Solvency of Insurance Undertakings and Financial Groups

Abstract

Having launched the single European Insurance Market mainly through the Third Directives, the European Insurance Legislator now focusses on solvency matters with three major European Commission projects. ist, a directive on the supplementary supervision of insurance undertakings in an insurance group. 2nd, a directive on the supervision of financial conglomerates, i.e. groups of insurance undertakings with banks or other financial firms. 3rd, a report and maybe amendments to the present European solvency rules for insurance undertakings, i.e. individual insurance firms. I am going to present to you those three projects from the position of an insurance person who participates actively in negotiations of CEA, the European Insurance Federation, with the competent institutions of the European Union. However, for a better understanding of the three projects it might be useful to first recall and evaluate shortly the European insurance solvency rules presently in force. As is well known, one must differentiate between the solvency regulations in respect of non-life insurance and those in respect of life insurance. The legal basis of the non-life solvency system was laid down in Articles 16 to 21 of the First Non-Life Coordination Directive of 24.7.1973, Article 16 (1), amended by Article 24 of the Third Non-Life Coordination Directive of 18.6.1992. These regulations, which are being incorporated into the national law of the member states of the European Union, apply as to the entire property and casualty insurance business with special provisions for hail and frost insurance and health insurance if practised on a similar technical basis to life insurance. The concept underlying the regulations is that insurance undertakings should have a solvency margin of free capital resources determined by their volume of business in addition to adequate technical insurance provisions. The solvency margin in truth not a margin but a required minimum amount of own funds is determined by the higher of two indices: the premium index and the claims index. The premium index is 18% of the gross written premiums in the year of account up to 10 million Units of Account (ECUs) plus 16% of premiums in excess thereof. This total