UK: The Reinsurance Directive - Creating A Level Playing Field?

Last Updated: 3 July 2007
Article by Katy-Marie Wilson and Sarah Schroter

Originally published in BLG's Reinsurance and International Risk team Notes, Summer 2007

Historically, there has been no common regulation of reinsurance in the European Union (the "EU"), and Member States applied their own rules in relation to the conduct of reinsurance business. At one extreme, Belgium and Greece, for example, chose not to regulate reinsurers at all. At the other, in Member States including Denmark, Finland, Portugal and the UK, reinsurers have been regulated on essentially the same basis as primary insurers (save for those insuring consumers) for years.

However, a new EU system of regulation has been introduced under the Reinsurance Directive (the "Directive") in order to remedy this lack of common regulation. The Directive was approved by the European Parliament in June 2005, adopted by the Council in October 2005, and must be implemented by each Member State into its national law by 10 December 2007.

The aim behind the Directive is to put in place a minimum level of harmonised prudential supervision of reinsurers across the EU, with the wider Directive applying to all insurers - Solvency II - following. Further, the Directive sets out provisions relating to finite reinsurance and Insurance Special Purpose Vehicles ("ISPVs"). It also is anticipated that the Directive will persuade the US to change its rules regarding collateral requirements for non-US reinsurers.

Quick off the mark with regard to implementation has been the UK which has opted for early adoption and has already implemented all parts of the Directive. The FSA has considered the required standards and made the necessary amendments to the FSA Handbook. It seems clear, however, that the legislation will have little obvious impact in the UK, where reinsurance has been regulated for many years.

At the opposite end of the spectrum, Belgium is a Member State well known for its lack of reinsurance regulation. One of the obvious risks associated with the absence of regulatory control is the opportunity for fraud to be perpetrated.

In this regard, you may recall the Brussels based insurance company Dai Ichi Kyoto and its reinsurance units Kobe Reinsurance Co SA and North American Fidelity & Guarantee which collapsed amid fraud allegations in the mid 1990s, owing millions of dollars to US and UK insurers and brokers. Dai Ichi Kyoto set up in Belgium and began collecting premiums during the first half of the 1990s, claiming that they were backed by Japanese pension funds and a US bank, but the former did not exist and the latter was secretly owned by Dai Ichi Kyoto. Belgian authorities had to call in the help of both the UK's Serious Fraud Office and the USA's Federal Bureau of Investigation to assist with subsequent enquiries. The implementation of the Directive in Member States, including Belgium, hopefully should put an end to such events.

One significant effect of the harmonised prudential supervisory framework put in place by the Directive is that it enables "passporting" of reinsurance business across the EU. Once an EU reinsurer is authorised in a Member State, it will be able to conduct reinsurance business in all of the 27 Member States. An EU reinsurer will be supervised by one regulatory authority in its home Member State, whilst able to transact business in all Member States. Also, EU reinsurers will be able to transfer portfolios of business across EU borders.

No doubt the Directive will have a significant impact on the EU reinsurance market, with EU reinsurers considering which Member State should be their home Member State and whether they should restructure themselves in order to take full advantage of the "passporting" possibilities. Several EU reinsurers, including Munich Re, have been preparing for major restructuring. Will other EU reinsurers follow suit? The impact of the Directive could not only affect EU reinsurers but also non-EU reinsurers. Non-EU reinsurers, who under the Directive cannot be treated more favourably than EU reinsurers, may consider whether they should have an entity regulated by a Member State in order to obtain the "passporting" advantages.

As stated above, the Directive also sets out provisions relating to finite reinsurance and ISPVs. The Directive permits Member States to lay down specific provisions concerning finite reinsurance, including mandatory conditions for inclusion in all contracts, and provisions relating to sound administrative and accounting procedures. The Directive also provides Member States with the framework to allow ISPVs to be used to provide additional reinsurance capacity. It will be interesting to see how many Member States utilise these provisions and how finite reinsurance and ISPVs within the EU reinsurance market develop as a result.

It is recognised that a unified system of reinsurance regulation in the EU could also help in the battle to reduce barriers for EU reinsurers writing US business, in particular with regard to the requirement that they post collateral. The argument is that, if EU reinsurers are subject to a tough regulatory regime, the need for collateral becomes redundant. Countries such as France, Spain and Portugal abolishing their collateral requirements may encourage other non-EU countries, particularly the US, to continue to review their policies in respect of their collateral requirements for EU reinsurers. In fact, in December 2006, the National Association of Insurance Supervisors adopted a proposal which would allow state insurance regulators to assign a rating to individual reinsurers and which would then determine the collateral requirements. If this system is implemented, it would mean that ratings and collateral requirements would not be based merely on the origin or domicile of the reinsurer. Many will view this as a major step forward.

Clearly, as mentioned above, the impact of the harmonised prudential supervisory framework put in place by the Directive will vary between the Member States, with little or no impact in some or alternatively the creation of a whole new system in others. It is, however, the wider implications of this new framework that could be most significant. Will finite reinsurance and/or ISPVs become more widely available within the EU reinsurance market? Will there be the major restructuring of EU reinsurers as a result? Will the USA's collateral barriers fall as a consequence? Time will tell.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.