Commission eyes insurance sector shake-up

A new Directive, Solvency II, to be presented by the Commission on 10 July, is set to overhaul EU insurance-sector rules, potentially lowering the capital requirements for large insurance companies and introducing supervisory regulations.

With the new Directive proposal, the Commission is tackling wide-ranging reforms for insurers and re-insurers, aiming to improve the protection of policyholders and beneficiaries and further integrate and improve the competitiveness of the European insurance market.

The Solvency II Directive will lay out new rules looking at the overall financial position of insurance companies, tailoring margin requirements to the risk that insurers take, in order to improve policyholder protection. This approach takes into account current developments in insurance, risk management, finance techniques, international financial reporting and prudential standards.

Large insurance companies, which have more diversified risks, are most likely to reap the benefits of the new calculation for the capital requirements and free up surplus capital.

Another important innovation is the introduction of a new supervisory system. In order to increase harmonisation and facilitate supervisory methods, tools and powers, the Commission is seeking to introduce a group supervisor system, with the insurer’s home-country supervisor taking a lead.

Similar to the Capital Requirements directive, Solvency II will be adopted using the so-called Lamfalussy process, thus setting out the high-level principles in a framework directive as a first step. Next, after agreement by the Parliament and Council (possibly before the 2009 European elections), the implementing measures are drafted with the help of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS). Implementation of the Directive could begin in 2010, but is unlikely to be completed before 2012.

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