  2. b)take the measures necessary to ensure compliance with the Solvency Capital Requirement by 1 January 2032; and (
  3. c)within two months from the observation of noncompliance with the Solvency Capital Requirement without the application of these transitional measures, submit a phasing-in plan to the competent authority.
(2)The phasing-in plan which an authorised insurance undertaking and an authorised reinsurance undertaking is required INSURANCE BUSINESS (SOLVENCY II TRANSITIONAL PROVISIONS) [ S.L.403.23 to submit for the purposes of sub-regulation
(1)(c) shall set out the planned measures to establish the level of eligible own funds covering the Solvency Capital Requirement or to reduce its risk profile to ensure compliance with the Solvency Capital Requirement by 1 January 2032.
(3)Where an authorised insurance undertaking and an authorised reinsurance undertaking updates its phasing-in plan during the transitional period, it shall submit the updated phasingin plan to the competent authority.
(4)An authorised insurance undertaking and an authorised reinsurance undertaking which has obtained the approval of the competent authority to apply the transitional measures in regulation 15 or 16 and has informed the competent authority that it would not comply with the Solvency Capital Requirement without the application of these transitional measures, shall submit annually a report to the competent authority setting out the measures taken and the progress made to ensure compliance with the Solvency Capital Requirement by 1 January 2032.
(5)The competent authority shall revoke the approval for the application of the transitional measure obtained pursuant to regulations 15 or 16 where the progress report shows that the compliance with the Solvency Capital Requirement by 1 January 2032 is unrealistic. 13

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