In September 2017, the European Union and the US (US Treasury Department) announced that they had signed a Covered Agreement, formally titled Bilateral Agreement Between the United States of America and the European Union On Prudential Measures Regarding Insurance and Reinsurance (Agreement)[1*], on which negotiations had begun several years earlier. For the US, the Agreement requires States to eliminate reinsurance collateral within 5 years or risk preemption, i.e., federal law would displace, or preempt state law, due to the Supremacy Clause of the US Constitution. Without the Agreement, reinsurance companies that are not licensed in the U.S. must post 100% collateral to secure the transaction, unless they are a Certified Reinsurer or a Reciprocal Jurisdiction Reinsurer. If not licensed or approved to accept reinsurance, they are an Unauthorised Reinsurer. Companies that have a head office or are domiciled in Reciprocal Jurisdictions can become Reciprocal Jurisdiction Reinsurers if they meet the standards in certain model laws, in which case these companies are not required to post collateral. Continue reading…

European legislation, in which the European Parliament and the Council are co-legislators, has one problem: how to understand the full genesis of the rules, so important for law and other practitioners to understand the ratio legis? In the European Parliament, the Committee deliberations are public and web-streamed, and the same is true for the plenary meetings, where, in addition, the deliberations are written down in minutes. While the disclosure is not absolute on the side of the EP, on the side of the Council the situation is different. Documents exchanged in the working groups preparing the compromise in the Council are not disclosed and only the final text of the deliberations finds its way to the outside by way of the presidency’s general approach. Requests for access to documents are often denied or heavy censured text is released. Continue reading…

In its July dashboard, EIOPA (the European Insurance and Occupational Pensions Authority) revealed that digitalisation and cyber risks have become one of the most important risks for the European insurance sector, which a risk level equating to market and macro risks. The main driver is cyber security risk, followed by cyber underwriting risk. Elements contributing are the current war between Russia and Ukraine, increased reliance on remote and telework and on digital solutions and infrastructure. In that context, EIOPA published on 24 November 2022 a Discussion Paper on Methodological Principles of Insurance Stress Testing with focus on Cyber Risk. Deadline for response is 28 February 2023. Continue reading…

In the proposals the Commission tabled in September 2021 reviewing the current Solvency II directive, a series of new macro-prudential tools have been introduced. Among those, a new Article 144 c has been put forward. According to its title, the article concerns “Supervisory measures to preserve the financial position of undertakings during exceptional market-wide shocks”. The current Solvency II directive only has provisions regarding supervisory powers in deteriorating financial conditions of individual (re)insurance undertakings (article 141). To avoid a repetition of the regulatory bricolage witnessed during (the early days of) the COVID-19 pandemic, and the ink spilled on this topic, the Commission has now provided this solution. Continue reading…

Years ago, in 2013, when the Commission consulted on its Green Paper on the insurance of natural and man-made disasters, I pointed already to the potential creation of mutual insurers as part of a solution: “One important way to guarantee availability and coverage is the diversity and resilience of the insurance sector. Consumers insured by an insurance sector uniquely composed of large groups moving capital and business to where the best ROE is to be found may be at risk if returns are not at the desired level. Can it be argued that insurers which do not have an ROE as corporate finality could be a welcome buffer between the return-focused insurance market on the one hand and the government as solution of last resort on the other hand, at the cross-road between long term solidarity and short-term market demanded profit?“ The discussions on catnat have come even more to the forefront since then, joined by other and increasing protection gaps. In the area of cyberinsurance, for example, the industry has been crying for capacity. Time to dust off the image of mutual insurance? 

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EIOPA has recently on its website published a new application guidance on climate change materiality assessments and climate change scenarios in the ORSA. According to EIOPA, this latest application guidance of 2 August provides a detailed and practical basis on how to implement sustainable finance ambitions in practice. It gives insights into where undertakings have the possibility to address climate change risks in ORSA and provides examples using mock non-life and life undertakings, including concrete case studies to help insurers design the steps for the materiality assessment and to run climate change scenarios. By doing so, EIOPA intends to help lower implementation costs for insurers, in particular small and mid-sized ones, taking into account the size, nature and complexity of climate change risk exposures. Given that the (re)insurance industry will be impacted by climate change-related physical and transition risks, EIOPA believes it is important to encourage a forward-looking management of these risks to ensure the solvency and viability of the industry. Continue reading…

Following changes in 2019 in the Solvency II directive, EIOPA has the power to set up and coordinate collaboration platforms to enhance collaboration between the relevant supervisory authorities where a (re)insurance undertaking carries out, or intends to carry out, cross-border activities based on the freedom to provide services or the freedom of establishment. For these platforms, the criterium is not significant cross-border activity from the point of view of the home supervisor, but relevance to the host Member State market. Around ten of these platforms have been set up since then. However, in several cases, according to the European Commission, supervisors have failed to reach a common view on how to address issues related to such cross-border business. Hence, the European Commission proposes to further enhance EIOPA’s role: the home supervisor must inform EIOPA and the relevant host supervisors if it identifies deteriorating financial conditions or other emerging risks which may have a cross-border effect. The host supervisor may notify EIOPA and the home supervisor if it has serious consumer protection concerns. The idea is to find a bilateral solution between home and host supervisors while EIOPA stands ready on the side Will that work? This is part two of Lieve Lowet’s latest blog on Solvency II (see related items for part 1). Continue reading…

Since the introduction of Solvency II, there have been very few failures in the insurance sector. Because some failures had cross-border consequences, there has been pressure to change the present regulatory regime in order to give more powers to host supervisors and to EIOPA. Although the functioning of the internal market in insurance can certainly be improved, care must be taken not to overload the barge and to respect the approach that was agreed in the nineties for all financial service operators, i.e. a single market with a single license (European passport) and home country control. Failures are in a way a proof that market mechanisms are working. But in the financial services area, failures are more undesirable than in the rest of the services sector, especially in a cross-border context exercised via the freedom of establishment or the freedom to provide services (FPS). Despite the fact that Solvency II was not conceived as a zero-failure regime and that few failures have occurred in practice, the European Commission, pushed by EIOPA, is proposing important amendments to the present regime for insurers that operate cross-border, justified by supervisory shortcomings and a varying degree of policyholder protection across the EU following these failures. This is part one of Lieve Lowet’s latest blog posts on Solvency II. Part 2 will be published this Wednesday. Continue reading…

Recently, EIOPA published its 2021 Annual Insurance Overview together with updated statistics. The statistics included for the first time for the EEA “Cross-border premiums” allowing for insights on the cross-border activity of insurers both regarding life and non-life insurance business on a freedom of services (FOS) or on a branch basis. We analyzed these cross-border insurance data especially in the context of the current Solvency II review, as Solvency II is a Single Market directive. The establishment of the Single Market for insurance allowing unimpeded cross-border sales and establishment did not come about easily. It started for direct insurance with the adoption of the first non-life insurance directive 73/239/EEC, applied on 27 January 1976. The first life insurance Directive, 78/473/EEC, was applicable as of 2 June 1980. These timid steps were further completed, among others, with the third non-life Directive 92/49/EEC and the third life directive 92/96/EEC applicable as of 1 July 1994. Since then, nearly 20 years passed by. Continue reading…