Misplaced Pages

#48951

28-653: Solvency II Directive 2009 ( 2009/138/EC ) is a Directive in European Union law that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency . Following an EU Parliament vote on the Omnibus II Directive on 11 March 2014, Solvency II came into effect on 1 January 2016. This date had been previously pushed back many times. EU insurance legislation aims to unify

56-508: A directive in theory but has failed to abide by its provisions in practice. If a Member State fails to implement a Directive timely or correctly, the Directive itself becomes binding on the Member States, meaning that parties in proceedings against the state may rely on provisions of the untimely or incorrectly transposed Directive. An example of a case in which the applicant was able to invoke

84-471: A position to comply with Pillar III reporting requirements. The Matching adjustment mechanism of Solvency II has also been criticised as a form of creative accounting that hides the real value of liabilities. Directive (European Union) A directive is a legal act of the European Union that requires member states to achieve particular goals without dictating how the member states achieve those goals. A directive's goals have to be made

112-840: A regulation (without requiring member states to implement the directive), the desire for subsidiarity was paramount, so a directive was the chosen vehicle. The legal basis for the enactment of directives is Article 288 of the Treaty on the Functioning of the European Union (formerly Article 249 TEC ). Article 288 To exercise the Union's competences, the institutions shall adopt regulations, directives, decisions, recommendations and opinions. A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States. A directive shall be binding, as to

140-530: A regulation: (i) it complies with the EU's desire for "subsidiarity" ; (ii) it acknowledges that different member States have different legal systems, legal traditions and legal processes; and (iii) each Member State has leeway to choose its own statutory wording, rather than accepting the Brussels' official " Eurospeak " terminology. For example, while EU Directive 2009/20/EC (which simply requires all vessels visiting EU ports to have P&I cover) could have been

168-413: A single EU insurance market and enhance consumer protection. The third-generation Insurance Directives established an "EU passport" (single licence) for insurers to operate in all member states if they fulfilled EU conditions. Many member states concluded the EU minima were not enough, and took up their own reforms, which still led to differing regulations, hampering the goal of a single market. A number of

196-457: A standard formula given by the regulators or an internal model developed by the (re)insurance company. Technical provisions are divided on claim provisions, pertaining to earned business and premium provisions, pertaining to unearned business. Premium provisions are not equal to unearned premium reserve. The value of technical provision should be equal to the sum of best estimate of the liabilities and risk margin. The best estimate corresponds to

224-567: The co-decision process, as contentious matters usually are) is prepared by the Commission after consultation with its own and national experts. The draft is presented to the Parliament and the Council —composed of relevant ministers of member governments, initially for evaluation and comment and then subsequently for approval or rejection. There are justifications for using a directive rather than

252-554: The "Solvency I" Directive was aimed at revising and updating the current EU Solvency regime, Solvency II has a much wider scope. A solvency capital requirement may have the following purposes: Often called "Basel for insurers," Solvency II is somewhat similar to the banking regulations of Basel II . For example, the proposed Solvency II framework has three main areas (pillars): The pillar 1 framework set out qualitative and quantitative requirements for calculation of technical provisions and Solvency Capital Requirement (SCR) using either

280-457: The (re)insurance company would have to pay for an immediate transfer of its obligations to a third party. The SCR is the capital required to ensure that the (re)insurance company will be able to meet its obligations over the next 12 months with a probability of at least 99.5%. In addition to the SCR capital a Minimum capital requirement (MCR) must be calculated which represents the threshold below which

308-635: The European Court of Justice developed the doctrine of direct effect where unimplemented or badly implemented directives can actually have direct legal force. In the important case of Francovich v. Italy , the ECJ extended the principle of Van Gend en Loos to provide that Member States who failed to implement a directive could incur liability to pay damages to individuals and companies who had been adversely affected by such non-implementation. World Pensions %26 Investments Forum The first edition of

SECTION 10

#1732855886049

336-577: The German economist Stefan Mittnik for the fact that the procedure used for determining correlations between different asset classes gives rise to spurious (i.e., unreliable) correlations or spurious relationships . The demanding nature of Solvency II legislation compared to current regulations has attracted criticism. According to RIMES , complying with the new legislation will impose a complex and significant burden on many European financial organizations, with 75% of firms in 2011 reporting that they were not in

364-708: The Hong Kong Special Administrative Region of the People's Republic of China : the main plenary presentations and roundtables focused on pension governance , the role of trustees – notably in the Australian , Asian and UK contexts, stochastic investment models , different approaches to life expectancy assumptions, the growing role of private equity and infrastructure assets for both pension funds and sovereign wealth funds notably in relation to Infrastructure-based development and, more generally,

392-572: The SCR, with the intervention becoming progressively more intense as the capital holding approaches the MCR. The Solvency II Directive provides regional supervisors with a number of discretions to address breaches of the MCR, including the withdrawal of authorization from selling new business and the winding up of the company. Think-tanks such as the World Pensions & Investments Forum have argued that European legislators pushed dogmatically and naïvely for

420-488: The adoption of the Basel II and Solvency II recommendations. In essence, they forced private banks , central banks , insurance companies and their regulators to rely more on assessments of credit risk by private rating agencies. Thus, part of the public regulatory authority was abdicated in favor of private rating agencies. The calibration of the standard formula for assessing equity risk has been strongly criticized by

448-437: The appropriate legislative procedure, both institutions can seek to make laws. There are Council directives and Commission directives. Article 288 does not clearly distinguish between legislative acts and administrative acts, as is normally done in national legal systems. Directives are binding only on the member states to whom they are addressed, which can be just one member state or a group of them. In general, however, with

476-542: The directive to be implemented correctly. This is done in approximately 99% of the cases. If a member state fails to pass the required national legislation, or if the national legislation does not adequately comply with the requirements of the directive, the European Commission may initiate legal action against the member state in the European Court of Justice . This may also happen when a member state has transposed

504-572: The exception of directives related to the Common Agricultural Policy , directives are addressed to all member states. When adopted, directives give member states a timetable for the implementation of the intended outcome. Occasionally, the laws of a member state may already comply with this outcome, and the state involved would be required only to keep its laws in place. More commonly, member states are required to make changes to their laws (commonly referred to as transposition ) in order for

532-693: The forum was held in Paris at the OECD: on that occasion, leading experts from the OECD , the University of Cambridge , the IMF , the World Bank and various US , UK and Mainland European institutions presented the latest advances in the fields quantitative asset allocation , financial risk management , socially responsible investing and corporate governance . The second edition

560-420: The goals of one or more new or changed national laws by the member states before this legislation applies to individuals residing in the member states. Directives normally leave member states with a certain amount of leeway as to the exact rules to be adopted. Directives can be adopted by means of a variety of legislative procedures depending on their subject matter. The text of a draft directive (if subject to

588-484: The impact of the 'equivalency' requirements are not well understood and there is some concern that the legislation could lead to overseas subsidiaries becoming uncompetitive with local peers, resulting in the need to sell them off, potentially resulting in a 'Fortress Europe'. Since Directive 73/239/EEC was introduced in 1973, more elaborate risk management systems developed. Solvency II reflects new risk management practices to define required capital and manage risk. While

SECTION 20

#1732855886049

616-579: The large Life Insurers in the UK are unhappy with the way the legislation has been developed. In particular, concerns have been publicly expressed over a number of years by the CEO of Prudential , the UK's largest Life Insurance company. Doubts about the basis of the Solvency II legislation, in particular the enforcement of a market-consistent valuation approach have also been expressed by American subsidiaries of UK parents -

644-415: The national supervisor (regulator) would intervene. The MCR is intended to correspond to an 85% probability of adequacy over a one-year period and is bounded between 25% and 45% of the SCR. For supervisory purposes, the SCR and MCR can be regarded as "soft" and "hard" floors respectively. That is, a regulatory ladder of intervention applies once the capital holding of the (re)insurance undertaking falls below

672-403: The probability-weighted average of future cash-flows, taking into account the time value of money. Usage of central actuarial estimate is required and no margin for prudence is allowed. Only cash-flows that are within contract boundaries are taken into consideration. Solvency II specifies exact rules for determination of these contract boundaries. Technical provisions represent the current amount

700-711: The provisions of an untimely transposed Directive is the Verkooijen case, in which the European Court of Justice rendered a judgement on 6 June 2000 (case no. C-35/98). The United Kingdom passed a statutory instrument , the Unfair Terms in Consumer Contracts Regulations 1994 , to implement the EU Unfair Terms in Consumer Contracts Directive 1993 . For reasons that are not clear, the 1994 SI

728-453: The result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. A decision shall be binding in its entirety upon those to whom it is addressed. Recommendations and opinions shall have no binding force. The Council can delegate legislative authority to the Commission and, depending on the area and

756-437: Was deemed inadequate and was repealed and replaced by the Unfair Terms in Consumer Contracts Regulations 1999 . The Consumer Rights Act 2015 , a major United Kingdom statute consolidating consumer rights, then abolished the 1999 SI; so presumably the 2015 Act complies with the 1993 EU directive, which remains extant. Even though directives were not originally thought to be binding before they were implemented by member states,

784-564: Was held in Paris at the headquarters of the Society for the Encouragement of National Industry (SEIN) : discussions focused on long term investments , infrastructure assets, in the European Union and key emerging markets notably Russia , Mexico , Chile , Brazil and China and the rise of private equity and "real assets". The third edition was held in Hong Kong with the support of

#48951