Supervisory authorities may, by a reasoned decision and in exceptional circumstances, impose a capital add-on on an insurance or reinsurance undertaking. Grounds include significant deviation of the undertaking’s risk profile from assumptions underlying the Solvency Capital Requirement as calculated by the standard formula (Chapter VI, Section 4, Subsection 2) where an internal model is inappropriate, ineffective or under development (Article 119); insufficient capture of quantifiable risks by an internal or partial internal model (Subsection 3); material shortcomings in governance (Chapter IV, Section 2); inappropriate application of the matching adjustment (Article 77b), volatility adjustment (Article 77d) or transitional measures (Articles 308c, 308d); and failure to submit required phasing‑in plans or reports where a transitional measure is necessary for SCR compliance (Article 308e).

In cases (a) and (b) the add-on shall be calculated to ensure compliance with Article 101(3); in (c), (d) and (e) it shall be proportionate to the material risks. Supervisory authorities must require remediation for (b) and (c), review add-ons at least annually and remove them once deficiencies are remedied. The Solvency Capital Requirement including the add-on replaces an inadequate SCR, except that an add-on imposed under (1)(c) is excluded from the risk margin calculation (Article 77(5)). The Commission shall adopt delegated acts under Article 301a specifying circumstances and methodologies, and EIOPA shall develop draft implementing technical standards on procedures to set, calculate and remove add-ons and submit them to the Commission by 30 September 2015, with adoption powers under Article 15 of Regulation (EU) No 1094/2010.