Rules and Problems of Reinsurance Regulation

1
Rules and Problems of Reinsurance Regulation

• Michael TheilmeierRussian Insurance SummitSaint
  Petersburg, 29 May 2005

2
Reinsurance Supervision in Europe in the Past

• Very different legal regimes in individual
  countries
• Supervision similar as for Primary Insurers
• Supervision only limited (esp. financial
  stability)
• "indirect" supervision via control of reinsurance
  of Primary Insurers
• No supervision reinsurance not treated as
  insurance at all

3
Numerous Initiatives Changes (especially after
Sept. 2001)

• SupranationalDiscussions on supervision of
  reinsurers intense since end of the 90sOctober
  2002
• OECD required implementation of an international
  system of supervision of reinsurers
• IAIS issued principles on minimum requirements
  for supervision of reinsurers
• National levelSeveral countries increased level
  of supervision of reinsurerse.g. Germany (Law
  of 15th Dec. 2004)
• Licensing requirements
• Solvency rules
• Stricter financial legal controls

4
EU Directive on Reinsurance

• Fast track procedure to harmonize the
  supervisory regime for reinsurers
• Draft by European Commission 21st of April 2004
• Passage of Directive expected June 2005
• Basis are rules of supervision for Primary
  Insurers in set of existing Directives if
  suitable for reinsurers
• Licensing requirements
• Rules on technical reserves, solvency
• Home country supervision
• Welcomed by everyone only a handful of major
  rules has been discussed intensively

5
EU Directive on Reinsurance- Major Issues -

• Decision on issues under discussion has been
  reached
• Solvency rules for non-life reinsurance also
  apply for life reinsurance
• Only qualitative criteria for invested assets -
  "prudent person principle" member states may
  require qualitative criteria for asset classes
• Requirement for depositing security by law is
  banned 3-year transition period instead of 2
  years

6
Reinsurance Supervision- The Future -

• EU directive on reinsurance only "starting point"
• Solvency II IAS process will also be relevant
  for reinsurance supervision
• Harmonized EU reinsurance supervision to enhance
  dialogue with the US concerning harmonization of
  rules
• Indirectly, worldwide standards will develop as
  requested by OECD

7
Indirect (via Primary Insurers) Reinsurance
Supervision A Powerful Tool

• Almost all countries have some form of indirect
  reinsurance supervision"The reinsurers chosen
  by the primary insurers must have a stable
  financial standing and must be willing and able
  to meet their obligations when they become due."
  (German Supervisory Authority, circular letter R
  1/97)
• Partially minimum rating requirements
• IAIS has started to build database on top 50
  reinsurers to reach more transparency
• Financial security and integrity are the key
  aspects
• Harmonization on both primary insurance and
  reinsurance will help to establish secure
  efficient markets