Circular on insurance undertakings subject to a special regime due to their size

NBB_2017_11 – March 27, 2017 Circular – Page 1/21 Boulevard de Berlaimont 14 – BE-1000 Brussels tel. +32 2 221 38 12 – fax + 32 2 221 31 04 company number: 0203.201.340 RPR Brussels www.bnb.be Circular Brussels, March 27, 2017 Reference: NBB_2017_11 your contact:
Bertrand Leton tel. +32 2 221 23 65 – fax +32 2 221 31 04 bertrand.leton@nbb.be Circular on insurance undertakings subject to a special regime due to their size Scope This circular concerns:
a) insurance undertakings referred to in Article 272 of the Law of March 13, 2016 on the status and supervision of insurance or reinsurance undertakings (undertakings subject to a special regime due to their size) and which are not in the case referred to in Article 275 of the aforementioned Law of March 13, 2016; b) insurance undertakings referred to in Article 275 of the aforementioned Law of March 13, 2016 (undertakings subject to a special regime due to their size and which have concluded an agreement involving the full and systematic reinsurance of insurance contracts or the transfer of commitments). Summary/Objectives This circular clarifies the conditions required for a Belgian insurance undertaking to benefit either from the simplified supervision regime provided for by Articles 272 to 293, with the exception of Article 275 of the Law of March 13, 2016 on the status and supervision of insurance or reinsurance undertakings, or from the exemption from supervision provided for by Article 275 of the same law. Furthermore, this circular comments on the supervision regime applicable to these two categories of insurance undertakings. Legal Reference Law of March 13, 2016 on the status and supervision of insurance or reinsurance undertakings, Articles 272 to 293.

Circular – Page 2/21 NBB_2017_11 – March 27, 2017 Structure
I. Objectives
II. Definitions
III. Entry into force
IV. Supervision regime applicable to insurance undertakings subject to a special regime
due to their size
V. Supervision regime applicable to insurance undertakings that have concluded an
agreement involving the full and systematic reinsurance of insurance contracts or the transfer of commitments

NBB_2017_11 – March 27, 2017 Circular – Page 3/21 Madam, Sir,
I. Objectives
Article 4 of Directive 2009/138/EC of the European Parliament and of the Council of November 25, 2009 on
the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) excludes from its scope insurance or reinsurance undertakings whose activity does not exceed certain thresholds or does not include certain operations. It is therefore up to national legislators to provide for the supervision regime applicable to these undertakings. In Belgium, the Law of March 13, 2016 on the status and supervision of insurance or reinsurance undertakings implemented this possibility by providing for three simplified supervision regimes:
1. a simplified regime for non-life and life insurance undertakings that meet certain size
and activity limitation criteria,
2. an exemption regime for insurance undertakings which, in addition to the size and
activity limitation criteria, have concluded an agreement involving the full and systematic reinsurance of the insurance contracts they underwrite or the transfer of contractual commitments,
3. a simplified supervision regime for local insurance undertakings, i.e., those that limit
their activities to covering certain non-life risks located in the municipality of their registered office or in neighboring Belgian municipalities.
This circular concerns the first two categories of undertakings. Its objective, for each of them, is to comment on:
1. the principles underlying each of the applicable regimes,
2. the conditions for benefiting from the simplified supervision regime or the exemption,
3. the provisions relating to supervision,
4. the consequences of non-compliance with the conditions for benefiting from the
simplified regime or the exemption.
II. Definitions
A. LEGAL AND REGULATORY TEXTS

• The Directive: Directive 2009/138/EC of the European Parliament and of the Council of
  November 25, 2009 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II);
• The Law: the Law of March 13, 2016 on the status and supervision of insurance or
  reinsurance undertakings;
  In the absence of other clarifications in this circular, terms have the meaning defined in the legal and regulatory acts mentioned therein.
  III. Entry into force
  The legal provisions whose content is clarified by this circular have been applicable since March 23, 2016.

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IV. Supervision regime applicable to insurance undertakings subject to a
special regime due to their size
Section 1. Overview
Articles 272 to 293 of the Law, with the exception of Article 275, establish a simplified supervision regime due to the scope and nature of the activities of the undertakings concerned. This supervision regime is that determined by the Law but with adaptations intended to take into account the reduced volume and limited risk of their activities. The law determines:

1. the conditions relating to the scope and nature of the activity allowing insurance
   undertakings to benefit from the simplified regime,
2. the information relating to the application that undertakings must submit in order to
   benefit from the simplified regime,
3. the conditions relating to the maintenance of the simplified regime,
4. the particular provisions constituting the simplified regime.
   This section comments on each of these points and supplements them with regard to the reporting obligations of the undertakings concerned.
   Section 2. Undertakings concerned - Conditions
   This section concerns insurance undertakings referred to in Article 272 of the Law and which are not in the case of Article 275 of the Law, which are referred to in Chapter V of this circular. These undertakings meet the conditions set by the aforementioned Article 272 with regard to the scope and nature of their activities, which are listed and commented on below.
   2.1. PREMIUM INCOME
   The first condition is that the premium income, for all insurance activities, is limited to 5,000,000 EUR. This is gross premium income without deduction for the intervention of any reinsurers and securitization vehicles. This premium income consists of “commercial premiums issued, i.e., the premium necessary to cover the risk (pure premium) increased by loadings, expenses and brokerage commissions but excluding taxes and contributions”1.
   2.2. TECHNICAL PROVISIONS
   Technical provisions may not exceed 25 million EUR. This is a gross amount, i.e., it does not take into account the interventions of reinsurers or securitization vehicles. If the undertaking is
   part of a group within the meaning of Article 339, 2° of the Law, the calculation must be made
   at the group level.

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1 Explanatory Memorandum, Parl. Doc. Ch. Repr. Sess. 2014-2018, Doc. 54 1584/001, p. 203.

NBB_2017_11 – March 27, 2017 Circular – Page 5/21 In principle, the calculation of technical provisions for undertakings covered by this chapter is carried out in accordance with the provisions of the accounting decree (cf. point 4.5.2 below). However, given that the threshold relating to technical provisions is defined by Article 4 of the Solvency II Directive, this calculation must be made in accordance with the rules of the aforementioned directive, which have been transposed by Articles 124 et seq. of the Law. Undertakings covered by this chapter are requested to monitor the evolution of the amount of their technical provisions and to perform their calculation in accordance with Articles 124 et seq. of the Law when the 25 million EUR threshold is likely to be reached within the next three years. The result of this calculation will be transmitted to the Bank.
2.3. EXCLUDED RISKS
Undertakings covered by this chapter may not cover civil liability risks (branches 10 to 13 of
Annex I to the Law), credit risks (branch 14) and suretyship risks (branch 15) unless these
risks are accessory to a principal risk falling under another branch.
The notion of accessory risk is defined in Article 21, § 2 of the Law. These are risks that meet all of the following conditions:

1. be linked to the principal risk,
2. concern a person, property or object that is covered against the principal risk,
3. be guaranteed by the same contract as the principal risk or by a related contract that
   only exists and has effect insofar as the principal insurance contract itself exists and has effect.
   As an example, one can cite the liability of the owner of a building covered by the same contract as that relating to the fire of the building.
   2.4. PROHIBITION OF REINSURANCE
   Undertakings covered by this chapter may not carry out any reinsurance activity (accepted).
   Reference is made to the explanatory memorandum2 of the Law for a commentary on the reasons that motivated this

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4.4.2. Specialized Committees within the Legal Administrative Body (Arts. 48 to 53)
The establishment of specialized committees (audit committee, remuneration committee, and risk committee) is not mandatory. In the absence of one or more of these committees, their functions are assumed by the legal administrative body as a whole, with the exception of effective managers and other executive directors (Art. 279).
4.4.3. Independent Control Functions (Arts. 54 to 60)
Independent control functions (compliance verification, risk management, internal audit, and actuarial function) must be performed in accordance with Articles 54 to 60 of the Law.
However, it is not required that the holder of the risk management function be a member of the management committee, nor, if they are a member, that it be their sole function (Art. 279, para. 1).
4.4.4. Cumulation of Directors' Functions (Art. 83)
Restrictions on the cumulation of directors' functions are not applicable.
Nevertheless, members of the effective management or, where applicable, the management committee must demonstrate sufficient availability in the exercise of their functions and must not be in situations that generate conflicts of interest. To this end, the undertaking adopts internal rules and ensures their publication, for example on its website or in its annual report (Art. 281).
4.4.5. Risk Management (Arts. 84 to 90)
Only the general principles of Articles 84 and 85 apply, excluding the provisions of Articles 86 to 90 of the Law (Art. 282).
Undertakings benefiting from the simplified regime implement a risk management system, which covers at least the following areas:

• underwriting and provisioning,
• asset-liability management (ALM),
• investments, particularly in derivative instruments and similar commitments,
• liquidity and concentration risk management,
• reinsurance and other risk mitigation techniques.
  Risk management is subject to written policies covering the areas listed above.
  4.4.6. Own Risk and Solvency Assessment or ORSA (Art. 91)
  Undertakings benefiting from the simplified regime are exempt from the Own Risk and Solvency Assessment or ORSA (Art. 282). It goes without saying that the Bank nevertheless expects the undertakings concerned to demonstrate knowledge and control of the risks inherent in their activities as indicated in 4.4.5 above.

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4.5. TECHNICAL STANDARDS
4.5.1. Technical Provisions (Arts. 125 to 139)
Undertakings benefiting from the simplified regime are not exempt from calculating and accounting for technical provisions in accordance with Article 124 of the Law. However, the valuation rules for these provisions are those defined by the Royal Decree of 17 November 1994 relating to the annual accounts of insurance and reinsurance undertakings, instead of those determined by Articles 125 to 139 of the Law (Art. 288, para. 1).
4.5.2. Valuation Rules (Art. 123)
In principle, the valuation rules are those determined by Article 123 of the Law, namely market value valuation (Art. 288). However, this principle does not concern annual accounts, which are subject to their own rules, nor technical provisions as indicated in point 4.5.1 above. Furthermore, concerning representative values, the Bank may, by regulation, determine specific valuation rules.
4.5.3. Permanent Inventories (Arts. 194 and 195)
Provisions relating to permanent inventories are applicable. Where appropriate, assets included in these inventories are valued according to the rules determined by the Bank in application of the second paragraph of point 4.5.2 above. The Bank's circular relating to permanent inventories is applicable.
4.6. SOLVENCY AND FINANCIAL CONDITION REPORT (ARTS. 95 TO 101)
Undertakings benefiting from the simplified regime are exempt (Art. 283) from publishing information on their situation (Solvency and Financial Condition Report or SFCR). This does not prevent them from voluntarily publishing some of the information provided for in Articles 95 to 101, as stipulated in Article 98 of the Law.
Article 283 of the Law does not constitute an exemption concerning publications related to annual accounts.
4.7. RECOVERY PLAN, RESTORATION PROGRAM, AND SHORT-TERM FINANCING PLAN (ARTS. 204 TO 211 AND 510 TO 512)
4.7.1. Recovery Plan
The Bank cannot impose a recovery plan (ex ante) referred to in Articles 204 to 211 on an undertaking benefiting from the simplified regime (Art. 289).
4.7.2. Restoration Program
The provisions of Articles 510 and 512 relating to the restoration program are applicable, but the reference to Article 151 should be replaced by a reference to Article 285 (Art. 292). In other words, a restoration program must be submitted to the Bank when the undertaking's SCR is no longer, or risks no longer being within the next three months, in conformity with the provisions of Article 285 of the Law.

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4.7.3. Short-Term Financing Plan
The provisions of Articles 511 and 512 relating to the short-term financing plan are applicable, but the reference to Article 189 should be replaced by a reference to Article 286 (Art. 292). In other words, a short-term financing plan must be submitted to the Bank when the undertaking's MCR is no longer, or risks no longer being within the next three months, in conformity with the provisions of Article 286 of the Law. It should be recalled here that the MCR is equal to 60% of the SCR (cf. Art. 286 of the Law), including in cases where the SCR requirement is equal to the absolute amount determined under Article 285, § 1, paragraph 2. It follows that a recovery plan will only be required if eligible own funds do not represent 60% of the SCR.
4.8. REPORTING OBLIGATIONS (ARTS. 312 TO 317)
4.8.1. Principles
Article 312 of the Law is applicable. Consequently, the Bank is authorized to request from the undertakings concerned by this section the information necessary for the exercise of supervision.
However, the requirements of Articles 313 to 317 of the Law are not applicable (Art. 290).
Regarding reporting, the following general principles apply:

1. Reporting is annual or follows a frequency of less than one year (e.g., every two years, every three years, or when a specific event occurs) (Art. 290, 1°);
2. The Bank may limit the regular communication of information required for supervisory purposes (Art. 290, 2°);
3. The Bank may exempt an undertaking from the obligation to communicate information contained in the reporting provided that the undertaking is able to provide this information to the Bank upon request (Art. 290, 3°).
   Point 1 is a general rule applicable to all undertakings covered by this chapter. Points 2 and 3 are derogations granted individually, for example when the data that should be collected are not very significant with regard to the undertaking's solvency. These derogations are granted only upon request from the undertaking.
   4.8.2. Quantitative Reports
   Given that the simplified supervisory regime is quite similar to the regime that existed before the entry into force of the Law, the undertakings concerned will continue to communicate to the Bank the quantitative reports that were in use for all insurance undertakings before the entry into force of the Law. Some modifications are, however, introduced within the framework of the simplified supervisory regime. It also goes without saying that, depending on the undertaking's situation, certain reports are irrelevant, particularly in cases where the undertaking has no activity corresponding to the subject of that report. The table below lists the quantitative reports to be communicated to the Bank by undertakings benefiting from the simplified supervisory regime.

NBB_2017_11 – 27 March 2017 Circulaire – Page 13/21 Type of Report;To be communicated Annual Accounts and Solvency; Annual Accounts;Yes Social Balance Sheet;Yes Statement on Solvency Margin;Yes, but according to the form in Annex 5 Representative Values;Yes Adjusted Solvency Margin (D.208);No Adjusted Solvency Margin;No Financial Statements and Solvency Margin (D.231);No Non-Life Statistics; Equalization Provisions;Yes Non-Life Statistics in Belgium;Yes Non-Life Statistics Abroad;No Reinsurance Statistics;No Life Statistics; Life Statistics in Belgium;Yes, but only collections A, B, E and F Life Statistics Abroad;No Other; Eurostat Statistics;Yes Liquidity Risk;No
4.8.3. Descriptive Reports
From a governance perspective, the simplified supervisory regime is comparable to the common regime but with simplifications and exceptions. The reports to be submitted to the Bank will therefore, in principle, be those provided for in the annex to circular NBB_2016_40, subject to the adaptations listed in the table below. Type of Report;To be communicated General Reports; Regular supervisory report (RSR);No Solvency and Financial Condition Report (SFCR);No ORSA / FLAOR Report;No Reports concerning the governance system; Governance Memorandum;Yes Activity Report of the Risk Management Function (Annex 1 to the memorandum);Yes Activity Report of the Actuarial Function (Annex 2 to the memorandum);Yes Activity Report of the Internal Audit Function (Annex 3 to the memorandum);Yes Internal Audit Function Planning for the Following Year (Annex 4 to the memorandum);Yes Activity Report of the Compliance Function (Annex 5 to the memorandum);Yes

Circulaire – Page 14/21 NBB_2017_11 – 27 March 2017 Report of the Anti-Money Laundering Officer (Annex 6 to the memorandum);Yes Compliance Function Monitoring Plan for the Following Year (Annex 7 to the memorandum);Yes
Table containing numerical information concerning the remuneration of members of the board of directors and the management committee (Annex 8 to the memorandum);No
List of important or critical outsourced activities, functions, operational tasks (Annex 9 to the memorandum);Yes List of loans, credits or guarantees to members of the board of directors and the management committee exceeding EUR 100,000 (Annex 10 to the memorandum);Yes, the management committee may be replaced by the effective management Updated version of the articles of association (Annex 11 to the memorandum);Yes Updated list of members of the board of directors, the management committee, specialized committees, and heads of independent control functions (Annex 12 to the memorandum);Yes, the management committee may be replaced by the effective management and members of specialized committees are not mandatory Management Committee Report on the Effectiveness of the Governance System;Yes Change in the status and composition of capital – Annual declaration;Yes Change in the status and composition of capital – Occasional declaration;Yes Miscellaneous; Legal Entity Identifier (LEI);Yes Annual report of the board of directors to the general assembly;Yes Minutes of the general assembly;Yes Half-yearly declaration of the management committee concerning periodic prudential reporting (Art. 80, § 5 and 202 of the Law);No Annual declaration of the management committee concerning periodic prudential reporting (Art. 80, § 5 and 202 of the Law);Yes Motivation letter for the use of the volatility adjustment (VA);No For undertakings with insurance subsidiaries but not responsible for an insurance group, the consolidated accounts of the undertaking and its insurance subsidiaries that are participating undertakings;No

NBB_2017_11 – 27 March 2017 Circulaire – Page 15/21 Life Profit Participation Plan;Yes Additional Life Data;No Data concerning the interest rate risk provision;Yes Ad hoc reports pending introduction in OneGate; Interest Rate Risk Report;No For undertakings using an internal model: Minor model change reporting;No For undertakings using an internal model: standard scheme relating to the calculation of the SCR and information transmitted within the college on this subject;No The reports provided for in Section II of circular NBB_2016_40, namely the reports expected from the entity responsible for a Belgian insurance or reinsurance group, do not need to be transmitted.
Section 5. Non-compliance with the conditions relating to the simplified supervisory regime
5.1. CONSEQUENCE OF NON-COMPLIANCE
An insurance undertaking that no longer complies with the conditions allowing it to retain the benefit of the simplified regime does not ipso facto lose its authorizations but is subject to all the provisions of the Law.
5.2. REMEDIATION PERIOD
When an undertaking no longer complies with the aforementioned conditions or risks no longer complying with them within the next twelve months, it is in an irregular situation as referred to in Article 508 of the Law. In application of this provision, the Bank sets a period for the undertaking to remedy this deficiency. The period will be proportionate to the nature and seriousness of the observed deficiency. The Bank will also take into account the risk that an insurance undertaking losing the benefit of the simplified supervisory regime may, as a result, be unable to satisfy the provisions of the Law that would become applicable to it (e.g., the SCR requirements of Articles 151 to 188). The insurance undertaking must therefore consider measures to either comply again with the conditions relating to simplified supervision or comply with all the provisions of the Law without taking into account the provisions relating to the simplified supervisory regime.

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5.3. EXCEPTIONAL MEASURES AND SANCTIONS
If the undertaking has not remedied the situation within the set period, the Bank may take one or more of the measures provided for in Article 517, § 1, 1° to 7° of the Law (appoint a special commissioner, order the replacement of all or part of the members of the legal administrative body and/or persons responsible for effective management, appoint a provisional administrator or manager, order the convening of a general assembly, temporarily suspend the exercise of all or part of the activity, order the transfer of shareholder rights, restrict or prohibit the free disposal of assets, order the transfer of all or part of the activity to another undertaking). In addition, the penalty payments and other coercive measures of Book IV (Articles 602 and 603) and the sanctions of Book V (Articles 604 to 609 of the Law) are applicable. _____

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Chapter V – Insurance Undertakings that have Concluded an Agreement Involving the Full and Systematic Reinsurance of Insurance Contracts or the Assignment of Commitments
Section 1. Overview
Article 275 of the Law provides for a supervisory exemption for undertakings that do not exceed the thresholds set in Article 272 of the Law and that have concluded an agreement involving the full and systematic reinsurance of their insurance contracts or the assignment of their commitments. The Bank's supervision is limited to verifying compliance with the conditions for this exemption.
The law determines:

1. the conditions relating to the scope and nature of the activity allowing insurance undertakings to benefit from the simplified regime,
2. the information relating to the application that undertakings must submit in order to benefit from the supervisory exemption,
3. the conditions relating to the maintenance of the exemption.
   This section comments on each of these points and supplements them with regard to the reporting obligations of the undertakings concerned.
   Section 2. Undertakings Concerned - Conditions
   2.1. CONDITIONS RELATING TO PREMIUM INCOME, TECHNICAL PROVISIONS, AND COVERED RISKS
   Undertakings wishing to obtain the supervisory exemption must meet the same conditions as those provided for undertakings wishing to benefit from the simplified supervisory regime covered in Chapter IV. These conditions concern:
   a) the ceiling relating to premium income b) the ceiling relating to technical provisions c) the prohibition on covering certain insurance risks d) the prohibition on covering any reinsurance risk e) the prohibition on carrying out any cross-border activity. Reference should be made to Section 2 of Chapter IV for a commentary on these conditions.
   2.2. LIMITATION TO NON-LIFE INSURANCE
   Unlike the conditions set for undertakings benefiting from the simplified supervisory regime, the exemption can only be granted to non-life insurance undertakings (Art. 275, § 1, para. 1).
   2.3. REINSURANCE OR ASSIGNMENT OF COMMITMENTS
   The exemption is subject to the condition that the undertakings concerned have concluded an “agreement involving the full and systematic reinsurance of the insurance contracts they underwrite or the assignment of contractual commitments implying the substitution of the assignee undertaking for the assignor undertaking for the performance of the commitments resulting from said contracts” (Art. 275, § 1, para. 1 of the Law).

Circulaire – Page 18/21 NBB_2017_11 – 27 March 2017 The reinsurance or assignment of commitments agreement must have the following characteristics:
2.3.1. Full Assignment
The insurance undertaking must assign, through a reinsurance or assignment agreement, all of its insurance contracts and commitments. No contract or commitment may be excluded, either totally or partially. The assignment may not include any deductible, threshold, or cap. In other words, the insurance undertaking must ensure that it does not cover with its own funds any risk that the reinsurer or assignee could not or would not wish to cover.
2.3.2. Systematic Assignment
As soon as the reinsurance or assignment agreement takes effect, all risks of the insurance undertaking, without exception, must be assigned. Neither the assignor nor the assignee may refuse the assignment of certain risks or commitments. The insurance undertaking will also ensure that in the event of renewal of the agreement or a change of assignee, there is no discontinuity in the principle of assignment.
2.3.3. Assignee Undertaking
The assignee undertaking must be an insurance undertaking (assignment agreement) or reinsurance undertaking (reinsurance agreement) “authorized in application of Title II of [Book II] or authorized in application of Title I of Book III” of the Law. This refers, in the first case, to Belgian insurance or reinsurance undertakings authorized by the Bank and, in the second case, to insurance or reinsurance undertakings governed by the law of a Member State other than Belgium, authorized by the supervisory authorities of the Member State of origin. The authorization must cover the risks that the Belgian insurance undertaking intends to assign. Furthermore, insurance undertakings governed by the law of a Member State other than Belgium must have previously notified the Bank of their intention to carry out activities in Belgium via a branch or through the free provision of services in accordance with Articles 550 to 561 of the Law. The assignee insurance or reinsurance undertaking cannot be governed by the law of a third country.
2.3.4. Agreement
The reinsurance or assignment agreement must expressly state that the assignee undertaking has the obligation to notify the Bank, at least three months before the due date, of its termination or non-renewal (Art. 275, § 1, para. 2). The assignee undertaking will also notify the Bank of any modification to the reinsurance or assignment agreement that would result in the assignor undertaking losing the benefit of the exemption (Art. 275, § 1, para. 2). This primarily refers to a modification that would remove the full and systematic nature of the assignment as explained in 2.3.1 and 2.3.2 above.

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Section 3. Registration

3.1. PRINCIPLE
The exemption from supervision is not granted automatically to insurance companies that meet the conditions set out in Section 2. Companies wishing to benefit from this exemption must be previously registered with the Bank and must make an explicit request. The reason for this is that these companies, despite meeting the aforementioned conditions, might decide to develop activities prohibited for companies covered by Article 272 of the Law (e.g., liability risks, reinsurance, or activities outside Belgium).

3.2. CONDITIONS
The application may be submitted at any time. Until the Bank has taken a positive decision, the applicant company remains subject to the entirety of the provisions of the Law without any exception derived from Articles 272 to 293. Companies that can benefit from the regime provided for in Articles 294 to 303 and Article 646, § 3, remain subject to this regime.

The application will not receive a favorable response if:

1. one of the conditions described in Section 2 is not met (Articles 274 and 275 of the Law),
2. one of the thresholds set out in Section 2 was exceeded during the three years preceding the application (Article 274 of the Law),
3. one of these thresholds is likely, according to forecasts, to be exceeded during the five years following the application (Article 273, second paragraph, of the Law).

The Law does not specify a time limit within which the Bank must take its decision. When the application is submitted simultaneously with an authorization application under Articles 17 and following of the Law (case of a new company), the Bank will rule within the six-month period provided for in Article 28, second paragraph. In the case of an already authorized company, the Bank will ensure that it takes its decision within a period of three months.

3.3. FORM AND CONTENT OF THE APPLICATION
The application must be addressed in writing to the Bank. It must be signed by a person who can validly commit the company. It is good practice that the decision to benefit from the simplified regime has been previously taken by the management committee or the effective management of the company under the control of the legal administrative body.

If the company exercised an insurance activity before the application, it will transmit to the Bank the numerical data from the last three financial years to verify compliance with the first two conditions set out in point 3.2 above. When this data is clearly identifiable in the company's supervisory reporting, the company may limit itself to referring to this reporting.

For the purpose of verifying compliance with the third condition, the company will also transmit an estimate of the numerical data for the next five financial years. The observation made in point 2.2 of Chapter IV regarding the estimation of technical provisions will be recalled here. In principle, this assessment must be made using Solvency II valuation rules. However, in cases where it is highly probable that the amount calculated in this way will be significantly lower than the threshold of Article 272, 2°, the company may perform this calculation according to the accounting decree rules.

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The company will attach the reinsurance or cession agreement(s), which must meet the conditions listed in point 2.3 of Section 2. It must ensure that the identity of the ceding company(ies) is clearly stated and provide the contact details of a person within that company.

Section 4. Supervision

4.1. VERIFICATION OF COMPLIANCE WITH THE EXEMPTION
The main supervision exercised by the Bank on insurance companies benefiting from the exemption under Article 275 of the Law concerns compliance with the conditions allowing the company to retain the benefit of the exemption.

The Law does not organize systematic reporting regarding the conditions for maintaining the exemption. Nevertheless, companies benefiting from this exemption are obligated to provide the Bank with "all necessary information to verify compliance with the registration conditions" (Article 275, § 3, first paragraph). In particular, they must proactively and without delay communicate "any element likely to lead to non-compliance with the registration conditions" (Article 275, § 3, third paragraph).

The elements referred to above may include, among others, non-compliance with the maxima referred to in Article 272 of the Law, the development of unauthorized life insurance or non-life insurance activities, the non-renewal of the reinsurance or cession agreement, or a modification of this agreement such that it no longer meets the conditions set out in point 2.3 of Section 2.

The Bank is authorized to request any information on an individual basis, enabling it to verify the conditions of registration (Article 275, § 3, first paragraph) and to conduct inspections at the headquarters of the concerned companies (Article 275, § 3, fourth paragraph).

4.2. MERGER AND PORTFOLIO TRANSFER
The merger or transfer of a portfolio of a company covered by this section is subject to the prior authorization of the Bank, with Articles 102 (except Article 1, 1°), 105, and 106 being applicable (Article 275, § 5).

Section 5. Non-compliance with the conditions of the exemption

5.1. CONSEQUENCE OF NON-COMPLIANCE
Non-compliance with the conditions relating to the exemption causes the concerned company to lose the benefit of the registration. The company, not benefiting from authorization, is therefore in a completely irregular situation of offering or exercising an insurance activity without possessing the required authorization for this purpose.

5.2. REGULARIZATION PERIOD
In cases where a company no longer meets the conditions of the exemption or risks not meeting them within the next twelve months, the Bank sets a deadline for the company to remedy this situation (Article 275, § 4, first paragraph). The deadline will be proportional to the nature and severity of the observed breach.

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Given the lack of authorization, the insurance company should, within the aforementioned deadline, either consider measures allowing it to again meet the conditions relating to the exemption, or submit an application for authorization in accordance with Articles 17 and following of the Law.

5.3. EXCEPTIONAL MEASURES AND SANCTIONS
If the insurance company has not remedied the situation within the set deadline, the Bank may take one or more of the measures provided for in Article 517, § 1, 1° to 7° of the Law (appoint a special commissioner, order the replacement of all or part of the members of the legal administrative body and/or persons in charge of effective management, appoint a provisional administrator or manager, order the convening of a general meeting, temporarily suspend the exercise of all or part of the activity, order the transfer of shareholder rights, restrict or prohibit the free disposal of assets, order the transfer of all or part of the activity to another company).

Furthermore, the coercive sanctions and other coercive measures of Book IV (Articles 602 and 603) and the sanctions of Book V (Articles 604 to 609 of the Law) are applicable.

A copy of this circular is transmitted to the authorized commissioner(s) of your company.

Sincere regards,

Jan Smets
Governor

Annexes: 5