A Berkshire Hathaway Company Rules and Problems of Reinsurance Regulation Michael Theilmeier Russian Insurance Summit Saint Petersburg, 29 May 2005

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

Numerous Initiatives & Changes (especially after Sept. 2001) Supranational Discussions on supervision of reinsurers intense since end of the 90s October 2002: –OECD required implementation of an international system of supervision of reinsurers –IAIS issued principles on minimum requirements for supervision of reinsurers National level Several countries increased level of supervision of reinsurers e.g. Germany (Law of 15 th Dec. 2004): –Licensing requirements –Solvency rules –Stricter financial & legal controls

EU Directive on Reinsurance “Fast track“ procedure to harmonize the supervisory regime for reinsurers –Draft by European Commission: 21 st 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

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

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

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