Cap. 403 Art. 31CPower to set a capital add-on.

(1) Following the supervisory review process carried out in terms of article 31B, the competent authority may, in exceptional circumstances, set a capital add-on for an authorised insurance or reinsurance undertaking stating the reasons for its decision. Such power shall be exercised in the following cases:

(a) where it concludes that the risk profile of the authorised insurance or reinsurance undertaking deviates significantly from the assumptions underlying the Solvency Capital Requirement, as calculated using the standard formula in accordance with article 15; and

(i) the requirement to use an internal model under article 15(3) is inappropriate or has been ineffective; or

(ii) while a partial or full internal model is being developed in accordance with article 15(3);

(b) where it concludes that the risk profile of the authorised insurance or reinsurance undertaking deviates significantly from the assumptions underlying the Solvency Capital Requirement, as calculated using an internal model or partial internal model because certain quantifiable risks are captured insufficiently and the adaptation of the model to better reflect the given risk profile has failed within an appropriate timeframe;

(c) where it concludes that the system of governance of an authorised insurance or reinsurance undertaking deviates significantly from the standards laid down in article 18I and Insurance Rules issued thereunder, that those deviations prevent the undertaking from being able to properly identify, measure, monitor, manage and report the risks that it is or could be exposed to and the application of other measures is in itself unlikely to improve the deficiencies sufficiently within an appropriate timeframe;

(d) the authorised insurance or reinsurance undertaking applies the matching adjustment or the volatility adjustment referred to in Articles 77b and 77d of the Solvency II Directive, respectively, or the transitional measures referred to in Articles 308c and 308d of the said Directive and the competent authority concludes that the risk profile of that undertaking deviates significantly from the assumptions underlying those adjustments and transitional measures; or

(e) in any of those circumstances as may be additionally specified by the Solvency II Directive.

(2) In the circumstances set out:

(a) in paragraphs (a) and (b) of sub-article (1), the capital add-on shall be calculated in such a way as to ensure that the undertaking complies with Article 101(3) of the Solvency II Directive;

(b) in paragraph (c) of sub-article (1), the capital add-on shall be proportionate to the material risk arising from the deficiencies which gave rise to the decision of the competent authority to set the add-on; and

(c) in paragraph (d) of sub-article (1), the capital add-on shall be proportionate to the material risk arising from the deviation referred to in that paragraph.

(3) In the cases set out in paragraphs (b) and (c) of sub-article (1), the authorised insurance or reinsurance undertaking shall remedy the deficiencies that led to the imposition of the capital add-on without delay.

(4) The competent authority shall review the capital add-on, at least once a year and it shall approve the removal of such capital add-on when the undertaking has remedied the deficiencies which led to its imposition.

(5) The Solvency Capital Requirement including the capital add-on imposed shall replace the inadequate Solvency Capital Requirement: Provided that, the Solvency Capital Requirement shall not include the capital add-on imposed in accordance with sub-article (1)(c), for the purposes of the calculation of the risk margin referred to in Article 77(5) of the Solvency II Directive.