The Basic framework

Factsheet

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The Solvency II Basic supervisory framework (Basic framework) applies to limited-risk insurers (Basic insurers) that are not exempted from prudential supervision. The framework is set up in line with the risk-based supervision of the Solvency II directive (SII Directive), but is designed proportionally and therefore more suited to Basic insurers. This page provides an explanation of the Basic framework and the similarities and differences with the SII Directive, including references to the laws and regulations in which the relevant requirements are laid down.

Published: 02 June 2016

In principle, the Basic framework is quite similar to the SII Directive framework, and the same conceptual framework and calculation methods for actual and required capital and technical provisions apply to Basic insurers and SII insurers. However, the Basic framework contains a number of simplifications.

The composition of both the own funds (Section 70 of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft – Bpr)) and the minimum capital requirement (Section 52 of the Bpr) is in line with the SII Directive.

The size of the solvency capital requirement (SCR) is also in line with the SII Directive, but involves some simplifications (Section 66 of the Bpr).

The size of the minimum capital requirement is in line with the SII Directive, but the Basic framework applies a lower absolute lower limit for Basic insurers (Section 49b of the Bpr).

Technical provisions are in line with the SII Directive, with some simplifications.

The chapters on recovery plans and short-term financial plans from the Solvency II Directive also apply to Basic insurers.

Investment policy is in line with the Directive, including a localisation requirement.

Because Basic insurers tend to be less complex and smaller in size, and also to keep administrative burdens limited, the Basic framework differs from the Solvency II directive in the following respects:

For operations, risk management, reporting dates and group supervision, the rules that generally applied before 1 January 2016 (under Solvency I) still apply to Basic insurers. Basic insurers are not required to prepare an Own Risk and Solvency Assessment (ORSA) as part of risk management, and with regard to group supervision this also applies to in-kind insurers

Regarding disclosure obligations, the national regime (Section 134d of the Bpr) applies in which no additional reporting is required, but additional information must be included in the financial statements. Accounting standards regulations are in accordance with Book 2 of the Dutch Civil Code (on a current value basis in accordance with Section 3:69a(1) of the Wft) and can be found in Section 4 of the Bpr.

The EIOPA Guidelines do not apply to Basic insurers. Finally, unlike Solvency II insurers, Basic insurers are not subject to the single licence and home-country principle. This means that Basic insurers wishing to expand their operations abroad must apply to the supervisory authority in the relevant country.

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