Revised Guidelines on Contract Boundaries

During the 2020 review of Solvency II EIOPA identified several divergent practices regarding contract boundaries assessment, as presented in the analysis background document1 to EIOPA’s Opinion on the 2020 review of Solvency II. Divergent practices require additional guidance to ensure a convergent application of the existing regulation on contract boundaries.

In accordance with Article 16 of Regulation (EU) No 1094/20102 EIOPA issues these revised Guidelines to provide guidance on how insurance and reinsurance undertakings should apply the requirements of Directive 2009/138/EC3 (“Solvency II Directive”) and in Commission Delegated Regulation (EU) No 2015/354 (“Delegated Regulation”), on the boundaries of insurance and reinsurance contracts.

This revision introduces new Guidelines and amends current Guidelines on topics that are relevant for the determination of contract boundaries, in particular regarding the assessment whether a cover or financial guarantee has a discernible effect on the economics of the contract and the identification of the contracts which can be unbundled.

The revised Guidelines are addressed to competent authorities as defined in Article 4(2) of Regulation (EU) No 1094/2010.

The revised Guidelines apply to both individual undertakings and mutatis mutandis at the level of the group.

These revised Guidelines should be read in conjunction with and without prejudice to the Solvency II Directive, the Delegated Regulation and EIOPA’s Guidelines on contract boundaries. Unless otherwise stated in this document, the current guidelines of EIOPA’s Guidelines on contract boundaries remain unchanged and continue to be applicable.

If not defined in these revised Guidelines, the terms have the meaning defined in the Solvency II Directive.

These revised Guidelines do not deviate from the previous Guidelines and only add additional details compatible with the high-level guidance included in the previous Guidelines. For this reason, the applicability of these revised Guidelines should not lead to a reassessment of the contract boundaries of existing contracts. However, according to the revised Guidelines a reassessment is to be performed in case there is indication that the outcome would be different. Therefore, a reassessment of contract boundaries when these revised Guidelines enter into force is necessary in case the previous assessment significantly differs from the approach envisaged in these revised Guidelines. In addition, any reassessment of contract boundaries that is necessary according to these revised Guidelines should be performed according to the new Guidelines regardless whether the contract was underwritten before these revised Guidelines become applicable.

These revised Guidelines shall apply from 01-01-2023.

For reference, check the final report.