Question ID: 2220
Regulation Reference: (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
Topic: Other
Article: Article 18(1)(a)
Status: Final
Date of submission: 11 Nov 2020
Question
Could you please specify, what activities can be considered as operations arising directly from the business of insurance in the sense of Article 18(1)(a) of the Solvency II Directive: „The home Member State shall require every undertaking for which authorization is sought: in regard to insurance undertakings, to limit their objects to the business of insurance and operations arising directly therefrom, to the exclusion of all other commercial business“. Specifically, could mortgage lending as a way of investing the assets of insurance undertakings be considered as an operation arising directly from the business of insurance in the sense of Article 18(1)(a) of the Solvency II Directive?
EIOPA answer
We interpret your question as having two separate issues: one refers to the authorisation of business, and the second refers to the investment operations.
Mortgage lending products are loans collateralised by immovable property provided by an authorised credit financial institution, and are subject their sectoral rules. The definition of mortgage lending products is not under the scope of Solvency II. Any questions on this area please refer to the European Banking Authority.
Under the Solvency II framework, the authorisation for taking-up business of direct insurance or reinsurance covered under the Solvency II Directive refers to the groups of classes listed in Part B of Annex I (Non-Life; and Life Insurance). The National Competent Authorities may grant authorisation subject to the conditions of authorisations (Article 18 of the SII Directive), which requires a clear scheme of Operations (Article 23 of the SII Directive).
Thus, if your question refers to mortgage protection insurance products, those could be considered under point 14 of the classes of non-life insurance (Annex I of the Solvency II Directive).
In relation to the scope of investments operations, this is not restricted under the Solvency II framework to particular activities or categories of assets. According to Article 133 of the Solvency II Directive, there is a freedom of investment.
Shall the undertaking decide to invest its assets on mortgage lending providers, or derive income from rental property they can do so following an adequate risk management approach. Undertakings subject to the Solvency II framework are required to invest all their assets according to 'prudent person principle' (Article 132 of Solvency II). In addition, the Guidelines on System of Governance EIOPA_BoS_14/253 further clarify the application of the prudent person principle. The undertaking must maintain and monitor practices and procedures appropriate to the undertaking's risk management policy, with regard to key areas of the undertak[1]ings' business. This includes having an adequate investment risk management policy. (see Guideline 25 of Guidelines on System of Governance EIOPA_BoS_14/253).
EIOPA cannot provide individual advice on what an undertaking can or cannot invest on. We advise that you engage with your national competent authority to discuss the case at hand.