Germany: New BaFin-Circular regarding the minimum requirements for the business organisation of insurance undertakings (MaGo)

On 25 January 2017, BaFin provided its Circular 2/2017 (VA) regarding the minimum requirements for the business organization of insurance undertakings (“Mindestanforderungen an die Geschäftsorganisation von Versicherungsunternehmen, MaGo”). This Circular entered into force on 1 February 2017. It replaces Circular 3/2009 – Miniumum Requirements for Risk Management in Insurance Undertakings (MaRisk VA) which had been repealed at the end of 2015.

The new Circular is applicable to all primary insurance and reinsurance undertakings situated in Germany and in Third Countries. However, it is, inter alia, not addressed to small insurance undertakings, funeral expenses funds and pension funds.

With this Circular, BaFin issues its expectations regarding the organization of essential parts of the insurance undertaking´s business organization. Its aim is to summarize important aspects of the undertakings´ business organization without solely repeating the requirements of the new German Insurance Supervisory Act (VAG), the Delegated Act and EIOPA-Guidelines. It especially provides clarification of fundamental terms such as “proportionality” and “administration, management and supervisory body”, keeping in mind BaFin´s experiences in this regard since Solvency II has come into force one year ago.

In its explanatory letter regarding Circular 2/2017 (VA) of 26 January 2017, BaFin especially points out that its content to some extent differs from BaFin´s former publications and the draft MaGo which had been issued for consultation in October 2016:

For example, the new Circular emphasizes the principle of proportionality even more, taking into account the interests of especially insurance undertakings with little risk. Moreover, it is no longer necessary to assess the business organization every year – rather, the cycle of review depends on the undertaking´s own risk profile.

In addition, BaFin again points out that it is absolutely necessary that the undertaking´s key functions are directly supervised by the management body. However, it possible that – according to the risk profile – a manager can hold a key function as well. This can also apply to undertakings with a more distinctive risk profile.

Moreover, the Circular now differs between individual stress tests with regard to ORSA (“Own Risk and Solvency Assessment”) and with regard to other areas of risk management – the performance of the latter depending on their relevance for the undertaking. BaFin stresses that EIOPA-stress tests cannot generally be accepted as being individual stress tests, but might be sufficient in individual cases. Further, there are easements for undertakings with little risk.

Last, when it comes to outsourcing of important functions and activities, it is – in principle – still necessary to submit all relevant documents to BaFin in German. However, after consultation with BaFin, it might be, as a start, possible to submit documents in English.

You can read Circular 2/2017 (VA) in German here.