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The Saeima has adopted and the President has proclaimed the following Law:

Insurance and Reinsurance LawDivision A

General ProvisionsChapter I

Terms Used in the Law and the Scope of Application ThereofSection 1. (1) The following terms are used in the Law:

1) insurance — acceptance of the risk of a potential loss from a policyholder;2) reinsurance — acceptance of ceded risks from an insurance merchant, a

reinsurance merchant or a private pension fund;3) ceded reinsurance — transfer of insurance risks to an insurance or reinsurance

merchant;4) retrocession — transfer of reinsurance risks to an insurance or reinsurance

merchant;5) insurance company — a joint stock company registered in the Republic of Latvia,

or the European company (Societas Europaea), or mutual insurance cooperative society, which may pursue insurance under this Law;

6) reinsurance company — a joint stock company or a limited liability company registered in the Republic of Latvia, or a European company, which may pursue reinsurance under this Law;

7) captive insurance company — an insurance company, owned either by a financial merchant other than an insurance or reinsurance merchant, or a group of insurance or reinsurance undertakings or the non-financial merchant thereof, and the purpose of which is to provide insurance cover exclusively for the risks of the merchant or undertakings which own it, or of the merchant or undertakings of the group of which the captive company merchant belongs;

8) captive reinsurance company — a reinsurance company, owned either by a financial merchant other than an insurance or reinsurance merchant, or by a group of insurance or reinsurance undertakings, or by the non-financial merchant thereof, and the purpose of which is to provide reinsurance cover exclusively for the risks of the merchant or undertakings which own it, or of an merchant or undertakings of the group to which the captive reinsurance company belongs;

9) insurer — an insurance company or a branch of a Member State or non-Member State insurer, which has the right to pursue insurance under this Law;

10) reinsurer — a reinsurance company or a branch of a Member State or non-Member State reinsurer, which may pursue reinsurance under this Law;

11) Member State insurer – an insurance company which is registered in a Member State other than the Republic of Latvia and which may pursue insurance in the country of its domicile;

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12) Member State reinsurer — a reinsurance company which is registered in a Member State other than the Republic of Latvia and which has the right to pursue reinsurance in its home country;

13) non-Member State insurer — an insurance company which is registered in a country other than the Member States and which has the right to pursue insurance in its home country;

14) non-Member State reinsurer — a reinsurance company which is registered in a country other than the Member States and which has the right to pursue reinsurance in the country of its domicile;

15) insurance merchant — a legal person which may pursue insurance in a Member State;

16) reinsurance merchant — a legal person which may pursue reinsurance in a Member State;

17) insurance licence — authorisation to pursue the insurance activity; 18) reinsurance licence — authorisation to pursue the insurance activity;19) insurance holding company — a parent company which is not a mixed financial

holding company and the core activity of which is to acquire and have a holding in subsidiaries, if at least one subsidiary company is an insurance or reinsurance merchant, whereas the other subsidiary companies are:

a) only insurance or reinsurance undertakings or non-Member State insurers or reinsurers, of which at least one is an insurance or reinsurance merchant,

b) mainly (according to the most recent approved annual report the total assets or income of insurance companies, reinsurance companies, Member State or non-Member State insurers and Member State and non-Member State reinsurers is more than half of the total assets or income of all the subsidiary companies controlled by the parent company) insurance or reinsurance undertakings or non-Member State insurers or reinsurers, from which at least one is an insurance or reinsurance merchant;20) mixed-activity insurance holding company - a parent company that is not an

insurance or reinsurance merchant, non-Member State insurer or reinsurer, an insurance holding company or a mixed financial holding company, however, at least one of the subsidiary companies of which is an insurance or reinsurance merchant;

21) branch of an insurance company - a branch of an insurance company established and registered outside the Republic of Latvia, which acts on behalf of the insurance company;

22) branch of a reinsurance company - a branch of a reinsurance company established and registered outside the Republic of Latvia, which acts on behalf of the reinsurance company;

23) branch of a Member State insurer — a branch of the Member State insurer, which is established and registered in the Republic of Latvia;

24) branch of a non-Member State insurer — a branch of the non-Member State insurer, which is established and registered in the Republic of Latvia;

25) branch of a Member State reinsurer — a branch of the Member State reinsurer, which is established and registered in the Republic of Latvia;

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26) branch of a non-Member State reinsurer — a branch of the non-Member State reinsurer, which is established and registered in the Republic of Latvia;

27) home Member State — the Member State in which:a) the place of management (the seat of the company) of the insurance merchant or

non-Member State insurer is situated;b) the place of management (the seat of the company) of the reinsurance merchant

is situated. 28) host Member State — a Member State other than the home Member State and in

which:a) the insurance or reinsurance company has a branch,b) the insurance or reinsurance company provides services under the freedom to

provide services principle, without opening a branch;29) Member State — a Member State of the European Union or the European

Economic Area;30) country in which the insured objects related to the insurance risk are located:

a) a country where the insured immovable property or the assets (property) therein are located if the relevant immovable property and the assets located therein are insured under the same insurance contract,

b) the country of registration of a vehicle if a vehicle of any kind is insured,c) a country in which a policyholder has concluded an insurance contract for a term

of up to four months insuring any travelling related risk, andd) in all other cases not mentioned in Sub-clauses ‘a’, ‘b’ and ‘c’ hereof, the country

of permanent place of residence of the policyholder or, if the policy holder is a legal person, the country in which the structural unit thereof to which the insurance contract applies is located;31) outsourced service — a service specified in this Law, the provision of which the

insurance or reinsurance company delegates to the provider of outsourced services based on a written agreement for the outsourced service;

32) stress test - an analysis carried out by an insurance or reinsurance company to determine and assess the likely impact of various exceptional, however, possibly unfavourable events or changes to market conditions on the ability of an insurance or reinsurance company to fully perform its obligations arising from insurance and reinsurance contracts and ensure the financial standing thereof;

33) control — a person has control over a commercial company if:a) such a person has a decisive influence in the commercial company based on the

holding thereof;b) such a person has a decisive influence in the commercial company on the basis

of a contract between a group of companies; orc) any other relationship similar to that referred to in Sub-clause “a” or “b” hereof

exists between such a person and the commercial company; 34) qualifying holding — directly or indirectly obtained holding by a person or several

persons who take concerted action based on an agreement, and such a holding is 10 per cent or more of the share capital or of the shares carrying voting rights of the commercial

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company, or provides the opportunity to significantly influence the development of the financial and operational policies of the commercial company;

35) close links — relationship between two or more persons:a) by holding – a person directly or by means of control has 20 or more per cent of

voting rights in the commercial company, or a person directly or by control has acquired a holding that includes 20 or more per cent of share capital or of shares carrying voting shares,

b) by control,c) if these are related to the same person by control;

36) parent company — a commercial company that controls another commercial company. For the purpose of the supervision of the groups of insurance and reinsurance companies a commercial company which under the assessment by the Financial and Capital Market Commission (hereinafter - the Commission) has a decisive influence shall also be considered a parent company;

37) subsidiary company — a commercial company that is controlled by another commercial company. A subsidiary company of any subsidiary company shall be considered the subsidiary company of the parent company thereof. For the purpose of the supervision of a group of insurance and reinsurance companies a commercial company in which under the assessment by the Commission a parent company has a decisive influence shall also be considered a subsidiary company;

38) participation — ownership of 20 per cent or more of the voting rights in another commercial company acquired directly or by control, or a holding of 20 per cent or more of the share capital or of the shares carrying voting rights of another company, acquired directly or by control, acquired by a commercial company. For the purpose of the supervision of a group of insurance and reinsurance companies participation shall also be a direct or indirect holding or voting rights in the share capital of a commercial company, as a result of which, under the assessment of the Commission, the commercial company has a decisive influence in another commercial company.;

39) participating company — a parent company or a commercial company, which has acquired participation in a commercial company, or a commercial company whose links to a commercial company are manifested as the joint management of these companies under the concluded agreement or the foundation document of these commercial companies, or the provisions of their articles of association, or owing to the fact that during the financial year at least half of the members of any management body were the same persons;

40) associated company — a subsidiary company or a commercial company, in which participation has been acquired, or a commercial company whose links to a commercial company are manifested as the joint management of these companies under the concluded agreement or the foundation document of these commercial companies, or the provisions of their articles of association, or owing to the fact that during the financial year at least half of the members of any management body were the same persons;

41) group — a group of commercial companies:a) consisting of a participating company, its subsidiary companies and commercial

companies, in which the participating companies or the subsidiary companies thereof

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have participation, as well as commercial companies linked to the participating company, the subsidiary thereof or a company in which the participating company or the subsidiary company thereof has participation, manifests itself as joint management of these companies under the concluded agreement or the foundation documents of these commercial companies, or the provisions of their articles of association or owing to the fact that during the financial year at least half of the members of any management body were the same persons;

b) which is based on establishing firm and sustainable contractual relations or financial relations of another kind between these commercial companies and which can include mutual insurance cooperative companies, if one of these commercial companies has, through centralised coordination, decisive influence over the decision-making of the commercial companies united in the group, including financial decisions, and the establishing or termination of such relations have been approved, for the purpose of the supervision of the group, by the supervisory authority of the group. The commercial company engaged in such centralised coordination shall be considered a parent company, whereas the other commercial companies shall be considered subsidiary companies;42) financial merchant is:

a) a credit institution, financial institution within the meaning of the Credit Institution Law or a commercial company whose core activity is the buying or management of immovable property, provision of data processing services or any other similar activity that supplements the basic activity of one or several credit institutions,

b) an insurance or reinsurance merchant or an insurance holding company,c) an investment firm or financial institution within the meaning of Article 4,

Paragraph 1, Sub-paragraph 26 of Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (Text with EEA relevance),

d) a mixed financial holding company;43) supervisory authority — an authority of a Member State or a non-Member State

which is conferred with the statutory right to carry out the supervision of Member State insurers, Member State reinsurers, non-Member State insurers, and non-Member State reinsurers;

44) free capital — the value of assets owned by a person, which is reduced by the value of liabilities of the person and the value of such assets, which are considered to be long-term investments;

45) technical provisions — the sum of the best estimate of technical provisions and the risk margin;

46) fund participant — a commercial company which may pursue insurance under this law, and branch of a Member State or non-Member State insurance which makes payments into the Insured Protection Fund;

47) competent authority — a court, liquidator, administrator and another institution or a person who pursuant to its statutory powers adopts decisions on reorganisation

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measures or winding-up, carries out reorganisation measures or winding-up, or supervises the course of reorganisation measures or winding-up;

48) reorganisation measures — legal acts carried out in respect of the insurance merchant or the branch of a non-Member State insurer which injure or might injure the rights of the third parties and which are carried out in order to preserve or restore the solvency of the insurance merchant or the non-Member State insurer, and which have an impact on the existing rights of any such party, which itself is not an insurance company or branch of a non-Member insurer;

49) netting of claims and liabilities — legal relations established between a debtor and a creditor under a written agreement after the commencement of the winding-up of a debtor or declaration of the insolvency thereof to aggregate the claims and liabilities arising from mutual contracts into a single claim or liability so that only a single claim is brought and only a single obligation shall be performed;

50) cancellation of claims and liabilities — complete mutual cancellation of the claims and liabilities of the debtor and creditor arising from the contract after the commencement of the winding-up of a debtor or declaration of the insolvency thereof regardless of the amount (sum) of claims and liabilities;

51) function — administrative capacity to carry out the objectives of the system of system of governance laid down in this Law. The system of governance includes the risk management function, compliance function, internal audit function and actuarial function;

52) European Insurance and Occupational Pensions Authority (hereinafter — EIOPA) — the body established in accordance with Regulation (EU) No. 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision 716/2009/ECK and repealing Commission Decision 2009/79/EC (hereinafter — EU Regulation No. 1094/2010);

53) supervisory authority of the group — a Member State supervisory authority carrying out the supervision of the group, managing the college of supervisors and arranging for the work thereof;

54) college of supervisors — an advisory co-operation unit established by the supervisory authorities of Member States, which operates on the basis of the cooperation agreement between the supervisory authorities involved;

55) principle of proportionality — application of the requirements of this Law and supervisory measures pursuant to the type and scale of activity of an insurance or reinsurance company, and the complexity of the risks inherent to the activity of insurance or reinsurance companies.

(2) The terms used in this Law conform to those used in the law On Insurance Contract and Financial Conglomerates Law .

Section 2. (1) The purpose of this Law is to ensure supervision of the activity of insurers and reinsurers with a view to achieving a reliable, effective, secure and sound insurance system, thereby protecting the interests of policyholders and the insured.

(2) This Law lays down the procedure for the commencement and pursuing of the insurance and reinsurance activity, supervision of the insurance and reinsurance activity, supervision of

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insurance and reinsurance groups, and the reorganisation measures and winding-up of insurance companies and the branches of non-Member State insurers.

(3) This Law applies to persons that provide or wish to provide non-life insurance, life insurance or reinsurance services in the Republic of Latvia.

Section 3. (1) This Law does not apply to:1) national social insurance;2) the transactions of self-assistance funds, the amount of the disbursed indemnity of

which is dependent on the available funds and in the contribution of the members of which is determined based on a single rate;

3) the following non-life insurance transactions:a) State guaranteed export credit insurance transactions,b) operations carried out by organisations other than legal persons in order to

provide mutual insurance to the members thereof without making premium payments or establishing technical provisions;4) life insurance operations carried out by organisations other than insurance

companies or the branches of non-Member State insurers, or reinsurance companies, or the branches of non-Member State reinsurers, the objective of which is to ensure for the employees thereof or for the employees of the group of companies or for the employees of an occupation or a group of occupations, or for the self-employed, indemnity in the event of death or survival or of discontinuance or curtailment of activity, whether or not the commitments arising from such operations are fully covered at all times by mathematical provisions;

5) undertakings who commit to disburse indemnity under a life insurance contract only in the event of death if the amount of the indemnity does not exceed the average amount of the funeral expenses of one person or if the indemnification is intended to be disbursed in the form of provided services;

6) technical, maintenance, guarantee repairs and similar services which are provided by persons other than insurers;

7) services provided in the home country of the person in the event of a breakdown of a vehicle or an accident:

a) the technical services provided on the site of the breakdown of the vehicle,b) the conveyance of the vehicle to the nearest location where it can be repaired, as

well as the carrying of the driver and passengers to the nearest location from where they can continue their journey by another vehicle,

c) the carrying of the vehicle, the driver and passengers, within the territory of the Republic of Latvia, to the permanent place of residence of the driver or passengers or the place from which they left for their journey or to the destination of the journey;8) services provided to the members of various motor clubs where assistance in the

event of a vehicle breakdown or the carriage thereof is ensured by the motor clubs in the country in which they are located, and such motor clubs have entered into a mutual cooperation agreement;

9) mutual insurance cooperative companies, which concurrently meet the following criteria:

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a) pursue insurance only in the classes of insurance specified in Section 19, Paragraph one, Clauses 1, 2, 3, 4, 5, 6, 7, 8, 9, 16, 17 and 18 of this Law,

b) have entered into a contract with other mutual insurance cooperative companies, which provides for full reinsurance of the insurance policies issued by them or under which assignees take over the obligations of assignors, which arise from such policies,

c) annual gross revenue from insurance premiums does not exceed five million euros,

d) the amount of gross technical provisions, before deducting the amounts recoverable under reinsurance contracts, does not exceed 25 million euros,

d) the amount of gross technical provisions, before deducting the amounts recoverable under reinsurance contracts of the group, if the mutual insurance co-operative company belongs to a group, does not exceed 25 million euros,10) reinsurance services provided or fully guaranteed by the government of the

Member State, if in the name of significant public interests it acts as a reinsurer, as well as in circumstances when adequate reinsurance cover cannot be obtained in the market.

(2) The services listed in Paragraph one, Clause 7 hereof shall be considered insurance if provided by an insurer under the concluded insurance contracts.

Chapter II General Provisions for Insurance and Reinsurance Activity

Section 4. (1) Only a person who has obtained an insurance or reinsurance licence may provide insurance and reinsurance services.

(2) An insurance or reinsurance company may start its activity only after obtaining an insurance or reinsurance licence.

(3) An insurance or reinsurance licence shall be issued for an indefinite term in accordance with this Law.

(4) The Commission shall lay down the procedure for the issuance of insurance or reinsurance licences.

(5) An insurance licence issued to the insurance company and a reinsurance licence issued to a reinsurance company shall be valid in Member States, under the right of establishing a branch or under the freedom to provide services principle, providing insurance or reinsurance services without opening a branch.

Section 5. (1) An application for obtaining an insurance licence can be submitted by:1) a joint stock company or European company, or by a mutual insurance cooperative

society, which has been entered in the register of the Register of Enterprises as a cooperative company, which establishes its head office in the Republic of Latvia;

2) non-Member State insurer, which opens a branch in the Republic of Latvia;3) an insurance company or branch of a non-Member State insurer, which has obtained

an insurance licence and wishes to extend the scope of its activity engaging in the provision of insurance services in other classes of insurance, for the pursuit of which it has not obtained a licence yet.

(2) An application for obtaining a reinsurance licence can be submitted by:1) a joint stock company or a limited liability company, or the European company,

which establishes its head office in the Republic of Latvia;

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2) a reinsurance company which has obtained a reinsurance licence and wishes to extend the scope of its activity engaging in the provision of reinsurance services in other classes of reinsurance, for the pursuit of which it has not obtained a licence yet.

Section 6. (1) Insurance shall be voluntary, unless provided otherwise in the law.(2) Reinsurance is voluntary.(3) A merchant is prohibited from using the word “insurance” or the word “insurer” in any case

or a word-combination in the name of its firm in a manner that could give rise to a misleading view about its right to pursue insurance or provide the services of an insurance intermediary.

(4) A merchant is prohibited from using the word “reinsurance” or the word “reinsurer” in any case or a word-combination in the name of its firm in a manner that could give rise to a misleading view about its right to pursue reinsurance or provide the services of a reinsurance intermediary.

Section 7. (1) The amount of an insurance premium shall be determined by the insurer. Insurance companies or the branches of non-Member State insurers shall develop and approve the policy and procedure for the underwriting of the insurance risk and the determination of the insurance premium and shall be liable for compliance with this procedure.

(2) The insurance premium shall be determined at such an amount to perform the obligations provided for under the insurance contract and cover the expenses necessary for providing the insurance cover.

(3) Insurance companies shall permanently assess the compliance of insurance premiums and reinsurance premiums with the requirement laid down in Paragraph two hereof.

Section 8. (1) The amount of a reinsurance premium shall be determined by the reinsurer.(2) The reinsurance premium shall be determined at such an amount to perform the

obligations provided for under the reinsurance contract and cover the expenses necessary for providing the reinsurance cover.

Section 9. It is prohibited to differentiate the amounts of insurance premiums and insurance indemnities based on:

1) gender;2) a woman being pregnant or being in the postnatal period for a term of up to one

year; and if the woman breast feeds her child — throughout the breastfeeding period.Section 10. (1) An insurance company shall:

1) provide insurance in the classes of insurance specified in the licences issued to it by the Commission;

2) provide intermediary services to another insurer, Member State insurer, non-Member State insurer, reinsurer and a Member-State reinsurer. Intermediary services shall be provided to a non-Member State insurer in accordance with the provisions of Paragraph three hereof; and

3) carry out a business directly related to insurance;4) An insurance company that has obtained a life insurance licence shall attract the

members of a pension plan to the private pension fund.(2) An insurance merchant shall not:

1) carry out another type of business, except in the cases provided for in the law;2) disseminate false and misleading advertising regarding the activity thereof;

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3) disclose information acquired during the insurance process regarding the insured, policyholder, and the third party, except in the cases provided for in this Law and other laws. If the information is disclosed in the cases provided for in laws, the insurance merchant shall not be liable for the consequences of the disclosure of information.

(3) An insurer may provide intermediary services to a non-Member State insurer only in the classes of insurance which are stipulated as compulsory in the non-Member State, if:

1) the Insured Protection Fund is being established, from which insurance indemnities shall be paid in the case of insolvency of the non-Member State insurer; and

2) the Commission and the supervisory authority of the non-Member State have agreed on cooperation and the exchange of information necessary for the carrying out of the supervisory function.

(4) An insurance company shall not issue debt securities or raise loans. This restriction shall not apply to loans, which are included in the calculation of the own funds of an insurance company as well as to loans, which mature within three months if these loans have been raised in order to ensure the timely disbursement of insurance indemnities (regarding the disbursement of which the insurer has adopted a decision) and before the raising thereof, these loans have been approved by the Commission.

Section 11. (1) A reinsurance company shall carry out:1) reinsurance in the classes of reinsurance specified in the reinsurance licence issued

by the Commission;2) a business directly related to reinsurance;3) a business activity that is directly related to reinsurance mediation.

(2) A reinsurance merchant shall not:1) engage in a business activity that is not prescribed in Paragraph one hereof; 2) disclose information obtained in the course of reinsurance, except for cases provided

in this Law and other laws. If the information is disclosed in cases provided for in laws, the reinsurance merchant shall not be liable for the consequences of the disclosure of information.

(3) A reinsurance company shall not issue debt securities or raise loans. This restriction shall not apply to loans, which are included in the calculation of the own funds of a reinsurance company as well as to loans, which mature within three months if these loans have been raised in order to ensure the timely disbursement of reinsurance indemnities (regarding the disbursement of which the reinsurer has adopted a decision) and before the raising thereof, these loans have been approved by the Commission.

Section 12. (1) To pursue insurance and reinsurance in the Republic of Latvia, an insurer or a Member State insurer may use the services of only such insurance and reinsurance intermediaries which are authorised to provide insurance and reinsurance intermediary services in the Republic of Latvia.

(2) To pursue insurance or reinsurance abroad, an insurance company may, complying with the laws and regulations of the respective country, use the services of only such insurance or reinsurance intermediaries which are authorised to provide insurance or reinsurance intermediary services in the respective country.

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(3) To pursue reinsurance in the Republic of Latvia, a reinsurer or a Member State reinsurer may only use the services of such reinsurance intermediaries who are authorised to provide the services of reinsurance intermediaries in the Republic of Latvia.

(4) To pursue reinsurance abroad, a reinsurance company may, complying with the laws and regulations of the respective country, use the services of only such reinsurance intermediaries which are authorised to provide reinsurance intermediary services in the respective country.

Section 13. (1) Only an insurance or reinsurance merchant, which is authorised to provide insurance or reinsurance in the Republic of Latvia, may advertise the insurance or reinsurance services to be provided in the Republic of Latvia.

(2) An insurance or reinsurance company, complying with the laws and regulations of the respective country, may advertise the insurance or reinsurance services to be provided only in the country where the respective company is authorised to open a branch or where it is authorised to provide insurance or reinsurance services, under the freedom to provide services principle, without opening a branch.

(3) In advertising insurance related to the unit-linked life insurance contract, the advertising shall not contain information about any future guaranteed profit or profitability level. When referring to the profitability of insurance related to the unit-linked life insurance contract, the advertising shall contain information that the past profitability does not guarantee similar profitability in the future.

Section 14. (1) An insurer and a reinsurer shall be regarded as the participant of the finance and capital market.

(2) For the purpose of financing the activity of the Commission, insurers shall pay:1) up to 0.4 per cent (inclusive) — of their life insurance with accumulation of funds

transactions; 2) up to 0.2 per cent (inclusive) — of their compulsory third party liability insurance of

motor vehicle owners transactions;3) up to 0.7 per cent (inclusive) — of other insurance transactions;

(3) For the purpose of financing the activity of the Commission, reinsurers shall pay up to 0.7 per cent of the total amount of reinsurance premiums received in a quarter.

(4) Insurers and reinsurers shall submit, according to the procedure and within the term laid down by the Commission, a statement that is necessary to calculate the payments provided for in Paragraph two and three hereof, and make the respective payments by the thirtieth day of the month following the end of the quarter.

(5) The Commission shall prescribe the procedure for the submission of the statements referred to in Paragraph four hereof and the calculation of the payments.

Section 15. An insurer shall develop and comply with a written internal procedure under which:

1) in providing insurance services, an honest and candid attitude towards the policyholder, the insured and the person who has the right to claim the insurance indemnity under the concluded insurance contract shall be ensured;

2) the insurer provides:a) information to the policyholder, requested by the latter, pertaining to the

insurance transaction entered into between the insurer and the respective policyholder,

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b) information to the insured person and the person who has the right to claim insurance indemnity under the concluded insurance contract requested by them pertaining to their right to receive insurance indemnity and the duties owed to the insurer,

c) information on the deadline (which does not exceed 30 days) within which the information referred to in this paragraph shall be provided;3) the insurer shall prevent potential conflicts of interest of its employees pertaining to

receiving and using the information necessary for the insurance transaction.Section 16. (1) An insurer shall not pursue life and non-life insurance concurrently.(2) The provision laid down in Paragraph one hereof shall not limit an insurance company

which:(1) has obtained the licence for pursuing life insurance to request and obtain the

licence for pursuing accident and health insurance;2) has obtained the licence for pursuing accident and health insurance to request and

obtain the licence for pursuing life insurance.(3) If an insurance company pursues life and non-life insurance under Paragraph two hereof, it

shall pursue each insurance separately pursuant to the requirements laid down in Section 17 of this Law.

(4) Life and non-life insurance companies, which are mutually related financially, commercially or administratively shall not conclude mutual agreements or take other measures that may affect the cost and income allocation, as well as adversely affect the financial standing of the mentioned insurance companies.

Section 17. (1) An insurance company shall ensure the life insurance is separated from non-life insurance.

(2) An insurance company engaged in life and non-life insurance shall ensure that the profit from life insurance benefits policyholders in the same manner as if the life insurance company were to pursue only life insurance.

(3) The insurance companies referred to in Section 16, Paragraph two of this Law shall calculate:

1) the nominal life insurance minimum capital requirement applicable to the life insurance or reinsurance activity of the insurance company, based on the operational reports of the insurer, in which the life-insurance activity is segregated from the non-life insurance activity, and assuming that the insurance company pursues only life insurance;

2) the nominal non-life insurance minimum capital requirement applicable to the non-life insurance or reinsurance activity of the insurance company, based on the operational reports of the insurer, in which the life insurance activity is segregated from the non-life insurance activity, and assuming that the insurance company pursues only non-life insurance;

(4) The procedure for the calculation of the nominal life-insurance minimum capital requirement and the nominal non-life insurance minimum capital requirement is laid down in European Commission Delegated Regulation (EU) No. 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance ) (hereinafter — EU Regulation No. 2015/35).

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Section 18. (1) The insurance companies mentioned in Section 16, Paragraph two of this Law shall have eligible basic own funds at their disposal:

1) in the amount of the nominal life insurance minimum capital requirement applicable to the life insurance activity;

2) in the amount of the nominal non-life insurance minimum capital requirement applicable to the non-life insurance activity;

(2) The quantitative and qualitative requirements of laws and regulations applicable to the procedure for the calculation of the eligible basic own funds to comply with the nominal life insurance minimum capital requirement and the nominal non-life insurance minimum capital requirement shall be applied separately to life and non-life insurance activities.

(3) The quantitative and qualitative requirements of laws and regulations applicable to the procedure for the calculation of the eligible basic own funds to comply with the solvency capital requirement shall be applied jointly to life and non-life insurance activities.

(4) If the total of the eligible basic own funds items required for one of the insurance activities mentioned in Paragraph one hereof is insufficient to cover the nominal minimum capital requirement, the requirements laid down in Chapter XVII of this Law applicable in cases of non-compliance with the minimum solvency capital requirement shall apply to the insurance activity for which the nominal minimum capital requirement has not been covered, regardless of the performance of the second insurance.

(5) An insurance company may carry forward certain items of the eligible basic own funds from one insurance activity to another, subject to the approval of the Commission.

Chapter III Licensing of the insurance activity

Section 19. (1) The Commission shall issue insurance licences for the following classes of non-life insurance:

1) accident insurance;2) health insurance (insurance against illnesses);3) motor transport (except railway transport) insurance;4) railway transport insurance;5) aircraft insurance;6) marine vessel insurance;7) freight insurance;8) property insurance against damage by fire and natural disasters (damage caused to

the property except for the property mentioned in Clauses 3, 4, 5, 6 and 7 hereof by fire, explosion, nuclear power, subsiding of land and other disasters);

9) property insurance against other damage (damage caused to the property except for the property mentioned in Clauses 3, 4, 5, 6 and Section 7 hereof caused by hail, frost, theft and other accidents, except those referred to in Clause 8, Paragraph one hereof);

10) motor vehicle owner third party liability insurance;11) aircraft owner third party liability insurance;12) ship owners’ liability third party insurance;13) general third party liability insurance;14) credit insurance;15) surety insurance;

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16) miscellaneous financial loss insurance;17) legal expenses insurance;18) assistance insurance.

(2) The Commission shall issue insurance licences for the following classes of life insurance:1) life insurance;2) marriage and child birth insurance;3) unit-linked life insurance;4) tontine;5) capital redemption transactions;6) pension fund management;7) annuity insurance.

(3) The insurance licence shall be issued for each class of insurance separately.(4) The licence to pursue life insurance shall include the right to pursue the following

insurance:1) insurance, which provides for the disbursement of insurance indemnity to a particular

person in cases specified in the contract, which are related to the life of the insured, as well as in cases where the insured has died or the contract has matured or the insured has reached a certain age;

2) insurance against bodily injuries that cause work incapacity, insurance against accidents that cause death, and insurance against disability, resulting from an accident or due to illness, if such insurance is taken in addition to the life insurance referred to in Clause 1 hereof;

3) insurance, which provides for the disbursement of the insurance indemnity in cases prescribed by the contract in the form of regular payments until the death of the insured or the expiry of the term laid down in the contract;

4) insurance, which provides for the performance of the obligations of an insurance company or the branch of a non-Member State insurer upon the maturity of the insurance in return for one-off or periodic insurance premium payments.

(5) At the request of the insurance company, the licence obtained shall specify the risks, which the insurance company may insure.

(6) In assessing the shareholders of the insurance company for compliance with the requirements laid down in this Law and the information contained in Section 23 of this Law, the Commission may lay down the conditions for the provision of insurance services in the insurance licence for protecting the interests of the insured.

Section 20. (1) An insurance company that has obtained an insurance licence for pursuing insurance in any of the classes of insurance mentioned in Section 19, Paragraph one of this Law, may insured the risk related to another class of insurance (additional risk), if the insurance risk meets all of the requirements listed herein:

1) it is directly related to the insurance of the potential risk of loss in that class of insurance for which an insurance licence has been obtained;

2) it relates to the same insurance object that has been insured in that class of insurance for which an insurance licence has been obtained;

3) is insured under the same insurance contract.

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(2) Paragraph one hereof does not apply to the following classes of insurance: loan insurance, surety insurance, and legal expenses insurance.

(3) Legal expenses insurance without obtaining the relevant insurance licence can be pursued only together with assistance insurance, if the requirements laid down in Paragraph one hereof as well as one of the following requirements are met:

1) the main risk concerns only such assistance that is provided to persons, which have encountered difficulties while travelling, away from their homes or away from their permanent places of residence;

2) the insurance covers the risks arising from the use of marine vessels or related thereto.

Section 21. (1) Insurance licence shall be issued if the person meets the following requirements:

1) has been entered in the commercial register as a joint stock company or European company, or has been entered in the register of the Register of Enterprises as a cooperative company;

2) intends to pursue insurance and a business directly related to insurance;3) ensures the eligible basic own funds in the amount of the absolute floor of the

minimum capital requirement specified in Section 130, Paragraph three of this Law;4) provides proof that it will be able to comply with the minimum capital requirement laid

down in Section 117 of this Law;5) provides proof that it will be able to comply with the solvency capital requirement laid

down in Section 116 of this Law;6) provides proof that the system of governance of the insurance company complies

with the requirements laid down in Chapter VII and Chapter VII of this Law;7) has submitted the application specified in Section 22, Paragraph one of this Law,

and the documents required to be enclosed thereto;8) the Commission has not identified the occurrence of the circumstances referred to

in Section 31, Paragraph one of this Law.(2) An insurance licence for another class of insurance shall be issued if the insurance

company meets the following requirements:1) provides proof that it complies with the minimum capital requirement laid down

in Section 117 of this Law;2) provides proof that it complies with the solvency capital requirement laid down

in Section 116 of this Law;3) has submitted the application specified in Section 22, Paragraph two of this Law,


in Section 31, Paragraph one of this Law.(3) If the insurance company pursuing life insurance wishes to obtain the licence for the class

of non-life insurance referred to in Section 19, Paragraph one, Clauses 1 or 2 of this Law, the insurance licence shall be issued if such company:

1) ensures that the eligible basic own funds cover the absolute floor of the minimum capital requirement for life insurance companies as well as the absolute floor of the

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minimum capital requirement for non-life insurance companies, as provided for in Section 130, Paragraph three of this Law;

2) provides proof that it will be able to maintain the eligible basic own funds in the amount that will cover the minimum capital requirement as provided for in Section 18, Paragraph one and two of this Law in the future.

(4) If the insurance company pursuing non-life insurance in the class of non-life insurance provided for in Section 19, Paragraph one, Clauses 1 or 2 of this Law, also wishes to obtain the licence for any of the classes of life insurance provided for in Section 19, Paragraph two of this Law, the insurance licence shall be issued if the relevant company meets the requirements laid down for an insurance company pursuing life insurance.

Section 22. (1) In order to obtain an insurance licence, the insurance company shall submit to the Commission:

1) an application for the issuance of the licence for one or several classes of insurance;2) the scheme of operations specified in Section 23 of this Law;3) a document issued by a credit institution, which supports the payment of cash in the

amount of the absolute floor of the minimum capital requirement;4) documents supporting that its system of governance is consistent with the

requirements laid down in Chapter VII and Chapter VII of this Law:a) a list of shareholders or members, who have qualifying holdings in the insurance

company, as well as information regarding the group's structure,b) a list of persons with which the insurance company has close links,c) particulars of the officials, which support that these persons qualify under the

requirements laid down in Section 58 and Section 61 of this Law,d) the policy and procedures for the calculation of technical provisions,e) the policy and procedures for insurance and reinsurance underwriting and

premium-setting,f) information on the organisational structure of the insurance company with clearly

defined authority and responsibility lines, the tasks of structural units and the responsibilities of the managers thereof,

g) the policy and procedures for risk management,h) the policy and procedures for internal control,i) procedures for the exchange of internal information,j) policy and procedures of internal audit,k) policy for receiving outsourced services and procedure for the monitoring of the

quality of outsourced services if the insurance company intends to use the services of the providers of outsourced services,

l) accounting policy and the main principles for the organisation of accounting,m) the policy and procedures for the protection of the information system, n) the policy and procedures for the identification of unusual and suspicious

financial transactions. The policies and procedures shall be submitted by the insurance company that wishes to obtain a life insurance licence,

o) the internal procedure specified in Section 15 of this Law,p) the policy and procedures for ceded reinsurance and retrocession, p) the policy of and procedures for investing.

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(2) In order to obtain an insurance licence for another class of reinsurance, the insurance company shall submit to the Commission:

(1) An application for obtaining an insurance licence for another class of insurance:2) The calculation of expenses necessary for the taking up the new class of insurance

and information on the source of funds for covering them; 3) the action plan specified in Section 23 of this Law;

(3) The insurance company wishing to obtain a licence for assistance insurance shall submit information to the Commission about the funds available at its disposal and about concluded contracts, which provide for the provision of assistance to the insured under the obligations assumed by it in this class of insurance.

(4) If a non-life insurance company wishes to receive an insurance licence for the class of non-life insurance specified in Section 19, Paragraph one, Clause 10 of this Law, except the liability of carriers, and intends to pursue the compulsory third party liability insurance of motor vehicle owners, it shall submit a written confirmation to the Commission that the insurance company is a member of the Motor Insurers' Bureau of Latvia (in the meaning of the Compulsory Civil Liability Insurance of Owners of Motor Vehicles Law) as well as the member of the respective guarantee fund, and shall notify of the name (first name and surname) of the representatives and the registered office of such insurance companies in each Member State, which are involved in the decision-making on the disbursement of insurance indemnities or refusal to disburse them, as well as ensure the disbursement of insurance indemnities.

Section 23. (1) The following shall be included in the scheme of operations:1) a description of the risks to be insured and reinsured;2) the main principles of ceded reinsurance and retrocession and the procedures

thereof; 3) information on the basic own-funds items constituting the absolute floor of the

minimum capital requirement;4) information on the estimates of the costs of setting up the administrative services

and the organisation for securing business; the financial resources intended to meet those costs, and, if the risks to be insured belong to the class of non-life insurance specified in Section 19, Paragraph one, Clause 18 of this law, information on the resources at the disposal of the insurance company for the provision of the assistance promised under the insurance contract.

(2) In addition to the requirements laid down in Paragraph one hereof, the following shall be included in the scheme of operations for the first three financial years:

1) a draft report that presents the financial position at the end of each reporting period, and the draft report on the financial performance in each reporting period;

2) information on the estimated solvency capital requirement calculated pursuant to Section 116 and Section 119 of this Law, based on the draft reports mentioned in Clause 1 hereof, as well as the calculation method used to derive those estimates;

3) information on the estimated minimum capital requirement calculated pursuant to Section 117 and Section 130 of this Law, based on the draft report mentioned in Clause 1 hereof, as well as the calculation method used to derive those estimates;

4) information on financial resources to cover the performance of insurance obligations, as well as of the minimum capital requirement and insolvency capital requirement;

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5) in regard to non-life insurance companies:a) information on the estimated administrative expenses other than the start-up

expenses of the insurance company, and on customer acquisition costs,b) information on estimated insurance premiums or other contributions, as well as

on insurance indemnities;6) in regard to life insurance companies — estimates of income and expenditure for

insurance business, reinsurance and ceded reinsurance.Chapter III

Licensing of the Reinsurance ActivitySection 24. (1) The Commission shall issue reinsurance licences for the following classes of

reinsurance:1) reinsurance of life insurance risks;2) reinsurance of non-life insurance risks;3) reinsurance of life insurance risks and non-life insurance risks.

(2) A reinsurance licence shall be issued for each class of reinsurance separately.(3) A reinsurance licence for the reinsurance of life insurance risks shall permit the

reinsurance of life insurance risks.(4) A reinsurance licence for the reinsurance of non-life insurance risks shall permit the

reinsurance of non-life insurance risks.(5) A reinsurance licence for the reinsurance of life and non-life insurance risks shall permit

the reinsurance of life and non-life insurance risks.Section 25. (1) A reinsurance licence shall be issued if the reinsurance company meets the

following requirements:1) it has been entered in the commercial register as a joint stock company or a limited

liability company, or European company;2) intends to pursue reinsurance and business directly related to reinsurance;3) possesses the eligible basic own funds to cover the absolute floor of the minimum

capital requirement specified in Section 130, Paragraph three of this Law;4) provides proof that it will be in a position to comply with the minimum capital

requirement laid down in Section 117 of this Law;5) provides proof that it will be in a position to comply with the solvency capital

requirement laid down in Section 116 of this Law;6) provides proof that the system of governance of the reinsurance company complies

with the requirements laid down in Chapter VII and Chapter VIII of this Law;7) has submitted the application specified in Section 26 , Paragraph one of this Law,


in Section 31, Paragraph one of this Law.(2) A reinsurance licence for another class of reinsurance shall be issued if the reinsurance

company meets the following requirements:1) provides proof that it complies with the minimum capital requirement laid down

in Section 117 of this Law;2) provides proof that it complies with the solvency capital requirement laid down

in Section 116 of this Law;

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3) has submitted the application specified in Section 26, Paragraph two of this Law, and the documents required to be enclosed thereto;

4) the Commission has not identified the occurrence of the circumstances referred to in Section 31, Paragraph one of this Law.

Section 26. (1) In order to obtain a reinsurance licence, the reinsurance company shall submit to the Commission:

(1) An application for obtaining a reinsurance licence:2) the scheme of operations specified in Section 27 of this Law;3) a document issued by a credit institution, which supports the payment of cash in the

amount of the absolute floor of the minimum capital requirement;4) documents supporting that its system of governance complies with the requirements

laid down in Chapter VII and VIII of this Law:a) a list of shareholders and information on the group structure,b) a list of persons with which the reinsurance company has close links,c) particulars of the officials, which support that these persons qualify under the

requirements laid down in Sections 58 and 61 of this Law,d) the policy and procedures for the calculation of technical provisions,e) the policy and procedures for reinsurance underwriting and reinsurance

premium-setting,f) information on the organisational structure of the reinsurance company with

clearly defined authority and responsibility lines, the tasks of structural units and the responsibilities of the managers thereof,

g) the policy and procedures for risk management,h) the policy and procedures for internal control,i) procedures for the exchange of internal information,j) the policy and procedure for internal audit,k) policy for receiving outsourced services and procedure for the monitoring of the

quality of outsourced services if the reinsurance company intends to use the services of the providers of outsourced services,

l) ) accounting policy and the main principles for the organisation of accounting,m) the policy and procedures for protection of the information systems, n) the policy and procedures for the identification of unusual and suspicious

financial transactions,o) the policy and procedure for retrocession,p) the policy and procedures for investing.

(2) In order to obtain a reinsurance licence for another class of reinsurance, the reinsurance company shall submit to the Commission:

(1) An application for obtaining a reinsurance licence for another class of reinsurance:2) The calculation of additional expenses necessary for taking up the new class of

reinsurance and information on the source of funds necessary to cover them;3) the scheme of operations specified in Section 27 of this Law;

Section 27. (1) The following shall be included in the scheme of operations:1) a description of the risks to be reinsured;

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2) information on reinsurance contracts that the reinsurance company intends to conclude with insurance and reinsurance companies;

3) main principles of and procedures for retrocession;4) information on the basic own-funds items constituting the absolute floor of the

minimum capital requirement;5) information on the estimates of the administrative costs of setting up the operations

and the organisation for securing business, and the financial resources intended to meet those costs.


1) a draft report that presents the financial position at the end of each reporting period, and the draft report on the financial performance in each reporting period;

2) information on the estimated solvency capital requirement calculated pursuant to Section 116 and Section 119 of this Law, based on the draft report mentioned in Clause 1 hereof, as well as the calculation methods used to derive the estimate;

3) information on the estimated minimum capital requirement calculated pursuant to Section 117 and Section 130 of the Law based on the draft report mentioned in Clause 1 hereof, as well as the calculation methods used to derive the estimate;

4) information on the financial resources to cover reinsurance obligations, the minimum capital requirement, and insolvency capital requirement;

5) in regard to non-life reinsurance companies:a) information on the estimated administrative expenses other than the start-up

expenses of the insurance company, and on customer acquisition costs,b) information on estimated reinsurance premiums or other contributions, as well as

on reinsurance indemnities;Section 28. A special purpose vehicle may be set up in the Republic of Latvia.(2) A special purpose vehicle shall mean a commercial company other than an insurance or

reinsurance merchant, which assumes risks from an insurance or reinsurance merchant and which fully funds its exposure to such risks through borrowings or through any other financing mechanism where such borrowings or other financing mechanism is subordinated to the reinsurance obligations of such a merchant.

(3) A special purpose vehicle may commence its activity in the Republic of Latvia only after obtaining the licences issued by the Commission.

(4) The requirements for obtaining the licence referred to in Paragraph three hereof, as well as the requirements governing the activity of a special purpose vehicle is laid down in EU Regulation No. 2015/35.

Chapter V Joint Provisions for the Licensing of Insurers and Reinsurers

Section 29. (1) The following may be a shareholder or a member of an insurance company and the shareholder or a member of the reinsurance company:

1) a natural person;2) a legal (registered) person the financial accounts of which are prepared according to

the International Accounting Standards and the International Financial Reporting Standards, and audited according to the International Standards on Auditing, to which a

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report of a sworn auditor is attached. The financial statements of a legal person registered in the Member State may be prepared under the existing accounting standards of the respective Member State;

3) a state or a local government.(2) The persons mentioned in Paragraph one hereof shall be identifiable, have good repute

and financial stability, and the lawfulness of the acquisition of their financial means can be supported with documents.

(3) In evaluating the person’s reputation, the Commission may verify the identity, criminal records of the persons mentioned in Paragraph one of this Section, as well as other information providing proof regarding the good repute of the person concerned.

(4) In assessing the person's financial stability, the Commission may verify the identity and documents of the persons referred to in Paragraph one hereof, which allow one to ascertain the adequacy of the free capital in the amount of investments made, as well as documents which allow one to ascertain that the person, if necessary, is in a position to make an additional investment for restoring the own funds of the insurance or reinsurance company and complying with the solvency capital requirement and the minimum capital requirement pursuant to the law, as well as complying with the regulatory requirements applicable to the activity of insurance companies, as well as to verify whether the mentioned funds have been obtained in unusual or suspicious transactions.

(5) In assessing the person's financial stability, the requirement of the adequacy of the free capital shall not apply to credit institutions and insurance companies.

(6) Natural persons to whom Section 59, Paragraph one of this Law may be applicable or who has carried out the duties of the member of the management board or of the supervisory council in a financial merchant that has been declared insolvent while the person was carrying out the aforementioned duties, or who has carried out the duties of the member of the management board or of the supervisory council in another commercial company and due to his/her negligence or intent the commercial company concerned was led to criminally punishable insolvency or bankruptcy or for which such circumstances have been identified which prove that the person lacks good repute, as well as such legal person to the shareholders or members or owners (beneficiaries) of which — natural persons — the provisions laid down herein apply, may not be the shareholder, member or owner of an insurance company or a shareholder or a member of a reinsurance company.

The Commission may verify the identity of the shareholders or members of insurance companies, or the shareholders or members of a reinsurance company; whereas if the shareholders or members of the insurance company or reinsurance company are legal persons – information about their shareholders and owners (true beneficiaries) until information about owners (true beneficiaries) — natural persons — has been obtained. The aforementioned persons have a duty to provide this information to the Commission unless it is available in public registers from which the Commission may obtain such information.

Section 30. (1) The Commission shall review the application for obtaining an insurance or reinsurance licence and the documents enclosed to it and adopt a decision within six months after the date of receipt of the application specified in Section 22, Paragraph one, Clause 1 and Paragraph two, Clause 1, and Section 26, Paragraph one, Clause 1 and Paragraph two, Clause 1 of this Law.

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(2) The Commission shall issue an insurance or reinsurance licence on the same date on which the decision of the issuance of insurance or reinsurance licence is adopted.

(3) The Commission shall notify the EIOPA of the issued insurance and reinsurance licences.Section 31. (1) The Commission shall not issue an insurance or reinsurance licence if:

1) insurance or reinsurance is not economically justified;2) the applicant's close links with third parties may threaten its financial stability and

restrict the possibility of the Commission to carry out supervisory functions;3) the laws of the other country, as well as other laws and regulations applicable to

persons who have close links with the applicant limit the rights of the Commission to carry out supervisory functions;

4) documents submitted by an applicant contain false or incomplete information;5) one or several persons referred to in Section 58 and Section 61 of this Law does not

qualify under the requirements laid down in this Law; 6) the Commission has information on reasonable doubts that the funds contributed

into the share capital have been acquired in unusual or suspicious financial transactions, or the lawful acquisition of these funds has not been proved by documents.

7) the applicant’s shareholders, members and the owners thereof (true beneficiaries) do not qualify under the requirements laid down in this Law, or the Commission does not receive information that is necessary to ascertain the compliance thereof with the requirements of this Law;

8) owing to the organisational structure of the applicant the supervision thereof is not feasible;

9) the intended activity of the applicant does not comply with the requirements laid down in this Law and other laws and regulations;

10) The Commission has not received or the insurance or reinsurance company refuses to submit the information specified in Section 22 and Section 26 of this Law;

11) the capital restoration plan is being implemented pursuant to Section 141 or Section 142 of this Law.

(2) The Commission shall not refuse the issue of an insurance or reinsurance licence based on the economic needs of the market.

Section 32. (1) The Commission shall consult with the supervisory authority of the Member State concerned, if the application for obtaining the insurance or reinsurance licence of such an insurance or reinsurance company is being reviewed:

1) which is a subsidiary company of a Member State insurer or Member State reinsurer, or of a credit institution, or of an investment firm registered in the Member State;

2) which is a subsidiary company of such a parent company whose other subsidiary company is a Member State insurer, Member State reinsurer, a credit institution registered in the Member State or an investment firm;

3) which is controlled by a natural or legal person who is controlling the Member State insurer or Member State reinsurer, or a credit institution registered in a Member State, or an investment firm.

(2) In reviewing the application for obtaining an insurance or reinsurance licence as well as in the course of supervising the licensed insurance or reinsurance company, the Commission shall consult with the supervisory authority of the Member State concerned, evaluating whether the

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shareholders or members of the management board, which are involved in the management of such Member State insurer, Member State reinsurer, a credit institution registered in the Member State, or an investment brokerage company, which belongs to one group with the insurance or reinsurance company concerned, qualify under the requirements of this Law and are suitable.

(3) If necessary, the Commission shall notify the supervisory authority of the Member State mentioned in Paragraph one hereof of all the circumstances concerning the qualifying and suitability of the shareholders, members and officials under the requirements of this Law, as well as of other circumstances that are of importance to other supervisory authorities of Member States, which grant licences and permanently supervise the performance of the conditions of the activity.

Chapter VI Supervisory Activities of the Commission

Section 33. (1) The Commission shall carry out future-orientated and risk assessment-based supervision of the insurance and reinsurance activity, applying supervisory measures in a timely manner and based on the proportionality principle.

(2) The Commission shall carry out continuous supervision of insurance and reinsurance activity, assessing the compliance of this activity with the requirements laid down in this Law and other laws and regulations of the Republic of Latvia.

(3) The Commission shall apply the requirements laid down in this Law and other laws and regulations of the Republic of Latvia, based on the proportionality principle.

Section 34. (1) In the course of supervision, before adopting a decision, the Commission shall take into account the likely impact of the decision on the stability of the financial system of other Member States based on the information available to it.

(2) In the times of exceptional instability of financial markets, in the course of supervision, before adopting a decision, the Commission shall evaluate the likely pro-cyclical impact of the decision on the activity of the insurance sector.

Section 35. The supervision of the insurance and reinsurance activity carried out by the Commission shall also extend to the activity of the branches of insurance and reinsurance companies established in Member States, as well as to the insurance of reinsurance services provided by insurance or reinsurance companies in Member States under the freedom of provision of services principle.

Section 36. In order to assess the financial stability of an insurance or reinsurance company and its ability to meet the obligations under the insurance or reinsurance contracts, taking into account all the types of activity of the insurance or reinsurance merchant, the Commission shall evaluate the compliance by the company with the solvency requirement, the cover for technical provisions, and assets and own funds requirement with the statutory requirements.

Section 37. If an insurance company has received an insurance licence for the class of insurance specified in Section 19, Paragraph one, Clause 18 of this Law, the Commission shall also extend supervision to the technical resources at the company's disposal for the provision of assistance which it has assumed to provide, if the laws of the home Member State provide for the supervision of such resources.

Section 38. (1) If the Commission identifies that the branch of a Member State insurer or reinsurer, or a Member State insurer or reinsurer providing insurance and reinsurance services under the freedom to provide services principle, carries out activities that may affect the financial

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stability of the Member State insurer or Member State reinsurer, the Commission shall promptly notify the supervisory authority of the Member State insurer or reinsurer thereof.

(2) Upon receipt of the information about the likely impact on the financial stability of the insurance or reinsurance company from the supervisory authority of the Member State, the Commission shall evaluate the compliance of the company concerned with the requirements laid down in this Law.

Section 39. (1) The Commission shall not refuse a ceded reinsurance or retrocession contract, which the insurance company has concluded with:

1) a reinsurance or insurance merchant, on grounds directly related to the financial soundness of that reinsurance or insurance merchant;

2) an insurer or reinsurer of the non-Member State, the insurance supervisory practice of which is considered equivalent to that prescribed by this Law, grounds directly related to the financial soundness of that reinsurer or insurer;

(2) The Commission shall not refuse a retrocession contract that the reinsurance merchant has concluded with:

1) a reinsurance or insurance merchant, on grounds directly related to the financial soundness of that reinsurance or insurance merchant;

2) a reinsurer or insurer of the non-Member State, the reinsurance supervisory practice of which is considered equivalent to that prescribed by this Law, on grounds directly related to the financial soundness of that reinsurer or insurer.

Section 40. (1) In carrying out supervision, the Commission shall cooperate and consult with the supervisory authority of the Member State in the territory of which the insurance or reinsurance company has opened a branch. The Commission shall notify the supervisory authority of the Member State of the intended inspection of the activity of the branch of the insurance or reinsurance company and offer the opportunity to the representatives of the Member State supervisory authority to take part in the inspection. The representative of the Commission may inspect the activity and documents of the branch of the insurance or reinsurance company. The Commission may authorise the supervisory authority of the Member State, in the territory an insurance or reinsurance company has opened a branch, to carry out the inspection of the activity of the branch of an insurance or reinsurance company.

(2) At the request of the supervisory authority of the Member State, the Commission shall provide, within a prescribed term, summarised information about the insurance companies pursuing insurance in the respective Member State through the foundation of a branch or under the freedom to provide services principle.

(3) The Commission may notify the EIOPA and request its assistance if the supervisory authority of the Member State has rejected the Commission's request to cooperate in order to carry out in the inspection referred to in Paragraph one hereof at the branch of the insurance or reinsurance company opened in the Member State, and also in instances when following the Commission's request to cooperate the supervisory authority of the Member State has failed to act accordingly within a period of three months.

The Commission shall authorise the EIOPA to take part in the inspection of the activity of the branch of a Member State insurance or reinsurance company, if the representative of the supervisory authority of the Member State, in the territory of which the insurance or reinsurance company has opened a branch takes part in the inspection.

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(5) The Commission shall send a notification to the European Commission in cases where:1) compulsory insurance is required under the laws and regulations, specifying:

a) the specific provisions applicable to compulsory insurance,b) the compulsory terms and conditions that need to be included in the insurance

policy;2) that the laws and regulations governing the provision of insurance services have

been enacted in the Republic of Latvia, and the text of these laws and regulations shall be enclosed to the notification.

Section 41. (1) In addition to the requirements laid down in Section 55, Paragraph one of this Law, the Commission may require the insurance or reinsurance company to carry out a stress test as well as determine the factors and scenarios to be tested.

(2) The Commission or the person authorised by it may carry out an inspection of the insurance or reinsurance company. The insurance or reinsurance company shall eliminate the deficiencies or weaknesses identified during the inspection of the activity thereof.

(3) The Commission or the person authorised by it may carry out the inspection of the activity of an insurance or reinsurance company at the place of location thereof or at the place of the provision of outsourced services, review all the documents as well as document and accounting registers, make copies and request the provider of outsourced services to provide information related to the provisions of the outsourced services or which is necessary for the Commission to carry out its functions.

(4) The Commission may authorise a sworn auditor to carry out the review of the activity of the provider of outsourced services of the insurance or reinsurance company.

(5) In carrying out supervision, the Commission shall cooperate and consult with the supervisory authority of the Member State, in the territory of which the provider of outsourced services is located. The Commission shall notify the supervisory authority of the Member State of the intended inspection of the activity of the outsourced services and offer the opportunity to the representatives of the Member State supervisory authority to take part in the inspection. The Commission may authorise the supervisory authority of the Member State, in the territory of which the provider of outsourced services is located, to carry out the inspection of the activity of the provider of the outsourced services.

(6) The Commission may notify the EIOPA and request its assistance if the supervisory authority of the Member State has rejected the Commission's request to cooperate in carrying out the inspection of the provider of the outsourced services referred to in Paragraph five hereof, and also in instances when following the Commission's request to cooperate the supervisory authority of the Member State has failed to act accordingly within a period of three months.

(7) The Commission shall authorise the EIOPA to take part in the inspection of the provider of the outsourced service carried out by it, if the representatives of the supervisory authority of the Member State, in the territory of which the provider of outsourced services is located, take part in the inspection.

(8) The Commission shall request the insurer and reinsurer to submit their performance reports, laying down the form, content, submission procedures and deadlines thereof.

(9) The Commission may request the insurer and reinsurer to submit other information and documents relating to the activities thereof.

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(10) An insurer and reinsurer shall submit the requested information to the Commission within the prescribed deadlines; submission shall not be refused on the pretext of a commercial secret.

Section 42. (1) An insurance or reinsurance company shall submit all the information to the Commission necessary to enable the latter to evaluate the performance of the established system of governance of the company concerned, the business thereof, the valuation principles used for the calculation of the solvency capital requirement, exposure to risks, and the established risk management system, the own-funds items, needs, and management.

(2) The content of the information referred to in Paragraph one hereof and the deadlines for the submission thereof are laid down in EU Regulation No. 2015/35.

(3) An insurance or reinsurance company shall set up an appropriate system of governance and risk management system, develop policies and procedures appropriate for its activity to ensure the availability of information that is complete, comparable, consistent, reliable, comprehensive and suitable for the nature, scope and complexity of the insurance or reinsurance activity and submission under the requirements laid down in Paragraph one hereof.

Section 43. The Commission may request an independent expert engaged by the insurance or reinsurance company (actuary, sworn auditor or another expert) to submit information about the expert opinion provided to the company.

Section 44. In carrying out supervision of the insurance and reinsurance activity, in order to ascertain the compliance of the company subordinated to the insurance or reinsurance company with the requirements laid down in this Law, the Commission shall evaluate:

1) the operational strategy thereof;2) the organisational processes thereof;3) the system of the exchange of internal information;4) the system of appraising major risks for the activity, to which it is exposed or may be

exposed;5) the ability to assess risks in the environment in which it operates;6) the compliance of the system of governance, including compliance of the established

self-assessment of risks and solvency with the requirements laid down in Chapter VII and Chapter VIII of this Law;

7) the compliance of the creation of technical provisions with the requirements laid down in Chapter XIII of this Law;

8) compliance with the capital requirement laid down in Chapter XIV and Chapter XV of this Law;

9) the compliance of the investing activity with the requirements laid down in Chapter XVI of this Law;

10) the compliance of own funds to the requirements laid down in Section 116 of this Law;

11) continuous compliance of the partial or full internal model with the requirements laid down in Sections 121, 122, 123, 124, 125, 126, 127, 128 and Section 129 of this Law, if the insurance or reinsurance company uses a partial or full internal model for the calculation of the solvency capital requirement;

12) the appropriateness of the methods and procedure used for the performance of stress tests;

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13) the ability to continue the activity pursuant to the requirements of the law upon the occurrence of an unfavourable event or a change to market conditions assessed in the stress test.

Section 45. The Commission shall set the minimum timeframe for the regular assessment of the elements referred to in Section 44 of this Law for the insurance or reinsurance company, the company subject to group supervision, as well as for the carrying out of the inspections of these companies.

Section 46. (1) Based on the facts identified during the inspection of the insurance or reinsurance company, the Commission may set the capital add-on to that company, if one of the following conditions is identified:

1) the risk profile of the insurance or reinsurance company materially differs from the assumptions underlying the standard formula for the calculation of the solvency capital requirement pursuant to the regulatory requirements of the Commission, and if any of the following criteria is met:

a) the requirement to use the internal model for the calculation of the solvency capital requirement for the insurance or reinsurance company laid down in Section 127 of this Law is inconsistent with the risk profile thereof or the application of such a requirement has not been effective,

b) pursuant to the requirement of the Commission, the insurance or reinsurance company shall develop a full or partial internal model according to the requirements laid down in Section 127 of this Law;2) the risk profile of the insurance or reinsurance company materially differs from the

assumptions about the risk profile of that company, which have been used for the calculation of the solvency capital requirement under a full or partial internal model according to the requirements laid down in Sections 121, 122, 123, 124, 125, 126, 127, 128, and Section 129 of this Law, because the risks that can be measured individually have not been covered sufficiently, and the adjustment of the internal model to tailor it for the risk profile to better meet the insurance or reinsurance risk, has not been carried out in the prescribed term;

3) the system of governance of the insurance or reinsurance company is materially inconsistent with the requirements laid down in Chapter VII and Chapter VIII of this Law and does not enable proper identification, measurement, control and management of risks, or report on the risks to which the company is exposed or can be exposed, and the application of other supervisory measures provided for under this Law in itself will not eliminate the identified deficiencies within the prescribed deadline;

4) an insurance or reinsurance company shall apply the matching adjustment provided for under Section 112 of this Law or the volatility adjustment provided under Section 114 of this Law, and the risk profile of that company deviates significantly from the assumptions underlying these adjustments.

(2) In the cases referred to in Paragraph one, Sections 1 and 2 hereof, the Commission shall set the capital add-on to ensure the compliance of the activity of the insurance or reinsurance company with the requirements laid down in Section 19, Paragraphs three and four of this Law.

(3) In adopting the decision to set the capital add-on in the cases referred to in Paragraph one, Clause 3 hereof, the Commission shall evaluate the proportionality of the capital add-on to

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the material risks caused by the deficiencies identified during the inspection of the activity of the insurance or reinsurance company, which serves as the basis for the decision to set the capital add-on for that company.

(4) In adopting the decision to set the capital add-on in the cases referred to in Paragraph one, Clause 4 hereof, the Commission shall evaluate the proportionality of the capital add-on to the material risks arising from the material deviation in the assumptions referred to in Paragraph one, Clause 4 hereof.

(5) Where the conditions referred to in Paragraph 4, Clause 1 hereof are identified, the Commission shall determine the capital add-on by reference to the material risks arising from the deviations specified herein.

(6) An insurance or reinsurance company shall, within 30 days after receipt of the Commission's decision to determine the capital add-on, submit an action plan to the Commission for approval. In the plan, the specific timeframe for carrying out the measures aimed at eliminating the deficiencies giving rise to the setting of the capital add-on identified during the inspection of that company shall be prescribed.

(7) The Commission shall review its decision to set the capital add-on within 12 months of the date of the decision and thereafter - annually. The Commission shall revoke its decision to set the capital add-on as soon as the insurance or reinsurance company has eliminated the deficiencies giving rise to the setting of the capital add-on.

(8) The solvency capital requirement for the insurance or reinsurance company for which the Commission has set the capital add-on, from the date of receipt of the decision to set the capital add-on until the date the decision is revoked, shall be an amount obtained as a sum of the calculated solvency capital requirement and the capital add-on set by the Commission.

(9) The capital add-on determined in the cases referred to in Paragraph one, Clause 3 hereof shall not be included in the solvency capital requirement used to calculate the risk margin referred to in Section 103, Paragraph two of this Law.

(10) The provisions for the setting of the capital add-on as well as the methodology for the calculation of the capital add-on is laid down in EU Regulation No. 2015/35.

Section 47. (1) An insurance company may transfer all concluded insurance contracts or a part thereof to another insurance merchant or to the branch of a non-Member State insurer, which may pursue insurance in the Member State. The insurance company shall not transfer insurance contracts to a non-Member State insurer or to the branch of the non-Member state insurer, which is registered in a non-Member State.

(2) A reinsurance company may transfer all concluded reinsurance contracts or a part thereof to another reinsurance or insurance merchant or to the branch of a non-Member State insurer, which may pursue insurance in the Member State. A reinsurance or insurance company shall not transfer reinsurance contracts to a non-Member State reinsurer.

(3) The authorisation to transfer all the concluded agreements or a part thereof shall be issued by the Commission. The Commission shall adopt the decision on issuing of the licence or refusal to issue it within 30 days after the receipt of all the necessary documents and information.

(4) An insurance or reinsurance company or a branch of a non-Member State insurer who takes over the contracts, shall submit information to the Commission that supports the performance of the requirements laid down in this Law after the taking over of the contracts.

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(5) If all concluded contracts or a part of the them is transferred to the insurance or reinsurance company or to the branch of a non-Member State insurer in the Republic of Latvia, the Commission may decide to issue the licence after having ascertained that after the takeover of the contracts the requirements laid down in this Law will be performed.

(6) If all concluded contracts or a part of them is transferred to the Member State insurer or reinsurer, the Commission may decide to issue the licence after receiving confirmation from the supervisory authority of the respective Member State according to which after the takeover of the contract the Member State insurer or reinsurer will have eligible own funds in the amount of the solvency capital requirement at their disposal.

(7) If all concluded contracts or a part of them is transferred to a branch of a non-Member State insurer, which may pursue insurance in another Member State, the Commission may decide to issue the licence after receiving confirmation from the supervisory authority of the respective Member State according to which the laws of the Member State permit the takeover of the contract and after the takeover of the contracts the branch of the non-Member State insurer will have eligible own funds in the amount of the solvency capital requirement at their disposal.

(8) If the insurance company transfers the concluded contracts or a part of them to a branch opened in another Member State, the Commission shall consult with the supervisory authority of the Member State of the branch. The Commission may adopt the decision on the issuing of the licence for the transfer of contracts after receiving consent of the supervisory authority of the Member State. If there is no response from the supervisory authority of the Member State within three months from the date of dispatch of the request, it shall be deemed that it has consented to the transfer of contracts.

(9) If the insured objects related to the insured risk are located in other Member States, the Commission shall promptly notify the supervisory authorities of those Member States to that effect. The Commission may adopt the decision on the issuing of the licence for the transfer of contracts after receiving consent of the supervisory authorities of these Member States. If there is no response from the supervisory authorities of Member States within three months from the date of dispatch of the request, it shall be deemed that they have consented to the transfer of contracts.

(10) If the insured objects related to the insured risk are located in the Republic of Latvia, the Commission shall, within three months of receipt of the respective request, notify the supervisory authorities of those Member States whether it gives consent to the transfer of the contracts.

(11) The Commission shall prescribe the procedure under which it shall issue the licence to insurance and reinsurance companies for the transferring of all concluded insurance or reinsurance contracts or a part thereof.

Section 48. (1) Insurance contracts shall be assigned to another insurance merchant together with the corresponding assets used for the technical provision cover.

(2) If insurance contracts are assigned without the corresponding assets used to cover technical provisions, the insurance company or the branch of a non-Member State insurer that takes over these contracts, shall submit a plan to the Commission for restoring the technical provision cover.

Section 49. (1) Reinsurance contracts shall be assigned to another insurance or reinsurance merchant together with the corresponding assets used for the technical provision cover.

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(2) If reinsurance contracts are assigned without the corresponding assets used to cover technical provisions, the insurance company, the branch of a non-Member State insurer or the reinsurance company that takes over these contracts, shall submit a plan to the Commission for restoring the technical provision cover.

Section 50. (1) If the insured objects related to the insured risk are located in the Republic of Latvia, in order to notify the policyholders, the insured and other persons who have rights and obligations under the duly concluded and transferred insurance contracts, the insurance merchant and the branch of a non-Member state insurer which may pursue insurance in another Member State shall, after having received authorisation to transfer the insurance contracts, promptly submit an advertisement to the Commission for the publishing thereof on its website. The transferable insurance contracts, the person who took over these insurance contracts (including the registered address thereof) and the date of the transfer of the insurance contracts shall be specified in the advertisement.

(2) If the insured objects related to the insurance risk are located in a Member State, the advertisement shall be published in accordance with the procedure prescribed in the laws and regulations of that Member State.

Section 51. (1) The transfer of insurance contracts shall be binding on policyholders, the insured and any other persons having rights and obligations under the concluded and assigned insurance contracts from the date of entry into force of the transaction. After the transfer of insurance contracts, all the rights and obligations of the parties arising from these contracts shall remain in force.

(2) The transfer of reinsurance contracts shall be binding on reinsurance policyholders and any other persons having rights and obligations under the concluded and transferred reinsurance contracts from the date of entry into force of the transaction. After the transfer of reinsurance contracts, all of the rights and obligations of the parties arising from these contracts shall remain in force.

(3) The provisions laid down in Section 20, Paragraph one, and Section 351 of the Commercial Law on joint and several liability shall not apply to the transfer of insurance and reinsurance contracts, or to the transfer of agreements concluded with insurance and reinsurance intermediaries and obligations arising from the professional activity of insurance or reinsurance intermediaries, if these contracts or obligations are assigned concurrently with insurance and reinsurance contracts. If during the course of division, only part of the property owned by the divisible insurance or reinsurance company is transferred, the acquiring insurance or reinsurance company shall not be liable for the liabilities of the company that is divided, which arise from such insurance or reinsurance contracts and contracts with insurance and reinsurance intermediaries, which are not assigned to the acquiring insurance or reinsurance company during the reorganisation process.

(4) For the transfer of insurance or reinsurance contracts and the ancillary rights related thereto, as well as for the transfer of contracts concluded with insurance and reinsurance intermediaries, the consent of the contracting party to these contracts or any other person shall not be required.

(5) In the event of the transfer of insurance or reinsurance contracts, the provision of the information related to these contracts to the party accepting the contracts shall not be considered a failure to comply with the statutory requirements.

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Section 52. (5) In order to prevent insolvency of an insurance company and protect the rights of policyholders, the Commission may require the insurance company to transfer all the concluded insurance contracts or a part thereof to another insurance merchant, which has agreed to accept these contracts.

Division B Provisions for the Insurance and Reinsurance Activity

Chapter VII General Provisions for the System of Governance

Section 53. (1) Insurance companies shall ensure the setting-up of a comprehensive and effective system of governance that is appropriate for the nature, scale and complexity of its activity and the functioning thereof according to the requirements laid down herein and in Chapter III of this Law. The system of governance shall comprise and provide at least the following elements:

1) a transparent organisational structure of the insurance or reinsurance company with a clear breakdown of duties, powers and accountability;

2) an effective system for the exchange of internal information;3) regular monitoring of the functioning of the established system of governance.

(2) An insurance or reinsurance company shall develop and approve at least the following policies and procedures:

1) risk management policy and procedure,2) internal control policy and procedure,3) internal audit policy and procedure,4) policies of and procedure for receiving outsourced services if the company uses the

services of the providers of outsourced services.(3) The management board of an insurance or reinsurance company shall be responsible for

the establishing of and compliance with the policies and procedures specified in Paragraph two hereof.

(4) An insurance or reinsurance company shall submit the policies and procedures specified in Paragraph two hereof to the Commission in writing within 10 days of the approval thereof, as well as notify the Commission of all changes therein.

(5) At least once a year, an insurance or reinsurance company shall assess the compliance with the policies and procedures provided for in Paragraph two hereof and the consistency thereof to the activity of that company. An insurance or reinsurance company shall promptly elaborate the respective policy or procedure, if there have been material changes in the activity of that company.

(6) The Commission shall lay down the minimum requirements with regard to the setting-up and functioning of the system of governance of insurance or reinsurance companies.

(7) The requirements for the elements of the systems referred to herein are laid down in EU Regulation No. 2015/35.

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Section 54. (1) An insurance or reinsurance company shall, using the systems, resources and processes supporting the activity thereof, carry out the necessary measures in a timely manner to ensure the continuity of the activity thereof and the regularity of the transaction carried out.

(2) An insurance or reinsurance company shall develop and approve a contingency elimination plan. The management board of an insurance or reinsurance company shall be responsible for the regular reviewing and updating thereof pursuant to the changes to the company's activity and the external environment.

Section 55 (1) At least once a year, an insurance or reinsurance company shall carry out a stress test to assess and document the likely development scenarios. Sensitivity and scenario analyses shall be used in the stress test. The sensitivity test shall be carried out to determine the impact of unfavourable changes caused by an individual risk factor, whereas the scenario analysis shall be carried out to determine the impact of concurrent unfavourable changes caused by a number of risk factors, assessing the cause of exceptional, however, potentially unfavourable events or changes to the market conditions. The management board of an insurance or reinsurance company shall, considering material risks and the corresponding risk factors, develop and approve the procedure for the carrying out of a stress test and be responsible for compliance with this procedure.

(2) The management board of an insurance or reinsurance company shall approve the results of the stress test and adopt the decision on the activities to be carried out in the event of the occurrence of the events mentioned in the stress test or changes to the market conditions. An insurance or reinsurance company shall submit the results of the stress test and the decision on the activities to be carried out to the Commission within 10 days of the adoption of the decision.

(3) The Commission may lay down additional requirements for the carrying out of the stress test and the procedure for the performance of the used analysis.

Section 56. The Commission may verify the system of governance of an insurance or reinsurance company and assess the risks identified by these companies, which may impact the financial soundness thereof.

Section 57. The Commission may request the system of governance to be improved and consolidated, ensuring the compliance thereof to the requirements laid down in Chapter VII and Chapter VIII of this Law.

Section 58. (1) The member of the management board, the head of the internal audit activity of an insurance or reinsurance company, the manager of the branch of a non-Member State insurer as well as a person who by taking significant decisions on behalf of an insurance or reinsurance company creates civil obligations to that company or the branch of a non-Member State reinsurer, may be a person who qualifies under the following requirements:

1) it is sufficiently competent in the field of the responsibility thereof, and is capable of ensuring that the management board (management) of the insurance or reinsurance company is established so that the company would be able to pursue insurance or reinsurance permanently, professionally, qualitatively and in compliance with requirements of the laws and regulations;

2) it has requisite education and not less than three years’ work experience in the respective field;

3) it has good repute;4) it is not or has not been deprived of the right to conduct a business activity.

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(2) The person referred to in Paragraph one hereof has good repute if it does not qualify under the provisions laid down in Section 59, Paragraph one of this Law and no such circumstances have been identified that preclude the carrying out of the duties of an official referred to in Paragraph one hereof.

(3) Before the persons referred to in Paragraph one hereof start carrying out their duties of an official, the insurance or reinsurance company or the branch of a non-Member State insurer shall notify the Commission thereof.

(4) The insurance or reinsurance company, or a non-Member State insurer has a duty to remove a person referred to in Paragraph one hereof from the position at its own initiative or by a proposal put forward by the Commission, if it is found that:

1) it is not fit and proper for the position;2) the acts thereof have harmed the financial soundness of the insurance or

reinsurance company, or the branch of a non-Member State insurer, or has led to a situation that may threaten the financial soundness of the insurance or reinsurance company or the branch of a non-Member State insurer, or the interests of policyholders;

3) it fails to comply with the policies and procedures developed by the insurance or reinsurance company, or the branch of the non-Member State insurer;

4) it does not meet the requirements laid down in Paragraph one hereof or the provisions laid down in Section 59 of this Law apply to it.

(5) If the decision adopted by the Commission regarding the removal of the persons referred to in Paragraph one hereof from their position is appealed, such an appeal shall not suspend the validity thereof.

Section 59. (1) A person who qualifies under the following provisions shall not be the member of the management board, the head of the internal audit activity of an insurance or reinsurance company, the manager of the branch of a non-Member State insurer as well as a person who by taking significant decisions on behalf of an insurance or reinsurance company, or the branch of a non-Member State creates civil obligations to that company or the branch of a non-Member State reinsurer:

1) who has been convicted of committing a deliberate criminal offence;2) who has been convicted of committing a deliberate criminal offence regardless of

having been released from the serving of its sentence due to a lapse, clemency or amnesty;

3) against whom the initiated criminal case on committing a deliberate criminal offence has been dismissed due to a lapse or amnesty;

4) who has been held criminally liable for committing a deliberate criminal offence, but the criminal proceedings against such a person has been terminated for reasons other than exoneration.

(2) An insurance or reinsurance company, or a non-Member insurer has a duty to remove the persons referred to in Paragraph one hereof from the position, at its own initiative or by a proposal put forward by the Commission, if it is found that the provisions of Paragraph one hereof may be applied to them.


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Section 60. The documents that need to be submitted to the Commission as proof of the fulfilment of the provisions laid down in Section 59, Paragraph one of this Law, shall be drawn up not more than three months prior.

Section 61. (1) A person conforming to the requirements laid down in Section 58, Paragraph one of this Law may be a member or chairperson of the supervisory council of the insurance or reinsurance company. (1) A person to whom the provisions laid down in Section 59, Paragraph one of this Law apply shall not be a member or chairperson of the supervisory council of the insurance or reinsurance company.

2) The general meeting of shareholders or members has a duty to remove a person referred to in Paragraph one hereof from the position at its own initiative or by a proposal put forward by the Commission, if it is found that it is not fit and proper for the position, or the acts thereof have harmed the financial soundness of the insurance or reinsurance company, or led to a situation that may threaten the financial soundness of the insurance or reinsurance company, or it does not qualify under the provisions of Paragraph one hereof.


Section 62. (1) In order to ascertain whether the persons referred to in Section 58, Paragraph one, and Section 61, Paragraph one of this Law qualify under the provisions of this Law, the Commission may invite the persons referred to in Section 58, Paragraph one and Section 61, Paragraph one of this Law to an interview.

(2) Within 30 days after the receipt of all necessary documents, the Commission may forbid the person referred to in Section 58, Paragraph one, and Section 61, Paragraph one, of this Law to start carrying out the relevant duties in the insurance or reinsurance company or the branch of a non-Member State insurer, if that person does not qualify under the requirements of this Law or if the Commission is unable to ascertain whether it is fit and proper under the requirements laid down in this Law.

(3) The officials referred to in Section 58, Paragraph one, and Section 61, Paragraph one of this Law shall start the carrying out of their duties after receipt of the Commission's authorisation.

(4) If the official referred to in Section 58, Paragraph one, and Section 61, Paragraph one of this Law is not elected (appointed) to the position or ceases to carry out its duties, the insurance or reinsurance company shall notify the Commission thereof in writing, specifying the reasons. An insurance or reinsurance company shall submit the information mentioned herein within 10 working days of the adoption of the relevant decision.

(5) The Commission shall lay down the documents to be submitted and the procedure under which the compliance of the persons mentioned in Section 58, Paragraph one, and Section 61, Paragraph one of this Law shall be assessed.

Section 63. Insurance or reinsurance companies shall, specifying the reasons, notify the Commission in the event if any of the persons mentioned in Section 58, Paragraph one, and Section 61, Paragraph one of this Law is removed from the position, because it no longer meets the requirements laid down in Section 58, Paragraph one and Section 61 of this Law.

Section 64. (1) In order to ensure the timely identification, measurement, monitoring and management of the individual risks related to the activity of the insurance or reinsurance company as well as mutually related risks to which this company is exposed or may be exposed,

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that company shall ensure the setting-up and functioning of an effective risk management system, the incorporating thereof into the organisational structure and decision-making processes. In order to ensure the continuity of the risk management process, an insurance or reinsurance company shall develop and approve a risk management strategy, risk management methods and the procedure for the exchange of internal information pursuant to the activity thereof.

(2) The management board of an insurance or reinsurance company shall ensure that the risk management system covers all the risks that need to be included in the solvency capital requirement calculation pursuant to the requirements laid down in Section 119, Paragraphs five and six of this Law, as well as such material risks to the activity, which are not included in the solvency capital requirement calculation or are covered partially.

(3) The risk management system established by an insurance or reinsurance company as well as the risk management policy developed and approved pursuant to the requirements laid down in Section 53 of this Law, shall cover at least the following lines of business:

1) insurance and reinsurance underwriting and the creation of technical provisions;2) asset and liability management;3) investing activity, including transactions in derivatives and the transactions

equivalent thereto;4) management of the liquidity and concentration risks;5) operational risk management;6) ceded reinsurance and retrocession, as well as other risk-mitigation methods.

(4) If an insurance or reinsurance company applies the matching adjustment referred to in Section 112 of this Law or the volatility adjustment referred in Section 114 of this Law, it shall develop a liquidity plan, in which the projected incoming and outgoing cash flows are shown for the assets and liabilities to which these adjustments apply.

(5) In managing assets and liabilities, insurance or reinsurance companies shall assess on a regular basis:

1) the sensitivity of the technical provisions and eligible own funds to the assumptions underlying the relevant risk-free interest rate term structure extrapolation laid down in Section 111 of this Law;

2) if the matching adjustment specified in Section 112 of this Law is applied:a) the sensitivity of the technical provisions and eligible own funds to the

assumptions underlying the matching adjustment, as well as the calculation of the basic rate spread specified in Section 113 , Paragraph one, Clause 2 of this Law, as well as the impact of the forced sale of assets on the eligible own funds,

b) the sensitivity of the technical provisions and eligible own funds to changes in the structure of the asset portfolio,

c) the impact if the matching adjustment were to fall to nil;3) if the volatility adjustment specified in Section 114 of this Law is applied:

a) the sensitivity of the technical provisions and eligible own funds for the assumptions giving rise to the volatility adjustment, as well as the impact of the forced sale of assets on the eligible own funds,

c) the impact if the volatility adjustment were to fall to nil;

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(6) An insurance and reinsurance company shall perform the assessments provided for in Paragraph five hereof once a year and submit the results thereof to the Commission as part of their report along with the information specified in Section 42 of this Law. If as a result of the falling of the matching adjustment or volatility adjustment to nil the solvency capital requirement is not met pursuant to this Law, the insurance or reinsurance company shall additionally submit a plan to the Commission for the restoration of the eligible own funds to meet the solvency capital requirement or reduce the company's risk profile to restore compliance with the solvency capital requirement.

(7) If an insurance or reinsurance company applies the volatility adjustment specified in Section 114 of this Law, it shall include the procedure on the criteria for the application of the volatility adjustment in the risk management policy specified in Section 53, Paragraph two of this Law.

(8) In managing the investing risk, an insurance or reinsurance company shall ensure the all investments are continuously compliant with the requirements laid down in Chapter XVI of this Law.

(9) In order to establish a risk management system and ensure a continuous risk management procedure, an insurance or reinsurance company shall set up a risk management function.

(10) The person responsible for the risk management function of the insurance or reinsurance company using a full or partial model for the calculation of the solvency capital requirement, which has been approved by the Commission pursuant to Section 121 and Section 122 of this Law, shall additionally carry out the following duties:

1) set up and implement the internal model;2) validate the internal model and assess the compliance thereof; 3) document the information about the internal model and all the changes made

thereto;4) analyse the capacity of the internal model to carry out the intended functions and

prepare reports on the analysis performed;5) notify the management board on the capacity of the internal model to carry out the

intended functions, put forward proposals regarding the necessary improvements to the internal model and prepare reports to the management board regarding the measures carried out to eliminate the identified deficiencies.

(11) If for the calculation of the technical provisions and solvency capital requirements an insurance and reinsurance company uses an external credit rating assessment, to avoid an overly reliance on external credit rating institutions, these companies shall, within the scope of their risk management procedures, if possible, additionally assess the appropriateness of the use of such external credit rating.

(12) The requirements for the elements of the systems referred to in this Paragraph as well as for the risk management function is laid down in EU Regulation No. 2015/35.

Section 65. (1) Within the scope of the risk management system an insurance or reinsurance company shall carry out the self-assessment of the risks to which these companies are exposed or may be exposed as well as of the solvency thereof.

In carrying out the self-assessment of risks and solvency, an insurance and reinsurance company shall ensure that the following requirements are met:

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1) the general solvency needs shall be assessed, considering the risk profile of the company concerned, the approved eligible risk limits and the business strategy. For the assessment of solvency such methods shall be used, which allow one to assess the likely impact of the risks to which insurance or reinsurance companies are exposed or may be expose in the short or long term, as well as ensure the documentation of all the methods used;

2) it shall be ensured that the compliance of the performance of the capital requirements is monitored on a continuous basis pursuant to Chapter XIV and Chapter XV of this Law and the compliance of the creation of technical provisions is monitored pursuant to Chapter III of this Law;

3) it shall be assessed how materially the risk profile of the relevant company deviates from the assumptions laid down in Section 119, Paragraphs three and four of this Law, which are used for the solvency capital requirement calculation, if this company uses a standard formula for the calculation or if a full or partial internal model is used for the calculation pursuant to the requirements laid down in Sections 121, 122, 123, 124, 125, 126, 127,128, and Section 129 of this Law. If an insurance or reinsurance company use the internal model for the calculation of the solvency capital requirement, in carrying out the assessment, recalibration shall be ensured to measure and calibrate the risks covered in the solvency capital requirement calculation.

(3) An insurance or reinsurance company shall ensure that the self-assessment of risks and solvency form a part of the business strategies of that company and that the results of the risk and solvency assessments are continuously considered in making strategic decisions.

(4) An insurance or reinsurance company shall not use the self-assessment of risks and solvency for the calculation of the solvency capital requirement. The solvency capital requirement can only be adjusted pursuant to Sections 46, 207, 208, 209, 210 and Section 214 of this Law.

(5) If an insurance or reinsurance company uses the matching adjustment specified in Clause 112 of this Law or the volatility adjustment specified in Clause 114, it shall assess the compliance with the capital requirement specified in Paragraph two, Clause 2 of this Law in two ways — taking into account/disregarding these adjustments.

Section 66. (1) An insurance or reinsurance company shall ensure the setting-up and functioning of an effective internal control system covering at least administrative and accounting procedures and internal control procedures, ensuring an appropriate exchange of information at all levels of the company.

(2) Insurance or reinsurance companies shall ensure that the internal control system comprises the activity conformance function. The person responsible for the compliance function shall carry out the following duties:

1) assess the compliance of the insurance or reinsurance company with the requirements laid down in this Law as well as other laws and regulations that are binding on that company, and prepare a report to the management board thereof on the discrepancies identified;

2) assess the likely impact of the changes in the legal environment on the activity of insurance and reinsurance companies, as well as identify and assess the compliance risk;

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3) prepare a written report for each assessment carried out pursuant to Paragraph two, Clauses 1 and 2 of this Law to the management board of that company.

(3) The management board of an insurance or reinsurance company shall review the report of the compliance function prepared by the responsible person, and adopt a decision on the measures to be taken in respect of each identified weakness as well as the provided recommendation and ensure the execution of the adopted decisions.

(4) The requirements for the elements of the systems referred to in this Paragraph as well as for the compliance function are laid down in EU Regulation No. 2015/35.

Section 67. (1) An insurance or reinsurance company shall ensure the effective functioning of the internal audit function.

(2) The persons responsible for the audit function shall: 1) at least once a year, assess the compliance of the elements of the internal control

system as well as other elements of the system of governance of the insurance or reinsurance company with the activity of that company;

2) at least once a year, assess the efficiency of the elements of the internal control system as well as other elements of the system of governance of the insurance or reinsurance company;

3) at least once a year, prepare a written report to the supervisory council and management board of the insurance or reinsurance company on the weaknesses in the elements of the internal control system as well as other elements of the system of governance of the insurance or reinsurance company, which have been identified during the review and provide recommendations for the improvement thereof.

(3) The management board of an insurance or reinsurance company shall review the report of the internal audit function prepared by the responsible person, and adopt a decision on the measures to be taken in respect of each identified weakness as well as the provided recommendation and ensure the execution of the adopted decisions.

(4) An insurance or reinsurance company shall ensure that the activity of the person responsible for the internal audit function be objective and independent of the activity functions of that company.

(5) The requirements for the mentioned internal audit function are laid down in EU Regulation No. 2015/35.

Section 68. (1) An insurance or reinsurance company shall ensure effective functioning of the actuarial function.

(2) The person responsible for the actuarial function shall:1) coordinate the calculation of technical provisions;2) ensure the appropriateness of the methodologies, models and assumptions used for

the calculation of technical provisions;3) assess the sufficiency and quality of the data used for the calculation of technical

provisions;4) compare the best estimate of technical provisions based on experience;5) notify the management board thereof of the reliability and appropriateness of the

calculations of technical provisions;6) monitor the calculation of technical provisions in the cases provided for in Section

109 of this Law;

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7) express an opinion about the overall risk underwriting policy;8) express an opinion on the compliance of the ceded reinsurance and retrocession

arrangement;9) under the requirements laid down in Section 64 of this Law, take part in the setting-

up of an effective risk management system to ensure the risk modelling for the calculation of the capital requirement pursuant to the provisions laid down in Chapter XIV and Chapter XV of this Law for the self-assessment of the risks and solvency of the reinsurance company pursuant to the provisions laid down in Section 65 of this Law.

(3) An insurance or reinsurance company shall ensure that the duties referred to in Paragraph two hereof shall be carried by a person with knowledge and experience of actuarial mathematics and financial mathematics, which is appropriate for the type and scale of the activity of that company and the complexity of the risks inherent to the insurance activity, and which can be clearly demonstrated through the use by these persons appropriate professional and other standards.

(4) The requirements for the mentioned actuarial function are laid down in EU Regulation No. 2015/35.

Section 69. (1) A person qualifying under the following requirements may be the member of the executive body of an insurance holding company or a mixed financial holding company:

1) it is sufficiently competent in the field of the responsibility thereof;2) it has not less than three years’ work experience in the respective field;3) it has good repute;4) it is not or has not been deprived of the right to conduct a business activity;5) it has not been convicted of deliberated criminal offences or has been exonerated,

the conviction has been removed or cancelled, or it has not been called to criminal liability.(2) Before the person referred to in Paragraph one hereof starts to carry out its duties, the

insurance or reinsurance company shall notify the Commission thereof. Not later than within one month from the date of receipt of the information referred to herein, the Commission shall assess the person's compliance with the requirements of Paragraph one hereof. Within the term referred to herein, the Commission shall adopt a decision to prohibit a person from taking up the position referred to in Paragraph one hereof, if it does not qualify under the requirements of Paragraph one hereof, and immediately notify that person and the insurance or reinsurance company thereof.

(3) The Commission may propose that the member of the executive body of an insurance holding company or a mixed financial holding company be immediately removed, if it does not qualify under the requirements of Paragraph one hereof or fails to comply with the policies or procedures developed by the insurance or reinsurance company.

Section 70. (1) Insurance or reinsurance company shall ensure the registration of all concluded insurance and reinsurance contracts. The register shall be kept in electronic form, it shall include the texts of the mentioned contracts and the amendments thereof, and the software of the register shall allow the tracking of all of the entries and the previously made amendments thereto.

(2) An insurance or reinsurance company shall ensure that all concluded investment contracts, ceded reinsurance contracts and retrocession contracts, as well as contracts concluded with the insurance and reinsurance intermediaries are registered. The register shall be

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kept in electronic form, it shall include the texts of the mentioned contracts and the amendments thereof, and the software of the register shall allow the tracking of all of the entries and the previously made amendments thereto.

(3) If risks are assigned to ceded reinsurance and retrocession, using the services of a reinsurance intermediary, the insurance or reinsurance company shall have a document that describes the ceded reinsurance and retrocession arrangement, and the amount of the commission fee paid to the reinsurance intermediary.

Section 71. (1) An insurance or reinsurance company shall develop and approve a procedure for complaint management, ensuring the verification of the facts specified in the complaint, identification and prevention of possible conflicts of interest, and be responsible for compliance with this procedure. Written information about the complaints process shall be freely available at the premises where insurance services are provided as well as on the websites of insurance or reinsurance companies, if such have been created.

(2) An insurance or reinsurance company shall examine the complaints received on a regular basis, analyse them, evaluate the reasons and causes thereof, as well as take measures for the elimination of the causes identified.

(3) An insurance or reinsurance company shall ensure electronic registration of the complaints received and responses provided.

(4) The Commission shall lay down the procedure for reviewing and registering complaints, as well as the procedure under which reports on complaints shall be prepared.

Chapter VIII Outsourced Services

Section 72. The receiving of outsourced services shall not release the insurance or reinsurance company from liability for the performance of its statutory or contractual obligations.

Section 73. (1) The company concerned may delegate to one or more of the providers of outsourced services such outsourced services that are necessary for ensuring the operation of insurance or reinsurance companies. An insurance or reinsurance company may not delegate the following to the providers of outsourced services:

1) the duties of the executive bodies;2) the issuing of sureties or any other such obligation acts under which the insurance or

reinsurance company has assumed the obligation to be liable to the creditor for the debt of a third party;

3) all such services that are necessary for the pursuit of the insurance or reinsurance permitted under the insurance or reinsurance licence.

(2) The Commission shall lay down the essential functions or activities of an insurance or reinsurance company, of which, in accordance with the procedure laid down herein, that company shall notify the Commission before delegating the provision of outsourced services to the provider thereof.

(3) An insurance or reinsurance company may delegate the internal audit function only to a sworn auditor or a sworn auditor company that concurrently is not engaged in the auditing of the annual and consolidated report of that company, or to the parent company of the insurance or reinsurance company, which is a Member State insurer.

(4) At least 30 days before delegating the essential functions or activities to the provider of outsourced services, the insurance or reinsurance company shall submit a reasoned written

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application to the Commission, enclosing thereto a document on the policy for receiving outsourced services and the procedure for the monitoring of the quality thereof, unless it has already been submitted to the Commission, and the draft contract for the provision of the outsourced service. If amendments are made in the policy for receiving outsourced services, the procedure for the monitoring of the quality of outsourced services or the contract for outsourced services with regard to the description of the outsourced services, or the scope thereof, or the quality requirements to be incorporated in the contract for the outsourced services and the rights and duties of insurance or reinsurance companies provided for in EU Regulation No. 2015/35 the insurance or reinsurance company shall submit the relevant amendments to the Commission before the approval thereof.

(5) The provider of outsourced services shall commence providing the outsourced service to the insurance or reinsurance company unless that company has been notified, within 30 days of submitting all the documents referred to in Paragraph four hereof, of the Commission's prohibition to receive the outsourced service.

(6) The Commission may require the insurance or reinsurance company to eliminate the deficiencies arising due to receiving the outsourced services, and set a timeframe for the elimination of these deficiencies. If the deficiencies are not eliminated within the prescribed timeframe, the Commission shall require the contract for outsourced services to be terminated by the insurance or reinsurance company, and set the term for the termination thereof, which shall not exceed three months.

(7) The provider of outsourced services may delegate the provision thereof further to another person only subject to receiving written consent of the insurance or reinsurance company concerned. Prior to further delegation of the outsourced service, an insurance or reinsurance company shall notify the Commission thereof in writing and submit the documents referred to in Paragraph four hereof to it. The provisions of this Law shall apply to the further delegation of the provision of outsourced service as well as to the final provider of the outsourced service.

(8) If the decision to prohibit the receiving of outsourced services by an insurance or reinsurance company from the provider of outsourced services, to eliminate the deficiencies arising due to receiving the outsourced services or the requirement to terminate the contract for outsourced services is appealed, such an appeal shall not suspend the validity thereof.

Section 74. (1) The Commission shall prohibit an insurance or reinsurance company to delegate the provision of essential functions or operations to the provider of the outsourced services, if:

1) the requirements laid down in this Law have not been met; 2) the receiving of the outsourced service may injure the legal interests of the

policyholder and the insured; 3) the receiving of the outsourced service may result in restrictions being imposed on

the executive bodies of insurance or reinsurance companies to carry out the duties imposed on them under the laws and regulations, articles of association or other internal regulations;

4) the receiving of the outsourced service will preclude the Commission from carrying out its statutory functions, or restrict the ability of the Commission to carry out these functions;

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5) the contract for outsourced services does not comply with the law, nor gives a true and fair view of the expected cooperation between the insurance or reinsurance company and the provider of the outsourced services and the scope and quality requirements of the outsourced service;

6) the receiving of the outsourced service may significantly impair the quality of the system of governance of the insurance and reinsurance company;

7) the receiving of the outsourced service will increase the operational risk significantly.Chapter IX

Qualifying HoldingsSection 75. (1) (1) A qualifying holding in an insurance or reinsurance company may be

acquired only by such a person who satisfies the criteria laid down in Section 29 of this Law and Section 76, Paragraph five of this Law, and furthermore, that person needs to have been financially sound for at least three past years, so that, if necessary, it could make an additional contribution for restoring the own funds of the insurance or reinsurance company, ensuring that the company's statutory minimum capital requirement and the solvency capital requirement are covered as well as the regulatory requirements governing the activity of insurance or reinsurance companies are complied with.

(2) The Commission has the right to request information about the persons who aim for a qualifying holding (the persons who have acquired a qualifying holding or are suspected of having acquired such a qualifying holding), including information about the owners (true beneficiaries) of the legal (registered) persons, i.e., natural persons to assess whether these persons qualify under the criteria laid down in Section 76 , Paragraph five of this Law.

(3) The Commission has the right to identify such shareholders and owners (true beneficiaries) (who have actually acquired a qualifying holding or are suspected of having acquired such a holding) of legal persons that may meet the criteria of a qualifying holding once the information about the owners (true beneficiaries) — natural persons — has been acquired. For the purpose of identifying such persons, the mentioned legal persons have a duty to submit the information requested by the latter to the Commission, unless it is available in public registers, from which the Commission may receive such information.

(4) If the persons suspected of the acquisition of a qualifying holding in an insurance or reinsurance company fail to provide or refuse to provide the information referred to in Paragraph two or three hereof and their total holding is 10 or more per cent of the share capital or of the shares carrying the voting rights of that company, these shareholders or participants shall not exercise all of the voting rights owned by them. The Commission shall promptly notify the shareholders concerned and the insurance or reinsurance merchant thereof.

Section 76. (1) A person wishing to obtain a qualifying holding in an insurance or reinsurance company shall notify the Commission of that in writing in advance. The notification shall specify the percentage share of the qualifying holding of the share capital or of the shares carrying voting rights of that company. The information provided for in the regulatory regulations of the Commission, which is necessary to assess the compliance of the person with the criteria laid down in Paragraph five hereof, shall be enclosed to the notification. The list of the information to be added to the notification shall be published on the Commission's website.

(2) If a person wishes to increase its qualifying holding up to or exceeding 20, 33 or 50 per cent of the share capital or of the shares carrying voting rights of an insurance or reinsurance

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company, or if the insurance or reinsurance company becomes a subsidiary of that person, that person shall notify the Commission of that in writing in advance. The notification shall specify the percentage share of the qualifying holding of the share capital or of the shares carrying voting rights of that insurance or reinsurance company. The information provided for in the regulatory regulations of the Commission, which is necessary to assess the compliance of the person to the criteria laid down in Paragraph five hereof, shall be enclosed to the notification. The list of the information to be added to the notification shall be published on the Commission's website.

(3) Within two working days from the day of receipt of the notification referred to in Paragraph one or two hereof, or within two working days after receipt of the additionally requested information in writing, the Commission shall notify the person in writing of the receipt of the notification or additional information and the end date of the period for the assessment thereof.

(4) Within the assessment period specified in Paragraph five hereof, however, not later than the fiftieth working day of the assessment period, the Commission may request additional information regarding the persons referred to in this section in order to assess their conformity to the criteria laid down in Paragraph five hereof.

(5) Not later than 60 working days from the date on which the information confirming the receipt of the notification referred to in Paragraph three hereof has been sent to the person, the Commission shall assess the adequacy of the person's free capital, financial soundness and the financial justification of the intended holding, in order to ensure sustainable and diligent governance of the insurance or reinsurance company in which the acquisition of the holding is intended, as well as the person's potential influence on the management and activity of that company. During the course of the assessment, the Commission shall also take into account the following criteria:

1) the person's good repute and conformance to the requirements laid down in Section 29 of this Law;

2) the good repute and professional experience of the person who as a result of the intended acquisition of the holding would manage the activity of the insurance or reinsurance company;

3) the financial soundness of the person, particularly in connection with the type of the existing or intended business activity in the insurance or reinsurance company in which the acquisition of the holding is intended;

4) whether the insurance or reinsurance company will be capable of satisfying the regulatory requirements laid down in this Law and other laws and regulations and whether the structure of the group of companies which this company will become a part of will not limit the Commission's ability to carry out its statutory supervisory functions, ensure an efficient exchange of information between supervisory authorities and determine the allocation of powers between the supervisory authorities;

5) whether there is reasonable suspicion that in connection with the intended acquisition of the holding illegal money laundering and terrorist financing may have been carried out, or the carrying out of such activities may have been attempted, or that the proposed acquisition might increase such a risk.

(6) Upon requesting additional information referred to in Paragraph four hereof, the Commission may suspend the assessment period once up to the date on which the relevant information is received, however, not more than for 20 working days. The Commission may

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extend the mentioned assessment period for up to 30 working days if the person wishing to acquire, or who has acquired, or wishing to increase or having increased its qualifying holding in an insurance or reinsurance company, is not subject to the supervision of insurance and reinsurance companies, credit institutions, investment management companies or investment firms or the person's place of residence is not in a Member State.

(7) If the Commission has suspended the assessment period in accordance with Paragraph six hereof, the period of suspension shall not be included in the assessment period.

(8) Within the term referred to in Paragraph five hereof, the Commission shall adopt the decision prohibiting the person to acquire or increase the qualifying holding in an insurance or reinsurance company, if:

1) the person does not satisfy the criteria laid down in Paragraph five hereof;2) the person fails to provide, or refuses to provide the information specified in this Law

or the additional information requested by the Commission, to the Commission;2) due to circumstances independent of the person, it is unable to provide the

information to the Commission specified in this Law or additional information requested by the Commission;

(9) The Commission shall, within two working days, without exceeding the assessment period provided for in Paragraph five hereof, upon adopting the decision referred to in Paragraph eight hereof, send it to the person to which it prohibits to acquire or increase the qualifying holding in the insurance or reinsurance company.

(10) If the Commission fails, within the term mentioned in Paragraph five hereof, to send the decision to the person prohibiting that person from acquiring or increasing the qualifying holding in the insurance or reinsurance company, it shall be deemed that it agrees that the person may acquire or increase the qualifying holding in that company.

(11) The provisions laid down in Paragraph five, Clause 3 hereof shall not apply to such legal persons, the shares of which are traded on the regulated market of the Republic of Latvia or another Member State, or on such regulated market, which is organised by the fully-fledged member of the International Stock Exchange Federation, and this legal person shall provide the Commission with the details of their shareholders who have a qualifying holding therein.

(12) Having regard to the requirements laid down in the laws of the European Union, the Commission shall suspend the review of the notification for a period not exceeding three months, if the company that is not registered in a Member State, wishes to become a parent company of an insurance or reinsurance company.

(13) If the Commission has agreed that the person may acquire or increase a qualifying holding in an insurance or reinsurance company, this person shall acquire a qualifying holding in that company not later than six months from the date of receipt of the information referred to in Paragraph three hereof on receipt of the notification or additional information. If, by the end of the mentioned term the person has not acquired or increased a qualifying holding in an insurance or reinsurance company, the Commission's consent to the acquisition or increasing of the qualifying holding in that company shall become null and void. Upon receipt of the person's substantiated written request, the Commission may adopt the decision to extend the mentioned period.

(14) The appealing of the decision adopted by the Commission and referred to in Paragraph eight hereof shall not suspend the validity thereof.

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Section 77. In assessing the notifications referred to in Section 76 of this Law, the Commission shall consult the supervisory authorities of the Member State concerned, if the person acquiring a qualifying holding is a Member State insurer, a reinsurer, a credit institution registered in the Member State, an investment holding company, an investment management company or investment firm, or the parent company of a Member State insurer, Member State reinsurer, a credit institution, investment management company or investment firm registered in a Member State, or a person controlling a Member State insurer, a Member State reinsurer, a credit institution, investment management company or investment firm registered in a Member State, and if that person, upon acquiring or increasing a qualifying holding, would become the subsidiary of that company or would be controlled by it.

Section 78. (1) If a person wishes to discontinue its qualifying holding in an insurance or reinsurance company, it shall notify of such a decision in writing in advance, by submitting an application to the Commission. The application shall specify the percentage share of the remaining shares or voting rights in the share capital of the insurance or reinsurance company.

2) If the person wishes to reduce its qualifying holding below 20, 33 or 50 per cent of the share capital or of the shares carrying voting rights of the insurance or reinsurance company, or the insurance or reinsurance company ceases to be the subsidiary company of that person, it shall notify of such a decision in writing in advance, by submitting an application to the Commission.

Section 79. (1) The insurance or reinsurance company shall notify immediately in writing, by submitting an application to the Commission, on the acquisition, increasing or decreasing of the qualifying holding by any person upon becoming aware of it. The application shall specify the percentage share of the number of shares of the share capital or of the shares carrying voting rights of that insurance or reinsurance company or information about the discontinuing of a qualifying holding.

(2) Each year by 1 February the insurance or reinsurance company shall submit a list of all such shareholders that have qualifying holdings in that company to the Commission. It shall include the information required to be included in the list of shareholders to be prepared under the statutory requirements for the meeting of shareholders and specify the percentage share of the share capital or of the shares carrying voting rights of the insurance or reinsurance company of the qualifying holding of those shareholders.

Section 80 (1) If the influence of a shareholder of the insurance or reinsurance company on the company concerned threatens or may threaten the financially sound, prudent and law abiding management and activity thereof, or the person who has acquired a qualifying holding does not satisfy the requirements set for the shareholders of a newly established insurance or reinsurance company, or that company is not financially sound, fails or refuses to provide the information referred to in Section 75, Paragraph two or three of this Law, the Commission may:

1) require such influence be discontinued immediately;2) require the management board (supervisory council) or a member of the

management board (supervisory council) of the insurance or reinsurance company be removed;

3) prohibit the shareholder to exercise all the voting rights carried by the shares owned by it.

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(2) A shareholder may not exercise the right to exercise all the voting rights carried by all the shares owned by it in the insurance or reinsurance company, and any such decisions of the meeting of the shareholders adopted exercising such voting rights shall be null and void from the date of the adoption thereof, and they shall not serve as grounds to require the entries to be made in the commercial register and other public registers, if:

1) the Commission has prohibited the person, in the cases referred to in this Law, to exercise the voting rights carried by the shares owned by it;

2) the person has obtained or increased a qualifying holding in an insurance or reinsurance company before the submission of the notification referred to in Section 76, Paragraphs one or two of this Law to the Commission;

3) the person has acquired or increased a qualifying holding in an insurance or reinsurance company during the review of the notification referred to in Section 76, Paragraphs one or two of this Law to the Commission.

(3) If the shareholder of an insurance or reinsurance company has been prohibited from exercising the voting rights on the shares owned by it in that company, the total number of valid shares shall be determined, deducting from all the shares carrying voting rights, such shares the exercising of the voting rights carried by which is prohibited.

(4) The provisions of this Law regarding a qualifying holding shall not apply to such a shareholder of the insurance or reinsurance company, in the hands of which a qualifying holding in that company arises due to the prohibition imposed on other shareholders to exercise its voting rights.

(5) The appealing of the decision referred to in Paragraph five hereof shall not suspend the validity thereof.

Section 81. In establishing the share of a person's indirectly acquired holding in the insurance or reinsurance company, any such voting rights of the person (hereinafter referred to as the particular person in this section ) shall be taken into account, which:

1) can be used by a third party with which the particular person has entered into an agreement, imposing on it the duty to agree on the long-term application of the policy for the exercising of the voting rights and acts in respect of the management of the particular issuer;

2) may be exercised by a third party under the agreement entered into with the particular person, which provides for a temporary transfer of those voting rights;

3) arising from the shares, which the particular person has received as collateral if it may exercise the voting rights and has expressed its intention to do so;

4) may be exercised by the particular person for an unlimited term;5) may be used by the controlled commercial company of the particular person or

which such commercial company may exercise pursuant to the provisions laid down in Paragraphs 1, 2, 3 and 4 hereof;

6) arise from the shares that have been assigned into holding to the particular person, and which it can use at its sole discretion, unless special instructions have been received;

7) arise from the shares held in the name of a third party and on behalf of the particular person;

8) the particular person may exercise as a proxy in cases when it may exercise the voting rights at its discretion, unless specific instructions have been received;

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9) arise from such shares that the particular person has acquired indirectly in any other manner.

Section 82. Investment funds and any comparable foundations shall not acquire a qualifying holding in an insurance or reinsurance company.

Chapter X Exchange of Information and Prohibition to Disclose Information

Section 83. (1) Information on the insurer or reinsurer and the client thereof, which has not been previously published in accordance with the procedure prescribed by the law, or the disclosure of which is not required by other laws, or which has not been approved as publicly available by the Commission, shall be deemed restricted access information, and the Commission shall not disclose it to third parties, except in summary or aggregate form, so that it would not be possible to identify any particular insurer, reinsurer or client thereof.

(2) If insolvency proceedings have been declared for the insurance or reinsurance merchant or the winding-up thereof has been commenced, the restricted access information which does not concern the third parties involved to improve the financial position of the insurance or reinsurance merchant, may be disclosed in civil proceedings.

(3) The provisions of Paragraph one hereof do not restrict the Commission to exchange, acting within its competence, the restricted access information with the supervisory authorities of the participants of the financial and capital markets of Member States, keeping restricted access status to the information provided.

(4) The Commission may enter into agreements for the exchange of information with the supervisory authorities of non-Member States or such authorities of the non-Member State concerned, which are comparable to the authorities referred to in Paragraph six, clauses 1, 2, 3, 4, 6, 7 and 8 hereof, if the laws and regulations of the non-Member State concerned provide for such liability for unauthorised disclosure of restricted access information which is equivalent to those prescribed by the laws and regulations of the Republic of Latvia. Such information shall be used only for the carrying out of the supervision of the participants of the financial and capital market as well as insurance or reinsurance undertakings, or for the carrying out of the statutory functions of those authorities. The authorities of the non-Member State concerned may disclose the information received only subject to the prior written consent of the Commission, and only for the purposes for which such consent has been given.

(5) The Commission may use the received information mentioned in Paragraphs three and six hereof only for the carrying out of its supervisory functions:

1) in order to ascertain the compliance with the laws and regulations applicable to the foundation and activity of insurers or reinsurers, in particular with regard to the creation of technical provisions, compliance with the minimum capital requirement and solvency capital requirement, and the system of governance;

2) to impose the statutory restrictions and sanctions;3) in court proceedings in which the decisions adopted by the Commission or the actual

acts thereof are appealed;4) in court proceedings which are initiated on grounds of the provisions laid down in this

Law and other laws and regulations applicable to the insurance and reinsurance activity.

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(6) The provisions laid down in Paragraphs one and four hereof shall not limit the Commission, pursuant to the competence thereof, to exchange the restricted access information that is necessary for carrying out the prescribed functions with the following:

1) the supervisory authorities of the participants of the financial and capital markets of Member States;

2) institutions or persons that are responsible for the carrying out of the bankruptcy, winding-up and other similar procedures of insurance or reinsurance undertakings in the Republic of Latvia or Member States;

3) persons carrying out the statutory internal inspections and audits of insurance or reinsurance undertakings and other financial institutions in the Republic of Latvia or other Member States;

4) the Member State institutions managing the investment and deposit compensation schemes (funds);

5) the Bank of Latvia;6) institutions carrying out the supervision of such institutions which are responsible for

the bankruptcy, winding-up and other similar procedures of insurance or reinsurance undertakings in the Republic of Latvia or Member States;

7) institutions carrying out the supervision of the persons carrying out the statutory internal inspections and audits of insurance or reinsurance undertakings and other financial institutions in the Republic of Latvia or in other Member States;

8) the independent actuaries of insurance or reinsurance undertakings carrying out the legal supervision of such undertakings, as well as the institutions carrying out the supervision of independent actuaries;

9) institutions or persons which in accordance with the laws and regulations are responsible for the identification and investigation of the violations of the commercial law;

10) other public administration authorities, which are responsible for compliance of the participants of financial and capital markets, insurers and reinsurers with the law in the field of supervision, and the employees acting on behalf of such institutions, if such a disclosure is necessary for the ensuring of prudent supervision;

11) the EIOPA and the European Systemic Risks Council.(7) With regard to the information received from the Commission and the supervision

institutions of the participants of the financial and capital markets of Member States, the institutions and persons specified in Paragraph six hereof shall comply with the following requirements:

1) shall use the received information only for carrying out the duties lying within their competence;

2) The institutions and persons specified in Paragraph six hereof, including the employees thereof shall not, during the term of carrying out their duties and after the termination of the employment relationship and other kinds of contractual relationships with the institutions or persons referred to in Paragraph six hereof, disclose publicly or in any other manner, information related to the activity of the insurance or reinsurance undertakings, which has not been previously published in accordance with the procedure prescribed by the law or the disclosure of which has not been prescribed by other laws. The institutions or persons referred to herein shall be liable, under the procedure

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prescribed in the laws and regulations, for the disclosure of the information of restricted access and the losses caused to the third parties due to the unlawful acts of the institutions or persons referred to herein;

3) the institutions or persons referred to in Paragraphs 6, 7, 8 and 9 hereof may disclose the received information only subject to the prior written consent of the persons who have provided the respective information to them, and only for the purposes for which such consent has been given.

(8) Prior to sending the information to the institutions or persons referred to in Paragraph 6, Clause 9 hereof, the providers of such information shall be notified of the first name and surname of the persons to which such information shall be sent as well as the duties of those persons.

(9) The Commission shall notify the European Commission and the other Member States of the institutions and persons that may receive information pursuant to Paragraphs 6, 7, 8 and 9 hereof.

(10) The information received pursuant to Paragraph three and Paragraph six, Clauses 1, 2, 3 and four hereof or which has been obtained during the carrying out of the inspection shall be sent to the institutions referred to in Paragraph six, Clause 10 hereof, if the supervisory authorities of the participants of the financial and capital markets from which the information has been received or the supervisory authorities of the participants of the financial and capital market, in the country of which the inspection has been performed, has concurred to the disclosure of such information.

(11) The Commission shall provide all such information to the EIOPA, which is necessary to ensure the carrying out of the duties thereof.

Section 84. (1) The insurer shall not, unless provided for otherwise in the law, disclose information about the policyholder and the insured.

(2) In order to reduce the insurer's operational risk and prevent fraud, the insurer has the right, directly or through a special purpose vehicle to mutually exchange information about policyholders, the insured and the existing insurance contracts.

Section 85. The provisions of the participation of the insurer in the Credit register are laid down in the law On Credit Register.

Chapter XI Accounting Records, Annual Accounts, Audit and Publishing of

InformationSection 86. (1) An insurance or reinsurance company or the branch of a non-Member State

insurer shall keep their accounting records according to the law On Accounting and this Law.(2) The Commission shall lay down the procedure for keeping the accounting records and

preparing of the annual accounts of the insurance or reinsurance company, based on the International Accounting Standards and the International Financial Reporting Standards adopted by the European Commission.

(3) The Commission shall lay down the procedure for the preparation of the consolidated annual accounts of the insurance or reinsurance company which is a parent company of the group, based on the International Accounting Standards and the International Financial Reporting Standards adopted by the European Commission.

Section 87. (1) An insurance or reinsurance company or branch of a non-Member State shall prepare the annual accounts not later than four months after the end of the reporting year.

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(2) The insurance or reinsurance company, which is a parent company, shall prepare the consolidated annual accounts not later than seven months after the end of the reporting year.

(3) The annual accounts and the consolidated annual accounts of an insurance or reinsurance company or the branch of a non-Member State insurer shall be audited by a sworn auditor according to the law On Sworn Auditors.

(4) The insurance or reinsurance company or the branch of a non-Member State insurer shall, not later than 15 days after the approval of the annual accounts and not later than on 15 May following the reporting year, submit a copy of the annual accounts of the insurance or reinsurance company or the branch of a non-Member State insurer and a copy of the report of the sworn auditor and the auditor's report to the State Revenue Service according to the place of the registration thereof, along with the excerpt of the minutes of the meeting of the shareholders or the general meeting of members on the approval of the annual accounts. The insurance or reinsurance company, which prepares consolidated annual accounts, shall, in addition to the provisions laid down in the first sentence hereof, not later than 15 days after the approval of the consolidated annual report and not later than seven months after the end of the reporting year, submit a copy of the annual report of the insurance or reinsurance company or the branch of a non-Member State insurer and a copy of the report of the sworn auditor and the auditor's report to the State Revenue Service according to the place of registration thereof, along with the excerpt of the minutes of the meeting of the shareholders or the general meeting of members on the approval of the annual report. The insurance or reinsurance company or the branch of a non-Member State insurer shall submit the documents referred to herein in paper or electronic form.

(5) Not later than within five working days, the State Revenue Service shall transfer the documents referred to in Paragraph four hereof if they have been submitted electronically, or the electronic copies thereof if they have been submitted in paper form, to the Register of Enterprises electronically. The Register of Enterprises shall ensure public access to the documents received. The procedure for the online transmission of documents shall be laid down under the interdepartmental agreement.

(6) Not later than five working days after the receipt of the documents referred to in Paragraph five hereof, the Register of Enterprises shall publish a notification in the Official Gazette "Latvijas Vēstnesis" to the effect that the information referred to in Paragraph four hereof is available in the Register of Enterprises.

Section 88. (1) In addition to the provisions laid down in Section 87, Paragraph four of this Law, an insurance or reinsurance company or the branch of a non-Member State insurer shall ensure that following the approval thereof, the annual accounts along with the report of a sworn auditor shall be made published not later than on 15 May following the reporting year, whereas the consolidated annual accounts along with the report of the sworn auditor shall be made public not later than seven months after the end of the reporting year. The annual accounts and the consolidated annual accounts shall be identical to those audited by the sworn auditor. An insurance or reinsurance company or the branch of non-Member State insurer may post the respective information on its website or choose other suitable medium or location to release the information.

(2) The branch of a Member State or non-Member State insurer and the branch of a Member State reinsurer shall ensure that the annual accounts of the branch of a Member State or non-Member State insurer and the branch of a Member State reinsurer are made public not later than

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seven months after the end of the reporting year. At least the statement that presents the financial position at the end of the reporting period, and the statement on the financial performance for the reporting period, as well as the opinion of the sworn auditor shall be made public in Latvian. The branch of a Member State or non-Member State insurer and the branch of a Member State reinsurer may post the relevant information on their website or choose another suitable medium or location to release the information.

Section 89 (1) A sworn auditor shall prepare the report for the management of the insurance or reinsurance company. Within 15 days of the approval of the annual accounts at the meeting of shareholders or the general meeting of members, however, not later than on 15 May following the reporting year, the company concerned shall submit a copy of the accounts to the Commission.

(2) If the report prepared by a sworn auditor is qualified, dividends shall be disbursed only subject to the approval of the disbursement thereof by the Commission.

(3) An insurance or reinsurance company shall notify the Commission of the intention to disburse dividends one month before doing so. The Commission may prohibit that company to disburse dividends if after the disbursement of dividends the company will not meet the parameters and limitations laid down in this Law and directly applicable European Union legislation, the amount (level) of which is affected by the dividend disbursement.

Section 90 (1) A sworn auditor shall have a duty to immediately submit a written report to the Commission on any such facts or decisions, which have been identified in the insurance or reinsurance company during the provision of audit services or the carrying out of expert or entrusted task, which can result in any of the following situations:

1) the requirements of the laws and regulations regulating the foundation or activity of insurance or reinsurance companies are materially violated;

2) the business continuity of the insurance or reinsurance company has been adversely affected;

3) the sworn auditor refuses to approve the accounts or qualifies them;4) the solvency capital requirement has not been not complied with;5) the minimum capital requirement has not been complied with;

(2) The sworn auditor has a duty to immediately submit a written report to the Commission on the facts or decisions referred to in Paragraph one hereof, which have been identified in the course of providing audit services to the client, with which the insurance or reinsurance company is linked through a decisive influence or close links through control, or through carrying out the expert or entrusted tasks of such a client.

(3) The information specified herein and the provision of documents shall not constitute the violation of any agreement, laws and regulations, nor shall it create civil liability to the sworn auditor.

Section 91. (1) An insurance or reinsurance company shall publish the report on the solvency and financial condition thereof every year. The report shall specify the qualitative as well as quantitative data, past, current and projected data, or any combination thereof, as well as information from the internal and external sources of information.

(2) The Commission shall lay down the requirements for the disclosure of the information referred to in Paragraph one hereof.

(3) Every year, the Commission shall provide the following information to the EIOPA:

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1) the apportionment of the average capital requirements and of the capital add-on set by the Commission of each company during the previous reporting year, calculated as a percentage of the solvency capital requirement, broken down by:

a) insurance and reinsurance companies,b) life insurance companies,c) non-life insurance companies,d) insurance companies, which pursue life as well as non-life insurance activities,e) reinsurance companies;

2) regarding each company referred to Paragraph 1 hereof — the apportionment of the capital add-on set under Section 46, Paragraph 46 of this Law.

(4) An insurance company shall prepare quarterly public reports to inform the public about the activity and financial performance of the insurer. The Commission shall lay down the minimum amount of information to be included in the quarterly public reports.

Chapter XII Liability

Section 92 The management board of an insurance or reinsurance company shall be fully liable for ensuring the compliance of the company with the requirements of this Law, the directly applicable European Union legislation, and other regulatory regulations applicable to the activity of insurers or reinsurers.

Section 93 Where the Commission identifies that the insurer or reinsurer violates the provisions of this Law, directly applicable European Union legislation, or other regulatory regulations regulating the activity of insurers or reinsurers or the activity of the insurer or reinsurer threatens the performance of those requirements, in making its decision, the Commission may:

1) carry out the following activities:a) require the insurer or reinsurer to immediately take the necessary steps to

eliminate the relevant situation and submit an action plan to the Commission, within the timeframe set by the latter, to eliminate the identified non-compliance,

b) issue written instructions binding on the insurer or reinsurer, which are necessary to eliminate such a situation;2) apply the following sanctions:

a) warn the insurer or reinsurer,b) impose the duty to the meeting of shareholders, the supervisory council or the

management board of the insurer to remove the member of the management board or supervisory council of the insurer, the head of the internal audit activity, the manager of the branch of a non-Member State insurer, as well as the person who, by adopting significant decisions on behalf of the insurance or reinsurance company creates civil liability to the company or the branch of the non-Member insurer concerned from its position,

c) impose the fines provided for under this Law,d) revoke the insurance or reinsurance licence.

Section 94. (1) If the provisions of this Law are not complied with, the Commission may impose a fine of up to 142,000 euros on the insurer or reinsurer.

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(2) If the provisions laid down in Section 6, Paragraph 2, Section 24.1 and Section 55 of the law On Insurance Contract have not been complied with, the Commission may impose a fine of up to 142,000 euros on the insurer or reinsurer.

(3) If the provisions of the law On the Prevention of Money Laundering and Terrorist Financing are not complied with, the Commission may impose a fine of up to 142,000 euros on the insurer or reinsurer.

(4) If a person has acquired or increased the qualifying holding in an insurance or reinsurance company before submitting the notification referred to in Section 76, Paragraph one or two of this Law or during the review of the notification, the Commission may impose a fine of up to 142,000 euros on the insurer or reinsurer.

(5) The person shall pay the fine imposed by the Commission not later than within one month from the date of entry of the Commission's decision on the imposition of the fine in force.

(6) The enforcement of the Commission's decision not performed in good faith shall be carried out by the bailiff under the procedure laid down in the Civil Procedure Law.

Section 95. (1) The Commission shall post the information about the sanctions applied to persons on its website, specifying the particulars of the person and of the violation committed thereof, as well as about the challenging or appealing of the Commission's decision and the adopted ruling.

(2) The Commission may publish the information referred to in Paragraph one hereof without identifying the person, if, based on a preliminary assessment it is identified that the disclosure of the data of the natural person to which the sanction has been applied is disproportionate, or if the disclosure of the data of a natural or legal person may threaten the financial stability of the market, or the course of commenced criminal proceedings, or cause disproportionate damage to the parties involved.

(3) If it is expected that the circumstances referred to in Paragraph two hereof can cease to exist within a reasonable period, the public disclosure of the information laid down in Paragraph one hereof may be deferred for such a period.

(4) The information posted on the Commission website in accordance with the procedure laid down herein shall be available for a period of five years from the date of posting thereof.

Section 96. The Commission, its staff and proxies shall not be liable for the losses incurred by insurers, Member State insurers, reinsurers, Member State reinsurers, insurance intermediaries, reinsurance intermediaries, or third parties. Furthermore, they may not be held liable for any such actions they have engaged in lawfully, accurately, reasonably and in good faith while carrying out the supervisory functions under the procedure prescribed in this Law or other laws and regulations.

Section 97. The decision of the Commission, which is adopted under this Law may be appealed to the Administrative Regional Court. The court shall examine the case as a court of first instance. The case shall be heard by three judges. The judgment of the Administrative Regional Court may be appealed by submitting a cassation appeal.

Division CProvisions for the Valuation of Assets and Liabilities, Technical

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Provisions, Own Funds, the Solvency Capital Requirement, the Minimum Capital Requirement and Investments

Chapter XIII Valuation of Assets and Liabilities, Technical Provisions,

Section 98. (1) The assets and liabilities of an insurance or reinsurance company shall be valued, for the purpose of the calculation of own funds, the solvency capital requirement and the minimum capital requirements, as follows:

1) assets shall be measured at the value at which they could be exchanged between knowledgeable and willing parties in an arm's length transaction;

2) liabilities shall be measured at the value at which they could be transferred or settled between knowledgeable and willing parties in an arm's length transaction;

(2) In accordance with the provisions of Paragraph one hereof, the liabilities that have been valued shall not be adjusted, having regard to the creditworthiness of the insurance or reinsurance company.

(3) In addition to the provisions laid down in Paragraphs one and two hereof, the assets and liabilities of an insurance or reinsurance company shall be valued using the methods and assumptions laid down in EU Regulation No. 2015/35.

Section 99. Insurance or reinsurance companies shall create technical provisions in such an amount to be able to fully to meet their obligations under the concluded insurance and reinsurance contracts.

Section 100. (1) An insurance or reinsurance company shall calculate technical provisions for each insurance and reinsurance contract separately, ensuring that the technical provisions are created at least to the extent that would be necessary to transfer the insurance and reinsurance obligations as of the date of the calculation thereof to another insurer or reinsurer.

(2) For the calculation of technical provisions, insurance or reinsurance companies shall use the financial market data as well as generally available data on insurance and reinsurance risk underwriting, and shall make calculations based on these data.

(3) An insurance or reinsurance company shall calculate technical provisions prudently, reliably and objectively.

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Section 101. (1) Insurance or reinsurance companies shall calculate technical provisions as the sum of the best estimate and the risk margin. Insurance or reinsurance company shall calculate the best estimate and the risk margin of the technical provisions separately.

(2) The Commission shall lay down the principles applicable to the calculation of technical provisions.

Section 102. (1) The best estimate of the technical provisions shall be calculated for each insurance and reinsurance contract as the weighted average value of the likely future cash flows, including the present value of the expected future costs at the date of the calculation of the technical provisions in the calculation and using an appropriate risk-free interest rate term structure. The methodology, principles and techniques appropriate for the determination of the risk-free interest rate are laid down by EU Regulation No. 2015/35.

(2) The best estimate of the technical provisions is calculated using appropriate actuarial and statistical methods, current and reliable information, and based on realistic assumptions. The actuarial and statistical methods for the calculation of the best estimate of the technical provisions is laid down by EU Regulation No. 2015/35.

(3) The potential future cash flow for the calculation of the best estimate of the technical provisions shall include all incoming and outgoing amounts arising from the concluded insurance or reinsurance contract so that all the obligations would have been performed during the validity of the insurance or reinsurance contract.

(4) The best estimate of the technical provisions shall be calculated disregarding the concluded ceded reinsurance and retrocession contracts on the transfer of insurance or reinsurance liabilities to ceded reinsurance or retrocession and the transfer of liabilities to special purpose vehicles.

Section 103. (1) The risk margin shall be set at such a level that would ensure that the technical provisions set up for the insurance or reinsurance contract is sufficient for another insurer or reinsurer to take the relevant contract over and perform the insurance or reinsurance obligations arising from that contract.

(2) The risk margin shall be calculated by determining the costs for ensuring the eligible own funds in the amount that is appropriate to meet the solvency capital requirement in order to perform all insurance and reinsurance contract obligations arising from insurance or reinsurance contracts. The methods and assumptions used for the calculation of the risk margin, including for the determination of the eligible own funds required to support the insurance and reinsurance obligations, as well as the calibration of the cost of capital rate are laid down in EU Regulation No. 2015/35.

Section 104. (1) Where the potential future cash flow for the performance of insurance or reinsurance obligations can be replaced by using financial instruments with a reliably determinable market value, the corresponding technical provisions for such an insurance or reinsurance contract shall be determined based on the fair market value of the financial instruments concerned, and in this case, it is not required to calculate the best estimate of the technical provisions and the risk margin separately.

(2) The circumstances under which the best estimate of the technical provisions and the risk margin are calculated separately, as well as the circumstances under which the best estimate of the technical provisions and the risk margin are not calculated separately, as well as the methods

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used in cases where the best estimate of the technical provisions shall be used are laid down in EU Regulation No. 2015/35.

Section 105. When calculating the technical provisions, insurance or reinsurance companies shall also include the possible future cash flows:

1) all expenses arising in the course of the performance of insurance and reinsurance obligations;

2) the effect of inflation on costs and insurance indemnities;3) all payments to policyholders, beneficiaries, and assignors, including the benefits to

be granted in the future, which the insurance or reinsurance company intends to provide in the future, regardless of whether or not they are guaranteed under the concluded insurance or reinsurance contract, other than the benefits which the insurer, in determining the accounting policy for investment contracts with a guaranteed return and the future discretionary benefits, intends to recognise in the accounts separately as part of the future discretionary benefits and categorise it as an own-funds item that meets the qualitative criteria for inclusion in the calculation of own funds;

4) financial guarantees included in insurance and reinsurance contracts;5) other options provided for in insurance and reinsurance contracts.

Section 106. The assumptions of the probability, used for the calculation of the technical provisions of insurance or reinsurance companies, that the policyholder, the insured, the beneficiary or the assignor will use the options provided for in the insurance or reinsurance contract, including the early termination of the contract or termination due to a violation of the terms thereof, are realistic and based on current and reliable information. The assumptions shall directly or indirectly take into account the likely impact of the changes in the future financial and non-financial circumstances on the choice of the policyholder and the assignor to use the option provided for in the insurance or reinsurance agreement or not.

Section 107. In calculating technical provisions, an insurance or reinsurance company shall segment its insurance and reinsurance obligations into homogeneous risk groups, at least by the types of insurance and reinsurance transactions. The types of insurance and reinsurance transactions by which the insurance or reinsurance company segments its insurance and reinsurance obligations when calculating technical provisions are laid down in EU Regulation No. 2015/35.

Section 108. When calculating the amount recoverable from reinsurers under the concluded ceded reinsurance and retrocession contracts and from special purpose vehicles, an insurance or reinsurance company shall comply with the provisions laid down in Sections 99, 100, 101, 102, 103, 104, 105, 106 and Section 107 of this Law, as well as take into account the time difference between the recovery of assets and the making of direct payments.

Section 109. (1) An insurance or reinsurance company shall develop appropriate internal processes and procedures, and monitor the compliance therewith, in order to ensure the consistency, completeness and accuracy of the data used for the calculation of technical provisions.

(2) If, under certain circumstances, an insurance or reinsurance company does not have enough data at its disposal of such quality enabling it to apply a reliable actuarial method for a certain group or sub-group of insurance and reinsurance obligations and to the amounts recoverable from the special purpose vehicles, the insurance or reinsurance company can use

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appropriate approximations for the calculation of the best estimate of the technical provisions, including an individual approach for the assessment of each individual case. The standards that are followed to ensure the appropriateness, completeness and accuracy of the data used for the calculation of technical reserves as well as special conditions when the best estimate of the technical provisions can be calculated using approximation, including an individual approach to each individual case are laid down in EU Regulation No. 2015/35.

Section 110. (1) An insurance or reinsurance company shall develop appropriate internal processes and procedures and monitor the compliance therewith, in order to ensure:

1) a regular comparison of the best estimate of the calculated technical provisions for insurance and reinsurance contracts and of the assumptions used for the calculation thereof, with historical data;

2) the documentation of the process of the calculation of the technical provisions so that the company concerned would be able, at the request of the Commission, to clearly support the adequacy of the created technical provisions as well as the appropriateness of the actuarial methods used for the calculation of the technical provisions and the consistency of data.

(2) If an insurance or reinsurance company, carrying out the comparison provided for in Paragraph one hereof, identifies systematic deviations between the best estimate of the technical provisions calculated for the insurance or reinsurance contract and the required amount identified based on the experience, it shall adjust the actuarial methods and assumptions used for the calculation of the best method of the technical provisions accordingly.

(3) Upon observing non-compliance of the calculation of the created technical provisions by the insurance or reinsurance company with the requirements laid down herein, the Commission may request the company to create technical provisions in the amount that would meet the requirements laid down in this Law.

Section 111. (1) In determining the risk-free interest rate term structure specified in Section 102 , Paragraph one of this Law, an insurance or reinsurance company shall use and consistently take into account the maturities of the relevant financial instruments, if the markets of these financial instruments and bonds markets can be regarded as developed, liquid, and transparent, as well as use the extrapolation method, if the markets of these financial instruments and bonds are not regarded as developed, liquid, and transparent.

(2) The extrapolated part of the appropriate risk-free interest rate term structure shall be based on the future rate that gradually moves from one interest rate or set of rates to the longest maturity which exists for the relevant financial instrument and bonds in a developed, liquid and transparent market, to the final future rate.

Section 112. (1) The Commission shall issue the authorisation to apply the matching adjustment to the relevant risk-free interest rate term structure in order to calculate the best estimate of the technical provisions for the life insurance or reinsurance obligations portfolio, including periodic payments arising from non-life insurance or reinsurance contracts, provided that the following conditions are met:

1) the best estimate of the technical provisions for the insurance or reinsurance obligations portfolio shall be continuously covered with the assigned asset portfolio containing bonds and other assets with similar cash flow characteristics, except in cases

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when the replacement of the expected cash flows between assets and liabilities needs to be ensured, if the cash flows have significantly changed;

2) the insurance or reinsurance obligations portfolio, to which the matching adjustment is applied, and the assigned asset portfolio provided for in Clause 1 hereof are identified, organised and managed separately from other activities of the insurance or reinsurance company, and the assigned asset portfolio may not be used to cover the losses incurred because of other activities carried out by that company;

3) the cash flows expected from the assigned asset portfolio provided for in Clause 1 hereof are the same as the expected cash flow of each insurance or reinsurance obligations portfolio in the same currency, and any discrepancy does not give rise to significant risks to the insurance or reinsurance activity to which the matching adjustment is applied;

4) the contracts giving rise to insurance or reinsurance obligations do not provide for further payments of insurance premiums;

5) only risks associated with the underwriting of risks relating to the insurance or reinsurance obligations portfolio is the longevity risk, the expenditure risk, the review risk, and the mortality risk;

6) if the underwriting risk associated with insurance or reinsurance obligations portfolio includes the mortality risk, the best estimate of the technical provisions for the insurance or reinsurance obligations does not increase by more than 5 percent under the mortality risk stress scenario, which is calibrated in accordance with the principles laid down in Section 119 Paragraphs three, four, five, six, and seven of this Law;

7) contracts giving rise to insurance or reinsurance obligations either do not provide for any options to the policyholder or only provide for the option of the early termination of the insurance contract, if the redemption amount does not exceed the value of the assets eligible for the covering of the insurance or reinsurance obligations, which is determined in accordance with Section 98 at the time of using the mentioned option;

8) the cash flows of the assigned asset portfolio determined in Clause 1 hereof shall be fixed, and they may not be changed by either the issuers of the assets or third parties;

9) When creating the insurance or reinsurance obligations portfolio, the insurance or reinsurance obligations under the insurance or reinsurance contract shall not be split into different parts within the meaning hereof.

(2) The cash flows specified in Paragraph one, Clause 8 hereof may be dependent on inflation on the condition that they replace the cash flows of the insurance or reinsurance obligations portfolio, which depend on inflation.

(3) If the issuers or third parties may change the cash flows of the assets in such a way that investors receive sufficient compensation in order to be able to gain the same cash flows from reinvesting into assets with equivalent or better creditworthiness; the right to change cash flows does not prevent the application of the requirements laid down in Paragraph one, Clause 8 of this Law to the assigned asset portfolio.

(4) If an insurance or reinsurance company applies the matching adjustment to the insurance or reinsurance obligations portfolio, then it shall be done on an on-going basis. If the insurance or reinsurance company which applies the matching adjustment does not meet the provisions laid down in Paragraph one hereof, it shall notify the Commission thereof immediately and take all the

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measures necessary to ensure that within two months of the date on which non-compliance with the provisions laid down in Paragraph one hereof was observed, that the company would meet those provisions. If the insurance or reinsurance company fails to comply with these provisions within two months, it shall discontinue the application of the matching adjustment to all of its insurance or reinsurance obligations and shall not apply the matching adjustment for the next 24 months.

(5) The matching adjustment shall not be applicable to insurance or reinsurance obligations, if the risk-free interest rate term structure for the calculation of the best estimate of the technical provisions for these obligations comprises the volatility adjustment laid down in Section 114 of this Law.

(6) The specifications concerning the provisions laid down in Paragraph one hereof, including the methods, assumptions and standard parameters to be used for the calculation of the mortality risk stress scenario provided for in Paragraph one, Clause 5 hereof, are laid down in EU Regulation No. 2015/35.

Section 113. (1) The matching adjustment specified in Section 112 of this Law shall be calculated for each type of currency using the following principles:

1) the matching adjustment equals the spread between the following rates:a) the effective annual rate, which is calculated as a single discount rate and which

when applied to the cash flows of the insurance or reinsurance obligations portfolio, a value is obtained which is equal to the value of the assigned asset value portfolio valued in accordance with Section 98 and assigned under Section 112, Paragraph one of this Law.

b) the effective annual rate, which is calculated as a single discount rate and which when applied to the cash flows of the insurance or reinsurance obligations portfolio, a value is obtained which is equal to the value of the best estimate of the technical provisions of the insurance or reinsurance obligations portfolio, including the expected present value of the future cash flows in the calculation and using a basic risk-free interest rate term structure;2) the matching adjustment shall not include the basic rate spread, which reflects the

risks which the insurance or reinsurance company assumes;3) the basic rate variance shall be increased so that the matching adjustment for the

assets, the creditworthiness of which is lower than the investment grade, does not exceed the matching adjustment for assets with the same term and asset class, the creditworthiness of which qualifies as the investment grade;

4) the external credit assessment for the calculation of the matching adjustment shall comply with the requirements laid down in EU Regulation No. 2015/35.

(2) For the application of the principle referred to Paragraph one, Clause 2 hereof the basic rate spread:

1) shall equal the sum of the following elements:a) the credit risk margin corresponding to the probability of default on the

obligations,b) the credit risk margin corresponding to the expected losses due to the reduction

of the rating of the assets;

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2) exposures with the central governments of the Member States in the meaning of Council Regulation No. 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (hereinafter — EU Regulation No. 2223/96) and central banks shall not be lower than 30 percent of the long-term average spread, which exceeds the risk-free interest rate for the same term, credit quality and asset class assets existing in financial markets;

3) 3) The assets other than exposures with central governments of Member States (in the meaning of EU Regulation No. 2223/96) and central banks, shall not be less than 35 percent of the long-term average spread that exceeds the risk-free interest rate for the same term, credit quality and asset class assets existing in financial markets.

(3) The basis for the calculation of the default probability referred to in Paragraph two, Clause 1(a) hereof is the long-term default statistics corresponding to the term, credit quality and class of the assets.

(4) If a reliable credit risk spread cannot be obtained from the default statistics, the basic rate spread shall be defined as the portion of the long-term average spread specified in Paragraph two, Clauses 2 and 3 hereof, which exceeds the risk-free interest rate.

(5) The specifications relating to the requirements referred to herein, including the assumptions and methods that should be used to calculate the matching adjustment and the basic rate spreads, are laid down in EU Regulation No. 2015/35.

Section 114. (1) The volatility adjustment to the appropriate risk-free interest rate term structure for the currency of the relevant country shall be based on the difference between the interest rate that can be obtained from the assets included in the reference portfolio for this currency, and the corresponding basic risk-free basic interest rate term structure for this currency. The reference portfolio for each currency shall represent the assets denominated in that currency, which the insurance or reinsurance company has invested in order to cover the best estimate of the technical provisions for the insurance and reinsurance obligations denominated in this currency.

(2) The amount of the volatility adjustment to risk-free interest rates corresponds to 65 per cent of the risk adjusted currency differences. The risk-adjusted currency spread shall be calculated as the difference between the spread specified in Paragraph one hereof and the portion of that spread attributable to the assessment of a realistic expected loss risk, unexpected credit risk or any other asset-related risks.

(3) The volatility adjustment shall only be applied to the risk-free interest rate term structure, which has not been derived under the extrapolation method in accordance with Section 111 of this Law. The extrapolation method for the appropriate risk-free interest rate term structure shall be used after the application of the volatility adjustment.

(4) The volatility adjustment to the risk-free interest rates laid down in Paragraph three hereof for the currency of the relevant country shall be increased, before applying the ratio of 65 percent, by the difference between the risk- adjusted country rate spread and double risk-adjusted currency rate spread, if the difference is positive and the risk-adjusted country rate spread is greater than 100 basis points. An increased volatility adjustment shall be applied, calculating the best estimate of insurance or reinsurance obligations for such insurance products, which are traded on the insurance market of the relevant country. The risk-adjusted country rate spread shall be calculated in the same way as the risk-adjusted currency spread for the currency of the

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relevant country, but based on the reference portfolio, which represents the assets, which insurance or reinsurance companies have invested in order to cover the best estimate of the insurance and reinsurance obligations denominated in that currency for insurance products, which are traded on the insurance market of the relevant country.

(5) The volatility adjustment shall not be applied to insurance obligations if the relevant risk-free interest rate term structure includes, for the calculation of the best estimate of these insurance obligation, the matching adjustment specified in Section 112 of this Law.

The solvency capital requirement shall not cover the risk of losing the basic own funds due to changes in the volatility adjustment.

(7) The methods and assumptions to be used for the calculation of the volatility adjustment provided for herein, including the formula for the calculation of the difference of the values laid down in Paragraph one hereof are laid down in EU Regulation No. 2015/35.

Section 115. (1) An insurance or reinsurance company shall use the following technical information published by the EIOPA at least once a quarter:

1) the relevant risk-free interest rate term structure for the calculation of the best estimate of the technical provisions provided for in Section 102 of this Law without applying the matching adjustment or volatility adjustment;

2) for each relevant term, credit quality and the asset class for the calculation of the matching adjustment for the basic rate spreads provided for in Section 113, Paragraph one, Clause 2 of this Law;

3) the volatility adjustment provided for in Section 114, Paragraph one of this Law for the insurance market of each relevant State each of the national insurance market.

Chapter XIV Own Funds

Section 116. In order to ensure the soundness of the financial performance of an insurance or reinsurance company, the eligible own funds of that company shall continuously be in the amount of the solvency capital requirement.

Section 117. An insurance or reinsurance company shall continuously have the eligible basic own funds in the amount of the minimum capital requirement at its disposition.

Section 118. The procedure for the calculation of the own funds and the eligible basic own funds shall be laid down by the Commission.

Chapter XV Solvency Capital Requirement and the Minimum Capital

RequirementSection 119. (1) The solvency capital requirement shall be calculated in accordance with the

standard formula or the full or partial internal model.(2) The solvency capital requirement shall be calculated assuming that the insurance or

reinsurance company will continue as a going concern.(3) The solvency capital requirement shall be calibrated to ensure that all the identifiable and

measurable risks to which insurance or reinsurance company is exposed are taken into account. This requirement applies to the existing as well as the new business activity expected to be

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carried out within the next 12 months. The solvency capital requirement for the existing business activity shall apply only to unexpected losses.

(4) The solvency capital requirement shall equal the value of the basic own funds of the insurance or reinsurance company exposed to risks with a confidence level of 99.5% within one year. The solvency capital requirement shall correspond to the Value-at-Risk of the basic own funds of the insurance or reinsurance company subject to a confidence level of 99.5% over a one year period. (2009/138 Art 101 (3))

(5) The solvency capital requirement shall apply to at least the following risks:1) non-life insurance underwriting risk;2) life insurance underwriting risk;3) health insurance underwriting risk;4) market risk;5) credit risk;6) operational risk.

(6) The operational risk referred to in Paragraph five, Clause 6 hereof shall include legal uncertainty, but exclude the risks arising from the strategic decisions adopted by the insurance or reinsurance company, as well as the reputation risk thereof.

(7) In calculating the solvency capital requirement, an insurance or reinsurance company shall take into account of the impact of risk-mitigation techniques, if the credit risk and other risks arising from the use of such methods have been included in the calculation of the solvency capital requirement accordingly.

(8) The procedure for the calculation of the solvency capital requirement using the standard formula shall be laid down by the Commission and EU Regulation No. 2015/35.

Section 120. (1) An insurance or reinsurance company shall calculate the solvency capital requirement at least once a year and notify the Commission of the results thereof. The eligible own funds of an insurance or reinsurance company shall be at least in such an amount, which covers the solvency capital requirement in accordance with the most recent calculation submitted to the Commission.

(2) An insurance or reinsurance company shall independently monitor the adequacy of the eligible own funds and the solvency margin requirement. If the risk profile of an insurance or reinsurance company is materially different from the assumptions underlying the solvency capital requirement calculation, that company shall immediately make a new solvency capital requirement calculation and submit it to the Commission.

(3) If, having evaluated the information at the disposal of the Commission, there are grounds to believe that the risk profile of the insurance or reinsurance company has materially changed since the day when the most recent solvency capital requirement calculation was submitted, the Commission may request that the company make a new solvency capital requirement calculation.

(4) The differences of the risk profile or changes shall be considered material if the solvency capital requirement, which is calculated on the basis of the new assumptions, deviates from the most recently calculate solvency capital requirement by 10 percent or more.

Section 121. (1) An insurance or reinsurance company may calculate the solvency capital requirement using a full or partial internal model, subject to receiving the authorisation from the Commission.

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(2) The internal model used by an insurance or reinsurance company shall be a full internal model if it complies with the requirements of this Law and, if using this model, the calculated solvency capital requirement meets the requirements laid down Section 119 of this Law, and the model covers the entire insurance or reinsurance company. The full internal model of a group of insurance and reinsurance companies shall include all insurance and reinsurance companies, which are included in the group solvency capital requirement calculation.

(3) The internal model used by an insurance or reinsurance company is partial if it meets the requirements of this Law and it is used to calculate only one or more of the following values:

1) one or more risk modules or sub-modules of the basic solvency capital requirement, which are provided for in the laws and regulations laying down the procedure for the calculation of the solvency capital requirement under the standard formula;

2) the capital requirement for the operational risk;3) the adjustment for the loss-absorbing capacity of technical provisions and deferred

taxes .(4) The partial model of an insurance or reinsurance company can be used to calculate the

solvency capital requirement for the entire company or for only one or several major business units.

(5) The approach, including the standard integration methods using which the partial internal model is fully integrated into the solvency capital requirement standard formula, and the requirements for the use of alternative methods are laid down in EU Regulation No. 2015/35.

(6) In order to obtain authorisation for the use of a full or partial internal model, an insurance and reinsurance company shall submit an application to the Commission, which shall include documentary evidence to support that the internal model meets the statutory requirements relating to the use test of the of internal models, statistical quality standards, calibration standards, the profit and loss attribution, validation standards and documentation standards.

(7) Where the application relates only to the obtaining of the authorisation for the partial internal model, the statutory requirements for the use test of internal models, statistical quality standards, calibration standards, the profit and loss attribution, validation standards and documentation standards shall be adjusted taking into the limited scope of application of the model. The adjustments are laid down in EU Regulation No. 2015/35.

(8) The Commission shall adopt the decision on the issuing of the authorisation within six months of receipt of the fully completed application, accompanied by all required documents and forward the decision to the applicant.

(9) The Commission shall issue the authorisation referred to in the application after ascertaining that the identification, validation, supervision, management and reporting systems of the insurance or reinsurance companies are appropriate for the commercial activity and risk profile of that company, and that the internal model meets the statutory requirements relating to the use test of internal models, statistical quality standards, calibration standards, the profit and loss attribution, validation standards and documentation standards.

(10) After issuing the authorisation, the Commission may require the insurance or reinsurance company to carry out a one-off solvency capital requirement assessment in accordance with the standard formula and submit it to the Commission.

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Section 122. (1) The Commission shall issue the authorisation for the use of the partial internal model only after ascertaining that the internal model meets the requirements laid down in Section 121 of this Law, and that:

1) the insurance or reinsurance company has duly substantiated the cause of the limited scope of application of the model;

2) the solvency capital requirement calculated using the partial internal model reflects the insurance or reinsurance company's risk profile more accurately, as well as meets the general requirements on the solvency capital requirement provided for in Section 119 of this Law;

3) The structure of the partial internal model meets the general requirements on the solvency capital requirement provided for in Section 119 of this Law, and it can be fully integrated into the standard formula for the calculation of the solvency capital requirement according to the manner laid down in EU Regulation No. 2015/35 under which a partial internal model is to be fully integrated into the standard formula of the solvency capital requirement, and to specific requirements for the use of the alternative integration methods.

(2) In reviewing the application for the obtaining of the authorisation to use the partial internal model, The Commission may require the insurance or reinsurance company to submit a transitional plan for the expanding of the scope of the application of the model, if that company has submitted an application for the use of the partial internal model, which applies:

1) only to the individual sub-modules of the specific risk module;2) only to the material business units of that company in relation to the specific risk

module;3) partially in the sub-modules referred to in Clause 1 hereof, as well as the structural

units referred to in Clause 2 hereof.(3) The transitional plan of the insurance or reinsurance company shall specify the type,

usable means, techniques, the scope of application to be reached by the model and the term in which it intends to extend the scope of the application of the model with other sub-modules or material business units to ensure that the model covers the prevailing part of insurance or reinsurance transactions in relation to that specific risk module.

Section 123. (1) Concurrently with the application referred to in Section 121, Paragraph six of this Law, to obtain the authorisation to use a full or partial internal model, an insurance or reinsurance company shall submit the policy of the relevant company to the Commission to make changes to the internal model. The policy of the insurance or reinsurance company to make changes to the internal model shall be considered as part of its application to be submitted to obtain the authorisation to use the full or partial internal model. The Commission shall approve the policy for making the changes to the internal model of the insurance or reinsurance company according to the procedure laid down in Section 121 of this Law.

(2) Changes to the internal model can be made only in accordance with policy of the insurance or reinsurance company for making changes to the internal model. The policy for making changes to the internal model shall comprise major or minor change specifications to the internal model.

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(3) No authorisation of the Commission shall be required for minor changes to the internal model, if they have been developed in accordance with the policy for making changes to the internal model of the insurance or reinsurance company.

Section 124. (1) The management board of the insurance or reinsurance company shall sign the application to the Commission for the approval of the internal model in accordance with the provisions laid down in Section 121 of this Law, as well as any future applications for the approval of any major changes to be made to the internal model.

(2) The management of the insurance or reinsurance company shall be responsible for the establishing of such systems in that company, using which the proper functioning of the internal model is ensured.

Section 125. The insurance or reinsurance company, which has received authorisation for the use of the internal model in accordance with Section 121 of this Law, may resume the calculation of the solvency capital requirement or a part thereof using the standard formula only after receiving the authorisation of the Commission. To obtain the authorisation, the insurance or reinsurance company shall submit a reasoned application to the Commission.

Section 126. If an insurance or reinsurance company, which has already received the authorisation of the Commission to use the internal model, fails to meet the statutory requirements regarding the use test, the statistical quality standards, calibration standards, the profit and loss attribution, validation standards and documentation standards, it shall notify the Commission immediately and submit its plan to the latter to restore compliance, or a reasoned application which substantiates why the impact of non-compliance with the solvency capital requirement calculation is immaterial.

(2) If an insurance or reinsurance company fails to comply with the plan referred to in Paragraph one hereof, it shall notify the Commission thereof immediately. The Commission may require the company to calculate the future solvency capital requirement using the standard formula.

Section 127. The Commission may require the insurance or reinsurance company to establish the internal model or the relevant risk modules thereof for the calculation of the solvency capital requirement calculation and ensure the application thereof, if there are grounds to consider that the solvency capital requirement calculated in accordance with the standard formula is not appropriate, because the risk profile of the company concerned materially deviates from the assumptions underlying the calculations under the standard formula.

Section 128. The Commission shall lay down the requirements for the used test of internal models, statistical quality standards, calibration standards, the profit and loss attribution to major business units, validation standards and documentation standards.

Section 129. The Commission may require an insurance or reinsurance company to validate the internal model thereof, using appropriate model portfolios and assumptions that are mainly based on external data rather than on the internal data of that company in order to validate the calibration of the internal model and ascertain that the specifications meet generally accepted market practices.

Section 130. (1) The procedure for the calculation of the minimum capital requirement is laid down in EU Regulation. No. 2015/35. The minimum capital requirement shall not be less than the absolute floor of the minimum capital requirement provided for in Paragraph three hereof.

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(2) The minimum capital requirement shall not be less than 25 percent nor more than 45 percent of the solvency capital requirement of the insurance or reinsurance company, which is calculated in accordance with the standard formula or the internal model, integrating into it any capital add-on laid down by the Commission in accordance with the provisions of Section 46 of this Law. If the minimum capital requirement of the insurance or reinsurance company coincides with any of the listed percentage limits, that company shall notify the Commission of the reasons for it.

(3) The absolute floor of the minimum capital requirement:1) shall be 3.7 million euros for non-life insurance companies, including captive

insurance companies pursuing insurance in one or more classes of non-life insurance referred to in Section 19, Paragraph one, Clauses 10, 11, 12, 13, 14 and 15 of this Law, and 2.5 million euros for other non-life insurance companies, including captive insurance companies;

2) shall be 3.7 million euros for life insurance companies, including captive insurance companies, which have obtained a licence for pursuing life insurance;

3) shall be 3.6 million euros for reinsurance companies, and 1.2 million euros for captive reinsurance companies;

4) for insurance companies, which pursue life as well as non-life insurance it shall be the sum of the absolute floor of the minimum capital requirements referred to in Clauses 1 and 2 hereof.

(4) An insurance or reinsurance company shall make the minimum capital requirement calculation at least quarterly and shall submit it to the Commission. For the calculation of the percentage limitation referred to in Paragraph two hereof, an insurance or reinsurance company shall not need to make the solvency capital requirement calculation for the quarter concerned, and it may use the calculation made for the previous reporting year.

(5) The absolute floor of the minimum capital requirement set out in Paragraph three hereof, denominated in euros, shall be reviewed once in every five years and indexed, if according to the information provided by the statistics office Eurostat the consumer price index in the countries of the European Economic Area has grown by more than 5 per cent from 31 December 2015 to the time of the review thereof. The absolute floor of the minimum capital requirement shall be rounded up to the nearest 100,000 euros. The decision on indexation and the amount of the absolute floor of the minimum capital requirement for the year in question shall be announced by the European Commission.

Chapter XVI Investments

Section 131. An insurance or reinsurance company shall invest all its assets following the prudence principle set out in Sections 132, 133 and 134 of this Law.

Section 132. (1) An insurance or reinsurance company shall invest its asset portfolio only in such assets and financial instruments, the risks associated with which the company can properly identify, quantify, monitor, manage, control and report, as well as taking into account its overall solvency needs in accordance with the provisions laid down in Section 65 Paragraph two, Clause 1 of this Law.

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(2) An insurance or reinsurance company shall develop and approve its investment policy and procedures. An insurance or reinsurance company shall be responsible for compliance with that policy and procedures. At least once a year, the management board of an insurance or reinsurance company shall review the investment policy and procedures, aligning it by the type of investments, geographical locations, counterparties, regulated and non-regulated financial instrument markets and real estate markets. Before engaging in transactions with derivatives, an insurance or reinsurance company shall develop and approve the derivatives use policy and procedures that are aligned with the core activity of that company, its investment procedures and the corresponding risk management.

(3) All assets, particularly those covering the minimum capital requirement and the solvency capital requirement, shall be invested, guaranteeing the security, quality, liquidity and profitability of the entire asset portfolio. In addition, such assets shall be placed so as to ensure the availability thereof.

(4) The assets used to cover technical provisions shall be invested according to the type of insurance and reinsurance obligations and the term of the contract. The said assets shall be invested in accordance with the interests of all policyholders and beneficiaries, having regard to the provisions laid down in the insurance contract.

(5) In the event of a conflict of interest an insurance company or a person which manages the asset portfolio thereof, shall ensure that the investment is made in the interests of the policyholders and beneficiaries.

Section 133. To cover the technical provisions of such a life insurance contract under which the investment risk is assumed by the policyholder, in addition to the requirements laid down in Section 132 of this Law the following requirements shall be met:

1) If a life insurance contract under which the investment risk is assumed by the policyholder is tied to the investment units (parts) of open-ended investment funds (or comparable mutual investment companies) or to the identifiable pool of assets usually divided into nominal parts of the special purpose vehicle established by the insurance or reinsurance company specially for this purpose, the assets, which are closely tied to these units (parts) or these assets, shall be attributed to the technical provisions covering the contract;

2) if a life insurance contract under which the investment risk is assumed by the policyholder is tied to a stock index or other parameter not provided for in Clause 1 hereof, such assets shall be attributed to the technical provisions covering the contract, the value changes of which are closely tied to the changes in the value of the stock index or another parameter, which have an appropriate collateral and marketability, and which as close as possible correspond to such assets the value of which depends on the size of the relevant calculation;

3) if the contracts referred to in Clauses 1 and 2 hereof provide for the guarantee on the returns on investments or some any other guaranteed benefit, the assets that are allocated to the covering of the technical provisions for such contract shall meet the requirements laid down in Section 134 of this Law.

Section 134. The assets of an insurance or reinsurance company, except those referred to in Section 133 of this Law, shall meet the following requirements in addition to those laid down Section 132 of this Law:

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1) assets shall be appropriately diversified, in order to avoid excessive reliance on any asset category, issuer or a group of commercial companies, or a geographical area, and to avoid excessive concentration of risk in the investment portfolio. Investments in assets issued by a single issuer or the issuers belonging to a single group shall not expose the insurance or reinsurance company to excessive risk concentration;

2) the use of derivatives is permissible only if they contribute to the reduction of risks or a more efficient management of the investment portfolio. Derivatives shall be valued prudently, taking into account in the total assessment of the value of such assets with is related to the derivative. An insurance or reinsurance company shall avoid excessive risk-taking engaging in transactions with derivatives;

3) investments and assets not traded on a regulated market shall be maintained at a prudent level.

Section 135. An insurance or reinsurance company shall not issue, directly or indirectly, loans to buy stocks or shares issued by themselves or by the parties related to that company, or accept own stock or shares as collateral for obligations.

Section 136. An insurance or reinsurance company shall ensure such geographical distribution of the assets which represent the amounts recoverable under reinsurance contracts entered into with the relevant company, Member State insurer or reinsurer, and a non-Member State insurer or reinsurer, if the solvency supervision regime of such commercial companies corresponds to the criteria established by EU Regulation No. 2015/35 regarding the equivalence of the supervisory regime, which meets the investment policy and procedures thereof.

Section 137. A reinsurer, which is an insurance or reinsurance company or a Member State insurer and reinsurer, shall ensure the covering of the technical provisions for unearned premiums and deferred insurance indemnity claims with assets in the amount of the net technical provisions.

Section 138. (1) An insurance or reinsurance company shall make investments into securities and other financial instruments issued after 1 January 2011 and which are based on the restructured loans, only subject to the requirements laid down in EU Regulation No. 2015/35.

The requirements laid down in Paragraph one hereof shall be applied to insurance or reinsurance companies making investments in transferable securities or other financial instruments, which are based on the restructured loans and which have been issued before 1 January 2011, only if new exposures are added or the existing exposures have been replaced after 31 December 2014.

Chapter XVII Deterioration of the Financial Condition of an Insurance or

Reinsurance CompanySection 139. An insurance or reinsurance company shall develop a policy laying down the

procedure under which the company identifies the deterioration of the financial condition thereof. Upon identifying the deterioration of the financial condition thereof, the insurance or reinsurance company shall immediately notify the Commission thereof.

Section 140. (1) Where an insurance or reinsurance company has failed to comply with the requirements laid down in this Law or other laws and regulations regarding the creation of technical provisions and calculation methods, the Commission may, after notifying the supervisory authorities of the Member State in which the insurance or reinsurance merchant has

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a branch or in which the insurance or reinsurance merchant provides insurance or reinsurance services (the involved Member State), prohibit that company to freely act with its assets.

(2) The Commission shall specify the assets to which the measures laid down in Paragraph three hereof apply.

Section 141. (1) An insurance or reinsurance company shall immediately notify the Commission as soon as it identifies that it has failed to meet the solvency capital requirement, or if there is a risk that the solvency capital requirement might not be met within the forthcoming three months.

(2) An insurance or reinsurance company shall, within two months of the date on which non-compliance with the solvency capital requirement was observed, submit the recovery plan to be used to restore the eligible own funds until the solvency capital requirement is reached to the Commission for the approval.

(3) An insurance or reinsurance company shall take all the measures necessary to ensure that within six months of the date on which non-compliance with the solvency capital requirement was observed, it restores the eligible own funds until the solvency capital requirement is reached.

(4) The Commission may extend the term specified in Paragraph three hereof by three months.

(5) In the event of such extreme adverse circumstances which have been announced by the EIOPA and which affect the insurance or reinsurance companies which represent a significant market share and, if necessary, following the consultation with the European Systemic Risk Board, the Commission may extend the term referred to in Paragraph three hereof for a specific term, however, not longer than seven years, taking into account the specific circumstances of the case, including the average term of technical provisions.

(6) The Commission may submit a request to the EIOPA for the latter to announce the existence of extremely adverse circumstances referred to in Paragraph five hereof, if an insurance or reinsurance company representing a significant share of the market is unable to fulfil the measures referred to in Paragraph three hereof. Extremely adverse circumstances exist when the financial condition of insurance or reinsurance companies with significant influence in the market and the particular kinds of the transactions of which are affected, are seriously or adversely affected by one or more of the following circumstances:

1) an unexpected, rapid and excessive decline in financial markets;2) an environment of consistently low interest rates;3) a catastrophic event having serious consequences.

(7) In cooperation with the EIOPA, the Commission shall regularly assess whether the circumstances referred to in Paragraph six hereof persist. If it is found that extremely adverse circumstances no longer exist, the EIOPA and the Commission shall communicate it to the public.

(8) If the Commission has extended the term under Paragraph five hereof, then the insurance or reinsurance company shall submit, every three months, a report to the Commission on the measures taken to restore the eligible own funds so that the solvency capital requirement amount is reached or the risk is reduced enabling compliance with the solvency capital requirement.

(9) The Commission shall cancel the term extension referred to in Paragraph five hereof, if it follows from the report set out in Paragraph eight hereof, for the time period from the date on which non-compliance with the solvency capital was observed up to the date of the submission of the report there have been no significant improvements in terms of restoring the eligible own

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funds to the amount of the solvency capital requirement or reducing the risk to ensure that the solvency capital requirement is complied with.

(10) If, upon the occurrence of the event referred to in Paragraph one hereof, the Commission considers that the financial condition of the insurance or reinsurance company continues to deteriorate, it may also restrict or prohibit that company to freely act with the assets thereof.

(11) The Commission shall immediately notify the supervisory authority of the involved Member States within the territory of which the insurance or reinsurance company pursues insurance or reinsurance, of any measures taken by it in accordance with Paragraph ten hereof in respect of that company, and require them to apply the same measures in the territory of the involved Member States to that company.

(12) The Commission shall specify the assets to which the measures laid down in Paragraph ten hereof apply.

Section 142. (1) An insurance or reinsurance company shall immediately inform the Commission as soon as it establishes that the eligible basic own funds falls below the minimum capital requirement, or if there is a risk that the minimum capital requirement might not be met in the forthcoming three months.

(2) An insurance or reinsurance company shall, within one month of the occurrence of the event referred to in Paragraph one hereof, submit a plan to the Commission for approval to restore the eligible basic own funds to the amount of the minimum capital requirement. The plan shall provide that the insurance or reinsurance company shall, within three months of the date of observing non-compliance referred to in Paragraph one hereof, restore the eligible basic own funds to the amount of the minimum capital requirement or shall reduce the risk, ensuring compliance with the minimum capital requirement.

(3) Upon the occurrence of the event referred to in Paragraph one hereof, the Commission may restrict or prohibit the insurance or reinsurance company to freely act with the assets thereof.

(4) The Commission shall notify the supervisory authorities of the involved Member States, in the territory of which the insurance or reinsurance company pursues insurance or reinsurance, about all the measures taken by it in accordance with Paragraph three hereof in respect of the insurance or reinsurance company, and require them to apply the same measures in the territory of involved Member States to that company.

(5) The Commission shall specify the assets to which the measures laid down in Paragraph three hereof apply.

Section 143. If the Commission has received a request from the supervisory authority of the Member State to restrict or prohibit a Member State insurer or reinsurer in the Republic of Latvia to act freely with the assets thereof, it shall take the necessary measures to ensure that the limitation or prohibition to freely act with the assets in respect of which the supervisory authority of the Member State has requested to apply the limitation or prohibition is complied with.

Section 144. (1) Based on the submitted financial statements and the results of inspections, the Commission may require the insurance or reinsurance company to submit the plan referred to in Section 141 Paragraph two or Section 142, Paragraph two of this Law.

(2) Where the financial condition of an insurance or reinsurance company is deteriorating and the performance of the obligations arising from the insurance or reinsurance contracts is threatened, or if that company has not submitted the plan referred to in Section 141, Paragraph

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two of this Law or Section 142 of this Law to the Commission, the Commission may take any necessary measures to ensure the protection of the interests of the insured.

Section 145. (1) The management board of an insurance or reinsurance company shall be responsible for the timely development and execution of the plan referred to in Section 141 , Paragraph two and Section 142, Paragraph two of this Law.

(2) An insurance or reinsurance company shall include at least the following in the plan referred to in Section 141, Paragraph two and Section 142, Paragraph two of this Law:

1) information on projected activity-related costs (administrative and client acquisition costs) of that company;

2) information on projected revenue from insurance, reinsurance, ceded reinsurance and retrocession pursued by that company and the costs related thereto;

3) the draft statement of financial position at the end of the reporting period, and the draft statement of the financial performance for the reporting period;

4) projected financial sources necessary for the performance of the obligations arising from insurance or reinsurance and for compliance with the solvency capital requirement and minimum capital requirement;

5) the ceded reinsurance and retrocession programme;6) measures to be taken and the time period for the execution thereof.

(3) If the Commission has required the insurance or reinsurance company develop the plan referred to in Section 141, Paragraph two and Section 142, Paragraph two of this Law, it shall not adopt the decision on the issuing of the authorisation set out in Section 47, Paragraph three of this Law as long as it believes that the rights of policyholders or the performance of the contractual obligations of the reinsurance company are threatened.

Section 146. (1) An insurance or reinsurance company has a duty to notify the Commission of any such circumstances, which may significantly affect the future activity of that company.

(2) The Commission has the right not to allow an insurance or reinsurance company to establish close links with third parties, or require that the relevant company should terminate close links with the third parties, or prohibit engaging in transactions with them, if such links may threaten or threatens the financial condition of the insurance or reinsurance company or hinders the Commission to exercise its supervisory functions.

Section 147. (1) The Commission may revoke the issued insurance or reinsurance licence if:1) the insurance or reinsurance company has not started pursuing insurance or

reinsurance within 12 months of the date of receipt of the insurance or reinsurance licence;2) the insurance or reinsurance company has suspended pursuing insurance or

reinsurance for a period exceeding six months;3) the insurance or reinsurance company has renounced its insurance or reinsurance

licence; 4) the insurance or reinsurance company has violated this Law or failed to comply with

the conditions applicable to the insurance or reinsurance licence;5) the insurance or reinsurance company has materially violated other laws and

regulations governing the carrying out of the commercial activity;6) the insurance or reinsurance company is unable to perform the obligations arising

from insurance or reinsurance contracts;

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7) the insurance company has not, more than two months after the Commission has warned it about the revoking of the licence, voluntarily and fully made payments into the Protection Fund for the Insured;

8) the insurance or reinsurance company is being wound up;9) the shareholders of the insurance or reinsurance company owning a qualifying

holding have attracted the prohibition to exercise their voting rights, which has been lasting for more than six months.

(2) The Commission shall revoke the issued insurance or reinsurance licence, if the insurance or reinsurance company does not comply with the minimum capital requirement, and the Commission believes that the plan to restore the eligible basic own funds to the amount of the minimum capital requirement is not appropriate, or if that company fails to comply with the plan within three months after non-compliance with the minimum capital requirement has been observed.

(3) The Commission shall provide information to the supervisory authority of the involved Member State about the revoking of the insurance or reinsurance licence.

(4) If the Commission has been notified by the supervisory authority of the Member State to the effect that the authority concerned has revoked the insurance or reinsurance licence issued to the Member State insurer or reinsurer, it shall take all necessary measures to preclude the Member State insurer or reinsurer concerned to enter into new insurance or reinsurance contracts in the Republic of Latvia, exercising the right to establish a branch, or, if it uses the freedom to provide services principle, to provide insurance or reinsurance services, without opening a branch.

(5) The appealing of the Commission's decision of the revoking of the insurance or reinsurance licence shall not suspend the validity thereof.

(6) The Commission shall notify the EIOPA of the cancelled insurance or reinsurance licences.

Section 148. (1) If the Commission has identified circumstances enabling the decision to revoke the insurance or reinsurance licence, it may adopt the decision to suspend the validity of the insurance licence.

(2) The term of the suspension of the validity of the insurance licence shall not exceed six months.

(3) The insurance company shall enter into new contracts, amend the provisions of the existing insurance contracts or extend the term of the validity thereof in the class of insurance for which the issued licence has been suspended, but continue to perform the existing insurance contracts.

(4) If the decision adopted by the Commission on the suspension of the validity of the insurance licence suspension is appealed, such appealing shall not suspend the validity thereof.

Section 149. (1) The Commission may revoke the insurance or reinsurance licence for one or more classes of insurance or reinsurance. If the insurance or reinsurance licence is revoked, the insurance or reinsurance company shall not enter into new insurance or reinsurance contracts in the class of insurance or reinsurance concerned, or amend the provisions of the existing insurance or reinsurance contracts or extend the term of the validity thereof, but continue to perform the obligations arising from the concluded insurance or reinsurance contracts. (2) An insurance or reinsurance company shall be wound up, if its insurance or reinsurance

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licence is revoked for all classes of insurance or reinsurance pursued by it, except when such a company, through or without restructuring it, is reorganised into a legal person which does not pursue insurance or reinsurance. An insurance or reinsurance company may be reorganised, through or without restructuring into a legal person which does not pursue insurance or reinsurance, only with the authorisation of the Commission.

(3) If it is intended to reorganise the insurance or reinsurance company into a legal person which does not pursue insurance or reinsurance, the Commission shall issue the authorisation if that company has performed all the obligations arising from the concluded insurance or reinsurance contracts.

Section 150. (1) The Commission may, by suspending or revoking the insurance licence, limit the acts of the insurance company with the assets thereof, incurring expenditure, and assuming new obligations.

(2) The Commission shall promptly publish the notification of the revoking of the issued insurance licence or the suspension of the validity thereof in the Official Gazette "Latvijas Vēstnesis".

(3) The Commission shall continue to supervise the insurance company until the complete performance of insurance obligations or until that company is declared insolvent.

(4) The provisions hereof shall also apply in the case of revoking of the licence.Section 151. If an insurance company is excluded or withdraws from the Motor Insurers'

Bureau of Latvia or an analogous organisation in the Member State, that insurance company shall not pursue motor vehicle owner third party liability in the respective territory.

Division D Right to Open a Branch and the Right to Pursue Insurance under

the Freedom to Provide Services PrincipleChapter XVIII

Opening of the Branch of an Insurance MerchantSection 152. (1) The insurance company wishing to open a branch in the Member State, prior

to the opening of it shall notify the Commission thereof in writing.(2) The insurance company shall include the following in its application on the opening of the

branch:1) information on the Member State, in which it plans to open a branch;2) the action plan for three years that includes at least the information on the services

offered and the organisational structure of the branch;3) particulars of the manager of the branch of the insurance company (the person who,

in adopting major decisions on behalf of the branch creates civil obligations to the insurance company);

4) the address of the branch of the insurance company in the Member State (the address to be used for sending and receiving information or for communication with the manager of the branch);

5) If the insurance company intends to pursue the motor vehicle owner third party insurance, in the application, it shall additionally include a confirmation that the insurance

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company is a member of the Vehicle Bureau of the Member State or of an analogous organisation, as well as the member of the respective guarantee fund.

(3) Upon amending the information referred to in Paragraph two, Clauses 2, 3, and 4 hereof, the insurance company shall, not later than 30 days before making the amendments, notify the Commission and the supervisory authority of the Member State of the branch thereof, to enable the Commission and the supervisory authority of the Member State of the branch to comply with the duties laid down in Section 153 of this Law.

(4) The provisions of this Section shall apply to any permanent activity of the insurance company in the Member State, if it is established in the Member State via an office, run by the staff of the insurance company or an independent person authorised by the insurance company to act on behalf of that company.

Section 153. (1) The Commission shall, within three months of receipt of the application referred to in Section 152 of this Law and the information enclosed thereto, notify the supervisory authority of the Member State of the branch and the insurance company, including confirmation that the company concerned complies with the solvency capital requirement and the minimum capital requirement in the notification, except in cases set out in Paragraph two hereof.

(2) The Commission shall adopt the decision to refuse to allow the insurance company to open a branch in the Member State and will not send the notification referred to in Paragraph one hereof to the supervisory authority of the Member State in the following cases:

1) the documents submitted by the insurance company contain false or incomplete information;

2) the system of governance of the insurance company precludes the supervision of the branch pursuant to the laws and regulations of the Republic of Latvia;

3) the manager of the branch of the insurance company (the person who, in adopting major decisions on behalf of the branch creates civil obligations to the insurance company) does not qualify under the requirements laid down in Section 58 of this Law;

4) the eligible own funds of the insurance company does not comply with the solvency capital requirement or the eligible basic own funds does not comply with the minimum capital requirement;

5) the deficiencies identified by the Commission have not been eliminated.(3) The Commission shall adopt the decision referred to in Paragraph two hereof within three

months after the receipt of all information referred to in Section 152 of this Law and send it to the insurance company.

(4) If the insurance company has started the provision of insurance services in the Member State through the branch, the Commission may adopt the decision requiring the company concerned to terminate the provision of insurance services in the Member State in the following cases:

1) the documents submitted by the insurance company contain false or incomplete information on the provision of insurance services in the Member State through the branch;

2) the activity of the insurance company and of the branch thereof in a Member State does not enable the supervision of the activity of the insurance company and of the branch thereof in the Member State pursuant to the laws and regulations of the Republic of Latvia regulating the activity of insurers;

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3) the provision of insurance services in the Member State through the branch threatens or may threaten the financial condition of the insurance company and the performance of the obligations under the insurance contracts.

(5) After receiving the information provided by the Member State of the branch, the Commission shall promptly notify the insurance company of the provisions of the laws protecting the public interest that need to be complied with when providing insurance services in the Member State of the branch.

(6) After receiving the information referred to in Paragraph five hereof or in two months after the date on which the Commission sent the notification to the supervisory authority of the Member State of the branch, the insurance company may open a branch in the Member State and start the provision of insurance services.

Section 154. (1) The insurance company shall open the branch in the Member State only after receiving the Commission's authorisation.

(2) In order to receive the authorisation to open a branch in the Member State, the insurance company shall submit an application to the Commission for the opening of the branch, specifying therein:

1) the address of the branch in the non-Member State (the address to be used for sending and receiving of information);

2) particulars on the manager of the branch pursuant to the requirements laid down in Section 58 and Section 59 of this Law;

3) the organisational structure of the branch;4) the action plan for the first three years.

(3) The Commission shall review the application for the authorisation to open a branch in the Member State and adopt the decision within 30 days from receipt of all the documents specified in the law and drawn up in accordance with the statutory requirements.

(4) The Commission shall adopt the decision to refuse to allow the insurance company to open a branch in the non-Member State in the following cases:


2) the system of governance of the insurance company precludes the supervision of the branch pursuant to the laws and regulations of the Republic of Latvia;

3) the manager of the branch does not qualify under the requirements laid down in Section 58 of this Law;

4) The laws of the non-Member State or other laws or regulations limit the Commission to exercise the supervisory functions;

5) Owing to circumstances beyond its control, the Commission has not concluded a cooperation and information exchange agreement with the supervisory authority of the non-Member State insurer;

6) The eligible own funds of the insurance company does not comply with the solvency capital requirement or the eligible basic own funds does not comply with the minimum capital requirement;

7) The violations identified by the Commission have not been eliminated.(5) If the insurance company wishes to amend the information referred to in Paragraph two,

Clauses 1, 2, and 4 hereof, it shall, not later than 30 days before effecting the amendments, notify

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the Commission thereof in writing. The Commission shall review the application on making the amendments and adopt the decision within one month of the receipt of all required documents.

(6) The Commission shall send the decision referred to in Paragraph five hereof to the insurance company.

Section 155. (1) For the branch of the Member State to start the provision of insurance services in the Republic of Latvia, the Commission shall receive the notification of the supervisory authority of the Member State insurer, which contains the information referred to in Section 152, Paragraph two of this Law.

(2) Within two months of receipt of the notification referred to in Paragraph one hereof, the Commission shall notify the supervisory authority of the Member State insurer of the provisions of the laws protecting the public interest that need to be complied with when providing insurance services in the Member State of the branch.

(3) The branch of the Member State insurer may commence providing insurance services in the Republic of Latvia immediately after the receipt of the information sent by the Commission from the supervisory authorities of the Member State insurer or upon the expiry of the two months specified in Paragraph Two hereof.

Section 156. (1) The insurance company wishing to open a branch of the Swiss Confederation, and to provide insurance services other than life insurance, shall open a branch in the Swiss Confederation and provide insurance services other than life insurance, in accordance with the requirements laid down in this Law, which are applicable to insurance companies regarding the opening of the branch and the provision of insurance services in other Member States, unless the treaty between the European Economic Community and the Swiss Confederation concerning direct insurance other than life insurance provides otherwise.

(1) The Member State insurer, the home country of which is the Swiss Confederation, and who wishes to open a branch in the Republic of Latvia and provide insurance services other than life insurance, shall open the branch and provide insurance services other than life insurance in the Republic of Latvia, shall provide insurance in accordance with the requirements of this Law, which are applicable to the insurers of other Member States in respect of the opening of branches and the provision of insurance services, unless the treaty approved under the Council Decision of 20 June 1991 on the conclusion of the Agreement between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance, provides otherwise.

Chapter XIX Freedom of the Insurance Merchant to Provide Services

Section 157. (1) The insurance company wishing to provide insurance services in the Member State under the freedom to provide services principle, without opening the branch, shall notify the Commission thereof in writing.

(2) The insurance company shall include the following information in the application:1) the Member State in which it intends to provide insurance services;2) risks insured.

(3) If the insurance company intends to pursue motor vehicle owner compulsory third party insurance, it shall additionally specify in the application:

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1) the information about the representative of the insurance company authorised to adopt decisions to disburse insurance indemnities, and the address thereof in the Member State;

2) particulars of the representative of the insurance company set out in Section 159 of this Law and the address thereof in the Member State;

3) confirmation that the insurance company is a member of the Vehicle Bureau or an analogous organisation in the Member State and the member of the relevant guarantee fund.

(4) The Commission shall, within 30 days from receipt of the application referred to in Paragraphs two and three hereof and the enclosed information, send the notification to the supervisory authorities of the Member States in which an insurance company intends to provide services, specifying therein:

1) confirmation that the insurance company complies with the solvency capital requirement and the minimum capital requirement;

2) information about the classes of insurance services which the insurance company is authorised to provide;

3) information about insurable risks that the insurance company intends to insure in the Member State;

4) information referred to in Paragraph three hereof if the insurance company intends to pursue motor vehicle owner compulsory third party insurance.

(5) The Commission shall inform the insurance company concerned of the sending of the notification referred to in Paragraph four hereof.

(6) The Commission shall adopt the decision to refuse to allow the insurance company to commence the provision of insurance services in the Member State and will not send the notification referred to in Paragraph four hereof to the supervisory authority of the Member State in the following cases:


2) the eligible own funds of the insurance company do not comply with the solvency capital requirement or the eligible basic own funds do not comply with the minimum capital requirement;

3) The violations identified have not been eliminated within the term set by the Commission.

(7) If the insurance company has commenced providing insurance services in the Member State under the freedom to provide services principle, without opening a branch therein, the Commission may adopt the decision requiring the company concerned to terminate the provision of insurance services in the Member State in the following cases:

1) the documents submitted by the insurance company contain false or incomplete information on the insurance service;

2) the activity of the insurance company precludes the supervision of the activity of the insurance company pursuant to the laws and regulations of the Republic of Latvia regulating the activity of insurers;

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3) the provision of insurance services in the Member State through the branch threatens or threaten the financial condition of the insurance company and the performance of the obligations under the insurance contracts.

(8) The Commission will adopt the decision referred to in Paragraph six hereof within 30 days from receipt of the application referred to in Paragraphs two and three hereof and send it to the insurance company.

(9) The insurance company may commence the provision of insurance services in the Member State without opening a branch under the principle of freedom to provide services, as of the date of receipt of the Commission's notification on the sending of the notification referred to in Paragraph four hereof to the supervisory authority of the Member State.

(10) If the insurance company wishes to make amendments to the information in the application referred to in Paragraphs two and three hereof, it shall comply with the requirements laid down in Paragraphs one, two, three and nine hereof.

Section 158. (1) The Member State insurer shall commence the provision of insurance services in the Republic of Latvia, without opening the branch under the freedom to provide services principle, as of the date on which it has received the notification of the supervisory authority of the relevant Member State on the sending of the notification referred to in Section 157 , Paragraph four of this Law to the Commission.

(2) If amendments are made to the information contained in the notification, they shall enter into force in the Republic of Latvia on the date on which the Commission received the notification of these amendments from the supervisory authority of the relevant Member State.

(3) The laws on the provision of statistical information and the protection of the public interest of the Republic of Latvia shall be binding on the Member State insurer who may provide insurance services in the Republic of Latvia.

Section 159. (1) To ensure equal treatment of persons who under the motor owner third party compulsory insurance submit claims for accidents that have occurred in the territory of the Republic of Latvia, the Member State non-life insurer who provides insurance services in the Republic of Latvia under the freedom to provide services principle, in the class of non-life insurance specified in Section 19, Paragraph one, Clause 10 of this Law, except the liability of carriers, shall appoint a representative, permanently residing in the Republic of Latvia or carrying on business in the territory of the Republic of Latvia, authorising it:

1) to collect all necessary information related to insurance claims;2) represent the Member State non-life insurer in relations with persons to whom

damage has been done and who are likely to submit insurance claims, provided the disbursement of such insurance claims;

3) represent a Member State non-life insurer or, if necessary, to ensure the representation thereof in the courts and institutions of the Republic of Latvia in relation to the disbursement of such insurance indemnities.

(2) The representative of the Member State non-life insurer may carry out the activities specified in Paragraph one hereof.

(3) The appointment of the representative of the Member State non-life insurer shall not be regarded as the opening of the branch in the Republic of Latvia.

(4) Where the Member State non-life insurance company has not appointed a representative, it shall be considered that the duties of the representative shall be performed by the

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representative of the administration of claims appointed under the laws and regulations regulating the motor vehicle third party compulsory liability insurance.

Chapter XX Competence of the Commission as the Supervisory Authority of

the Host Member StateSection 160. The information that the Commission may request from the Member State

insurer under this Law shall be provided in the official language of the Republic of Latvia.Section 161. (1) If the Commission identifies that the branch of the Member State insurer or

the Member State insurer, which provides insurance services under the freedom to provide services principle, carries out activities that are contrary to the provisions of the laws and regulations regulating the activity of insurer in the Republic of Latvia, it shall immediately require that such activities be discontinued by the Member State insurer.

(2) If the branch of the Member State insurer or the Member State insurer who provides insurance services under the freedom to provide services principle, fails to discontinue the activities that contradict the provisions of the laws and regulations regulating the activity of insurer in the Republic of Latvia, the Commission shall immediately notify the supervisions authority of the relevant Member State thereof.

(3) Where the branch of a non-Member State insurer or the Member State insurer which provide insurance services under the freedom to provide services principle, continues to engage in activities that are contrary to the laws and regulations regulating the activity of the insurers in the Republic of Latvia, the Commission shall notify the supervisory authority of the relevant Member State thereof and take measures to prevent such violations, or adopt the decision to apply the penalties prescribed by this Law, and, if necessary, to prohibit the branch of the Member State insurer or the Member State insurer to enter into new insurance contracts within the territory of the Republic of Latvia.

(4) The Member State insurer shall submit all the documents requested by the Commission, which are necessary for compliance with the requirements laid down herein.

(5) If the Commission has received the information referred to in Paragraph two hereof from the supervisory authority of the host Member State, it shall, as soon as practicable, take the necessary measures to ensure that the relevant insurance company eliminates the violations. The Commission shall notify the supervisory authority of the host Member State of the measures taken.

(6) The Commission shall notify the European Commission and the EIOPA of such cases regarding which, pursuant to Section 153 or Section 157 of this Law the decision has been adopted to allow the insurance company to open a branch in the Member State or commence the provision of insurance services in the Member State or where the measures referred to in Paragraph three hereof have been carried out.

(7) The Commission may refer to the EIOPA and request its assistance in resolving the matter referred to herein.

Section 162. (1) If the Commission identifies that the branch of the Member State reinsurer or the Member State reinsurer, which provides reinsurance services under the principle of freedom to provide services, without opening a branch carries out activities that are contrary to the provisions of the laws and regulations of the Republic of Latvia, it shall immediately require that such activities be discontinued by the Member State reinsurer. The Commission shall notify the

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supervisory authority of the home country of the Member State reinsurer of the violations identified. The Commission shall cooperate and consult with the supervisory authorities of Member States, to ensure the supervision of the activity of the Member State reinsurers in the Republic of Latvia.

(2) Where the branch of a non-Member State reinsurer or the Member State reinsurer which provides reinsurance services under the freedom to provide services principle, continues to engage in activities that are contrary to the laws and regulations of the Republic of Latvia, the Commission shall notify the supervisory authority of the relevant Member State thereof and take measures to prevent such violations, or adopt the decision to apply the penalties prescribed by this Law, and, if necessary, to prohibit the branch of the Member State reinsurer or the Member State insurer to enter into new reinsurance contracts within the territory of the Republic of Latvia.

(3) The Commission may refer to the EIOPA and request its assistance in resolving the matter referred to herein.

Section 163. (1) Where an insurance company is being wound up, the obligations arising from insurance contracts concluded by the company concerned, using the right to open a branch or under the principle of freedom to provide services, without opening the branch, shall be met in the same manner as the obligations arising from other insurance contracts concluded by the company concerned, irrespective of the nationality of the insured person and the beneficiary.

(1) Where a reinsurance company is being wound up, the obligations arising from reinsurance contracts concluded by the company concerned, using the right to open a branch or under the principle of freedom to provide services, without opening the branch, shall be met in the same manner as the obligations arising from other reinsurance contracts concluded by the company concerned.

Chapter XXI Activity of the Branch of a Non-Member State Insurer

Section 164. (1) The branch of a non-Member State insurer may commence activity in the Republic of Latvia after obtaining the licence from the Commission. The branch may provide insurance services only in the classes of insurance specified in the licence.

(2) The licence shall be issued if:1) the non-Member State insurer qualifies under the following requirements:

a) it may provide insurance services in the home country in accordance with the laws of the respective country,

b) it registers a branch in the Republic of Latvia,c) it undertakes to keep the accounting records of the branch of a non-Member

State insurer under the laws of the Republic of Latvia,d) it appoints the authorised representative (branch manager) of the non-Member

State insurer, which qualifies under the requirements laid down in Section 58 of this Law,

e) the branch of a non-Member State insurer has been transferred funds at its disposal in the amount set out in Section 130, Paragraph three of this Law, of which 25 percent have been deposited with a credit institution registered in the Republic of Latvia as a security deposit,

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f) it undertakes to comply with the solvency capital requirement and the minimum capital requirement set out for the branch of a non-Member State in the Republic of Latvia,

g) it provides proof that the system of governance of the branch of a non-Member State insurer complies with requirements laid down in Chapter VII and Chapter III of this Law,

h) it has submitted the application specified in Section 165 of this Law and the documents to be enclosed to it;2) The Commission has not identified the occurrence of the circumstances set out in

Section 168, Paragraph one of this Law;3) The Commission and the supervisory authority of the non-Member State insurer has

agreed on the exchange of the necessary information and cooperation in the area of insurance supervision for the purposes of carrying out supervision.

(3) The insurance licence shall be issued for each class of insurance specified in Section 19, Paragraphs one and two of the Law separately.

(4) At the request of the branch of a non-Member State insurer, upon obtaining the insurance licence, the risks that the branch of a non-Member State wishes to insure shall be specified therein.

(5) For the protection of the interests of the insured, the issued licence may include additional terms and conditions.

Section 165. (1) In order to obtain the insurance licence, the non-Member State insurer shall submit to the Commission:

1) an application for obtaining a licence by the branch of a non-Member State insurer, specifying the class of insurance for which the licence is required;

2) the by-laws of the branch of a non-Member State insurer;3) a document issued by a credit institution supporting the depositing of cash in the

amount of the absolute floor of the minimum capital requirement and of the security deposit,

4) the action plan set out in Section 166 of this Law;5) the annual reports of the non-Member State insurer for the previous three years,

audited by a sworn auditor;6) proof supporting that the system of governance of the non-Member State insurer

complies with the provisions of Chapter II and Chapter III of this Law:a) the list of such shareholders that have a qualifying holding in the non-Member

State insurer, and the group structure,b) the list of persons with whom the non-Member State insurer has close links,c) particulars of the authorised representative (branch manager) of the non-Member

State insurer pursuant to the requirements laid down in Section 58 and Section 59 of this Law,

d) the policy and procedure for the calculation of technical provisions,e) policies and procedures for the underwriting of insurance and reinsurance risks

and the calculation for the determination of the insurance premium,

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f) information about the organisational structure of the branch with clearly specified lines of authority and duties of the managers thereof, the tasks of the structural units and the responsibilities of the managers thereof,

g) the risk management policy and procedure,h) the internal control policy and procedure,i) the internal information exchange procedure,j) accounting policies, procedures and the main principles of the accounting system,k) the terms and conditions of the protection of the information system,l) policies and procedures for identifying unusual and suspicious financial

transactions,m) internal procedures set out in Section 15 of this Law,n) investment policies and procedures,o) the internal audit activity policy and procedures,p) policies and procedures for receiving outsourced services, if the non-Member

State insurer intends to use the services of the providers of outsourced servicesr) samples of insurance policies,s) information on the structure of the system of governance.

(2) If the branch of a non-Member State wishes to obtain a licence for assistance insurance, it shall submit information to the Commission on the available funds at its disposal and the concluded contracts that ensure the provision of assistance to the insured pursuant to the obligations assumed under this class of insurance.

(3) If the branch of a non-Member State insurer wishes to obtain a licence for the class of non-life insurance set out in Section 19 , Paragraph one, Clause 10 of this Law, except the insurance of the liability of carriers, and intends to pursue motor vehicle owners third party compulsory liability insurance, it shall submit written confirmation to the Commission that the branch of a non-Member State insurer is a member of the Vehicle Insurer Bureau of Latvia and the relevant guarantee fund, and notify of the names (first name, surname) of such representatives of the branch of a non-Member State insurer and the registered office in each Member State, which adopt a decision on the disbursement of insurance indemnities or refusal to pay out the insurance indemnity, as well as ensure the disbursement of insurance indemnity.

(4) If the branch of a non-Member State is removed or withdraws from the Vehicle Insurer Bureau of Latvia, the branch of a non-Member State insurer shall be prohibited to pursue motor vehicle owner third party liability compulsory insurance.

(5) In order to obtain the licence to pursue other class of insurance, the branch of a non-Member State insurer shall submit to the Commission:

1) the application specified in Paragraph one, Clause 1 hereof;2) the calculation of the necessary expenses to implement the new class of insurance

and information about the sources of funds to finance these expenses;3) the action plan set out in Section 166 of this Law;

(6) in this section the term "branch" shall mean any permanent structure on the territory of a Member State, which has been created by a non-Member State insurer, which has obtained a licence in that Member State and provides insurance services in the home country.

Section 166. (1) The scheme of operations shall include:1) the description of insured risks;

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2) the procedure for the main ceded reinsurance;3) information on the basic own funds items constituting the absolute floor of the

minimum capital requirement;4) information on eligible own funds and basic own funds/solvency capital requirement

and minimum capital requirement relationship of the non-Member State insurer, which owns the branch registered in the Republic of Latvia pursuant to the provisions of Chapter XIV and Chapter XV of this Law;

5) information on projected administrative expenses necessary for the start-up and forecast expenses of the arrangement of start-up activities, and the source of funds for the covering of these expenses, and, if the insured risks belong to the class of non-life insurance specified in Section 19, Paragraph one, Clause 18, information on the resources available to the branch of a non-Member State insurer, which ensure the provision of the assistance provided for in the insurance contract.


1) the draft statement of the financial position at the end of the reporting period, and the draft statement of financial performance for the reporting period;

2) the projected solvency capital requirement calculated pursuant to the provisions of Sections 116, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128 and 129, based on the draft statement referred to in Clause 1 hereof, as well as information on the calculation methods used to obtain the projections;

3) information on the forecast minimum capital requirement calculated pursuant to Section 117 and Section 130, based on the draft statement referred to in Clause 1 hereof, as well as the calculation methods used to derive the projections;

4) information on financial resources to ensure the performance of insurance obligations and compliance with the solvency capital requirement and minimum capital requirement;

5) in terms of non-life insurance:a) information on the planned administrative expenses other than the start-up

expenses of the branch of a non-Member state insurer, and on client acquisition costs,b) information on projected insurance premiums or other contributions, as well as on

insurance indemnities;6) in terms of life insurance — income and expense projections for insurance

transactions, reinsurance and ceded reinsurance.Section 167. (1) The Commission shall review the application of the non-Member state

insurer and the documents enclosed thereto on the obtaining of the licence by the branch of a non-Member State insurer and adopt the decision within six months from the date of receipt of the application.

(2) The Commission shall issue the insurance licence on the same day on which the decision to issue the insurance licence is adopted.

Section 168. The Commission has the right not to issue the insurance licence to the branch of a non-Member State insurer in the following cases:

1) insurance is not economically justified;

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2) the authorised representative of the non-Member State insurer (Branch Manager) does not qualify under the requirements laid down in this Law;

3) the intended activity of the non-Member State insurer does not meet the requirements laid down in this Law and other laws and regulations;

4) Under the laws of the home country of the non-Member State insurer the Commission has limited right to exercise the supervisory functions of the branch;

5) The Commission and the supervisory authority of the home country insurers of the non-Member State insurer have not agreed on the exchange of the necessary information and cooperation in the area of insurance supervision for the purposes of carrying out supervision.

6) the submitted documents contain false or incomplete information;7) the Commission has information about reasonable doubts that the funds of the non-

Member State insurer transferred to the branch of a non-Member State have been acquired in unusual or suspicious financial transactions, or the lawful acquisition of the money is not supported by documents.

8) owing to the organisation structure of the branch of a non-Member State insurer the supervision thereof is not feasible;

9) The Commission or the Member State insurer refuses to submit the information prescribed in Section 165 of this Law;

10) ) the non-Member State insurer is taking measures equivalent to the plan to improve the financial standing referred to in Section 141, Paragraph two or Section 142, Paragraph two of this Law.

Section 169. (1) The branch of a non-Member State insurer may transfer all concluded insurance contracts or a part of them to another insurance company or another branch of a non-Member State insurer, subject to receiving a confirmation issued by the Commission or the supervisory authority of the Member State, which carries out the overall supervision of the compliance of the branches of the non-Member State insurer, which accepts the insurance contracts, with the capital requirements under Section 172 of this Law, and according to the confirmation following the acceptance of the insurance contracts the insurance company or the branch of a non-Member State insurer shall have eligible own funds in the amount of the solvency capital requirement at its disposal.

(2) The branch of a non-Member State insurer may transfer all concluded insurance contracts or a part of them to another Member State insurer, subject to receiving a confirmation issued by the supervisory authority of the relevant Member State that following the acceptance of the insurance contracts the Member State insurer will have eligible own funds in the amount of the solvency capital requirement at its disposal.

(3) The branch of a non-Member State insurer may transfer all concluded insurance contracts or a part of them to the branch of a non-Member State insurer registered in another Member State, subject to receiving a confirmation issued by the supervisory authority of the relevant Member State or the supervisory authority of the Member State which carries out the overall supervision of the compliance of the non-Member State insurer, which accepts the insurance contracts, under the provisions of Section 172 of this Law that:

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1) following the takeover of the insurance contracts the branch of a non-Member State insurer registered in another Member State will have eligible own funds in the amount of the solvency capital requirement at its disposal;

2) the laws of the relevant Member State allow the takeover of insurance contracts by the branches of non-Member State insurers registered in the Member State;

3) the supervisory authority of the branch of a non-Member State insurer registered in another Member State has issued the authorisation for the takeover of insurance contracts.

(4) The matters related to the transfer of all insurance contracts or a part thereof concluded by the branch of a non-Member State insurer shall be dealt with in accordance with Section 47, Paragraphs three, four, five, six, seven, eight and nine, and Sections 48, 49, 50, 51 and 52 of this Law.

Section 170. (1) The branch of a non-Member State shall ensure adequate technical provisions to cover insurance and reinsurance obligations assumed by it in the territory of the Republic of Latvia and which have been calculated under the provisions laid down in Chapter XIII of this Law.

(2) The branch of a non-Member State insurer shall value its assets and liabilities in accordance with the requirements laid down in Section 98 of this Law and determine own funds in accordance with the laws and regulations governing the determination of own funds of insurance or reinsurance companies.

Section 171. (1) The branch of a non-Member State has eligible own funds in the amount of the solvency capital requirement at its permanent disposal. The procedure for the calculation of the eligible own funds shall be laid down by the Commission.

(2) The branch of a non-Member State shall calculate the solvency capital requirement and the minimum capital requirement in accordance with the provisions laid down in Chapter XV of this Law. In calculating the solvency capital requirement and the minimum capital requirement, only the transactions carried out by the branch of a non-Member State insurer shall be taken into account.

(3) The branch of a non-Member State shall continuously have eligible basic own funds in the amount of the solvency capital requirement at its disposal. The procedure for the calculation of the eligible basic own funds shall be laid down by the Commission.

(4) The absolute floor of the minimum capital requirement of the branch of a non-Member State insurer shall be 50 per cent of the absolute floor of the minimum capital requirement set out in Section 130, Paragraph three of this Law.

(5) The amount of the security deposit deposited by the branch of a non-Member State insurer under the provisions of Section 164, Paragraph two, Clause 1(e) shall be taken into account, calculating the eligible own funds of the branch of a non-Member State to cover the minimum capital requirement.

The branch of a non-Member State shall deposit the assets in the amount of the solvency capital requirement in the Member States, including the depositing of assets in the amount of the minimum capital requirement in the Republic of Latvia.

Section 172. (1) If a non-Member State insurer which has set up branches in several Member States, has received the authorisation of the Commission and of the supervisory authorities of the involved Member States in compliance with the provision laid down herein, it shall:

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1) calculate the total solvency capital requirement of its branches under Section 171 of this Law, including in the calculation the financial indicators of all of its branches, the supervisory authorities of which have given the relevant authorisation;

2) The security deposit referred to in Section 164, Paragraph two, Clause 1(e), shall be deposited only in the Member State, the supervisory authority of which carries out the overall supervision of the branches for compliance with the solvency capital requirement;

3) assets matching the amount of the minimum capital requirements shall be invested in any of the Member States in which it has established a branch.

(2) In the event that the authorisation referred to in Paragraph one hereof is received, the calculation of the solvency capital requirements and the eligible own funds of the branch of a non-Member State insurer registered in the Republic of Latvia shall not be required.

(3) To obtain the authorisation referred to in Paragraph one hereof, the non-Member State insurer shall submit an application to the supervisory authorities of all the Member States specifying the supervisory authority of the Member State, which will exercise the supervision for compliance with the solvency capital requirement.

(4) The provisions of Paragraph one hereof shall be applicable if the authorisation has been given by all Member States, to which the non-Member State insurer has submitted the application, and the supervisory authority of the Member State specified in it has notified the supervisory authorities of other Member States to the effect that it will be carrying out the overall supervision of the branches for compliance with the solvency capital requirement.

(5) The Commission shall provide all information to the supervisory authority of the Member State specified in the application necessary for the overall supervision for compliance with the solvency capital requirement of the branches.

(6) The application of the provisions of Paragraph one hereof shall be cancelled should any of the supervisory authorities of the participating Member States require such.

Section 173. (1) The activity of the branches of a non-Member State insurer are governed by the provisions of Sections 33, 41 and 91, Section 142 Paragraph three, four and five, Section 143 and Section 144 of this Law.

(2) In applying the provisions of Sections 140, 141 and 142 of this Law, the branch of a non-Member State insurer to which the provisions of Section 172 , Paragraph one, two, three, four and five apply, shall have the same treatment for the supervisory authority responsible for the review of the branch of a non-Member State insurer as for the supervisory authority of the Member State in the territory of which the head office of the non-Member State insurer is situated.

(3) If under the requirements of EU Regulation No. 2015/35, the solvency regime of a non-Member State has been recognised as equivalent, or partly equivalent to the solvency regime laid down in this Law, the reinsurance contracts concluded with the branch of a non-Member State insurer, the head office of which is situated in this non-Member State, shall be subject to the same conditions as to the reinsurance contract concluded by the insurance merchant or reinsurance companies licensed in the Republic of Latvia.

Section 174. The branch of a non-Member State insurer shall not pursue life assurance and non-life insurance concurrently.

Section 175. (1) If the Commission is the supervisory authority of the Member State set out in Section 172 of this Law, engaged in carrying out the overall supervision of the branches of the non-Member State insurer for compliance with the solvency capital requirement and if it has

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adopted the decision to revoke the insurance licence issued to the branch of a non-Member State insurer, the Commission shall notify of that the other supervisory authorities of the Member State in which the branch of a non-Member State insurer is situated.

(2) If the Commission has consented, in accordance with Section 172 of this Law, to receiving benefits to non-Member State insurers and has received the information referred to in Paragraph one hereof from the supervisory authority of the Member State concerned, it shall take the necessary steps to ensure the compliance of the branch of a non-Member State insurer with the requirements of this Law.

(3) If in accordance with Section 172, Paragraph four of this Law, the Commission has consented to the non-Member state insurer receiving preference treatment, has received the information referred to in Paragraph one hereof from the supervisory authority of the Member State concerned, and the reason for the revoking of the licence is non-compliance with the capital requirement, it shall adopt the decision to revoke the licences issued to the branch of a non-Member State insurer.

Section 176. The Commission shall revoke the licence, if the branch of a non-Member State fails to accomplish the scheme of operations referred to in Section 166 of this Law or other provisions of this Law.

Section 177. (1) The Commission shall notify the European Commission, the EIOPA, and the supervisory authorities of Member States of:

1) all licences issued under this Law to an insurance or reinsurance company the parent company of which or the parent company thereof is not registered in the Member State;

2) cases when a commercial company that is not registered in a Member State, has become the parent company of an insurance or reinsurance company.

(2) If the licence is issued to an insurance or reinsurance company, the parent company of which or the parent company thereof is not registered in a Member State, the Commission shall, in addition to the information referred to in Clause 1 hereof, forward details to the European Commission on the group structure of the insurance or reinsurance company.

Section 178. The Commission shall notify the European Commission and the EIOPA of the major problems encountered by insurance or reinsurance companies, upon commencing the pursuit of insurance or reinsurance in non-Member States.

Division ESpecial Insurance and Reinsurance Provisions

Chapter XXII Information to be Provided before Entering into an Insurance

Contract Section 179. (1) Before entering into a non-life insurance contract, the insurer shall notify the

policyholder of:1) its home country;

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2) registered office;3) contact information (including the email address and phone number);4) the natural person acting on behalf of the insurer, additionally specifying the first

name and surname thereof.(2) The information set out in Paragraph one, Clauses 1 and 2 here shall be specified in all

documents that are issued to the policyholder.(3) The requirements laid down in Paragraphs one and two hereof shall not be applicable to

large risk insurance.(4) Based on the information provided by the client, before entering into the insurance

contract, the insurer shall identify the client's requirements and needs depending on the complexity of the insurance contract.

(5) Before entering into the contract, the insurer shall explain the nature of the deductible and overinsurance or underinsurance to the client, if it may affect the interests of the client.

Section 180. (1) Before entering into the life insurance contract, the insurer shall provide to the client:

1) the following information relating to the life insurance company:a) on the insurance company,b) on the Member State in which the head office of the insurance company is

situated,c) the registered office of the head office of the insurance company,d) the place where one can get information on the solvency and financial standing

of the insurance company;2) the following information relating to obligations:

a) the amount of the sum insured under the insurance contract and the terms and conditions of the options included therein,

b) on the validity term of the life insurance contract,c) on the terms for the termination of the life insurance contract,d) on the time limits and procedures for the payment of insurance premiums,e) on the procedure for the calculation and allocation of gratuities (bonuses),f) on the procedure for the determination of the repurchase amount and

accumulation amount and on the provisions of the guaranteed disbursement thereof,g) on the amount of insurance premiums and amount insured separately for each

insured risk, as well as on the insurance indemnity or the procedure for the determination thereof for each insured event,

h) in the unit-tied life insurance contract — on the underlying assets and the procedure for the calculation of the sum insured,

i) on the procedure for the application of the notice period to the termination of the life insurance contract,

j) general information about the tax regime applicable to the class of insurance,k) procedure for the examination of complaints and disputes arising from the

insurance contract,l) on the law applicable to the regulation of contractual relationships arising from the

life insurance contact, if the parties to the life insurance contract are not provided with

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the option of a free choice or if the parties to a life insurance contract may choose it freely, or the law offered by the life insurance company.

(2) In addition to the provisions of Paragraph one hereof, the insurer shall provide information to ensure correct understanding of the risks relating to the life insurance contract assumed by the policyholder.

(3) Within the validity term of the life insurance contract, the insurer shall promptly notify the policyholder and the insured (unless it is the policyholder) of the following:

1) on changes to the insurer's business, contact telephone number, addresses and contact persons and other similar information required for the performance of the contractual obligations of the policyholder and the insured (unless it concurrently is the policyholder as well);

2) on changes to the terms and conditions of insurance or the laws applicable to the insurance contract, if they are related to the information referred to in Paragraph one, Clause 2, Sub-clauses d, e, f, g, h and i hereof.

(4) If the likely insurance indemnity specified in the offer to enter into a life insurance contract at the end of the term of the insurance contract may be higher than that payable under the insurance contract, the insurer shall provide the policyholder with an example of the likely insurance indemnity calculation at the end of the term of the insurance contract, based on the calculation of the insurance premium specified in the insurance contract for the purpose of which three different interest rates shall be used. The insurer shall inform the policyholder that the calculation example is only a projection based on theoretical assumptions, and that the policyholder shall not gain the right to claim payments based on this calculation example.

(5) The requirements laid down in Paragraph four hereof shall not be applicable to life insurance contracts without the accumulation of funds.

(6) If the life insurance contract provides for the sharing of profits, each year, the insurer shall notify the policyholder of the status of their claims, including profit-sharing. If the insurer provides information about the future developments in profit-sharing, it shall notify the policyholder of the differences between the actual and original data.

(7) Before entering into the unit-linked life insurance contract, the insurer shall provide the client with information about all the deductions to be withheld from the client during the validity term of such contract.

(8) The insurer shall provide the information specified herein in writing, in a clear and understandable manner. The mentioned information shall be provided in the official language of the Republic of Latvia, except if the policyholder wishes to receive the information in another language.

Section 181. If after entering into the insurance contract, the insurer has a dispute with the policyholder who is a natural person, the insurer shall be required to prove that the requirements laid down in Section 179, Paragraphs four and five, and Section 180 of this Law have been met. The policyholder's signature on the insurance application or the confirmation of the policyholder of the entering into the insurance contract in any other manner agreed between the policyholder and the insurer, shall be sufficient proof of the performance of the requirements laid down in Section 179, Paragraphs four and five, and Section 180 of this Law, unless the policyholder proves otherwise.

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Section 182. (1) If a person who is eligible to claim insurance indemnity under the concluded insurance contract submits a written request, the insurer or the Member State insurer providing insurance services under the freedom to provide services principle shall inform the person with the documents at its disposal, which support the decision to disburse the insurance indemnity owed to this person or refuse to disburse the insurance indemnity, or issue the copies thereof. The person who may claim insurance indemnity under the concluded insurance contract shall have the right to receive the copies of the documents specified herein at a fee not exceeding the costs of the preparation of the copies thereof.

(2) The insurer or the Member State insurer providing insurance services under the freedom to provide services principle, shall not have the duty to present the documents or issue copies thereof under the procedure laid down in Paragraph one hereof, if in relation to the occurrence of the insured risk the insurer or the Member State insurer has submitted documents to law enforcement authorities as part of the criminal proceedings.

(3) The insurer or the Member State insurer providing insurance services under the principle of freedom to provide services shall, after the person who has the right to claim insurance indemnity under the concluded insurance contract has been presented the documents supporting the decision to disburse the insurance indemnity owed to this person or to refuse to disburse the insurance indemnity, have the right to require that person to sign a written confirmation specifying the documents with which it has familiarised itself. If the person who may claim the insurance indemnity under the concluded insurance contract refuses to sign the confirmation specified herein, it shall be signed by the insurer or the Member State insurer, specifically noting that the said person refused to sign the confirmation.

(4) The insurer or the Member State insurer providing insurance services under the freedom to provide services principle has a duty to examine the written claim application of the policyholder, the insured or the person who has the right to claim insurance indemnity under the concluded insurance contract for the services not conforming the provisions of the insurance contract and provide it with a substantiated written response not later than 30 days from the date of receipt of the claim application.

Chapter XXIII Co-Insurance

Section 183. (1) This Chapter shall apply to such co-insurance transactions in the territory of the European Union which relate to one or more of the risks included in the non-life insurance set out in Section 19, Paragraph one, Clauses 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of this Law and fully meet the following conditions:

1) the risk is a large risk;2) the risk is covered, under a single insurance contract and a single insurance

premium in respect of the same period, by two or more insurance merchants, each in the amount of its as a co-insurer’s share, one of them being the leading insurance merchant;

3) the risk is situated in the territory of the European Union;4) to cover the risk, it is believed that the leading insurance merchant covers all the

risk;5) at least one of the co-insurers is a party to the insurance contract through such a

head office or branch which is engaged in a business activity in a Member State other than the Member State of the leading insurance merchant;

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6) the leading insurance merchant shall fully accept the management of the co-insurance activity, in particular lay down the terms and conditions of insurance and the rates thereof.

(2) Chapter XIX of the Law shall apply only to the leading insurance merchant.(3) Other provisions of this Law, except those laid down in this chapter, shall apply to such co-

insurance transactions which do not conform to those provided for in Paragraph one hereof.Section 184. (1) The amount of the technical provisions shall be determined by the individual

co-insurers according to the rules of their home Member State, or in the event of the lack of such rules — pursuant to the accepted practice in the relevant country.

(2) Without prejudice to the provisions of Paragraph one hereof, technical provisions shall be equal at least to the provisions, which the leading insurer has determined under the rules of its home country.

Section 185. Co-insurers shall have statistical data at their disposal on the volume of co-insurance activity in the European Union in which they participate, and in respect of the relevant Member States.

Section 186. Upon terminating the activity of an insurance merchant, the obligations arising from being party to a co-insurance agreement in the European Union, shall be performed in the same manner as the obligations arising from other insurance contracts of that insurance merchant, irrespective of the nationality of the beneficiaries.

Section 187. In enforcing the performance of the requirements of this chapter, the supervisory authorities of Member States shall mutually exchange all the necessary information.

Chapter XXIV Assistance Insurance

Section 188. Assistance insurance is a kind of insurance which stipulates the provision of immediate assistance to the insured under the concluded insurance contract in cases where it has encountered difficulties while travelling, while away from their home or while away from their permanent place of residence. Such assistance consists of a cash payment or the provision of services to the insured.

Section 189. (1) The following shall be considered assistance provided in the case of an accident or vehicle damage during a journey:

1) the conveyance of the vehicle to the nearest place where it can be repaired, as well as the carrying of the driver and passengers to the nearest location from where they can continue their journey;

2) the carrying of the vehicle, driver and passenger to their home country or a location from which they left for their journey, or the destination of their journey;

3) other services or cash disbursements provided for under the insurance contract.(2) Assistance insurance shall not include the services set out in Section 3, Paragraph one,

Clauses 6 and 8 of this Law.Section 190. The insurer wishing to pursue assistance insurance may use services provided

by another party who has personnel and equipment, including certified medical staff, as well as other means that are necessary to ensure the performance of the obligations provided for under insurance contracts in this class of insurance.

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Chapter XXV Legal Expenses Insurance

Section 191. (1) This chapter applies to the legal expenses insurance, which is set out in Section 19, Paragraph one, Clause 17 of this Law and which provides for the covering of the costs of legal proceedings and for the services of a legal nature, which are directly related to insurance, defending and representing the insured person in civil, criminal, and administrative proceedings or administrative offence proceedings, as well as enforcing the compensation for losses and damages caused to the insured, without engaging in these proceedings.

(2) the provisions of this chapter shall not apply to:1) legal expenses insurance where such insurance is related to disputes or risks arising

out of or related to the use of sea vessels;2) the activity carried out by the insurer which provides third party liability insurance,

defending and representing the insured, if the defending and representation is performed concurrently in the interests of the insurer;

3) legal expenses insurance carried out by the insurer within the scope of assistance insurance, which meets the following conditions:

a) the activity is pursued in a Member State other than the insured's permanent place of residence,

b) the activity is part of the agreement relating only to assistance provided to persons who have encountered difficulties while travelling, while away from their homes or from their permanent places of residence.

Section 192. The insurer pursuing legal expenses insurance may commission a competent person to settle the claims related to the legal expenses insurance. If the settlement of the claim of legal expenses insurance is carried out by the employee of the insurer, then he/she shall work only in this class of insurance.

Section 193. (1) In insuring legal expenses, the insurance contract shall provide for the following:

1) separate presentation of the insured risk and insurance premiums if the insurer insures the risk of legal expenses insurance along with another insurance risk;

2) the insured's right to choose a lawyer or another appropriately qualified person who can defend and represent their interests in the civil, criminal, administrative proceedings or administrative offence proceedings, without engaging in these proceedings;

3) the insured's rights in cases if a conflict of interest has arisen between the insured and the insurer in settling legal expenses claims:

a) choosing a lawyer or another appropriately qualified person,b) appealing of the decisions adopted by the insurer under the existing laws and

regulations of the Republic of Latvia.(2) The insurer shall notify the insured of the rights thereof referred to in Paragraph one,

Clause 3 of this Law in the event of a conflict of interest between the insurer and the insured.(3) The services of a legal nature and the representation of parties shall be ensured by

independent lawyers or other appropriately qualified persons, if the legal expenses of the parties involved in a single dispute has been insured by the same insurer.

(4) Paragraph one, Clause 2 hereof shall not apply if:

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1) insurance applies only in cases related to the use of motor vehicles in the territory of the Republic of Latvia;

2) insurance applies to the provision of assistance in the event of accidents or damage in which a motor vehicle has been involved.

Chapter XXVI Large Risk Insurance

Section 194. Large risks are:1) insured risks in the following classes of insurance:

a) rail transport insurance,b) aircraft insurance,c) ship insurance,d) cargo insurance,e) aircraft owner third party liability insurance,f) ship owner third party liability insurance;

2) insured risks in such classes of insurance if the policyholder is engaged in a business activity or is a representative of liberal professions, and the insured risks relate to the policyholder's business or professional activities:

a) credit insurance,b) surety insurance;

3) insured risks in the following classes of insurance, if the policyholder has exceeded at least two of the following three: total assets of more than 6.2 million euros, net turnover of 12.8 million euros, the average number of employees during the year: 250 people:

a) motor (except rail) insurance;b) property insurance against the damage caused by fire and natural disasters

(damage to property other than motor vehicles, rail transport, aircraft, ships and cargo caused by fire, explosion, nuclear power, land subsidence and other disasters)

c) property insurance against other losses (damage to property other than motor vehicles, rail transport, aircraft, ships and cargo caused by hail, frost, theft and other accidents, except as provided for in Clause b) hereof,

d) motor vehicle owner third party liability insurance,e) general third party liability insurance,f) insurance of miscellaneous financial losses.

Section 195. If the policyholder belongs to a group of commercial companies, which prepares consolidated accounts, the criteria laid down Section 194, Paragraph 3 of this Law shall be applied based on the consolidated accounts.

Section 196. A Member State insurer may pursue large risk insurance, disregarding the requirements laid down Section 155 and Section 158 of this Law.

Division F Group Supervision of Insurance and Reinsurance Companies

Chapter XXVII Scope of the Application of Group Supervision

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Section 197. (1) Group supervision includes the supervision of insurance or reinsurance companies making up the group at a group level. The requirements of this Law relating to the supervision of individual insurance or reinsurance companies shall continue to apply to each individual insurance or reinsurance company of the group, unless group supervision provides for a different procedure according to the requirements of this division.

(2) Supervision at a group level shall be applied to:1) such insurance or reinsurance companies, which are participating companies in at

least one insurance company, reinsurance company, Member State or non-Member State insurer or Member State or non-Member State reinsurer, in accordance with Section 69 and Chapters XXIX, XXX, XXXI and XXXII of this Law;

2) such insurance or reinsurance companies, the parent company of which is an insurance holding company or a mixed financial holding company, in accordance with Section 69 and Chapters XXIX, XXX, XXXI and XXXII of this Law;

3) such insurance or reinsurance companies, the parent company of which is a non-Member State insurance holding company or a mixed financial holding company, and a non-Member State insurer or reinsurer, in accordance with Sections 241, 242, 243, and 244 of this Law;

4) insurance or reinsurance companies, the parent company of which is a mixed activity insurance holding company, in accordance with Section 245 of this Law.

(3) If an insurance or reinsurance participating company referred to in Paragraph two, Clause 1 of this section or an insurance holding company or a mixed financial holding company registered in the Member State is a related company of the regulated commercial company or mixed financial holding company, or itself is a regulated commercial company or a mixed financial holding company which is subject to additional supervision under the Financial Conglomerates Law, the Commission may, if it is the group supervisory authority, having consulted with other supervisory authorities concerned, adopt the decision not to perform the risk concentration supervision referred to in Section 218 or the supervision of internal transactions referred to in Section 219 of this Law, or both of them, at the level of that insurance or reinsurance participating company or insurance holding company or mixed financial holding company.

(4) If the requirements of this Law and the requirements equivalent to those of the Financial Conglomerates Law, in particular with regard to risk management and internal control, are binding on a financial holding company, the Commission, if it is the group supervisory authority, may, having consulted with other supervisory authorities concerned, apply only the requirements of the Financial Conglomerates Law to this company.

(5) If the requirements of this Law and the equivalent requirements of the Credit Institution Law are binding on a mixed financial holding company, in particular with regard to risk management and internal control, the Commission, if it is the group supervisory authority, may, having consulted with other supervisory authorities concerned, apply to this company only the requirements of that law which is applicable to the greatest financial sector which is established in accordance with the Financial Conglomerates Law.

(6) The Commission, if it is the group supervisory authority, shall notify the EIOPA of its decisions adopted in accordance with the requirements laid down in Paragraphs four and five of this Section.

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Section 198. The application of group supervision in accordance with the requirements laid down in Section 197 of this Law does not include the supervision of a non-Member State insurer, a non-Member State reinsurer, an insurance holding company, a mixed financial holding company or a mixed activity insurance holding company, except the requirements of Section 69 of this Law, which are applicable to insurance holding companies or mixed financial holding companies.

Section 199 (1) The Commission may, if it is a group supervisory authority, adopt the decision not to include the commercial company under group supervision referred to in Section 197 of this Law, if one of the following conditions is met:

1) the commercial company is registered in a non-Member State in which legal obstacles exist to provide the necessary information. Such a company shall be included in the solvency calculation of the group in accordance with the procedure laid down by the Commission;

2) the commercial company, which should be included, is negligible for the purposes of group supervision;

3) the inclusion of the commercial company would be inappropriate or misleading for the purposes of group supervision.

(2) If some commercial companies of the same group, assessing each of them individually, can be excluded from the scope of group supervision under the requirements laid down in Paragraph, Clause 2 hereof, they shall nevertheless be subject to group supervision, if they are material if assessed together.

(3) If the Commission, as the group supervisory authority, is of the opinion that an insurance or reinsurance company should not be subject to group supervision under Paragraph one, Clauses 2 and 3 of this Section, it shall consult other supervisory authorities concerned before taking the decision.

(4) Where the Member State supervisory authority carrying out group supervision has not included an insurance or reinsurance company registered in Latvia under group supervision, the Commission may require the parent company of that group to provide any information that is necessary for the supervision of the insurance and reinsurance company registered in Latvia.

Chapter XXVIII Group Supervision Levels

Section 200. (1) If an insurance or reinsurance company or an insurance holding company or a mixed financial holding company registered in a Member State referred to in Section 197, Paragraph two, Clauses 1 and 2 of this Law is a subsidiary company of another insurance or reinsurance company, a Member State insurer, a Member State reinsurer or an insurance holding company or mixed financial holding company registered in a Member State, the provisions of Section 69 and Chapters XXIX, XXX, XXXI and XXXII shall only be applicable at the level of such ultimate parent company, which is an insurance or reinsurance company, a Member State insurer, a Member State reinsurer or an insurance holding company or a mixed financial holding company registered in a Member State.

(2) If the ultimate parent company referred to in Paragraph one hereof is a related company to an insurance or reinsurance company, or an insurance holding company or a mixed financial holding company registered in a Member State, is a related company of a regulated commercial company or a mixed financial holding company, which are subject to additional supervision in

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accordance with the law of the Financial Conglomerates Law, the Commission, if it is a group supervisory authority, may, having consulted with other supervisory authorities concerned, adopt the decision not to perform the risk concentration supervision referred to in Section 218 of this Law or the supervision of intra-group transactions referred to in Section 219 of this Law, or both of them, at the level of that parent company.

Section 201. (1) If the ultimate parent company set out in Section 200 of this Law of a participating insurance or reinsurance company or an insurance holding company or a mixed financial holding company registered in a Member State referred to in Section 197, Paragraph one, Clauses 1 and 2 of this Law is situated in another Member State, the Commission shall, having consulted the group supervisory authority and the said ultimate parent company, within the circumstances set out in EU Regulation No. 2015/35 may adopt the decision to extend group supervision to the ultimate insurance or reinsurance parent company or insurance holding company or mixed financial holding company registered in the Republic of Latvia. The group supervision requirements laid down in Section 69 and Chapters XXIX, XXX, XXXI and XXXII of this Law shall apply at the sub-group level, subject to the provisions of Paragraphs two, three, four, five, six, seven and eight hereof. The Commission shall notify the group supervisory authority as well as the ultimate parent company registered in a Member State of the decision thereof. If the Commission is the group supervisory authority and has been notified by the supervisory authority of another Member State on the application of group supervision at the sub-group level, it shall notify the college of supervisors according to the provisions of Section 224, Paragraph one, Clause 1 of this Law.

(2) In respect of the ultimate parent company registered in the Republic of Latvia, the Commission may adopt the decision to limit the supervision of the sub-group to one or more of the following areas of the supervision of the financial standing:

1) group solvency supervision in accordance with the provisions of Sections 203, 204, 205, 206, 207, 208, 209 and 210 of this Law;

2) supervision of risk concentration and intra-group transactions in accordance with the provisions of Sections 218 and 219 of this Law;

3) risk management and internal control supervision in accordance with the provisions of Section 220 of this Law.

(3) If the Commission has adopted the decision set out in Paragraph two, Clause 1 hereof, such calculation method referred to in Section 205 of this Law shall be used for the calculation of the group's solvency capital requirement, that has been recognised by the group supervisory authority as applicable to the ultimate parent taking registered in the Member State referred to in Section 200 of this Law.

(4) If the Commission has adopted the decision set out in Paragraph two, Clause 1 hereof and if the ultimate parent company referred to in Section 200 of this Law has obtained the authorisation of the group supervisory authority to calculate the group's consolidated solvency capital requirements and the individual solvency capital requirement of the individual insurance or reinsurance companies of the group, based on the group's internal model, the group's internal model shall be used for the solvency capital calculation of the ultimate parent company registered in the Republic of Latvia.

(5) If the Commission considers that the risk profile of the ultimate parent company registered in the Republic of Latvia significantly differs from the internal model approved by the group

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supervisory authority, and if the parent company has failed to follow the guidance provided in the decision of the Commission, the Commission may adopt the decision to apply the capital add-on to the group solvency capital requirement of the ultimate parent company registered in the Republic of Latvia, which arises from the application of the internal model, or - in exceptional cases, if such a capital add-on is not applicable, require the commercial company to calculate the group solvency capital requirement according to the standard formula.

(6) In the case referred to in Paragraph five hereof, the Commission shall notify the group supervisory authority of its decision as well as the ultimate parent company registered in the Republic of Latvia. If the Commission is the group supervisory authority and has received a notification from the supervisory authority of another Member State regarding the adoption of the decision referred to in Paragraph five hereof regarding the setting of the capital add-on of the application of the standard formula at the sub-group level, it shall notify the college of supervisors in accordance with the provisions laid down in Section 224 , Paragraph one, Clause 1 of this Law.

(7) If the Commission has adopted the decision set out Paragraph two, Clause 1 hereof, the said commercial company may not apply for obtaining the authorisation in accordance with Sections 213 or 217 of this Law, to apply the requirements laid down in Sections 214 and 215 of this Law.

(8)The Commission shall not accept or shall repeal the decision referred to in Paragraph one hereof, if the ultimate parent company registered in the Republic of Latvia is a subsidiary company of the ultimate parent company referred to in Section 200 of this Law to which group supervision authorisation has been issued according to which the subsidiary company concerned is subject to the provisions of Sections 214 and 215 of this Law.

Section 202 (1) If the Commission has adopted the decision set out in Section 201 of this Law, to apply to the ultimate parent company registered in the Republic of Latvia supervision at the subgroup level, in the circumstance set out in EU Regulation No. 2015/35, the Commission may enter into an agreement with the supervisory authority of the ultimate parent company of another related company registered in another Member State to exercise group supervision at the sub-group level covering several Member States.

(2) If the Commission and the supervisory authority concerned have concluded an agreement pursuant to Paragraph one hereof, group supervision shall not be carried out at the sub-group level of the ultimate parent company referred to in Section 201 of this Law, if it is not situated in the same Member State in which the sub-group referred to in Paragraph one hereof is situated. If the Commission has adopted the decision to exercise additional supervision at a sub-group level and has concluded the agreement referred to in Paragraph one hereof, it shall issue an explanatory notification of the concluded agreement to the ultimate parent company registered in the Member State, the group supervisory authority, and the college of supervisors pursuant to the provisions of the Section 224, Paragraph one, Clause 1 of this Law.

(3) If the Commission and the supervisory authority concerned have concluded the agreement pursuant to Paragraph one hereof, supervision at sub-group level shall be applied pursuant to the provisions of Section 201, Paragraphs two, three, four, five, six, seven and eight of this Law.

Chapter XXIX Group Solvency

Section 203. (1) Group solvency supervision shall be carried out in accordance with Paragraph two hereof, Section 69 and chapters XXXII and XXX of this Law.

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(2) In order to ensure the Group's solvency, the insurance or reinsurance participating companies referred to in Section 197, Paragraph two, Clause 1 of this Law and the group insurance or reinsurance companies referred to in Section 197, Paragraph two, Clause 2 of this Law shall ensure that they possess such eligible own funds in the group that at all times equals at least the group solvency capital requirement calculated pursuant to the provisions laid down in Sections 205, 206 207, 208, 209 and 210 of this Law.

(3) The Commission, if it is the group supervisory authority, shall review the compliance with the group solvency requirement under the provisions laid down in Section 69 and chapter XXXII of this Law. For the purpose of group solvency supervision, the requirements laid down in Section 139 and Section 141 , Paragraph one, two, three and four of this Law shall be applied.

(4) As soon as the participating company has identified and notified the group supervisory authority of its non-compliance with the group solvency capital requirement or the risk of such non-compliance within the forthcoming three months, the Commission, if it is the group's supervisory authority, shall notify other supervisory authorities of the college of supervisors which carry out the analysis of the group's financial standing thereof.

Section 204. (1) The group's solvency calculation includes the group solvency capital requirement calculation and the group own funds calculation. The Commission shall determine the frequency of the calculation of group solvency as well as the procedure for the submission of this calculation to the Commission.

(2) Insurance or reinsurance companies, insurance holding companies and mixed financial holding companies shall supervise the compliance with their group solvency capital requirement on an on-going basis. If the risk profile of the group significantly deviates from the assumptions underlying the most recent solvency capital requirement calculation submitted to the Commission, a new group solvency capital requirement calculation shall be made immediately and submitted to the Commission.

(3) If there are grounds to believe that the risk profile of the group has changed significantly from the date on which the most recent solvency capital requirement calculation was submitted to the Commission, the latter, if it is a group of supervisory authority, may require that a new group solvency capital requirement calculation be made.

Section 205. (1) A standard method may be used for the group solvency calculation, i.e., the consolidated financial statement method, thus calculating the consolidated group solvency capital requirement; or the alternative method, i.e., the deduction and aggregation method, to calculate the aggregate group solvency capital requirement.

(2) The insurance or reinsurance participating companies referred to in Section 197, Paragraph two, Clause 1 of this Law, shall use the consolidated financial statement method to make the group solvency calculation.

(3) The Commission, if it is a group of supervisory authority, after consulting with other supervisory authorities concerned and the insurance or reinsurance participating company referred to in Section 197, Paragraph two, Clause 1 of this Law, may adopt the decision to apply the deduction and aggregation method or the combined consolidated financial statement method and the deduction and aggregation method to calculate the group solvency in cases when the consolidated financial statement method is not appropriate.

(4) The Commission shall lay down the methods for the calculation of the group solvency, the choice thereof, the general principles and the application of the calculation methods.

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(5) For the purpose of group solvency calculation, assets and liabilities shall be valued in accordance with the provisions laid down in Section 98 of this Law.

Section 206. The insurance or reinsurance participating companies referred to in Section 197 , Paragraph two, Clause 1 of this Law and the group insurance or reinsurance companies referred to in Section 197, Paragraph two, Clause 2 of this Law, may calculate the consolidated group solvency capital requirement using a full or partial internal model which satisfies the requirements of Sections 121, 122, 123, 124, 125, 126, 127, 128 and 129 of this Law, subject to receiving the authorisation of the Commission as the group's supervisory authority.

Section 207. (1) If the group internal model is used not only for the calculation of the consolidated solvency capital requirement of the group, but also for the calculation of the individual solvency capital requirement of one or several insurance or reinsurance companies of the group, the application to the supervisory authority of the group to authorise the group to use the internal model shall be submitted:

1) in the case referred to in Section 197, Paragraph two, Clause 1 of this Law — jointly by the insurance or reinsurance participating company and the related parties thereof;

2) in the case referred to in Section 197, Paragraph two, Clause 2 of this Law — jointly by the related companies of an insurance holding company or a mixed holding company.

(2) The Commission, if it is the supervisory authority of the group, shall promptly notify of the application received and send it to all supervisory authorities involved in the college of supervisors.

(3) The information, documents to be enclosed in the application referred to in Paragraph one hereof and the procedure for the examination thereof is laid down in EU Regulation No. 2015/35.

(4) Within six months of the receipt of a fully completed application referred to in Paragraph one hereof, which is accompanied by all required documents, the Commission, if it is the supervisory authority of the group, shall take all possible measures in order to, in consultation with the supervisory authorities concerned, coordinate the views and adopt a decision (hereinafter — a coordinated decision) on the issuing of the authorisation referred to in the application.

(5) If a commercial company registered in the Republic of Latvia, which is a related company of a company established in another Member State, or a related company of an insurance holding company or a mixed financial holding company registered in the Republic of Latvia, submits the application referred to in Paragraph one hereof to the supervisory authority of the group, and the Commission is the supervisory authority concerned, the Commission shall, together with other supervisory authorities concerned, participate in adopting the coordinated decision.

(6) If during the term of six months referred to in Paragraph four hereof, any of the supervisory authorities concerned has referred to the EIOPA with a request to assist in reaching an agreement in accordance with Article 19 of EU Regulation No. 1094/2010, the Commission shall, if it is the supervisory authority of the group, defer the adoption of the decision referred to in Paragraph four hereof until the EIOPA adopts the decision in accordance with Article 19(3) of EU Regulation No. 1094/2010 within one month. The Commission, if it is the supervisory authority of the group, shall adopt the decision referred to in Paragraph four hereof in accordance with the EIOPA's decision. If the decision is adopted by the supervisory authority of the group, which is the supervisory authority of another Member State, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance company.

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(7) As the supervisory authority concerned the Commission is not entitled to refer to the EIOPA with a request to assist in reaching an agreement after the expiry of the term referred to in Paragraph four hereof or after receipt of the coordinated decision.

(8) If, in accordance with Article 41 (2) and 41 (3), and Article 44(1), 44(2), and 44(3) of EU Regulation No. 1094/2010 the proposal of the working group of the EIOPA regarding the decision to be adopted is rejected, the decision referred to in Paragraph four hereof shall be adopted by the supervisory authority of the group. If the decision is adopted by the supervisory authority of the group, which is the supervisory authority of another Member State, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance company. The time limit referred to in Paragraph four hereof shall be regarded as a conciliation phase in the meaning of Article 19(2) of EU Regulation No. 1094/2010.

(9) If the supervisory authorities concerned have adopted the decision referred to in Paragraph four hereof jointly, the Commission, if it is the supervisory authority of the group, shall send the coordinated decision to the applicants.

(10) If no decision is adopted within the time limit specified in Paragraph four hereof after receipt of the application which fully complies with the requirements, the decision shall be adopted by the Commission, if it is the supervisory authority of the group. In adopting the decision, the Commission shall take into account the views and objections of all the supervisory authorities, expressed during the six months term of the examination of the application. The Commission shall forward the decision to the applicants and all the supervisory authorities concerned. If the decision is adopted by the supervisory authority of the group, which is the supervisory authority of another Member State, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance company.

(11) If the Commission considers that the risk profile of an insurance or reinsurance company, which is subject to the supervision thereof calculates the individual solvency capital requirement using the approved internal model of the group risk, is significantly different from the assumptions underlying the internal model approved at group level, and if that insurance or reinsurance undertaking has not submitted a reasoned justification to the Commission that the differences are immaterial, or if that insurance or reinsurance company fails to eliminate these differences, the Commission may impose a capital add-on under Section 46 of this Law.

(12) In exceptional cases, the Commission may require the insurance or reinsurance company referred to in Paragraph eleven hereof to calculate the solvency capital requirement, using the standard formula, if the capital add-on requirement would not be appropriate for the risk profile of that company. If the circumstances referred to in Section 46, Paragraph one, Clauses 1 and 3 of this Law have been identified, the Commission may set a capital add-on to the solvency capital requirement of that insurance or reinsurance company, which is calculated using a standard formula in accordance with Section 119 of this Law.

(13) The Commission shall prepare and send the decision provided for in Paragraphs eleven and twelve hereof to the insurance or reinsurance company which is subject to the supervision thereof and other supervisory authorities involved in the college of supervisors.

Section 208. (1) In assessing whether the consolidated solvency capital requirement of the group appropriately reflects the risk profile of the group, the Commission shall, if it is the supervisory authority of the group, pay particular attention to all cases when such circumstances

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may arise at a group level which are laid down in Section 46, Paragraph one of this Law, especially if:

1) any such specific risks exist at group level, which could not be sufficiently covered, using the standard formula or an internal model, because it is difficult to quantify them;

2) if the supervisory authority has set any capital add-on requirement under Section 46 and Section 207, Paragraphs eleven, twelve, and thirteen of this Law to the solvency capital requirement to the related company of an insurance or reinsurance company.

(2) If the risk profile of the group is not reflected pursuant to the provisions of this Law, the Commission, if it is the supervisory authority of the group, may set an additional add-on to the consolidated solvency capital requirement of the group under Section 46 of this Law.

Section 209. If the deduction and aggregation method is used for the group solvency calculation and where a joint application is received from an insurance or reinsurance company and the related companies thereof or from an insurance holding company or a mixed financial holding company to allow calculation of the group solvency requirements of the insurance and reinsurance companies of the group under the internal model, the Commission shall apply the provisions laid down in Section 207 of this Law to the issuance of the authorisation and the supervisory process.

Section 210. (1) In assessing whether the aggregate group solvency capital requirement calculated in accordance with Section 205 of this Law appropriately reflects the risk profile of the group, the Commission shall pay particular attention to all the specific risks existing at a group level, which could be covered sufficiently, because the amount thereof would be difficult to quantify.

(2) If the risk profile of the group materially deviates from the assumptions underlying the aggregated solvency capital requirement of the group, the Commission shall set a capital add-on to the aggregate solvency capital requirement of the group, pursuant to the provisions of Section 46 of this Law, as well as the requirements of EU Regulation No. 2015/35 on the circumstances for the setting of capital add-on and the methodologies for the calculation of the capital add-on.

Section 211. (1) Sections 214 and 215 of this Law shall apply to all such insurance or reinsurance companies which are the subsidiary companies of an insurance or reinsurance company, provided that all the following conditions are met:

1) The Commission, if it is the supervisory authority of the group, has not adopted the decision to exclude the subsidiary company from group supervision, and the subsidiary company is subject to group supervision carried out by the Commission at the level of the parent company in accordance with the requirements of this Law;

2) the subsidiary company is subject to the risk management system and internal control system of the parent company, and the parent company complies with the requirements of the supervisory authorities concerned for the prudent management of the subsidiary;

3) the parent company has received the authorisation referred to in Section 220 , Paragraph six of this Law;

4) the parent company has received the authorisation referred to in Section 238, Paragraph two of this Law;

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5) the parent company has received the authorisation referred to in Section 212 of this Law.

(2) The criteria applicable to the assessment of the compliance with the provisions laid down in Paragraph one hereof are laid down in EU Regulation No. 2015/35.

Section 212. The requirements of Sections 214 and 215 of this Law may be applied, subject to receiving the Commission's authorisation. To receive the authorisation, the parent company shall submit a reasoned application to the Commission.

Section 213. (1) When the application for the authorisation to apply Sections 214 and 215 of this Law is received, the Commission and other supervisory authorities concerned shall cooperate and consult with the college of supervisors to adopt the decision on the granting of the authorisation and, if necessary, to put forward other terms and conditions that should be applicable to the authorisation.

(2) The application referred to in Section 212 of this Law shall be submitted to the Commission only if it is has licensed the subsidiary company. The Commission shall notify the other supervisory authorities of the college of supervisors and send them the fully completed application immediately.

(3) The Commission and other supervisory authorities concerned shall cooperate to ensure that within three months of the date on which all the supervisory authorities of the college of supervisors have received the application referred to in Section 212 of this Law, a coordinated decision on the issuance of the authorisation would be adopted.

(4) If, within the time period of three months referred to in Paragraph three hereof, any of the supervisory authorities concerned has referred to the EIOPA with a request to assist in reaching an agreement in accordance with Article 19 of EU Regulation No. 1094/2010, the Commission shall, if it is a group of supervisory authority, defer the adoption of the decision referred to in Paragraph three hereof until the EIOPA has adopted the decision in accordance with Article 19(3) of EU Regulation No. 11094/2010. The Commission, if it is the supervisory authority of the group, shall adopt the decision referred to in Paragraph three hereof in accordance with the decision adopted of the EIOPA. If the decision is adopted by the supervisory authority of the group, which is the supervisory authority of another Member State, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance company.

(5) The Commission, as the supervisory authority concerned shall not refer to the EIOPA with a request to assist in reaching an agreement after the expiry of the term referred to in Paragraph three hereof or after the adoption of the coordinated decision.

(6) If, in accordance with Article 41 (2) and 41 (3), and Article 44(1), 44(2), and 44(3) of EU Regulation No. 1094/2010 the proposal of the working group of the EIOPA regarding the decision to be adopted is rejected, the decision referred to in Paragraph three hereof shall be adopted by the supervisory authority of the group. If the decision is adopted by the supervisory authority of the group, which is the supervisory authority of another Member State, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance company. The time limit referred to in Paragraph four hereof shall be regarded as a conciliation phase in the meaning of Article 19(2) of EU Regulation No. 1094/2010.

(7) If the supervisory authorities concerned have adopted the decision referred to in Paragraph three hereof jointly, the Commission, if it is the supervisory authority of the group, shall send the coordinated decision to the applicants.

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(8) If no decision is adopted within the time limit specified in Paragraph three hereof after the receipt of the application which fully complies with the requirements, it shall be adopted by the Commission, if it is the supervisory authority of the group. In adopting the decision, the Commission shall take into account the views and objections expressed by all the supervisory authorities during the three month term of the examination of the application. The Commission shall forward the decision to the applicants and all supervisory authorities concerned. If the decision is adopted by the supervisory authority of the group, which is the supervisory authority of another Member State, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance company.

(9) ) The procedures followed by the Commission in the exchange of information, exercising its rights and performing its duties in accordance with the provisions laid down in this Section as well as Sections 214, 215, 216 and 217 of this Law are laid down by EU Regulation No. 2015/35.

Section 214. (1) The solvency capital requirement of a subsidiary company shall be calculated under the provisions laid down in Section 215 of this Law and in accordance with Paragraphs two, four, five, six, seven, and eight hereof.

(2) If the solvency capital requirement of the subsidiary company is calculated using the internal model approved at group level in accordance with Section 207 of this Law, and the Commission, if it has licensed that subsidiary company considers that the risk profile of that subsidiary company significantly deviates from the mentioned internal model, and if that company fails to meet the requirements laid down in the decision of the Commission, the Commission shall, in the cases specified in Section 46 of this Law, propose the setting of a capital add-on for the solvency capital requirement of that subsidiary company, which is calculated using the internal method, or in an exceptional case, if such a capital add-on has not been set, require that subsidiary company to calculate its solvency capital requirement, using the standard formula. The Commission shall debate its proposal with the college of supervisors and notify the substantiation of such a proposal to the subsidiary company as well as the college of supervisors.

(3) If the solvency capital requirement of a subsidiary company is calculated using the standard formula, and if the Commission, if it has licensed that subsidiary company, considers that the risk profile of a subsidiary company significantly deviates from the assumptions underlying the standard formula, and furthermore, the subsidiary company fails to comply with the provisions included in the decision of the Commission, in an exceptional case, the Commission may require that subsidiary company to replace the sub-group of parameters used for the standard formula with the parameters specific to that subsidiary company, when calculating the life, non-life and health insurance underwriting risk modules, or set a capital add-on requirement to the solvency capital requirement of the subsidiary in the cases prescribed by Section 46 of this Law. The Commission shall discuss its proposal with the college of supervisors and notify the substantiation of such a proposal to the subsidiary company as well as the college of supervisors.

(4) The Commission shall cooperate with other supervisory institutions of the college of supervisors in order to reach an agreement on the proposals referred to in Paragraphs two and three hereof or on other possible measures. In carrying out the supervision of an insurance or reinsurance company, the Commission shall follow the agreement reached.

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(5) If the Commission and the group supervisory authority fail to reach an agreement to adopt a coordinated decision within one month, the matter shall be referred to the EIOPA.

(6) If during the period referred to in Section five hereof, the Commission or the supervisory authority of the group has referred to the EIOPA with a request to assist in reaching an agreement in accordance with Article 19 of EU Regulation No. 1094/2010, the Commission shall, if it has licensed the subsidiary company, defer the adoption of the decision referred to in Paragraphs two and three hereof until the EIOPA has adopted, within one month, the decision in accordance with Article 19 of EU Regulation No. 1094/2010. One month shall be regarded as a conciliation phase in the meaning of Article 19(2) of EU Regulation No. 1094/2010. The Commission, if it has licensed the subsidiary company, shall adopt the decision referred to in Paragraphs two and three hereof in accordance with the decision of the EIOPA. The Commission is not entitled to refer to the EIOPA with a request to assist in reaching an agreement after the expiry of the term referred to in Paragraph five hereof or after the receipt of the coordinated decision by the college of supervisors.

(7) The Commission shall notify the decision to the subsidiary company and the college of supervisors.

(8) If the decisions referred to in Paragraphs two and three hereof are adopted by another involved group supervisory authority, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance companies of the group.

Section 215. (1) If the subsidiary company is found to be non-compliant with the solvency capital requirement, the Commission shall, if it has licensed the subsidiary company, under the provisions laid down in Section 141, immediately send the plan for the improvement of the financial condition submitted by that subsidiary company to the college of supervisors, so that within six months of the date on which non-compliance with the solvency capital requirement was observed, that company would restore the level of its eligible own funds or reduce its risk profile to ensure compliance with the solvency capital requirement.

(2) When carrying out functions at the college of supervisors, the Commission shall make every effort to reach an agreement with other supervisory authorities concerned concerning the approval of the decision regarding the plan for the improvement of the financial condition within four months from the date on which non-compliance with the minimum capital requirement was observed for the first time.

(3) If the agreement referred to in Paragraph two hereof, the Commission shall, if it has licensed the subsidiary company, adopt the decision as to whether to approve the plan for the improvement of the financial condition, duly taking into account the views and objections of other supervisors of the college of supervisors.

(4) If the Commission has licensed the subsidiary company and pursuant to Section 139 of this Law has found that the financial condition thereof has deteriorated, it shall immediately notify the college of supervisors of the proposed measures to be taken. Other than in exceptional cases, the measures to be taken shall be debated at the college of supervisors. The criteria applicable in determining what cases are to be regarded as exceptional are laid down in EU Regulation No. 2015/35.

(5) When carrying out functions at the college of supervisors, the Commission shall make every effort to reach an agreement with other supervisory authorities concerned concerning the measures proposed by it to be taken during one month of the date of notification.

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(6) If the agreement referred to in Paragraph five hereof is not reached, the Commission shall, if it has licensed the subsidiary company, adopt the decision to approve the proposed measures, duly taking into account the views and objections of other supervisory authorities of the college of supervisors.

(7) If the subsidiary is found to be non-compliant with the minimum capital requirement in accordance with the provisions laid down in Section 142 of this Law, the Commission, if it has licensed the subsidiary company, shall immediately send the short-term financial plan to the college of supervisors submitted by that subsidiary company, implementing which, within three months from the date on which non-compliance with the minimum capital requirement was observed for the first time, that subsidiary company will restore its eligible own funds to the level that would cover the minimum capital requirement or reduce the risk profile of the subsidiary to ensure compliance with the minimum capital requirement. The Commission shall notify the college of supervisors of all the measures taken to make that subsidiary company compliant with the minimum capital requirement.

(8) If the Commission, which has licensed the subsidiary company has not reached an agreement with the supervisory authority of the group on the plan for the improvement of the financial condition or the approval of the extension of the term for the improvement of the financial condition within the four month period referred to in Paragraph two hereof or on the approval of the measures proposed by the Commission within the one month period referred to in Paragraph five hereof, the Commission or the supervisory authority of the group may refer to the EIOPA with a request to assist in reaching an agreement under Article 19 of EU Regulation No. 1094/2010. The Commission, if it has licensed the subsidiary company, shall defer the adoption of the decision referred to in Paragraphs three and six hereof until the EIOPA has adopted, within one month, the decision under Article 19(3) of EU Regulation No. 1094/2010. The four months referred to in Paragraph two hereof or the one month referred to in Paragraph five hereof shall be regarded as a conciliation phase in the meaning of Article 19(2) of EU Regulation No. 1094/2010. The Commission, if it has licensed the subsidiary company, shall adopt the decision referred to in Paragraphs three and six hereof in accordance with the decision of the EIOPA. The Commission is not entitled to refer to the EIOPA with a request to assist in reaching an agreement after the expiry of the term referred to in Paragraphs two and five hereof or after the receipt of the coordinated decision by the college of supervisors, or in the exceptional situations referred to in Paragraph four hereof. The Commission shall notify the subsidiary company and the college of supervisors of the decision thereof.

(9) If the decisions referred to in Paragraphs three and six hereof are adopted by another involved group supervisory authority, the Commission shall follow it in carrying out the supervision of the insurance or reinsurance companies of the group.

Section 216. (1) The requirements laid down in Sections 214 and 215 of this Law shall cease to apply in the following cases:

1) the provision laid down in Section 211, Paragraph one, Clause 1 is no longer complied with;

2) the provision laid down in Section 211, Paragraph one, Clause2 is no longer complied with, and the group fails to restore its compliance with this provision within a reasonable period of time;

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3) the provisions laid down in Section 211, Paragraph one, Clauses 3 and 4 are no longer complied with.

(2) In the case referred to in Paragraph one, Clause 1 hereof, if the Commission is the supervisory authority of the group and, after consulting the college of supervisors it adopts the decision to no longer include a subsidiary company under group supervision carried out by it, the Commission shall immediately notify the supervisory authority concerned and the parent company of the group of this.

(3) The parent company shall be responsible for ensuring continuous compliance with Section 211 , Paragraph one, Clauses 2, 3, and 4 of this Law. In the event of non-compliance, the parent company shall immediately notify the Commission, if it is the supervisory authority of the group, and the supervisory authority of that subsidiary. The parent company shall submit a plan to restore its compliance within a reasonable period of time.

(4) The Commission shall, if it is the supervisory authority of the group, at least once a year, at its own initiative, review the compliance with the provisions laid down in Section 211, Paragraph one, Clause 2, 3 and 4 of this Law. The Commission, if it is the supervisory authority of the group, shall also carry out such a review at the request of the supervisory authority concerned.

(5) If deficiencies are identified during the review, the Commission shall, if it is the supervisory authority of the group, require the parent company to submit a plan to restore compliance within a certain period of time.

(6) If, having consulted with the college of supervisors, the Commission, if it is the supervisory authority of the group, identifies that the plan referred to in Paragraphs three or five hereof is not effective or it has not been followed within the specified term, the Commission shall adopt the decision that the provisions laid down in Section 211, Paragraph one, Clauses 2, 3 and 4 of this Law are no longer complied with and shall immediately notify the supervisory authority concerned thereof.

(7) The application of the requirements laid down in Sections 214 and 215 of this Law may be resumed if the parent company submits a new application and receives a favourable decision under the procedure laid down in Section 213 of this Law.

Section 217. The requirements of Sections 211, 212, 213, 214, 215 and 216 of this Law shall be applicable to insurance or reinsurance companies which are the subsidiary companies of an insurance holding company or a mixed financial holding company.

Chapter XXX Risk Concentration and Intra-Group Transactions

Section 218. (1) The supervision of risk concentration at a group level shall be carried out by the Commission, if it is the supervisory authority of the group, in accordance with the provisions laid down in Section 69 and Chapters XXXI and XXXII of this Law.

(2) The information on the risk concentration at a group level shall be submitted to the Commission by the insurance or reinsurance company which is the parent company of the group, or if the parent company of the group is not an insurance or reinsurance company – by such an insurance holding company, a mixed financial holding company or an insurance or reinsurance company of the group which has been indicated by the Commission after consulting with other supervisory authorities concerned and the group.

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(3) Having consulted other supervisory authorities concerned and the group, the Commission shall determine the types of risks on which the insurance or reinsurance companies of the group shall report.

(4) In determining the types of risks or communicating its view on them, the Commission and other relevant supervisory authorities shall take into account the respective group and risk management structure of the group.

(5) In order to determine a significant risk concentration giving rise to the obligation to report on them, the Commission shall lay down, having consulted other supervisory authorities concerned and the group, based on the solvency capital requirements, technical provisions or both these indicators, appropriate thresholds according to EU Regulation No. 2015/35.

(6) Within the scope of the supervision of risk concentration, the Commission shall supervise the likely adverse impact of the risk in the group, the risk of the conflicts of interest, and the level or volume of risks.

Section 219. (1) The supervision of the intra-group transactions of the group shall be carried out by the Commission, if it is the supervisory authority of the group, in accordance with the provisions laid down in Paragraphs two, three and four hereof, Section 69, and Chapters XXXI and XXXII of this Law.

(2) Insurance or reinsurance companies, insurance holding companies or mixed financial holding companies shall immediately notify the Commission, if it is the supervisory authority of the group, of all particularly significant intra-group transactions.

(3) The necessary information shall be submitted to the Commission by the insurance or reinsurance company which is the parent company of the group, or if the parent company of the group is not an insurance or reinsurance company – by such insurance holding company, mixed financial holding company or an insurance or reinsurance company of the group which has been indicated by the Commission after consultation with other supervisory authorities concerned and the group.

(4) Having consulted other supervisory authorities concerned and the group, the Commission shall lay down, in accordance with the provisions laid down in Section 218, Paragraphs three, four, five and six of this Law, the types of intra-group transaction on which the insurance or reinsurance companies of the relevant group shall report.

Chapter XXXI Risk Management and Internal Control

Section 220. (1) The requirements laid down in Chapter VII and Chapter VIII of this Law shall also apply at group level. All insurance or reinsurance companies, which are subject to group supervision under Section 197, Paragraph two, Clauses 1 and 2 of this Law, shall establish risk management and internal control systems as well as procedures for the exchange of information, ensuring that these systems and procedures can be controlled at a group level.

(2) The internal control system of the group shall comprise at least the following:1) in regard to the solvency of the group, the system for the identification and

quantification of all the risks that are material to the activity thereof and which it is exposed to and subject to, and the system for exact risk-based allocation of the eligible own funds;

2) transparent procedures for the exchange with internal information and accounting, to monitor and manage intra-group transactions and the risk concentration.

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(3) The Commission, if it is the supervisory authority of the group, or the person authorised by it may, under Chapter VI of this Law carry out the inspection of the systems, procedures and assessments referred to in Paragraphs one, two and four hereof. The Commission may delegate this task, under authorisation, to a sworn auditor.

(4) A participating insurance or reinsurance company, an insurance holding company or a mixed financial holding company shall carry out the self-assessment of risks and solvency set out in Section 65 of this Law at the group level.

(5) If the group solvency calculation is carried out using the standard method specified in Section 205 of this Law, an insurance or reinsurance company, insurance holding company or a mixed financial holding company shall provide to the Commission, if it is the supervisory authority of the group, the information that proves a true understanding of the difference between the amounts of the solvency capital requirements of the insurance and reinsurance companies making up the group and the consolidated solvency capital requirement of the group.

(6) A participating insurance or reinsurance company, insurance holding company or a mixed financial holding company, subject to having received the authorisation of the Commission, if it is the supervisory authority of the group, may carry out the self-assessment of risks and solvency set out in Section 65 of this Law at a group level and at the level of any subsidiary company of the group concurrently and prepare a single document relating to all the assessments. That document shall be submitted to the supervisory authorities concerned. The self-assessment of the risks and solvency of a subsidiary company shall be carried out pursuant to Section 65 of this Law.

(7) The carrying out of the self-assessment of risks and solvency in accordance with Paragraph five hereof shall not release the subsidiaries of the group from compliance with the requirements laid down in Section 65 of this Law.

(8) The Commission, if it is the supervisory authority of the group, shall consult with the members of the relevant college of supervisors before granting the authorisation referred to in Paragraph six hereof, and, upon adopting the decision, shall take into account the views and objections of all members of the college of supervisors of the relevant group.

Chapter XXXII Measures to Facilitate Group Supervision

Section 221. The Commission shall exercise the supervision of an insurance group and reinsurance group in the following cases:

1) the supervisory authorities involved in group supervision have agreed that the Commission shall exercise group supervision;

2) the Commission shall exercise the supervision of all insurance companies and reinsurance companies making up the group;

3) the parent company of the group is an insurance and reinsurance company licensed by the Commission;

4) the parent company of the group is not an insurance or reinsurance company licensed by the Commission, however, one of the following conditions is met:

a) the parent company of an insurance company or reinsurance company licensed by the Commission is an insurance holding company or a mixed financial holding company,

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b) the head offices of a number of insurance or reinsurance companies are situated in the European Union, the parent company of these companies is an insurance holding company or a mixed financial holding company registered in Latvia, and one of those companies has been licensed by the Commission,

c) the group has several parent companies, which are insurance holding companies or mixed financial holding companies with head offices in different Member States, one of which is situated in the Republic of Latvia, and in each of the Member States there is a licensed insurance or reinsurance company, from which the insurance or reinsurance company with the largest balance-sheet total assets has been licensed by the Commission,

d) the parent company of a number of insurance or reinsurance companies with head offices situated in the territory of the European Union, is an insurance holding company or a mixed financial holding company, however, none of the insurance or reinsurance companies is registered in the Member State in the territory of which the head office of an insurance holding company or mixed financial holding company is situated, and the Commission has licensed the insurance or reinsurance company with the largest balance-sheet total assets,

e) the group does not have a parent company or none of the other conditions referred to herein have been met, and the Commission has licensed an insurance or reinsurance company with the largest balance-sheet total assets.

Section 222. (1) The Commission, taking into account the request of the supervisory authorities concerned and jointly agreeing with the supervisory authorities concerned, may refuse to exercise group supervision under Section 221 of this Law and delegate group supervision to another supervisory authority in cases where the supervision carried out by the Commission would not be appropriate, taking into account the structure of the group and the significance of the transactions of the insurance and reinsurance companies making up the group in other Member States.

(2) In respect of each group, the group supervision of which is not carried out by the Commission but in the supervision process of which it is involved, the Commission may require, once a year, the appropriateness of the applied criteria for the choice of the authority of group supervisions to be assessed.

(3) Upon expressing or receiving the request referred to in Paragraph two hereof the Commission shall, within their competence, make every effort to adopt, within three months, a decision coordinated by the supervisory authorities concerned on the choice of the supervisory authority of the Member State to which group supervisions shall be delegated. Before the adoption of the decision, the supervisory authority concerned shall provide the opportunity for the group to express its view.

(4) Within the time period laid down in Paragraph three hereof, the Commission may consult the EIOPA on the matter regarding the choice of the supervisory authority of a Member State to which such group supervision will be delegated in the supervision process of which the Commission is involved. Where the Commission or any of the supervisory authorities involved in group supervision has started consultations with the EIOPA before receiving the coordinated decision set out in Paragraph three hereof, the adoption of such a decision shall be deferred until the EIOPA adopts the decision within one month. The decision adopted by the EIOPA regarding

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the choice of the supervisory authority of the Member State which will exercise group supervision shall be binding on the supervisory authorities involved in the group supervision process. The period referred to in Paragraph three hereof shall be considered a conciliation phase in accordance with Article 19(2) of EU Regulation No.1094/2010.

(5) As the supervisory authority, the Commission may not refer to the EIOPA with a request to assist in reaching an agreement after the expiry of the term referred to in Paragraph three hereof or after the adoption of the coordinated decision. The Commission, if the supervisory authorities agree to delegate group supervision to it, shall forward the adopted coordinated decision to the group and the supervisory authorities concerned. The adopted decision on the choice of the supervisory authorities of the Member State to which group supervision shall be delegated, shall be binding on the Commission and the supervisory authorities involved.

Section 223. If, in the case referred to in Section 222 of this Law, the supervisory authorities concerned fail to adopt a concerted decision within the term prescribed in Section 222, Paragraph three of this Law regarding the choice of the supervisory authorities of a Member State to which group supervision shall be delegated, group supervision shall be carried out by the Commission.

Section 224. (1) In carrying out group supervision, the Commission shall take the following measures:

1) coordinate the aggregation and dissemination of the relevant information on the activity of the group on a daily basis and in crisis situations, ensuring the transmission of such information to the supervisory authorities involved, which they need for the performance of supervisory functions;

2) inspect the performance of the group and the financial soundness thereof;3) assess the group solvency, risk concentration and intra-group transactions for

compliance with the requirements laid down in Chapters XXIX and XXX of this Law;4) evaluate the system of governance of the group for compliance with the

requirements laid down in Section 221 of this Law and the compliance of the management of the participating company with the requirements laid down in Sections 58, 59, 60, 61, 62, 63 and 69 of this Law;

5) plan and coordinate the group supervision process on a daily basis as well as in the crisis situations, taking into account the type and size of activity of all the companies making up the group, and the complexity of risks inherent to the activity of these companies, as well as regularly, at least once a year, the supervisory authorities concerned shall organise a meeting of the supervisory authorities concerned or use other appropriate means of cooperation;

6) carry out other tasks, measures and take relevant decisions to ensure that statutory requirements set out in this Law are met, carrying out group supervision, especially chairing the approval process of the internal model of the group pursuant to the requirements laid down in Sections 207 and 209 of this Law and managing the processes prescribed in Sections 212, 213, 214, 215, 216 and 217 of this Law.

(2) In order to exercise group supervision pursuant to the provisions laid down in Paragraph one, hereof, the Commission shall organise the establishing of the college of supervisors and manage the functioning thereof.

Section 225. (1) In order to facilitate the harmonisation of the decisions and activities of the supervisory authorities involved in the activity of the college of supervisors, the Commission,

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when chairing the activities of the college of supervisors, shall ensure mutual cooperation, exchange of information and the consultation process in the cases prescribed in Division F of this Law.

(2) In order to ensure the group supervision pursuant to the requirements laid down in Section 224, Paragraph one of this Law, the Commission may notify the EIOPA and request its assistance in cases when the supervisory authority concerned of the college of supervisors fails to cooperate with the Commission.

Section 226. The college of supervisors shall be composed of the supervisory authority of the group, the supervisory authorities of all the Member States in the territory of which the head office of subsidiary companies are situated, and the EIOPA. The supervisory authorities of material branches and affiliated companies may also participate in colleges, limiting the participation thereof to providing an effective exchange of information. The term "material branch" is used in the meaning of EU Regulation No. 2015/35.

Section 227. (1) The establishment and functioning of the college of supervisors shall be based on the agreement on cooperation concluded between the supervisory authority of the group and other supervisory authorities concerned.

(2) The agreement on cooperation referred to in Paragraph one hereof shall lay down procedures for the establishment of the college of supervisors, organising the activities thereof, the consultation process with the EIOPA and the adoption of final decisions.

(3) Additional agreements can be provided for the consultation process of the procedure between the supervisory authorities concerned and for the cooperation process with other supervisory authorities.

Section 228. The Commission may refer a matter to the EIOPA, if the supervisory authorities involved in the EIOPA have different views regarding the agreement on cooperation. The decision adopted by the EIOPA regarding the supervisory authority which will exercise group supervision shall be binding on the Commission.

Section 229. In adopting the final decision, the Commission shall consult with all supervisory authorities involved in group supervision and properly evaluate the recommendations issued by the EIOPA, which are received within two months of the Commission's referral of the matter to the EIOPA. The final decision shall specify the reasoning and explanation of any significant derogations from the EIOPA recommendations. The Commission shall forward the decision to all supervisory authorities involved in the group supervision process.

Section 230. The Commission, if it is the supervisory authority of the group, shall send information to the EIOPA on the performance of the college of supervisors and the difficulties encountered in the performance of the college of supervisors.

Section 231. (1) The Commission shall immediately notify other supervisory authorities involved in group supervision, of the fact that an insurance or reinsurance company making up the group and licensed by the Commission has encountered financial difficulties, as a result of which it might be unable to perform its obligations under the concluded insurance and reinsurance contracts.

(2) The Commission and other supervisory authorities concerned shall communicate all relevant information to each other as soon as it becomes available, or provide the information at the request of the supervisory authority concerned, in order to ensure that the relevant information is available equally to all supervisory authorities concerned, including the supervisory

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authority of the group, and to facilitate the carrying out of the supervision tasks of other supervisory authorities in accordance with the requirements of this Law.

(3) The information referred to in Paragraph two hereof shall at least include information on the measures taken by the group and the supervisory authorities, and the information provided by the group.

(4) The Commission may notify the EIOPA and request its assistance in cases when the supervisory authority involved in the college of supervisors has failed to notify the Commission of any relevant information, refuses the Commission's request to cooperate, particularly, to provide relevant information, or has not begun to act within two weeks of the request of the Commission to provide information.

(5) The Commission, if it is the supervisory authority of the group, shall notify the supervisory authorities involved in group supervision, as well as the EIOPA of the legal, management and organisational structure of the group, taking into account the information about close links provided by the insurance or reinsurance company, as well as of the provisions set out in Section 91 and Section 235 of this Law.

Section 232. The Commission, if it is the supervisory authority of the group, shall immediately convene a meeting of the supervisory authorities concerned, if the following has been identified during the group supervision process carried out by the Commission or during the supervision process of an insurance or reinsurance company, which belongs to a group, and which has been licensed by the Commission:

1) the solvency capital requirement or the minimum capital requirement has not been complied with, and a significant breach of the requirements laid down in this Law has been identified. A significant breach of the relevant requirement shall be the failure to comply with the solvency capital requirement by 10 or more per cent and the failure to comply with the minimum capital requirement;

2) compliance with the group solvency capital requirement has not been complied with, and a significant breach of the requirements laid down in this Law has been identified. A significant breach of the relevant requirements shall be the failure to comply with the group solvency capital requirement by 10 or more per cent;

3) other circumstances have been identified or the likeliness of the occurrence of such circumstances, as a result of which the performance of the obligations of the insurance or reinsurance company under the concluded insurance and reinsurance contracts might be threatened.

Section 233. (1) If its decision affects the carrying out of the supervisory functions of another supervisory authority, the Commission shall, before adopting the decision, consult with the supervisory authorities concerned of the college of supervisors concerning:

1) the changes in the composition of the shareholders or members, the organisational or management structure of the insurance or reinsurance company that makes up the group, when the Commission's approval or authorisation is required for making the relevant changes;

2) the decision of the Commission to extend the term prescribed in Section 141, Paragraph three of this Law to restore the level of the own funds for it to comply with the solvency capital requirement in the cases specified in Section 141, Paragraphs four and five;

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3) the application of sanctions or exceptional measures in cases when a significant breach of the requirements laid down in the Law is identified, including the setting of the capital add-on pursuant to Section 46 of this Law or on the use of other restrictions in regard to the calculation of the internal model solvency capital requirement pursuant to Sections 121, 122, 123, 124, 125, 126, 127, 128 and 129 of this Law.

(2) The Commission shall consult with the supervisory authority of the group before adopting the decision to set the capital add-on to the insurance or reinsurance company that makes up the group.

(3) In carrying out group supervision, the Commission shall consult with other supervisory authorities involved in the group supervision process, if the information referred to in Paragraph one, Clause 2 or 3 hereof has been provided to the Commission by the supervisory authority of the Member State involved in the group supervision process.

4) In case of urgency, or in the event that the speed of the decision-making impacts the effectiveness thereof, the Commission has the right not to follow the procedure laid down herein - consult with the supervisory authorities involved in the group supervision process. In this case, following the adoption of the decision, the Commission shall immediately notify all the supervisory authorities involved in the group supervision process thereof.

Section 234. (1) In order to obtain information for the carrying out of group supervision, the Commission, if it is the supervisory authority of the group, shall cooperate with the supervisory authority of the Member State in the territory of which the head office of the parent company is situated, but which does not exercise group supervision.

(2) The Commission may require that the supervisory authority of the Member State in the territory of which the head office of the parent company is situated, but which is not the supervisory authority of the group, should obtain information that the Commission needs to exercise group supervision from the parent company.

(3) In order to obtain the information for the carrying out of group supervision, which has already been submitted to another supervisory authority, the Commission shall cooperate with the relevant supervisory authority.

Section 235. (1) An insurance or reinsurance company, which is subject to group supervision, the participating companies and related companies thereof as well as the natural persons related thereto have the right to mutually exchange the information that the Commission or the supervisory authority of the Member State requires for group supervision.

(2) An insurance or reinsurance company, an insurance holding company and a mixed financial holding company shall submit to the Commission, if it is the supervisory authority of the group, all information required to exercise group supervision, applying the requirements laid down in Section 42 of this Law at a group level. The content of information and the deadlines for the submission thereof are laid down in EU Regulation No. 2015/35.

(3) The Commission may require the information that is necessary for the carrying out of group supervision directly from the company related to the insurance or reinsurance company subject to group supervision, and from the related company of the participating company, unless this information has been received from the insurance or reinsurance company subject to group supervision within the time limit laid down by the Commission.

Section 236. The Commission or the authorised representatives thereof may verify the veracity of the information provided for group supervision on-site at the insurance or reinsurance

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company subject to group supervision, at its related company, its parent company and the company related to the parent company, and this commercial company shall not refuse to provide information on the pretext of a commercial secret.

Section 237. (1) Where for the purpose of group supervision verification of the information on the company, which is situated in the territory of another Member State is required, the Commission may authorise the supervisory authority of the relevant the Member State concerned to carry out the verification.

(2) At the request of the supervisory authority of the Member State, the Commission or its authorised persons, or the supervisory authority of the Member State authorised by the Commission, or the persons authorised by it may carry out the verification of the veracity of the information provided for group supervision in commercial companies registered in the Republic of Latvia, which are the participating companies, related companies or the related companies of the participating company of the Member State insurer or Member State reinsurer, which is subject to insurance of the group registered in the Member State. The supervisory authority of the group shall be notified of the results of the inspection carried out.

(3) The supervisory authority that has submitted the request referred to in Paragraph two hereof to the Commission, may participate in the inspection in cases when the veracity of the information submitted for the ensuring of the group supervision process is being inspected by the Commission or its authorised persons.

(4) The Commission may notify the EIOPA and ask for the assistance thereof in cases where the supervisory authority of the Member State, which has been authorised by the Commission in accordance with Paragraph one hereof to carry out the inspection, has failed to act accordingly within two weeks’ time.

(5) The EIOPA may participate in the inspections, if these are carried out jointly by two or more supervisory authorities.

Section 238. (1) Each year, an insurance or reinsurance company, an insurance holding company or a mixed financial holding company, shall publish a report on the solvency and financial standing of the group. Quantitative, past, current and budgeted data, or any combinations thereof, as well as information from internal and external sources of information shall be presented in the report.

(2) If the authorisation from the supervisory authority is received, an insurance or reinsurance participating company, an insurance holding company or a mixed financial holding company may prepare a joint report on solvency and the financial standing, including therein:

1) information at a group level;2) individually identifiable information about each subsidiary company of the group.

(3) Before granting the authorisation referred to in Paragraph two hereof, the Commission, if it is the supervisory authority of the group, shall consult with the members of the college of supervisors and evaluate the views of other supervisory authorities of the college of supervisors, including objections.

(4) If the report referred to in Paragraph two hereof does not include information about the subsidiary company, which is requested by the Commission, which has licensed that subsidiary company, and if the information not included is material, the Commission shall require that subsidiary company to disclose the necessary additional information.

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(5) The Commission shall lay down the requirements relating to the disclosure of the said information.

Section 239. (1) The insurance holding company, mixed financial holding company, insurance company, and insurance or reinsurance company subject to the group supervision process carried out by the Commission shall promptly submit an action plan to the Commission with specified deadlines for taking the measures in the following cases:

1) the activity of the insurance or reinsurance company that makes up a group does not comply with the requirements of Chapters XXIX and XXX of this Law;

2) while non-compliance of the activity of the insurance or reinsurance company that makes up a group with the requirements of Chapter XXIX and Chapter XXX of this Law has not been observed, intra-group transactions, risk concentration or other circumstances have been identified or it has been found that the occurrence of such circumstances is likely as a result of which the performance of the obligations of the insurance or reinsurance company, which arise from the concluded insurance and reinsurance contracts.

(2) The Commission shall immediately notify other supervisory authorities involved in the group supervision process of the identified circumstances pursuant to the provisions laid down in Paragraph one, Clauses 1 and 2 hereof, if:

1) The head office of the insurance holding company or mixed financial holding company is situated in in another Member State, and the Commission does not exercise group supervision;

2) The head office of an insurance or reinsurance company is situated in the Republic of Latvia, however the Commission does not exercise group supervision.

(3) The Commission may agree the performance of the elimination of the circumstances pursuant to the provisions of Paragraph one, Clause 1 and 2 hereof, with the supervisory authorities involved in the group supervision process.

Section 240. (1) The Commission may require insurance holding companies or mixed financial holding companies to provide information and documents on the activities thereof.

(2) The head office of an insurance holding company or a mixed financial holding company submits the requested information within the deadlines laid down by the Commission, and they shall not refuse to provide information on the pretext of a commercial secret.

Chapter XXXIII Establishing of the Equivalence of the Supervisory Regime of Non-

Member StatesSection 241 (1) In the case specified in Section 197, Paragraph two, Clause 3 of this Law, the

Commission shall ascertain whether the supervision of the insurance and reinsurance companies the parent company of which is situated in a non-Member State, is carried out by the supervisory authority of that non-Member State, the supervision regime of which is equivalent to that laid down in this Law, in order to exercise the supervision of the insurance or reinsurance companies referred to in Section 197 , Paragraph two, Clauses 1 and 2 of this Law at group level.

(2) If the European Commission has not adopted a decision to recognise the equivalence of the supervisory regime of the non-Member State, the Commission, if it is the supervisory authority of the group, shall determine whether the supervisory regime of the non-Member State is equivalent to that laid down in this Law, based on the decisions adopted by the European

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Commission, and before adopting a decision, consulting other supervisory authorities concerned with the support of the EIOPA. The Commission, if it is the supervisory authority of the group, shall not take such decisions in respect of the non-Member State which would contradict any previously adopted decision in respect of that State, except where it is necessary to take account of significant changes to the supervisory regime of the Member State and the non-Member State.

(3) In adopting the decision laid down in this article, the Commission shall comply with EU Regulation No. 2015/35.

(4) If the European Commission has adopted a regulation establishing the provisional equivalence of the supervisory regime of the non-Member State, the Commission shall apply Section 242, of this Law, except when the balance-sheet total of an insurance or reinsurance company registered in the Republic of Latvia exceeds the balance-sheet total of the parent company registered in the non-Member State. In this case, the duties of group supervision shall be carried out by the Commission, if it is has been designated as the supervisory authority of the group.

Section 242. If under the provisions laid down in Section 241 of this Law, it is recognised that the supervisory regime of the non-Member State is equivalent to that laid down in this Law, the Commission shall, in cooperation with the supervisory authority of the non-Member State, apply the requirements laid down in Chapter XXXII of this Law.

Section 243. (1) Where, in accordance with Section 241 of this Law, the Commission has adopted a decision that the supervisory regime of the non-Member State is not equivalent to that laid down in this Law, or if the requirements of Section 242 of this Law are no longer valid in accordance with the exceptional case for the application of the provisional equivalence referred to in Section 241, Paragraph four of the Law, the Commission shall exercise group supervision pursuant to Sections 203,204, 205, 206, 207, 208, 209 and 210 and Chapters XXX, XXXI and XXXII of this Law, or under one of the methods listed in Paragraphs three, four or five hereof. (2) The general principles laid down in Sections 203, 204, 205, 206, 207, 208, 209 and 210 and Chapters XXX, XXXI and XXXII of this Law shall be applied and the methods shall be used at the level of the insurance holding company or mixed financial holding company of a non-Member State, or the insurer or reinsurer of a non-Member State.

(3) The Commission may use other methods to ensure appropriate group supervision of insurance or reinsurance companies, if after consultation with other supervisory authorities concerned the selected methods have been approved by the supervisory authority of the group.

(4) The Commission may require that an insurance holding company or a mixed financial holding company registered in a Member State be established, and apply group supervision to the insurance or reinsurance companies, the parent company of which is the mentioned insurance holding company or mixed financial holding company registered in the mentioned Member State in accordance with Section 197, Paragraph two, Clause 2 of this Law.

(5) The methods selected by the Commission enable the accomplishment of the objectives of group supervisions, and they shall be notified to other supervisory authorities concerned and the European Commission.

Section 244. (1) If the parent company set out in Section 241, Paragraph one of this Law is the subsidiary company of the insurance holding company or mixed financial holding company of a non-Member State, or the insurance or reinsurance company of a non-Member State, the

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verification of equivalence set out in Section 241 of this Law shall be carried out at the ultimate parent level.

(2) Where, pursuant to Section 241 of this Law, the Commission does not establish the equivalence of the supervisory regime of a non-Member State at the parent company level, the Commission may adopt a decision to recognise the supervisory regime of such an insurance holding company of a non-Member State, the mixed financial holding company of a non-Member State or the insurance or reinsurance company of a non-Member State, which is the parent company of an insurance or reinsurance company at a lower level.

Section 245. (1) If the parent company of one or more of the insurance or reinsurance companies is a mixed activity insurance holding company, the Commission shall exercise the supervision of such intra-group transactions, which are carried out by these insurance or reinsurance companies and the mixed activity insurance holding company, as well as the related companies thereof.

(2) The supervision of intra-group transactions shall be carried out in accordance with the provisions laid down in Sections 219, 231, 232, 233, 234, 235, 236, 237 and 239 of this Law.

Division G Reorganisation Measures, Insolvency Proceedings, Winding-Up of

Insurance Companies and the Protection of the Interests of the Insured

Chapter XXXIV Reorganisation Measures

Section 246. (1) The provisions laid down in Chapters: XXXIV, XXXV, XXXVI and XXXVII shall apply to:

1) insurance companies;2) the branches of non-Member State insurers.

(2) Other provisions regulating reorganisation measures and winding-up shall be applicable in so far as they do not contradict the provisions of Chapters XXXIV, XXXV, XXXVI and XXXVII of this Law.

Section 247. (1) Only competent authorities of the Republic of Latvia, within their competence prescribed by laws and regulations, may adopt the decision on the reorganisation of an insurance company registered in the Republic of Latvia

(2) The reorganisation measures of a reinsurance company do not restrict future winding-up proceedings, nor are they a prerequisite for the future winding-up proceedings thereof.

Section 248. The Commission shall immediately notify other supervisory authorities of Member States of the decisions or activities related to the reorganisation measures of such an insurance company, which has creditors or branches in the respective Member States or which provides insurance services in the respective Member States, without opening a branch.

Section 249. (1) If the competent authority adopts the decision to take the reorganisation measures in respect of such an insurance company, which has creditors in another Member State arising from the insurance contracts, or which has a branch in another Member State, or which provides insurance services in another Member State, without opening a branch, the administrator or the authorised representative thereof shall, upon such a decision coming into force, immediately send it for publication in the Official Gazette "Latvijas Vēstnesis", as well as

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immediately send a notification of the adopted decision and the excerpt of the adjudicating part of the decision to the official publications office of the European Union for publication in the Official Journal of the European Union.

(2) The Commission shall ensure the publication of the notifications related to reorganisation measures received from the competent authorities of Member States in the official gazette "Latvijas Vēstnesis", as well as on the Commission's website.

(3) The notification referred to in Paragraph one hereof shall be prepared in the official language of the Republic of Latvia. The notification shall specify the purpose, legal basis, applicable laws and regulations, the competent authority, which has jurisdiction over the case, the administrator and the authorised representative thereof, their address and other contact information, the deadline for submitting claims or complaints (date) and the full address of the institution which may examine complaints concerning reorganisation measures.

(4) The failure to publish the notifications referred to in Paragraphs one and two hereof shall not give rise to the right of appeal against the respective court rulings or decisions of competent authorities concerning reorganisation measures.

(5) This Section shall not apply if the reorganisation measures affect only the rights of the shareholders, members or employees of the insurance company.

Chapter XXXV Winding-Up Proceedings

Section 250. (1) In protecting the interests of the insured, the Commission may:1) in the event of winding-up of the insurance company revoke licences for all classes

of insurance;2) require the competent authorities of Member States to provide information on the

progress of the winding up of insurance companies registered therein.(2) Competent authorities shall, before adopting the decisions or carrying out activities relating

to winding-up proceedings, if an insurance company is involved in winding-up proceedings, notify the Commission of the relevant decisions or activities.

Section 251. (1) Within two months from the revoking of licences for all classes of insurance, an insurance company shall adopt the decision on the reorganisation into another legal person or the opening of winding-up proceedings. It shall notify the Commission of the adopted decision within five days from the date of the adoption thereof.

(2) If the insurance company has not complied with the provisions laid down in Paragraph one hereof, the Commission may propose a convening of the meeting of shareholders of the insurance company (the general meeting of members of the mutual insurance cooperative society), a council or a management board meeting, and lay down the agenda thereof.

Section 252. (1) If an insurance company or the branch of a non-Member State insurer has decided to discontinue its activity, it shall, before opening winding-up proceedings, notify the Commission thereof, by submitting an application to that effect. The information to be added to the application shall be laid down by the Commission.

(2) During winding-up proceedings, the Commission shall continue to supervise the insurance company.

(3) The Commission shall immediately publish a notification of the commencement of the winding-up of the insurance undertaking on its website, as well as immediately send a notification

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to the official publications office of the European Union for publication in the Official Journal of the European Union.

(4) The liquidator shall ensure that the notification of the adopted rulings concerning the winding-up of the insurance company be immediately published in the official gazette "Latvijas Vēstnesis".

(5) The Commission shall ensure the publication of the notifications related to the winding-up of insurance merchants received from the competent authorities of Member States in the official gazette "Latvijas Vēstnesis", as well as on the Commission's website.

(6) The notification referred to in Paragraphs three and four hereof shall be prepared in the official language of the Republic of Latvia. The notification shall specify the purpose, legal basis, the applicable law, the court of jurisdiction, the liquidator, the address thereof, and other contact information.

Section 253. (1) The liquidator shall, within one month from the date of the adoption of the winding-up decision, develop the winding-up plan and submit it to the Commission.

(2) The liquidator shall, at least once a month, submit a report to the Commission on the progress of winding-up proceedings.

(3) The liquidator shall, before the settlement of the claims of creditors, submit information to the Commission on the procedure for the settlement of debts and all amendments thereto.

(4) The Commission may require the liquidator to provide the information necessary to it.(5) The Commission may require the liquidator to specify the plan of the winding-up

proceedings.(6) An insurance company is obliged, at the initiative of the Commission, to immediately

withdraw the liquidator from office if it is established that the activities of the liquidator threaten the interests of the insured.

(7) The liquidator shall, on a regular basis, but not less frequently than once a year, notify the known creditors on the progress of winding-up proceedings in writing.

(8) The Commission may require the supervisory authority of the home country to provide it with information about the course of the winding-up proceedings.

Section 254. (1) The liquidator shall, within three months from the date on which the winding-up decision was adopted, having regard to the interests of the insured, except in cases provided for in Paragraph two hereof, transfer or terminate insurance contracts under the following procedure:

1) transfer life insurance contracts in regard of which the insured event has not occurred. Life insurance contracts shall be transferred pursuant to the procedure laid down in Sections 47, 48, 50 and 51 of this Law. If due to objective circumstances it is not feasible to transfer these life insurance contracts, they shall be terminated. In this case, the insurer may not withhold expenses related to the conclusion of the insurance contract from the insurance premium payable;

2) transfer non-life insurance contracts and take any necessary legal action pursuant to the procedure laid down in 47, 48, 50 and 51 of this Law;

3) terminate non-life insurance contracts, without withholding expenses related to the conclusion of the insurance contract from the insurance premium payable.

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(2) The insurance contracts which expire within three months of the adoption of the decision on winding-up may not be terminated, except in cases when such a contract is terminated at the initiative of the policyholder.

(3) The Commission may impose the duty on the insurance company being wound-up (liquidator) to transfer all insurance contracts or a part of them.

Section 255. (1) Upon opening winding-up proceedings, the insurance company shall prepare a statement that presents the financial condition thereof up to the date of the opening of winding-up proceedings. The reports of the management board and the council about the position of the assets and liabilities of the insurance company and the expected outcome of the liquidation shall be enclosed to the statement.

(2) If the calendar year ends during winding-up proceedings, an interim annual report shall be prepared, which shall have the same constituent parts as the annual report. A report presenting the progress made in the course of the winding-up and the expected progress of the winding-up and the results thereof shall be enclosed to the interim annual report. The interim annual report of the year of the winding up shall be audited by the sworn auditor.

(3) Upon completing winding-up proceedings, the winding-up closing statement shall be prepared presenting the financial condition at the end of the reporting period.

Section 256. The Commission shall immediately notify the competent authority of the Member States of the decision to open winding-up proceedings, as well as on the likely practical effects resulting therefrom.

Section 257. (1) The funds of the insurance company, including the proceeds from the disposal of assets of the insurance company, or from other sources of financing of the insurance company (the funds of creditors, other natural or legal persons), excluding amounts owed to unsecured creditors, shall first be used to fully cover the costs of winding-up proceedings.

(2) After the covering of the expenses of winding-up proceedings, the remaining cash shall be allocated to settle the claims lodged by secured and other creditors pursuant to the procedure laid down in Section 265, Clauses one, three, four, five and six of this Law.

(3) The cash not claimed by the creditors of the insurance company and not withdrawn pursuant to the procedure laid down in Section 265 of this Law, shall be transferred by the liquidator of the insurance company, subject to concluding an agreement, into the custody of a credit institution of his choice pursuant to the procedure laid down in Section 269 of this Law.

(4) The liquidator has a duty to continue to pay insurance indemnities for insured events that have occurred up to the expiry of the term for lodging creditor claims. In this case, the policyholder (the insured, beneficiary) shall not be required to lodge the creditor's claim.

Section 258. (1) After the opening of winding-up proceedings, the liquidator shall notify all known creditors individually in writing, regardless of the location of such creditors. Such notification shall also be forwarded to the shareholders or members, as well as employees of the insurance company.

(2) In the notification referred to in Paragraph one hereof, the liquidator shall specify to the relevant persons, the time limits binding on them, the effects of the failure to comply with the time-limits, notify that he is entitled to receive creditor claims and objections, notify of his address and other contact information, as well as provide other details about what creates, amends or terminates the obligations for creditors. The notification shall specify to the creditors whose claims are preferential or actually secured, whether they should lodge the creditor's claim.

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(3) In the event of obligations arising from the insurance, in addition to the information referred to in Paragraph two hereof, the date shall be specified on which the insurance contracts cease to be in force, as well as the rights and obligations of the policyholder and the insured, which relate to the contract.

(4) The liquidator shall use the form bearing the heading "Invitation to lodge a claim. Time limits to be observed!" for the notification referred to in Paragraph one hereof and send it to:

1) creditors in another Member State, in the official language of the Member State in which the creditor's permanent place of residence, registered office or head office is situated;

2) non-Member State creditors — in the language of the insurance contract; 3) 1 and 2 hereof - in the official language of the Republic of Latvia.

3) creditors not referred to in Clauses 1 and 2 hereof — in the official language of the Republic of Latvia.

(5) All the creditors and the public authorities of the Member States may lodge their claims and objections (including certified copies of documents) pursuant to the provisions hereof:

1) creditors in another Member State, the official language of the Member State in which the creditor's permanent place of residence, registered office or head office is situated; In this case, the heading of the application for the creditor's claim "Lodgement of the creditor's claim" shall be in the official language of the Republic of Latvia;

2) creditors in a non-Member State — in the language of the insurance contract;3) creditors not referred to in Clauses 1 and 2 in the official language of the relevant

Member State or in one of the official languages of the Member States in which the creditor's permanent place of residence or management is situated. In this case, the title of the application for the creditor's claim "Application of the creditor’s claim" shall be in the official language of the Republic of Latvia.

(6) The liquidator has the right to require creditors to provide a translation of their claims or objections into the official language of the Republic of Latvia only when they have been notified of that in advance in the notification to creditors referred to herein.

(7) The policyholder (insured) with which the insurance contract has been terminated, shall not lodge the creditor's claim to the liquidator in order to receive the insurance premium owed to it.

(8) The creditor shall send copies of any supporting documents to the liquidator, specifying the following information:

1) the nature and extent of the claim;2) the date on which the claim arose;3) whether in relation to this claim the creditor requires actual security or the retention

of the ownership title;4) the assets to which his claim relates.

Section 259. If in the event of the winding-up proceedings of an insurer, obligations arising from the unit-linked life insurance contracts exist, the assets of the insurer intended for the security of these obligations shall not be included in the estate of the insurer — the debtor, which is intended for the covering of the costs of winding-up proceedings and the settlement of the claims of the insured and other parties pursuant to the procedure and to the extent laid down in Section 265 of this Law.

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Chapter XXXVI Insolvency Proceedings

Section 260. (1) The Commission may lodge the insolvency application to the court, if due to it’s the winding-up proceedings thereof, the insurance company is unable to duly perform its debt obligations which have become due for payment.

(2) Competent authorities, before adopting decisions or carrying out activities relating to the insolvency proceedings, if an insurance company is involved in the insolvency proceedings, shall notify the Commission of the relevant decisions or activities.

Section 261. 1) The administrator shall, at least once a month, submit a report to the Commission on the progress of the insolvency proceedings.

(2) Before the settlement of the creditor claims, the administrator shall submit information on the procedure for the settlement of debts and all amendments thereto to the Commission.

(3) The Commission may require the administrator to provide the information necessary to it.(4) The Commission may require the supervisory authority of the home Member State to

provide information to the Commission concerning the course of the insolvency proceedings taking part in that Member State.

Section 262. (1) The administrator has a duty, within three months of the adoption of the ruling, to declare the insolvency proceedings, evaluating the interests of the insured, to transfer or terminate insurance contracts pursuant to the procedure laid down in Section 254 of this Law.

(2) The insurance contracts which expire within three months of the adoption of the court's ruling regarding the declaring of the insolvency proceedings, shall not be terminated, except in cases when such an insurance contract is terminated at the initiative of the policyholder.

Section 263. (1) The funds of the insurance company, including the proceeds from the disposal of assets of the insurance company, or from other sources of financing of the insurance company (the funds of creditors, other natural or legal persons), excluding amounts owed to unsecured creditors, shall first be used to fully cover the costs of the insolvency proceedings.

(2) The funds of the Protection Fund for the Insured, which, on the grounds of a written application of the administrator, have been used to cover the costs related to the organisation of the payment of insurance indemnity, shall be included in the cost of the administration of the insolvency proceedings.

(3) The administrator has a duty to continue to pay insurance indemnities in respect of insured events occurring up to the expiry of the time limit for lodging creditor claims. In this case, the policy holder (the insured, beneficiary) shall not lodge the creditor's claim.

Section 264. (1) The policyholder (the insured) with which the insurance contract has been terminated, is not required to lodge the creditor's claim to the administrator to receive the insurance premium owed to it.

(2) If in the event of the insolvency proceedings of an insurer the obligations arising from the unit-linked life insurance contracts exist, the assets of the insurer intended for the security of these obligations shall not be included in the estate of the insurer — the debtor, which is intended for the covering of the costs of the insolvency proceedings and the settlement of the claims of the insured and other parties pursuant to the procedure and to the extent laid down in Section 265 of this Law.

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Section 265. After the covering of the expenses of the insolvency proceedings, the remaining cash shall be allocated to settle the claims lodged by secured and other creditors in the following categories:

1) the claims of policyholders (the insured) for the payment of insurance indemnities in other claims (insurance premiums) for the concluded insurance contracts, the claim of the Commission, if the policyholder (a natural person) has received the insurance indemnity from the Protection Fund for the Insured;

2) claims of creditors under Section 18, Paragraphs two, three and four of the Insolvency Law;

3) claims for interest payments to creditors;4) claims of the creditors who have lodged their claims after the prescribed time limit;5) claims for the repayment of the subordinated obligations;6) the claims of the shareholders or members of the insurance company pro-rated to

the contribution of the shareholders or members into the share capital of the insurance company shall be satisfied after the settlement of all the claims listed above herein.

Section 266. (1) Preferential claims are insurance premiums paid by policyholders in advance and the claims specified in Section 265, Clauses 1, 2 and 3 of this Law.

(2) An insurance company shall ensure that the amount of the preferential claims specified in Paragraph one hereof shall be known to it at any time.

(3) The potential preferential claims shall be covered with assets at all times.Section 267. (1) If the amount recovered by an insurance company in the insolvency

proceedings is not sufficient to satisfy all claims, it shall be distributed among the creditors in the order specified in Section 265 of this Law.

(2) The claims or each subsequent group shall be satisfied after the claims of the preceding group have been satisfied in full.

(3) If the insurance company does not have enough cash to fully satisfy all claims of the creditors of one group, these claims shall be satisfied in proportion to the amount owed to each creditor within that group.

Section 268. (1) The Commission shall immediately publish the notification on the declaring of the insolvency proceedings of the insurance company on its website. The Commission shall immediately send this notification to the official publications office of the European Union for publication in the Official Journal of the European Union.

(2) The Commission shall ensure the publication of the notifications related to the insolvency proceedings of insurance merchants received from the competent authorities of Member States in the official gazette "Latvijas Vēstnesis", as well as on the Commission's website.

(3) The notification referred to in Paragraph one hereof shall be prepared in the official language of the Republic of Latvia. The notification shall specify the purpose, legal basis, the applicable law, the court of jurisdiction, the liquidator, the address thereof and other contact information.

Section 269. (1) The cash not claimed by the creditors of the insurance company and not withdrawn pursuant to the procedure laid down in Section 265 of this Law, the administrator of the insurance company shall, subject to concluding an agreement, transfer it into the custody of the credit institution of his choice. The administrator shall promptly send the written notification of the

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transfer of cash into the custody of the credit institution to each creditor, as well as publish it in the media and in the Official Gazette of the "Latvijas Vēstnesis".

(2) The fee for the holding in the custody of the cash of the insurance company shall be withheld from the creditors of the insurance company and calculated in proportion to the amount of money owed to each creditor.

(3) The creditor of an insurance company loses the right to claim the cash, if within 10 years from the date on which the cash was transferred to the credit institution he/she has not withdrawn the cash owed to him/her. The cash owed to the creditors of the insurance company and in respect of which a lapse has occurred, shall be owed to the State as abandoned property.

(4) After the conclusion of the custody agreement with a credit institution, the administrator of the insurance company shall submit information to the Commission on the credit institution, to which cash was transferred into custody, and a list of creditors, specifying the identification data of each creditor and the amount of cash owed to him/her.

Chapter XXXVII General Rules Applicable to Reorganisation Measures and

Winding-Up ProceedingsSection 270. The following laws and regulations shall lay down the legal relations in

reorganisation measures and winding-up proceedings:1) in regard to employment contracts and employment relationship — only the laws and

regulations of the Member State, which are applicable to the employment contract or employment relationship;

2) in regard to the contracts conferring the right to make use of or acquire immovable property — only the laws and regulations of the Member State in which the immovable property is situated;

3) in regard to the right of an insurance company to any immovable property, ship or aircraft which needs to be entered in a public register — only the laws and regulations of the Member State under the charge of which the relevant register is kept.

Section 271. (1) The opening of reorganisation measures or opening of winding-up proceedings shall not affect the rights in rem of creditors or third parties to material or intangible, movable or immovable property - identified as well as non-identified assets that belong to that insurance company concerned and are situated in another Member State on the date when the carrying out of reorganisation measures or winding-up proceedings is started.

(2) The rights provided for in Paragraph one hereof shall at least include:1) the right to dispose of or to charge anybody with the task to dispose of the relevant

assets and derive profit or proceeds from these assets, particularly by virtue of a lien or a mortgage;

2) exclusive rights to satisfy a claim, particularly on the grounds of the lien or the takeover of the claim by way of a guarantee;

3) the right to demand the assets back or require restitution for them from any person having possession or using them against the will of the party so entitled;

4) entitlement to benefit from the assets.(3) The rights which are entered in any national register and which can be exercised in

relation to third parties and which allows one to acquire the rights in rem in the meaning of Paragraph one hereof, shall be considered the rights in rem.

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(4) Stakeholders have the right to appeal to the transactions referred to herein.Section 272. (1) The carrying out of reorganisation measures or winding-up proceedings in

regard to an insurance company that buys an asset shall not affect the seller's rights based on the retention of the ownership title, if at the time of starting the carrying out of reorganisation measures or the opening of winding-up proceedings the asset is situated in the territory of a Member State other than the Member State in the territory of which the mentioned reorganisation measures or winding-up proceedings are carried out.

(2) If, after the acquisition of assets, reorganisation measures or winding-up proceedings have been started against the insurance company, which is selling its assets, , it shall not be grounds for the cancellation or termination of the sale of assets, nor shall it prevent the buyer from acquiring the ownership title where at the time of the starting of carrying out of such, the assets sold are situated in a territory of the Member State other than that in which the relevant measures or proceedings have been started.

(3) Stakeholders have the right to appeal the transactions referred to herein.Section 273. (1) The carrying out of reorganisation measures or winding-up proceedings in

regard of an insurance undertaking shall not affect the right of creditors to demand the net setting of their claims and liabilities, the cancellation of their claims and liabilities or other legal consequences of carrying out similar activities, where such activities are permitted by law applicable to the relevant claims.

(2) The transactions that are supported by the net set-off agreement of claims and liabilities shall be governed only by the law applicable to the net set-off agreement of claims and liabilities, under which these transactions are entered into.

Section 274. The carrying out of reorganisation measures or winding-up proceedings shall not restrict the rights of creditors or third parties to the assets that belong to the insurer and which are situated in the territory of another Member State during the carrying out of reorganisation measures or winding-up proceedings.

Section 275. (1) The rights and obligations of the participants of a regulated market for transactions in financial instruments in connection with the carrying out of reorganisation measures or winding-up proceedings shall be laid down only by the laws and regulations applicable to the regulated market.

(2) The provisions laid down in Paragraph one hereof shall not restrict the application of Section 274 of this Law.

Section 276. In regard to reorganisation measures and winding-up proceedings the transaction may not be appealed if the person who has benefited from a transaction which is disadvantageous to the interests of the creditor proves that the relevant transaction has been carried out in accordance with the legislation of another Member State and that in the case at hand the relevant legislation precludes the appealing of the transaction against that deal.

Section 277. If, after the decision on the commencement of reorganisation measures or winding-up proceedings, assets are disposed of, the following laws and regulations shall apply:

1) in regard to real immovable property — the laws and regulations of the Member State, in whose territory the immovable property is situated;

2) in regard to a ship or an aircraft — the laws and regulations of the Member State, which is in charge of the public register in which the ship or aircraft has been entered;

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3) in regard to the activities with financial instruments that need to be entered in the public register, the account of a credit institution, or a central depository, and the rights secured therein, they are regulated by the laws and regulations of Member State under the supervision of which the register, account or the system is maintained.

Section 278. The effects of the reorganisation measures or winding-up proceedings on the cases being heard shall be governed only by the law of the Member State in the territory of which the relevant court proceedings take place.

Section 279. (1) The appointment of an administrator or liquidator of the competent authorities of Member States shall be supported by a certified copy of the original decision on such an appointment or another decision issued by the competent authorities. Competent authorities may require that the mentioned documents be translated into the official language of the Republic of Latvia. Legalisation or any other activity comparable in terms of legal effect is not required.

(2) Liquidators and administrators appointed in the Republic of Latvia may exercise such powers in the Member State, which they may exercise within the territory of their home Member State. Liquidators and administrators may appoint (authorise) persons who assist them or represent them during the course of carrying out reorganisation measures or the winding-up (insolvency) proceedings.

(3) A liquidator appointed in the Member State or another authorised person, in fulfilling its mandate in the Republic of Latvia, shall comply with the laws of the Republic of Latvia, including the laws on the activities related to the disposal of assets and the provision of information to employees.

(4) The mandate referred to in Paragraph three hereof does not include the use of coercive measures, the right to adopt the decision on opening court proceedings or the resolution of disputes.

Section 280. (1) Liquidators or administrators appointed in another Member State, in exercising their powers, have the duty to make an entry of winding-up proceedings in the public registers of the Republic of Latvia.

(2) Liquidators or administrators appointed in the Republic of Latvia, in exercising their powers, have the duty to make a record of reorganisation measures or winding-up proceedings in the national public registers, if such registration is required under the laws of the relevant Member State.

(3) Expenses related to the registration of reorganisation measures or winding-up proceedings in the public registers of Member States, shall be included in the cost of these proceedings.

Section 281. All persons who must receive or provide information on the proceedings set out in Sections 248, 256 and 282, of this Law, shall not disclose this information as provided for under Section 83 of this Law.

Section 282. (1) If a non-Member State insurer has established branches in several Member States, for the application of this chapter an individual regime shall be applied to each of them.

(2) In the case set out in Paragraph one hereof, competent authorities (liquidators and administrators) and supervisory authorities shall coordinate their activities to the extent possible.

Chapter XXXVIII Protecting the Interests of the Insured

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Section 283. (1) In order to protect the interests of the insured in the event of the insolvency of an insurer or a Member State insurer, the Protection Fund for the Insured shall be established.

(2) The Commission shall ensure the accumulation and management of the funds of the Protection Fund for the Insured as well as the disbursement of insurance indemnities, and carry out the following functions:

1) organise the payments made by insurers or Member State insurers into the Protection Fund for the Insured;

2) calculate and recover outstanding amounts and penalties;3) organise the disbursement of insurance indemnities;4) enforce creditor claim rights in respect of an insurer or a Member State insurer in the

amount of the disbursed insurance indemnities.(3) The Consultative Council of the Financial and Capital Market Commission shall exercise

supervision over the accumulation of the funds of the Protection Fund for the Insured and the disbursement of insurance indemnities.

Section 284. (1) (1) An insurance indemnity shall be paid from the Protection Fund for the Insured in the amount set out in Section 285, Paragraph one of this Law and under the procedure prescribed by the Commission after the court has declared the insolvency proceedings of the insurer or the Member State insurer.

(2) If there is not sufficient funds in the Protection Fund for the Insured to disburse insurance indemnities under this Law, the Commission may enter into a loan agreement for the missing amount from a credit institution registered in the Republic of Latvia, the insurer or the branch of a Member State or non-Member State credit institution. Where it is not practicable to borrow the missing amount for disbursement of insurance indemnities from a credit institution registered in the Republic of Latvia, an insurer of the branch of a Member State or non-Member State credit institution, the Commission may enter into a loan agreement with several credit institutions registered in the Republic of Latvia, the insurers or branches of Member State or non-Member State credit institutions.

(3) A credit institution registered in the Republic of Latvia, the branch of a Member State or non-Member state credit institution in the Republic of Latvia may ask the Commission to lend the amount necessary to cover the missing amount for the disbursement of insurance indemnities only if the loan agreement with the Commission will not affect the ability of the credit institution registered in the Republic of Latvia, the branch of a Member State or non-Member State credit institution or the insurer to comply with the requirements applicable to credit institutions and insurers laid down in the regulatory laws and regulations governing the activity of credit institutions or insurers.

(4) When selecting a credit institution registered in the Republic of Latvia, the branch of a Member State or non-Member State credit institution or an insurer, with which the loan agreement for the raising of the missing amount for the payment of insurance indemnities will be entered into, the Commission shall not be subject to the provisions of the Public Procurement Law. The Commission shall select such a credit institution registered in the Republic of Latvia, the branch of a Member State or non-Member State credit institution or an insurer, which has offered the lowest interest rate to it.

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(5) The Commission shall repay the funds borrowed for the payment of insurance indemnities from the Protection Fund for the Insured.

Section 285. (1) The funds of the Protection Fund for the Insured shall be used to make payments to the manager thereof (if under Paragraph two hereof the management of the Protection Fund for the Insured has been delegated to another manager) for the covering of the costs related to the organisation of the disbursement of insurance indemnities, as well as for the disbursement of insurance indemnities, if the policyholder is a natural person, in the amount:

1) of 100 per cent of the insurance indemnity, however, not more than 15,000 euros per policyholder — in the classes of insurance referred to in Section 19, Paragraph two, Clauses 1, 2, 4, 5, 6, and 7 of this Law.

2) of 50 per cent of the insurance indemnity, however, not more than 3,000 euros per policyholder — in the classes of insurance referred to in Section 19, Paragraph two, Clauses 1, 2, 3, 8, 9, 10 and 13 of this Law;

(2) Under the decision of the Council of the Commission, the management of the Protection Fund for the Insured may be delegated to another manager subject to entering into the relevant agreement.

(3) Income (gains) derived from the management of the Protection Fund for the Insured shall be transferred to the Fund.

(4) The funds of the Protection Fund for the Insured shall not be used for purposes not provided for in this Law. Funds of the Commission other than the funds of the Protection Fund for the Insured shall not be used to disburse insurance indemnities.

(5) Contributions into the Protection Fund for the Insured and disbursements from it shall be made exclusively in euros.

(6) Disbursements from the Protection Fund for the Insured in foreign currency shall be calculated in euros using the accounting exchange rate ruling on the date on which the ruling on the opening of insolvency proceedings is adopted under the statutory procedure.

Section 286. An insurance indemnity shall not be disbursed from the Protection Fund for the Insured:

1) if the insurer is a mutual insurance cooperative society;2) for compulsory insurance;3) for insurance in relation to the unit-linked life insurance contract.

Section 287. (1) The funds of the Protection Fund for the Insured shall be made up from the contributions of the members thereof in the amount of 0.1 per cent of the sum total of their gross insurance premiums received from natural persons for the classes of insurance referred to in Section 19, Paragraph one, Clauses 1, 2, 3, 8, 9, 10, 13 and 18 and Paragraph two, Clauses 1, 2, 4, 5, 6 and 7 of this Law.

(2) The provisions of Paragraph one hereof shall be binding on the branches of an insurance company abroad, if the laws and regulations of these countries do not provide for compulsory participation of the branches of insurance companies in the insured protection system of the relevant country.

(3) The provisions of Paragraph one hereof shall be binding on the branches of insurance company abroad, if the laws and regulations of these countries provide for compulsory participation of the branches of insurance companies in the insured protection system of the relevant country and require that the guaranteed insurance indemnity be disbursed in the amount

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of the difference between the amount of the guaranteed insurance indemnity existing in the relevant country and in the Republic of Latvia.

(4) The provisions of Paragraph one hereof shall not be binding on the branches of Member State or non-Member State insurers, if the laws and regulations of these countries provide for the protection of the insured in the branches thereof abroad (as well as in the Republic of Latvia) and cover all the cases provided for in this Law, and the guaranteed insurance indemnity is not lower than that provided for in this Law.

(5) The provisions of Paragraph one hereof shall not be binding on the Member State insurer if the laws and regulations of the home country of the Member State insurer provide for the protection of the insured in foreign countries (as well as in the Republic of Latvia), in which it provides insurance services under the freedom to provide services principle and cover all the cases provided for in this Law, and the guaranteed insurance indemnity is not lower than that provided for in this Law.

(6) The payments made into the Protection Fund for the Insured shall be accounted for as the expenditure of the member of the Fund, and they shall be made once a quarter by the 30th day of the first month following each quarter, by a transfer to the Commission's account with the Bank of Latvia. By the 30th day of the first month following each quarter, the member of the Fund shall submit a report to the Commission on the gross insurance premiums received from natural persons in the previous quarter and on payments into the Protection Fund for the Insured. The sample of the report form shall be laid down by the Commission.

(7) The payments of the member of the fund into the Protection Fund for the Insured shall not be regarded as the Commission's obligations owed to the member of the Fund and shall not be refundable when a member of the Fund discontinues the activity thereof.

Section 288. (1) The portion of the Fund made up from the payments of the members of life insurance fund as well as the portion of the Fund made up from the payments of the members of the fund of other classes of insurance shall be accumulated and spent separately.

(2) If the portion of the Fund made up from the payments of the members of life insurance fund has reached 5 million euros, the Commission shall suspend the payments into the Fund. The Commission shall renew payments into the Fund when it falls below 4 million euros.

(3) If the portion of the Fund, made up from the payments of the members of the fund of other classes of insurance has reached 11 million euros, the Commission shall suspend the payments into the Fund. The Commission shall renew payments into the Fund when it falls below 8 million euros.

(4) If required by law, separate funds can be established in the compulsory classes of insurance.

Section 289. (1) Members of the Fund have a duty to calculate and pay interest on the payments not paid to the Protection Fund for the Insured within the prescribed deadline. This interest shall be paid to the account with the Bank of Latvia.

(2) Interest due on the payment not paid to the Protection Fund for the Insured within the prescribed deadline shall be 0.05 per cent of the outstanding amount for each day of delay. Interest shall be calculated for the period for which the member of the fund has made the calculated quarterly payment.

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(3) If a member of the Fund fails to make payments in good faith and fully to the Protection Fund for the Insured, the Commission shall issue a warning to this member of the Fund to the effect that the insurance or reinsurance licence thereof may be revoked.

(4) If, within one month after the Commission has issued the warning to the effect that the insurance or reinsurance licence issued to pursue its activity may be revoked, the member of the Fund has failed to make payments to the Protection Fund for the Insured in good faith and fully, the Commission shall revoke the licence issued to this member of the Fund.

Section 290. (1) An insurance indemnity may be paid from the funds of the Protection Fund for the Insured only if the insurer or Member State insurer has been declared insolvent, and the insurer or Member State insurer does not have enough funds to fully cover the claims of policyholders for the disbursement of insurance indemnities set out in Section 265, Clause 1 of this Law.

(2) An insurance indemnity shall be paid from the Protection Fund for the Insured according to the list drawn up by the administrator.

Transitional Provisions1. As of 1 January 2016, the following become null and void:

1) Law On Insurance Companies and Supervision Thereof (Latvijas Republikas Saeimas un Ministru Kabineta Ziņotājs, 1998, No. 15; 1999, No. 10; 2000, No. 13; 2002 No.12; 2003, No. 9; 2004, Nos. 2 and 14; 2005 Nos. 2 and 14; 2006, No. 1; 2007, No. 15; 2008, Nos. 14, 15, and 23; Latvijas Vēstnesis, 2009, Nos. 35, 39 and 205; 2010, No. 160; 2012, Nos. 92 and 154; 2013, Nos. 106 and 192; 2014, No. 119);

2) Law on Reinsurance (Latvijas Republikas Saeimas un Ministru Kabineta Ziņotājs, 2008, No. 15; Latvijas Vēstnesis, 2009, Nos. 39 and 205; 2013, Nos. 106 and 193; 2014, No. 119);

2. The life insurance companies, which have obtained the life insurance licence before the date of entry into force of the Law, may continue to pursue life insurance in the lines of life insurance set out in Section 19, Paragraph two, Clauses 1, 2, 3 and 5 of this Law.

3. By 31 December 2017, the percentage restriction referred to in Section 130, Paragraph two of this Law shall apply only to the solvency capital requirement calculated in accordance with the standard formula.

4. The requirements laid down in Section 130 of this Law relating to compliance by an insurance or reinsurance company or the branch of a non-Member State insurer with the minimum capital requirement and the requirements laid down in Section 147, Paragraph two of this Law applicable to the revoking of the licence, shall not be applicable if on 31 December 2015, the own funds of an insurance or reinsurance company or the branch of a non-Member State insurer exceed the solvency capital requirement calculated in accordance with Commission Regulation No. 149 "Solvency Requirements for Life Insurers and the Rules for the Calculation of Own Funds", of 15 September 2006, Regulation No. 148 "Solvency Requirements for Non-Life Insurers and the Rules for the Calculation of Own Funds" of 15 September 2006 or Regulation No. 128 "Solvency Requirements for Reinsurers and the Rules for the Calculation of Own Funds", however, its eligible basic own funds do not comply with the minimum capital requirement. The relevant insurance or reinsurance company or the branch non-Member State insurer shall ensure compliance with Section 117 of this Law by 31 December 2016. If an insurance or reinsurance company or the branch of a non-Member State insurer fails to ensure compliance with Section

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117 of this Law by the prescribed deadline, the licence issued to the insurance or reinsurance company or the branch of a non-Member State insurer shall be revoked under the procedure laid down in this Law.

5. With regard to the obtaining of the licence, approval or authorisation, as well as with respect to the supervisory measures, by 1 January 2016, it shall not be allowed to apply the decisions adopted by the Commission regarding:

1) the issuing of the authorisation referred to in Sections 121 and 122;2) the issuing of the licence referred to in Section 28 of this Law to a special purpose

vehicle authorisation for the start-up of the pursuit of the activity;3) the issuing of the authorisation referred to in Sections 206, 207 and 209 of this Law

to use the full or partial internal model for the calculation of group solvency;4) the issuing of the authorisation referred to in Section 112 of this Law to use the

relevant risk-free interest rate term structure matching adjustments;5) the issuing of the authorisation referred to in Paragraph 10 of these Transitional

Provisions for making the risk-free interest rate transition adjustment;6) the issuing of the authorisation referred to in Paragraph 14 of these Transitional

Provisions for making the deductions from the technical provisions during the transitional period;

7) the application of group supervision, for the determination of fields and levels in accordance with Chapters XXVII and XXVIII of this Law;

8) the selection of group supervisory authority in accordance with the requirements laid down in Sections 221, 222 and 223 of this Law;

9) the establishment of the college of supervisors in accordance with Sections 224, 225, 226, 227, 228, 229 and 230 of this law;

10) the method for the calculation of group solvency in accordance with Section 205 of this Law;

11) the determination of the equivalence of the supervisory regime of non-Member States in regard to the supervisory requirements laid down in this Law in accordance with Section 241 of this Law;

12) the application of Sections 214 and 215 under the authorisations issued under Sections 211 and 212 of this Law;

13) the application of supervisory methods application in accordance with Sections 243 and 244 of this Law.

6. If, during the period from 1 January 2016 until 31 December 2016, the own funds of an insurance or reinsurance company, or the branch of a non-Member State exceed the solvency requirement calculated under Commission regulation No. 149 Solvency Requirements for Life Insurers and the Rules for the Calculation of Own Funds", Regulation No. 148 "Solvency Requirements for Non-Life Insurers and the Rules for the Calculation of Own Funds of 15 September 2006, or Regulation No. 128 Solvency Requirements for Reinsurers and the Rules for the Calculation of Own Funds", however, the level of its eligible basic own funds does not comply with the minimum capital requirement, that insurer or branch shall take all necessary measures to restore own funds to meet the solvency capital requirement or to reduce the risk to comply with the solvency capital requirement by 31 December 2017. Every three months, an insurance or reinsurance company or the branch of a non-Member State shall submit a report to the

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Commission on the measures taken to restore own funds to meet the solvency capital requirement or to reduce the risk to comply with the solvency capital requirement.

7. If, during the period from 1 January 2016 until 31 December 2016, the adjusted own funds of an insurance or reinsurance company referred to in section 197, Paragraph two, Clause 1 of this Law or of the insurance or reinsurance companies that make up the group referred to in Section 197 Paragraph two, Clause 2 of this Law exceed the adjusted solvency margin calculated in accordance with Commission Regulation No. 64 Regulatory Regulations on the Procedure for the Calculation of the Adjusted Solvency Requirement and the Adjusted Own Funds of the Insurance or reinsurance companies subject to additional supervision and on the Provision of Information on Intra-Group Transactions between the Insurance or Reinsurance Companies That Make up the Group", of 22 May 2009, however, it does not comply with the group solvency requirement, that insurance or reinsurance participating company or insurance or reinsurance company shall take all necessary measures to restore own funds to meet the group solvency capital requirement or to reduce risk to comply with the group solvency requirement by 31 December 2017. Every three months, the participating insurance or reinsurance company or insurance or reinsurance company shall submit a report to the Commission, if it is the supervisory authority of the group, on the measures taken to restore own funds to meet the group solvency capital requirement or to reduce the risk to comply with the group solvency capital requirement.

8. The Commission shall discontinue applying the requirements laid down in Paragraphs 6 and 7 hereof, if it follows from the report referred to in Paragraphs 6 and 7 to be submitted to it, that from the date on which non-compliance with the solvency capital requirement or the group solvency capital requirement was observed up to the date of the submission of the report no significant improvements have been achieved to restore the eligible own funds so that it would comply with the solvency capital requirement or the group solvency capital requirement or to reduce the risk to achieve compliance with the solvency capital requirement or the group solvency capital requirement. 9. The requirements laid down in Paragraphs 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20 hereof shall also be binding at a group level.

10. An insurance or reinsurance company or the branch of a non-Member State insurer may apply the transitional measure on the relevant risk-free interest rate term structure referred to in Section 102 of this Law to calculate the best estimates for insurance or reinsurance obligations, subject to receiving the Commission's authorisation. The Commission may lay down requirements for obtaining the authorisation to take the transitional period measures set out herein. At the end of the year, the transitional measure on the relevant risk-free interest rate term structure shall be reduced, under a straight-line method, from 100 per cent starting on 1 January 2016 to 0 per cent by 1 January 2032. The transitional adjustments to the relevant risk-free interest rate term structure for each currency shall be calculated as the difference between:

1) the interest rate which by 31 December 2015 was set under the Commission's Regulation "Regulations on the Creation and Calculation Methods of the Technical Provisions of Insurers and Private Pension Funds", and

2) the effective annual rate calculated as a single discount rate, by applying which to the cash flows of the insurance or reinsurance obligations portfolio, a value is obtained, which is equal to the best estimate of the insurance or reinsurance obligations portfolio,

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including the present value of the expected future cash flows in the calculation and using the relevant risk-free interest rate term structure

11. If an insurance or reinsurance company or the branch of a non-Member State insurer applies the volatility adjustment referred to in Section 114 of this Law, the relevant risk-free interest rate term structure referred to in Paragraph 10(2) hereof shall be used after the application of the volatility adjustment.

12. The insurance or reinsurance obligations referred to in Paragraph 10 hereof shall meet the following conditions:

1) the contracts laying down insurance or reinsurance obligations have been concluded before 1 January 2016, except where the term of these contracts has been extended on 1 January 2016 or after that date;

2) until 31 December 2015, the technical provisions for insurance or reinsurance obligations shall be calculated in accordance with the Commission's Regulations "Regulations on the Creation and Calculation Methods of the Technical Provisions of Insurers and Private Pension Funds" of 1 January 2005;

3) The matching adjustment set out in Section 112 of this Law shall not be applied to insurance or reinsurance obligations.

13. An insurance or reinsurance company or the branch of a non-Member State insurer, which applies the provisions laid down in Paragraph 10 hereof:

1) include such insurance or reinsurance obligations referred to in Paragraph 10 hereof, which correspond to those included in the volatility adjustments calculation referred to in Section 114 of this Law;

2) shall not apply Paragraphs 14, 15, 16 and 17 hereof;3) in the report referred to in Section 91 of this Law on the solvency and financial

condition of the insurance or reinsurance company or the branch of a non-Member State insurer, the information on the application of the transitional measure on the relevant risk-free interest rate term structure shall be disclosed as well as a quantitative assessment of how the financial condition of that company could be affected were the transitional measure not made.

14. Subject to receiving the Commission's authorisation, an insurance or reinsurance company or the branch of a non-Member State shall apply the transitional deduction on technical provisions at the level of homogeneous risk groups referred to in Section 107 of this Law. The Commission may lay down the requirements for obtaining the authorisation to make the transitional period deductions set out herein. At the end of each year, the upper limit of the transitional deduction shall be reduced, under a straight-line method, from 100 per cent starting on 1 January 2016 to 0 per cent by 1 January 2032. The transitional deduction shall be calculated as the difference between:

1) the technical provisions after the deduction of recoverable amounts from reinsurance contracts and special purpose vehicles, which are calculated in accordance with Sections 99 and 100 on 1 January 2016, and

2) the technical provisions after the deduction of recoverable amounts from reinsurance contracts, which are calculated up to 31 December 2015 under the requirements applicable to technical provisions laid down in the Law On Insurance Companies and Supervision Thereof, Law on Reinsurance and the Commission's regulations "Regulations

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on Creation and Calculation Methods of the Technical Provisions of Insurers and Private Pension Funds" of 1 January 2005.

15. If on 1 January 2016, an insurance or reinsurance company or the branch of a non-Member State insurer applies the volatility adjustment referred to Section 114 of this Law, the amount referred to in Paragraph 14(1) hereof shall be calculated, taking into account the volatility adjustment as it is on that day.

16. If the risk profile of an insurance or reinsurance company or the branch of a non-Member State insurer has changed significantly, that company or branch shall recalculate the technical provisions set out in Paragraphs 14(1) and 14(2) hereof and the volatility adjustment referred to in Paragraph 15 hereof, which is used to calculate the transitional deduction referred to Paragraph 14 hereof, every 24 months or more often, subject to obtaining the Commission's authorisation or if the Commission has adopted the decision to impose a duty on that insurance or reinsurance company or the branch of a non-Member State insurer to do recalculations.

17. The Commission may adopt the decision to apply the transitional deduction referred to in Paragraph 14 hereof, if because of the application of such a deduction the applicable financial resource requirement to the insurance or reinsurance company or the branch of a non-Member State insurer compared to the requirements calculated up to 31 December 2015 under the requirements laid down in the Law On Insurance Companies and Supervision Thereof, Law on Insurance and the Commission's regulations "Regulations on Creation and Calculation Methods of the Technical Provisions of Insurers and Private Pension Funds" of 1 January 2005.

18. An insurance or reinsurance company or the branch of a non-Member State insurer, which applies Paragraph 14 hereof:

1) shall not apply Paragraphs 10, 11, 12 and 13 hereof;2) ) if it can meet the solvency capital requirement, just by applying the transitional

deduction referred to in Paragraph 14 hereof, shall take all necessary measures to restore the eligible own funds to comply with the solvency capital requirement or to reduce the risk to ensure compliance with the solvency capital requirement by 1 January 2032, and shall submit, on an annual basis, a report to the Commission on the measures taken to restore the eligible own funds or reduce risk to ensure compliance with the group solvency requirement by 1 January 2032;

3) in the report referred to in Section 91 of this Law on the solvency and financial condition of the insurance or reinsurance company or the branch of a non-Member State insurer, the information on the application of a transitional deduction on technical provisions shall be disclosed as well as a quantitative assessment of how the financial condition of that company could be affected were this transitional measure not taken.

19. An insurance or reinsurance company or the branch of a non-Member State insurer, which applies the transitional measure or transitional deduction referred to in Paragraphs 10 or 14 hereof, shall immediately notify the Commission, as soon as it identifies that it is able to comply with the solvency capital requirement, just by taking the mentioned transitional measures. That company or branch shall, within two months after it has established that it is able to comply with the solvency capital requirement, just by taking the mentioned transitional measures, submit a plan to the Commission for approval to restore the eligible own funds or reduce risk to ensure compliance with the group solvency requirement by 1 January 2032. Adjustments can be made in that plan during the transitional period. The relevant insurance or reinsurance company or the

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branch of a non-Member State, shall submit, once a year, a report to the Commission on the measures taken to restore the own funds so that the solvency capital requirement is met or reduce risk to ensure compliance with the solvency capital requirement.

20. The Commission shall prohibit the transitional measure or transitional deduction referred to in Paragraphs 10 and 14 hereof, paragraph transitional measure or the transition period if it follows from the report mentioned in Paragraph 19 hereof that from the date on which non-compliance with the solvency capital requirement or the group solvency capital requirement was observed up to the date of the submission of the report, no significant improvement has been achieved to restore the eligible own funds so that it would comply with the solvency capital requirement or to reduce the risk to achieve compliance with the solvency capital requirement.

21. The Commission may, on grounds of the findings identified in the inspection of the insurance or reinsurance company, set the capital add-on referred to in Section 46 of this Law to that company, if it has found that the insurance or reinsurance company has applied the transitional measure or transitional deduction referred to in Paragraphs 10 or 14 hereof, and the risk profile of that company materially deviates from the assumptions underlying these transitional measures.

22. If an insurance or reinsurance company applies the transitional measure or transitional deduction referred to in Paragraphs 10 or 14 hereof, it shall assess its compliance with the capital requirements set out in Section 65 , Paragraph two, Clause 2 of this Law in two ways — applying and not applying the mentioned transitional measure or transitional deduction.

23. The matching adjustment set out in Section 112 of this Law shall not be applied to insurance or reinsurance obligations if pursuant to the relevant risk-free interest rate term structure the transitional measure referred to in Paragraph 10 hereof is applied to calculate the best estimate of the technical provisions.

24. Once a year by 1 January 2021, the Commission shall provide the following information to the EIOPA:

1) an insurance product, which includes long-term guarantees, the availability in the financial and capital market, and the action taken by insurance or reinsurance companies in the capacity of long-term investors;

2) the number of insurance or reinsurance companies which apply the matching adjustment, volatility adjustment, the term extension set on in Section 141, Paragraph five of this Law and the transitional measure or transitional deduction specified in Paragraph 10 or 14 hereof;

3) the effect of matching adjustments, volatility adjustments, the symmetrical adjustments of the risk sub-modules of equity securities and the transitional measures referred to in Paragraphs 10 or 14 hereof on the financial condition of the insurance or reinsurance company at a national level, anonymously for each company;

4) the effect of matching adjustments, volatility adjustments, the symmetrical adjustments of the risk sub-modules of equity securities on the investing approach applied by insurance and reinsurance companies, as well as information on whether the mentioned measures give rise to an undesirable reduction of the capital requirements;

5) the impact of all term extensions laid down in Section 141, Paragraph five of this Law on the restoring of the own funds of the insurance or reinsurance company for it to

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comply with the solvency capital requirement or on the reduction of the risk profile to ensure compliance with the solvency capital requirement;

6) j) if an insurance or reinsurance company undertaking applies the transitional measure or transitional deduction referred to in Paragraphs 10 or 14 hereof, information on whether or not they follow the plan referred to in Paragraph 19 hereof and future reliance on the assessment of a transitional measure or a transitional deduction.

25.Sections 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49 and 50, Section 51, Paragraph one and two, Sections 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 115, 116 and 117, Section 119 Paragraph one, two, three, four, five, six and seven,120, 123, 124, 125, 126, 127, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 203 and 204, Section 205, Paragraph five, and Sections 208, 210, 218, 219, 220, 231, 232, 233, 234, 235, 236, 237, 238, 239, 240, 242, 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256, 257, 258, 259, 260, 261, 262, 263, 264, 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281, 282, 283, 284, 285, 286, 287, 288, 289 and 290, as well as Paragraphs 2, 3, 4, 6, 7, 8, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24 shall be applicable from 1 January 2016. If, in applying the provisions of the laws governing insurance and reinsurance, during the time period from the coming into force of the Insurance and Reinsurance Law on 31 December 2015, conflicting provisions are identified in the legislation of an equal legal force, the laws referred to in Paragraph 1of the Transitional Provisions shall be applied

Informative Reference to European Union DirectivesIncluded in the Law are the legal norms which arise from:

1) First Council Directive 68/151/EEC of 9 March 1968 on the co-ordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community;

2) Council Directive 91/371/EEC of 20 June 1991 on the implementation of the Agreement between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance;

3) Directive 2000/26/EC of the European Parliament and of the Council of 16 May 2000 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles and amending Council Directives 73/239/EEC and 88/357/EEC (Fourth motor insurance Directive);

4) European Parliament and Council Directive 2002/87/EC European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of

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credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, 98/78/EC and2000/12/EC;

5) Directive 2003/58/EC of the European Parliament and of the Council of 15 July 2003 amending Council Directive 68/151/EEC, as regards disclosure requirements in respect of certain types of companies;

6) Council Directive 2004/113/EC of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services;

7) Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance);

8) Directive 2011/89/EU of the European Parliament and of the Council of 16 November 2011 amending Directives 98/78/EC,2002/87/EC, 2006/48/EC and 2009/138/EC as regards the supplementary supervision of financial entities in a financial conglomerate (Text with EEA relevance);

9) Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1094/2010 in respect of the powers of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority).

The Law has been adopted by the Saeima on 18 June 2015The President A. Bērziņš

Riga, 30 June 2015

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