Th European Commission (EC) confirmed its intention to begin implementing a number of new rules related to the solvency of both insurers and reinsurers in 2005.
The EC’s “Solvency 2” initiative aims to “establish a solvency system that is better matched to the true risks of an insurance company.” It’s been under study since 2001, and, according to an EC bulletin “has been divided into two distinct phases: the first one consisting of studying the subjects in relation to the general form of solvency system, the second one – more technical – will be devoted to the details of the taking into account of each risk in the new system.”
In a letter in July to Mr. Henrik Bjerre-Nielsen, Chairman of the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS), Alexander Schaub, Director General of the EC’s Internal Market Department, noted: “Formal approval of the extension of this approach to insurance and occupational pensions by the European Parliament and the Council is imminent. The timing for the Solvency II project is ambitious and challenging. The Roadmap foresees the preparation of a Commission proposal for a Framework Directive for the end of 2005 with the detailed legislation being subsequently adopted by means of implementing measures with a target completion date of 2008.”
The “roadmap” will consist of a series of regulations designed to harmonize insurance standards among the 25 nations that now make up the European Union. Heretofore each country has more or less regulated its own domestic insurers and those from other countries doing business in the home market. In addition the rules envisage the adoption the “risk-based” approach, as a more transparent measure of company solvency as it takes into account actual levels of exposure.
The acceleration of the Solvency 2 process, which has been criticised for taking too long, accompanies the recent introduction of Solvency 1, which regulates Europe’s banking industry and the imminent introduction of new universal accounting standards in 2005.
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