IVASS publishes Regulation n. 48 of 2021 containing provisions on capital additions referred to in Title III, article 47-sexies and Title XV, article 216-septies of the Italian Private Insurance Code

On 13 July 2021, IVASS published Regulation n. 48 of 2021 ("Reg. 48/21"), implementing the rules on the process of adopting capital add-ons provided for in Articles 47-sexies and 216-septies of Legislative Decree No. 209 of 7 September 2005 (Italian Private Insurance Code, "IPIC"), which in turn introduced into Italian law the EU rules provided for in Article 37 of the Solvency II Directive. The provisions of Reg. 48/21 therefore pursue the objective of ensuring that regulatory capital requirements adequately reflect the overall risk profile of the insurance or reinsurance undertaking or of the group to which it belongs, through the application of exceptional and temporary measures in the event of irregularities [1].

By Reg. 48/21, IVASS, being conscious of the gaps in the previous national regulation [2] and in accordance with the European framework, pursues a principle-based approach, identifying operational criteria that allow to make the necessary assessments aimed at imposing measures, in line with the capital and risk profile of the companies and proportionate to the relevant issues.

To this end, operational criteria have been provided to guarantee the efficiency of the capital add-on measures as a practicable tool for the protection of the policyholders and the persons entitled to insurance services, allowing - when specifying the circumstances and the assessment factors already defined by the EU regulations - consistent approaches for similar circumstances, in order to ensure compliance with the principle of the level playing field between companies. Moreover, again with the objective of ensuring the transparency of processes and decisions, the procedure for imposing capital add-on measures was formalised, also specifying the procedures for their amendment and revocation.

More in depth, IVASS, in the belief that the capital requirement correctly represents the risk profile of the undertaking, outlines the discipline of the remedy of the capital add-on, to be applied, under article 3 of Reg. 48/21, to:

• insurance and reinsurance undertakings with head office in Italy, with the exception of local insurance undertakings referred to in Title IV of the IPIC;
• branches in Italy of insurance and reinsurance undertakings with head office in a third State;
• reinsurance undertakings with head office in Italy; and
• last Italian parent companies. If such companies are in turn controlled by an insurance or reinsurance undertaking, an insurance holding company, or a mixed financial holding company having its head office in a member State, the provisions shall apply in case IVASS has supervision at the level of the domestic sub-group, (pursuant to article 220-bis paragraph 3, of the IPIC and article 12 of the relevant implementing provisions on group supervision), in order to remedy of deviation between the Solvency Capital Requirement calculated by the undertaking and the one identified taking into account the actual risk profile.

Thus, IVASS, in Reg. 48/21, with the aim of guaranteeing an adequate level of protection for insured persons and those entitled to insurance benefits, while respecting the equal treatment of undertakings, provides:

• for the characteristics of the capital add-on, defined as a (i) exceptional, (ii) last resort and (iii) temporary remedy, in article 4;
• for the procedure for assessing the conditions for a significant deviation, in both terms of governance and in terms of adjustments to the relevant risk-free rate and transitional measures, to be carried out as a result of the supervisory review referred to in Article 47-sexies of the IPIC, in articles 5 to 8 [3];
• for the criteria of calculating the capital add-on, in articles 9 to 11;
• for the procedural aspects for the adoption, amendment and revocation of decisions by IVASS on capital add-on, outlining the timing and the dialogue with the company. With particular regard to the various stages, the content of the acts and the timing of the procedures: (i) notification of the initiation of the procedure for the application of the capital add-on to the undertaking; (ii) decision to adopt the capital add-on; (iii) quarterly report by the undertaking on the results obtained; and (iv) review, in articles 12 to 15;
• that the above provisions shall also apply, where compatible, to the consolidated group pursuant to article 216-septies of the IPIC, in article 16.

Please see the IVASS website for more details: https://www.ivass.it/normativa/nazionale/secondaria-ivass/regolamenti/2021/n48/index.html

This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For further information please contact Michele Zucca, Anthony Perotto, Guido Foglia e Antonia Di Bella.

[1] Such measures may only be imposed by IVASS where other supervisory measures prove to be ineffective or unsuitable and must be enforced only until the company has adequately corrected the deviations that justified their imposition.

[2] The Explanatory Report to this Regulation states that the notion "relevant factors" provided for by Article 277 of the Delegated          Regulation (EU) No 2015/35, i.e., factors which are to be taken into account for the purposes of assessing the existence of a deviation and        of calculating the consequent capital add-on in the event of deviation from the governance standards, appear to be non-exhaustive and may      be subject                   to further clarification. Additionally, it provides that Article 286 of Delegated Regulation (EU) No 2015/35 calls for the applicability     of the same elements of assessment set forth in Article 277 for IVASS's determinations on capital add-on with respect to governance only                  "where appropriate" suggesting with such wording an illustrative and non-exhaustive interpretation of the nature of the list in Article 277.

[3] In particular, three levels of severity of governance-related irregularities are introduced and the add-on is calculated by increasing the                Solvency Capital Requirement (SCR) - subject to pre-defined minimum thresholds for each level:

• Level 1: no capital add-on is applied;
• Level 2: IVASS may apply a capital add-on by increasing the SCR by at least 10% and up to 20% (equal to or greater than 10% and less than 20%);
• Level 3: IVASS may apply a capital add-on by increasing the Solvency Capital Requirement by at least 20% (equal to or greater than 20%).