Communication NBB_2016_36: Application Dossier for the Use of Internal Models

NBB_2016_36 – July 19, 2016 Communication – Page 1/4 boulevard de Berlaimont 14 – BE-1000 Brussels tel. +32 2 221 38 12 – fax + 32 2 221 31 04 company number: 0203.201.340 RPM Brussels www.bnb.be Communication Brussels, July 19, 2016 Reference: NBB_2016_36 your contact: Dieter Hendrickx / Jérôme Bourtembourg tel. +32 2 221 34 29 / 33 93 – fax +32 2 221 31 04 dieter.hendrickx@nbb.be / jerome.bourtembourg@nbb.be Communication concerning the application dossier for the use of internal models Scope of application Insurance or reinsurance undertakings under Belgian law. Insurance or reinsurance undertakings forming part of a group under Belgian law within the meaning of Article 339, 2° of the Law of March 13, 2016 on the status and supervision of insurance or reinsurance undertakings. Undertakings under Belgian law forming part of a financial conglomerate under Belgian law within the meaning of Article 340, 1° of the aforementioned Law of March 13, 2016. Branches of third-country undertakings carrying out insurance [or reinsurance] activity in Belgium. This communication is applicable to mutual insurance companies as defined in Article 15, 79° of the aforementioned Law of March 13, 2016. For these undertakings, "the Bank" should be replaced by "the Office for the Supervision of Mutualities and National Unions of Mutualities" as defined in Article 15, 84° of the same law. This communication is not applicable to insurance undertakings referred to in Articles 275, 276 or 294 of the aforementioned Law of March 13, 2016. Summary/Objectives This communication aims to inform insurance and reinsurance undertakings about the content of the application dossier for the use of an internal model. Legal References The Law: the Law of March 13, 2016 on the status and supervision of insurance or reinsurance undertakings. Regulation 2015/35: Commission Delegated Regulation (EU) 2015/35 of October 10, 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). Circular NBB_2016_27: circular on guidelines for the use of internal models within the Solvency II framework. Communication – Page 2/4 NBB_2016_36 – July 19, 2016 Implementing Regulation 2015/460: Commission Implementing Regulation (EU) 2015/460 of March 19, 2015 laying down implementing technical standards with regard to the procedure for the approval of an internal model, in accordance with Directive 2009/138/EC of the European Parliament and of the Council. Communication NBB_2016_35: Communication concerning the 'pre-application' procedure for the use of internal models Structure I. General Description II. Application Dossier III. Requirements, Process and Deadlines Madam, Sir, In accordance with Article 167, paragraph 1 of the Law, insurance or reinsurance undertakings may calculate their Solvency Capital Requirement (SCR) using a full or partial internal model approved by the Bank. This means that they must submit an application for approval to the Bank. Through this communication, the Bank wishes to inform insurance and reinsurance undertakings about the procedures for submitting this application for approval. I. General Description The application procedure is a formal process provided for cases covered by Article 167 of the Law, specifically when, a) the undertaking wishes to calculate its SCR for the first time using an internal model (1st application) or, b) the undertaking calculating its SCR using an internal model wishes to apply for major modifications to its internal model in accordance with the provisions of Article 169 of the Law (major model change) or, c) the undertaking calculating its SCR using an internal model wishes to introduce new elements into the internal model, such as additional risks or operational units not yet included in the scope of the internal model, as mentioned in Recital 3 of Implementing Regulation 2015/460. In accordance with Guideline 1 of Circular NBB_2016_27, in order to assess the progress of an insurance or reinsurance undertaking regarding its preparation for an application to use an internal model for the calculation of the SCR in accordance with the Law and its ability to meet the internal model requirements set out in the Law, undertakings are strongly encouraged to participate in a 'pre-application' procedure, the modalities of which are presented in Communication NBB_2016_35. II. Application Dossier The Bank has established the procedure to be followed by insurance and reinsurance undertakings wishing to participate in the application process. In accordance with the EIOPA Opinion on the use of a Common Application Package for Internal Models of March 27, 2014, the Bank uses the common application dossier as designed by EIOPA. Undertakings wishing to submit an application for approval for the use of an internal model for the calculation of their SCR in application of Article 167 of the Law are required to send the duly completed dossier to the Bank. NBB_2016_36 – July 19, 2016 Communication – Page 3/4 This dossier consists of: 1) a self-assessment form, by which the undertaking informs the Bank of the conformity of its dossier with the requirements for the use of an internal model and the extent to which it is able to demonstrate this conformity based on written documentation; 2) a documentation file, containing all the pieces and documents allowing to demonstrate the level of conformity with the aforementioned requirements. The common application dossier and the related information note are available on the Bank's website and are included as an annex to this communication. In the event of a major modification, the insurance undertaking may submit a reduced dossier, focusing on the documents affected by the changes as indicated in Article 7 of Implementing Regulation 2015/460. The same applies to the introduction of new elements into the internal model as mentioned in Guideline 6 of Circular NBB_2016_27. In the event that the application for approval for the use of an internal model for the calculation of the group SCR and possibly the SCR of part or all of the solo entities of that group is submitted in application of Articles 372 to 375 of the Law, the dossier must be transmitted exclusively to the group supervisory authority (group supervisor). In this case, the final decision will be based on the opinions of the relevant supervisors within the college of supervisors. III. Requirements, Process and Deadlines The application for approval must contain at least the documentation proving that the internal model satisfies the requirements set out in Articles 174 to 187 of the Law as mentioned in Article 167, paragraph 3 of the Law. Furthermore, the application for approval must comply with the requirements of Implementing Regulation 2015/460 and the guidelines set out in Circular NBB_2016_27. In the case of an application for approval for a major modification of the internal model, the documentation provided in accordance with Article 2 of Implementing Regulation 2015/460 must also include the following elements: • the objective and justification for the change, • the reason for classification as a major change, • the entities impacted within a group, • a precise impact study of the changes (as of the same date). The quantitative impact must be provided for all relevant aggregation levels, as well as for all affected indicators (SCR; Best estimate; Risk margin; Basic Own Funds); and this for all impacted entities as well as for the group, • the independent validation report concerning the change in question. The process and deadlines related to an application for approval for the use of an internal model must comply with Implementing Regulation 2015/460. Communication – Page 4/4 NBB_2016_36 – July 19, 2016 Prior consultation with the relevant supervisory authority on the deadlines and progress of work is highly recommended. Undertakings are advised to submit a schedule of envisaged future dossiers (including 'pre-application' dossiers), and more specifically, it is recommended that dossiers planned for a given year be announced by October 31 of the preceding year. A copy of this communication is addressed to the auditor(s), approved auditor(s), of your undertaking. Please accept, Madam, Sir, the expression of our distinguished sentiments. Jan Smets Governor Annexes: 2 (available on the bank's website)