Group aspects

Regulatory framework

  1. Solvency II Law: Articles 392 to 398 (governance of the insurance group), 443 (specific rules for insurance holding companies), 464 to 466, 468 to 469 (governance of conglomerates) and 470 (specific rules for mixed financial holding companies)
  2. Delegated Regulation 2015/35: Article 359 (Group SFCR)
  3. Underlying thematic NBB Circular: /
  4. EIOPA Guidelines: Guidelines 1, 2, 9, 17, 38, 62 and 65 to 70

The principles on sound governance also apply when the insurance company forms part of a group. 

A distinction needs to be made depending on whether it is a Belgian group (i.e. a group for which the Bank is the group supervisor; cf. section 13.1 below) or a foreign group that the insurance company governed by Belgian law forms part of (cf. section 13.2 below).

13.1. Specific governance requirements for Belgian groups

Two categories of insurance groups are subject to the Bank’s supervision: the insurance groups subject to the Bank’s supervision pursuant to Article 343 of the Solvency II Law and the Belgian conglomerates as defined in Article 451 of the Solvency II Law.

13.1.1. Rules for Belgian groups

For Belgian groups, the Solvency II Law provides for two categories of group requirements as regards governance:

  1. requirements that must be met at a group level, i.e.:
    1. for insurance groups that come under the supervision of the Bank: pursuant to Articles 392 to 398 of the Solvency II Law, requirements on organisation in the broad sense (Section VII, Chapter II, Title I of Book II of the Law or Articles 42 to 60 of the Law), as regards the management structure (Section III, Chapter III, Title II of Book II of the Law or Articles 77 to 83 of the Law), on systems for risk management, internal control and reporting;
    2. for financial conglomerates that come under the supplementary supervision of the Bank: pursuant to Articles 464 to 466, 468 and 469 of the Solvency II Law, requirements on risk management, internal control, management structure and reporting;
  2. requirements that apply to individual holding companies, i.e.:
    1. for insurance holding companies governed by Belgian law and mixed financial holding companies governed by Belgian law at the head of an insurance group that comes under the supervision of the Bank: pursuant to Article 443 of the Solvency II Law, supervision of shareholdership (Articles 39 and 64 to 72), ‘Fit & Proper’ requirements (Articles 40, 41, 81, 82 and 83), the setting up of a management committee (Articles 45 and 46, §§ 1, 3 and 4 and 47), and the rules relating to loans and insurance policies for managers (Articles 93 and 94) with the possibility in case of non-compliance with these rules of the application of mandatory measures and exceptional recovery measures pursuant to Articles 508, § 1 and 517;
    2. for mixed financial holding companies governed by Belgian law at the head of a financial conglomerate that comes under the supervision of the Bank: pursuant to Article 470 of the Solvency II Law, supervision of shareholdership (Articles 39 and 64 to 72), Fit & Proper requirements (Articles 40, 41, 81, 82 and 83), the setting up of a management committee (Articles 45 and 46, §§ 1, 3 and 4, and 47), and the rules relating to loans and insurance policies for managers (Articles 93 and 94), with the possibility in case of non-compliance with these rules of the application of mandatory measures and exceptional recovery measures pursuant to Articles 508, § 1 and 517;

In practice, the Solvency II Law stipulates that all rules relating to the governance system included in this Circular apply to insurance groups governed by Belgian law (mutatis mutandis application of the individual rules at a group level)[1] and that the Bank is responsible supervising compliance with these rules. 

The rules for financial conglomerates with predominantly insurance activities are not covered in this Circular as there are no such financial conglomerates in Belgium.

Consequently, the Bank expects the entity responsible for an insurance group governed by Belgian law to comply with all the rules included in this Circular. Additionally, the three specific requirements for governance at group level stated in points 13.1.4. to 13.1.6. below, also apply to this responsible entity.  The way in which the company complies with all these rules is explained in the Group RSR.

13.1.2. Distinction between insurance holding company and mixed-activity insurance holding company

In accordance with Article 338, 5° of the Solvency II Law, an “insurance holding company” is “a parent undertaking which is not a mixed financial holding company, and the main business of which is to acquire and hold participations in subsidiaries where those subsidiaries are exclusively or mainly insurance or reinsurance companies, or third-country insurance or reinsurance companies, at least one of such subsidiaries being an insurance or reinsurance company”. In accordance with Article 338, 6° of the Solvency II Law, a “mixed-activity insurance holding company” is “a parent undertaking other than an insurance or reinsurance company, a third-country insurance or reinsurance company, an insurance holding company or a mixed financial holding company, which includes at least one insurance or reinsurance company among its subsidiaries”.

In order to determine when a company’s main activity can be considered to consist of acquiring and holding participations in subsidiaries that are exclusively or mainly insurance or reinsurance companies, and, as a result, whether the company is an insurance holding company, the Bank analyses the situation based on at least the following criteria:

  1. size of the balance sheet total of the subsidiary insurance or reinsurance company or companies in relation to the balance sheet total of the group;
  2. amount of the turnover (revenue) of the subsidiary insurance or reinsurance company or companies in relation to the overall turnover of the group;
  3. ‎amount of the operating results of the subsidiary insurance or reinsurance company or companies in relation to the overall operating results of the group;
  4. number of FTEs in the subsidiary insurance or reinsurance company or companies in relation to the total number of FTEs in the group;
  5. number of companies with the legal status of subsidiary insurance or reinsurance company in relation to the total number of companies belonging to the group.

If, on the basis of this analysis, the Bank finds that the holding company’s main activity consists of holding one or more insurance companies, this company should be considered an insurance holding company and is required to submit the group reporting described in the eCorporate Communication to the Bank. If the Bank finds that the holding company’s main activity does not consist of holding one or more insurance companies, this company should be considered a mixed-activity insurance holding company and its reporting to the Bank required shall be determined on a case-by-case basis by the Bank and the said company, in accordance with Article 422 of the Solvency II Law.

13.1.3. Specific governance system requirements for Belgian groups

13.1.3.1. Responsibilities as regards establishing internal governance requirements

The entity responsible for the group shall establish internal governance requirements for the whole group commensurate with the structure, activities and risks of the group and associated entities, and set up an appropriate structure and organisation for group-level risk management, with a clear allocation of responsibilities between all companies in the group.

The entity responsible for the group shall not prejudice the responsibilities of the management or supervisory bodies of the companies that form part of the group as part of the implementation of their governance system.

13.1.3.2. Group-level internal governance system

Without prejudice to the obligation to have a risk system at an individual level, the entity responsible for the group:

  1. has appropriate and effective instruments, procedures and responsibility and reporting lines to supervise and steer the operation of the risk management system and internal control system at an individual level;
  2. has reporting lines and effective systems within the group to ensure adequate information flows within the group from the top down and vice versa;
  3. informs all companies within the group on the instruments used to identify, measure, manage, monitor and report all risks to which the group is exposed, and provides these companies with the necessary documentation on the subject;
  4. takes into account the interests of all the companies that form part of the group and the ways in which these interests contribute to the common long-term objectives of the group as a whole.

13.1.3.3. Interaction between the management bodies of the entity responsible for the group and the management bodies of subsidiaries

The board of directors and management committee of the entity responsible for the group shall work effectively with the management or supervisory bodies of all the companies within the group that have a significant influence on the risk profile of the group, by asking for information in anticipation and asking for reports from the management or supervisory bodies of the companies that belong to the group and that have made decisions on aspects that could have an impact on the group.

13.1.4. Specific risk management system requirements for Belgian groups

13.1.4.1. Role of the board of directors and management committee of the entity responsible for the group in the risk management system

The board of directors and management committee of the entity responsible for the group shall ensure the effectiveness of the risk management system for the group as a whole. This group risk management system must at least include the following:

  1. the strategic decisions and policies relating to risk management at a group level;
  2. the definition of the risk appetite and general risk tolerance limits of the group;
  3. the recognition, measurement, management, monitoring and reporting of risks at a group level.

The board of directors and management committee of the entity responsible for the group shall also ensure that their strategic decisions and policies are in line with the group structure, the scale and specific characteristics of the companies that form part of the group. 

The entity responsible for the insurance group shall ensure that the policy is applied consistently throughout the entire group. The policy of the subsidiaries should therefore be in line with the policy of the group.

13.1.4.2. Group-level risk management

The entity responsible for the group shall rely on adequate processes and procedures for its group-level risk management to identify, measure, manage, monitor and report the risks to which the group or each individual entity is or could be exposed.

The entity responsible for the group shall ensure that the structure and the organisation of the group-level risk management does not take away from the legal responsibility of the subsidiaries to comply with their legal, regulatory, and contractual obligations.

13.1.4.3. Risks with a significant effect at group level

The entity responsible for the group shall take into consideration the risks both at an individual level and group level in its risk management system, as well as interdependencies, and in particular:

  1. the reputational risk and risks arising from intra-group transactions and risk concentrations, including risk contagion, at a group level;
  2. the interdependencies between risks arising from conducting activities through different entities and in different jurisdictions;
  3. risks arising from entities in third countries;
  4. risks arising from unregulated entities;
  5. risks arising from other regulated entities.

13.1.4.4. Group-level risk concentrations

The entity responsible for the group shall ensure that there are procedures and processes for detecting, measuring, managing, monitoring and reporting risk concentrations.

13.1.4.5. Intra-group transactions

The entity responsible for the group shall ensure that the risk management system for the group and individual companies have processes and reporting procedures for detecting, measuring, monitoring, managing and reporting intra-group transactions, including significant and very significant intra-group transactions as referred to in the Solvency II Law.

13.1.5. Specific organisational requirements for Belgian groups

13.1.5.1. Organisational and operational structure

The board of directors and management committee of the entity responsible for the group shall assess at group level the consequences of changes in the structure of the group for the long-term financial situation of the companies that form part of the group and apply the necessary adjustments on time. 

To be able to take appropriate measures, the board of directors and management committee of the entity responsible for the group should have sufficient knowledge of the organisational structure of the group, the business model of the various companies, the links and relationships between the companies and the risks arising from the structure of the group.

13.1.5.2. Internal controls

The entity responsible for the group shall ensure consistent enforcement of the internal control system within the group. 

13.1.5.3. Independent control functions

The independent control functions in the group should be coordinated.

As regards internal audit, the entity responsible for the group ensures that the internal audit policy at group level shall describe how the internal audit function coordinates the internal audit activity within the group and ensure compliance with the internal audit requirements at a group level.

13.1.5.4. Outsourcing within a group

For the outsourcing of functions, activities or tasks within the group, please refer to point 7.4.2 above.  Without prejudice to outsourcing rules that the individual insurance companies have to follow, the entity responsible for the group shall draw up the documentation that shows what functions relate to what legal entity, and ensure that the outsourcing contracts do not derogate from the exercise of critical or important functions, activities or tasks at the subsidiary level.

13.1.5.5. Remuneration

The entity responsible for the group shall establish a remuneration policy for the whole group and apply this policy. This policy shall take into account the complexity and structures of the group to establish, develop and enforce a consistent policy for the whole group in line with the group’s risk management strategies. The policy shall apply to all relevant persons at group level and at the level of each subsidiary.

The entity responsible for the group shall ensure the following:

  1. the general consistency of the remuneration policy of the group, by ensuring that this complies with the legal requirements for companies that form part of a group and by supervising the right application thereof;
  2. that all companies belonging to the group meet the requirements regarding remuneration;
  3. that material risks at group level connected to aspects of the remuneration within the group’s companies are managed.

 

[1]    With the exception of Belgian insurance groups headed by a mixed-activity insurance holding company, for which governance is limited to the existence of appropriate administrative and accounting procedures and adequate internal control (Article 450, § 1 of the Solvency II Law).

13.2. governance aspects for insurance companies governed by Belgian law that form part of a foreign group

If the insurance company governed by Belgian law forms part of a foreign group, it should be ensured that the organisation and steering of the group does not derogate from the responsibility of the board of directors and management committee of the subsidiary.

13.2.1. Distribution of tasks between the parent undertaking and subsidiary

The subsidiary’s management committee and board of directors in particular shall ensure that the organisation of the group complies with the rules and obligations of the subsidiary as an independent legal person and regulated undertaking.  This can concern decisions or practices at a group level that contravene: (i) legal and regulatory provisions or prudential rules to which the subsidiary is subject; (ii) technical rules and regulations or codes regulating the activity under a public law statute; (iii) the sound and prudent management and financial equilibrium of the subsidiary; or (iv) the interests of its own stakeholders and the protection of insureds.

In the exercise of their corporate responsibility, the directors of the subsidiary must have appropriate resources to safeguard the interests of the company with the involvement of its stakeholders. For this purpose, group internal mechanisms must be put in place to allow certain decisions or practices at a group level to be identified in this light and brought to the attention of the management bodies of the subsidiary and parent undertaking.

Depending on the group’s management model, these internal mechanisms shall rely for example on a robust supervisory function within the board of directors of the subsidiary, the presence in the management bodies of the subsidiary of directors that are independent from the parent undertaking, or the effective independent control functions of the subsidiary.

13.2.2. Managing conflicts of interest

Diverging interests at a group level must be identified, prevented or managed. These can include:

  1. conflicts of interest arising from the exercise of activities that could create mutual conflicts;
  2. intra-group transactions and capital distribution within the group;
  3. iii.    diverging interests between the parent undertaking and subsidiaries or between subsidiaries themselves, e.g. regarding the allocation of corporate opportunities;
  4. group decisions exercised for the various professions by the various subsidiaries that have a varying impact on the management of their financial situation.

Receivables from related parties must be monitored and handled in accordance with the policy established and form part of an appropriate reporting to the bodies of the insurance company and of the group.