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Globalisation of insurance regulation
Christian Pierotti Senior Manager International Affairs
and Institutional RelationsComité Européen des Assurances (CEA)
St.Petersburg,27-29 May 2004
ARIA Conference
2St.Petersburg, 27-29 May 2005
CEA - Reminder
Challenges for an insurance industry facing a new, more complex regulatory environment
Globalisation of insurance regulation
Looking into the future
Speech outline
3St.Petersburg, 27-29 May 2005
BulgariaCroatia
2 associate members
30 full members25 EU Member States
+5 Other Markets
Membership: 32 national insurance & reinsurance associations
IcelandLiechtenstein
NorwaySwitzerland
Turkey
CEA, the "pan-European" insurance federation
RussiaAISAM (mutual insurers)
2 observers
4St.Petersburg, 27-29 May 2005
European Insurance in Figures
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)Non-Life40,4%
Life59,6 %
2004 Premium
Breakdown per Class
0100200300
400500600
700800900
1.000
1993 1994 1995 1996 1997 1998 1999 2000 20012002 2003-2
0
2
4
6
8
10
12
14
Total premium (EUR bn)Growth rate (%)
5St.Petersburg, 27-29 May 2005
About CEA
Challenges for an insurance industry facing a new, more complex regulatory environment
Globalisation of insurance regulation
Looking into the future
Speech outline
6St.Petersburg, 27-29 May 2005
EU regulation impacts the value drivers of insurance business
Premium income
Operational costs
Cost of capital Investment income
Solvency IIIAS/IFRS Reinsurance Transparency Guarantee schemes
Environmental liabilityProduct liability Gender equality Feed hygiene Occupational pensions Investment services
Distance marketing Consumer credit
Insurance mediation E-commerce
3rd life insurance dir.3rd non-life insurance dir.
UCITS dir.Hedge funding (EP report)
7St.Petersburg, 27-29 May 2005
Structure of CEIOPS: Committee of European Insurance and Occupational Pension Supervisors
8St.Petersburg, 27-29 May 2005
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
9St.Petersburg, 27-29 May 2005
4 5 4 4 2 3 211 12 12
24 2835
50 52
4 612
6 6 7 3
1621
28
45
6575
156
98
0102030405060708090
100110120130140150160
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
regulatory areas legislative stages
The insurance industry is facing an acceleration of new EU legislation
Source: CEA Chronicle of main EU initiatives since 1990
DG Markt 35 DG Sanco 10DG Empl 4DG Tren 4DG Jai 4DG Taxud 2DG Comp 2DG Env 2DG Regio 1DG Entr 1DG Agri 1
Number of initiatives per DG at origin:
10St.Petersburg, 27-29 May 2005
CEA’s 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
11St.Petersburg, 27-29 May 2005
About CEA
Challenges for an insurance industry facing a new, more complex regulatory environment
Globalisation of insurance regulation
Looking into the future
Speech outline
12St.Petersburg, 27-29 May 2005
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
13St.Petersburg, 27-29 May 2005
Global environment
IOPS
WTOWB
IMF
NAIC
OECD
UNEP
NCOIL
European Parliament
Council of Ministers/EU Presidency
European Commission
CEIOPSFCC
Economic and Social Committee
FCC
EFC
SANCOEMPL
EU
EFRAG
EIOPC
ENV
ARC
IASB
TAXUD
COMP
TRADEENTR TREN
AGRI
European Central Bank
ECON EMPL
ENVI
ITRE
INTA
JURI
HelsinkiCross-sectoral
issues
Solvency II
IORPSAdvisory
Group
IFRIC
= central bodies
= representation of States
Financial stability
ECJ
IAIS
IAA/EAG
IMCO
MARKT
More than 30 insurance-related legislative, regulatory and supervisory bodies
April 2005
14St.Petersburg, 27-29 May 2005
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
15St.Petersburg, 27-29 May 2005
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
16St.Petersburg, 27-29 May 2005
About CEA
Challenges for an insurance industry facing a new, more complex regulatory environment
Globalisation of insurance regulation
Looking into the future
Speech outline
17St.Petersburg, 27-29 May 2005
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
18St.Petersburg, 27-29 May 2005
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.
19St.Petersburg, 27-29 May 2005
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
20St.Petersburg, 27-29 May 2005
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
21St.Petersburg, 27-29 May 2005
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 accountNext steps:
Consultation until 1 August White Paper in NovemberCommission’s focus:
1. Consolidation of existing legislation, only few new initiatives2. Ensuring the effective transposition of EU legislation into national
law3. 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
22St.Petersburg, 27-29 May 2005
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
23St.Petersburg, 27-29 May 2005
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
24St.Petersburg, 27-29 May 2005
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
25St.Petersburg, 27-29 May 2005
CEA Publications
Information on how to order onthe CEA home page
www.cea.assur.org
26St.Petersburg, 27-29 May 2005
CEA Executive Update
Can be downloaded fromthe CEA home page
www.cea.assur.org
CEA Annual Report
www.cea.assur.org
St. Petersburg, 27-29 May 2005