European ReguLATORY Update European Coverholder Event: 3 November 2011 Alastair Evans, Head, Government Policy & Affairs

© Lloyd’sEU Coverholders: 3 November Contents 1.International regulatory context 2.EU current insurance issues 3.The lobbying environment 4.EU Insurance Mediation Directive 5.Conclusions

Chinese curses 1.MAY YOU LIVE IN INTERESTING TIMES

© Lloyd’sEU Coverholders: 3 November INTERNATIONAL reGULATORY CONTEXT Significant number of far-reaching regulatory initiatives are under debate internationally and nationally. Many of these initiatives are a response to, or are influenced by, the financial crisis. Regulatory landscape has changed significantly recently and is likely to change further in coming years. Increased attention to ‘macro-prudential’ monitoring as well as change at ‘micro-prudential’ level.

© Lloyd’sEU Coverholders: 3 November INTERNATIONAL reGULATORY CONTEXT (CONT’D) Proposals for change are emerging in various areas: In the structures of financial services supervision. A greater focus on systemic risk. Closing of regulatory loopholes. Intensified and more intrusive supervision and co-operation between supervisors. Heightened capital, reserving and risk management requirements. Revisiting of corporate governance rules. More focus on consumer protection.

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© Lloyd’sEU Coverholders: 3 November INTERNATIONAL reGULATORY CONTEXT (CONT’D) Changes to the UK financial services regulatory architecture. Enactment of Dodd-Frank Act in US with the establishment of a Federal Insurance Office. IAIS work on systemic risk and Systemically Important Financial Institutions (SIFIs). IAIS Common Framework on Internationally Active Insurance Groups. Changes in structure of other countries’ regulatory systems.

© Lloyd’sEU Coverholders: 3 November EUROPEAN UNION Establishment of European Systemic Risk Board and EIOPA. Solvency II/Omnibus II: levels 1, 2 and 3 Third Country Equivalence Insurance Guarantee Schemes Gender Directive/Test Achats Case Corporate Governance Rules Consumer rights IMD Review/MIFID Environmental Liability

© Lloyd’sEU Coverholders: 3 November Global environment IOPS WTO WB IMF NAIC OECD UNEP NCOIL European Parliament Council/ EU Presidency European Commission EIOPA FSC Economic & 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 Insurance mediation Occupational pensions Solvency II Insurance groups IFRIC = central bodies = representation of States Financial stability ECJ IAIS IMCO MARKT The Lobbying Environment FSB IAA/EAG Joint Forum G 20 CESR CEA ESRB

© Lloyd’sEU Coverholders: 3 November ‘ You have to be a genius to understand how the EU makes law.’ Madeleine Albright, US Secretary of State 9 February 1998

© Lloyd’sEU Coverholders: 3 November ‘ You have to be a genius ‘or French’ to understand how the EU makes law.’ Madeleine Albright, US Secretary of State 9 February 1998

© Lloyd’sEU Coverholders: 3 November existing IMD Contains regulations applying to EU insurance intermediaries. Permitting them to operate in other Member States on an establishment or freedom of services basis. EU intermediaries must inform the competent authority of their home Member State of their intention to transact cross-border trading in other Member States, the home authority informs the host authority. IMD allows Lloyd’s brokers to carry on services and establishment business in and from other EU Member States and Lloyd’s Coverholders to transact cross-border business. The IMD was adopted in 2002 with a view to being transposed into national legislation by 2005.

© Lloyd’sEU Coverholders: 3 November IMD Review CEIOPS advice to the Commission on revision of the IMD released in November 2010, contained 39 recommendations. Commission consultation paper in November Public Hearing: December Main issues raised: scope, policyholder protection, management of conflicts of interest and transparency, increased efficiency in cross- border business and professional requirements. Lloyd’s submitted a response to the Commission as well as contributing to the CEA submission. Commission proposal expected in February Parallel MIFID and PRIPS debates: proposals to be released in November 2011 and February 2012 respectively.

© Lloyd’sEU Coverholders: 3 November Areas of debate In its consultation, the Commission has identified that the review of the IMD will focus on addressing the following objectives: a high and consistent level of policyholder protection embodied in the EU law; effective management of conflicts of interest and transparency; introducing clearer provisions on the scope of the IMD; increased efficiency in cross-border business; and achieve a higher level of professional requirements.

© Lloyd’sEU Coverholders: 3 November Insurance intermediation transparency protocol Signed by BIPAR and FERMA in November 2010 Principles include: Identification, management and mitigation of any potential conflict of interest in an appropriate and transparent manner Provision of clear information on the nature of intermediaries’ services and capacity in which they operate Voluntary provision of information on the nature of remuneration directly related to placing and servicing of the insurance contract Disclosure of the amount of remuneration on request from the client Provision of generic information on other types of payments intermediaries receive from insurers, if requested by the client.

© Lloyd’sEU Coverholders: 3 November Conclusions Regulatory environment is changing rapidly in Europe and internationally, both in the regulatory architecture and substance of rules. Several important regulatory debates are underway. Many present threats as well as opportunities. EU insurance regulatory work is dominated by Solvency II but 2012 will see emergence of further proposals in other areas including the regulation of insurance intermediaries. Lloyd’s is an active participant in all relevant regulatory debates.

Chinese curses 3.MAY YOU FIND WHAT YOU ARE LOOKING FOR

© Lloyd’sEU Coverholders: 3 November