Order on the Calculation of the Capital Base for Group 1 Insurance Undertakings and Others

Order on the Calculation of the Capital Base for Group 1 Insurance Undertakings and Others 1)

Pursuant to Section 153, subsection 5, Section 154, subsection 6, Section 155, subsection 7, Section 166, subsection 10, and Section 316, subsection 1, of Act No. 718 of 13 June 2023 on Insurance Business, it is hereby prescribed:

Chapter 1
General Provisions
Scope of Application

Section 1. This Order applies to Group 1 insurance undertakings and groups or groups of undertakings covered by Section 166, subsections 1 and 2, of the Act on Insurance Business.

Subsection 2. The calculation of the capital base by a Group 1 insurance undertaking shall, in addition to the rules in Articles 62-82 of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), be carried out in accordance with the provisions of this Order.

Subsection 3. The calculation of the capital base for the group or group of undertakings shall, in addition to the rules in Articles 331-334 of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), be carried out in accordance with Section 13.

Chapter 2
Definitions

Section 2. In this Order, surplus capital means that part of the accumulated profits which is not set aside for distribution to policyholders and beneficiaries, and is therefore not considered to be an insurance liability.

Subsection 2. Special bonus reserves (type B) means:

1. Capital base elements which, pursuant to prior agreement with policyholders or the contractual parties entering into the insurance on behalf of the insured, are built up from funds from the insurers' share of the realized result, cf. Section 29, subsection 1, no. 3, of the Act on Insurance Business, for the benefit of the insured, but are not considered insurance liabilities, and which meet the following conditions:

a) They are linked to the insurance individually or collectively in such a way that the individual insurance share with corresponding return can be calculated at any time.

b) They do not enter into the amount as part of the insurance portfolio when calculating the share of the realized result, cf. Section 29, subsection 1, no. 3, of the Act on Insurance Business, which is to be added to the portfolio.

c) They must be transferred to the individual insurances no later than simultaneously with the payment of benefits under the insurance.

d) They must be allocated a proportional return on an ongoing basis, equal to the return attributed to the equity capital before tax, whether this return is negative or positive.

e) They must be included in full in the calculation and payment of surrender values, cf. however subsection 3, transfers from one company to another, job changes, and business transfers or conversions of business, cf. Section 29, subsection 1, no. 7, of the Act on Insurance Business.

2. Capital base elements which are built up from irrevocable transfers from equity capital for the benefit of the insured, but are not considered insurance liabilities, and which meet the following conditions:

a) They are brought over a period to meet the conditions in no. 1, letter a, c, and e, according to a detailed allocation rule that meets the conditions in Section 7.

b) The transferred amount meets the conditions in no. 1, letter b and d.

1. The Order contains provisions that implement parts of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), OJ EU 2009, no. L 335, page 1, and Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 as regards the powers conferred on the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority), OJ EU 2014, no. L 153, page 1.

Danish Statutory Register
2024 Published on 18 December 2024
5 December 2024. No. 1577.
Ministry of Industry, Business and Financial Affairs, Danish Financial Supervisory Authority, file no. 24-019428 CQ003074

c) The company must be able to choose to include them in the calculation and payment of surrender values, cf. however subsection 3, transfers from one company to another, job changes, and business transfers or conversions of business, cf. Section 29, subsection 1, no. 7, of the Act on Insurance Business.

Subsection 3. In the calculation and payment of surrender values, cf. subsection 2, no. 1, letter e, and no. 2, letter c, the capital base elements may only be included if the tier 1 capital elements in the company together constitute the solvency capital requirement.

Chapter 3
Calculation of Capital Base

Section 3. In addition to the rules in Articles 68-81 of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), Sections 4 and 5 apply to the calculation of the capital base.

Section 4. The capital base of a Group 1 insurance undertaking, cf. Section 153, subsection 1, of the Act on Insurance Business, contains capital base elements which are divided into three tiers.

Subsection 2. The classification of a capital base element by a Group 1 insurance undertaking depends on whether the element is a basic capital base element or a supplementary capital base element, and to what extent it is characterized by the following characteristics:

1. Availability: The element is available, or can be required to be paid in, to fully absorb losses both as security for the continued operation of the insurance undertaking and in the event of liquidation.

2. Ability to absorb losses: The total amount of the element can be used to absorb losses in the event of liquidation, and the owner's claim on the element is subordinated to all other non-subordinated claims, including insurance liabilities to policyholders and beneficiaries.

Section 5. In assessing to what extent a capital base element is characterized by the characteristics mentioned in Section 4, subsection 2, a Group 1 insurance undertaking must take into account the following factors:

1. The duration of the element, including whether it has a fixed maturity or not.

2. Whether the element is subject to requirements or incentives for redemption of the nominal amount.

3. Whether the element is subject to mandatory fixed fees.

4. Whether the element is subject to other burdens.

Subsection 2. If a capital base element has a fixed maturity, regard must be had to the duration of the element in relation to the duration of the company's insurance liabilities.

Chapter 4
Surplus Capital and Allocation Rule

Section 6. Special bonus reserves (type B) are considered surplus capital.

Section 7. The allocation rule, cf. Section 2, subsection 2, no. 2, letter a, must be notified to the Danish Financial Supervisory Authority before the rule can be applied.

Subsection 2. The allocation may last for a maximum of 10 years calculated from the time when the amount was originally irrevocably transferred from equity capital.

Chapter 5
Classification of Specific Capital Base Elements Letters of Credit and Guarantees

Section 8. Letters of credit and guarantees to Group 1 insurance undertakings are classified as supplementary capital base elements of tier 2, provided that the letter of credit or guarantee is issued and provided by credit institutions and managed by an independent company.

Future Claims

Section 9. Future claims that mutual insurance undertakings with variable contributions, which exclusively insure risks in insurance classes 6, 12, and 17, cf. Annex 1 to the Act on Insurance Business, can claim from their members in the form of collection of additional premium payments within the following 12 months, are classified as supplementary capital base elements of tier 2.

Subsection 2. Future claims that mutual insurance undertakings with variable contributions can claim from their members in the form of collection of additional premium payments within the following 12 months, and which are not covered by subsection 1, are classified as supplementary capital base elements of tier 2, provided that they are largely characterized by the characteristics mentioned in Section 4, subsection 2.

Chapter 6
Supplementary Capital Base Elements

Section 10. In addition to the rules in Articles 62-67 of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), subsections 3 and 4 apply to the Danish Financial Supervisory Authority's approval of a supplementary capital base element, cf. Section 153, subsection 1, second sentence, of the Act on Insurance Business.

Subsection 2. The amount determined for each supplementary capital base element must reflect the element's loss-absorbing capacity and be based on prudent and realistic assumptions. If a supplementary capital base element has a fixed nominal value, the amount for the relevant capital base element must correspond to its nominal value, provided that it appropriately reflects the element's loss-absorbing capacity.

Subsection 3. The Danish Financial Supervisory Authority approves one of the following:

1. An amount for each supplementary capital base element.

2. A method for calculating the size of each supplementary capital base element.

Subsection 4. If the Danish Financial Supervisory Authority approves a supplementary capital base element in accordance with subsection 3, no. 2, the approval is given for a limited period.

5 December 2024. 2 No. 1577.

Chapter 7
Solvency Capital Requirement and Minimum Capital Requirement

Section 11. The capital base that can be used to cover the solvency capital requirement calculated by the insurance undertaking, cf. Section 154, subsection 1, of the Act on Insurance Business, consists of the sum of tier 1, tier 2, and tier 3 capital base elements with the limitations that follow from Article 82, subsections 1 and 3, of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

Section 12. The basic capital base that can be used to cover the minimum capital requirement calculated by the company, cf. Section 155, subsection 1, of the Act on Insurance Business, consists of the sum of tier 1 and tier 2 capital base elements with the limitations that follow from Article 82, subsections 2 and 3, of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

Chapter 8
Groups of Undertakings

Section 13. Sections 2-12, 14, 16, and 17 apply mutatis mutandis to undertakings covered by Section 166, subsection 1 or 2, of the Act on Insurance Business when calculating the capital base for the group or group of undertakings.

Chapter 9
Penal Provisions

Section 14. Breach of Sections 5 and 7 is punishable by fine.

Subsection 2. Companies and other legal persons may be subject to criminal liability according to the rules in Chapter 5 of the Danish Criminal Code.

Chapter 10
Entry into Force and Transitional Provisions

Section 15. This Order enters into force on 1 January 2025.

Subsection 2. Order No. 620 of 1 June 2017 on the calculation of the capital base for Group 1 insurance undertakings and others is repealed.

Section 16. Capital elements issued before 18 January 2015 and which as of 31 December 2015 could be used to cover up to 50 percent of the largest value of the individual solvency need and capital requirement under the then applicable Act on Financial Business, shall for up to ten years after 1 January 2016 be classified as basic capital base of tier 1, unless these capital elements can be classified as tier 1 or tier 2 capital base elements.

Section 17. Capital elements issued before 18 January 2015 and which as of 31 December 2015 could be used to cover up to 25 percent of the largest value of the individual solvency need and capital requirement under the then applicable Act on Financial Business, shall for up to 10 years after 1 January 2016 be classified as basic capital base of tier 2.

Section 18. Section 7, subsection 2, does not apply to collective special bonus reserves which are built up from distributions from equity capital before 1 July 2011.

Danish Financial Supervisory Authority, 5 December 2024 Louise Mogensen / Line Bergmann 5 December 2024. 3 No. 1577.