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Treasury and FSA launch consultation on EU insurance sector
A discussion paper on the UK's proposals to reduce the administrative burden on insurance groups operating in the EU was launched today by the Treasury and the Financial Services Authority (FSA).
The proposals aim to encourage more effective group supervision across EU insurers and ultimately provide better value for consumers. They represent the UK's contribution to the development of prudential regulation of the EU insurance sector through the Solvency II process.
A key focus of the Discussion Paper are proposals put forward by
the Chancellor of the Exchequer for the creation of colleges of
Under these proposals EU regulators would work more closely through supervisory colleges, improving the effectiveness and efficiency of their supervision of cross-border insurance and reinsurance groups. The UK Government has proposed that these colleges would operate for all significant EU cross-border financial institutions, irrespective of legal form, providing a structure for the sharing of information and the cooperation of supervisory authorities in the EU.
The proposals are an example of the Government's determination to continue in its proportionate and risk based approach to EU financial services rules that will contribute to the competitiveness and modernisation of the insurance sector, in turn bringing benefits to consumers throughout the EU with more innovative and better value insurance products.
Notes for Editors
1. Solvency II is the project to create a single risk-based framework for prudential supervision of insurance companies operating in the EU. Both HM Treasury and the Financial Services Authority support the Solvency II initiative. The current European Directives which governing prudential regulation of insurance firms (now collectively known as Solvency I) date back to the 1970s. Since then there have been profound changes in risk management techniques, in capital markets and especially through the impact of the Basle II Accord on prudential regulation in the banking sector.
2. The European Commission published its legislative proposal for the Solvency II framework directive on 19 July 2007. The Solvency II project will adopt the Lamfalussy arrangements for developing new EU legislation in the area financial services. This requires a directive setting out the key principles of the Solvency II framework which will be implemented through more detailed legislation. It is expected that Solvency II will come into force in 2012. Negotiations are currently underway in the Council of Ministers and the European Parliament on the Solvency II Directive.
3. Insurance groups play a major role in the EU insurance sector. In 2004 the 20 largest insurance groups operating in Europe together had a 50% market share of direct insurance business. The 10 largest groups in each EU Member State had a market share of 75% on average for general insurance business and 82% for life insurance business. (source: Comite Europeen des Assurances, European Insurance in Figures, June 2006).
4. The UK proposal for the establishment of colleges for all cross-border financial institutions is outlined in a letter from the Chancellor to the President of the Council and ECOFIN colleagues on 3 March 2008. It can be found at: http://www.hm-reasury.gov.uk/media/3/D/ukchxletter_ecofin030308.pdf.
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