Insurance Regulation in the European Union (eBook)

Pierpaolo Marano is Professor of Insurance Law in the Faculty of Banking, Finance and Insurance at the Catholic University of the Sacred Heart, Milan, Italy. A widely-sought writer and speaker on insurance law and regulation, he served as an academic member of the EIOPA Insurance and Reinsurance Stakeholder Group in 2012/13, and the EIOPA Occupational Pensions Stakeholder Group in 2013/2016. Pierpaolo is also the Chairman of the Working Party on the Distribution of Insurance Products at the International Insurance Law Association (AIDA).Michele Siri is Professor of EU Insurance and Financial Markets Law in the Department of Law at the University of Genoa, Italy, where he also teaches business and company law. He has fulfilled independent director roles for boards of insurance and financial companies. Michele is an expert in corporate governance issues and an independent consultant on the projects of reviewing the architecture of corporate governance of Italian insurance firms. He is also an academic member of the European Corporate Governance Institute (ECGI).   

Contents 5
List of Contributors 8
List of Figures 10
List of Tables 12
1: Introduction 13
Part I: The Evolution of the Insurance Regulation Beyond Solvency II 15
2: Sources and Tools of the Insurance Regulation in the European Union 16
Introduction 16
The Transnational and Cross-sectoral Sources of the EU Regulation on Insurance 17
The Impact of These Sources on the Recent EU Regulation: Solvency II and IDD 20
Insurance Regulation: Hard Law Versus Soft Law and the Case of the EU 23
The Impact of the New Regulatory Drivers: The “Dilemma” of Regulated Entities and Other Stakeholders 27
Conclusions 29
Notes 31
References 38
3: Changing Insurance Contract Law: An Age-Old, Slow and Unfinished Story 41
Introduction 41
Insurance and Insurance Business 42
The Emancipation of Insurance 45
Extension of Insurable Risk and of the Domain of Insurance 47
From Exogenous to Endogenous Risks 48
From Simple to Complex Risks 49
Expansion of the Insurance Domain 50
Humanization of Insurance Law: From  Business Law to Consumer Law 53
“Mifidization” of Insurance Law and Cross-­Sectional Legislation 55
Harmonization of Insurance Contract Law 58
An Old and Viable Dream of a Highly Desirable Harmonization 58
What Is the Problem? 60
The Magical Solution(?) 61
Notes 62
References 66
4: The Insurance Distribution Directive: What Does It Change for Intermediaries and for Others? 68
Introduction 68
A Long Process of Negotiation 69
A Wider Scope 72
New Information Requirements (Conflict of Interest Rules, Remuneration, Advice) 74
Organisational Requirements 76
New Rules on Tying and Bundling (Cross-­selling) Practices 77
New Rules Regarding Product Oversight and Governance (POG) Requirements 78
What Are the Key Changes Regarding  Cross-­border Activities Brought by the IDD? 80
Additional Requirements in Relation to Insurance-Based Investment Products (IBIPs) 81
Implementation Challenges 83
Notes 84
Bibliography 86
EU Legislations 86
Other Sources 86
5: The Potential Effect of Brexit on Insurance Regulation in the UK 87
Article 50 Notice 87
What Does the UK Government Intend? 87
Insurance Regulation in the UK: EU Directives 89
Solvency II 90
Current Regime in the UK 91
Solvency II 91
IMD/IDD 92
Brexit and Solvency II: How Far Can Passporting Survive? 94
UK Insurance Regulation After Brexit 101
Insurance industry evidence to House of Commons Treasury Committee inquiry on Solvency II 101
Reform of the UK Regulatory Regime After Brexit 105
Notes 106
References 111
UK Government 111
UK Parliament 112
European Union 113
Legislation 113
United Kingdom 113
European Union 114
Part II: Supervision and Risk Governance Under Solvency II 115
6: Solvency II in the UK: Evolution Rather than Revolution 116
Background 116
Overview of UK Insurance Industry 117
The Turn of the Twenty-First Century—Difficult Times for the Industry—An Impetus for Regulatory Changes 117
Revolution—Departure from Solvency I 120
Life Insurance 122
General Insurance 123
The Effect of ICAS on Policyholder Protection 124
Evolution—The Arrival of Solvency II 124
Solvency II—Evolutionary Challenges 126
Conclusion 128
Notes 129
References 133
7: Corporate Governance of Insurance Firms After Solvency II 135
Introduction 135
The System of Governance in the Solvency II Framework 138
General Governance Requirements 140
Fit and Proper 143
Risk-Management System 145
Toward an “Effective” Board Governance 147
Role of the Board in Assuring a  “Fair Treatment” of Customers 151
Ratings and Quality Assessments of  Corporate Governance 153
Remuneration 154
Final Remarks 155
Notes 157
References 178
8: The Impact of Solvency II and Relevant Implementing Measures on the Insurance Firm’s Risk Management Maturity 184
Introduction 184
Literature Review 187
Research Method, Results and Discussion 189
Legal Framework of the Risk Management System 190
Solvency II 191
Questionnaire Method (and Results) 195
Results 196
Notes 200
References 201
9: Insurance Group Supervision in the European Union 203
Introduction 203
Starting from Scratch. Supplementary Supervision Under the Insurance Groups Directive 206
Steps Forward. Supervisory Convergence Through the Helsinki Protocol and the CEIOPS’ Guidelines for Coordination Committees 207
Up to Scratch. Group-Wide Supervision Under Solvency II 210
Looking Ahead. Toward EU-Level Supervision for Systemically Significant Insurance Groups 215
Notes 217
References 221
Part III: Evolution of the Solvency Calculation and Reporting 225
10: Actuarial Improvements of Standard Formula for Non-life Underwriting Risk 226
Introduction 226
Delegated Acts Standard Formula for Premium and Reserve Risk 228
Methodological Framework of Premium and Reserve Risk 231
Some Comments About Capital Requirement for Premium and Reserve Risk 232
Distribution of Total Losses 233
Size of Non-life Business 236
Profit and Loss Attribution 238
Non-proportional Reinsurance 239
Conclusions 241
Notes 244
Appendix: Some Methodological Aspects of Premium and Reserve Risk 241
References 245
11: Risk Factor Contributions and Capital Allocation in Life Insurance in the Solvency II Framework 247
Introduction 247
Risk Capital Contribution and Allocation 250
Market Consistent Evaluation 252
Numerical Application 252
Conclusions 257
Appendix 259
References 261
12: Solvency II: The Supervisory Reporting and Market Disclosure 263
Introduction 263
Reporting to the Supervisory Authority 266
Market Disclosure 268
The Content of Market Disclosure 268
The Effects of Market Disclosure on Listed Insurance Companies 270
The Effects of Market Disclosure on Listed and Unlisted Insurance Companies 273
Solvency II Market Disclosure and Financial Reporting 274
Conclusion 276
Notes 278
References 279
13: How the New Accounting Standards Cross Solvency II 281
The Current Regulatory Landscape for Solvency and Accounting Standards for (Re)insurance Undertakings 281
Solvency II: The New European Solvency Directive 286
The New Accounting Standards for (Re)insurers 294
Crossroads Between New Accounting Standards and Solvency II 301
Conclusions 303
What’s Next? 305
Notes 306
References 308
Part IV: Scenario Analysis and Market Trends 312
14: Solvency II: Reasonable Expectations 313
Introductory Comments 313
Why Do We Need Solvency II? 315
Objectives of Solvency II 316
If I Had a Dream? 319
Lessons Learnt from the Past 321
What Can We Reasonably Expect? 325
Some Achievements Already Made 329
Essential Role for EIOPA 331
Concluding Observations 332
Notes 334
References 337
15: Why Insurance Regulation Is Crucial for Long-Term Investment and Economic Growth 339
Insurance and Economic Growth 339
The Magnitude of Insurance Investment and Its Potential to Foster Economic Growth in Europe 341
Investment Portfolio of European Insurers 341
Do Insurers’ Investments Stabilize Financial Markets and the Economy? 346
How Does Insurance Regulation Affect Investment Decisions and the Economy? 348
Solvency II: Some Thoughts for the 2018–20 Reviews 351
Conclusions 355
Notes 355
References 356
16: Life Insurance and Bancassurance After Solvency II: A Market and Management Perspective 360
Introduction 360
Trends in Life Insurance 361
The Framework of Solvency I 363
The Financial Scenario and Its Impact on Solvency II 365
The New Competitive Scenario 367
The Demand Side 368
The Supply Side 368
Conduct of Business Regulation and Product Oversight Governance 370
Investments 371
Distribution and Agreements 371
Management Guidelines 372
Perspectives 374
Conclusions 374
References 375
17: Embracing Change: The Regulatory Evolution of Captive Insurance Companies 376
Introduction 376
What Is a Captive? 377
Drivers to Establish a Captive 378
The Insurance Regulatory Regime 381
Solvency II 381
Pillar I 383
The Solvency Capital Requirement 384
Asset Allocations 386
Pillar II 387
Pillar III 389
The Protected Cell Company 391
Conclusion 394
Notes 394
Bibliography 395
Index 397