Select Committee on European Union Sixth Report


FOREWORD—What this report is about

The European Commission is proposing a revision of the regulation of insurance companies operating in the European Union. Their proposals, published in 2007, are known as Solvency II and update legislation that in some cases dates to the 1970s to take into account current developments in insurance, risk management, finance techniques and international financial reporting. As well as modernising the rules that firms must meet, the Commission hopes that the proposals will reduce barriers for firms looking to operate in other Member States, improve the protection offered to consumers, and increase the international competitiveness of European insurers.

Solvency rules stipulate the minimum amounts of financial resources that insurers and reinsurers must have in order to cover the risks to which they are exposed. A limited reform to the rules—Solvency I—was agreed in 2002. These proposals follow on from Solvency I but are a more fundamental and wider ranging review of the overall financial position of insurance and reinsurance companies, in line with recent changes to the rules governing the banking industry. At present, the Commission's proposals are being considered by the European Parliament and the Council of Ministers and the Commission aims to have the new system in operation in 2012. The Committee has considered the proposed Directive as part of its remit to undertake scrutiny on legislative proposals before the UK Government agrees to them at the Council.

In this report we consider aspects of the proposed Directive which we believe will have the most significant aspect on the insurance industry. We set out some concerns about aspects of the proposal that have been put to us by UK and European industry groups, regulators and experts. The Committee welcomes the broad direction of Solvency II, but flags some issues on which it requires further information and reassurance from the Government.

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