EU To Require Insurers to Hold Larger Reserves

The European Commission, the executive body of the European Union, has proposed the adoption of new regulations, requiring EU insurers to hold a larger percentage of their capital as reserves against losses.

The proposals, which are due to be voted on by member States this week, would be implemented in 2004, and would require both life and p/c insurers to maintain an absolute minimum of € 3 million ($2.62 million) in reserve capital and to retain 18 percent of premiums on the first €50 million ($43.7 million), and 16 percent of all premiums above that threshold.

EU insurers would also be required to maintain reserves equal to 26 percent of all claims up to €35 million ($30.6 million), and 23 percent above that figure.

The proposed rules are aimed primarily at protecting the policyholders of the EC’s smaller insurance companies from excessive risk, and unexpected loss events, such as the Sept. 11 attacks in the U.S. Most of the EU’s larger insurers doing business within the community maintain reserve levels well above the minimums the Commission has set.

The new regulations are also part of the EU’s ongoing effort, exemplified by the creation of the European Central Bank and the adoption of the Euro as a common currency by 11 countries, to harmonize laws within the EU governing financial activities, including insurance, by 2005.