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No 9 (October 97/Octobre 97/Oktober 97)
According to a report recently adopted by the Commission, the current arrangements governing the solvency margin of insurance undertakings are working well, apart from a few weaknesses as regards the coverage of certain highly specific risks. The Commission accordingly recommends that the current solvency margin provisions be maintained in force, but next year it will propose amendments to the existing Directives in order to correct the failings identified.
The report sets out the analyses made by the Commission's departments following detailed consultations with Member States' supervisory authorities and with representatives of the insurance industry and the actuarial profession. It concludes that the solvency margin arrangements have worked well on the whole: there have been few insurance company collapses in the European Union during the past twenty years, and an analysis of those which have occurred shows that they were due to an insufficient solvency margin as such in only a minority of cases. Some collapses were linked to problems occurring within certain holding companies, but such problems were accommodated by a proposal for a Directive on groups of insurance undertakings presented by the Commission in October 1995 and now discussed by the European Parliament and the Council. What is more, the general level of the prescribed solvency margin requirement and the way in which the margin is calculated have proved to be appropriate.
However, certain shortcomings in the Community solvency margin mechanism have been revealed by detailed examination of a small number of collapses. The report mentions certain risks which seem at present to be covered in an inadequate or unsuitable manner, including long term risks and investment risks in non-life insurance, the reinsurance risk, and the risk connected with rapid variations in operating conditions. The report indicates, therefore, that the current solvency margin mechanism should be maintained, both as regards the principles on which it is based and as regards the general level of the solvency margin requirement, subject, however, to corrections here and there to take account of the failings clearly identified.
Other aspects of the solvency margin also need to be examined with a view to introducing a greater degree of harmonisation. This concerns principally, besides readjustment of the minimum guarantee fund, which has not evolved in nominal terms since the 1970s Directives, the list of equity capital and like elements which constitute the solvency margin, the means of action available to the supervisory authorities, and the question whether the various provisions on the solvency margin should be the subject of strict or minimum harmonisation.
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