Brussels, 31/10/2000 (Agence Europe) - On Monday the European Commission presented a proposal aiming to strengthen the solvency margins required for life and non-life insurance companies. "These proposals would clarify, simplify, improve and update the rules on the minimum amount of extra capital that an insurance undertaking can fall back on in case of unforeseen developments and so help to improve consumers' confidence when buying insurance products", commented Frits Bolkenstein, European Commissioner responsible for the Internal Market. They are part of the action plan for financial services, which sets the deadline for 2005 to achieve an integrated financial market in Europe.
The European Commission's proposal includes two proposals, one covering life insurance, the other non-life insurance. "They form a series of small changes to the requirements already enforced", explained the spokesperson for Mr Bolkenstein. In fact the present regulations date back twenty years (1973 for non-life insurance and 1979 for life insurance). Since then, they have remained unchanged. In particular, the absolute minimum amounts of capital required (what is known as the minimum guarantee fund, which corresponds to one third of the solvency margin requirement) have not been raised, "a considerable rise in premiums and claims", states the Commission. Thus it proposes to revise them upwards, as well as the minima for premiums and claims under which a higher solvency margin is required.
The new minimum guarantee fund will be set at EUR 3 million (against EUR 800,000 previously) and EUR 2 million for certain branches of non-life insurance (the number of minimum guarantee funds for non-life insurance will thus be brought down from four to two). These funds should be 100% made for "elements of superior quality" (against the present 50%). A solvency margin requirement of 50% more then at present would be also set from certain branches of non-life insurance presenting significant risks (maritime, aviation and general responsibility). Significant transition periods are foreseen for the application of these new minimum's (5 years extendable to 7) that, added to the necessary time for the adoption of the proposal could be up to ten years in order for companies to adapt.
The Commission also foresees to provide the monitoring authorities with more pre-emptive powers of intervention, in view of taking corrective measures as soon as the interests of the insured are threatened. "If the financial situation of a company deteriorates rapidly, the monitoring authorities could for example intervene, even when the company respects the solvency margin requirement", explains the Commission. Concerned with equality between different accounting practices, they would be able to take into account the differences between the historic cost or the market value of an asset.
"A series of small technical improvements are considered, but the Commission feels that the present system has as a whole worked well", commented a representative of the European executive. The Member States will have the possibility of imposing more rigorous rules for companies they certify. "Most of the companies already go well beyond the requirements: on average, their solvency margin is 3.6 times the capital required by regulations", he indicated.
These proposals will be passed onto the EU Council of Ministers and the European Parliament, for adoption according to the codecision procedure. An adoption that, according to the action plan for financial services should intervene before 2002. The Commission now intends to begin a more general assessment of the global financial situation for insurance companies, in order to see if others new improvements are necessary. It is notably studying the risks linked to assets and placements, the sufficient character of technical reserves as well as the accounting and reinsurance policy (the complete text for the proposals is available on the Europa web site: http: //europa.eu.int/comm/internal_market).