EUROPE - The European Commission has reinforced safeguards for insurance policyholders by boosting solvency margins for life and non-life sectors in light of "new risks".
The margin represents extra capital that insurance providers must hold as a buffer against unforeseen events including higher than expected claims levels or unfavourable investment results.
According to the new levels, the minimum guarantee fund will be indexed in line with inflation and set at EUR3m, and EUR2m for some classes of non-life insurance. This compares to the previous amounts which ranged between EUR200,000 and EUR1.4m.
The EC’s internal market commissioner, Frits Bolkestein, said: These solvency margin Directives will significantly increase security for policyholders.
“However, recent events have dramatically shown how consumers and their insurers may face totally new risks. Now that these directives are adopted, we are going ahead with a complete review of the overall financial position of insurance undertakings. This is a major exercise, whose objectives parallel those of the revision of the Basel Capital Accord.
The measures apply to all insurance organisations qualifying under EU insurance directives for a 'single passport', which allows them to sell policies anywhere in the EU under the supervision of the member state’s authorities.
Under the new directives:
- Member states will be free to establish more stringent rules to take account of more local risks than the harmonised solvency ratio rules laid down in the directives;
- the thresholds based on levels of premiums and claims below which a higher solvency margin is required have also been increased;
- supervisory bodies will now have increased powers to intervene early to take remedial action where policyholders' interests are threatened.
The EC has already started work on a 'Solvency II' project which will examine rules governing the assets and liabilities of insurance undertakings; the matching of assets to liabilities; reinsurance arrangements, and the implications of accounting and actuarial policies. The aim is to match solvency requirements better to ‘true risk’ levels.
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