by Lieve Lowet
It must be the best kept secret in town (apart from EIOPA’s Supervisory Handbook) how many insurers and reinsurers went bankrupt since the introduction of the Solvency II framework directive (SII FD). Trying to piece together the answer on the basic question of how many insurers went belly up since the introduction of Solvency II on 1/1/2016 proved to be a Sherlock Holmes story. But here is what I found.
When trying to understand the number of reorganisation and especially winding-up cases in the (re)insurance sector which occurred in the EU since the start of Solvency II, many refer to EIOPA’s 2018 Failure and near misses report. While EIOPA’s report is very useful, it does not cover the same universe as the reorganisation and winding-up cases captured under SII. In the EIOPA report, failure is defined as an undertaking that “is no longer viable or likely to be no longer viable, and has no reasonable prospect of becoming so” and a near miss is defined as “a case where special financial difficulties result in the supervisor feeling it necessary to intervene or to place the insurer under some form of special measures”. These definitions are different from those in the SII FD which refers to reorganisation measures and winding-up proceedings, decided by competent authorities. In addition, EIOPA’s report has a different aim and restricts the number of cases per country. It does not want to create a list of all cases of (re)insurance undertakings going through reorganisation measures or winding-up proceedings in the Union’s Member States. Finally, the EIOPA report examined cases before and after the application of the SII FD.
Setting the scene: two potential sources of information
There are currently two sources where data regarding (re)insurance undertakings subject to reorganisation measures or winding-up proceedings can be found, and in a more systematic way. These are 1) the Official Journal of the European Union (hereafter the OJ) and 2) the aggregate statistical data, to be disclosed by each national insurance and reinsurance supervisory authority of the EU. Both disclosure requirements find their origin in the SII FD, now under review.
- The rules on reorganisation and winding-up of insurance undertakings including its publication in the OJ are set out in Title IV of the SII FD, Articles 267-296 and go back to Directive 2001/17/EC, now included in the SII FD. In the event of the insolvency of an insurance undertaking, the decision to reorganise or to wind-up the undertaking is made by the competent authorities in the EU Member State where the insurance undertaking is registered. Title IV does not apply to reinsurance undertakings. There are no provisions included in the SII FD on reorganisation and winding-up of reinsurance undertaking, leaving it up to Member States to organise such regime, including the modalities of the information and publication.
- According to Articles 270 and 273 of the SII FD, the supervisory authorities of the Home Member State must inform their counterparts in all other EU Member States about their decision on any reorganisation measure, including the possible practical effects of such measures or proceedings. Besides this information duty, there is also a publication duty: reorganisation measures and winding-up decisions shall be published in the OJ “at the earliest opportunity an extract from the document establishing the reorganisation measure”. The obligation to publish is made clear, however the time frame is vague and may result in delayed information in the OJ, leading to information inequalities or an information gap toward potential cross-border policy holders, shareholders, members or employees of the insurance undertaking, or other relevant stakeholders.
- Regarding Article 280, titled “Publication of decisions on winding-up proceedings”, it is stated that “the competent authority shall publish the decision to open winding-up proceedings in accordance with the publication procedures provided for in the home Member State and also publish an extract from the winding-up decision in the Official Journal of the European Union”. A time frame for the publication of that extract is also here not foreseen, potentially resulting in an information deficit especially toward cross-border policy holders and other relevant parties. The issue of the information deficit is important as winding up proceedings apply to all EU branches of the insurance undertaking. Creditors must all be informed and treated in the same way, regardless of the EU Member State they are based in. There is a potential second-best solution provided by Article 280,1 2nd paragraph which foresees that host Member State authorities may ensure the publication of such decision within their territories in the manner they consider appropriate. But this guarantees no level playing field in terms of equal access of information in the EU.
- According to Article 31 2(c) of the SII FD, supervisory authorities of each Member State shall disclose aggregate statistical data on key aspects of the application of the prudential framework. Article 31 resides in Title I which discloses rules for both insurance and reinsurance undertakings. Further details are laid down in the Implementing Regulation on Disclosure of information of aggregate statistical data and specifies that this information has to be made available online by the supervisory authorities. There is no deadline given by when these Aggregate Statistical Data. As of 1 June 2021, the latest available data were those of 2019. For two Member States the most recent data were those of 2018.
Findings based on the publications in the Official Journal since the start of Solvency II
Based on the published extracts of the winding-up proceedings since 1 January 2016, a total of 23 insurance undertakings were subject to winding-up proceedings for the EU 27.
How did we get to this number? Research of the publications in the OJ relative to reorganisation measures and winding-up proceedings since 1/1/2016 allowed us to identify several reorganisation measures and winding up proceedings regarding insurance undertakings since the SII FD. As our aim is to understand the number of (re)insurance undertakings subject to reorganisation measures or winding-up proceedings since 2016, and especially winding-up proceedings, the focus was on identifying unique undertakings. In the OJ it can be found that undertakings are published as going through reorganisation measures multiple times per year or over several years, as the reorganisation unfolds. Publishing the same case multiple times may induce the arithmetic conclusion of excess reorganisation and winding-up cases.
Overall, for the total period 2016-2021 to date, the OJ published cases from 32 unique insurance undertakings (43 with the UK and Gibraltar) for either reorganisation measures, winding-up proceedings, or both:
- There were 8 unique undertakings that went through reorganisation;
- There were 21 unique undertakings that went through winding-up;
- There were 2 unique undertakings that went through both reorganisation and winding-up.
Split up per year, the information published reveals (without UK and Gibraltar):
- In 2016, the OJ published cases from seven unique insurance undertakings for all 27 Member States There were four cases of reorganisation, two from Greece and two from Romania; and three cases of winding-up, two from Romania and one from Latvia;
- In 2017, the OJ published cases from ten unique undertakings. There were three cases of reorganisation, two from Bulgaria and one from Italy; five cases of winding-up, two from the Czech Republic, two from Romania and one from Germany; and two cases of undertakings going through reorganisation first and winding-up thereafter, both from Greece;
- In 2018, the OJ published cases from seven unique undertakings. There were two cases of reorganisation, one from Bulgaria and one from Italy; and five cases of winding-up – one from Hungary, Greece, Denmark, Slovakia and Spain each;
- In 2019, the OJ published cases from three unique undertakings, all of which were winding-up cases. There was one case from Denmark, one case from Cyprus, and one case from Hungary;
- In 2020, the OJ published cases from three unique undertakings, all of which were winding-up cases. There was one case each from Bulgaria, Romania and Ireland.
- In 2021 the OJ published cases from two unique undertakings, both of which were winding up cases; one case from Bulgaria and one case from the Netherlands.
Thus, based on the published extracts of the winding-up proceedings in the OJ since 1 January 2016, a total of 23 insurance undertakings were subject to winding-up proceedings for the EU 27. Adding the UK and Gibraltar, the total is 34.
But this is not the complete story. Part 2 will reveal the numbers based on the second source.
The author, Lieve Lowet is an EU Affairs consultant and lobbyist since 2003, focuses on European dossiers relevant for the insurance and pension sector. From 2003 to 2008, she was Secretary-General for the international mutual insurance association AISAM (now AMICE), which accounted for 15% of the European and 6% of the world insurance market. Prior, she worked for McKinsey as a European banking and insurance expert.
