Brussels, 14/02/2002 (Agence Europe) - On Thursday, the Council formally adopted two directives on life and non-life insurance companies. The Council accepted the amendments presented by the European Parliament in July 2001 which means that a second reading was not necessary. With the aim of reinforcing safeguards for policy holders, the directives strengthen the solvency margin requirements for life and non-life insurance companies, ie the extra capital that insurance providers have to hold as a buffer against unforeseen circumstances. The main provisions are as follows:
The absolute minimum required capital is set at EUR 3 million (EUR 2 million for some types of non-life insurance) compared with between EUR 200,000 and EUR 1.4 million in the past.
The thresholds based on levels of premiums and claims below which a higher solvency margin is required have also been increased. The required solvency margin on a premium basis will now be 18% up to the first EUR 50 of premium and 16% above EUR 50 million. On a claims basis, the margin will be 26% on the first EUR 35 million and 23% above EUR 35 million.
For non-life insurance in areas such as marine, aviation and general liability insurance, the required solvency margin will be raised by 50%.
To deal with local risks, Member States are free to set tighter solvency ratio rules than those laid down in these directives.
Supervisory bodies now have increased powers to intervene early to take remedial action where policy holders' interests are threatened. For example, where insurance companies still meet the solvency margin requirements but their financial position is deteriorating rapidly.
Commissioner Frits Bolkestein welcomed the decision which only took 16 months to pass, saying that "These solvency margin Directives will significantly increase security for policy holders.;; Recent events have dramatically shown how consumers and their insurers may face totally new risks". The Commission is now undertaking a major sustained project (called Solvency II) looking at the overall financial position of insurance companies in terms of assets and liabilities, the matching of assets to liabilities, reinsurance arrangements and the implication of accounting and actuarial policies. Solvency II is expected to take a few years to complete.