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The European system of insurance supervision under Solvency II constitutes a parallel to supervision of credit institutions under Basel III. At the heart of this new European insurance supervisory regime are the Solvency II Directive, the attendant regulation, and the EIOPA Regulation. The present volume, "Treatises on Solvency II", includes articles on the bases of European insurance supervision and the associated three pillars of solvency, governance, and disclosure, all viewed predominantly from a legal standpoint.

Inhaltsverzeichnis

Frontmatter

Basics

Frontmatter

Chapter 1. Harmonization of Insurance Supervisory Law

Abstract
This chapter addresses the fundamental issue of what degree of harmonization applies in the Solvency II system. Distinguishing among the several degrees of harmonization—minimum harmonization, maximum harmonization, and full harmonization—leads to the conclusion that the Solvency II Directive has full harmonization as its objective. This has two important ramifications: First, the Solvency II Directive requires that any insurance supervisory regime implementation by the respective national legislators must completely align with the European insurance supervisory regime. Second, a system of full harmonization prohibits national legislators from unilaterally enacting additional measures not provided for in European law. A pertinent example in the German insurance supervisory regime is the previously extant general supervision according to the principle of abusiveness, where now the Solvency II system allows only supervision of legality.
Meinrad Dreher

Chapter 2. Supervisory Review Process

Abstract
This chapter addresses the legal outlining of the supervisory review process. There is an apparent contradiction between principles-based insurance supervision on the one hand and, on the other hand, legal certainty along with foreseeability of supervisory action under art. 36 of the Solvency II Directive. With this in view, the chapter next examines the objectives and subject matter of the supervisory review process, with particular scrutiny given to requirements relating to solvency and governance. The powers of supervisory authorities to remedy weaknesses and deficiencies are then taken up.
Meinrad Dreher

Chapter 3. Insurance Supervisory Law and Consumer Protection

Abstract
This chapter discusses the relationship between insurance supervisory law and consumer protection within the ambit of Solvency II and the EIOPA system. To this, the article focuses on existing laws, with particular regard given to European rules on insurance supervision. The Solvency II Directive takes as its exclusive objective the protection of insureds and insurance beneficiaries. Solvency II does not address consumer protection. Nevertheless, consumer protection is a significant by-product of the Solvency II rules, in the sense of collective consumer protection. The EIOPA Regulation provisions, too, address consumer protection solely in the realm of collective consumer protection. The applicable profile is that of the mature and discerning consumer. The consumer protection guidelines of EIOPA on handling of complaints have no legal basis in the EIOPA Regulation.
Meinrad Dreher

Solvency

Frontmatter

Chapter 4. Solvency Requirements

Abstract
Solvency II imposes upon insurance undertakings a new system of solvency requirements based on a risk-oriented approach. Risks must be covered by own funds of the insurance undertakings. This chapter systematically analyzes the new insurance-related solvency system in terms of the Solvency II Directive, the proposed Level 2-Regulation, and the proposed new VAG [German Insurance Supervision Act]. It focuses then on the three problem areas under the new solvency regime: complexity, volatility, and procyclical effects. Finally it turns to the new roles which the boards of directors and supervisory boards of insurance undertakings, the supervisory authorities, the courts, and the academics will play in the Solvency II process.
Meinrad Dreher

Governance

Frontmatter

Chapter 5. Own Risk and Solvency Assessment

Abstract
The own risk and solvency assessment under art. 45 of the Solvency II Directive forms the subject of this chapter. Initial attention is given to clarifying the role of ORSA in the insurance supervisory regime and the principles applicable to it. Then follows a discussion of the relationship of ORSA to the risk management function as well to the other key functions under the insurance supervisory regime. In conclusion, the chapter addresses, inter alia, the documentation, the public disclosure, and the supervisory powers involved in an ORSA procedure.
Meinrad Dreher

Chapter 6. Fitness of Members of Supervisory Board

Abstract
This chapter deals with the fitness of members of supervisory boards. Since 2009, German insurance regulatory law has provided internal qualification standards for the supervisory board members of insurance companies. In accordance with Paragraph 7a, sec. 4, clause 1 of the VAG [German Insurance Supervision Act], the members of supervisory boards must be able to fulfill their tasks and supervisory functions in accordance with their level of expertise. This new requirement comports with the previous standards of German corporate law, established by the BGH [German Federal Court of Justice] in its “Hertie”-ruling. As such, this ruling will also serve as a basis to interpret the expertise requirements in German insurance regulatory law. Consequently, each supervisory board member must have a certain minimum level of general competencies, so that specialized expertise and advance knowledge are maintained on the board. Even if the supervisory board members are not “persons with key functions” within the meaning of the framework directive of Solvency II, nevertheless, on its own, the pending transformation of existing guidelines into national law will indirectly affect the qualification requirements of supervisory board members in the insurance industry.
Meinrad Dreher

Chapter 7. Definition and Holders of Key Functions

Abstract
This chapter takes up the four key functions established in the Solvency II Directive. In this vein, the significance of the key functions is highlighted first. Then follows the analysis of the terms “key function” and “key function holders”, terms undefined in the Solvency II Directive. The next step points out the distinctions among key function holders and their subordinate staff members. A part of this breakdown is to examine in practice who exercises which function in an insurance undertaking. The chapter wraps up by looking at whether key functions are performed in a centralized or decentralized organization.
Meinrad Dreher

Chapter 8. Supervisory Review of Key Functions

Abstract
Picking up from the Chap. 7 examination of the term “key functions” and of the key function holders, this chapter undertakes an examination of the supervisory review of key functions. In particular, this inquiry involves the areas of supervision of the key function holders as to fit-and-proper monitoring, the issue of remuneration of key function holders, the duties of notice and disclosure attendant on a change in key function holders, and the powers of insurance supervisory authorities in the supervision of key function holders.
Meinrad Dreher

Chapter 9. ‘Senior Management’ of Insurance Undertakings

Abstract
This chapter treats the subject of senior management in insurance undertakings. This subject comes into view because this category appears in the nomenclature of the Solvency II Level 3 draft rules. This then leads to the question whether there is a fit-and-proper-review above and beyond the limits drawn in art. 42 of the Solvency II Directive, a question ultimately answered in the negative.
Meinrad Dreher

Chapter 10. Definition, Tasks and Legal Nature of the Compliance Function

Abstract
This chapter addresses the compliance function under art. 46, para. 1 of the Solvency II Directive. The first items to be addressed here are the normative bases of compliance under the insurance supervisory regime and its conceptual content. Then, the tasks and relevant requirements for compliance under the insurance supervisory regime are identified. The chapter concludes by examining the function of compliance under the insurance supervisory regime of the Solvency II system.
Meinrad Dreher

Chapter 11. Integrating the Compliance Function into the Legal Department

Abstract
This chapter addresses a governance issue: whether it is permissible under the insurance supervisory regime of Solvency II for an insurance undertaking to merge its compliance function with its legal department. The Solvency II provisions in fact do not address the legal department of an insurance undertaking. But the tasks and powers of a legal department are in part the same as those of the compliance function under art. 46, para. 1 of the Solvency II Directive. The conclusion is thus: General insurance supervisory regime principles such as functional segregation and functional independence do not prohibit such a merger. Indeed, such a merger would seem to be advisable in many instances in light of the supervisory law principles of freedom of internal organization and of proportionality.
Meinrad Dreher

Disclosure

Frontmatter

Chapter 12. Supervisory Reporting

Abstract
The third pillar of Solvency II is disclosure. This chapter discusses supervisory reporting against the background of the insurance supervisory regime disclosure rules in Germany. Insurance undertakings are under a duty to disclose a large amount of information to the insurance supervisory authority. The same holds true for other corporations in the financial market, such as insurance holding companies. This chapter analyzes and systematizes the insurance related disclosure scheme. It then turns to legal questions pertaining to reporting requirements under the German Insurance Supervision Act and the prospective effect of the Solvency II Directive. Finally it draws several conclusions as to the scale and the limits of insurance-related disclosure requirements.
Meinrad Dreher

Chapter 13. Public Disclosure

Abstract
This chapter treats public disclosure, focusing primarily on the Report on Solvency and Financial Condition under art. 51, para. 1 of the Solvency II Directive. Thus, the first subjects to be addressed are the objectives and addressees of public disclosure. Then the required content of the report is examined. This part concludes by addressing the duty to update the report when information changes significantly. Further inquiry is undertaken into the relationship between such public disclosure and the duty of public disclosure as existing in national capital market and commercial law. Next, the duty of public disclosure for groups and the form of the reports are examined. Finally, some general conclusions concerning public disclosure are set forth, based on the determinations reached.
Meinrad Dreher

Backmatter

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