Member States are invited to comment on the questions inserted into the document as well as on the draft directive annexed to this paper.

Transcription

1 EUROPEAN COMMISSION Internal Market DG FINANCIAL INSTITUTIONS Insurance MARKT/2530/02 EN Orig. Brussels, 8 October 2002 MARKT/C2/CS/MdF D(2002) TO THE MEMBERS OF THE IC REINSURANCE SUBCOMMITTEE Subject: Towards a fast-track EU reinsurance supervision regime 1) Status of the project 2) Preparation of draft legal provisions Discussion Paper for the meeting of the IC Reinsurance Subcommittee on 4 November 2002 Purpose of this paper At its meeting on 16 April 2002 the Insurance Committee supported a reinsurance fast-track solution. This paper gives an overview of the project as well as discusses a draft directive based on the unofficial codified version of the non-life insurance directives. The first two chapters introduce the whole project and reflect the decisions made on the basic principles of a fast-track solution. The main issues for a fast-track solution have already been discussed in previous meetings. Chapters 3 5 give an overview of important elements of the draft legal text. The main principles of the draft directive are: The relevant articles of the current insurance directives are as far as possible taken into account Mandatory licensing via the usual authorisation procedure Only pure reinsurers (including captives) fall under the scope, however, the same solvency system should also be applied to reinsurance business accepted by direct insurers A system with gross reserving and pledging of assets to cover the reinsured part of outstanding claims provisions and the indirect supervision of reinsurance arrangements are abolished when licensed reinsurers are used The different nature of reinsurance business is reflected by the solvency system, consisting of technical provisions, investment rules and solvency margin requirements (only qualitative rules for technical provisions and the investment in the underlying assets are proposed; quantitative parameters for the solvency margin and the minimum guarantee fund will, however, be set after the assessment of the simulation exercise). Member States are invited to comment on the questions inserted into the document as well as on the draft directive annexed to this paper. Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: Office: C107 1/58. Telephone: direct line Fax: ulf.linder@cec.eu.int, jose-manuel.de-frutos-gomez@cec.eu.int, christian.schedel@cec.eu.int

2 I Overview of the project and summary of conclusions from earlier discussions Background 1. In 2000, Member States and the Commission Services agreed to start a project in order to assess the possibility of establishing a harmonised framework for reinsurance supervision in the EU. After preliminary discussions and hearings in 2000 and 2001, three working meetings were held during 2001 in order to discuss general and specific issues in relation to a possible harmonised system. A certain focus was made on studying a fast-track approach. This approach will necessarily to a large extent have to be based on current direct insurance supervision rules. It should lead to EU legislation in a reasonably short period of time, which would benefit supervisors and companies as well as enhance the EU position in future mutual recognition negotiations with non-eu countries. A fasttrack approach would also be in line with initiatives from the G7 group, the World Bank and IAIS. All major jurisdictions, who supervise reinsurance, do so on the basis of the rules for direct insurance. According to the already existing national laws on direct reinsurance supervision the work started with an analysis in order to ascertain what parts of the direct insurance supervision regime could be used for reinsurance. Certain areas, where a different approach for reinsurance could be needed, were studied more in detail. 1 The KPMG reinsurance report provided substantial background and discussion material to the meetings 2. All other aspects of a prudential framework already being in place for direct insurers were seen as an appropriate basis also for regulating the reinsurance and retrocession business. 1 Commission Services documents: MARKT/2094/99 Rev. 1 A possible EU framework for the supervision of reinsurance undertakings MARKT/2132/00 Rev. 1 Approaches to reinsurance supervision MARKT/2036/01 Considerations concerning licensing and passport systems of reinsurance supervision MARKT/2042/01 Approaches to reinsurance supervision follow-up and structure of work programme MARKT/2086/01 Reinsurance supervision project status of working programme and future steps, reactions and comments, tentative time schedule MARKT/2087/01 Discussion based on the KPMG report chapter 6 The rationale with regard to supervisory parameters and chapter 7 The arguments for and against reinsurance supervision and a broad cost-benefit analysis MARKT/2088/01 The establishment of technical provisions in insurance and reinsurance a comparative study MARKT/2099/01 Investment rules for assets covering technical provisions in reinsurance undertakings MARKT/C2/UL D(2002) Considerations concerning the general form of a fast-track EU reinsurance supervision regime 2 The KPMG study has now been published on the Commission website: 2

3 A fast-track project 2. The discussion in the April meeting of the Insurance Committee showed substantial support for a fast-track approach which is based on the prudential regime laid down for direct insurers. Most Member States preferred a licensing solution. Many Member States expressed reservations concerning an increased reinsurance reduction factor. Opinions varied on investment rules and the size of the minimum guarantee fund. Licensing as a basis 3. It has also been noted that the IAIS work on reinsurance supervision builds on a licencing model. In this light and after discussion with Member States, the Commission Services conclude that further work will have to take its starting point in a licensing model. Transitory arrangements are likely to be necessary to reduce the short-term impact of introducing a licensing system. This issue will be discussed in later meetings. Financial impact 4. The financial impact of legislative proposals must be analysed in detail. This is particularly true for the quantitative requirements on the solvency margin and the minimum guarantee fund. In order to facilitate simulations on the impact of solvency requirements a short-term working group was established. As outlined in the note MARKT/C2/UL D(2002) 346, the working group and its members should initiate, prepare and perform simulations and calculations in order to prepare the discussion of appropriate levels for the solvency margin and the minimum guarantee fund for reinsurance business. It should also look at the impact of increasing the maximum reduction factor for ceded reinsurance. Depending on when Member States provide the raw material the results will be presented in a separate note. Some other important elements 5. The Services are aware that certain differing views exist on the objectives set for the exercise, in particular on the issue of collateralization. On this issue the Services remain convinced that such measures should be abolished in a harmonised EU scheme. 3 Furthermore, the competent authorities of direct insurers must not impose rules for ceded or retro-ceded reinsurance under normal circumstances when the reinsurer in question falls under the scope of this new Directive (i.e. indirect supervision of reinsurance business with respect to EU-reinsurers must also be abolished see also para. 24). The direct insurance Directives will have to be changed accordingly. 3 Commission Services document MARKT/C2/UL D(2002) Considerations concerning the general form of a fast-track EU reinsurance supervision regime 3

4 6. On the issue of the reduction factor for reinsurance and retrocession, the Services indicate that this issue will be discussed further when the results of the simulation exercise will be available. There is a need to look at the impact for companies as well as supervisors of changing this factor. The Services will come back to this issue in later meetings. 7. Furthermore, certain Member States did not share the Commission Services preference for prudent person investment rules. Due to the special nature of reinsurance business, the Commission Services remain convinced that such rules are better suited for reinsurance than quantitative rules. In this context, it should be discussed whether the option for Member States to add further quantitative restrictions on investments on a national basis should be limited in order to avoid distortions of competition. 8. Rules on technical provisions are taken directly from the non-life insurance framework and the IAD. The issue of how far the direct insurance rules for nonlife provisions should be applied to life reinsurance needs also be discussed. Preparation of a draft legislative text 9. In order to make progress towards a fast-track reinsurance regime this paper is mainly devoted to the presentation and discussion of the first draft text for a Directive concerning reinsurance and retrocession. Potential follow-up changes to other legislation has not yet been dealt with (e.g. adaptations to the direct insurance Directives, the Insurance Group Directive and eventually the Financial Conglomerates Directive). In later meetings, the Commission Services will provide proposals for changes to the relevant Directives. Time frame 10. The Services intend to continue the work towards a fast-track solution with the timetable broadly in line with earlier estimations. This means that the Subcommittee will be discussing further detailed technical proposals and draft legislative texts during the winter of 2002/2003 until the summer of A Commission proposal is foreseen for late

5 Overview of tentative further steps and future milestones : Time frame Meeting activity Output 4 November 2002 IC REINSURANCE SUBCOMMITTEE discussion of the first draft Directive text presentation of the simulations November 2002 INSURANCE COMMITTEE up-date of the work of the Subcommittee 8, 9 or 10 January 2003 (tentative dates) IC REINSURANCE SUBCOMMITTEE discussion of the second draft March-July 2003 (several meetings) IC REINSURANCE SUBCOMMITTEE discussions based on further details of a draft Directive text finalisation of the work Early autumn 2003 (tentative date) INSURANCE COMMITTEE discussion of the outcome of the work in the Subcommittee discussion based on an advanced draft Directive text Late 2003 COMMISSION PROPOSAL for a Directive on reinsurance supervision II Discussion on the key elements of a draft Directive 11. A reinsurance supervisory regime will consist of a number of elements, many of which are similar to those of direct insurance. In earlier documents the following areas have been identified where inspiration for the elements in the reinsurance regime can be found in the direct supervision rules 4 : Class I: Applicable in principle Legal form requirement Operating/business plan Fit and proper criteria Shareholder control Accounting, financial reporting and statistics Proper administration internal control Requests for information on site inspections Prevention/remedy of irregularities Class II: Need for adjustment before application to reinsurance entities Scope of regime Scope of authorisation Powers of intervention for supervisors Financial recovery plan Home country financial supervision Withdrawal of license Class III: Need for further considerations Technical provisions Equalisation provisions Use of actuarial methods Solvency requirements Investment rules/matching Reinsurance/retrocession issues Notification of cross-border business 4 Commission Services document MARKT/2042/01 Approaches to Reinsurance Supervision Follow-up and structure of the work. 5

6 12. Issues that have earlier been identified as class I direct supervision rules applicable in principle are only introduced briefly in this paper. More attention is paid to class II and class III issues. On these issues, this paper provides an overview of the discussion as well as presenting a tentative conclusion. For sake of completeness, it is worth mentioning that this list is not exhaustive. Since a number of articles of the draft Directive text only deals with well-known legal issues already in force for regulating the taking-up and pursuit of direct insurance business, the respective references and explanations can easily be found in the attached consolidated text. III Areas where direct supervision rules are applicable in principle to reinsurance supervision (class I) 13. Legal form requirement a) Article 5 of the draft Directive annexed to this note b) Article 8 (1) (a) of Non-Life insurance Directive 73/239/EEC The list of admitted legal forms in the Directive 73/239/EEC is likely to be exhaustive also for reinsurance entities. Member States are asked to confirm whether the list in the non-life insurance Directive is appropriate and exhaustive for reinsurance undertakings. 14. Operating/business plan a) Article 6 of the draft Directive annexed to this note b) Article 8 (1) (c), 9 of Non-Life insurance Directive 73/239/EEC It seems appropriate to require existing reinsurance companies to present an overview of their underwriting strategy with regard to the specialities of the reinsurance business, retrocession policy and items constituting the minimum guarantee fund. For start-ups other information such as the items contained in article 6 (f) (j) of the draft Directive would also be needed. The Commission Services believe that such information would generally not be required from existing reinsurance companies that enterinto a licensing system, but there may be particular cases where Member States should be able to request this information. 6

7 15. Fit and proper criteria for directors and managers a) Article 5 (1) (e) of the draft Directive annexed to this note b) Article 8 (1) (e) of Non-Life insurance Directive 73/239/EEC The same criteria as in direct insurance should be in place for directors and managers in reinsurance undertakings. There may be a need for supporting standards to ensure a harmonised application of the criteria, but this is not specifically a reinsurance issue and should be dealt with elsewhere. 16. Shareholder control a) Article 7 of the draft Directive annexed to this note b) Article 8 of Non-Life insurance Directive 92/49/EEC The same rules should be applied to insurance and reinsurance undertakings. 17. Accounting/financial reporting and statistics a) Article 11 (1) and (2) of the draft Directive annexed to this note b) Article 19 of Non-Life insurance Directive 73/239/EEC and to the Insurance Accounts Directive 91/674/EEC Reinsurance companies are already included in the scope of the Insurance Accounts Directive, and it seems appropriate that they should be subject to the same supervisory reporting rules as primary insurers. 18. Proper administration internal control a) Article 9 (3) of the draft Directive annexed to this note b) Article 13 (3) of Non-Life insurance Directive 73/239/EEC 7

8 Reinsurance is a complex business with exposure to multitude of insurance, operational and financial risks. It is therefore necessary that a reinsurance company has appropriate administrative systems and adequate internal control mechanisms in place. The present wording in the Directive seems to be appropriate also for reinsurance undertakings. 19. Requests for information and on-site inspections a) Article 10 and 11 (3) of the draft Directive annexed to this note b) Article 14 and 19 (4) of Non-Life insurance Directive 73/239/EEC The same provisions should apply also in the case of reinsurance supervision. 20. Prevention or remedy of irregularities a) Article 23 of the draft Directive annexed to this note b) Article 20 of Non-Life insurance Directive 73/239/EEC Supervisors should in principle have the same possibilities to prevent or remedy irregularities in reinsurance entities as in insurance undertakings. In accordance with the simplified notification procedure (see para. 31) any irregularities should be immediately and automatically announced to all other Member States. 1. Questions to the Members of the IC Reinsurance Subgroup Is the list of legal forms in the non-life insurance Directive appropriate and exhaustive also for reinsurance undertakings? Do you have comments on the tentative adjustments/amendments made to the direct supervision rules and the proposed text of the draft Directive? 8

9 IV Areas where direct supervision rules need adjustment before being applicable to reinsurance supervision (class II) 21. Scope of regime a) Article 2 of the draft Directive annexed to this note b) Article 7 of Non-Life insurance Directive 73/239/EEC An EU license for reinsurance and retrocession activities should focus on pure reinsurers, as they are the most internationally active. It is however important to keep in mind that direct insurers may be very active as well in reinsurance. The reinsurance business of direct insurance undertakings is subject to direct supervision already today although there are no specific rules dealing with their reinsurance activities. As a result of this and as a non-negligible part of reinsurance covers are taken out with these undertakings (often through reciprocity business ), it would be logical to include also direct insurers accepting reinsurance in the scope of a license system, provided that they fulfil the requirements. Despite this fact, industry has advocated that only reinsurers should be affected by the fasttrack approach. However, in order to create a level-playing-field, the same rules on licensing and on solvency margin requirements should be applied to both the reinsurance and retrocession business of pure reinsurers and the reinsurance business of direct insurers. The follow-up changes to the direct insurance directives will be presented once concrete proposals for the solvency margin requirements for pure reinsurers have been made. Member States comments on the issue of licensing and solvency margin requirements for direct insurers accepting reinsurance business will be appreciated. Moreover, a significant part of certain insurance risks go through direct insurance companies or direct insurance captives to reinsurance captives. In most cases these reinsurance captives are only reinsuring risks from their parent company or a certain identified circle of related companies. When they insure third party risks they should be treated as other reinsurers. Depending on their activities, there may be different needs to include reinsurance captives in the supervisory regime. On the one hand, reinsurance captives have no external business which may be a reason why they should not be included in the supervisory regime. On the other hand, direct insurance captives are insurance companies falling under the scope of the relevant insurance Directives. There may be a case for similar treatment for reinsurance captives. For competition reasons, certain Member States may want to include captives in the system. Member States comments on this would be also appreciated. 9

10 22. Scope of authorisation a) Article 4 of the draft Directive annexed to this note b) Article 7 of Non-Life insurance Directive 73/239/EEC Reinsurance undertakings are often large entities with a wide range of activities in order to diversify its risk exposure. A reinsurer is often expected to be able to accept the various lines of business that the cedant is underwriting. Many reinsurers are also covering multi-line covers, bouquet treaties or financial reinsurance with cross-sector coverage. Against this background, and also considering that there is no direct link between the reinsurer and the policyholder, it does not seem necessary to limit the authorisation to certain lines. The scheme of operations (see para. 14) shall include particulars on the nature of the risks, which the reinsurance undertaking proposes mainly to cover. Changes in the scheme of operations should be communicated to the supervisory authorities, which therefore would have an overview of the business lines of the reinsurance company. Through supervisory reporting requirements authorities will be also receive statistics and information about different reinsurance lines (see Accounting/financial reporting and statistics in para. 17). The Commission Services, therefore, propose that the authorisation should not be restricted to any lines of business or reinsurance arrangements. 23. Powers of intervention for supervisors Financial recovery plan a) Article 23 a of the draft Directive annexed to this note b) Article 20 a of Non-Life insurance Directive 73/239/EEC as amended by article 1 (7) of Directive 2002/13/EC. The intervention powers corresponding to Solvency I should also be given to supervisors in relation to reinsurance companies. Certain minor amendments have to be made due to the fact that there is no direct link between policyholders and the reinsurer. 24. Home country financial supervision a) Article 9 (1) and (2) of the draft Directive annexed to this note b) Article 9 (1) and (2) of Non-Life Insurance Directive 73/239/EEC. 10

11 A single authorisation granted by the reinsurer s home Member State implies also the exclusive competence of the Home Member State for all the aspects relating to prudential supervision. This is a fundamental aspect of the legal framework for an internal market for financial services and insurance. It is based on mutual recognition of Member States supervisory regimes. Article 9 of the draft reproduces the current legal regime applicable to direct insurance. The exclusive competence of the Home Member State for the prudential supervision of a reinsurance undertaking implies that the Host Member State may not legally interfere in any manner in that supervision with respect to a reinsurance undertaking which conduct business by means of a branch or under the freedom to provide services furthermore. The Host Member State may not refuse a reinsurance contract concluded by a local direct insurer with a reinsurance undertaking acting under the free provision of services, on grounds directly related to the financial situation of the reinsurer. The Commission services are of the opinion that such principle should be clearly stated in the directive. For legal technique reasons, it could be introduced either in the current directive or in the directives relating to direct insurance (third non-life directive and life directive). 25. Withdrawal of license a) Article 24 of the draft Directive annexed to this note b) Article 22 of Non-Life insurance Directive 73/239/EEC. In principle the same rules should be applied for insurance and for reinsurance undertakings. Certain minor amendments have, however, been made in order to reflect the fact that there is no direct link between the reinsurer and the policyholder. 2. Questions to the Members of the IC Reinsurance Subgroup Should reinsurance business of direct insurance undertakings be drawn under the scope of the fast-track reinsurance regime? Should reinsurance captives be included in the scope of the fast-track reinsurance regime? If yes: should this be mandatory or optional? Do you have comments on the tentative adjustments/amendments made to the direct supervision rules in this chapter? 11

12 V Areas requiring further considerations (class III) 26. Technical provisions a) Article 16 of the draft Directive annexed to this note b) Article 15 of Non-Life insurance Directive 73/239/EEC : Technical provisions of reinsurance undertakings were discussed in detail at the November 2001 meeting of the IC Reinsurance Subcommittee 5. Reinsurance undertakings are already subject to the Insurance Accounts Directive, but neither this Directive nor the current non-life insurance rules provide detailed guidance on how technical provisions should be established 6. The technical provisions should be adequate and sufficient. There is no consensus on the certainty level(s) inherent in these notions, and national differences seem to be significant. As far as the establishment of life assurance provisions is concerned, more detailed prudential rules are included in Article 18 of the third life insurance directive 7 in addition to Article 59 of the IAD. Article 18 requires that every assurance undertaking should establish sufficient technical provisions, including mathematical provisions in respect of its entire business. It further states that the amount of the technical life-assurance provisions shall be calculated by a sufficiently prudent prospective valuation, and that the interest rate, statistical elements and allowances for costs should be chosen prudently. The Commission Services already concluded that these detailed rules are not applicable to reinsurance business in particular because of the short-term nature of reinsurance contracts. Member States view on this would however be appreciated. For the purpose of a fast-track reinsurance supervision approach, it seems reasonable to keep the generally formulated requirement to establish technical provisions in the non-life Directives for both life and non-life reinsurance The discussion was based on the Commission Services document MARKT/2088/01 The establishment of technical provisions in insurance and reinsurance a comparative study. Council Directive 91/674 of 31 December 1991; Council Directive 73/239 of 24 July 1973 as amended by Council Directive 92/49/EEC. Council Directive 79/267/EEC of 5 March 1979 as amended by Council Directives 79/267/EEC and 90/619/EEC. 12

13 27. Equalisation provisions a) Article 17 of the draft Directive annexed to this note b) Article 15 a) of Non-Life insurance Directive 73/239/EEC and to the Insurance Accounts Directive 91/674/EEC One of the most important roles of reinsurance companies is to smooth or reduce the volatility of claims in a direct insurance portfolio. Reinsurance is even more than non-life insurance susceptible to volatility and difficulties of predicting future claims developments. This is clearly the case for non-proportional business. The use of equalisation provisions may therefore be of greater importance for reinsurers. The conclusion that equalisation provisions are needed does however not automatically imply that they should be included under the caption liabilities on the balance sheet. If a suitable tax treatment can be found, these equalisation reserves could be considered as part of needed regulatory capital. This is likely that a future international accounting standard on insurance will not allow equalisation provisions to be included under liabilities in the financial statements as from The current directives only require equalisation provisions for credit insurance. Member States however have the option to require such provisions for other lines if deemed appropriate. The same rules should apply for reinsu rance business. This conclusion should also be taken into account when establishing the required solvency margin for reinsurance undertakings. The Services are conscious that this may have tax consequences as the total solvency margin is not tax deductible, but these issues have to be discussed at national level. 3. Questions to the Members of the IC Reinsurance Subgroup Do you agree that the rules for non-life provisions are a good basis for life and non-life provisions? Do you agree that equalisation provisions should not be required in the Directive for lines other than credit reinsurance? 28. Use of actuarial methods a) Article 17 of the draft Directive annexed to this note b) Article 15(1) of Non-Life insurance Directive 73/239/EEC, Article 60(1)(f) of the Insurance Accounts Directive 91/674/EEC and to Article 17 (1)(A)(I) of the Life insurance Directive 79/267/EEC. 13

14 Actuaries are becoming increasingly important in EU insurance business, also in non-life and reinsurance activities. This tendency is likely to be reinforced as more advanced techniques for establishing technical provisions and new accounting approaches may require more complex calculations. Today actuarial methods are only required according to EU rules when calculating technical provisions in life insurance business. Several Member States have however introduced systems that give actuaries a formal role, or where use of actuarial techniques is legally required. These issues will be discussed within the Solvency II exercise, and the Services consider it premature to decide on a formal requirement for reinsurance before the general decision has been taken. We greatly encourage use of actuaries and actuarial techniques in reinsurance undertakings, but it seems difficult to introduce formal requirements in this regard already in a fast-track reinsurance approach. 29. Solvency requirements a) Not yet finally considered in Article 19, 20 and 21 of the draft Directive annexed to this note b) Articles 16, 16a and 17 of Non-Life insurance Directive 73/239/EEC As outlined in a separate note to be prepared on reinsurance simulations, the starting point for solvency margin and minimum guarantee fund requirements for reinsurers in a fast-track is necessarily the current framework for non-life direct insurers. Furthermore, the competition between pure reinsurers and direct insurers carrying on reinsurance business requires a similar treatment as regards prudential requirements. Regulatory arbitrage could otherwise be the result of significantly different approaches. Despite these facts, the Services are conscious that there could be a need to have a quite different, perhaps more risk-based regime, but it is not possible to elaborate this in the short run. Furthermore it would seem difficult to develop a temporary risk based solution for reinsurance that is likely to be revised after the Solvency II project has been finalised. In earlier documents the Services have expressed the view that non-life solvency margin rules should apply also to the life business of reinsurance activities. This was motivated by the fact that the life business is often much less important than the non-life part and that the characteristics of a life reinsurance portfolio are different from that of a life insurance company. It is however also possible to create specific life insurance solvency rules for life reinsurers. Member States are asked for their comments. 14

15 As far as the minimum guarantee fund is concerned the various amounts in the direct insurance Directives depend on the line s of business which a direct insurer may accept. Given that reinsurers should be authorised for carrying on all lines of business it seems to be logical to start at least with the highest minimum guarantee fund fixed in the Solvency I project. However, because reinsurance captives form a substantial part of all reinsurance undertakings further differentiation in the minimum guarantee fund might be needed in order to better reflect the specific circumstances under which reinsurance is carried on. Member States are asked for their comments also on this issue. Concrete proposals on solvency margins and minimum guarantee funds will be presented once the simulation exercise has been finalised. 30. Investment rules a) Articles 18 and 22 (1) of the draft Directive annexed to this note b) Articles 15 (2) and 18 (1) of Non-Life insurance Directive 73/239/EEC and Articles of Non-Life insurance Directive 92/49/EEC. This issue has been discussed in detail at the November 2001 meeting 8. During the discussions, Member States clearly advocated that rules on investment should play an important part of a prudential reinsurance regime. The Commission Services agree with this view. As for the direct insurance rules, the Services do however not believe that investment rules should apply to the items making up the solvency margin for reinsurance insurance but should only apply to assets backing technical provisions. This issue will be analysed within the Solvency II exercise, and it therefore seem too early to propose any changes to reinsurance undertakings. Most jurisdictions that already supervise reinsurance seem to have adopted qualitative rather than quantitative rules. The reasons presented for this are flexibility, reflection of the specific portfolio, diversification effects etc. The Commission Services agree with this. They would therefore propose that a qualitative or prudent person approach is used for investments in assets backing technical provisions in a fast-track reinsurance regime. A qualitative approach would prima facie not preclude that additional quantitative analyses and disclosures are provided to the supervisor. However, reinsurers as world-wide acting players may be overburdened by too rigid quantitative restrictions imposed on a national basis. This in turn could create distortions of competition. Member States are therefore asked whether and to what extent the possibility for Member States to impose additional quantitative investment rules should be limited. 8 The discussion was based on the Commission Services document MARKT/2099/01 Investment rules for assets covering technical provisions in reinsurance undertakings. 15

16 31. Notification of cross-border business a) Article of the draft Directive annexed to this note b) Articles 14 and 16 (2) of Non-Life insurance Directive 88/357/EEC. One of the main objectives of the initiative on reinsurance is to facilitate the crossborder business in reinsurance. For this to operate smoothly there is a need for cooperation and exchange of information between supervisory authorities. The Commission Services believe that the notification procedure of cross-border activities of reinsurance companies can be significantly simplified in comparison to the quite complicated rules and systems used in direct insurance cross-border activities. It is clear that the general good reasoning underlying the direct supervision rules have less bearing on reinsurance activities. The Commission Services therefore propose that Member States shall notify to all other Member States at the same time when a reinsurance undertaking has indicated its intention to start cross-border business throughout the Community. Such notification may contain certain relevant information (such as the proposed nature of the risks to be underwritten) and how other information could be obtained on request. The exact procedure are likely to be established within a Protocol by the Conference of European Insurance Supervisors. 4. Questions to the Members of the IC Reinsurance Subcommittee Should the solvency requirements be the same for life and non-life reinsurance business? Should the minimum guarantee fund be the same for all types of reinsurance undertakings? Should the Member State option for introducing additional quantitative investment rules be limited? If yes, which limitation should be chosen? Do you have further comments on the discussion and the tentative conclusions in this chapter? Do you have any comments to the issues of the draft Directive text not explicitly presented in this note? 16