Insurance, Germany - Law and Practice

Author:Dr. Henning Schaloske, Tanja Schramm, Daniel Kassing and Kathrin Feldmann
Profession:Clyde & Co

    1.1 Regulation of Insurers and Reinsurers

    European Level: Solvency II

    On 1 January 2016, a major new prudential and supervisory regime called Solvency II came into force across the whole of the European Economic Area (EEA), consolidating and amending the previous life, non-life, reinsurance and insurance group directives as well as widely substituting previous national regulations. The aim of Solvency II is to create a single market for insurance in the EEA, thus providing a single set of key prudential requirements that apply consistently to insurance and reinsurance entities operating within the EEA, and enhance policyholder protection through establishing prudential requirements better matched to the true risks of the business.

    The Solvency II framework is made up of three levels of legislation/guidelines: at level 1, there is the Solvency II Directive (2009/138/EC); level 2 consists of delegated acts, implementing acts and binding technical standards (together, the "Delegated Acts"); and level 3 takes the form of guidelines.

    The Solvency II Directive follows a "three-pillar" approach that means it sets out a number of requirements for insurers and reinsurers in the EEA broadly in the following three categories:

    capital (ie, holding sufficient assets and qualifying capital to cover insurance liabilities and risk exposure); governance (ie, developing and embedding systems to identify, measure and proactively manage risk); and transparency (ie, making sufficient reporting and disclosure publicly to the market and privately to the relevant regulators so that they have the information they need to undertake effective, risk-based and proportionate supervision). The Delegated Acts address issues that are more technical in nature and contain details on the valuation of assets and liabilities, eligibility of capital (own funds), equivalence, the internal model and rules related to insurance groups. They are directly applicable across the EEA without the need to be transposed into national regulation. There are also guidelines released by the European Insurance and Occupational Pensions Authority (EIOPA) that, despite not being legally binding, firms and regulatory supervisors are expected to comply with.

    Insurance Supervision in Germany

    The relevant supervisory authority for insurance undertakings, reinsurance undertakings and pension funds in Germany is the Federal Financial Supervisory Authority (Bundes anstalt für Finanzdienstleistungsaufsicht, or BaFin). Foreign insurers and reinsurers that intend to conduct business in Germany are also subject to supervision by BaFin.

    Insurance supervision in Germany is mainly governed by the German Insurance Supervisory Act (Versicherungsaufs ichtsgesetz, or VAG). The Insurance Supervisory Act has more recently been revised, transforming the Solvency II Directive into domestic law as of 1 January 2016. According to the Insurance Supervisory Act, the primary objective of supervision by BaFin is to protect policyholders and beneficiaries. To fulfil this objective, BaFin monitors all business operations of (re)insurers within the framework of legal supervision in general and financial supervision in particular. Subject to the prerequisites set out in the Insurance Supervisory Act, BaFin may take measures against insurance undertakings that are appropriate and necessary to prevent or eliminate undesirable developments that threaten to harm the interests of policyholders; for example, if a (re)insurer did not comply with the statutory and supervisory requirements for conducting (re)insurance...

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