French Insurance Code
In forceI. - The solvency margin referred to in article L. 385-2 is made up, after deduction of losses, the portion of deferred acquisition costs exceeding 25% of the amount of the provision for unearned premiums and other intangible items, by the following items:
1° Paid-up share capital or the formation fund. However, preference shares as defined in article L. 228-11 of the French Commercial Code may only be issued if they meet the conditions laid down by order of the Minister for the Economy, relating in particular to the financial rights attached and the corresponding payments, which must be suspendable and not carried forward to a subsequent financial year;
2° Reserves of any kind, regulatory or free, not corresponding to commitments, including the capitalisation reserve;
3° Profits, surpluses or losses brought forward, after deduction of dividends to be paid in respect of the last financial year;
4° In the case of the mutual insurers or supplementary occupational pension unions referred to in Article L. 214-1 of the Mutual Code or the supplementary occupational pension institutions referred to in Article L. 942-1 of the Social Security Code, the loan or loans for development funds. However, from half the duration of a loan, it is only included in the solvency margin for its value progressively reduced each year by a constant amount equal to double the total amount of this loan divided by the number of years of its duration.
The available solvency margin is reduced by the amount of its own shares held directly by the fund.
II. - The solvency margin may also be constituted by :
1° Funds actually paid out from the issue of subordinated securities or loans, as well as preference shares as defined in article L. 228-11 of the Commercial Code other than those of a non-cumulative nature mentioned in 1° of I. These subordinated securities and loans and preference shares must meet the conditions, particularly in terms of duration and redemption, set by order of the Minister for the Economy. These funds are accepted up to 50% of the required solvency margin or the solvency margin, whichever is lower. However, only 25% of the required solvency margin may be taken into account if the funds come from fixed-term securities or loans. Any repayment made irregularly may, in accordance with sections 6 or 7 of Chapter II of Title I of Book VI of the Monetary and Financial Code, give rise to police measures or sanctions by the Autorité de contrôle prudentiel et de résolution ;
2° The guarantee fund reserve provided for in article R. 423-16, up to the amount of the contribution paid by the company and not used by the fund;
3° The reserves constituted pursuant to Article L. 111-6 and Article L. 431-1 of the Mutual Code, including the portion of the contribution paid by the supplementary occupational pension mutual society and not used by the federal guarantee system or the guarantee fund mentioned in the same Article L. 431-1.
III. - Upon request and justification from the supplementary professional retirement fund and with the agreement of the Autorité de contrôle prudentiel et de résolution, the solvency margin may also be made up of :
1° Half of the unpaid portion of the capital or of the outstanding portion of the loan for the establishment fund, as soon as the paid portion reaches 25% of this capital or of this fund, up to a maximum of 50% of the solvency margin or of the required solvency margin, whichever amount is lower;
2° Capital gains arising from the under-estimation of assets, insofar as such capital gains are not exceptional in nature;
3° Unrealised capital gains on the forward financial instruments referred to in articles R. 332-45 and R. 332-46, provided that the corresponding transactions are traded on a recognised market within the meaning of the last paragraph of A of article R. 332-2 or are carried out over-the-counter provided that they are guaranteed under the conditions set out in article R. 332-56 ;
Unrealised losses on forward financial instruments for which no provision has been made are deducted from the items listed in 2° and 3° of this III.
The conditions for taking unrealised capital gains and losses into account are specified by order of the Minister for the Economy.
IV. - The available solvency margin is reduced by the following items:
1° Own shares held directly by the supplementary professional retirement fund ;
2° Holdings held by the supplementary professional pension fund in a credit institution, finance company, investment firm or financial institution;
3° Subordinated debt which the supplementary occupational pension fund holds in respect of the undertakings mentioned in 2° above in which it has a holding;
4° Mutual or joint certificates issued and held directly by the supplementary professional retirement fund.
However, the items mentioned in 2° and 3° may not be deducted when the holdings mentioned therein are held temporarily with a view to providing financial support to these companies.
V. - When it considers that the assessment of the profit, surplus or loss carried forward referred to in 3° of I is likely to be distorted by the existence of a limited financial reinsurance contract taken out by the supplementary occupational pension fund, the Autorité de contrôle prudentiel et de résolution may limit the taking into account of this carry forward, with a view to integrating the future expenses expected under this contract. Where applicable, the amount of the solvency margin is adjusted at the end of the limited financial reinsurance contract, based on the cumulative deferral actually recorded.
