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►B 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)

(Text with EEA relevance)

(OJ L 12, 17.1.2015, p. 1)

Amended by:

Corrected by:

• ►C1 Corrigendum, OJ L 307, 25.11.2015, p. 31 (2015/35)
• ►C2 Corrigendum, OJ L 264, 13.10.2017, p. 24 (2017/1542)
• ►C3 Corrigendum, OJ L 168, 25.6.2019, p. 16 (2019/981)
• ►C4 Corrigendum, OJ L 2, 6.1.2022, p. 8 (2015/35)

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)

(Text with EEA relevance)

TABLE OF CONTENTS

TITLE I ►C1 VALUATION AND RISK-BASED CAPITAL REQUIREMENTS (PILLAR I), ENHANCED GOVERNANCE (PILLAR II) AND INCREASED TRANS-PARENCY (PILLAR III) ◄

CHAPTER I General provisions

SECTION 1 Definitions and general principles

SECTION 2 External credit assessments

CHAPTER II Valuation of assets and liabilities

CHAPTER III Rules relating to technical provisions

SECTION 1 General provisions

SECTION 2 Data quality

SECTION 3 Methodologies to calculate technical provisions

SUBSECTION 1 Assumptions underlying the calculation of technical provisions

SUBSECTION 2 Information underlying the calculation of best estimates

SUBSECTION 3 Cash flow projections for the calculation of the best estimate

SUBSECTION 4 Risk margin

SUBSECTION 5 Calculation of technical provisions as a whole

SUBSECTION 6 Recoverables from reinsurance contracts and special purpose vehicles

SECTION 4 Relevant risk-free interest rate term structure

SUBSECTION 1 General provisions

SUBSECTION 2 Basic risk free interest rate term structure

SUBSECTION 3 Volatility adjustment

SUBSECTION 4 Matching adjustment

SECTION 5 Lines of business

SECTION 6 Proportionality and simplifications

CHAPTER IV Own funds

SECTION 1 Determination of own funds

SUBSECTION 1 Supervisory approval of ancillary own funds

SUBSECTION 2 Own funds treatment of participations

SECTION 2 Classification of own funds

SECTION 3 Eligibility of own funds

SUBSECTION 1 Ring-fenced funds

SUBSECTION 2 Quantitative limits

CHAPTER V Solvency capital requirement standard formula

SECTION 1 General provisions

SUBSECTION 1 Scenario based calculations

SUBSECTION 2 Look-through approach

SUBSECTION 3 Regional governments and local authorities

SUBSECTION 4 Material basis risk

SUBSECTION 5 Calculation of the basic solvency capital requirement

SUBSECTION 6 Proportionality and simplifications

SUBSECTION 7 Scope of the underwriting risk modules

SECTION 2 Non-life underwriting risk module

SECTION 3 Life underwriting risk module

SECTION 4 Health underwriting risk module

SECTION 5 Market risk module

SUBSECTION 1 Correlation coefficients

SUBSECTION 1a Qualifying infrastructure investments

SUBSECTION 2 Interest rate risk sub-module

SUBSECTION 3 Equity risk sub-module

SUBSECTION 4 Property risk sub-module

SUBSECTION 5 Spread risk sub-module

SUBSECTION 6 Market risk concentrations sub-module

SUBSECTION 7 Currency risk sub-module

SECTION 6 Counterparty default risk module

SUBSECTION 1 General provisions

SUBSECTION 2 Type 1 exposures

SUBSECTION 3 Type 2 exposures

SECTION 7 Intangible asset module

SECTION 8 Operational risk

SECTION 9 Adjustment for the loss-absorbing capacity of technical provisions and deferred taxes

SECTION 10 Risk mitigation techniques

SECTION 11 Ring fenced funds

SECTION 12 Undertaking-specific parameters

SECTION 13 Procedure for updating correlation parameters

CHAPTER VI Solvency capital requirement — full and partial internal models

SECTION 1 Definitions

SECTION 2 Use test

SECTION 3 Statistical quality standards

SECTION 4 Calibration standards

SECTION 5 Integration of partial internal models

SECTION 6 Profit and loss attribution

SECTION 7 Validation standards

SECTION 8 Documentation standards

SECTION 9 External models and data

CHAPTER VII Minimum capital requirement

CHAPTER VIII Investments in securitisation positions

CHAPTER IX System of governance

SECTION 1 Elements of the system of governance

SECTION 2 Functions

SECTION 3 Fit and proper requirements

SECTION 4 Outsourcing

SECTION 5 ►C1 Remuneration ◄ policy

SECTION 6 Investments

CHAPTER X Capital add-on

SECTION 1 Circumstances for imposing a capital add-on

SECTION 2 Methodologies for calculating capital add-ons

CHAPTER XI Extension of the recovery period

CHAPTER XII Public disclosure

SECTION 1 Solvency and financial condition report: structure and contents

SECTION 2 Solvency and financial condition report: non-disclosure of information

SECTION 3 Solvency and financial condition report: deadlines, means of disclosure and updates

CHAPTER XIII Regular supervisory reporting

SECTION 1 Elements and contents

SECTION 2 Deadlines and means of communication

CHAPTER XIV Transparency and accountability of supervisory authorities

CHAPTER XV Special purpose vehicles

SECTION 1 Authorization

SECTION 2 Mandatory contract conditions

SECTION 3 System of governance

SECTION 4 Supervisory reporting

SECTION 5 Solvency requirements

TITLE II INSURANCE GROUPS

CHAPTER I Solvency calculation at group level

SECTION 1 Group solvency: choice of calculation method and general principles

SECTION 2 Group solvency: calculation methods

CHAPTER II Internal models for the calculation of the consolidated group solvency capital requirement

SECTION 1 Full and partial internal models used to calculate only the group solvency capital requirement

SECTION 2 Use of a group internal model

CHAPTER III Supervision of group solvency for groups with centralised risk management

CHAPTER IV Coordination of group supervision

SECTION 1 Colleges of supervisors

SECTION 2 Exchange of information

SECTION 3 National or regional subgroup supervision

CHAPTER V Public disclosure

SECTION 1 Group solvency and financial condition report

SECTION 2 Single solvency and financial condition report

CHAPTER VI Group supervisory reporting

SECTION 1 Regular reporting

SECTION 2 Reporting on risk concentrations and intragroup transactions

TITLE III THIRD COUNTRY EEQUIVALENCE AND FINAL PROVISIONS

CHAPTER I Undertakings carrying out reinsurance activities with their head office in a third country

CHAPTER II Related third country insurance and reinsurance undertakings

CHAPTER III Insurance and reinsurance undertakings with the parent undertakings outside the union

CHAPTER IV Final provisions

TITLE I

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VALUATION AND RISK-BASED CAPITAL REQUIREMENTS (PILLAR I), ENHANCED GOVERNANCE (PILLAR II) AND INCREASED TRANSPARENCY (PILLAR III)

▼B

CHAPTER I

GENERAL PROVISIONS

SECTION 1

Definitions and general principles

Article 1

Definitions

For the purposes of this Regulation, the following definitions shall apply:

• 1. alternative valuation methods’ means valuation methods that are consistent with Article 75 of Directive 2009/138/EC, other than those which solely use the quoted market prices for the same or similar assets or liabilities;
• 2. ‘scenario analysis’ means the analysis of the impact of a combination of adverse events;
• 3. ‘health insurance obligation’ means an insurance obligation that covers one or both of the following:
  • (i) the provision of medical treatment or care including preventive or curative medical treatment or care due to illness, accident, disability or infirmity, or financial compensation for such treatment or care,
  • (ii) financial compensation arising from illness, accident, disability or infirmity;
• 4. ‘medical expense insurance obligation’ means an insurance obligation that covers the provision or financial compensation referred to in point (3)(i);
• 5. ‘income protection insurance obligation’ means an insurance obligation that covers the financial compensation referred to in point (3)(ii) other than the financial compensation referred to in point (3)(i);
• 6. ‘workers compensation insurance obligation’ means an insurance obligation that covers the provision or financial compensation referred to in points (3)(i) and (ii) and which arises only from to accidents at work, industrial injury and occupational disease;
• 7. ‘health reinsurance obligation’ means a reinsurance obligation which arises from accepted reinsurance covering health insurance obligations;
• 8. ‘medical expense reinsurance obligation’ means a reinsurance obligation which arises from accepted reinsurance covering medical expense insurance obligations;
• 9. ‘income protection reinsurance obligation’ means a reinsurance obligation which arises from accepted reinsurance covering income protection insurance obligations;
• 10. ‘workers’ compensation reinsurance obligation’ means a reinsurance obligation which arises from accepted reinsurance covering workers’ compensation insurance obligations;
• 11. ‘written premiums’ means the premiums due to an insurance or reinsurance undertaking during a specified time period regardless of whether such premiums relate in whole or in part to insurance or reinsurance cover provided in a different time period;
• 12. ’earned premiums’ means the premiums relating to the risk covered by the insurance or reinsurance undertaking during a specified time period;
• 13. ‘surrender’ means all possible ways to fully or partly terminate a policy, including the following:
  • (i) voluntary termination of the policy with or without the payment of a surrender value;
  • (ii) change of insurance or reinsurance undertaking by the policy holder;
  • (iii) termination of the policy resulting from the policy holder’s refusal to pay the premium;
• 14. ‘discontinuance’ of an insurance policy means surrender, lapse without value, making a contract paid-up, automatic non-forfeiture provisions or exercising other discontinuity options or not exercising continuity options;
• 15. ‘discontinuity options’ mean all legal or contractual policyholder rights which allow that policyholder to fully or partly terminate, surrender, decrease, restrict or suspend insurance cover or permit the insurance policy to lapse;
• 16. ‘continuity options’ mean all legal or contractual policyholder rights which allow that policyholder to fully or partly establish, renew, increase, extend or resume insurance or reinsurance cover;
• 17. ‘coverage of an internal model’ means the risks that are reflected in the probability distribution forecast underlying the internal model;
• 18. ‘scope of an internal model’ means the risks that the internal model is approved to cover; the scope of an internal model may include both risks which are and which are not reflected in the standard formula for the Solvency Capital Requirement;

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18a. ‘securitisation’ means a transaction or scheme as defined in Article 2(1) of Regulation (EU) 2017/2402 (1);

⁽¹⁾ Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35).

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• 18b. ‘STS securitisation’ means a securitisation designated ‘simple, transparent and standardised’ or ‘STS’ in accordance with the requirements set out in Article 18 of Regulation (EU) 2017/2402;
• 19. ‘securitisation position’ means a securitisation position within the meaning of Article 2(19) of Regulation (EU) 2017/2402;
• 19a. ‘senior securitisation position’ means a senior securitisation position within the meaning of Article 242(6) of Regulation (EU) No 575/2013 (1);
• 20. ’re-securitisation position’ means an exposure to a re-securitisation within the meaning of Article 2(4) of Regulation (EU) 2017/2402;
• 21. ‘originator’ means an originator within the meaning of Article 2(3) of Regulation (EU) 2017/2402;
• 22. ‘sponsor’ means a sponsor within the meaning of Article 2(5) of Regulation (EU) 2017/2402;
• 23. ’tranche’ means tranche within the meaning of Article 2(6) of Regulation (EU) 2017/2402;

▼B

• 24. ‘central bank’ means central bank within the meaning ofArticle 4(1)(46) of Regulation (EU) No 575/2013.
• 25. ‘basis risk’ means the risk resulting from the situation in which the exposure covered by the risk-mitigation technique does not correspond to the risk exposure of the insurance or reinsurance undertaking;
• 26. ‘collateral arrangements’ means arrangements under which collateral providers do one of the following:
  • (a) transfer full ownership of the collateral to the collateral taker for the purposes of securing or otherwise covering the performance of a relevant obligation;
  • (b) provide collateral by way of security in favour of, or to, a collateral taker, and the legal ownership of the collateral remains with the collateral provider or a custodian when the security right is established;
• 27. in relation to a set of items, ‘all possible combinations of two’ such items means all ordered pairs of items from that set;
• 28. ‘pooling arrangement’ means an arrangement whereby several insurance or reinsurance undertakings agree to share identified insurance risks in defined proportions. The parties insured by the members of the pooling arrangement are not themselves members of the pooling arrangement.
• 29. ‘pool exposure of type A’ means the risk ceded by an insurance or reinsurance undertaking to a pooling arrangement where the insurance or reinsurance undertaking is not a party to that pooling arrangement.

⁽¹⁾ Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).

• 30. ‘pool exposure of type B’ means the risk ceded by an insurance or reinsurance undertaking to another member of a pooling arrangement, where the insurance or reinsurance undertaking is a party to that pooling arrangement;
• 31. ‘pool exposure of type C’ means the risk ceded by an insurance or reinsurance undertaking which is a party to a pooling arrangement to another insurance or reinsurance undertaking which is not a member of that pooling arrangement.
• 32. ‘deep market’ means a market where transactions involving a large quantity of financial instruments can take place without significantly affecting the price of the instruments.
• 33. ’liquid market’ means a market where financial instruments can readily be converted through an act of buying or selling without causing a significant movement in the price.
• 34. ’transparent market’ means a market where current trade and price information is readily available to the public, in particular to the insurance or reinsurance undertakings.
• 35. ‘future discretionary bonuses’ and ‘future discretionary benefits’ mean future benefits other than index-linked or unit-linked benefits of insurance or reinsurance contracts which have one of the following characteristics:
  • (a) they are legally or contractually based on one or more of the following results:
    • (i) the performance of a specified group of contracts or a specified type of contract or a single contract;
    • (ii) the realised or unrealised investment return on a specified pool of assets held by the insurance or reinsurance undertaking;
    • (iii) the profit or loss of the insurance or reinsurance undertaking or fund corresponding to the contract;
  • (b) they are based on a declaration of the insurance or reinsurance undertaking and the timing or the amount of the benefits is at its full or partial discretion;
• 36. ‘basic risk-free interest rate term structure’ means a risk-free interest rate term structure which is derived in the same way as the relevant risk-free interest rate term structure to be used to calculate the best estimate referred to in Article 77(2) of Directive 2009/138/EC but without application of a matching adjustment or a volatility adjustment or a transitional adjustment to the relevant risk-free rate structure in accordance with Article 308c of that Directive;
• 37. ‘matching adjustment portfolio’ means a portfolio of insurance or reinsurance obligations to which the matching adjustment is applied and the assigned portfolio of assets as referred to in Article 77b(1)(a) of Directive 2009/138/EC.
• 38. ‘SLT Health obligations’ means health insurance obligations that are assigned to the lines of business for life insurance obligations in accordance with Article 55(1).
• 39. ‘NSLT Health obligations’ means health insurance obligations that are assigned to the lines of business for non-life insurance obligations in accordance with Article 55(1).
• 40. ‘Collective investment undertaking’ means an undertaking for collective investment in transferable securities (UCITS) as defined in Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council (1) or an alternative investment fund (AIF) as defined in Article 4(1)(a) of Directive 2011/61/EU of the European Parliament and of the Council (2);
• 41. in relation to an insurance or reinsurance undertaking, ‘major business unit’ means a defined segment of the insurance and reinsurance undertaking that operates independently from other parts of the undertaking and has dedicated governance resources and procedures within the undertaking and which contains risks that are material in relation to the entire business of the undertaking;
• 42. in relation to an insurance or reinsurance group, ‘major business unit’ means a defined segment of the group that operates independently from other parts of the group and has dedicated governance resources and procedures within the group and which contains risks that are material in relation to the entire business of the group; any legal entity belonging to the group is a major business unit or consists of several major business units;
• 43. ‘administrative, management or supervisory body’ shall mean, where a two-tier board system comprising of a management body and a supervisory body is provided for under national law, the management body or the supervisory body or both of those bodies as specified in the relevant national legislation or, where nobody is specified in the relevant national legislation, the management body;
• 44. ‘aggregate maximum risk exposure’ means the sum of the maximum payments, including expenses that the special purpose vehicles may incur, excluding expenses that meet all of the following criteria:
  • (a) the special purpose vehicle has the right to require the insurance or reinsurance undertaking which has transferred risks to the special purpose vehicle to pay the expense;

⁽¹⁾ Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)(OJ L 302, 17.11.2009, p. 32).

⁽²⁾ Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

• (b) the special purpose vehicle is not required to pay the expense unless and until an amount equal to the expense has been received from the insurance or reinsurance undertaking which has transferred the risks to the special purpose vehicle;
• (c) the insurance or reinsurance undertaking which has transferred risks to the special purpose vehicle does not include the expense as an amount recoverable from the special purpose vehicle in accordance with Article 41 of this Regulation.
• 45. ’existing insurance or reinsurance contract’ means an insurance or reinsurance contract for which insurance or reinsurance obligations have been recognised;
• 46. ’the expected profit included in future premiums’ means the expected present value of future cash flows which result from the inclusion in technical provisions of premiums relating to existing insurance and reinsurance contracts that are expected to be received in the future, but that may not be received for any reason, other than because the insured event has occurred, regardless of the legal or contractual rights of the policyholder to discontinue the policy.
• 47. ‘mortgage insurance’ means credit insurance that provides cover to lenders in case their mortgage loans default.
• 48. ‘subsidiary undertaking’ means any subsidiary undertaking within the meaning of Article 22(1) and (2) of Directive 2013/34/EU, including subsidiaries thereof;
• 49. ‘related undertaking’ either a subsidiary undertaking or other undertaking in which a participation is held, or an undertaking linked with another undertaking by a relationship as set out in Article 22(7) of Directive 2013/34/EU;
• 50. ‘regulated undertaking’ means ‘regulated entity’ within the meaning of Article 2(4) of Directive 2002/87/EC of the European Parliament and of the Council (1);
• 51. ’non-regulated undertaking’ means any undertaking other than those listed in Article 2(4) of Directive 2002/87/EC;
• 52. ’non-regulated undertaking carrying out financial activities’ means a non-regulated undertaking which carries one or more of the activities referred to in Annex I of Directive 2013/36/EU of the European Parliament and of the Council (2) where those activities constitute a significant part of its overall activity;

⁽¹⁾ Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council (OJ L 35, 11.2.2003, p. 1).

⁽²⁾ Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

• 53. ‘ancillary services undertaking’ means a non-regulated undertaking the principal activity of which consists of owning or managing property, managing data-processing services, health and care services or any other similar activity which is ancillary to the principal activity of one or more insurance or reinsurance undertakings.
• 54. ‘UCITS management company’ means a management company within the meaning of Article 2(1)(b) of Directive 2009/65/EC or an investment company authorised pursuant to Article 27 of that Directive provided that it has not designated a management company pursuant to that Directive;
• 55. ‘alternative investment fund manager’ means an alternative investment funds manager within the meaning of Article 4(1)(b) of Directive 2011/61/EU;

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• 55a. ‘infrastructure assets’ means physical assets, structures or facilities, systems and networks that provide or support essential public services;
• 55b. ‘infrastructure entity’ means an entity or corporate group which, during the most recent financial year of that entity or group for which figures are available or in a financing proposal, derives the substantial majority of its revenues from owning, financing, developing or operating infrastructure assets;

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• 55c. ‘sustainability risk’ means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential negative impact on the value of the investment or on the value of the liability;
• 55d. ‘sustainability factors’ means sustainability factors as defined in Article 2, point (24), of Regulation (EU) 2019/2088 of the European Parliament and of the Council (1);
• 55e. ‘sustainability preferences’ means a customer’s or potential customer’s choice as to whether and, if so, to what extent, one or more of the following financial instruments should be integrated into his or her investment:
  • (a) a financial instrument for which the customer or potential customer determines that a minimum proportion shall be invested in environmentally sustainable investments as defined in Article 2, point (1), of Regulation (EU) 2020/852 of the European Parliament and of the Council (2);

⁽¹⁾ Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (OJ L 317, 9.12.2019, p. 1).

⁽²⁾ Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22.6.2020, p. 13).

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• (b) a financial instrument for which the customer or potential customer determines that a minimum proportion shall be invested in sustainable investments as defined in Article 2, point (17), of Regulation (EU) 2019/2088;
• (c) a financial instrument that considers principal adverse impacts on sustainability factors where qualitative or quantitative elements demonstrating that consideration are determined by the customer or potential customer;

▼B

• 56. ‘institutions for occupational retirement provision’ means institutions within the meaning of Article 6(a) of Directive 2003/41/EC of the European Parliament and of the Council (1);
• 57. ‘domestic insurance undertaking’ means an undertaking authorised and supervised by third-country supervisory authorities which would require authorisation as an insurance undertaking in accordance with Article 14 of Directive 2009/138/EC if its head office were situated in the Union;
• 58. ‘domestic reinsurance undertaking’ means an undertaking authorised and supervised by third-country supervisory authorities which would require authorisation as a reinsurance undertaking in accordance with Article 14 of Directive 2009/138/EC if its head offices were situated in the Union ;

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• 59. ‘CCP’ means a CCP as defined in point (1) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (2);
• 60. ‘bankruptcy remote’, in relation to client assets, means that effective arrangements exist which ensure that those assets will not be available to the creditors of a CCP or of a clearing member in the event of the insolvency of that CCP or clearing member respectively, or that the assets will not be available to the clearing member to cover losses it incurred following the default of a client or clients other than those that provided those assets;

⁽¹⁾ Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (OJ L 235, 23.9.2003, p. 10).

⁽²⁾ Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1).

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• 61. ‘client’ means a client as defined in point (15) of Article 2 of Regulation (EU) No 648/2012 or an undertaking that has established indirect clearing arrangements with a clearing member in accordance with Article 4(3) of that Regulation;
• 62. ‘clearing member’ means a clearing member as defined in point (14) of Article 2 of Regulation (EU) No 648/2012;
• 63. ‘CCP-related transaction’ means a contract or a transaction listed in paragraph 1 of Article 301 of Regulation (EU) No 575/2013 between a client and a clearing member that is directly related to a contract or a transaction listed in that paragraph between that clearing member and a CCP.

Article 2

Expert judgement

• 1. Where insurance and reinsurance undertakings make assumptions about rules relating to the valuation of assets and liabilities, technical provisions, own funds, solvency capital requirements, minimum capital requirements and investment rules, these assumptions shall be based on the expertise of persons with relevant knowledge, experience and understanding of the risks inherent in the insurance or reinsurance business.
• 2. Insurance and reinsurance undertakings shall, taking due account of the principle of proportionality, ensure that internal users of the relevant assumptions are informed about their relevant content, their degree of reliability and their limitations. For that purpose, service providers to whom functions or activities have been outsourced shall be considered to be internal users.

SECTION 2

External credit assessments

Article 3

Association of credit assessments to credit quality steps

The scale of credit quality steps referred to in Article 109a(1) of Directive 2009/138/EC shall include credit quality steps 0 to 6.

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Article 4

General requirements on the use of credit assessments

• 1. Insurance or reinsurance undertakings may use an external credit assessment for the calculation of the Solvency Capital Requirement in accordance with the standard formula only where it has been issued by an External Credit Assessment Institution (ECAI) or endorsed by an ECAI in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council (1).
• 2. Insurance or reinsurance undertakings shall nominate one or more ECAI to be used for the calculation of the Solvency Capital Requirement according to the standard formula.
• 3. The use of credit assessments shall be consistent and such assessments shall not be used selectively
• 4. When using credit assessments, insurance and reinsurance undertakings shall comply with all of the following requirements:
• (a) where an insurance or reinsurance undertaking decides to use the credit assessments produced by a nominated ECAI for a certain class of items, it shall use those credit assessments consistently for all items belonging to that class;
• (b) where an insurance or reinsurance undertaking decides to use the credit assessments produced by a nominated ECAI, it shall use them in a continuous and consistent way over time;
• (c) an insurance or reinsurance undertaking shall only use nominated ECAI credit assessments that take into account all amounts of principal and interest owed to it;
• (d) where only one credit assessment is available from a nominated ECAI for a rated item, that credit assessment shall be used to determine the capital requirements for that item;
• (e) where two credit assessments are available from nominated ECAIs and they correspond to different parameters for a rated item, the assessment generating the higher capital requirement shall be used;
• (f) where more than two credit assessments are available from nominated ECAIs for a rated item, the two assessments generating the two lowest capital requirements shall be used. If the two lowest capital requirements are different, the assessment generating the higher capital requirement of those two credit assessments shall be used. If the two lowest capital requirements are the same, the assessment generating that capital requirement shall be used;

⁽¹⁾ Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ L 302, 17.11.2009, p. 1).