A round-up of developments in the global insurance industry from our offices.
Insurance Mediation Directive
The Insurance Mediation Directive has been fully transposed into French law. The transposition was carried out via a law passed on 15 December 2005 which was completed by an application decree of 30 August 2006 and a ministerial order of 3 November 2006. The decree specifies the applicable systems to be applied to insurance mediation activities. The ministerial order gives more information on the contents of the registration procedure and the amount of financial guarantee required.
The new law adds articles to the French Insurance Code and requires any insurance or reinsurance intermediary to be registered on a national registry, in addition to ensuring that customers are provided with adequate information on products before the conclusion of the contract. (The registry is due to be operational by 31 January 2007.)
Registration allows for the issue of the European passport to enable cross-border intermediation activities. In France, the body which will maintain the registry and will be in charge of registration is called ORIAS (Organisme pour le Registre des Intérmediaries d’Asssurance).
Insurance intermediaries have three months to comply with the provisions and register with ORIAS.
Private pensions for self-employed secured
Under current German law the income of self-employed people (including any pension benefits) is subject to seizure in the course of debt enforcement – whereas the pension benefits of employed people resulting from social security or a company pension scheme are largely protected from seizure.
In the new federal law protecting old age benefits, self-employed people in Germany will be granted the same level of protection from seizure of pension benefits as is given to employed people. This will lead to a substantial improvement in protecting life insurance policies from seizure. The capital exempted from seizure will be limited in amount, depending on the age of the beneficiary. The protection will also cover annuities resulting from tax privileged old age pension schemes.
The new legislation illustrates a trend to make pension products more attractive by changing the existing legal and fiscal framework.
Complementary pension schemes
The Italian government has recently announced that the effects of the pension reform implemented in 2005 will be effective from 1 January 2007. The reform will alter the retirement age in Italy.
The reform will have a substantial impact on the insurance market, in that insurance companies (as well as banks or other financial entities) will have the opportunity either to establish and manage their own pension funds or to sell individual life policies for the purpose of setting up an individual pension plan. Neither of the activities will be subject to the guidance of the insurance sector authority (ISVAP). They will fall under the supervision of the pensions fund supervisory authority (COVIP).
The reform is clearly beneficial for insurance companies and the market in life policies is expected to show substantial growth.
New disclosure requirements
As part of its drive to promote good corporate governance practices among insurers, the Thai Department of Insurance issued practice guidelines on 16 August 2006 requiring each insurer to make public information that will help customers to assess the soundness of the insurer’s financial position and its ability to pay on claims from customers. Insurers must submit brief financial statements covering the past three years, descriptions of its services and products, its market position, organisational structure, members of its board and management, major shareholders, its corporate governance policy, contact information, and other information that was not previously publicly available from insurers not listed on the Thai Stock Exchange.
HM Treasury consultation
On 3 November 2006 HM Treasury published a consultation paper seeking comments on four draft statutory instruments amending the legislation governing the transfer of insurance business contained in Part VII of the Financial Services and Markets Act 2000 (FSMA) and associated statutory instruments (Part VII).
Responses are invited by 26 January 2007.
The proposed amendments are:
- to clarify that the court has power to order the transfer of contracts ancillary to the insurance portfolio being transferred, including reinsurance contracts;
- to clarify that the court has power to override explicit contractual provisions in reinsurance contracts prohibiting transfers or stipulating that a transfer triggers a right (for example to terminate the contract or to impose different terms);
- to require transferors to notify reinsurers whose contracts are being transferred of the proceedings; and
- to allow former members of Lloyd’s who resigned their membership before 24 December 1996 to avail themselves of the process.
The proposed amendments are welcome, as they either reflect developing case law and market practice or they rectify unintended anomalies.
The Treasury will consult further on changes required following the implementation of the Reinsurance Directive early in 2007; this will probably give rise to more fundamental changes in the operation of Part VII.