Globalisation of insurance regulation Christian Pierotti Senior Manager International Affairs and Institutional Relations Comité Européen des Assurances (CEA) St.Petersburg,27-29 May 2004 ARIA Conference

2St.Petersburg, May 2005 CEA - Reminder Challenges for an insurance industry facing a new, more complex regulatory environment Globalisation of insurance regulation Looking into the future Speech outline

3St.Petersburg, May 2005 Bulgaria Croatia 2 associate members 30 full members 25 EU Member States + 5 Other Markets Membership: 32 national insurance & reinsurance associations Iceland Liechtenstein Norway Switzerland Turkey CEA, the "pan-European" insurance federation Russia AISAM (mutual insurers) 2 observers

4St.Petersburg, May 2005 European Insurance in Figures 2004 DataCEA (32 markets)EU-25 Total premium income(bn EUR) 926(bn EUR) 875 Investments(bn EUR) 5823(bn EUR) 5460 Number of companies (2003) Number of employees (2003) 2004 Premium Breakdown per Class

5St.Petersburg, May 2005 About CEA Challenges for an insurance industry facing a new, more complex regulatory environment Globalisation of insurance regulation Looking into the future Speech outline

6St.Petersburg, May 2005 EU regulation impacts the value drivers of insurance business Premium income Operational costs Cost of capital Investment income Solvency II IAS/IFRS Reinsurance Transparency Guarantee schemes Environmental liability Product liability Gender equality Feed hygiene Occupational pensions Investment services Distance marketing Consumer credit Insurance mediation E-commerce 3rd life insurance dir. 3rd non-life insurance dir. UCITS dir. Hedge funding (EP report)

7St.Petersburg, May 2005 Structure of CEIOPS: Committee of European Insurance and Occupational Pension Supervisors

8St.Petersburg, May 2005 CEIOPS’ role in EU insurance regulation Decentralised body that receives its mandates from the EU Commission CEIOPS is in its second year – growing importance Very important for lobbying, but more difficult to lobby than before because it decentralises legislation of regulations Because CEIOPS members are the insurance regulators of the EU member states, strong contacts with all of the member states is necessary

9St.Petersburg, May 2005 The insurance industry is facing an acceleration of new EU legislation Source: CEA Chronicle of main EU initiatives since 1990 DG Markt 35 DG Sanco 10 DG Empl 4 DG Tren 4 DG Jai 4 DG Taxud 2 DG Comp 2 DG Env 2 DG Regio 1 DG Entr 1 DG Agri 1 Number of initiatives per DG at origin:

10St.Petersburg, May 2005 CEA’s current priority issues regarding regulation IFRS Phase II Solvency II FSAP (post) Pensions Taxation - Products - Companies Insurability of new risks - New liabilities and compulsory schemes - Catastrophic events

11St.Petersburg, May 2005 About CEA Challenges for an insurance industry facing a new, more complex regulatory environment Globalisation of insurance regulation Looking into the future Speech outline

12St.Petersburg, May Globalisation of Regulation The International Association of Insurance Supervisors (IAIS) plays an increasingly important role in the regulatory process. 95% of the world's insurance business is done in OECD countries, making its reform work very influential. The EU Commission also tries to coordinate important regulation at the international level:  Participation of the DG Internal Market at IAIS meetings (Solvency, Accounting, Reinsurance, and Mutual Recognition)  EU-US regulatory dialogue on insurance through CEIOPS

13St.Petersburg, May 2005 Global environment IOPS WTO WB IMF NAIC OECD UNEP NCOIL European Parliament Council of Ministers/ EU Presidency European Commission CEIOPS FCC Economic and Social Committee FCC EFC SANCO EMPL EU EFRAG EIOPC ENV ARC IASB TAXUD COMP TRADE ENTR TREN AGRI European Central Bank ECON EMPL ENVI ITRE INTA JURI Helsinki Cross-sectoral issues Solvency II IORPS Advisory Group IFRIC = central bodies = representation of States Financial stability ECJ IAIS IAA/EAG IMCO MARKT More than 30 insurance-related legislative, regulatory and supervisory bodies April 2005

14St.Petersburg, May 2005 International Association of Insurance Supervisors (IAIS) Represents insurance supervisory authorities in 180 jurisdictions Promotes cooperation among the members Sets model international standards for insurance supervision and regulation Coordinates work with regulators in other sectors and international financial institutions

15St.Petersburg, May 2005 Organisation for Economic Cooperation and Development (OECD) Forum to promote regulatory convergence through non-binding agreements (“soft law”) Composed of 30 member countries that maintain relationships with 70 other countries as well as NGOs Major insurance market participants are members, including the EU and US

16St.Petersburg, May 2005 About CEA Challenges for an insurance industry facing a new, more complex regulatory environment Globalisation of insurance regulation Looking into the future Speech outline

17St.Petersburg, May 2005 Financial Communication (1) IAS 39 – Settling the last issues IAS 39 endorsed with a carve out for two elements CEA favours full fair value option Tentative proposal IASB (2005): making the use of the fair value option in certain circumstances possible Although still preferring an unlimited fair value option, European insurers support new IASB approach Next steps: settling the transitional arrangements and the endorsement of the new proposal by the EU

18St.Petersburg, May 2005 Financial Communication (2) IFRS 4 Phase II (insurance contracts) No final standard for insurance contracts ready IFRS 4 is a transitional standard which introduced few changes Phase II was initiated in July 2004 So far only educational sessions no decisions The future framework must adequately reflect the economic reality of how insurers run their business.

19St.Petersburg, May 2005 Insurance Guarantee Schemes Nov. 2001: EU Insurance Committee started to question the lack of harmonisation & co-ordination of national policyholder guarantee schemes CEA is against the mandatory establishment of insurance guarantee schemes. Preference must be given to solutions which envisage and anticipate insurance insolvency Next steps:  Draft proposal ready by the summer 2005?  Followed by extensive impact assessment  No proposal should be adopted in 2005 by the Commission

20St.Petersburg, May 2005 Solvency II: redesigning the backbone of insurance operations Solvency II will affect every aspect of insurance operations Aiming for a system that reflects the true risk profile of insurance undertakings Balancing between adequate safety levels for policyholders and competitiveness of industry remains competitive A progressive process, requiring constant input from the insurance industry CEA is delivering this input at all stages

21St.Petersburg, May 2005 Post-FSAP  11 May 1999: Adoption of the Financial Services Action Plan (FSAP)  3 May 2005: Green Paper on Financial Policy with most of CEA comments taken into account Next steps: Consultation until 1 August White Paper in November Commission’s focus: 1.Consolidation of existing legislation, only few new initiatives 2.Ensuring the effective transposition of EU legislation into national law 3.Continuous ex-post evaluation whereby the Commission (EC) will monitor carefully the application of rules in practice and their impact on the European financial sector

22St.Petersburg, May 2005 Access to the pensions market Directive on the activities of institutions for occupational retirement provision (IORP) of May 2003: Sets the prudential framework Opening of market with great potential To be transposed into national law by 23 September 2005 Optional for Member States to apply these rules to life insurers Next step will be to address the fiscal and social aspects linked to the portability of pensions

23St.Petersburg, May 2005 New or developing risks National and EU legislators are examining how insurance can help take the burden off the public purse But, insurance cannot be the panacea for all emerging risks Difficulties in estimating losses and compensation Nevertheless, public authorities frequently seek to impose compulsory liability insurance for new risks

24St.Petersburg, May 2005 Climate change/natural catastrophes  Natural catastrophes are increasing all over the world creating unprecedented losses  Natural catastrophes in Europe (2003):  Loss or damage cause by floods: € 1 bn  Impact of drought: € 10 bn  More attention on prevention measures  Successful public-private partnerships have been developed

25St.Petersburg, May 2005 CEA Publications Information on how to order on the CEA home page

26St.Petersburg, May 2005 CEA Executive Update Can be downloaded from the CEA home page CEA Annual Report

St. Petersburg, May 2005