Brussels, 09/07/2007 (Agence Europe) - On Tuesday, Charlie McCreevy will present MEPs will the very much awaited “Solvability II” draft directive on reforming to radically overhaul the way European insurers calculate risk in raising the capital needed to carry out their activities in face of the pitfalls linked to it. There had been many announcements made by the European Commissioner for the internal market (EUROPE 9291, 9219). The Commission approach is close to that adopted in the Basle II directive for the banks (EUROPE 9038 and 8844), insofar as it supports an economic evaluation of the risks run by insurers. Through this reform, for which the goal is an increase in the competitiveness of insurance companies working in Europe, the Commission is hoping that consumers, individuals or companies, will benefit from better insurance policies, as well as more products on offer. Another important chapter involves inspections of insurance companies by national regulators. On this point, European legislators will be asked about the feasibility of giving a greater role to the member state regulator where the a European insurer has been active in several countries of the European Union. The final chapter of the reform involves obligations for the insurance companies to provide information.
Risk appreciation. The legislative proposal will set the level of risk against that run by the insurers from their own funds: the risks level against which companies will attempt to cover themselves would be set at a likelihood of loss over a one-year period for any insurance provider below 0.5% This level is equivalent to the likelihood of any one company failing once in 200 years. Service providers will be able to apply a common statistical tool, currently being developed at the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) or put their own model into place. Contrary to the current situation, risks run by insurers should be protected against operational risks and those linked to the financial markets. The major insurance groups should also see their level of insurance fall significantly. AXA experienced a fall of around €300 million, points out one observer.
Under current European rules, the calculation of own funds which insurers must hold correspond to a flat rate, which varies according to whether it is life assurance or non-life insurance. But this method does not allow either the probability or the scope of the risks run to be taken into account.
Supervision. A major innovation of the proposed directive, the increased role to be granted to the “group control”, in other words the regulator in which the group is headquartered. The subsidiaries of insurance companies would in this way no longer be obliged to follow all of the rules of the countries in which they are active, although the local regulators will not lose all of their prerogatives. This element will constitute one of the major points of focus for the political battle.
Drafted under the co-decision procedure and using the “Lamfalussy” approach (see EUROPE 9159), the future directive may be adopted before the European elections of 2009. This will then be followed by a period of one year for the execution measures to be drafted, although the entry into force of the text does not appear to be anticipated before 2012. Within the European Union, 14 insurance groups (AXA, Allianz, Generali) share over 80% of the European market, which is estimated to be worth 7000 billion EUR. (mb)