Paragraph 2: Minimum solvency margin requirement

For the undertakings referred to in Article L. 310-3-2, the minimum required solvency margin is determined either by reference to the annual amount of premiums or contributions, or by reference to the average annual cost of claims. This minimum margin requirement is equal to the higher of the results obtained by applying the following two methods:

a) First method (calculation in relation to premiums).

The premium base is calculated on the basis of gross written premiums or contributions or gross earned premiums or contributions, whichever is higher. Premiums or contributions net of cancellation and taxes for classes 11, 12 and 13 listed in article R. 321-1 are increased by 50%. Premiums or contributions written in direct business during the last financial year, including incidentals, are aggregated. To this amount is added the total of premiums accepted for reinsurance during the last financial year.

From this sum are deducted, on the one hand, the total premiums or contributions cancelled during the last financial year and, on the other hand, the total taxes relating to the aforementioned premiums or contributions.

The amount obtained is multiplied by 18%.

The result determined by applying the first method is calculated by multiplying the amount obtained in the previous paragraph by the ratio existing for the last three financial years between the amount of claims remaining to be borne by the company after reinsurance and the amount of claims gross of reinsurance, without this ratio being less than 50%.

Subject to the agreement of the supervisory authority, statistical methods may be used to allocate premiums or contributions.

b) Second method (calculation in relation to the average annual cost of claims).

To the total claims paid for direct business over the last three financial years, without deducting claims payable by assignees and retrocessionaires, are added, on the one hand, claims paid in respect of reinsurance or retrocession acceptances over the same financial years and, on the other hand, the provisions for claims payable established at the end of the last financial year, both for direct business and for reinsurance acceptances. For classes 11, 12 and 13 listed in article R. 321-1, claims, provisions and recoveries are increased by 50%.

From this sum are deducted, on the one hand, the recoveries collected during the last three financial years and, on the other hand, the provisions for claims to be paid constituted at the beginning of the second financial year preceding the last financial year, both for direct business and for reinsurance acceptances.

One third of the amount thus obtained is multiplied by 26%.

The result determined by applying the second method is calculated by multiplying the amount obtained in the previous paragraph by the ratio existing, for the last three financial years, between the amount of claims remaining to be borne by the company after reinsurance cession and the amount of claims gross of reinsurance, without this ratio being less than 50%.

For the branch referred to in Article R. 321-1, 18 of this Code and Article R. 211-2 of the Code de la mutualité, the amount of claims paid used to calculate the result determined by applying the second method is the cost to the company of assistance services, including direct internal assistance costs.

When a company is mainly involved in one or more of the following risks: credit, storm, hail, frost, the calculation takes into account the average annual cost of claims for the last seven financial years instead of the last three.

If the calculations in a and b give a result that is lower than the minimum margin requirement for the previous financial year, the required solvency margin is at least equal to that for the previous financial year multiplied by the ratio between the technical provisions for claims payable at the end of the last financial year and the amount of the technical provisions for claims payable at the beginning of the last financial year. In these calculations, technical provisions are calculated net of reinsurance, although this ratio may not exceed one.

In addition, for the purpose of taking account of limited financial reinsurance in the reinsurance ratio referred to in the last paragraph of a and the last paragraph of b, the Autorité de contrôle relies on the actual transfer of risk.

Upon application and justification by the undertaking to the Autorité de contrôle, and with the latter's agreement, amounts recoverable in respect of risks transferred to a securitisation vehicle referred to in Article L. 310-1-2 may be treated as reinsurance cessions for the purposes of calculating the ratio referred to in the last paragraph of a and the last paragraph of b.

The Autorité de contrôle takes into account the actual transfer of risk to assess the extent of the reduction in the solvency margin requirement authorised in respect of each transaction carried out with a securitisation vehicle. It also takes into account the ability of the securitisation vehicle to meet its commitments at all times.