Brussels, 22/04/2004 (Agence Europe) - As already reported (see yesterday's EUROPE, p.10), the European Commission presented on 21 April a proposal of Directive on reinsurance. The initiative comes in answer to the fact that there is no harmonised reinsurance supervision rule in this field at EU level, a failing that has entailed considerable differences in the levels of surveillance of reinsurance companies from one Member State to the next. Furthermore, the coexistence of different national rules is a cause for concern among insurance firms (and their policy holders), leading to barriers to trade within the internal market as well as giving rise to administrative burdens and costs. The fact that there has been no European provision has also weakened the EU's position in international trade talks aimed at opening up the insurance market worldwide.
The proposal presented on Wednesday foresees a regulatory framework based on the current regime introduced by the Third Insurance Directives. It extends to reinsurance firms the system for financial authorisation and supervision for the Member State where the company has its head office (home country control). As for direct insurers, this authorisation would be for reinsurance companies a true "single passport" which would enable them to carry on their business anywhere in the EU, either by establishing themselves in other Member States or by providing services directly from their home or another Member State
In order to implement such "home country control" while ensuring adequate Europe-wide protection of the interests of reinsurance customers - who are in general direct insurers - and therefore of insurance policy holders, the proposed Directive would also set out essential provisions for the supervision of reinsurance, which all Member States would need to apply. The proposal lays down a licensing regime for reinsurance undertakings and conditions that reinsurers would have to meet before a license could be granted. It also includes provisions to ensure reinsurers' financial soundness and therefore the stability of EU insurance markets, since the proposed Directive would apply to all EU reinsurance undertakings and not only those active in several Member States .
The proposal also sets out prudential rules for the supervision of reinsurance undertakings. It includes rules on the establishment of technical provisions (i.e. the amount that a reinsurance undertaking must set aside in order to enable it to pay its contractual commitments) and rules on the investment of assets covering those technical provisions. It also lays down rules on required solvency margins and minimum capital requirements as well as rules on measures to be adopted by regulators if reinsurance undertakings are in financial difficulties. These prudential rules are similar to those already applied in the Insurance Directives. Furthermore, the proposal would abolish national systems which oblige a reinsurer to pledge assets to cover unearned premiums and outstanding claims provisions of an insurance undertaking, where the reinsurer is an EU reinsurer.
The proposed Directive is in line with the direction of the ongoing reinsurance supervision project being carried out by the International Association of Insurance Supervisors (IAIS). According to the Commission, it will also be a useful tool in international trade negotiations as it could help to improve access for European reinsurers to foreign markets, where they face serious barriers, such as requirements to post collateral for the value of their commitments in the markets where they intend to conduct business. The European Federation of Insurers estimates the amount of such a requirement for the US market at US$50 billion.
The Commission's proposal follows wide and open consultation with stakeholders and all interested parties. This consultation process showed the need to set up a regulatory regime for reinsurance as soon as possible without waiting for proposals under the long-term project "Solvency II" which, on the basis of a wide-ranging review of all aspects of the insurance industry, will seek to establish a solvency system that is better matched to the true risks incurred by insurance undertakings. The proposal has also undergone an extended impact assessment.
GDV welcomes initiative but has some criticism regarding solvency
The Gesamtverband der Deutschen Versicherungswirtschaft (GDV, which groups German insurers) welcomes in a press release the European Commission's initiative on the creation of an internal reinsurance market, but considers the provisions proposed on solvency are not appropriate. According to GDV, the proposals do not take sufficiently into account the fact that "risk structures" are fundamentally different between insurers and reinsurers. Neither does it take account of the fact that reinsurers are exposed to international compeititon. Since the solvency requirements are lower outside Europe, and especially in the United States and the Bermudas, GDV fears that there will be a significant relocation of reinsurance activities.