Brussels, 10/07/2007 (Agence Europe) - 'This reform is a real opportunity to improve the international competitiveness of European insurers… We have a chance of creating a true global benchmark,' said EU Internal Market Commissioner Charlie McCreevy on Tuesday 10 July, presenting the European Commission's draft directive on the solvability of the EU insurance market to the European Parliament (see EUROPE 9464). McCreevy continued: 'We are already seeing great interest from the US, Japan and China in this project. There is growing nervousness in the US about the EU surging ahead while the US itself is stuck with a highly fragmented insurance regulation.' Codifying thirteen existing directives, the draft directive is based on calculating capital requirements based on an economic assessment of risks undertaken by insurance companies; intensifying cooperation among national regulators responsible for supervising insurance companies and appointing a 'group controller'; and boosting duties on the publication of information to increase market discipline.
Field of application. The draft directive will cover the work of insurance and re-assurance companies based in the EU managing insurance policies totalling more than €5 million (life and non-life insurance). It does not apply to pension funds, which are covered by Directive 2003/41/EC. 'Occupational pensions are excluded form the scope of the Proposal. Insurance and pensions are not necessarily the same beast and it would be a mistake to assume that a straight read-across is necessarily the right answer. The Commission will review the IORPs Directive next year and as a part of that review, we shall also examine the impact of this Proposal to that sector'.
Risk management. Charlie McCreevy brought up the gap between the current regulatory framework going back thirty years and the drastic changes in risk management techniques used in the financial services sector. This situation has led to a huge gap between the way insurance companies measure and manage risks and the legal framework governing them, he explained, adding that the draft directive would rectify this clear disparity. 'In addition to more realistic solvency capital requirements, the new framework will turn the spotlight on the accurate identification, measurement and management of risk,' used by insurers to calculate own solvency capital requirements, explained McCreevy. Insurance companies will have to keep the probability of having to absorb a risk in any tax year to less than 0.5%, the equivalent of going bankrupt over a 200 year period. McCreevy said that 'a shift to market consistent valuation of assets and liabilities, as well as giving due recognition to the economic impact of modern risk mitigation techniques such as securitisations and derivatives.' There will also be new insurance company governance measures with greater responsibility being laid on company managers.
Supervision. The Commissioner said that the draft directive was 'a big step forward in streamlining the supervision of insurance groups…. What the Commission is proposing today is a truly European solution. Group-wide supervision by a network of European supervisors will better enable an effective monitoring of the activities of a group and the early detection of potential problems… A dedicated group supervisor will be appointed for each group, with real decision-making power and coordination responsibilities…Local supervisors will retain oversight of the subsidiary's technical provisions and the Minimum Capital Requirements).' (mb)