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Solvency Requirements

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Treatises on Solvency II

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.

First published as “Solvenzanforderungen in der Versicherungsaufsicht nach Solvency II und künftigem VAG” [in English: Solvency Requirements in Insurance Supervision under Solvency II and the Future German Insurance Supervision Act], ZVersWiss (2012), 381 ff.

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Notes

  1. 1.

    Any mention of insurance undertakings in this chapter includes reinsurance undertakings.

  2. 2.

    Regarding the developments in solvency supervision of credit institutions, see recently Körnert, “Paradigmenwechselin der deutschen Bankenregulierung – Zur Evolution eigenkapitalorientierter Solvabilitätsnormen in Theorie und Praxis seit 1850” [in English: Paradigm Shift in German Banking Regulation – The Evolution of Equity-based Solvency Standards in Theory and Practice since 1850], ZHR 176 (2012), 96 ff.

  3. 3.

    Separately, there is the question of whether a paradigm shift also arises in the basic transition stipulated in Solvency II from rules-based to principles-based supervisory law.

  4. 4.

    See sec. 53c of the VAG [German Insurance Supervision Act] and its attendant regulations.

  5. 5.

    Directive 2009/138/EC of the European Parliament and of the Council of 25 Nov. 2009, OJEU L 335, p. 1, of 17 Dec. 2009.

  6. 6.

    References to the provisions of VAG [German Insurance Supervision Act] 2012 in this chapter refer to the “RegE eines Zehnten Gesetzes zur Änderung des VAG” [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] of 15 Feb. 2012, BT-Drucks. [Document of the German Bundestag] 17/9342; also, BR-Drucks [Document of the German Bundesrat] 90/12.

  7. 7.

    See in detail, Dreher/Ballmaier, “Das aufsichtliche Überprüfungsverfahren nach Art. 36 of the Solvency II Directive und § 289 VAG-RegE” [in English: The Supervisory Review Process under art. 36 of the Solvency II Directive and Sec. 289 of the Government’s Draft of a Tenth Act Amending the Insurance Supervision Act] in: Dreher/Wandt, eds., Solvency II in der Rechtsanwendung [in English: Solvency II in Legal Application] (2012) (Chap. 2, above).

  8. 8.

    See 4.2.3, below.

  9. 9.

    See 4.4.2, below.

  10. 10.

    See on this point briefly, 4.2.4 and 4.3.3.3. The assessment of a capital add-on for an individual undertaking proceeds in accordance with art. 37 of the Solvency II Directive (sec. 295 of the VAG [German Insurance Supervision Act] 2012), or for groups in accordance with art. 232 or art. 233, para. 6, subparas. 2 and 3 of the Solvency II Directive (secs. 250 and 251, para. 6 of the VAG [German Insurance Supervision Act] 2012) – depending on the standard chosen for the calculation of group solvency. See in more detail on the supervisory order for a capital add-on, Sehrbrock, “Rechtsprobleme des Kapitalaufschlags” [in English: Legal Problems of the Capital Add-on], ZVersWiss (2010), 665 ff.

  11. 11.

    Accord, RegE VAG [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], at n. 6, statement of grounds p. 287.

  12. 12.

    Occasionally, however, there is reference to the balance sheet in this sense, such as in arts. 24, 163 and 142 of the Solvency II Directive. But this is not centrally governed.

  13. 13.

    RegE VAG [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], at n. 6, statement of grounds for sec. 69, p. 287.

  14. 14.

    RegE VAG [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], at n. 6, ibid.

  15. 15.

    Nevertheless, the VAG [German Insurance Supervision Act] 2012 regulates some of the legal consequences in connection with the solvency statement – for example the auditor’s review of the statement as well as the preparation and submission of a corresponding report under secs. 45, para. 2, and 47, para. 2 of the VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] – without basis in the Solvency II Directive and thus improperly excessive, also according to Bundesrat [German Federal Council], Empfehlungen der Ausschüsse zu dem Entwurf eines Zehnten Gesetzes zur Änderung des VAG [Advice of the Committee on the Draft of a Tenth Act Amending the German Insurance Supervision Act], BR-Drucks. [Document of the German Bundesrat], 90/1/12 of 16 Mar. 2012, p. 6 f.

  16. 16.

    See on this point overview by Schüller/Mitzner, “Die neuen Eigenkapitalanforderungen für (Rück)Versicherungsunternehmen nach Solvency II” [in English: The New Own Funds Requirements for (Re)insurance Undertakings under Solvency II], ZHR 175 (2011), 338 (341 ff.); Lüttringhaus, “Die neuen Eigenkapitalanforderungen für (Rück)Versicherungsunternehmen nach Solvency II” [in English: The New Own Funds Requirements for (Re)insurance Undertakings under Solvency II], EuZW (2011), 822 ff.; Bürkle, in: Fahr/Kaulbach/Bähr/Pohlmann, VAG [in English: The German Insurance Supervision Act] (5th ed. 2012), Appendix 1, Ref. 33 ff.

  17. 17.

    See in detail, Dreher/Häußler, “Die Aufsicht über Versicherungsunternehmen durch die BaFin und die Überwachungsaufgabe des Aufsichtsrats” [in English: Supervision of Insurance Undertakings by BaFin [Federal Financial Supervisory Authority] and the Monitoring Task of the Supervisory Board], ZGR (2011), 471, 485; Wandt/Sehrbrock, “Regelungsziele der Solvency II-Rahmenrichtlinie” [in English: Regulatory Objectives of the Solvency II Framework Directive], ZVersWiss (2011), 193 (195 ff.).

  18. 18.

    The rules of the implementing measures – “Draft Implementing Measures Solvency II” of 31 Oct. 2011 – cited in this chapter with the designation DVO-E.

  19. 19.

    See art. 93 of the Solvency II Directive and sec. 82 of the VAG [German Insurance Supervision Act] 2012.

  20. 20.

    This must be distinguished from the “economic capital” referred to in Recitals 64 and 65 as well as art. 120, para. 1 (b) of the Solvency II Directive – or in the Statement of Reasons for sec. 87 of the government’s draft of the VAG [German Insurance Supervision Act] (n. 6), p. 291, but not in sec. 106 para. 1, no. 2 of VAG [German Insurance Supervision Act] 2012 as the implementation rule for art. 120, para. 1 (b) of the Solvency II Directive. Economic capital is the risk capital of an insurance undertaking needed for the long-term financial viability of the business. The term thus belongs to the category of risk management and therefore to Pillar II of Solvency II. Solvency capital, in contrast, is the actuarial amount of own funds held by an insurance undertaking appropriate to its risk within the meaning of insurance supervisory regime requirements under Pillar I of Solvency II. Due to a largely similar calculation of the two amounts, solvency capital will approximate economic capital, according to, for example, Romeike/Müller-Reichart, Risikomanagement im Versicherungsunternehmen [in English: Risk Management in the Insurance Undertaking], (2nd ed. 2008), p. 145 ff.

  21. 21.

    See on this point in overview, Lüttringhaus, n. 16, 825 ff.

  22. 22.

    On the principle of full harmonization in the Directive, see Dreher/Lange, “Die Vollharmonisierung der Versicherungsaufsicht durch Solvency II” [in English: Full Harmonization of Insurance Supervision under Solvency II], VersR (2011), 825 ff. (Chap. 1, above); Bürkle, “Die Zukunft der materiellen Versicherungsaufsicht in Deutschland” [in English: The Future of Substantive Insurance Supervision in Germany], VersR (2011), 1469 (1472 f.); Wandt/Sehrbrock, n. 17, 200. Unclear as to basis – “The Directive does not prescribe full harmonization in all areas …” – and inconsistent with continuing the VAG’s [German Insurance Supervision Act’s] existing law in RegE VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], n. 6, p. 255. Full harmonization is also the presumption of the Bundesrat [German Federal Council], n. 6, statement of reasons for no. 15, p. 14, thus: “not compatible with the ‘full harmonization approach’ of the Solvency II Directive”; these recommendation require – id., no. 2, at 3: “a 1:1 implementation of the Solvency II Directive”. Also in support of full harmonization – even in confusing the terms full harmonization and maximum harmonization – staff member of the Austrian Federal Ministry of Finance Wagner, “Solvabilität II und VAG neu: Was bleibt, was ändert sich?” [in English: Solvency II and the New German Insurance Supervision Act: What is Unchanged? What is Changed?], VersRdsch 9/2010, 23(24), (26).

  23. 23.

    See 4.2.3.1, above.

  24. 24.

    See art. 129, para. 4, subpara. 1 of the Solvency II Directive and sec. 114, para. 1 of the VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act].

  25. 25.

    These are insurance undertakings that hold a participation pursuant to the definitions in art. 212, para. 1 (a) of the Solvency II Directive or sec. 8, no. 6 of the VAG [German Insurance Supervision Act] 2012.

  26. 26.

    See definition in art. 212, para. 1 (f) of the Solvency II Directive or sec. 8 no. 24 of the VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act].

  27. 27.

    See on this point for more detail Schüller/Mitzner, n. 16, 350 ff.

  28. 28.

    See Schüller/Mitzner, n. 16, 353 ff.

  29. 29.

    The Directive is referring here to the Solvency Capital Requirement and the Minimum Capital Requirement.

  30. 30.

    See in detail Dreher/Ballmaier, “Die unternehmenseigene Risiko- und Solvabilitätsbeurteilung (ORSA) nach Solvency II und VAG 2012” [in English: Risk and Solvency Assessment by Undertakings (ORSA) under Solvency II and the German Insurance Supervision Act 2012], VersR (2012), 129 ff. (Chap. 5, below).

  31. 31.

    See the table of corresponding sections in the annex to the government’s draft (n. 6) in which sec. 292, para. 2, no. 3 of the VAG [German Insurance Supervision Act] 2012 is absent; and in detail as a whole Dreher/Ballmaier (n. 7).

  32. 32.

    See on this point 4.4.2.5, below, as well as Dreher/Lange, n. 22, 831 f.; Bürkle. n. 22, 1472 ff.; Bürkle and Grote, “Die aufsichtsbehördlichen Eingriffsbefugnisse nach Solvency II” [in English: Supervisory Intervention Powers under Solvency II], in: Dreher/Wandt, eds., Solvency II in der Rechtsanwendung [in English: Solvency II in Legal Application] (2009), 191 ff. and 225 ff.

  33. 33.

    See n. 10, above.

  34. 34.

    The BaFin [Federal Financial Supervisory Authority] provides a good example in its “Ergebnisse der fünften quantitativen Auswirkungsstudie zu Solvency II (QIS 5)” [in English: Results of the Fifth Quantitative Impact Study on Solvency II (QIS5)], (2011), p. 22 where, among 27 undertakings participating in the QIS 5 with respect to the solvency calculation using internal models, “most undertakings expect to apply to use a fully internal model even though, for example, this model omits operational risk”.

  35. 35.

    On this point see Dreher/Schaaf, “Die Veröffentlichungspflichten von Versicherungsunternehmen gegenüber der Allgemeinheit” [in English: Insurance Undertakings’ Duty of Disclosure to the Public], in Dreher/Wandt, eds., Solvency II in der Rechtsanwendung [in English: Solvency II in Legal Application] (2009), 129 ff. (Chap. 13, below).

  36. 36.

    See 4.2.1, above.

  37. 37.

    See 4.2.1, above, and explicitly sec. 69, para. 1, sent. 2 of the VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act].

  38. 38.

    See sec. 45, para. 2 of the VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], and above, n. 15.

  39. 39.

    39 See sec. 47, para. 2 of the VAG [German Insurance Supervision Act] 2012 [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], and above, n. 15.

  40. 40.

    See 4.3.3.1, below.

  41. 41.

    See in detail on this point Dreher/Ballmaier, n. 30, passim and 134 specifically on the relationship of ORSA to the solvency requirement as it pertains to the economic balance sheet.

  42. 42.

    See on this point generally and not from a legal perspective, in lieu of multiple citations, and with further references, for example, Ackermann, Pfadabhängigkeit, Institutionen und Regelungen, [in English: Path Dependence, Institutions and Regulations] (2001).

  43. 43.

    See on this point Schüller/Mitzner, n. 16, 356.

  44. 44.

    See on this point in more detail Dreher, “Das Risikomanagement nach § 64 a VAG und Solvency II” [in English: Risk Management under Sec. 64 1 of the German Insurance Supervision Act and Solvency II], VersR (2008), 998 (999 ff.); Wandt/Sehrbrock, n. 22, 203 ff.; Bürkle, n. 22, 1476 f.; Schaaf, Risikomanagement und Compliance in Versicherungsunternehmen – aufsichtsrechtliche Anforderungen und Organverantwortung [in English: Risk Management and Compliance in Insurance Undertakings – Supervisory Requirements and Institutional Responsibility] (2010), 25 f.

  45. 45.

    See also government’s draft, n. 5, Statement of Reasons, p. 258. Bürkle, n. 22, 1477 concludes differently: “[D]etailed provisions at Level 2 in the Lamfalussy process would generally not conform to the Directive” and who should on this basis reach the conclusion that wide parts of the DVO-E are inconsistent with European law – in particular, the extensive 128 articles with solvency provisions.

  46. 46.

    See 4.3.2.2, above.

  47. 47.

    See Dreher, n. 44, 1000.

  48. 48.

    See in general on the mandate for “proportionate application of this Directive, in particular to small insurance undertakings”, art. 29, para. 4 of the Solvency II Directive and Recitals 5, 19, 32, 59 and 66 of the Solvency II Directive.

  49. 49.

    EIOPA has determined, in its “Report on the fifth quantitative impact study” (QIS 5) for Solvency II (14 Mar. 2011, e.g. p. 7) that insurance groups applying an internal model need to hold just 80 % of the solvency capital that would be required under the standard model. The BaFin [Federal Financial Supervisory Authority], n. 34, p. 22 summarizes the solvency calculation of 27 undertakings from 10 groups using internal models as follows: “The results reported are between 25 % and 250 % of SCR calculated under the standard formula, with a median of 85 %”.

  50. 50.

    On potential “competitive disadvantages for insurers that apply the standard formula”, see also the motion of the CDU/CSU and FDP factions, BT-Drucks. [Document of the German Bundestag], 17/6456, p. 3, statement of reason to no. 5.

  51. 51.

    See Recital 19 of the Solvency II Directive: “This Directive should not be too burdensome for small and medium sized insurance undertakings. One of the tools by which to achieve that objective is the proper application of the proportionality principle”.

  52. 52.

    See Recital 66 of the Solvency II Directive: “In order to reflect the specific situation of small and medium sized undertakings, simplified approaches to the calculation of the Solvency Capital Requirement in accordance with the standard formula should be provided for”.

  53. 53.

    See on this example of a legal defense insurer Faßbender, “Europäische Ordnungspolitik im Umbruch: Auswirkungen auf ein international tätiges Familienunternehmen” [in English: The Transformation of European Regulatory Policy: Effects on a Family Business with International Operations], in: Insurance law institute at the university of Düsseldorf, ed., Perspektiven der Deutschen Versicherungswirtschaft im europäischen Wettbewerb [in English: Perspectives on the Insurance Business in Germany in European Competition] (2011), 1 (7 f.).

  54. 54.

    See also Recital 26, sent. 4 of the Solvency II Directive.

  55. 55.

    See 4.2.1, above.

  56. 56.

    A critical view to such fair value analyses: Deutsche Prüfstelle für Rechnungslegung e.V. [in English: Financial Reporting Enforcement Panel], Activity Report 2011, p. 9; and in detail, id., Comments with regard to the IASB Consultation Paper “Agenda Consultation 2011”, 28 Nov. 2011.

  57. 57.

    Recital 64 of the Solvency II Directive.

  58. 58.

    See on this point the listing for 200-year events by country in European Commission, “Annexes to the QIS5 Technical Specifications”, 5 Jul. 2010, p. 42, Annex L.5.

  59. 59.

    See on this point essentially, Rittner, “Quantitative Legaldefinitionen im Wirtschaftsrecht” [in English: Quantitative Legal Definitions in Economic Law] in: Gedächtnisschrift Rödig [in English: Publication in Memory of Jürgen Rodig] (1978), 74 ff.

  60. 60.

    See, in German law, BVerfGE 50, 290, 238 [German Federal Constitutional Court Decisions] – co-determination and generally, Rittner/Dreher, Europäisches und deutsches Wirtschaftsrecht [in English: European and German Economic Law] (3rd ed. 2008), sec. 4, ref. 10 and sec. 6 ref. 12 f. The same applies in the European law.

  61. 61.

    BVerfGE [German Federal Constitutional Court Decisions], n. 60, ibid.

  62. 62.

    European Commission, QIS5 Technical Specifications, 05 Jul. 2010, p. 123 at SCR.5.88.

  63. 63.

    Likewise for credit institutions, art. 109, para. 4 of the proposal for regulation on prudential requirements for credit institutions and investment firms, COM(2011) 452 final. (Capital Requirements Directive IV).

  64. 64.

    German Federal Government, Answer to parliamentary question, BT-Drucks. [Document of the German Bundestag] 17/8225, 19 Dec. 2011, p. 10.

  65. 65.

    See on this point n. 10 above.

  66. 66.

    See Dreher/Ballmaier, n. 30, 134, 142.

  67. 67.

    See art. 76, para. 3 of the Solvency II Directive or sec. 70, para. 3 of the VAG [German Insurance Supervision Act] 2012.

  68. 68.

    See, for example, BaFin [Federal Financial Supervisory Authority], n. 34, p. 14 ff. with data on the specific changes to the solvency requirements in life insurance based on QIS 5.

  69. 69.

    See EIOPA (European Insurance and Occupational Pensions Authority), QIS5: Relevant risk-free interest rate term structures, 6 Jul. 2010.

  70. 70.

    See. art. 39 IR4, para. 4 of the DVO-E.

  71. 71.

    See European Commission, Annexes to the QIS5 Technical Provisions, 5 Jul. 2010, p. 20, n. 2 and p. 23 at 8. iv).

  72. 72.

    European Commission, n. 71, p. 20. In currencies other than the euro, the interest rate deviates to some extent.

  73. 73.

    See CEIOPS, Paper on extrapolation of risk-free rates, 02 Aug. 2010, p. 3.

  74. 74.

    See Gellermann in: Streinz, ed., EUV/AEUV [Treaty on European Union/Treaty on the Functioning of the European Union] (2nd ed. 2012), art. 290 AEUV [Treaty on the Functioning of the European Union], ref. 2; Bueren, “Grenzen der Durchführungsrechtssetzung im Unionsrecht” [in English: Limits on Adoption of Implementing Law in EU Legislation], EuZW (2012), 167 ff., each with further references.

  75. 75.

    According to the QIS 5 study, 10 % of the participants from Germany still report coverage quotas below 100 %, see BaFin [Federal Financial Supervisory Authority], n. 34, p. 13.

  76. 76.

    See also motion of the CDU/CSU and FDP factions, n. 50, p. 2 at no. 3.

  77. 77.

    See on this point 4.3.4.4, below.

  78. 78.

    See on this point 4.2.4, above.

  79. 79.

    BaFin [Federal Financial Supervisory Authority], n. 34, p. 14.

  80. 80.

    BaFin [Federal Financial Supervisory Authority], n. 34, p. 14; see also EIOPA, n. 49, pp. 8 and 17.

  81. 81.

    See Pfeifer according to a report in VW (2011), 1593 and concerning the ability of individual undertakings to influence solvency in using an internal model, for example Höppner, “Unternehmenssteuerung durch Solvency II weiterentwickeln” [in English: To further develop corporate management through Solvency II] VW (2012), 280 (281).

  82. 82.

    See 4.4.2.5, below at Undefined Legal Terms and 4.4.2.5 at Projection Focus and Proportionality.

  83. 83.

    See in general on the procyclicality of risk management systems in financial crises Müller/Brackschulze, “Prozyklische Effekte von Risikomanagementsystemen nach KonTraG den in Finanz- und Vertrauenskrisen” [in English: Procyclical Effects of Risk Management Systems under the Corporate Control and Transparency Act (KonTraG) in Financial and Confidence Crises], DB (2011), 2389 ff.

  84. 84.

    See on this point 4.3.3.2, above.

  85. 85.

    See 4.3.3.1, above.

  86. 86.

    See Höppner, n. 81, 281.

  87. 87.

    See BaFin [Federal Financial Supervisory Authority], n. 34, p. 11 f.

  88. 88.

    On economic doubt see Gründel/Schmeiser, “Langzeit-Garantien und ‘antizyklische Prämie’” [in English: Long-term Guarantees and ‘Anti-cyclical’ Premiums’], VW (2011), 1595.

  89. 89.

    In this connection, Recital 22 of the DVO-E adverts to illiquid markets or excess credit spreads “particularly with respect to government bonds”.

  90. 90.

    Art. 41 IR6, para. 1, sent. 2 (c) of the DVO-E.

  91. 91.

    See also on this point Government’s Draft, n. 6, Statement of Reasons for sec. 125, p. 300.

  92. 92.

    According to the table of corresponding sections between the Solvency II Directive and the VAG [German Insurance Supervision Act] 2012, with respect to art. 40 of the Solvency II Directive.

  93. 93.

    On this point see in detail Dreher/Ballmaier, n. 30.

  94. 94.

    See, by way of example only, the solvency-related decision to operate in individual Member States of the EU through subsidiaries, where separate capital requirements apply, or through local offices.

  95. 95.

    But Pillar I also refers explicitly to the system of governance in connection with solvency requirements, namely in arts. 120, para. 1 and 121, para. 4 subpara. 2 of the Solvency II Directive.

  96. 96.

    See Dreher, “Die persönliche Verantwortlichkeit von Geschäftsleitern nach außen und die innergesellschaftliche Aufgabenteilung” [in English: The Personal Responsibility of Managing Directors under External and Internal Division of Tasks], ZGR (1992), 22 (49 ff.); id., “Nicht delegierbare Geschäftsleiterpflichten” [in English: Non-delegable Duties of Management], in Publication in Honor of Hopt (2010), pp. 517, 524, 529, each with further references.

  97. 97.

    See on this point Dreher, n. 96, p. 529.

  98. 98.

    See on this point 4.3.2, above.

  99. 99.

    See on this point 4.4.1.2, below.

  100. 100.

    See on this point 4.2.1, above.

  101. 101.

    See on such characterization of management responsibility earlier Dreher, n. 96/1992, 60 as well as Fleischer, “Zur Leitungsaufgabe des Vorstands im Aktienrecht” [in English: Management Responsibility of the Managing Board in the Law on Stock Companies], ZIP (2003), 1 (2); Schneider/Brouwer, “Die Verantwortlichkeit der Gesellschaft und ihrer Geschäftsleiter bei Delegation öffentlich-rechtlicher Pflichten” [in English: The Responsibility of Companies and their Management in the Delegation of Public Duties under Law] in Publication in Honor of Priester (2007), pp. 713, 720.

  102. 102.

    A particularly high capital coverage of 30 % to 60 % for shares and 25 % for real estate demonstrates the problem of an investment strategy based on solvency under the current government draft.

  103. 103.

    See Dreher, n. 96, p. 527 f. with further references.

  104. 104.

    See on the options and limits of internal and external delegation using the example of risk management under insurance supervisory law for the present collective responsibility of the managing board, Dreher, “Ausstrahlungen des Aufsichtsrechts auf das Aktienrecht” [in English: Effects of Supervisory Law on Corporation Law], ZGR (2010), 496 (523 ff.); Dreher/Schaaf, “Versicherungsunternehmensrecht und Risikomanagement – Gesamtverantwortung der Geschäftsleitung, Outsourcing des Risikomanagements und konzernweites versicherungsaufsichtsrechtliches Risikomanagement” [in English: Insurance Undertaking Law and Risk Management – the Collective Responsibility of Management, Outsourcing of Risk Management, and Group-wide Risk Management under Insurance Supervisory Law], WM (2008), 1765 (1768 ff.) and Schaaf, n. 44, p. 167 ff.

  105. 105.

    See for example sec. 90, para. 1, sent. 1, no. 1 of the AktG [German Stock Corporation Act]: “fundamental matters regarding the future conduct of the company’s business (in particular plans regarding financing, investment and personnel)… ” and sec. 90, para. 1, sent. 1, no. 4 of the AktG [German Stock Corporation Act]on individual transactions “that may have a material impact upon the profitability or liquidity of the company”.

  106. 106.

    See for example as an exception art. 111, para. 2 of the Solvency II Directive.

  107. 107.

    See Farny, Insurance Business Management Theory, (5th ed. 2011), p. 882.

  108. 108.

    See on this point Nguyen, Handbuch der wert- und risikoorientierten Steuerung von Versicherungsunternehmen [in English: Handbook of Value and Risk-focused Management of Insurance Undertakings] (2008), p. 441.

  109. 109.

    German Federal Government, Answer to parliamentary question, BT-Drucks. [Document of the German Bundestag] 17/8225, p. 7 sees the risk under Solvency I “limited due to the requirements of the investment regulations, the minimum requirements for risk management under supervisory law, and the traditional, conservative investment policies of German insurers”.

  110. 110.

    See MaRisk VA [Minimum Requirements for Risk Management (Insurance Supervision)] under 7.2.2 at 2.

  111. 111.

    See 4.4.1., above at The Solvency II Requirements.

  112. 112.

    See on this point for example Höppner, n. 81, 280 f.

  113. 113.

    See in detail Dreher/Lange, “Die Qualifikation der Aufsichtsratsmitglieder von Versicherungsunternehmen nach VAG und Solvency II” [in English: Qualifications of Supervisory Board Members of Insurance Undertakings under the German Insurance Supervision Act and Solvency II] ZVersWiss (2011), 211 ff. (Chap. 6, below).

  114. 114.

    See Dreher, “Die Kontrolle der Geschäftsleiter von Versicherungsunternehmen” [in English: The Monitoring of Managers of Insurance Undertakings], ZVersWiss (2006), 375 ff. (Supplement, Annual Conference 2006).

  115. 115.

    See Dreher/Lange, n. 113.

  116. 116.

    See on this point in detail Dreher, “Die aufsichtsbehördliche Kontrolle der Inhaber von Schlüsselfunktionen nach Solvency II and künftigem VAG 2012” [in English: Review by Supervisory Authorities of the Key Function Holders under Solvency II and the Future German Insurance Supervision Act 2012], VersR (2012), 1061 (Chap. 8, below).

  117. 117.

    See on this point in overview Dreher, “Solvency II auf Deutsch – so nicht” [in English: Solvency II in German – not this way], Frankfurter Allgemeine (FAZ) No. 243, 19 Oct. 2011, p. 18.

  118. 118.

    The problems newly created by this are amplified as a consequence of the failure to take further account in sec. 25 VAG [German Insurance Supervision Act] 2012 of the concretization of art. 42 of the Solvency II Directive by art. 263 of the DVO-E.

  119. 119.

    Steffen, Journal of the Federal Financial Supervisory Authority 05/09, pp. 8, 9.

  120. 120.

    See on this point Dreher, “Die Gesamtqualifikation des Aufsichtsrats” [in English: The Overall Qualification of the Supervisory Board], in: Publication in Honor of Hoffmann-Becking (2013), p. 313 ff.

  121. 121.

    See CEIOPS, Draft Proposal for Level 3 Guidelines on the System of Governance, December 2010, ref. 2.10 and 3.2.8 f.

  122. 122.

    See the first-time “supervision” of the full balance sheet of an insurance undertaking, appropriately emphasized in Faßbender, n. 53, p. 8.

  123. 123.

    See Recital 29, sent. 1 of the Solvency II Directive: “Some risks may only be properly addressed through governance requirements rather than through the quantitative requirements reflected in the Solvency Capital Requirement”.

  124. 124.

    See 4.4.1, above.

  125. 125.

    See Recital 15 of the Solvency II Directive: “(…) an economic risk-focused approach should be adopted which provides incentives for insurance and reinsurance undertakings to properly measure and manage their risks”; Recital 67 of the Solvency II Directive: “the new risk-focused approach (…)” and Recital 68 of the Solvency II Directive: “In accordance with the risk-oriented approach to the Solvency Capital Requirement (…)”. See on this approach Dreher, n. 44, 1001.

  126. 126.

    Sec. 64a VAG [German Insurance Supervision Act] and the MaRisk VA [Minimum Requirements for Risk Management (Insurance Supervision)] have already introduced risk-focused insurance supervision to a certain extent in anticipation of the Solvency II implementation; see in detail Dreher, n. 44, 998 ff.; Dreher/Schaaf, n. 104, 1765 ff.; Dreher/Schaaf, “Inhalt und Organisation des Risiko- sowie des Revisionsberichts” [in English: Content and Organization of the Risk Report and Internal Audit Report], VersR (2009), 1151 ff.; Schaaf, n. 44, 59 ff.

  127. 127.

    See in detail Dreher/Ballmaier, n. 30, 135 ff., 143 on the relationship of the ORSA review in supervision and the business strategy of the insurance undertaking.

  128. 128.

    Also in Korinek, “Veränderung der österreichischen Versicherungsaufsicht durch Solvabilität II: Paradigmenwechsel oder Evolution”? [in English: The Change to Austrian Insurance Supervision through Solvency II: Paradigm Shift or Evolution], VersRundsch (9/2010), 27.

  129. 129.

    See, as parallels, the self-assessment of undertakings in competition law, under arts. 101 and 102 TFEU in the wake of the new Council Regulation 1/2003 on competition, and on this point, for example, Rittner/Dreher, n. 60, sec. 14, ref. 28 f. with further references.

  130. 130.

    See on this point 4.4.2.4, below as well as 4.4.2.5.

  131. 131.

    See on this point 4.4.3.2, below.

  132. 132.

    See on the freedom to organize the undertaking, government’s draft of the VAG [German Insurance Supervision Act], n. 6, Statement of Reasons for sec. 24, p. 271.

  133. 133.

    Likewise for capital investment Korinek, n. 128, 27.

  134. 134.

    See on the risk and internal audit report Dreher/Schaaf, n. 126; Schaaf, n. 44, p. 100 ff., 117 ff.

  135. 135.

    See on this point Dreher/Schaaf, n. 35.

  136. 136.

    In detail on this point Rittner/Dreher, n. 60, sec. 9, ref. 47 ff.

  137. 137.

    See 4.4.2.5, below.

  138. 138.

    See 4.4.2.5, below.

  139. 139.

    See 4.3.3.4, above, on the interest rate yield curve.

  140. 140.

    See 4.3.3.2, above.

  141. 141.

    See 4.3.3.4, above.

  142. 142.

    Thus Perlet demands, for example, “an additional qualitative risk assessment, every time, without naive faith in models”, see Sehrbrock, discussion report in: Dreher/Wandt, eds., Solvency II in der Rechtsanwendung [in English: Solvency II in Legal Application] (2009), p. 58.

  143. 143.

    See on this point H. Simon, Models of Bounded Rationality (1982).

  144. 144.

    See from among many treatments, Rittner/Dreher, n. 60, sec. 14, ref. 56, sec. 15, ref. 43 and sec. 19, ref. 7, each with further references.

  145. 145.

    See Rittner/Dreher, n. 60, sec. 26, ref. 61, with further references.

  146. 146.

    See Dreher, “Die Zukunft der Missbrauchsaufsicht in einem ökonomisierten Kartellrecht” [in English: The Future of Supervision According to the Principles of Abusiveness in Economized Competition Law], WuW (2008), 23 ff. on the relationship between economics and competition law.

  147. 147.

    In competition law, an arguable practice of providing economic expert opinion emerged as a result of this approach causing European and German antitrust officials to publish standards for acceptable scientific economic opinions recently.

  148. 148.

    See above on this point in this part.

  149. 149.

    On the assessment focus and its consequences, see 4.4.2.5, above.

  150. 150.

    See on this point Dreher, n. 147, 23.

  151. 151.

    See 4.3.2.2, above.

  152. 152.

    See Part 4.4.2.1, above.

  153. 153.

    In the German implementation, for example, a few sentences in sec. 295, paras. 1 and 2 of the VAG [German Insurance Supervision Act] 2012 on the capital add-on in accordance with art. 37 of the Solvency II Directive contain – sometimes more than once – the words “significantly”, “(in)appropriate”, “insufficiently”, “better”, “likely”, “proportionally” and “material”.

  154. 154.

    See on this point for example Rittner/Dreher, n. 60, sec. 6, ref. 22.

  155. 155.

    See von Danwitz, Europäisches Verwaltungsrecht [in English: European Administrative Law] (2008), p. 363 with further references.

  156. 156.

    The Solvency II Directive uses this in the Recitals 16 times and in the text of the Directive 107 times, of which 24 instances are in connection with own funds, the solvency capital requirement, or the Minimum Capital Requirement.

  157. 157.

    The Solvency II Directive uses this 8 times in the Recitals and 14 times in the text of the Directive.

  158. 158.

    See recently with the tendency toward more judicial scrutiny, European Court of Justice, 8 Dec. 2011, case no. C-272/09 P – KME Germany/Commission, ref. 94 and European Court of Justice, 8 Dec. 2011, case no. C 386/10 P – Chalkor AE Epexergasias Metallon/Kommission, ref. 54 = EuZW (2012), 190 and generally on case law of the European courts Adam, Beurteilungsspielraum und Legalausnahme im Europäischen Kartellrecht [in English: Scope for Evaluation and Legal Exception in European Competition Law] (2007), p. 21 ff. and passim; Pohlmann, “Verfahrensrecht für ein ökonomisiertes Kartellrecht: Der Beurteilungsspielraum der Kommission” [in English: Procedure for an Economized Competition Law: The Scope for Evaluation of the Commission], in: Publication in Honor of Möschel (2011), p. 471 ff.

  159. 159.

    See for example the European Court of Justice, n. 159/KME Germany, ref. 94.

  160. 160.

    The Solvency II Directive alone contains 14 articles with sometimes multiple requirements of proof to be provided by insurance undertakings for approvals or ongoing business operations.

  161. 161.

    See BVerfGE 106, 62, 151 – Altenpflege [in English: Elder Care]; Meßerschmidt, Gesetzgebungsermessen [in English: Legislative Discretion] (2000), p. 946 ff., Lepsius, “Prognose als Problem von Wissenschaft und Politik” [in English: Projection as Problem in Science and Policy] in: Dreier/Willoweit, eds., Wissenschaft und Politik [in English: Science and Policy] (2010), pp. 181, 194.

  162. 162.

    See 4.3.3.4, above.

  163. 163.

    For numerous additional examples of erroneous assessments in economics, even in the short and medium term, see Lepsius, n. 162, p. 182 ff.

  164. 164.

    Lepsius, n. 162, p. 185 with reference to Borchardt, “Produktions- und Verwertungsbedingungen von Langfristprognosen in historischer Perspektive” [in English: Production and Assessment Conditions of Long-term Projections in Historical Perspective], Allgemeines Statistisches Archiv [in English: Journal of the German Statistical Society], 63 (1979), p. 1 ff. with further references.

  165. 165.

    See in detail Schroeder, “Der Prognosezeitraum in der Fusionskontrolle” [in English: The Projection Time Horizon in Merger Control] in: Publication in Honor of Säcker (2011), p. 985 ff. and with reference to outliers with a maximum of 8–15 years in merger control cases in the energy markets, which are relatively quite stable for the purpose of projections.

  166. 166.

    According to Recital 17 of the Solvency II Directive, see 4.2.2, above.

  167. 167.

    See 4.3.3.4, above.

  168. 168.

    On the special emphasis of the principle of proportionality with respect to small and medium sized insurance undertakings, see 4.3.2.3, above.

  169. 169.

    See 4.3.4.4, above.

  170. 170.

    See Part 4.4.2.3, above.

  171. 171.

    See on this point Rittner/Dreher, n. 60, sec. 6 ref. 20, sec. 14 ref. 86, each with further references.

  172. 172.

    See in more detail on the case law of the European Court of Justice Riesenhuber, in: id., ed., Europäische Methodenlehre [in English: European Methodology] (2nd ed. 2010), sec. 11, ref. 13 ff.; Neuner, ibid, sec. 13, ref. 17 and based on the example of European public procurement law Dreher in: Dreher/Stockmann, Kartellvergaberecht [in English: Competition Law and Public Procurement Law] (2008), before sec. 97, ref. 95 ff. each with numerous further references.

  173. 173.

    See on objective of supervision under Solvency II, 4.2.2, above.

  174. 174.

    The extent to which exemption clauses are also narrowly construed in German administrative law – see for example BVerwG [Federal Administrative Court], DÖV 1974, 133; BVerwG [Federal Administrative Court] DÖV 1988, 381; Ehlers, in: Schoch/Schmidt-Aßmann/Pietzner, VwGO [in English: Administrative Court Procedures Code], 22. Supplement 2011, sec. 40, ref. 520 with further references – is not generally attributable to the single market objective as in European law, but rather to the specific purpose of each law.

  175. 175.

    See on this point 4.3.2.2 and 4.3.2.3, above.

  176. 176.

    See 4.3.2.3, above.

  177. 177.

    See BGH [German Federal Court of Justice], 28 Jun. 2005, WuW/E DE-R 1513, 1519 – Stadtwerke Mainz; BGH [German Federal Court of Justice], 16 Dec. 1976, WuW/E BGH 1445, 1452 – Valium; KG [Higher Regional Court] Berlin, 12 Feb. 1982 – Kart. 4/82, WuW/E OLG 2616, 2617; KG [Court of Appeal], 10 Dec. 1990 – Kart. 19/90, WuW/E OLG 4640, 4644 – Hamburger Benzinpreise; OLG [Higher Regional Court] Düsseldorf, 11 Feb. 2004, WuW/E DE-R 1239, 1244 – TEAG.

  178. 178.

    See 4.2.4, above with n. 30. Korinek, n. 128, 29 again sees “substantive state supervision”, even if it is completely different from what is currently understood, due to the numerous undefined legal terms and the resulting scope of the material control in the new Solvency II system. The continuation of such term under Solvency II, understood differently at least in Germany, provides no added value to the legal systematic and results only in terminological confusion.

  179. 179.

    Nevertheless, the recommendations of the Bundesrat [German Federal Council], n. 15, no. 17, p. 15 f., require supplementation of the offenses in the VAG [German Insurance Supervision Act] in the government’s draft.

  180. 180.

    See 4.4.2.5 above.

  181. 181.

    See on such scrutiny of undefined legal terms BVerwGE [Decisions of the German Federal Administrative Court] 15, 207, 208 and 109, 59, 65 ff.

  182. 182.

    See BVerwGE 92, 340, 348.

  183. 183.

    See as a whole, in detail and with numerous further references Wolff, in: Sodan/Ziekow, eds., VwGO [in English: Administrative Court Procedures Code] (3rd ed. 2010), sec. 114, ref. 306 ff.

  184. 184.

    Wolff, n. 184, sec. 114, ref. 317 ff. with further references.

  185. 185.

    See 4.4.2.5, above.

  186. 186.

    See references at Dreher, in: Dreher/Stockmann, Kartellvergaberecht [in English: Competition Law and Public Procurement Law] (2008), sec. 97, ref. 223 ff.

  187. 187.

    See Wolff, n. 184, sec. 114, ref. 59 ff. with further references.

  188. 188.

    See 4.4.2.5, above at Projection focus and proportionality.

  189. 189.

    See von Danwitz, n. 156, p. 366 with further references.

  190. 190.

    See 4.4.2.2, above.

  191. 191.

    See BVerfGE 73, 339, 366 ff.; BVerfGE 82, 159, 192.

  192. 192.

    Regulation (EU) No. 1094/2010, OJ 2010, no. L 331, p. 48 ff.

  193. 193.

    See on the actuarial function, art. 48 of the Solvency II Directive or sec. 31 of the VAG [German Insurance Supervision Act] 2012.

  194. 194.

    See on their new significance, for example art. 77, para. 2, subpara. 2 of the Solvency II Directive (similarly, sec. 72, para. 2, sent. 2 of the VAG [German Insurance Supervision Act] 2012) on technical provisions: “… be performed using adequate, applicable and relevant actuarial and statistical methods”.

  195. 195.

    See for a specific example 4.3.3.5, above.

  196. 196.

    See on this point as an example of economization of competition law Rittner/Dreher, n. 60, sec. 4, ref. 56 and Dreher, n. 151, 23 and 27.

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Dreher, M. (2015). Solvency Requirements. In: Treatises on Solvency II. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-46290-4_4

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