Gruppenaufsicht unter Solvency II

The proposal of the Solvency II Framework Directive substantially changes the supervision of insurance groups. The new concept establishes a genuine authority for group supervision (Group Supervisor) that takes over the competences for group supervision from the national solo-supervisory authorities. The national supervisory authority that has authorized the group’s top-level insurance or reinsurance undertaking regularly acts as Group Supervisor. However, the shift of competences does not go far enough – alongside the supervision of the entire group within the territory of the EU by the Group Supervisor, the Member States are authorized to allow their national supervisory authorities the additional supervision of national subgroups and subgroups covering several Member States.The provisions concerning the determination of the group’s Solvency Capital Requirement (SCR) are of pivotal importance: The SCR can be calculated on the basis of either the standard formula or an internal model approved by the Group Supervisor. As a highly welcome development, diversification effects can be taken into account in the calculation. On the negative side, this possibility is restricted to those groups, calculating on the basis of the consolidated account. Furthermore the group may implement a group support system. Within this system, subsidiaries may cover a part of their solo-SCR by obtaining a commitment of support of the group’s top-level undertaking. Even though the Group Supervisor makes the essential decisions in the field of group solvency and group support, the national supervisory authorities are also provided with some competencies. This leads to the conclusion that the objective of creating a coherent supervision has only been partly achieved.In spite of these shortcomings the modernization of the group supervision is a major improvement of the legal framework for both, companies and supervisory authorities.     

Die Rechtsstellung der Prämien-, Bedingungs- und Deckungsstocktreuhänder nach dem VVG und dem VAG

The legal statuses of ?trustee for premium changes“, ?trustee for condition changes“ and ?trustee for coverage fund“ are comparable. All of them act under private law. Their function is slot in ahead of the grievance control of the supervising agency. The trustees are supposed to relieve the supervising agency and to inform it about the competitive practices of the insurance companies. The legal provisions concerning the trustees for premium and condition changes as stated in the VAG rank equally with those stated in the VVG. The rights to adapt contracts stated in §§ 172 and 178 g VVG have the characteristics of a one-sided right according to § 315 BGB. These rights allow the insurance company to pass on the risk of future changes of actuarial bases. Under private law, the independence of the trustees is merely a formal condition. Their declaration of consent has to include the reasons for the consent.     

Solvency II: Das Governance-System in der Versicherungsgruppe

The Solvency II Directive creates a complex set of prudential rules to improve the protection of policyholders and to contribute to the stability of the financial market. One of the key elements is a system of governance, which is not only to be established in each undertaking concerned, but also at group level. This article shows that in a factual group, the parent company’s sphere of influence is very limited, rendering it impossible to implement an effective group-wide governance system. Thus, the achievement of the objectives is at stake. The author discusses various approaches to solving this problem and proposes an amendment to the law. Furthermore, the impact of the paradigm shift from a rules-based to a principles-oriented regulatory regime is analyzed.     

Die Deckungsvorsorge der Versicherungsvermittler nach der EU-Versicherungsvermittlungs-Richtlinie

Insurance intermediaries being obliged to be registrated in Germany due to the directive have to comply with severe provisions concerning cover provisions (i. e. Deckungsvorsorge). A third-party liability insurance is virtually compulsory for insurance brokers and insurance agents charged by several insurance companies (i. e. Mehrfach-Agent), other kinds of equal alternatives for them do not exist practically. Concerning exclusively charged insurance agents (i. e. Ausschließlichkeits-Agenten), as well as in a side job, an indemnity clause of their insurance company giving the third party full rights may be a an alternative complying with the directive. The minimum covering funds being prescribed by the directive of € 1 million per event of damage and the minimum annual covering sum of € 1.5 million are appropriate to third party liability risks of an average insurance broker on the German market, for almost all of the insurance agents on this market without a permitted covering provisions, with regard to their very little third party liability risks, they are too high. Nevertheless, the German legislator is not entitled to deviate from them to lower sums for lack of an authorization rule in the directive. German legislator should transform the rules of the directive into national ones as soon as possible in favour of the interests of the consumers worthy of protection, using the existing national regulations on lawyers, notary publics, tax consultants and accountants concerning minimum contents of compulsory cover provisions and agreed exclusive clauses.     

Risikomessung unter Solvency II

With the enlargement of the European Union in 2005 several countries with a particularly low level of corporate taxation entered the Single Market. Big differences in taxation provide an incentive for insurance companies to shift their business activity into countries with low taxation. This incentive is aggravated by falling transport costs for insurance products over the last decade. This paper outlines the main factors driving the location choice of firms in an agglomeration model and presents additional, tax- and insurance business-related factors. Due to the peculiar production process in the insurance industry this industry is especially well suited for an empirical test of the efficacy of tax-related incentives to shift production abroad. The shifting of value added across borders is usually associated with cover up costs. In the insurance industry profit shifting can be done at high volume and low costs through reinsurance at foreign subsidiaries. This paper tests the hypothesis that differences in taxation induce a shift of business activity into low tax countries indirectly by estimating a model for Austrian data on international trade with insurance services.     

Auswirkungen von Solvency II und der neuen EU-Finanzaufsichtsarchitektur auf die Kapitalallokationsstrukturen von Versicherungsgruppen

This paper analyses how the foreseen Solvency II provisions on group solvency calculations will affect the capital allocation within insurance groups. In this respect influencing factors are identified and the incentives set by them are disputed, in particular choice of method (consolidation method vs. deduction and aggregation method), choice of model (internal model vs. standard formula), non-transferability and treatment of participations at solo level. It is shown that the effects will depend heavily on the concrete implementation of the new provisions on the one hand and on the interplay of national supervisors and EIOPA (inter alia in certifying internal models and in setting capital add-ons) on the other hand.     

Aktuelle Entwicklungen in der Beaufsichtigung und Rechnungslegung von Versicherungsunternehmen: IFRS und Solvency II

Accounting and supervision are closely related, especially via the determination of regulatory capital. As a precondition for the harmonisation of solvency rules within Europe, as discussed in the context of Solvency II, there is a need for harmonised accounting rules regarding the recognition and measurement of assets and liabilities. The International Financial Reporting Standards resp. International Accounting Standards (IFRS resp. IAS) are used as a starting point. Insurance contracts are accounted for under IFRS 4, published in March 2004, which is only established as an interim standard allowing insurance companies to continue their existing accounting policy without major changes in their accounting systems. The IASB has just begun working on a final standard (Phase II). The IASB’s work on the final standard should be taken into account for the determination of regulatory capital as well. The third pillar of Solvency II is an additional connection between international accounting standards and the Solvency II project: extensive disclosure requirements companies shall provide disciplinary transparency with regard to their risk management systems and risk profiles.     

The Solvency II Process: Overview and Critical Analysis

As early as the 1970s, European Union (EU) member countries implemented rules to coordinate insurance markets and regulation. However, with the more recent movement toward a general single EU market, financial services regulation has taken on new meaning and priority. Solvency I regulations went into effect for member nations by January 2004. The creation of risk-based capital standards, the main focus of Solvency II, now appears likely sometime after 2007. The purpose of the discussion presented here is to outline the specifics of Solvency II as they currently stand and suggest important areas of future research.     

Markttransparenz durch Versicherungsaufsicht — Informationsökonomische Begründung der dritten Säule von Solvency II

The paper shows that there will be the possibility of adverse selection in insurance markets, if policyholders are inadequate informed about the solvency of the insurance companies. We analyse potential methods of resolution of the insurance market itself to overcome the informational disadvantages of the policyholders. While screening and signalling by the original market participants do not seem to be successful, transparency of solvency may be obtained by a regulating authority. However the actual instruments of the German regulating authority BAFin do not turn out to be satisfactory in this point. Hence the paper gives chapter for a statement for the third pillar of the Solvency II project. Finally we point out additional demand of research concerning the detailed design of the disclosure requirements.     

Das Versicherungsvermittlerrecht nach der Reform

The EC Directive on insurance mediation has been implemented into German Law two and a half years late by the Insurance Intermediary Law Revision Act of 19^th December 2006, which has been enacted on 22^nd May 2007. On the one hand, this Act contains regulations on the professional law which are provided in the Industrial Code (Gewerbeordnung — GewO). In principle according to section 34d GewO, professional insurance intermediation is an activity requiring a licence. This licence is only granted under the condition that the applicant is able to present the conclusion of a professional indemnity insurance and a certificate that the applicant has passed an examination of knowledge and ability held by the chambers of industry and commerce (IHK). In fact, the exceptions from this principle prevail. Tied insurance agents are exempted from both conditions by act of law. Product accessory intermediaries can be exempted from the examination of knowledge and ability upon application. Employees of an insurance intermediary need to prove their knowledge and ability only to their employer. On the other hand the Insurance Intermediary Law Revision Act contains besides the regulations on professional law also new obligations of information, communication and consultation for the insurance intermediary. These obligations have been implemented into a professional law ordinance and into sections 42b und 42c Insurance Contract Act (VVG). The ordinance regulates the obligations of the insurance intermediary to provide the customer with information about his status. Sec 42b (1) VVG regulates the obligation of an insurance broker to give an advice on the basis of an analysis of a sufficiently large number of insurance contracts and insurance undertakings. Sec 42b (2) VVG regulates obligations of an insurance agent to inform the customer before the conclusion of an insurance contract about the market conditions and information basis he uses for his service, if the customer has not waived this right (sec 42b (3) VVG). Sec 42c (1) VVG further provides an obligation of the insurance intermediary to ask questions depending on the situation, an obligation to give advice depending on the situation and on the price of the product including an obligation to tell the reasons for the advice and finally an obligation of documentation. Sec 42c (2) VVG gives the consumer a right to express a waiver in writing to advice and documentation. Sec 42e VVG awards the costumer damages in the event that there has been a breach of the obligations regulated in sec 42b and 42c VVG. The Insurance Contract Law Reform Bill still has to be passed by parliament. Sec 1 of this Bill contains the new Insurance Contract Act. It is planned that this new Insurance Contract Act shall be enacted on 1^st January 2008. Sec 69 to 73 new Insurance Contract Act provide a complete revision of the law of the insurance agent’s representative authority which is now regulated in sec 43 to 48 of the old Insurance Contract Act (VVG). At the moment the law of insurance agent’s representative authority established by the courts differs extremely from the written law. Therefore the new Insurance Contract Act will bring only minor changes of the actual law. For most parts, the only aim of the reform is to adapt the law in action with the law in the book.     

Proposal for correction of the SCR calculation bias in Solvency II

In the context of Solvency II the Solvency Capital Requirement (SCR) is a well known financial demand which will have to be fulfilled by all European insurance companies to assure a theoretical ruin probability of 0.005 or less.     

Modeling Period Effects in Multi-Population Mortality Models: Applications to Solvency II

Recently Cairns et al. introduced a general framework for modeling the dynamics of mortality rates of two related populations simultaneously. Their method ensures that the resulting forecasts do not diverge over the long run by modeling the difference in the stochastic factors between the two populations with a mean-reverting autoregressive process. In this article, we investigate how the modeling of the stochastic factors may be improved by using a vector error correction model. This extension is highly intuitive, allowing us to visualize the cross-correlations and the long-term equilibrium relation between the two populations. Another key benefit is that this extension does not require the user to assume which one of the two populations is dominant. This benefit is important because, as we demonstrate, it is not always easy to identify the dominant population, even if one population is much larger than the other. We illustrate our proposed extension with data from a pair of populations and apply it to the calculation of Solvency II risk capital.