Brussels, 10/06/2005 (Agence Europe) - Of Tuesday, the European Parliament approved the proposed directive establishing the first ever European legal framework for the reinsurance sector, which will get rid of collateral 12 months after the transposition deadline, which has been set for two years after its entry into force. Collateral, or security is used in two Member States, including France, to guarantee the insurer's claims on the reinsurer. Getting rid of the system will allow the EU to put pressure on the United States to stop demanding collateral payments from foreign companies active on their territory. It is likely that the directive will be adopted at first reading.
The MEPs align the margins for non-life and life reinsurance activities with those for direct non-life insurance, which is acceptable to the profession. In April 2004, the Commission proposed that stricter rules be set in place in terms of solvency for life reinsurance than for non-life reinsurance. The directive brings in a regulatory framework which is based on European legislation on direct insurance, and comprises three fundamental elements: mutual recognition of checks in the Member State where the company is accredited ("check by the country of origin"), the creation of an obligatory accreditation system, quantitative solvency requirements.
Charlie McCreevy, the Commissioner for the Internal Market, said in a press release: the "directive will fill a void in European legislation", "will boost insurance companies' confidence in their quest for the best offer available", and "will help to reinforce international financial stability, a state which is of concern to major international forums".
Reinsurance is insurance for insurance (EUROPE 8691 and 8841). It allows direct insurers to be liberated from a proportion of a risk exceeding their underwriting capacity, which they are unable to bear alone. It has an important part to play in risk management and the long-term stability of the financial systems. In 2003, 5 European reinsurance companies handled over 30% of the world volume of premiums (170 billion American dollars). Non-life reinsurance dominates the sector, with over 80% of total premiums.