The European Union has legislated in relation to insurance services. As part of the freedom of movement of capital and freedom to provide services, there is legislation setting down common principles of insurance regulation.
An insurance company established and regulated in the state may provide services across borders or may establish itself in other EU states on the basis of regulation in the home country and consumer protection supervision in the host country.
A 2009 Directive on insurance and reinsurance seeks to create a legal framework enabling insurance and reassurance undertakings to provide services to the EU. It regulates non-life insurance, life assurance and reinsurance undertakings. The Directive sets out rules relating to
- taking up of self-employed activities of direct insurance and reinsurance;
- supervision of insurance and reinsurance groups;
- the reorganisation and winding up of direct insurance undertakings.
Insurance is divided into various classes under a common EU-wide classification. Companies are authorised for and in accordance with the classes. There are further specific directives and rules dealing with issues in respect of certain types of classes of insurance.
Insurance undertakings are not authorised to pursue life and non-life insurance activities simultaneously. However, undertakings life pursuing insurance activities may obtain authorisation to carry out restricted nonlife insurance activities (accident and sickness). Conversely, undertakings authorised for accident and sickness risk may obtain authorisation to carry out life assurance business.
EU Cross-Border Aspects
Each member state’s regulatory body must ensure adequate supervision of the insurance businesses it regulates. Adequate mechanisms must exist for the production of relevant information from each supervised insurer.
An insurance company which proposes to establish a branch within another EU state or intends to carry out its business in that state under the cross-border freedom to provide services must notify its home state and provide it with necessary information. The home authority notifies the host authority.
Insurers must appoint a representative in the member state through which services are provided responsible for collecting information and representing the insurer in relation to persons pursuing claims or seeking redress before the court or authorities. They may be required to verify the existence and validity of insurance cover.
Insurance companies must meet criteria in relation to their legal form, possess minimum guaranteed funds and provide information required by the monitoring authority. In the case of certain failures of compliance, authorities in the home state must inform authorities in the host state.
Agencies or branches established in the EU by head offices outside the EU may be authorised subject to meeting certain conditions. They must be authorised under national legislation and establish an agency or branch in the EU designating a general representative who must be approved by the regulator.
The competent authorities of other EU states may be asked to assist in providing verification of matters. Competent authorities must be informed of intergroup transactions which have significance.. Measures must be taken if the requisite degree of solvency cannot be guaranteed.
The regulators of the various states must work together and with the Commission in order to facilitate the monitoring of insurance companies.
There are provisions to ensure that insurance companies within groups may be properly supervised on an individual basis. The Member States must require participating insurance and reinsurance undertakings to ensure the eligible own funds are available in the group, which are always at least equal to the group solvency capital requirement.
States must provide the means of exercising control over groups. A single supervisor is to be designated from amongst the authorities of the states concerned. The risk supervisor is to be responsible for
- coordinating and gathering and dissemination of information,
- supervisory review and assessment of the financial situation of the group,
- assessment of compliance with the rules on solvency and on risk concentration and intergroup transaction;
- assessing the governance of the group.
Each insurance group – a company with entities providing services in one or more European countries – must have a group supervisor that has specific responsibilities in close cooperation with the national supervisors involved.
There is a directive dealing with the taking up and provision of reinsurance businesses, whether life insurance or non-life insurance. Reinsurance activities must limit their activities to reinsurance and related business
- submit a scheme of operations
- posses a minimum guarantee fund
- be run by qualified persons of good repute
There are provisions in relation to financial supervision and solvency technical provisions. These are the responsibility of the home state. There are provisions for the establishment of technical provisions, equalisation reserves and the investment of assets covering the provisions.
There are specific rules in relation to the reorganisation and winding up of insurance businesses. The principle is that the winding up should take place in a single insolvency procedure initiated in the home state. They are then governed by a single insolvency law.
The authorities of the home state are empowered to make the decision on winding up. These must be recognised across the EU. Supervisory states of other countries must be informed of the opening of winding up proceedings as a matter of urgency. There must be appropriate publicity. The creditors must be individually informed and updated of proceedings.
EU-US Agreement on Insurance and Reinsurance
Bilateral agreement between the EU and the United States on prudential measures regarding insurance and reinsurance
Decision (EU) 2017/1792 — signing, on behalf of the EU, and provisional application of the bilateral agreement between the EU and the United States on prudential measures regarding insurance and reinsurance
Decision (EU) 2018/539 — conclusion of the bilateral agreement between the EU and the United States on prudential measures regarding insurance and reinsurance
The agreement aims to:
strengthen regulatory certainty and ensure a level playing field for insurers and reinsurers* operating in the EU and the United States;
improve protection for policyholders and other consumers;
promote cooperation and exchange of confidential information between supervisors on both sides of the Atlantic.
Council Decision (EU) 2017/1792 approves the EU’s signature to the bilateral agreement. Council Decision (EU) 2018/539 approves the agreement itself.
eliminates the imposition of any local presence, collateral* or similar requirements on a company (‘assuming reinsurer’) which is not based in the same jurisdiction as the original insurer (‘ceding insurer’);
specifies that to benefit from equal treatment, an assuming reinsurer must comply with certain financial and market conduct conditions, such as
having at least €226 million where the ceding insurer is based in the EU or $250 million if they are domiciled in the United States;
maintaining a certain solvency ratio;
providing documentation to the host country’s authorities when requested; and
paying promptly any claims under the insurance agreement;
sets out the procedure the host authority must follow if it wishes to impose any conditions because it considers an assuming reinsurer no longer meets all the listed requirements;
confirms that supervision of a reinsurance company rests with the authorities in the jurisdiction where the parent is based, although host authorities may become involved in certain circumstances;
encourages supervisory authorities in the EU and the United States to exchange information while respecting confidentiality — an annex details how to conduct the exchanges;
establishes a joint committee of EU and US representatives to meet regularly and oversee the implementation of the agreement;
allows either party, after consulting the other, to terminate the agreement provided certain procedures are followed.
The agreement entered into force on 4 April 2018, although it had already applied provisionally since 7 November 2017.
Insurance companies often take out reinsurance to reduce their risk, especially when facing possible major environmental or other disasters. The reinsurer, in exchange for a premium, pays a share of any claims against the original insurer.
The EU and the United States are major trading partners in reinsurance services. However, state insurance laws in the United States required non-US reinsurers, except those based in France, Germany, Ireland and the United Kingdom, to post 100% collateral for the risks involved — a significant deterrent for many companies in the EU.
EU insurance harmonisation through the Solvency II directive (Directive 2009/138/EC — see summary) opened the way in 2015 for insurance and reinsurance negotiations with the United States. These were completed in January 2017.
For more information, see:
EU-US insurance agreement concluded — press release (Council of the European Union).Reinsurer: a company that provides financial protection to insurance companies.
Collateral: assets such as cash and credit letters.
Bilateral agreement between the European Union and the United States of America on prudential measures regarding insurance and reinsurance (OJ L 258, 6.10.2017, pp. 4-21)
Council Decision (EU) 2017/1792 of 29 May 2017 on the signing, on behalf of the Union, and provisional application of the bilateral agreement between the European Union and the United States of America on prudential measures regarding insurance and reinsurance (OJ L 258, 6.10.2017, pp. 1-2)
Successive amendments to Decision (EU) 2017/1792 have been incorporated into the original text. This consolidated version is of documentary value only.
Council Decision (EU) 2018/539 of 20 March 2018 on the conclusion of the bilateral agreement between the European Union and the United States of America on prudential measures regarding insurance and reinsurance (OJ L 90, 6.4.2018, pp. 36-37)
Notice concerning the entry into force of the bilateral agreement between the European Union and the United States of America on prudential measures regarding insurance and reinsurance (OJ L 91, 9.4.2018, p. 1)
Notice concerning the provisional application of the bilateral agreement between the European Union and the United States of America on prudential measures regarding insurance and reinsurance (OJ L 288, 7.11.2017, p. 1)EIOPA
The establishment of the EIOPA the EU\’s regulatory authority for insurance has changed the supervisory regime. It has the function of encouraging cooperative competition within the sector exercising prudential oversight over and combating systematic risks within the market.
The omnibus directive sets out circumstances in which EIOPA may mediate in a dispute between home and how state regulators.
The EIOPA has significant rule-making powers including powers to propose binding technical standards technical regulatory standards for harmonisation of EU regulation and implementation technical standards. It can make binding recommendations to national supervisory authorities and take enforcement actions in certain circumstances.
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