November 15, 2018

BaFin published an "interpretation decision" related to the Solvency II supervisory regime and this decision is addressed to all insurers subject to the Solvency II supervisory regime. The decision makes the clarifications about how insurance companies should examine the appropriateness of the valuation methodology for insurance reserves.

The interpretation decision addresses, inter alia, the notion of "error" used in Article 56 (2) of Regulation (EU) 2015/35 on Solvency II, which plays a central role in assessing the adequacy of the method. It also highlights the consequences of applying Article 56 to other areas as well as specifics of application for life assurance obligations. Within the Solvency II framework, actuarial provisions must be formed for all insurance obligations to policyholders and beneficiaries. The methods used to calculate the provisions must be appropriate in relation to the nature, extent, and complexity of the risks underlying the insurance obligations. When determining an appropriate method of calculation, undertakings shall carry out an audit in accordance with Article 56 of Delegated Regulation (EU) 2015/35. In doing so, entities should examine risks of the underlying obligations and assess errors in the results of the method that may result from differences between the underlying assumptions of the method and the risks identified. 

 

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Keywords: Europe, Germany, Insurance, Solvency II, Interpretation Decision, Underwriting Provisions, BaFin