| Author (Person) | Chapman, Peter |
|---|---|
| Series Title | European Voice |
| Series Details | Vol.10, No.24, 1.7.04 |
| Publication Date | 01/07/2004 |
| Content Type | News |
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By Peter Chapman Date: 01/07/04 THE EU's multi-trillion insurance industry is counting the cost of a draft EU law on reinsurance that it warns could increase the price of insurance cover and drive firms out of the Union. The warning comes as the Dutch presidency prepares to begin dissecting the directive at a meeting of experts in Brussels tomorrow (2 July). Under the law, unveiled earlier this year by Internal Market Commissioner Frits Bolkestein, reinsurance companies would in most cases have to increase the amount of money they set aside to ward off the threat of unforeseen claims. This 'solvency requirement' is meant to ensure that reinsurers, specialist companies who agree to take on some of the risk of standard 'direct insurers', cannot fail. The industry welcomes the law because it would set common rules across the EU - making it easier for them to operate in several countries. However, the sector is battling against part of the new regime governing the solvency requirements for reinsurance of life insurance-related products. Reinsurers claim their risk depends mainly on mortality rates which are subject to very low fluctuations over time - and are well understood by actuaries, the number- crunchers who help insurers to calculate their premiums. By contrast, reinsurers underwrite relatively little 'investment risk' - the risk to insurers that the return on their investments in the stock market is lower than invested. A report by the Association of British Insurers (ABI), seen by European Voice, calculates that international companies operating in the City of London would have to set aside an extra €1.05 billion , just for their UK operations. These firms include industry giants Swiss Re Life and Health, Munich Re and GE Frankona. ABI warns that this could be enough to drive business out of the Union to offshore financial centres such as Bermuda and the far-East - hardly conducive to the EU's aim of becoming the world's best-performing economy by the end of the decade. The cost of raising the extra capital or diverting it from other business areas would also inevitably feed through to the insurance premiums that customers pay for products such as mortgage insurance or life insurance-linked savings plans, an increasingly popular way of saving for retirement. "Many reinsurers will be unable to continue to operate in this environment, at least not without considerable injections of capital," said the ABI report, sent to governments and Bolkestein's office. "Reinsurers may relocate to non-EU markets or simply withdraw from the business," the ABI warned. The controversial solvency margin issue is on the agenda at this week's working group. It is understood that UK Chancellor Gordon Brown's officials share the industry's concerns. Brown is anxious to protect the role of the 'City' from regulatory threats. German-based reinsurers are also concerned that the directive could force them to set aside funds to cover investment risks, even though the German system protects reinsurers from these risks. However, German officials are also expected to rally to undo the threat the law poses to the business of Munich Re. "I am pretty convinced that in the long run, the German reinsurers will not suffer," said an executive at the country's insurance trade association GDV. The Brussels-based Comité Européen des Assurances is pushing a compromise that would limit solvency requirements to lower levels set for standard insurance companies writing non-life business, such as fire or theft insurance. A Dutch spokesman said: "The first thing we want to do is hear what the other countries and companies want." Hopes of a compromise deal were boosted when Commission officials indicated that they would be willing to be flexible on the issue. "Our position is that we are willing to look at the facts. And if there is new evidence, we will reconsider it [the directive] in that light," said one Bolkestein aide. Incoming MEPs must also examine the proposals in the Autumn. |
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| Source Link | Link to Main Source http://www.european-voice.com/ |
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| Subject Categories | Business and Industry, Internal Markets |
