Prior to the Reinsurance Directive the regulation of reinsurance in the EU could at best be described as a patchwork of inconsistent regimes. There was no overall regulatory framework for reinsurance, and reinsurers were subject to different requirements, both in terms of licensing and applicable prudential requirements, depending on which Member State they were in. The existing European insurance directives largely cover the life and non-life insurance activities of direct insurers including their reinsurance activities. However, “pure” reinsurance was not covered by the existing insurance directives. The inconsistencies were of a fundamental nature. For example, in the UK, Finland, Denmark, Luxembourg and Portugal, reinsurers were regulated in the same way as direct insurance firms, whilst in Belgium and Greece there was (and still is) no supervision of reinsurance at all. There were no regulatory solvency requirement for reinsurers in Austria, Germany, Italy, France, the Netherlands, Belgium, Ireland or Greece.
Further, certain Member States (for example, France, Spain and Portugal) have traditionally had collateral requirements (direct and indirect) which effectively make it obligatory for foreign reinsurers wishing to write reinsurance business in those countries to pledge assets as collateral for their liabilities.
The regime clearly needed reform. It has been criticised by both the Financial Services Action Plan and the International Monetary Fund. Hence the need for European legislation in the form of the Reinsurance Directive. The rationale behind the Directive is that an unregulated reinsurance market exposes the primary insurance market to greater risk. Reinsurance is, of course, a significant asset of primary insurers and therefore has a direct impact upon the security of their policyholders. This publication is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to a particular matter.