A draft reinsurance directive has been published ahead of schedule by the European Union (EU) and it...
A draft reinsurance directive has been published ahead of schedule by the European Union (EU) and it appears to support the argument that capital requirements for reinsurers should be set at the same level as those for insurers.
The document is likely to be welcomed by the UK's largest insurers, who have argued that there should be no differentiation between the capital requirements for the two classes of business.
The draft directive sets out, for the first time, a framework for the regulation of reinsurance companies across the EU. The object is to create common standards for the prudential supervision of reinsurance companies, as well as to establish technical provisions and solvency requirements harmonised for all member states. Hitherto, the degree of supervision of reinsurers has varied widely across the community. The draft contemplates that capital requirements may be raised at a later date in higher risk classes.
Speaking at a seminar at Lloyd's hosted by London law firm Lawrence Graham, Jonathan Evans, MEP and leading member of the Economic and Monetary Affairs Committee of the European Parliament, said that, as the controversial capital requirements appearing in earlier drafts had now been removed, approval and ratification of the directive seemed likely sooner rather than later.
He added that publication of the directive in this form demonstrated the importance attached by the Commission to making progress in international negotiations to free access to international markets.
Mr Evans explained that the project to create a framework for the regulation of reinsurance had recently been proceeding independently of the now stalled Solvency II initiative, by which the Commission had been looking to move to risk-based capital requirements for providers of financial services.
He added that the introduction of the directive should strengthen the EU's hand in negotiating the mutual recognition of reinsurers, so as to enhance global competition. Establishment of a common framework for reinsurance regulation is also expected to assist in re-opening avenues of negotiation with the US over the controversial requirement to post collateral when providing cover to US reinsureds.
Lawrence Graham partner Michael Lacey says: "The directive imposes common standards on EU reinsurers for the first time. The Commission hopes this will help mutual recognition talks, particularly with the US. Contentious positions have been avoided to keep the proposals on the fast track to acceptance."
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