Capital add-on

(1) The supervisory authority may set a capital add-on to the Solvency Capital Requirement for an insurance undertaking only where
1. the risk profile of the insurance undertaking deviates materially from the assumptions underlying the Solvency Capital Requirement calculated using the standard formula, and the requirement under section 96(2) to use an internal model is inappropriate or has been unsuccessful, or an internal full or partial model required under section 96(2) is still being developed,
2. the risk profile of the insurance undertaking deviates materially from the assumptions underlying the Solvency Capital Requirement calculated using an internal model applied as a full or partial model, because certain quantifiable risks have been inadequately captured, and adapting the model to better reflect the actual risk profile has failed within a reasonable timeframe,
3. the business organisation of an insurance undertaking deviates materially from the standards laid down in Part 2, Chapter 1, Division 3, and
a) these deviations prevent the undertaking from adequately identifying, measuring, monitoring, managing, and reporting on the risks to which it is, or could be, exposed, and
b) applying other measures is unlikely to remedy the deficiencies adequately within a reasonable timeframe, or
4. the insurance undertaking applies the matching adjustment under section 80, the volatility adjustment under section 82, or the transitional measures under section 351 or section 352, and the supervisory authority concludes that the risk profile of this undertaking deviates materially from the assumptions underlying that adjustment or transitional measure.
(2) In the cases named in subsection (1), points 1 and 2, the capital add-on is calculated so as to ensure that the undertaking satisfies the requirements of section 97(2). In the cases named in subsection (1), point 3, the capital add-on must be proportionate to the material risks arising from the deficiencies that led to the supervisory authority's decision to set the capital add-on. In the cases named in subsection (1), point 4, the capital add-on must be proportionate to the material risks arising from the deviations named there.
(3) In the cases named in subsection (1), points 2 and 3, setting a capital add-on does not release the insurance undertaking from remedying the deficiencies identified; the supervisory authority takes further measures, as necessary, to remedy the irregularity.
(4) The capital add-on is reviewed by the supervisory authority at least once a year; it is lifted as soon as the undertaking has remedied the deficiencies underlying it.
(5) The Solvency Capital Requirement, including the prescribed capital add-on, replaces the inadequate Solvency Capital Requirement. A capital add-on set under subsection (1), point 3, is disregarded in calculating the risk margin under section 78.