Edition 2020 Ninth edition

2.1.3. 
Valuation of Property for Insurance and Reinsurance Institutions
2.1.3.1. 
Solvency II and Omnibus II — The insurance and reinsurance sector is gov-
erned by the Solvency II regime established by the Solvency II Directive 
2009/138/EC. This framework Directive requires the Solvency Capital Re-
quirement of each insurance and reinsurance institution to be calculat-
ed at least once a year. Member States must ensure that, unless other-
wise stated, these institutions value their assets "at the amount for which 
they could be exchanged between knowledgeable willing parties in an arm's 
length transaction" 
(Article 75(1) of the Directive)
.
2.1.3.2. 
Recital (46) of the Directive states that "valuation standards for supervisory 
purposes should be compatible with international accounting developments, 
to the extent possible, to limit the administrative burden […]".
2.1.3.3. 
The Omnibus II Directive 2014/51/EU and Solvency II Delegated Regulation 
2015/35 amended the Solvency II regime in a number of ways. For instance, 
Article 9(3) of the Solvency II Delegated Regulation provides that, where 
necessary, Article 75 of Solvency II Directive prevails over international ac-
counting standards. In addition, Article 10(7) of the Solvency II Delegated 
Regulation gives guidance on the use of the market, income and cost ap-
proaches to valuation.
2.1.3.4. 
EIOPA Guidelines — Article 2(22) of the Omnibus II Directive provides that 
the European Insurance and Occupational Pensions Authority (EIOPA) can 
lay down technical standards on matters such as valuation. On 14 Septem-
ber 2015 the EIOPA issued Guidelines on recognition and valuation of assets 
and liabilities other than technical provisions
 (EIOPA-BoS-15/113)
. Guideline 3 
regarding investment property and other properties provides that:
"For the purposes of Article 10 of Delegated Regulation (EU) 2015/35 when 
valuing investment property and other properties, undertakings should 
select the method in accordance with Article 10(7) thereof that provides the 

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European Valuation Standards 2020
VII. European Union Legislation and Property Valuation
337
most representative estimate of the amount for which the assets could be 
exchanged between knowledgeable willing parties in an arm´s length trans-
action. In accordance with Article 10(6) of that regulation these methods 
should be based on the following:
a) current prices in an active market for properties of a different nature, 
condition or location, or subject to different lease or other contractual 
terms, adjusted to reflect those differences;
b) recent prices of similar properties on less active markets, with adjust-
ments to reflect any changes in economic conditions since the date of the 
transactions that occurred at those prices;
c) discounted cash flow projections based on reliable estimates of future 
cash flows, supported by the terms of any existing lease and other contracts 
and, when possible, by external evidence such as current Market Rents for 
similar properties in the same location and condition and using discount 
rates that reflect current market assessments of the uncertainty in the 
amount and timing of the cash flows."
Legislation
Directive 2009/138/EC of the European Parliament and of the Council of 25 No-
vember 2009 on the taking-up and pursuit of the business of Insurance and Rein-
surance (Solvency II)
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, (EU) No 1094/2010 and (EU) No 1095/2010 in respect of the powers of 
the European Supervisory Authority (European Insurance and Occupational Pen-
sions Authority) and the European Supervisory Authority (European Securities and 
Markets Authority)
Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplement-
ing 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)
Guidelines of the European Insurance and Occupational Pensions Authority of 14 
September 2015 on recognition and valuation of assets and liabilities other than 
technical provisions
Valuation of Property for Alternative Investment Funds