Dutch tinker with draft reinsurance law

By Peter Chapman

Date: 16/09/04

THE Dutch presidency wants to water down a draft law on reinsurance after the industry warned the proposals could increase the price of insurance cover and drive firms out of the Union.

The Netherlands' proposals, seen by this newspaper, would cut in half the European Commission's planned "solvency requirements" for the reinsurance of life insurance-related products.

However industry groups told European Voice that the changes - to be discussed in meetings tomorrow (17 September) and next month - do not go far enough to prevent reinsurers from taking their customers to more business-friendly countries.

The "solvency requirement" is meant to ensure that reinsurers, specialist companies which agree to take on some of the risk of standard "direct insurers", cannot fail.

But officials at the UK-based Association of British Insurers (ABI) and the Brussels-based Comité Européen des Assurances say the proposals are still ultra conservative - and would force EU-based firms to set aside far more capital than operators in other markets, such as the US.

"We would still be concerned about leakages of firms to outside the EU," said one UK-based executive.

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.

An ABI report published earlier this year calculated that international companies operating in the City of London would have to set aside an extra €1.05 billion, just for their UK operations, under the Commission's original proposals. The Dutch plan would peg back the extra reserves needed to just over the half-million euro mark.

Companies affected would include industry giants Swiss Re Life and Health, Munich Re and GE Frankona.

The ABI report warned that the original plan could drive business out of the Union to offshore financial centres such as Bermuda and the Far East.

The cost of raising the extra capital - or diverting it from other business areas - would also 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.

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.

The industry welcomes the main tenets of the law because it would set common rules across the EU - making it easier for them to operate in several countries.

The Commission indicated that it is willing to discuss compromise solutions with governments and MEPs on the solvency-margin issue.

The Dutch presidency wants to soften a draft law on reinsurance after the industry warned the proposals could increase the price of insurance cover and drive firms out of the European Union. The Netherlands' proposals would cut in half the European Commission's planned 'solvency requirements' for the reinsurance of life insurance-related products.