EU reinsurance law set for summer adoption
BRUSSELS - The EU's Reinsurance Directive now appears to have gained sufficient support both in the European Parliament and among governments in Council, to be adopted by the summer, allowing reinsurers to treat the 25-country bloc as a single market, and creating a harmonised system of supervision for the industry.
Final approval of the fast track einsurance Directive will also allow European Commission officials to step up their campaign to get the US to end its policy of imposing compulsory collateral on European insurers doing business in America. US regulators argue that such collateral is necessary because reinsurers in some European countries are inadequately supervised. At present, the degree of reinsurance supervision varies greatly, with the UK, Denmark and Finland most highly regulated, and Belgian, Ireland and Greece having virtually no regulation. Once the Reinsurance Directive becomes law, the level of regulation will be harmonised across the EU, applying common solvency requirements.
In addition, compulsory collateral will phased out within the EU. Officials from the European Commission have found it difficult to argue that the US should abandon its policy of requiring collateral when this is still the practice in some EU countries. France and Portugal are the prime examples.
However, the banning of this practice, under the proposed directive has proved highly contentious. French resistance to this move has been one of the principal hurdles to getting approval for the legislation, which will effectively provide a three-year transition period for phasing out compulsory collateral, says Yannis Samothrakis, assistant manager in the economics division of the Comité Européen des Assurances (CEA), in Brussels. The CEA represents the European insurance industry.
Support for phasing out the practice of compulsory collateral came at the end of March in a key European parliamentary report on the draft directive, prepared by Peter Skinner, a British member of the EU parliament, charged with steering the law through the legislature. The amended version of the law is expected to be voted through parliament, probably in May, and adopted by EU finance ministers in June.
The directive also seems to have the backing of much of the European reinsurance industry, which has lobbied hard for changes to the original text, with mixed results. Under the provisions of the directive, reinsurance solvency margins will be brought more into line with those for direct insurance, but with the possibility of a 50% increase for some more risky categories of non-life reinsurence business.
Although the German reinsurance industry lobbied against this section of the directive, it is likely to remain in the adopted text.
But the industry did win its case over the equally contentious solvency margin for life reinsurance firms. The EU Commission had proposed that life reinsurance should be subject to the life primary insurance solvency margin, which the CEA claimed would increase the solvency requirement of some reinsurers several fold. The final text will, instead, propose use of the direct insurance non-life solvency margin for life reinsurers. The earlier proposal would have "been a disaster," says Samothrakis.
It was the subsequent change on this issue, and other revisions to the original draft directive, that has won industry support for the proposed law. Although there are still some elements in the directive that reinsurers do not like, "we can now live with it," Samothrakis says. Industry does not want to see the directive delayed or sent for a second reading because it is keen to get the benefits of a single market.
Anyway, the fast-track reinsurance directive is intended to be only a stop-gap measure until the arrival of the comprehensive Solvency II directive, which will impose a risk-based capital regime on the EU insurance and reinsurance industries around the end of this decade.
