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Monday, 6 June 2005 - Strasbourg OJ edition

16. Reinsurance

  President. The next item is the debate on the report by Mr Skinner, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a directive of the European Parliament and of the Council on reinsurance and amending Council Directives 73/239/EEC and 92/49/EEC and Directives 98/78/EC e 2002/83/EC (COM(2004)0273 C6-0038/2004 2004/0097(COD)) (A6-0146/2005).


  Stavros Dimas, Member of the Commission. Mr President, I wish to begin by thanking Mr Skinner, the rapporteur, and the Committee on Economic and Monetary Affairs for their excellent work on this important subject.

Although it is not very well known to the public, the reinsurance sector is very important for the financial and insurance markets in the European Union and internationally. The terrible events of 9/11, as well as more recent natural disasters, have shown how essential properly functioning insurance and reinsurance sectors are. The European Union is the world’s largest provider of reinsurance services. Supervision of reinsurance is important for financial stability, as well as for the standing of European Union reinsurers internationally. Whilst reinsurers were subject to national supervision rules, the reinsurance sector was one of the few financial fields without any major European prudential legislation. The proposal for a reinsurance directive has been prepared in close cooperation with Member States and the insurance industry. It is also in line with current reinsurance work in the International Association of Insurance Supervisors.

This proposal provides a regulatory framework for insurance activities in the Community. It lays down a supervisory regime founded on the principles of single authorisation and prudential supervision by the home Member State. It is, in fact, the same regulatory framework already used for the completion of the single market in insurance and other financial services. The single authorisation will allow reinsurance undertakings to work throughout the Community under the freedom of establishment and free provision of services.

The proposal could also be a useful preparation for reinsurance undertakings for the introduction of Solvency II, relating to the revision of current supervisory rules for direct insurance undertakings, in a few years’ time. This is currently being analysed by the Commission, Member States and stakeholders.

By adopting this proposal, the European Union will be also the first international organisation with a regulatory framework for insurance. This will be an important precedent for other international fora, which are also working on the supervision of reinsurance.

Finally, the proposal will also constitute a useful tool that will help give the European Union reinsurance industry effective market access to third countries. I look forward to hearing your comments.


  Peter Skinner (PSE), rapporteur. Mr President, I am pleased to be able to report to you on this directive. It has been a great honour to be involved in this. We need to thank many of the people working inside and outside this institution: people such as John-Paul Dryden, who fell ill during the report drafting stage and therefore could not help us to finish it. However, Manica Hauptman, who took it over, has devoted a great deal of time and attention to addressing the very deep concerns and the details. The Commission and its staff also played a vital role. I am sure Mr McCreevy is be aware how good his staff can be. Without the help of MEPs and their staff, and I note with appreciation the support from my colleagues across the floor, we could not have reached a fast-track agreement at first reading. We went to fight an election, came back after a time and found this still on our plates and it is quite remarkable that we have managed to deal with it so quickly. The concerns expressed by the House have been eliminated largely because of the agreement and the good work that has gone into it.

The first question is, what is reinsurance? It is about business-to-business, risk and the spread of that risk by the insurance industry. It covers such things as aircraft, ships and buildings. 9/11 and its effects on the World Trade Center were insured by large reinsurance companies such as Lloyds and others for the kinds of catastrophes that we had hoped would not occur. They panicked, but managed to pay their debts. This is a business-to-business directive as well. It involves competition. The central political issue was whether competition was fair at European level and beyond. It was therefore a question of collateral.

Since the value of the reassured risk was collected in banks in the country where the risk was to be covered, it just collected money that did nothing: dead cash, if you like. It was neither effective nor economic. It was an old blunt instrument. It had to be got rid of, because it increased administrative costs and it raised the issue of whether or not the risk was properly covered.

That question then led us to another: the timing of this directive. We worked on a formula that allowed us to consider avoiding the Solvency II discussions, which would come later. The formula would be a form of compromise, with 24 months’ transposition and 12 months’ transition, which I welcomed, through the Luxembourg presidency’s efforts, and agreed to very easily. Parliament was able to vote on this in committee.

Other issues included SPVs, the insolvency issue and captives. Without going into detail on those, I can say that we now have a level playing field at European level. The reinsurance market now has no barriers to trade and it will have a strong supervisory framework across Member States when this directive goes through. Thus it will help EU reinsurance undertakings to maintain their competitive edge around the world. It is a global market and European companies are at the very forefront. In fact, Europe is the second largest market in itself, after the US.

Europe needs to play a role in the rest of the world. The adoption of this text is going to strengthen the hand of the European Union in arguing for an end to the unfair, anti-competitive scam in the United States of requiring non-US companies to pay collateral within the United States, where they are regulated state by state. Do not tell me that the US is a competitive economy: in terms of reinsurance, it is not. So the US now has to reconsider and I know it is doing so. This directive enables us to speak with one voice. Supervisors and regulators can impose higher standards of supervision on third country companies from outside the EU if they wish, rather like the Americans.

There is a possibility of conflict in the world’s rule-making bodies on anti-competitive measures, which we know the US would strongly resist. But there is room for compromise, efficiency and a voluntary initiative.

Let us look at some of the figures. Collateral is required by non-US companies in the United States. It is counted in billions: it is reckoned that USD 40 billion is collected in the US against European companies. There are far more, at a cost of USD 500 million every year. This does not promote efficiency and it does not provide security against risk.

The first blow has been struck with an EU market. With the Commission’s support, the fight will go on. We should congratulate ourselves on this European law, which has brought about significant change both inside and outside Europe.




  Karsten Friedrich Hoppenstedt, on behalf of the PPE-DE Group. (DE) Mr President, ladies and gentlemen, it is a good day for the European Union, for policyholders, and for insurance undertakings as well, because today’s debate and tomorrow’s vote – which I assume will be unanimous – will dismantle the much-criticised bureaucratic obstacles and make European reinsurance more competitive on international markets.

Supervision of direct insurers is regulated across Europe in a number of directives: the European Union has already enacted extensive and necessary instruments for the protection of policyholders with the loss insurance and life assurance directives and the solvency rules for insurance companies. These will now be complemented by the harmonised supervision of reinsurance. The directive on which the Committee on Economic and Monetary Affairs reports is therefore an important addition to supervision in this important service industry.

The reinsurance directive, which is now successfully on its way after more than three years’ preparatory work, draws to a large extent on the systems of supervision that are already in place for direct insurance. As has already been pointed out, important differences between direct and reinsurance were also identified in close cooperation with the Council, the competent authorities of the Member States and reinsurance industry representatives and are taken into account in the draft directive. It includes in particular a uniform treatment of life and non-life reinsurance so far as solvency margins are concerned, an arrangement based on the prudent person approach for capital investments and a clear time limit of 36 months from the entry into force of the directive for the collaterals the supervisory authorities still require in the individual Member States.

As has also already been mentioned, the harmonisation and liberalisation the directive seeks to introduce will further strengthen the competitive position of European reinsurance and Europe as a whole as a financial centre. At the same time, the administrative hurdles within the Community will be dismantled. When the directive is implemented, the tortuous national licensing systems within the EU will disappear. The home country’s supervisory authority will provide such supervision as is necessary. A reinsurer’s authorisation will then apply for the whole of the European Union. Next year or the year after will probably see an extensive rewriting of the rules for the whole insurance industry as a result either of motions to that effect or ‘Solvency 2’. An amendment that I originally moved has ensured that this reinsurance directive does not anticipate the political debate on ‘Solvency 2’.

I would like to extend warm thanks to the rapporteur, Mr Skinner, for his close cooperation; we all hope that the next time such an important resource is debated there will be more time in the committees and longer to prepare.


  Harald Ettl, on behalf of the PSE Group. – (DE) Mr President, I would like to thank Peter Skinner for the work he has done, especially as the person responsible for Solvency I. The logical consequence is of course that I am pleased we now have this report.

Reinsurance undertakings are among the last in the financial services sector not to have a European passport. The planned directive will ensure that reinsurance undertakings operate under the same competitive conditions throughout the EU while at the same time not preventing direct insurance undertakings from assuming reinsurance risks. The European passport means that an EU-domiciled reinsurer, that is a reinsurance undertaking that is authorised and supervised in its home country but which covers risks of an insurance undertaking in the host country, will no longer be subject to the discretionary authorisation of the host country’s supervisory authority.

If this system of mutual recognition is to operate without damage to direct insurers in a host country and under the same conditions of competition throughout the EU, the transposition of the directive into national law must be harmonised in a similar way as with banks, and national supervisors must cooperate as regards their methods of supervision. In one of the amendments I have tabled, I therefore called on them to cooperate more closely in the European Insurance and Occupational Pensions Committee.

The reinsurance industry is a global network because that is the only way to obtain a sufficient spread of the risk of major losses and disasters. European reinsurance undertakings have to compete in particular with North American and Australian rivals. The recent American International Group scandal in the US has exposed the extensive control and disclosure shortcomings in relations between direct insurers and reinsurers.

In one of my amendments I therefore called on the Commission and national insurance supervisors to cooperate more closely with the International Association of Insurance Supervisors to get standards of corporate governance and internal controlling procedures extended. In order to reach a consensus with the Council as quickly as possible, the Committee on Economic and Monetary Affairs, which was the lead committee, accepted only one subparagraph amending the resolutions in the competent Council working party.

All the proposed amendments were sacrificed to the accelerated procedure. That alone explains why the version laid before plenary does not include my amendment clarifying what government bonds can count towards the cover for a reinsurance undertaking’s technical reserves. In consequence, the reinsurance directive is the only financial services directive that makes no distinction between the risk weightings of any government bonds and does not differentiate on the basis of the state’s rating or of whether or not the bond issuer is an EU or OECD Member State. A little more would have achieved a great deal.




  Sarah Ludford, on behalf of the ALDE Group. Mr President, I congratulate the rapporteur on his skill and inclusiveness, which, in cooperation with the Council and Commission, have enabled a speedy agreement to be reached on this matter. The text is a compromise, but it has been accepted by all parties, including the reinsurance industry.

This is not a sexy dossier. You probably would not talk about it much in a referendum on the Constitution – if you had one – but it is vitally important. The lack of an EU regulatory framework for reinsurance and differing national rules have created uncertainty for companies, barriers to trade within the internal market, greater administrative burdens and costs, and a weakening of the EU’s position in international trade negotiations. As someone who represents London, with its strong insurance sector, and in particular as someone who worked for several years for Lloyd’s of London, I appreciate what a significant single market achievement this is, based on the recognised principles of licensing home state control and mutual recognition.

The important thing for us citizens is that, the more supervision is streamlined and cost-reduced, the more jobs are created in a European industry which is competitive at home and abroad. It will release assets for investment that are currently tied up unproductively in collateral. It will enable the EU to mount a challenge to American anti-competitive rules.

Reinsurance is a global business and EU firms are in the lead, so a global marketplace in which firms have access to markets on an equal basis is needed. This directive takes us firmly in the right direction. Not sexy, but significant.


  Wiesław Stefan Kuc (PSE).   (PL) Ladies and gentlemen, we are well aware of how important reinsurance is for the insurance and banking sectors. It is enormously important for all companies, regardless of how large they are. Several issues arise as a result of this, but in view of the time available to me I should like to touch upon just two.

The first is the question of whether it is appropriate for us to limit the scope of the directive’s rules to reinsurance undertakings. After all, we know full well that insurance undertakings take out mutual insurance policies in order to reduce risks, as do banks when issuing bank guarantees. The second point I should like to address is the need for obligatory reinsurance of natural disaster insurance policies, of which there are 14 different types. As the name suggests, natural disasters are unpredictable and hence carry a very high risk, although it is sometimes the case that such disasters do not occur for many years. This risk is borne by both the large insurance undertakings and the numerous smaller ones. It is particularly high in the field of agriculture, as the large quantity of farms means that a huge number of insurance policies are taken out.

Finally, I should like to say that even though I believe that any form of regulation would improve matters, many of the issues I would have liked to have seen covered in this proposal for a directive are unfortunately missing from it.


  Charlie McCreevy, Member of the Commission. Mr President, I wish to begin by apologising to Mr Skinner and other MEPs for being unavoidably delayed due to traffic congestion and a Competitiveness Council meeting in Luxembourg. However, I was here for the speeches.

I am very pleased to inform you that the Commission can fully accept all the amendments in the report adopted by the committee. The amendments take account of the discussions in the Council and are also strongly supported by the insurance industry. The solutions proposed are, furthermore, well balanced and respect the Commission’s initial intentions with this legislation.

Mr Skinner also raised the issue of collateralisation. Collateralisation is highly costly for reinsurance companies, as it restricts the investment strategy. This ultimately leads to more expensive reinsurance services, which could increase insurance premiums for policyholders. The EU insurance industry would particularly like to see the American collateralisation system abolished or amended. I have had discussions recently with my United States counterparts with a view to eliminating or reducing the US collateralisation requirement and those discussions are ongoing.

I congratulate the committee and the rapporteur, Mr Skinner, for their excellent work and thank all those who helped to ensure that the work was done speedily and effectively.


  Peter Skinner (PSE), rapporteur. Mr President, I wonder whether the Commissioner is aware that there is a possible draft model law for states in the United States, which has been drafted for the legislators. What I would be very willing to do, if you have not seen it, is to pass it on to you. I think at the moment they surely are at their weakest position. It is something that comes from the strength of this report and it is worth pressing this point with the Commissioner, to make sure that we have full agreement across the floor so that a Commissioner and Parliament will be pressing most strongly to push the Americans further into the corner and see whether or not we can get the agreement from them that we really deserve.


  Charlie McCreevy, Member of the Commission. Mr President, I am having difficulties in that regard, although I have had discussions with people in the insurance industry. On my recent trip to the United States I raised the issue with some of the insurance commissioners.

As the honourable Member will well know, one – though not the only –difficulty with this issue is that in the United States each state has responsibility for that particular area. At least in the Member States of the European Union you can go to one regulatory supervisor in the Member State, you can go to the European Union for this particular directive; but in the United States each state has responsibility in this area and each state appoints its own insurance commissioners.

It was believed that great strides had been made in recent years and the insurance industry on this side of the Atlantic had been working very hard and thought they had reached an understanding of how things would move forward. But then it all broke down, because the insurance commissioners change on a pretty regular basis in the United States. So one can appreciate the difficulties.

During my recent trip to the United States in April, I raised this matter and now the talks are ongoing again. But I would like to underline the difficulties, which are mostly related to the issue to which I have just referred.


  President. The debate is closed.

The vote will take place on Tuesday at 12 noon.

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