The European Parliament voted this week for new regulation of insurers that aims to cut costs by giving one national regulator the lead role in monitoring insurance companies operating across several EU nations.
EU lawmakers’ approval finalizes a preliminary deal agreed with EU governments and should see the new system rolled out across the European Union by 2012.
The solvency rules set up a group of supervisors from each country where an insurer does business that will pool information on risks that the company faces.
The supervisor from the company’s home nation will lead oversight, replacing the current system where each of a company’s subsidiaries must deal separately with regulators in each country.
EU Commission President Jose Manuel Barroso said the new rules would restore confidence and shield Europe’s economy “against a repeat of the disastrous excessive risk taking by financial institutions, including certain insurance operators, that has contributed to the global crisis.”
The deal reached between the parliament and EU governments did nevertheless have to compromise on one point — it scrapped a proposal for “group support” that sets how much capital insurers should set aside to cover risk across all their European businesses.
Instead, capital requirements will stay as they are: set separately for each nation.
Some insurers had argued that they reduce risk by doing business in several countries instead of focusing on one and should benefit from a more flexible single capital requirement that they can shift to one national subsidiary only if needed.
But governments and insurers based in one country were opposed to any change.
The EU’s top financial services official, Charlie McCreevy, said group support was a key element for modernizing insurance supervision and he hoped it would be introduced at a later date.
Insurance companies will now face two new criteria for how much capital they need to hold. A solvency capital requirement will assess how much risk they face. Supervisors will have to intervene if insurers hold less capital than this standard.
They will also face a lower baseline standard — the minimum capital requirement — and would lose their license if capital falls below this level. This would be between 25 and 45 percent of the solvency capital requirement depending on how much the company needs to be viable.
The new rules must be drafted into the national law of the EU’s 27 states by October 31, 2012. Two years after that, EU regulators will be asked to put forward any changes they see as necessary to improve regulatory cooperation.
By the end of 2015, they will have to table legislation to improve group supervision and capital management for insurance groups — including group support.
Topics Trends Carriers Legislation Europe
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