EU Law for Insurance sets high bar in global regulation race - 2009-04-22

Today, the European Parliament will be voting through groundbreaking legislation which will overhaul the rules governing the European Insurance Industry and strengthen its financial stability across all 27 member states.

The new legislation called Solvency II will strengthen the supervisory framework to enhance financial stability of the insurance market. In a nutshell, the aim of the Solvency II legislation is:

• - Improving financial stability and risk management
• - A strong supervisory approach and group supervision.

Labour MEP Peter Skinner, who drafted the legislation for the European Parliament and is a Member of the Economic Committee of the EP, said "This legislation is a world leader, the first among the reforms mentioned by the G20 of financial legislation and regulation to adopt a modern risk-based method for the security of the industry and the safety of the consumer. It sets a high standard for other regulators elsewhere in the World to follow."

Speaking in today's debate, Peter Skinner MEP said: "There will no longer be a tick box approach by regulators. Regulators have to be fully appraised of the day-to-day activities of companies and the decisions they take."

Companies will now all have to determine their solvency requirements on the basis of a standard formula as harmonised throughout the EU. Falling below the threshold will alert the regulator if anything is going wrong and will also allow for a "ladder of intervention" to be introduced for the company to follow to remedy the capital deficit. This means that the possibility of survival is substantially improved, equivalent to a 99.5% level of certainty over a one year time horizon.

Other regimes around the world, especially in the USA, will now have to look seriously at adopting a comparable regime. Although the EU can on the basis of the advice given by the committee of regulators at the EU level (CEIOPS) conclude international mutual recognition agreements, the USA still has no federal regulator which could enter into such an agreement with the EU.

Peter Skinner MEP said "The EU will as in any other sector be looking for regulatory partners to ensure stability across the globe. Each third country's supervisory regime will have to be recognised by the EU to ensure equivalence of standards - unless there will be new developments in the US regulatory structures in the insurance sector, recognition of the largest insurance market place in the world is in serious doubt."

For more information please call Peter Skinner MEP on 0044(0)7720716510 or call the European Parliamentary Labour Party press officer, Silke Thomson on +32 479 790 053.

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