Commission view on authorisation
In July 2015 a Commission official expressed a controversial view on when third country insurance firms need authorisation. This was at a fully minuted meeting of the “Expert Group on Banking, Payments and Insurance”. The Commission said that a third-country insurance firm may only insure risks located in an EEA member State through a branch authorised by the competent supervisory authority of that member state.
I believe this opinion is wrong. If indeed it were right it would have a damaging effect on the London and probably other insurance markets. I give my reasons below.
Article 162 of the Solvency II Directive
The Commission’s opinion arises from article 162 of the Solvency II Directive. The article says that any third country insurer wanting to have access to insurance business in the EEA must satisfy certain conditions. The conditions include that:
- it must be authorised in a member state, and
- it must establish a branch in the member state where authorisation is sought.
The insurance business in question is defined in article 2(1) by reference to “insurance undertakings which are established in a member state”.
What the Directive does not cover
In other words article 162 deals only with insurance carried out by third country firms through an establishment in the EEA. It does not regulate third country firms who cover EEA risks remotely without an authorisation or a branch. That remains a member state competence.
Some member states allow non-admitted insurance. Others do not or apply significant limitations.
In the UK third country firms are major participants in the London market. They do not require an authorisation unless they “effect and carry out contracts of insurance” by way of business in the UK. In broad terms this is usually the same thing as having a UK establishment. They may not get an authorisation in any event, since the regulator is not obliged to authorise third country firms.
If third country firms were suddenly to be required to seek an authorisation in order to operate remotely it would significantly reduce the amount of cover available in the market.
The legal position as I have described it has prevailed in Europe since the first life and non-life directives, adopted in 1973 and 1979. The wording of article 162 follows almost word for word article 23 of the First Non-Life Directive and 51 of the Consolidated Life Directive.
Article 162 does not apply to pure reinsurers. Member states apply their own regimes to the authorisation of third country pure reinsurers. Article 174, however, requires them not to treat third country pure reinsurers more favourably than EEA firms.
If the Commission considers that some regulation in this area is justified it should consult with stakeholders. Attempting to apply a major reinterpretation of rules which have prevailed for 40 years will cause serious problems without creating a coherent regulatory regime.