Commission Delegated Regulation (EU) 2015/35Show full title

Article 260 Risk management areas

1. The areas referred to in Article 44(2) of Directive 2009/138/EC shall include all of the following policies:

(a) Underwriting and reserving:

(i)

actions to be taken by the insurance or reinsurance undertaking to assess and manage the risk of loss or of adverse change in the values of insurance and reinsurance liabilities, resulting from inadequate pricing and provisioning assumptions;

(ii)

the sufficiency and quality of relevant data to be considered in the underwriting and reserving processes, as set out in Article 19 of this Regulation, and their consistency with the standards of sufficiency and quality;

(iii)

the adequacy of claims management procedures including the extent to which they cover the overall cycle of claims.

(b) Asset-liability management:

(i)

the structural mismatch between assets and liabilities and in particular the duration mismatch of those assets and liabilities;

(ii)

any dependency between risks of different asset and liability classes;

(iii)

any dependency between the risks of different insurance or reinsurance obligations;

(iv)

any off-balance sheet exposures of the undertaking;

(v)

the effect of relevant risk-mitigating techniques on asset-liability management.

(c) Investment risk management:

(i)

actions to be taken by the insurance or reinsurance undertaking to ensure that the undertaking's investments complies with the prudent person principle set out in Article 132 of Directive 2009/138/EC;

(ii)

actions to be taken by the insurance or reinsurance undertaking to ensure that the undertaking's investments take into account the nature of the undertaking's business, its approved risk tolerance limits, its solvency position and its long-term risk exposure;

(iii)

the insurance or reinsurance undertakings' own internal assessment of the credit risk of investment counterparties, including where the counterparties are central governments;

(iv)

where the insurance or reinsurance undertaking uses derivatives or any other financial instrument with similar characteristics or effects, the objectives of, and strategy underlying their use and the way in which they facilitate efficient portfolio management or contribute to a reduction of risks, as well as procedures to assess the risk of such instruments and the principles of risk management to be applied to them;

(v)

where appropriate in order to ensure effective risk-management, internal quantitative limits on assets and exposures, including off-balance sheet exposures.

(d) Liquidity risk management:

(i)

actions to be taken by the insurance or reinsurance undertaking to take into account both short term and long term liquidity risk;

(ii)

the appropriateness of the composition of the assets in terms of their nature, duration and liquidity in order to meet the undertaking's obligations as they fall due;

(iii)

a plan to deal with changes in expected cash in-flows and out-flows.

(e) Concentration risk management: actions to be taken by the insurance or reinsurance undertaking to identify relevant sources of concentration risk to ensure that risk concentrations remain within established limits and actions to analyse possible risks of contagion between concentrated exposures.

(f) Operational risk management: actions to be taken by the insurance or reinsurance undertaking to assign clear responsibilities to regularly identify, document and monitor relevant operational risk exposures.

(g) Reinsurance and other insurance risk mitigation techniques:

(i)

actions to be taken by the insurance or reinsurance undertaking to ensure the selection of suitable reinsurance and other risk mitigation techniques;

(ii)

actions to be taken by the insurance or reinsurance undertaking to assess which types of risk mitigation techniques are appropriate according to the nature of the risks assumed and the capabilities of the undertaking to manage and control the risks associated with those techniques;

(iii)

the insurance or reinsurance undertakings' own assessment of the credit risk of the risk mitigation techniques.

2. The expected profit included in future premiums shall be calculated as the difference between the technical provisions without a risk margin calculated in accordance with Article 77 of that Directive and a calculation of the technical provisions without a risk margin under the assumption that the premiums relating to existing insurance and reinsurance contracts that are expected to be received in the future are not received for any reason other than the insured event having occurred, regardless of the legal or contractual rights of the policyholder to discontinue the policy.

3. The calculation of the expected profit included in future premiums shall be carried out separately for the homogeneous risk groups used in the calculation of the technical provisions, provided that the insurance and reinsurance obligations are also homogeneous in relation to the expected profit included in future premiums.

4. Loss-making policies may only be offset against profit-making policies within a homogeneous risk group.