globalisation of insurance regulation christian pierotti senior manager international affairs and...

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


Looking into the future

Speech outline


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


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 (%)


About CEA




Speech outline


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)


Structure of CEIOPS: Committee of European Insurance and Occupational Pension Supervisors


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


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:


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


About CEA




Speech outline


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


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


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


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


About CEA




Speech outline


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


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.


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


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


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


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


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


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


CEA Publications

Information on how to order onthe CEA home page

www.cea.assur.org


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

globalisation of insurance regulation christian pierotti senior manager international affairs and...

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