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Solvency II: Restructuring the Insurance Sector (Part 1)

The European Parliament and the Council of the European Council is in the process of voting on the directive regarding Insurance and Reinsurance, better known as Solvency II. This directive is making substantial changes to the insurance sector with regards to the European Union. Since it is a directive, member states are expected to reach at the same outcome, with some leeway being granted to the way they go about implementing it.

Peter Skinner, rapporteur “This legislation sets a modern global standard, way ahead of the banking system”. “Insurance is about risk management and this directive is about controlling the risks management can take”

The Solvency II directive has made changes to the following previous directives:

Directive

Scope of the Directive

First Council Directive 73/239/EEC of 24 July 1973 Coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance
Council Directive 78/473/EEC of 30 May 1978 Coordination of laws, regulations and administrative provisions relating to Community co-insurance
Council Directive 87/344/EEC of 22 June 1987 Coordination of laws, regulations and administrative provisions relating to legal expenses insurance
Second Council Directive 88/357/EEC of 22 June 1988 Coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services
Council Directive 92/49/EEC of 18 June 1992 Coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance (third non-life insurance Directive)
Directive 98/78/EC of the European Parliament and of the Council of 27 October 1998 Coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance (third non-life insurance Directive)
Directive 98/78/EC of the European Parliament and of the Council of 27 October 1998 Supplementary supervision of insurance undertakings in an insurance group
Directive 2001/17/EC of the European Parliament and of the Council of 19 March 2001 Reorganization and winding-up of insurance undertakings
Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 Life Assurance
Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 Reinsurance

The Solvency II directive has six titles in all. They are:

  • TITLE I: General rules on the taking-up and pursuit of direct insurance and reinsurance activities
  • TITLE II: Specific provisions for insurance and reinsurance
  • TITLE III: Supervision of insurance and reinsurance undertakings in a group
  • TITLE IV: Reorganisation and winding-up of insurance undertakings
  • TITLE V: Other provisions
  • TITLE VI: Transitional and final provisions

In this article series we will look at the salient features of the directive. With the Solvency II directive the European Union will have a harmonized insurance sector. It aims at creating a common legal framework for the insurance sector within the Union so that they are bound by one common law. It hopes that by coordinating internal rules it will be in a position to better protect creditors in the event of an insurance company winding up. This directive also plans to implement a common supervisory system, with single authorization which is valid throughout the Union’s community.

The main objective of insurance and reinsurance regulation and supervision is the adequate protection of policy holders and beneficiaries. It will require Member States to provide supervisory authorities with the resources to fulfill their obligations as set out in this Directive.

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