Globalisation of insurance regulation

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Globalisation of insurance regulation
Aglika Sabeva International Affairs Comité
Européen des Assurances (CEA)
19th Pan European Conference of European
Insurance Supervisory Services

June 2007
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Speech outline

• About CEA
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• EU US relations key to international
  cooperation

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CEA, the "pan-European" insurance federation
Membership 32 national insurance reinsurance
associations
30 full members 25 EU Member States 5
Other Markets

Iceland Liechtenstein Norway Switzerland Turkey
3 associate members
Bulgaria Romania Croatia
2 observers
Russia AISAM (mutual insurers)
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European Insurance in Figures
2004 Premium Breakdown per Class
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Speech outline

• About CEA
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• EU US relations key to international
  cooperation

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EU regulation impacts the value drivers of
insurance business
Environmental liability Product liability Gender
equality Feed hygiene Occupational pensions
Solvency II IAS/IFRS Reinsurance Transparency
Guarantee schemes
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Structure of CEIOPS Committee of European
Insurance and Occupational Pension Supervisors
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CEIOPS role in EU insurance regulation

• Decentralised body that receives its mandates
  from the EU Commission
• CEIOPS is in its second year growing importance
  
• Very important for lobbying, but more difficult
  to lobby than before because it decentralises
  legislation of regulations
• Because CEIOPS members are the insurance
  regulators of the EU member states, strong
  contacts with all of the member states is
  necessary

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The insurance industry is facing an acceleration
of new EU legislation
DG Markt 35  DG Sanco 10 DG Empl 4 DG
Tren 4 DG Jai 4 DG Taxud 2 DG Comp 2 DG Env 2 DG
Regio 1 DG Entr 1 DG Agri 1
Number of initiatives per DG at origin
Source CEA Chronicle of main EU initiatives
since 1990
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CEAs current priority issues regarding regulation

• IFRS Phase II
• Solvency II
• FSAP (post)
• Pensions

• Taxation- Products- Companies
• Insurability of new risks- New liabilities and
  compulsory schemes- Catastrophic events

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Reinsurance Internal market for financial
services
Minimum coordination of financial and prudential
rules of financial activities

EUROPEAN PASSPORT AND HOME COUNTRY CONTROL
Mutual recognition of supervisory systems
Single authorization and supervision by home
Member State
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Reinsurance Directive Basic Principles and
Approaches

• Principles
• Based on home country supervision
• Based on harmonisation and mutual recognition
• A mandatory licensing system
• A system that would abolish collateral
  requirements
• in the EU existing in 2 countries
• Approaches
• A fast-track approach for a directive based
  primarily on
• current direct supervisory rules
• Solvency requirements in line with those already
  existing in direct insurance, but adjusted to
  reinsurance

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Reinsurance Directive Timeframe

• Implementation process to be finalized by the end
  of 2007

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Reinsurance Directive Link to Solvency II

• Solvency II is the current ongoing review process
  of the EU solvency system
• For the Commission the reinsurance directive is
  an interim step with the aim to create a common
  basis for reinsurance companies for Solvency II
• Solvency II will also consider reinsurance in
  order to create a common regulatory basis for all
  insurance lines

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Reinsurance Directive third countries

• Possibility to conclude agreements
• Exchange of information
• Mutual recognition of supervisory rules and
  practices
• Member States may impose measures on an ad hoc
  base towards third countries
• EC may submit recommendation to the Council if
  market access is not effectively granted by
  third countries

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Solvency II redesigning the backbone of
insurance operations

• Solvency II will affect every aspect of insurance
  operations
• Aiming for a system that reflects the true risk
  profile of insurance undertakings
• Balancing between adequate safety levels for
  policyholders and competitiveness of industry
  remains competitive
• A progressive process, requiring constant input
  from the insurance industry
• CEA is delivering this input at all stages

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(No Transcript)
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We are currently working on the model structure
through an analytical exercise
Comparative Study
Building Blocks Paper
Paper on Model Structure
PilotComparative study
Model Structure
Calibration
Building Blocks

• Comparative study of existing solvency frameworks
• During the pilot several modelling issues have
  already been considered while discussing the
  existing solvency models

• Discuss the initial positioning of the building
  blocks relating to the proposed solvency
  assessment model
• Produce a list of agreed high level issues for
  the initial position
• Use the results of these discussions to develop a
  starting position or hypothesis

• Development of a template for the standard SCR
  model with a suggested approach for each product
  type/risk type combination
• Methodology development ALM and CAT risk

• Detailed quantitative tests of the proposed
  standard SCR model
• Calibrate model to appropriate levels of risk
  coverage or capital

Current position
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Speech outline

• About CEA
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• EU US relations key to international
  cooperation

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Globalisation of Regulation

• The International Association of Insurance
  Supervisors (IAIS) plays an increasingly
  important role in the regulatory process.
• 95 of the world's insurance business is done in
  OECD countries, making its reform work very
  influential.
• The EU Commission also tries to coordinate
  important regulation at the international level
• Participation of the DG Internal Market at IAIS
  meetings (Solvency, Accounting, Reinsurance, and
  Mutual Recognition)
• EU-US regulatory dialogue on insurance through
  CEIOPS

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More than 30 insurance-related legislative,
regulatory and supervisory bodies
Global environment
IAIS
OECD
EU
IOPS
SANCO
MARKT
EMPL
TAXUD
European Commission
ENV
COMP
ECON
EMPL
Economic and Social Committee
IMCO
TRADE
AGRI
European Parliament
TREN
ENTR
INTA
ENVI
IMF
UNEP
JURI
ITRE
ARC
Council of Ministers/ EU Presidency
European Central Bank
ECJ
IASB
IFRIC
EFRAG
EFC
IAA/EAG
EIOPC
WTO
WB
FCC
Cross-sectoral issues
IORPS
Helsinki
CEIOPS
Advisory Group
FCC
Financial stability
Solvency II
NCOIL
NAIC
central bodies
representation of States
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International Association of Insurance
Supervisors (IAIS)

• Represents insurance supervisory authorities in
  180 jurisdictions
• Promotes cooperation among the members
• Sets model international standards for insurance
  supervision and regulation
• Coordinates work with regulators in other sectors
  and international financial institutions

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Organisation for Economic Cooperation and
Development (OECD)

• Forum to promote regulatory convergence through
  non-binding agreements (soft law)
• Composed of 30 member countries that maintain
  relationships with 70 other countries as well as
  NGOs
• Major insurance market participants are members,
  including the EU and US

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Speech outline

• About CEA
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• EU US relations key to international
  cooperation

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Structure of EU-US Dialogue on Insurance
Regulation
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EU-US Legislative Cooperation

• EU-US legislative dialogue between
• EU Commission and NAIC
• CEIOPS and NAIC
• European Parliament and NCOIL
• Biannual meetings between the European Parliament
  and the US Congress.
• But, to enact binding agreements based on this
  dialogue, Congress must be willing to legislate
  insurance regulation on the federal level

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CEA An Example of a Private Actor in the Dialogue

• CEA maintains regular contact with
• NAIC
• NCOIL
• US Government
• CEA has relationships with
• ACLI
• AIA
• RAA

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Conclusions

• The insurance industry faces an acceleration of
  new EU legislation
• Number of Insurance-related areas affected by EU
  legislation since 1990 (as of March 2005)
• EU regulation impacts the value drivers of
  insurance business globally
• More than 30 insurance-related legislative,
  regulatory and supervisory bodies
• Consequences for lobbying
• Increased need to
• redouble our efforts
• present the right message at the right moment and
  to the right person in the policymaking process
• adapt to new structures and come into contact
  with new decision-makers
• enhance coordination of insurers and their
  national associations actions

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CEA Publications
European Life Inusrance Market 2005, Solvency II
Glossary, Indirect Taxation on Insurance
Contracts in 2007, Finnacial Awareness
Initiatives Promoted by the European Insurance
Industry, others
Information on how to download for free on the
CEA home page www.cea.assur.org
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www.cea.assur.org