AI Summary of Article 37 Capital add-on
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.
Article 37 Capital add-on
1. Following the supervisory review process supervisory authorities may in exceptional circumstances set a capital add-on for an insurance or reinsurance undertaking by a decision stating the reasons. That possibility shall exist only in the following cases:
(a) the supervisory authority concludes that the risk profile of the insurance or reinsurance undertaking deviates significantly from the assumptions underlying the Solvency Capital Requirement, as calculated using the standard formula in accordance with Chapter VI, Section 4, Subsection 2 and:
(i) the requirement to use an internal model under Article 119 is inappropriate or has been ineffective; or
(ii) while a partial or full internal model is being developed in accordance with Article 119;
(b) the supervisory authority concludes that the risk profile of the insurance or reinsurance undertaking deviates significantly from the assumptions underlying the Solvency Capital Requirement, as calculated using an internal model or partial internal model in accordance with Chapter VI, Section 4, Subsection 3, 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;