Globalisation of insurance regulation

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Globalisation of insurance regulation
Christian Pierotti Senior Manager International
Affairs and Institutional Relations Comité
Européen des Assurances (CEA)
ARIA Conference
St.Petersburg,27-29 May 2004
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Speech outline

• CEA - Reminder
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• Looking into the future

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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
2 associate members
Bulgaria Croatia
2 observers
Russia AISAM (mutual insurers)
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European Insurance in Figures
2004 Premium Breakdown per Class
2004 Data CEA (32 markets) EU-25
Total premium income (bn EUR) 926 (bn EUR) 875
Investments (bn EUR) 5823 (bn EUR) 5460
Number of companies 5024 4809 (2003)
Number of employees 1 015 903 974 549 (2003)
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Speech outline

• About CEA
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• Looking into the future

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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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Speech outline

• About CEA
• Challenges for an insurance industry facing a
  new, more complex regulatory environment
• Globalisation of insurance regulation
• Looking into the future

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3. 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
April 2005
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
• Looking into the future

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Financial Communication (1)

• IAS 39 Settling the last issues
• IAS 39 endorsed with a carve out for two elements
• CEA favours full fair value option
• Tentative proposal IASB (2005) making the use of
  the fair value option in certain circumstances
  possible
• Although still preferring an unlimited fair value
  option, European insurers support new IASB
  approach
• Next steps settling the transitional
  arrangements and the endorsement of the new
  proposal by the EU

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Financial Communication (2)

• IFRS 4 Phase II (insurance contracts)
• No final standard for insurance contracts ready
• IFRS 4 is a transitional standard which
  introduced few changes
• Phase II was initiated in July 2004
• So far only educational sessions no decisions
• The future framework must adequately reflect the
  economic reality of how insurers run their
  business.

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Insurance Guarantee Schemes

• Nov. 2001 EU Insurance Committee started to
  question the lack of harmonisation
  co-ordination of national policyholder guarantee
  schemes
• CEA is against the mandatory establishment of
  insurance guarantee schemes.
• Preference must be given to solutions which
  envisage and anticipate insurance insolvency
• Next steps

• Draft proposal ready by the summer 2005?
• Followed by extensive impact assessment
• No proposal should be adopted in 2005 by the
  Commission

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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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Post-FSAP

• 11 May 1999 Adoption of the Financial Services
  Action Plan (FSAP)
• 3 May 2005 Green Paper on Financial Policy
  2005-2010 with most of CEA comments taken into
  account
• Next steps

• Consultation until 1 August
• White Paper in November

Commissions focus

1. Consolidation of existing legislation, only few
   new initiatives
2. Ensuring the effective transposition of EU
   legislation into national law
3. Continuous ex-post evaluation whereby the
   Commission (EC) will monitor carefully the
   application of rules in practice and their impact
   on the European financial sector

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Access to the pensions market

• Directive on the activities of institutions for
  occupational retirement
• provision (IORP) of May 2003
• Sets the prudential framework
• Opening of market with great potential
• To be transposed into national law by 23
  September 2005
• Optional for Member States to apply these rules
  to life insurers
• Next step will be to address the fiscal and
  social aspects linked to the
• portability of pensions

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New or developing risks

• National and EU legislators are examining how
  insurance can help take the burden off the public
  purse
• But, insurance cannot be the panacea for all
  emerging risks
• Difficulties in estimating losses and
  compensation
• Nevertheless, public authorities frequently seek
  to impose compulsory liability insurance for new
  risks

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Climate change/natural catastrophes

• Natural catastrophes are increasing all over the
  world creating unprecedented losses
• Natural catastrophes in Europe (2003)
• Loss or damage cause by floods 1 bn
• Impact of drought 10 bn
• More attention on prevention measures
• Successful public-private partnerships have been
  developed

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CEA Publications
Information on how to order on the CEA home
page www.cea.assur.org
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CEA Executive Update
CEA Annual Report
Can be downloaded from the CEA home
page www.cea.assur.org
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www.cea.assur.org
St. Petersburg, 27-29 May 2005