EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 12.7.2010 
SEC(2010) 840 
 
COMMISSION STAFF WORKING DOCUMENT 
IMPACT ASSESSMENT  
 
PART I  
 
 
Accompanying document to the 
  
WHITE PAPER 
 
on Insurance Guarantee Schemes 
  
{COM(2010) 370} 
{SEC(2010) 841} 
 
EN 2   EN  
TABLE OF CONTENTS 
COMMISSION STAFF WORKING DOCUM ENT IMPACT ASSESSMENT   
Accompanying document to the   White Paper on Insurance Guarantee Schemes ...................1 
INTRODUCTION ................................................................................................................... ...4 
1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ...6 1.1. T
HE COMMISSION WORKING GROUP ON  IGS..............................................................6 
1.2. THE OXERA REPORT ON  IGS .......................................................................................6 
1.3. INVOLVEMENT OF  CEIOPS..........................................................................................7 
1.4. OTHER CONSULTATIONS ..............................................................................................7 
1.5. EUROPEAN PARLIAMENT AND COUNCIL .....................................................................7 
1.6. IMPACT ASSESSMENT BOARD AND INTER -SERVICE STEERING GROUP ........................7 
2. PROBLEM DRIVERS .................................................................................................8 
2.1. POLICYHOLDERS LACK AND CANNOT PROCESS IMPORTANT RISK -RELATED 
INFORMATION (PROBLEM DRIVERS 1 AND 2)...............................................................9 
2.2. INSURANCE UNDERTAKINGS CAN FAIL AND PRODUCE SUBSTANTIAL LOSSES 
(PROBLEM DRIVER 3).................................................................................................10 
2.2.1. Reasons for insurance failures ....................................................................................10 2.2.2. The probability of default of insurance undertakings in the EU.................................11 2.2.3. Failure of an insurance undertaking ca n produce substantial losses which are passed 
on to policyholders or taxpayers.................................................................................12 
2.3. T
HE INSUFFICIENT (PROBLEM DRIVER 4) AND UNEVEN (PROBLEM DRIVER 5) 
PROTECTION OF POLICYHOLDERS .............................................................................14 
2.3.1. The fragmented landscape of IGS protection in the EU.............................................14 2.3.2. Loopholes in the protection of policyholders as a result of the (non) existence of  
IGS............................................................................................................................ ..14 
2.3.3. Loopholes in the protection of policyholde rs as a result of heterogeneous design 
features of existing IGS ..............................................................................................15 
2.4. C
ROSS -BORDER INSURANCE ACTIVITY IN THE INTERNAL MARKET (PROBLEM 
DRIVER 6)....................................................................................................................16 
2.4.1. The non-negligible (and gr owing) cross-border insura nce activity in the EU ...........16 
2.4.2. Insufficient protection of cross-borde r insurance activity by existing IGS................17 
3. PROBLEMS AND CONSEQUENCES .....................................................................18 
 
EN 3   EN 3.1. SUBSTANTIAL LOSSES PASSED ON TO LARGE GROUPS OF POLICYHOLDERS OR 
TAXPAYERS (PROBLEMS I AND III)............................................................................18 
3.1.1. Negative consequences of losses passed on to policyholders in a domestic context 
(no ex-post State intervention)....................................................................................19 
3.1.2. Negative consequences of losses passed on to taxpayers in a domestic context (ex-
post State intervention) ...............................................................................................20 
3.1.3. Negative consequences of losses passed on to policyholders in a cross-border context 
(no ex-post State intervention)....................................................................................20 
3.1.4. Negative consequences of losses passed on to taxpayers in a cross-border context 
(ex-post State intervention).........................................................................................21 
3.2. MISMATCH BETWEEN THE RISK PREFERENCE OF CONSUMERS AND THE RISK OF 
DEFAULT OF AN INSURER (PROBLEMS II AND IV ).......................................................21 
3.2.1. Sub-optimal allocation of losses from insura nce failure in a domes tic or cross-border 
context (on policyholders or taxpayers) .....................................................................22 
3.2.2. Distorted competition in the Internal  Market for insurance services..........................22 
3.3. SUB-OPTIMAL DEVELOPMENT OF THE INTERNAL MARKET FOR INSURANCE 
SERVICES .....................................................................................................................23 
4. BASELINE SCENARIO, POSSIBLE A LTERNATIVES, SUBSIDIARITY AND 
LEGAL BASIS FOR ACTION, INTER NATIONAL COMPARISONS ..................24 
4.1. HOW WOULD THE SITUATION EVOLVE WITHOUT ACTION AT EU LEVEL ?................24 
4.2. ARE  THERE  VIABLE  ALTERNATIVES  TO SPECIFIC  EU ACTION  ON  
IGS? ...........................................................................................................................24 
4.3. SUBSIDIARITY ANALYSIS AND LEGAL BASIS ...............................................................25 
4.4. IGS  OUTSIDE EUROPE ................................................................................................26 
5. OBJECTIVES OF AN EU ACTION .........................................................................27 
5.1. OBJECTIVE 1: ENSURE AN EVEN AND COMPREHENSIVE PROTECTION OF 
POLICYHOLDERS .........................................................................................................27 
5.2. OBJECTIVE 2: AVOID COMPETIVE DISTORTIONS .......................................................28 
5.3. OBJECTIVE 3: REDUCE ADVERSE INCENTIVES ...........................................................28 
5.4. OBJECTIVE 4: ENSURE COST EFFICIENCY ..................................................................28 
Minimise welfare costs of protection .....................................................................................28 
Minimise set-up and operati onal costs of protection ...........................................................29 
5.5. OBJECTIVE 5: ENSURE MARKET CONFIDENCE AND STABILITY .................................29 
6. ANALYSIS OF AVAILABLE POLICY OPTIONS .................................................29 6.1. T
HE NATURE OF A POSSIBLE EU ACTION ...................................................................30 
 
EN 4   EN 6.2. THE GUARANTEE SIZE (IGS  FUNDING NEEDS )...........................................................35 
6.3. TOOLS FOR AN EU ACTION ON IGS............................................................................39 
6.4. MINIMUM VS MAXIMUM HARMONISATION ................................................................41 
7. EXPECTED ECONOMIC AND SOCIAL  IMPACT OF RETAINED POLICY 
OPTIONS ...................................................................................................................44 
7.1. IMPACT ON POLICYHOLDERS .....................................................................................46 
7.2. IMPACT ON INSURANCE UNDERTAKINGS ...................................................................47 
7.3. IMPACT ON TAXPAYERS .............................................................................................47 
7.4. IMPACT ON EXISTING IGS  SCHEMES .........................................................................48 
7.5. IMPACT ON SMALL OR MEDIUM ENTERPRISES (SME' S)..........................................49 
7.6. IMPACT ON SUPERVISORY AUTHORITIES ...................................................................49 
7.7. INTERNATIONAL IMPACT ...........................................................................................49 
7.8. ENVIRONMENTAL IMPACT .........................................................................................49 
7.9. IMPACT ON FINANCIAL STABILITY .............................................................................50 
7.10.  IMPACT ON THE ECONOMY ........................................................................................50 
7.11.  IMPACT ON SOCIAL WELFARE ....................................................................................50 
7.12.  ADMINISTRATIVE BURDEN .........................................................................................50 
8. FOLLOW-UP MEASURES – MO NITORING AND EVALUATION ....................51 
ANNEXES........................................................................................................................ ........52 
 
INTRODUCTION 
 
The recent financial turmoil has made people far more conscious of the existence and limits 
of consumer protection/guarantee schemes in all financial sectors. In the insurance sector 
many EU Member States1 have no consumer2 protection arrangements  in place, or have 
implemented guarantee schemes that only cover specific types of insurance. In order to 
remedy the existing regulatory l oopholes and inconsistencies, th e report of the de Larosière 
Group has recommended the setting-up of harm onised Insurance Guarantee Schemes (IGS) 
throughout the EU.3 
 In light of this, the Commission announced in  its Communication of 4 March 2009 "Driving 
European recovery" that it woul d review the adequacy of existing guarantee schemes in the 
insurance sector and make appropriate legislat ive proposals. To this end the Commission will 
adopt in 2010 a White Paper sett ing out a European approach to IGS including indications on 
appropriate follow-up measures. 
 
EN 5   EN  
IGS provide protection to consumers when insu rers are unable to fulfil their contractual 
commitments. They thus protect people from the risk that their claims will not be met if their 
insurance undertaking become s insolvent. IGS provide pr otection either by paying 
compensation to policyholders for their clai ms, or by securing the continuation of their 
insurance contract. This can be done either by facilitating the transfer of the policies to a 
solvent insurer or by directly taking charge of the policies. 
 The main objectives linked to the establishment of IGS in a national/do mestic context are to 
avoid significant reductions in the wealth of  large groups of policyholders, to protect 
consumers' confidence in the insurance sector  and financial markets, to prevent possible 
slowdowns of the real economy, to avoid a sub optimal allocation of in surance failure losses 
and to preserve the stability of financial market s. In the broader EU context, IGS also serve 
the purpose of protecting consumer  confidence in the Internal Market, of avoiding potential 
disputes between Member States on the allo cation of the losses stemming from defaulted 
insurers and of avoiding competitive distor tions between EU insurance undertakings. 
 Guarantee schemes have been set up in other sect ors of the financial serv ices industry. All EU 
Member States have deposit guarantee an d investor compensation arrangements and 
minimum protection standards were harmonise d at European level by the 1994 Deposit 
Guarantee Scheme (DGS) Directive and th e 1997 Investor Compensation Scheme (ICS) 
Directive.
4 However, there is no such common Europ ean framework in the insurance sector.5 
 This Impact Assessment (IA) does not deal with the issue of consumer guarantees related to 
the activity of occupational pension funds, becau se relevant EU legislation on occupational 
pension funds is currently under revision in a parallel workstr eam eventually leading to an 
amended draft proposal in the mid-term. The scope  of this IA does not extend to reinsurance 
undertakings either because consumers are, in gene ral, not directly affected by the failure of a 
reinsurance undertaking.
6 
 This IA is structured as follows: Section 1 pres ents the main procedural  issues, including the 
consultation of interested parties. Section 2 fo cuses on the six main problem drivers: (i) the 
fact that policyholders lack impor tant risk-related information; (ii) the fact that policyholders 
cannot process important risk-related informati on; (iii) the fact that insurers can fail and 
produce substantial losses; (iv) the fact that pr otection of consumers in some Member States 
is low or insufficient; (v) the fact that protec tion of consumers in several Member States is 
uneven; (vi) the fact th at cross-border activity in the EU is growing.  
 Section 3 presents the two main problems gene rated by these six drivers: the fact that 
substantial losses can be passed on from insura nce undertakings to larg e groups of consumers 
 
EN 6   EN or to taxpayers, and the fact th at there is the possibility of a mismatch between consumer risk 
preferences and the risk of default of insurance undertaki ngs. These two problems are 
analysed both in a domestic and in a cross-borde r context. Section 3 also explains the main 
consequences of each of these problems.  
 Section 4 highlights what would happen if the EU took no action and examines the case for  
EU action in the light of the subsidiarity principle and the existence of a legal basis for such action in the EU Treaty. Section 5 introduces the objectives of EU ac tion on IGS. Section 6 
analyses the main options available in terms of the nature, the tool and the content of possible 
EU action. Section 7 analyses the expected economic and social im pacts of the retained set of 
policy options. 
 
1. PROCEDURAL
 ISSUES  AND  CONSULTATION  OF INTERESTED  PARTIES 
 
The Commission's attention was drawn to IG S as long ago as 2001 by Ireland after the 
collapse of a major UK insurance undertaking - Independent Insurance - which also operated 
cross-border. To date, the failu re of Independent Insurance,  which initially affected 190,000 
policyholders , has generated some 738 million EUR losses . 
 
1.1. THE COMMISSION WORKING GROUP ON  IGS 
 
In 2001, the Insurance Committee, the predecessor of the European Insurance and 
Occupational Pensions Committee, set up a wo rking group which was mandated to examine 
IGS related issues. The working group quickly recognised that the subj ect was probably even 
more complex in the insurance field than in  the banking and securities markets areas where 
EU Directives already require all Member Stat es to have a national guarantee scheme in 
place. At the final meeting of the working gr oup at the end of 2005 most Member States 
indicated that they were in favour of some Eu ropean coordination in this area, although there 
was no consensus on the extent a nd content of such coordination.7 
 
1.2. THE OXERA REPORT ON  IGS 
 
In order to have a comprehensiv e picture of the situation in EU Member States and a better 
insight into the functioning of existing sc hemes, the Commissi on contracted Oxera 
Consulting Ltd to prepare a repo rt - Oxera (2007) - on IGS in the EU both for life and non-
life insurance (excluding  motor insurance). The report was finalised at the end of November 
2007 and was published on the Commi ssion's website in January 20088. 
 
 
EN 7   EN 1.3. INVOLVEMENT OF  CEIOPS 
 
In its letter of 5 May 2009, the Commission asked CEIOPS9 to give its view on the feasibility 
of the various design features of a possible European approach to IGS and to update the 
Oxera report's description of existing IGS. More over, CEIOPS was asked to give its view on 
whether, if the EU were to introduce a Europe an regime for IGS, this regime should be 
extended to the pensions sector. On 30 June 2009, CEIOPS submitted its report10 to the 
Commission. 
 
1.4. OTHER CONSULTATIONS  
 
On the basis of the Oxera report, the Commissi on carried out a public consultation exercise in 
200811. It received 30 contributions, from Europ ean and national associations, insurers, 
supervisors, Ministries, a consumer panel, an IGS and CEIOPS. A public hearing was also 
held on 2 June 2008. The results of the consu ltation and hearing were put together in a 
summary feedback statement which wa s published on the Commission's website.12 
 In May and June 2009, the Commission met with representatives of CE A, FINUSE, AMICE, 
CEIOPS, EFRP and EFDI to discuss the cont ent of the forthcoming White Paper. The 
minutes of the meetings are published on the Commission's website
13. 
 
1.5. EUROPEAN PARLIAMENT AND COUNCIL  
 
In one of its recommendations arising out of  the Equitable Life Committee of Inquiry (No 
25)14, the European Parliament called on the Commission to go ahead swiftly with preparing 
legislation on IGS. 
 In addition, Article 242 of the Solvency II Directive
15 entering into force in 2012 requires the 
Commission to take into account developments and progress on a harmonised and adequately 
funded EU-wide solution for IGS and to report on this to the European Parliament and to the 
Council by 2014. 
 
1.6. IMPACT ASSESSMENT BOARD AND INTER -SERVICE STEERING GROUP  
 
An inter-services steering group was set up to monitor progress and to feed in views. The 
group comprised representatives from SG, the LS, the JRC as well as JLS, COMP, SANCO, 
 
EN 8   EN ECFIN, EMPL, ENTR and TAXUD. The minute s of the last steering group meeting have 
been sent to the IA Board. 
 The IA Board held its meeting on 10 March 2010 and issued its opinion on 12 March 2010 
asking for some modifications to the IA . The main recommendations included: 
 
• a more precise indication of the exte nt of the problem, explaining why EU 
intervention is needed and how this initiativ e relates to other policies in the field; 
• a clearer presentation of the objectives and of all relevant policy options, with an 
analysis of subsidiarity and proportionality aspects; 
• a more comprehensive overview of the exp ected impacts of the options, including 
alternatives that do not include an IGS; 
• a more explicit indication of the planned next steps in the development of policy on 
IGS. 
 
These proposed amendments were taken on board and a revised draft IA was resubmitted to 
the IA Board on 12 May 2010. The Board issued its opinion after a written procedure on 28 May 2010. It recognised that the report had been improved on a number of issues mentioned 
in the Board's first opinion and welcomed the fact  that stakeholders will be able to provide 
feedback on the White Paper and that any fo llow-up measures will be accompanied by a 
further IA. In addition, the Board requested: 
 
• to explain more clearly the likelihood of a default of insurance undertakings, the need 
for enhanced consumer protection and the need for relevant ac tion at EU level; 
• to simplify the presentation of the objectiv es and the most relevant policy options; 
• to improve the understanding of the repor t by removing repetitions and unnecessary 
details. 
 
These recommendations led to a re vision and redrafting of the text  in order to make the text 
easier to read. The section on the likelihood of default including the analysis of potential 
losses to be incurred by policyholders or taxpayers has been further developed (see in particular 2.2). The report explains more clear ly the importance of enhanced consumer 
protection in a domestic and in a cross-border setting (see in particular 3.1 and 3.2). It shows 
that although alternative measures to EU actio n exist, they do not su fficiently address the 
shortfalls identified (see pa rticular 4.2). The sections on objectives and relevant policy 
options have been streamlined and the relevant analysis has been more focuses more clearly 
on the relevant key elements and questions at  stake (see in particul ar section 5 and 6). 
 
2. PROBLEM
 DRIVERS 
 
 
EN 9   EN The integrated, competitive and stable functioning of the Internal Market for insurance 
services is affected by four problems created  by six problem drivers. Figure 1 shows the 
problem drivers (1 to 6) and the problems (I to IV) they lead to, as well as their consequences. 
In this section, the problem drivers will be di scussed one by one. The resulting problems and 
consequences will then be presented in Section 3. 
 
Figure 1 - Problem tree 
Less  integrated, competitive and stable functioning of the Internal MarketLosses can hit both life and non-life 
insurers
Existing internal risk management / 
controls and prudential requirements 
do not create a zero / non-substantial losses environmentConsumers do not know risk of failure of insurers
Consumers are not aware of IGS 
protection 
Consumers cannot compare “quality”
(VaR) of insurance products
Consumers cannot price the “quality”
(VaR) of insurance products
Single passport for insurers3. Insurers can fail and  produce substantial 
losses1. Consumers lack 
important risk-related 
information 
2. Consumers lackthe ability to process 
important risk-related 
information 
Public authorities tend not to be 
proactive but only reactive to 
financial risks
14. Distorted competition in the Internal Market for insurance 
services13. Potential disputes between 
Member  States on allocation of costs 
of insurance failures10. Decreased consumers’
confidence in the Internal Market8. Decreased wealth of large groups of non-domestic consumers (if no ex-post State intervention) or (9.) worse 
public finances (if ex-post State 
intervention)
III. Substantial losses can be 
passed on to large groups of 
unaware non-domestic 
consumers (if no-ex-post State 
intervention) or to taxpayers (if 
ex-post State intervention)Insurers can be affected by severe principal-agent problems
6. Cross-border activity 
(growing)Not all Member States have 
experienced substantial losses (taking 
place notwithstanding internal risk 
management controls and prudential regulation) 4. Low / insufficient protection of consumers 
in some Member States 
(unless ex-post State 
intervention)I. Substantial losses can be 
passed on to large groups of 
unaware domestic consumers
(if no ex-post State 
intervention) or to taxpayers (if 
ex-post State intervention)
II. Mismatch between 
consumer risk preferences and 
risk of default of domestic insurers1. Decreased wealth of large groups 
of domestic consumers (if no ex-post 
State intervention) or (2.) worse 
public finances (if ex-post State 
intervention)
3. Decreased consumers’ confidence in insurances and fin. markets
4. Suboptimal allocation of costs of 
insurance failures on domestic 
unaware consumers (if no ex-post 
State intervention) or (5.) on 
taxpayers (if ex-post State intervention)
IV.
Mismatch between consumer 
risk preferences and risk of 
default of non-domestic 
insurers5. Uneven protection of consumers in the various 
Member States
(unless ex-post State 
intervention)11. Suboptimal allocation of costs of insurance failures on unaware non-
domestic consumers (if no ex-post 
State intervention) or (12.) on 
domestic / non-domestic taxpayers 
(if ex-post State intervention)Incomplete information Residual Default Risk MS ResponsesDOMESTIC
CROSS-BORDER7. Potential financial market 
instability6. Slowdown of real economy
 
 
2.1. POLICYHOLDERS LACK AND CANNOT PROCESS IMPORTANT RISK -RELATED 
INFORMATION (PROBLEM DRIVERS 1 AND 2) 
 
For a number of reasons, it is almost impossibl e for consumers to assess the quality/security 
of insurance services:  
 First, there is a significant information gap on the side of policyholders, which prevents them 
from choosing between insurance se rvices on the basis of  their level of  security. In fact, while 
policyholders can compare insu rance undertakings' products on the basis of the premiums 
they would pay for any specific pr oduct, they hardly have any reliable information on the risk 
of failure of individual insu rance undertakings. Moreover, po licyholders are usually unaware 
 
EN 10   EN of the existence (or not) of an IGS protecting them (and up to what coverage level) when they 
take out an insurance policy. 
 Second, even if policyholders kn ow about the risk of failu re of individual insurance 
undertakings operating in the market, they can hardly put a price on such a risk.
16 
 Due to the policyholders' lack and – in general – inability to correctly process important risk-
related information
17, they are more exposed to the risk of choosing insurers which are not 
financially sound. This may lead to a system atic mismatch between policyholders' risk 
aversion18 (supposedly high, as they are looking for in surance) and the risk of an insurer's 
default which they continue to run.  
 
2.2.  INSURANCE UNDERTAKINGS CAN FAIL AND PRODUCE SUBSTANTIAL LOSSES 
(PROBLEM DRIVER 3) 
 
2.2.1.  Reasons for insurance failures 
 
Failure of an insurance undertaking may have different origins. These may or may not be 
linked to financial markets.19 
 Non-life insurance undertakings
 are less concerned by financia l market developments. Their 
losses tend to arise from non-financial liabilit ies. In fact, losses by non-life insurers are 
typically caused by higher than expected claims (due, for exam ple, to natural catastrophes, 
etc.) rather than by i nvestment losses (see Error! Reference source not found.  for the high 
variability over time of losses from natu ral catastrophes and man-made disasters).  
 Life insurers
 are much more exposed to financial market developments. Their losses are 
mainly generated by financial liabilities. Life insurers are certainly exposed to insurance 
losses from non-financial events as well, such  as unexpected rates of mortality due - for 
example – to pandemics or increased longevity. But market/investment risk is typically the main source of risk for life insu rers: indeed, on most policies, lif e insurers offer an investment 
performance guarantee to policyholders. When financial markets fall, life insurers are 
normally hit by losses arising from their financial liabilities.
20 
 In general terms, life insurance undert akings are more exposed to losses: 
 
 
EN 11   EN • When interest rates fall (thus reducing return s on assets or the discount rate applied to 
liabilities); 
• During periods of high market volatility (as an increased volatility increases the value 
of guarantees to policyholders) 
• When there are falls in equity or bond markets, driven by increased spreads. 
 
In the recent financial crisis, for instance, losse s to life insurers have mainly been caused by a 
fall in equity values (see Error! Reference source not found. ) and by the widening of 
spreads on corporate bonds (see Error! Reference source not found. ).21 Some important 
European insurers have reported particularly se vere losses and have been forced to inject 
large amounts of new capital (for example, A llianz, losses of 7.3 billion USD and a capital 
injection of 2.0 billion USD; Aegon NV, losses of 7.9 billion USD  and a capital injection of 
4.1 billion USD; AXA, losses of 1.8 billion USD and a capital injection of 2.0 billion USD - 
see Error! Reference source not found. ). 
 Apart from operational causes, losses for insura nce undertakings might also be generated by 
fraud and, more generally, by the severe agen cy problems that insurance undertakings are 
potentially subject to. These agency problems are mainly caused by the length and the "inversion" feature of the insuran ce cycle, i.e. the fact that prem iums are cashed in at an early 
stage and that claims are paid off only at a much later stage. 
 
2.2.2.   The probability of default of in surance undertakings in the EU 
 
Default occurs when an insurance undertaking is unable to meet its financial obligations. 
Because of prudential requirement s established by EU law, failures of insurance undertakings 
have not been very frequent in the past . Over the period 1996 to 2001, around 85 insurers 
have failed. And between 2001 and 2004, at least another 48 insurers (31 non life, 14 life and 
3 composites) have defaulted in the EU22. 
 The Oxera report (see in particul ar sub-section 4.1.3) provides a calculation of the Probability 
of Default (PD) by a major European insurer ra ted by Standard & Poor 's and arrives at the 
average value of 0.065%. This value corresponds  with that arrived at by the Commission 
during the preparation of this Impact Assessment using data  from Standard & Poor's on 
European insurers, updated to the year 2008 (see Error! Reference source not found. ). 
 Using Moody's Kealhofer, McQuown and Vasicek (KMV) model, the ECB monitors equity 
values and their volatilities of insurers and thus calculates the expected probability of default for the Euro area insurance sector. The median expected probability of default calculated by 
the ECB has increased significantly - to some 0.5 % - during the financial crisis (see Figure 1). 
 
EN 12   EN This figure is coherent with the default rate  in 2008 of major European insurers rated by 
Standard & Poor's, which rose to 0.404% (see Error! Reference source not found. ). 
 Neither the current (Solvency I) nor the future  (Solvency II) EU solv ency regimes create or 
can create a zero-failure envir onment for insurance undertakings.
23 On the basis of both 
historical data and model estimations, and for the purposes of this IA , one may assume that 
the PD of insurance undertakings ranges, according to economic conditions, by and large 
between 0.1% in normal conditions and 0.5% in exceptional conditions such as a financial 
crisis or the existence of particular conditi ons of weakness for insurers in a specific EU 
country . 
 On the basis of this range of probability of default of insurers, and taking into consideration 
the number of insurance undertakings present in each Member State, one can estimate the 
expected number of years between defaults of  insurance undertakings in each Member State 
under normal market conditions to be: in DE 2 y ears; in UK 2.3 years; in  FR 2.6 years; in LU 
2.8 years; in IE 2.9 years; in NL 3.3 years; in ES 3.4 years; in IT 4 years (see Table 22). 
Against this background, it can be concluded that failure of one or more insurance 
undertakings  may be expected to happen in the EU on average once every year . 
 
2.2.3.  Failure of an insurance undertaking can produce substantial losses which are passed 
on to policyholders or taxpayers 
 
Error! Reference source not found.  presents the Exposure at Default (EAD) of the 
insurance sector in each Member State and in the EU. The EAD is an estimation, based on 
technical provisions, of the maximum losses  for society that would occur in each Member 
State and in the EU in case of fa ilure of the entire insurance sector .24 These hypothetical 
maximum losses would either hit policyholders or  taxpayers, depending on the existence of 
IGS or on the possible interv ention of public authorities. Error! Reference source not 
found.  presents EAD/GDP ratios: in the EU EAD of the insurance sector represents 52.69% 
of GDP.  
 It is important to bear in mind that losses incurred by policyholders might be different in 
nature depending on the contract and on how the fa ilure is resolved. Failure of a life insurer 
may cause the loss of expected po licy benefits, which can be si gnificant particularly if the 
policy was purchased to provide for retireme nt income. Losses on savings and investment 
products may equally result in  important wealth losses, wh en guarantees given cannot be 
honoured. With regard to non-life insurance failure s, losses to policyholders may result from 
the loss of the policy benefit (e.g. protection) as  well as from the loss of premiums already 
paid in advance.  
 
 
EN 13   EN With a probability of default ranging between 0.1% and 0.5%, it is clear follows that not all 
insurers will default, and not all at the same tim e. What lessons can we learn from this with 
regard to future developments?  
 One recent indicator is the 2009 fa ilure of five insurance unde rtakings of the Greek Aspis 
Pronia insurance group, which held about 16% of the Greek life market. This failure has 
affected an estimated number of 200,000 life insurance and 600,000 non-life insurance 
policyholders. The estimated loss for consumers a nd taxpayers is estimated to be higher than 
200 million EUR.
25 Apart from this recent default, Error! Reference source not found.  
provides other examples of losses generated by  selected defaults of European insurers.26 It 
clearly shows that losses derived from past failures provide only a very general and rough 
indication of losses that might hit consumers in other Member States in the future.  
 Another indicator is the identification (see Error! Reference source not found. ) of the 
average loss produced by a failed insurer in each country or the loss happening in each 
country when its largest insurer defaults.
27 However, losses in each Member State can easily 
be higher or much higher than the average loss.28 Likewise, it is also a matter of fact that 
losses in each Member State will,  in general, be lower than those produced by the failure of 
the largest insurer. It follows, therefore, th at both the average loss and the loss produced by 
the default of the largest insurer represent only a very rough indication of future losses 
possibly hitting policyholders and be neficiaries in Member States. 
 Another way chosen by the Commission to estimate the losses that might hit policyholders in 
the future is to use a reasoned theoretical model
. The model in question allows to estimate 
policyholders' losses combining the effect of va rious elements, such as: the EAD, the PD, the 
correlation of defaults between in surers (how probable is it that  defaults happen at the same 
time), the concentration of the insurance market  (how many insurers dominate the market), 
and the severity (Loss Given Default) of the losses in the case of default. 
 The Methodological report (MR) explains in  detail how the Commission, by means of a 
Vasicek model, has estimated the losses that mi ght hit consumers in each Member State in a 
one year time horizon.
29 The order of magnitude of the es timated loss distributions has been 
tested on the basis of selected past failures in  the EU. Past failures tend to fall in a range 
between the 75% and the 99% percentile of the estimated loss distributions.30 
 This means in conditions of serious stress,  and in the total absence of IGS in Member States,
 
that losses resulting from failures of insura nce undertakings happening in a one year time 
horizon, that might (with a 99th confidence level) be passed on to policyholders or taxpayers, 
may amount to: 
 
 
EN 14   EN • 51.5 billion EUR for total (lif e and non-life) insurance in  the whole EU, which is 
some 4.9% of total EU annual gross written premiums; 
• 45.8 billion EUR for life insurance only, whic h is some 6% of annual gross written 
life premiums; 
• 6.6 billion EUR for non-life insurance only, which is some 2.3% of annual gross 
written non-life premiums.31 
 
In conclusion, when EU insura nce undertakings fail, EU policyholders or taxpayers can incur 
very significant losses .32 
 
2.3. THE INSUFFICIENT (PROBLEM DRIVER 4) AND UNEVEN (PROBLEM DRIVER 5) 
PROTECTION OF POLICYHOLDERS  
 
2.3.1.  The fragmented landscape of IGS protection in the EU 
 
The question whether an IGS needs to be in troduced depends on the risk of failure of 
insurance undertakings and the pot ential impact that such failures could have on consumers. 
Given that clear evidence suggest s that the latter can be consider able, the question arises as to 
the ability of the current (fragmented) framew ork of IGS to mitigate the risk or insurance 
failure or to reduce the losses for policyholders and beneficiaries if th e risk materialises.  
 Unlike the banking and securities sectors, th e insurance sector is not covered by any 
European legislation on guarantee schemes. Of  the 30 EEA countries, 12 operate one (or in 
some cases more than one) general IGS as shown in Error! Reference source not found. . In 
particular, six countries cover both life and non-life (excluding motor) insurance (ES, FR, 
LV, MT, RO and UK); three countries cover life insurance only (BG, DE and PL); and another three countries cover non-life  insurance only (DK, IE and NO).
33 
 History, including the recent financial crisis, has shown that public authorities generally tend 
to be more reactive than proactive towards handling risks of negative shocks hitting the 
financial sector. This is illustrated by the f act that many IGS were introduced following a 
major default of one or more insurance undert akings or have been triggered by insurers 
experiencing serious financial di fficulties in a given Member St ate. Where no IGS exists, this 
is normally due to the absence to date of major defaults.  
  
2.3.2.  Loopholes in the protection of policyholders as  a result of the (non) existence of  IGS 
 
 
EN 15   EN Given the limited number of existing IGS, a la rge number of policyholders in the EEA have 
no IGS protection whatsoever against the risk of failure of an insurance undertaking (both life 
and non-life (excluding  motor insurance)).34 According to the Commission's estimate (see 
Error! Reference source not found. ) the share of the EEA market - in terms of gross written 
premiums - which is not covered by any IGS is  35% for the whole insurance sector, 26% for 
life and 56% for non-life.  
 Error! Reference source not found.  shows the estimated funds av ailable in existing national 
IGS. This table read together with Table 31 shows that there might be situations whereby 
even already existing IGS are not able to fully absorb total losses. For example, 
notwithstanding the existence of an IGS, majo r defaults in DE, FR and UK may amount to: 
1.3, 1.9 and 2.0 billion EUR respectively in normal times and 6.9, 10.1, 14.1 billion EUR respectively in situations of crisis. 
 This means that, in a situation of market st ress and taking into account existing IGS, losses 
that might (with a 99
th confidence level) be pa ssed on to policyholders or taxpayers for failure 
of an insurance undertaking happening in a one year time horizon may amount to: 
 
• 46.5 billion EUR for life and non-life (total ) insurance together  in the whole EU; 
• 41.3 billion EUR for life insurance only; 
• 5.9 billion EUR for non-life insurance only.35 
 
In conclusion and taking into consideration funds available in existing IGS, significant losses 
stemming from the failure of insurance undertak ings can be passed onto EU policyholders or 
taxpayers .36 
 
2.3.3.  Loopholes in the protection of policyholders as a result of heterogeneous design 
features of existing IGS  
 
Loopholes in the protection of policyholders can al so stem from differences with regard to the 
design features of existing IGS.  There are significant differe nces between national IGS not 
only in terms of whether a scheme exists at a ll and whether it has a general or a specific 
coverage, but also in relation to other aspe cts such as: geographical scope (home country 
principle, host country principle37, etc), eligibility restrictions, protection limits, nature of 
intervention, funding arrangement s, financial capacity, etc. 
 Error! Reference source not found.  provides a detailed analysis of the design features of 
existing IGS.
38 It is very difficult to analyse in deta il the consequences (i n terms of loopholes 
in the protection of policyholders  in Member States) of all  these differences because of the 
 
EN 16   EN complexity of the elements involved.39 It has therefore not been po ssible to carry this out in 
this IA. Attention has instead been focused on  two of the main design features for IGS: 
policies covered and geographical scope.40 
 
2.4. CROSS -BORDER INSURANCE ACTIVITY IN THE INTERNAL MARKET (PROBLEM DRIVER 
6) 
 
Sub-section 2.4.1 describes the size and the featur es of cross-border insurance activity in the 
EU. Sub-section 2.4.2 quantifies the losses that could hit po licyholders from cross-border 
insurance activity in the EU. 
 
2.4.1.  The non-negligible (and growing) cross- border insurance activity in the EU 
 
Although cross-border activity41 is still relatively limited in the major EU insurance markets, 
it has increased over time and it is likely to increase further in the future. Some major 
European insurers (for example AVIVA) ha ve, for instance, re cently announced their 
intention to turn their EU subsidiaries into branches.42 This should help them to make better 
use of their capital particularly in light of th e fact that Solvency II will not introduce the 
group support regime as initia lly proposed by the Commission. 
 In 2007, the volume of exported insurance services  in the EU - in terms of gross written 
premiums  – amounted to 42.8 billion EUR, of whic h 11.8 billion EUR have been sold via 
branches and the rest via Free Provision of Services (see Error! Reference source not 
found. ). Cross-border insurance activ ity is mostly related to lif e insurance, which in 2007 
amounted to 33.2 billion EUR (see Error! Reference source not found. ), while non-life 
insurance activity covered in  total 9.6 billion EUR (see Error! Reference source not 
found. ).  
 Cross-border activity represents 4.10% of total gross premiums written in the EU. The share
 
of EU-wide exported  activity varies however quite significantly between Member States. LU 
(98.89%), IE (57.24%), MT (43.32%), and EE  (32.62%) are the Member States where 
exported activity is the most developed as a share of tota l activity. The share  of EU-wide 
imported  activity is instead relatively homogene ous between Member States. LT (13.45%), 
LV (12.60%) and CZ (11.97%), are the Member St ates where imported ac tivity is the most 
important as a share of total activity (see Error! Reference source not found. , Error! 
Reference source not found. , Error! Reference source not found.  and Error! Reference 
source not found. ) 
 
 
EN 17   EN The highest volumes  of exported  insurance activity are to be found in IE and LU (see Error! 
Reference source not found.  and Error! Reference source not found. ). Total insurance 
gross written premiums exported by IE and LU amount in fact to  23.7 and 11.0 billion EUR 
respectively (81% of the total EU). If one focuses specifically on exported life  insurance 
activity, it can be seen that this is very concentrated in the same two countries (see Error! 
Reference source not found.  and Error! Reference source not found. ): 20.5 and 10.4 
billion EUR are the volumes of life insura nce premiums exported from IE and LU 
respectively (93% of the total EU). Exported non-life  insurance activity (see Error! 
Reference source not found.  and Error! Reference source not found. ) amounts instead to 
9.6 billion EUR (22% of total EU). It is concen trated in a few countri es: IE, FR, DE, BE, and 
DK. 
 The highest volumes
 of imported  insurance activity are in UK, DE, IT and FR (see Error! 
Reference source not found.  and Error! Reference source not found. ). Total insurance 
gross written premiums imported amount to  15.5, 6.0, 6.4 and 6.1 billion EUR respectively 
(77% of the total EU). In terms of imported life  insurance activity, the highest concentration 
is in the same four countries (see Error! Reference source not found.  and Error! 
Reference source not found. ). Imported non-life  insurance activity (see Error! Reference 
source not found.  and Error! Reference source not found. ) is instead mainly concentrated 
in the UK and DE. 
 
2.4.2.  Insufficient protection of cross-borde r insurance activity by existing IGS 
 
Error! Reference source not found.  shows in detail whether ex isting IGS cover domestic 
and cross-border life insurance activity. As set out in Error! Reference source not found. , 
IE and LU do not have a home principle base d IGS (see Endnote 37) in place for life 
insurance and only four Member States (LV, MT, PL, UK) ha ve a host principle based IGS. It 
follows that 62% (see Error! Reference source not found. ) of cross-border life-insurance 
activity is not covered by any IGS today. 
 Error! Reference source not found.  shows in detail to what extent existing IGS cover 
domestic and cross-border non-life
 insurance activity. While insu rance sold out of IE and FR 
is covered by a home principle based IGS, insu rance sold out of DE, BE, DK, LU and IT is 
not protected by a similar scheme ( Error! Reference source not found. ). Overall, 23% (see 
Error! Reference source not found. ) of non-life cross-border activity in the EU is not 
covered by any IGS. 
 Error! Reference source not found.  and 42 show the losses that can be "exported" to other 
Member States when providing cross-border in surance services. In a situation of market 
stress, losses that might (with a 99
th confidence level) result from exported business and hit 
non-domestic policyholders or non-domestic taxpayers in a one year time horizon, may amount to:
43 
 
EN 18   EN  
• 1.80 billion EUR for total insu rance, which is around 3.5% of total (life and non-life) 
annual gross written premiums paid in the EU (or 1.77 billion taking into account 
existing IGS); 
• 1.40 billion EUR for life insurance, which is  around 3.1% of life annual gross written 
premiums paid in the EU (or 1.37 billi on EUR taking into a ccount existing IGS); 
• 0.25 billion EUR for non-life insurance, which is around 3.8% of non-life annual 
gross written premiums paid in the EU (or 0.24 billion EUR ta king into account 
existing IGS44). 
 
Error! Reference source not found.  demonstrates for each Member State the losses that 
might hit domestic policyholders or taxpayers fr om (imported) cross-border insurance which 
is not covered by existing (home and host) IGS avai lable funds. In a situation of market stress 
and taking into account  the c overage of existing home and host state principle based IGS in 
the EU, losses that might (with a 99th confidence level) resu lt from imported business  and hit 
domestic policyholders  or domestic taxpayers in a cross- border context in  a one year time 
horizon, may amount to: 
 
• 1.05 billion EUR for total insurance; 
• 0.82 billion EUR for life insurance; 
• 0.14 billion EUR for non-life insurance.45 
 
It follows from the above that significant losses stemming from de faults of insurance 
undertakings operating in a cross-border se tting might be exported to non-domestic 
policyholders. Similarly domestic policyholders might suffer important losses if they have 
purchased policies from a defaulting insurance undertaking in another Member State, when 
these losses are not covered by IGS in th e home and/or the host Member State. 
 
3. PROBLEMS  AND  CONSEQUENCES 
 
3.1. SUBSTANTIAL LOSSES PASSED ON TO LARGE GROUPS OF POLICYHOLDERS OR 
TAXPAYERS (PROBLEMS I AND III) 
 
As shown in Error! Reference source not found. , any insurance failure may affect up to  
several hundreds of thou sands of policyholders.  Quantifying and estimating the exact number 
has not been possible in this IA, as statistics on the number of the polic yholders of individual 
insurance undertakings in Member States ar e currently not availabl e to the Commission.  
 Alternatively, when an insurer fails, the State may intervene ex-post, and absorb the losses 
caused by a failing insurance undertaking. In this cas e, the totality of taxpayers is hit by the 
 
EN 19   EN losses produced by the failure . Even if the effect on indivi dual taxpayers might be limited, 
overall, the effect on public fina nces could be significant. 
 
3.1.1.  Negative consequences of lo sses passed on to policyholders  in a domestic context (no 
ex-post State intervention) 
 
Losses passed on to policyholders can substa ntially reduce their wealth and income, 
particularly for households.  
 Life insurance policies
 are generally important com ponents of households’ savings. 
Protecting life insurance policies, therefore, means securing people's life savings and thus 
protection them and their families from financial hardship. It can be estimated that policyholders' equity in the life EU insurance system amount s to some 5,696 billion EUR (see 
Error! Reference source not found. ). By contrast, losses that  policyholders may incur under 
present conditions may amount to 41.3 billion EUR.  
 In the non-life insurance
 sector, the reduction in policyholder s’ wealth may also be important 
but it presents different features. These losses generally affect only those policyholders with 
outstanding (or already incurred bu t as yet unreported) claims against the failed insurer, i.e. 
only a percentage of all policyholders.46 In concrete figures, the aggregate value for non-life 
claims can be estimated at around 821 billion EUR (see Error! Reference source not 
found. ) while the estimated losses to be incurred by policyholders in the non-life sector are 
around 5.9 billion EUR.  
 Furthermore, the failure of in surance undertakings together w ith the absence of policyholder 
protection mechanisms, are likely to decrease co nsumer confidence in the insurance industry. 
This may result in a weaker insurance sect or, and may eventually generate financial 
contagion between insurers. An OECD study (Yas ui T. (2001)) reports for example that "the 
insurance industry is built on public's  confidence in the business, which is in fact vulnerable", 
so that "without the ab ility to appropriately assess the ri sks of individual companies, the 
general public may lose their confidence in the soundness of other insurers", and "the 
bankruptcy case of a given insurer may cast doubts as to the soundness of other insurers and 
induce a run on them. Such a run was actually observed in some countries, particularly on 
companies of poor reputation", similarly to the banking sector, as "the line of reasoning is in 
fact analogous to the argu ment of the banking sector".
47 
 In addition, unprotected insurance failures may l ead to a slowdown of the real economy for 
two reasons. First, the reduc tion in policyholders' wealth  can severely affect their 
consumption behaviour. Second, when insurance companies fail, the economy's overall ability to manage risk is reduced.
48 There is evidence that the collapse of insurance 
 
EN 20   EN undertakings can significantly harm the deve lopment of the econom y over the following 
months or years.49 The likelihood of such disruptions is  clearly greater where the insurance 
market is concentrated or the collapse a ffects many undertakings at the same time. 
 Finally, losses of insurance undert akings passed on to policyholde rs can also cause or deepen 
financial market turbulence and instability as  policyholders can react to losses with sudden 
mistrust for the whole insurance sector leading them to surrender their policies en masse . To 
put it differently, when a large number of polic yholders decide to surrender their policies at 
the same time, this may lead to an exacerbated  downward spiral in st ock market prices as 
insurers may have to sell larg e quantities of assets in order to obtain the necessary liquidity.
50 
 To summarize, when substantial losses ar e passed onto large groups of domestic 
policyholders, and if there are no consumer protection mechanisms in place (and the State 
does not intervene ex-post) to absorb these lo sses, this may trigger a series of important 
negative consequences.  
 
3.1.2.  Negative consequences of losses passed on to taxpayers in a domestic context (ex-post 
State intervention) 
 
Losses passed on to domestic taxpayers may lead to a deterioration of domestic public 
finances which may obviously be more important  if the losses are subs tantial loss and the  
state of public finances is weak. Error! Reference source not found.  shows the estimated 
losses of policyholders as a pe rcentage of GDP: these may amount up to 0.42% of EU GDP. 
During the recent financial crisis several Member  States have, for example, intervened after 
approval by the Commission to support insuran ce undertakings through state aid: absorbing 
impaired assets (e.g. Dexia: 3,1 billion EUR and ING: 0.75 billion EUR) or recapitalising 
them (e.g. Aegon: 3.0 billion EUR;  Ethias: 1.5 b illion EUR;  ING: 4.75 billion EUR;  KBC: 
1.5 billion EUR).  
 Moreover, losses from insurance failures that ar e absorbed by public finances also eventually 
lead, due to public budget cons traints, to a reduction in pub lic spending (for example on 
public services offered to citizens) for an am ount equal to the loss. This may, depending on 
the amounts involved, have significant l ong-run effects on th e real economy. 
 
3.1.3.  Negative consequences of losses passed on to policyholders in a cross-border context 
(no ex-post State intervention) 
 
Losses passed onto non-domestic  policyholders can cause subs tantial reductions in their 
wealth. Error! Reference source not found.  shows that in 2007 the embedded EU value for 
 
EN 21   EN non-domestic policyholders in the insurance s ector as a share of GDP was 1.70%. This 
includes an estimated value of 178.7 billi on EUR covered by life-insurance policies ( Error! 
Reference source not found. ) and 31.1 billion EUR attributed to the non-life sector. With 
regard to losses th at non-domestic consumers might incu r, taking into acc ount existing IGS, 
these may amount up to 0.82 billion EUR (life insurance) and 0.14 billion EUR (non-life 
insurance) respectively.  
 Furthermore, the failure of insurance undertakings without any policyholder protection 
mechanisms in place in the home and/or host Member State may decrease consumer 
confidence in the Internal Market. 
 Finally, disputes at political level may arise between Member States regarding the allocation 
and, where appropriate, compensa tion across countries of the lo sses generated by the failure 
of insurance undertakings operating cross border. 
 
3.1.4.  Negative consequences of losses passed on to  taxpayers in a cross-border context (ex-
post State intervention) 
 
Losses passed on to non-domestic taxpayers may have a negative impact on the public 
finances of another Member-State which may obviously be more important when the loss is 
substantial and the state of  public finances is weak. 
 Furthermore, the losses from insurance failures that are absorbed by th e public finances of 
another Member State also eventually lead, due to public budget constraint s, to a reduction in 
public spending (for example on pub lic services offered to citi zens) for an amount equal to 
the loss. This may, depending on the amounts invol ved, have significant long term effects on 
the real economy. 
 In addition, when non-domestic  taxpayers are asked to abso rb the losses of a defaulted 
insurance undertaking operating cross-border, this may adversel y affect public opinion in the 
Member State(s) concerned as well as upset consumer confidence in the Internal Market. 
Finally, disputes at political level may arise between Member States regarding the allocation, 
and where appropriate, compensatio n across countries of the losse s generated by the failure of 
insurance undertakings operating cross-border. 
 
3.2. 
MISMATCH BETWEEN THE RISK PREFERENCE OF CONSUMERS AND THE RISK OF 
DEFAULT OF AN INSURER (PROBLEMS II AND IV ) 
 
 
EN 22   EN 3.2.1.  Sub-optimal allocation of losses from insur ance failure in a domestic or cross-border 
context (on policyholders or taxpayers) 
 
As set out above, individual policyholders are ha rdly able to process important risk-related 
information which leads him/her to underestimat e the risk of his/her insurer going bankrupt. 
This creates a mismatch with  the risk preference of po licyholders which may cause a 
suboptimal allocation of the losses caused by the failure, because consumers are convinced 
that they are insured and that they will consequently not be a ffected by the loss resulting from 
a default. 
 The resulting welfare problem stems from the ab sence of an efficient insurance market. An 
inefficient insurance market does not allow soci ety to maximise social welfare as some parts 
of society remain exposed to an excessive amount  of risk compared with  their individual risk 
preference as well as with their efforts to be  insured/protected agains t negative shocks. In 
other words, a welfare loss occurs because of an  insufficient redistribution of negative shocks 
in society.
51 This argument holds true unless the public authority – a Member State – 
intervenes ex-post to absorb losses. This, in turn, creates another problem as the cost from 
absorbing the losses will in th at case be incurred by the tota lity of taxpayers which may 
produce further efficiency losses.52 
 
3.2.2.  Distorted competition in the Internal Market for insurance services 
 
The coexistence of different systems of IGS (including their total absence in some Member 
States) may create uneven leve ls of protection for policyhol ders purchasing insurance 
services in a Member State. This argument is particularly important in the context of an 
internal market that enables and encourages  consumers to buy insu rance cross-border.  
 To illustrate this point, a different protection of policyholders takes place in an (importing) 
Member State in the following situations (see also Error! Reference source not found. ): 
 
• an IGS is in place in  the exporting Member State based on the home state 
principle, while there is no IGS in the importing Member State (cross-border activity is more protected than domestic activity); 
 • an IGS is in place in the exportin g Member State based on the host state 
principle, and in the importing Member Stat e based on the home state principle (cross-
border activity less protected than the domestic activity); 
  
 
EN 23   EN • an IGS is in place in the exporting Me mber State based on the home plus host 
state principle, while ther e is no IGS in the importing Member State (cross-border 
activity more protected than the domestic activity); 
  • no IGS is established in th e exporting Member State, while there is an IGS in 
the importing Member State based on the ho me state principle (cross-border less 
protected than domestic activity). 
 
Error! Reference source not found.  and 48 show the cases of an uneven level of protection 
in (importing) Member States with regard to cross-border life and non- life insurance activity. 
 Differences in IGS treatment between domestic and foreign EU insurers may result in an 
unlevel playing field and may cau se distortions in competiti on between these two groups of 
insurers. These competitive distortions are cl osely related to the general inability of 
consumers to correctly process complex ri sk-related information. Consumers may, for 
instance, prefer to buy policies that are cove red by an IGS to the detriment of insurers 
offering policies that are not covered. On the other hand, be longing to an IGS entails 
additional costs which will ultimately be borne  by policyholders. Alternatively, consumers 
might prefer to buy lower priced insurance services because they are incapable of 
appreciating correctly the importance of IGS protection. This would again distort competition 
to the detriment of insurers whic h offer protected insurance products.
53 
 
3.3. SUB-OPTIMAL DEVELOPMENT OF THE INTERNAL MARKET FOR INSURANCE SERVICES  
 
Ideally, in a perfectly functioni ng internal market, cross-bord er and domestic activity should 
receive the same protection under IGS.  Error! Reference source not found.  clearly shows 
that such is not the case. A large part of cross-border activity (54%) in the EU remains 
unprotected as compared with dom estic activity (34%). In othe r words, existing national IGS 
are designed in such a way that domestic insura nce activity is better protected than cross-
border activity . 
 For life insurance, 62% of cr oss-border activity is not covered (as compared to 25% of 
domestic life activity), while only 23% of cross-border non-life activity lacks relevant 
protection (as compared to 57% of domestic non-life activity). 
 There is, in conclusion, an important discrepa ncy in the coverage provided by existing IGS 
with regard to domestic and cr oss-border insurance activity. Th is argument holds particularly 
true for the life insurance sector.  
 
EN 24   EN  
4. BASELINE SCENARIO, POSSIBLE ALTERNATIVES, SUBSIDIARITY AND 
LEGAL BASIS FOR ACTION, IN TERNATIONAL COMPARISONS 
 
It follows from the above that the coexistence of different national approaches to IGS raises 
concerns about comprehensive and even consumer  protection in the EU. It may also lead to 
competitive distortions and may hinder the development of a single market in insurance. The question now arises whether these problems can be best addressed by Member States andr 
whether there are adequate alternativ es to specific EU action on IGS.  
 
4.1. H
OW WOULD THE SITUATION EVOLVE WITHOUT ACTION AT EU LEVEL ? 
 
Despite the introduction of a more risk-based solvency regime, Solvency II will not create a 
zero-failure environment. A certain  residual default risk will conti nue to exist. In the case of 
failure, the loss will be passed on to policyholders.  
 Although existing IGS regimes lead to an uneven and insufficient protection of policyholders 
within and across Member States, there are no  signs that Member States are taking or 
planning initiatives in order to remedy the situation.  
 On the other hand, the scale of cross-border insurance activity in the EU  is expected to 
increase. This is not only due to growing ma rket integration in Europe, but also to the 
recently introduced Solvency II requirements. The lack of recognition of group support has 
already prompted some interna tional insurance groups  to turn some or all of their EU 
subsidiaries into branches.  An increasing number of branches  might alter the existing IGS 
landscape in the EU, thereby possibly exacerbating the existing shortfalls. 
 
4.2. ARE  THERE  VIABLE  ALTERNATIVES  TO SPECIFIC  EU ACTION  ON  IGS? 
The importance of introducing an IGS depends  on the risk of failure of insurance 
undertakings and the potential impa ct that such failures could ha ve on consumers. This raises 
the question as to what alternative protection mechanisms are available at national or at 
European level to mitigate the risk of insurance failure or to reduce the losses for policyholders if the risk materialises. 
Prudential regulation and risk management:  The Solvency II Framework Directive
1 which 
will become applicable by 31 December 2012 provi des for a risk-based, economic approach 
                                                 
1  Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the 
taking-up and pursuit of the business of Insurance and Reinsurance (recast), OJ L 335, 17.12.2009, pp. 
1-155. 
 
EN 25   EN to solvency. It requires insurance and reinsura nce undertakings to hold sufficient capital to 
cover their obligations over a 1-year time hor izon subject to a 99.5% VaR confidence level. 
This should ensure that failure of an insure r occurs no more often than once in every 200 
cases. Effective risk management and compre hensive governance structures are cornerstones 
of the future solvency system, in addition to capital requirements and appropriate supervisory powers of varying degrees of intensity. In spit e of the many safeguards contained in the new 
solvency regime, Solvency II will not amount  to a zero-failure regime. It is widely 
acknowledged that it would be too costly to set solvency requirem ents at a level that would be 
sufficient to absorb all unexpected losses. 
Preferential treatment of policyho lders in winding-up proceedings:  in the event of the 
winding up of an insurance undertaking, curren t EU winding-up legislation offers Member 
States a choice between two alternatives in national law for giving pr iority treatment to 
policyholders over other creditors of the insurer in liquidation
2. However, reliance on 
winding-up proceedings may not be workable in practice. Firstly, there may not be a 
sufficient amount of assets for the protection of  policyholders giving rise to uncertainty over 
whether policyholders will be compensated. S econdly, winding-up proceedings of insurance 
undertakings are not only complex but also ex pensive and time-consuming. This may create 
serious liquidity shortages for policyholder s with outstanding claims at the time of 
insolvency, if their claims cannot be satis fied within a reason able period of time. 
Case-by-case government intervention:  case-by-case solutions such as ex-post government 
interventions, while by their nature flexib le, also have serious drawbacks. Unequal 
interventions may raise concerns regarding fair ness and transparency, as  relevant decisions 
are made on an ad-hoc basis rather than accordi ng to a set of pre-design ed rules. In addition, 
case-by-case interventio n may be perceived as privileg ing larger undertakings thereby 
incentivising risk and creating moral hazard th rough the assurance of safety nets for which 
others have to pay. Ad-hoc interventions may create uncertain ty both for policyholders and, 
depending on their financing, fo r taxpayers and the industry.  
Additional information and enhanced transparency:  Approaches which enhance 
transparency and information requirements seek  to strengthen policyholders' capacity to 
choose the most appropriate insurance product fo r themselves. These approaches rely on the 
assumption that relevant information is properl y understood and incorporated in the decision-
making process of policyholders. Particularly in Member States where the policies of 
domestic and incoming insurers are subject to different levels of IG S protection, enhanced 
information may in principle alleviate concer ns about consumer prot ection within Member 
States. However, it is highly unlikely that policyholders are capable of understanding and 
processing all relevant information, particular ly with regard to cross-border insurance 
business. Moreover, additional information does not address the issue of the differential consumer protection between different Member  States and the fragmented IGS landscape 
within the EU as such, i.e. the l ack of IGS in many Member States. 
 
4.3. S
UBSIDIARITY ANALYSIS AND LEGAL BASIS  
 
                                                 
2  See Article 10 of Directive 2001/17/EC of the European Parliament and of the Council of 19 March 
2001 on the reorganisation and winding-up of insurance undertakings, OJ L110, 20.04.2001, pp. 28-39. 
 
EN 26   EN In its sentence of 4 December 1986 (Case 205/84) , the European Court of Justice gave four 
reasons why policyholders need special protection: 
 
1) insurance is a highly particular service because it is linked to future events, the 
occurrence of which is uncertain at the time a contract is concluded; 
2) an insured person may find himself in a very  precarious position if he does not obtain 
payment after filing a claim for compensation; 
3) it is very difficult for a person seeking insura nce to assess the terms of a contract and 
the outlook for the insurer’s future financial position; 
4) insofar as insurance has become a mass phenom enon, it is just as essential to protect 
the interests of third parties. 
 
Although action at Member State le vel could in principle contribu te to address some aspects 
of the problems that have been identified, it  would also leave some important aspects 
untouched. 
 In particular, Member States acting on their own would not be able to appropriately address 
the problems due to the coexistence of inconsis tent features in the mechanisms  set up to 
protect policyholders. It follows, that in accordance with the principles of subsidiarity and 
proportionality as set out in Ar ticle 5 TFEU, the obj ectives of the propo sed action cannot be 
sufficiently achieved by Member States and can therefore be bette r achieved by the EU. 
Relevant proposals will not go beyond what is  necessary to achieve the objectives pursued. 
Only EU action can ensure that all policyho lders and beneficiarie s acquiring insurance 
policies in the EU benefit from  equal and comprehensive prot ection in the event that an 
insurance undertaking defaults, which also ensures a level play ing field and thereby promotes 
further integration within the Internal Market. 
 The legal basis for EU action in  the insurance field is to be  found in the Treaty provisions 
related to free provision of services. According to Article 3 of the EU Treaty, the EU pursues 
the objective of an Internal Market charac terised by the free movement of goods, persons, 
services, and capital. Article 26 of the Treaty  of the Functioning of the European Union 
(TFEU) further states that the Internal Mark et shall constitute an area without internal 
frontiers in which the free movement of goods, persons, services and ca pital is ensured in 
accordance with the provisions of the TFEU Tr eaty. Any follow-up action is likely to be 
based on Article 53 (2) of the TFEU which is th e legal basis to adopt EU measures aimed at 
achieving the Internal Market in financial services. 
 
4.4. IGS
 OUTSIDE EUROPE  
 
A number of countries outside  the EU have already estab lished IGS. In North America 
schemes for life and non-life insu rance have been established in Canada and in the USA. 
 
EN 27   EN Already in the 1970s the USA established distin ct IGS, covering the life and non-life sector 
respectively, in each State. Before doing busin ess in another State, insurance undertakings 
must be licensed in that State and must adhere to its IGS. Sub-section 4.6 of the Oxera report 
provides an overview of the main operationa l characteristics of the US IGS system.54 
 In the Asia-Pacific region, Japan and Korea ha ve established national schemes, covering both 
life and non-life insurance. Re garding Japan, the N on-life Insurance Polic yholders Protection 
Corporation and the Life Insurance Policyholders Protection Corporation were  established in 
1998.
55 The OECD reports the existence of IG S for life and non-life insurance also in 
Malaysia, Taiwan, Singapore and the Philippines.56 
 
5. OBJECTIVES OF AN EU ACTION 
 
Taking into account the domestic and the cross-border context, pot ential future EU action on 
IGS protection should pursue the following objectives:  
 MAIN OBJECTIVES  
5.1. 
OBJECTIVE 1: ENSURE AN EVEN AND COMPREHENSIVE PROTECTION OF 
POLICYHOLDERS  
 
EU action on IGS should ensure an adequate ly high and even prot ection of policyholders, 
sufficiently reducing the risk that the non-paymen t of claims by insurers  will mean substantial 
losses passed on to policyholders or taxpayers. Relevant action should therefore ensure the 
following: 
 
1. that protection mechanisms are present in all Member States to protect policyholders 
and that their resources are ad equate in all Member States; 
2. that the geographical scope of protection schemes does not maintain or produce 
loopholes in the protection of polic yholders in any Member State;57 
3. that other design features of  protection schemes do not maintain or produce loopholes 
in policyholder protection in any Member State.  This is particular ly important as the 
geographical scope is strongly intertwined w ith other design features: when these are 
not sufficiently homogeneous, loopholes in th e protection of policyholders in Member 
States can arise in spite of a harmoni sed geographical scope throughout the EU. 
 
SUPPORTING OBJECTIVES 
 
EN 28   EN  
5.2. OBJECTIVE 2: AVOID COMPETIVE DISTORTIONS  
A harmonised framework on IGS protection at EU level should also aim at contributing 
towards a level playing field between in surance companies and improving competitive 
neutrality of business conducte d by domestic undertakings a nd incoming EU insurers who 
operate under the freedom to provide servic es or who provide insurance via branches. 
 
5.3. OBJECTIVE 3: REDUCE ADVERSE INCENTIVES  
 
EU action should ensure that the design features  of the protection mechanisms minimise the 
risk of moral hazard for policyholders, insurers and supervisors/public authorities. It has been 
argued that the existence of a safety net in the form of an IGS, may lead consumers to be less 
inclined to assess the financial situation of the insurer that they contract with and to make a 
prudent selection. However, given the difficulty for consumers to correctly assess risk related 
information it can be argued that the introduc tion of a protection mechanism will not provide 
for the wrong incentives. Similarly a harm onised framework on IGS should prevent tax-
payers from ultimately bearing the costs of an  undertaking's mismanagement by introducing a 
legal framework which is fina nced by the undertakings th emselves and that does not 
incentivise excessive risk-taking. 
 When there is a safety net to protect the intere sts of policyholders, supervisors might feel less 
pressured to carry out their supervision. Th e design of the protection mechanism should 
therefore also ensure that pot ential moral hazard problems in  relation with supervision are 
minimised. 
 
5.4. 
 OBJECTIVE 4: ENSURE COST EFFICIENCY  
EU action on IGS must strike the right balance between the benefits to policyholders and the 
costs linked to the protection offered. This mean s that both welfare cost s of protection as set-
up costs need to be minimised. In the end, an IGS th at is not cost efficien t will lead to higher 
costs for policyholders. 
Minimise welfare costs of protection 
 
From a societal point of view, the effects a ssociated with the introduction of protection 
mechanisms in the case of insurance failu re are to a large extent distributional .58 If a 
protection mechanism exists, the losses in the case of failure are shifted from the 
policyholders concerned to a larger population. In other words, the protection funds will 
absorb an amount of losses that is equal to th e losses that would hit consumers (or taxpayers) 
in the absence of a protection mechanism .59 
 
 
EN 29   EN Under this distributional angle, the argument th at the introduction of a protection mechanism 
will lead to excessive costs for society must be seen in the right perspective: the costs - in 
terms of financial volume - of the default of an insurer remain by and large the same , but 
resources to absorb them are paid by different  groups of individuals and thus might entail 
welfare costs of different degrees.60 Welfare costs are very difficu lt to estimate quantitatively, 
but they can be assessed qualitatively in the light of the allocation of losses caused by an insurance failure. Furthermore, welfare costs ca n be determined by induction when looking at 
the resources needed by the protection mechanis m chosen: the higher the resources mobilised, 
the higher the possibility of welfare costs. Finally, welfare costs can  also be qualitatively 
analysed in terms of possible ad verse incentives produced by IGS. 
 
Minimise set-up and operation al costs of protection 
 
Welfare losses represent the main costs for so ciety that can stem from the creation of a 
protection mechanism. However, when a prot ection mechanism is set up, it generally also 
entails set-up and operational financial costs
. These costs must also be taking into account in 
assessing whether the benefits of protecting policyholders' claims outweigh the possible costs 
linked to the protection offered.  The objectiv e of minimising set-up and operational costs 
also includes the objective of respecting the existing supervisory structure as much as 
possible as well as to adequa tely taking into account Eur opean rules on state aid. As 
competitive distortions between insurance undert akings operating in the same Member State 
may also be generated when protection is linke d to implicit or explicit Member State support, 
state-supported funding mechanisms that can  create competitive distortions should be 
avoided. 
 
5.5. OBJECTIVE 5: ENSURE MARKET CONFIDENCE AND STABILITY  
EU action on IGS should finally aim at enha ncing market confidence and furthering the 
stability of the EU internal ma rket in insurance services. By increasing consumer confidence 
in insurance undertakings and products, an IG S may contribute to promote consumer demand 
and finally enhance the stability of the financial system. 
 
6. ANALYSIS  OF AVAILABLE  POLICY  OPTIONS 
 
In order to enhance readability, Figure 2 shows all available po licy options that are analysed 
in this IA. An extended list of pol icy options is set out in Annex A. 
 
Figure 2 - Option tree 
 
 
EN 30   EN 1.    Nature of intervention
1.1   No action1.2.   Further reduce the probability of failure1.3   Ex-post protection mechanisms1.4   Explicit unlimited public guarantee
1.5   Explicit limited guarantee (IGS)
2.   Guarantee size (IGS funding needs)
2.1  No action2.2  Harmonisation
3. Tools of a EU action on IGS3.1 No action 3.2 A coordinated EU non-binding approach3.3 Case-by-case legally binding interventions
3.4 A legally binding EU-wide approach to IGS
4. Scope of EU level IGS binding intervention
4.1 No action 4.2 Minimum scope of harmonization
4.3 Maximum scope of harmonization6. Role of an insurance guarantee scheme6.1 No action (harmonization) at EU level6.2 Last resort protection
6.3 Failure prevention and last resort prot.
7. Geographic scope7.1 No action 7.2 Home state principle
7.3 Host state principle
7.4 Home plus Host state principle
7.5 Home state principle with lead supervisor perimeter
8. Policies covered8.1 No action 
8.2 Life only
8.3 Non-life only8.4 Life and non-life
8.5 Life and selected non-life
9. Eligible claimants9.1 No action 
9.2 Natural and legal persons
9.3 Natural and selected (SME, etc.) legal persons
9.4 Natural persons only
10. Timing of funding10.1 No action 10.2 Ex-post funding
10.3 Ex-ante funding
10.4 Combination of ex-ante and ex-post funding
11. Nature of scheme intervention11.1 No action11.2 Portfolio transfer11.3 Compensation of claims5. Level of IGS centralisation5.1 No action 5.2 An IGS in all MS
5.3 EU-wide IGS5.4 EU-wide IGS for cross-border 5.5 EU-wide IGS for groups + national schemes5.6 28
thregime
5.7 An IGS in all MS + mutual support
 
 
As the option tree shows, the first (1 to 4) gr oup of alternative options  requires the selection 
of a preferred option before identifying the ne xt group of alternative options. When certain 
options are not mutually exclus ive, this is indicat ed in the analysis. The second group of 
options (5 to 11) represent different design f eatures of an IGS scheme. They do not follow 
from one another, but they are closely intertwi ned and therefore need to be put in a common 
context. The policy options discussed below will be analysed in terms of their compliance with the objectives identified above. The fo llowing score system has been used for the 
assessment of the options: from slightly positive (+ ) to strongly positive (+  + +); from slightly 
negative (–) to strongly negative (– – –); no or ne gligible impact: void. 
6.1. T
HE NATURE OF A POSSIBLE EU ACTION  
 
- Option 1.1:  No action  
 
Preserving the status quo implies a continuation of the coexistence of very different national 
approaches to policyholders’ protection. These differences generate uneven and inappropriate 
levels of policyholders' protection in several Member States and may hinder the harmonious 
development and functioning of the EU In ternal Market for insurance services. 
 
EN 31   EN  
- Option 1.2:  Further reduce the probability  of failure of insurance undertakings  
 
Failures can be prevented by strengthening th e risk management system in insurance 
undertakings or by enhancing prude ntial supervision, particularly through an increase of the 
solvency requirements. 
 
1.2.1. Strengthening the risk  management system  
 
The risk management system encompasses th e whole range of processes present in the 
operational activity of insurance undertakings that aim at ensuring that an insurance 
undertaking is able to correc tly and professionally manage its risks. However, practice 
suggests that even a very solid risk manageme nt system cannot fully exclude the risk of 
default. Solvency II substantially strengthens th e system of governance in  general and the risk 
management system (and function) in particular . Introducing further legal constraints in this 
regard would most likely be opposed by stake holders because of the additional costs and 
administrative burden that would follow from this. 
 
1.2.2. Enhanced prudential supervisi on and higher solvency requirements 
 
If designed in an appropriately risk-sensitive way, solvency requirements can mitigate a 
potentially excessive risk-taki ng behaviour by insurance undert akings, limit the probability 
that they fail and therefore protect (up to a certain extent) the econom y and society from the 
negative consequences linked to their failure. 
 It is however impossible to set solvency re quirements at a level wh ich is high enough to 
absorb all losses. Capital requirements woul d in such a case be so high that insurance 
undertakings would no longer be able to offer thei r services at a price which is affordable for 
consumers. In a worst case scenario this woul d lead to the implosion of the whole insurance 
market. Statistical evidence
61 shows that solvency requireme nts are optimally designed when 
they are sufficient to absorb losses of insu rance undertakings in all cases except for those 
exceptional circumstances that would require too much capital . Solvency II requires 
insurance undertakings to hold sufficient capital to cover their obligations over a 1-year time 
horizon subject to a 99.5% VaR confidence level. This ensures that failure of an insurer occurs no more often than once in every 200 cases. 
 
- Option 1.3:  Introduce a protection of polic yholders after failure of an insurance 
undertaking has occurred  
 
EN 32   EN  
1.3.1. Improved transparency under a caveat emptor approach62 
 
Enhancing the information available to policyh olders (about the exis tence of IGS and the 
level of IGS protection provided) should enable  them to make a more informed choice 
between insurers. It would allow them to make their choice not only on the basis of the price 
offered in the market, but also on the basis of th e intrinsic quality of the offer (in terms of the 
risk of failure of the insurer). 
 However, the adoption of such a caveat emptor  approach is likely to be ineffective because 
policyholders are unaware of important risk-relat ed information and are incapable to correctly 
process important but complex ri sk-related information (problem drivers 1 and 2). If  the EU 
were to increase transparency, it would still be  very unlikely that th e great majority of 
policyholders would fully understa nd and be capable to appropr iately process the complex 
risk-related information they receive.  
 In conclusion, a transparency measure would not  overcome the shortfalls of the existing 
status quo, with the consequence of maintaining uneve n or inappropria te levels of 
policyholder protection in several Member States. The Oxera report argues that adopting a 
caveat emptor  approach might not be acceptable, especia lly when substantial losses or a large 
number of claimants are involved. 
 
1.3.2. Legal priority for consumers in winding-up 
 
Notwithstanding common principles containe d in the Winding-up Directive 2001/17/EC as 
recasted by the Solvency II Directive 2009/138/EC , winding-up procedures vary substantially 
between Member States. In addition, winding-up pr oceedings inherently include the risk of an 
insufficient amount of assets for the protection of policyholders, giving rise to uncertainty 
over whether policyholders will be compensated. Moreover, winding-up proceedings are in any case complex and very expensive processe s taking a long time. They can, therefore, 
hardly provide an effective and i mmediate protection for policyholders.  
 
- Option 1.4:  Explicit unlimited gua rantee from public authorities
 
 
An explicit unlimited guarantee from public au thorities has the obviou s drawback of using 
(potentially a very large amount of) taxpayers money and thereby affecting public finances. It 
would entail a sub-optimal allocation of insura nce failure losses leading to a reduction in 
 
EN 33   EN welfare, resulting from a too-la rge redistribution of failure lo sses. Moreover, a guarantee from 
public authorities can also create a moral hazard  behaviour (insurers mi ght be less inclined, 
for example, to limit their risks through reinsurance contracts). 
 
- Option 1.5: Explicit limited guarant ee (Insurance Guarantee Scheme)  
 
In the event that insurers fail, a guarantee scheme/fund can absorb insurers' losses up to its 
financial endowments. 
 Statistical evidence suggests that  high levels of security for consumers can be best achieved 
by combining (lower) capital requirements w ith a guarantee scheme rather than having 
(higher) solvency requirements without a guarantee scheme. A guarantee scheme somehow 
bundles the protection from losses in  excess of insurers' capital ( tail risk )
63 thereby reducing 
their variability  (and as a consequence the funding needed  to absorb them) if the number of 
insurers participating in the scheme is suffici ently large. Furthermore, a guarantee scheme 
may spread the funding needed to provide pr otection against these excess losses among a 
higher number of consumers and therefore provid e the same level of protection at a lower 
cost. These ideas are represented in Error! Reference source not found. , which shows how 
the "centralisation" of the tail risk of in surance undertakings facilitates a consistent 
distribution of excess losses (los ses in excess of solvency requi rements plus excess capital, if 
any) for the guarantee scheme. 
 Another important argument in favour of IGS is that they, if prope rly designed, may reduce 
the problems of a suboptimal allocation of in surance failure losses. Without IGS in place 
either the policyholders of the defaulted insurer or the totality of taxpayers absorb losses causing a reduction in social welfare in both case s. An IGS that covers losses, includes the 
entire community of policyholders to absorb them. This can minimize the allocation problem 
of insurance failure losses and therefore maximise  social welfare. It is  also argued that IGS 
may contribute to the development of competitive  markets. In other words, IGS can be seen 
as a "smooth exit mechanism for incompetent insurers from the market".
64 
 As recalled in sub-section 4.4 of the Oxera repo rt, IGS also have the advantage of: (1) being 
able to guarantee a speedy payment to policyholder s; (2) minimise and possibly bring to zero 
the loss incurred by policyholders; (3) introduce an element of predictability and certainty on 
the effects of the failure of an insu rance undertaking for its policyholders. 
 The most commonly raised argument against intr oducing IGS is the potential incentive to a 
moral hazard behaviour that IGS may create for policyholders, insurers and supervisors. As 
indicated above, there is sufficient evidence sugg esting that this argument is not as strong as 
it might seem.  
 
EN 34   EN  
Similarly, the Oxera report notes that although there is very little  evidence on how the 
introduction of IGS can influe nce the proper/inappropriate al location of economic incentives, 
it may be concluded that the proper design of IGS features  can in general address and 
appropriately manage potenti al moral hazard effects. 
 Regarding set up and operational costs, the Oxera report notes in section 5 that in the absence 
of failure, financial costs associ ated with running an IGS are minimal, and that when failures 
occur, operational costs are small/negligible compared with the actual resources needed to provide the guarantee. According to the Oxera re port they can be estimated to be around 0.5% 
or less of the funding endowments. 
 In the 2008 public consultation, there were split views in relation to IGS related EU actions. 
Some respondents favoured them, while others we re in favour of maintaining the status quo 
or improving transparency. In th e consultation there were al so split views regarding the 
possibility to mitigate the possible moral-haza rd drawbacks of IGS through an appropriate 
design, so as to finally obtain IGS that improve competition and the functioning of the insurance market. Respondents in favour of IG S stressed how IGS would be effective in 
solving the problems/consequences identified in this IA: increased consumer protection, 
increased consumer confidence, increased fina ncial stability, level playing field between 
insurers. They also stressed that EU action on IGS could encourage the development of the 
single market. In contrast, res pondents against IGS st ressed the difficulty to sufficiently 
minimise the constraints such as costs or adverse economic incentives , so that drawbacks 
would outweigh benefits. 
 Table 1 contains an evaluation of the argumen ts discussed above. The preferred policy option 
is therefore Option 1.5 (Explicit Limited Guarantee / IGS).  
 
EN 35   EN Table 1 - Summary of policy options' e valuations – The nature of a possible public 
authority intervention 
 Objectives 
 
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
1.1 No action                       
1.2.1 
Strengthening 
internal risk management +   --   --       -- -- -- 
1.2.2 Higher 
Solvency 
requirements +   --   --       -- -- -- 
1.3.1 Improve 
transparency                -  -   
1.3.2 Legal 
priority during 
winding -up +       ---       -- --    
1.4 Explicit 
unlimited  
Guarantee ++ ++ --- ---     ---   ---   -- 
1.5 Explicit 
limited 
Guarantee 
(IGS) ++ ++ -   -   -    - - ++ 
 
6.2. THE GUARANTEE SIZE (IGS  FUNDING NEEDS ) 
 
It is important to bear in mind that IGS are designed to cover the most extreme losses that 
occur with a very low probability. Error! Reference source not found.  illustrates the choice 
of IGS scheme size/funding in terms of coverage of risk of failure. The vertical red line in 
Error! Reference source not found.  shows the cut-off point up to which a chosen level of 
IGS funding will be able to protect policyholders from losses.  
 
EN 36   EN  
The target fund of an IGS,65 is influenced by many parameters, among which two appear to 
be the most important: the probability of defau lt (PD) of insurance und ertakings and the level 
of targeted security for policyholders. As ha s been set out above, the PD for insurers 
oscillates between 0.1% and 0.5% depending on ma rket conditions. Besides the probability of 
default of insurance undertak ings, IGS funding needs/financ ial endowments are mostly 
influenced by the level of security provided to  consumers: the higher th e security provided by 
an IGS, the higher the require d IGS financial endowments/fundi ng needs. A key decision is 
therefore the level of security  that an IGS is expected to provide to policyholders. 
 In practical terms, the level of security provided to policyholders is determ ined in relation to 
the part (statistically, the percentile )
66 of the IGS loss distributi on that the IGS financial 
endowments can cover.67 The percentile (level of securi ty) chosen should not only provide a 
high level of security for consumers but also be  financially realistic: i.e. it should have the 
potential to achieve the objective of a suffici ently high protection of policyholders, without 
requiring excessive resources.  
In order to identify an appropria te level of protection offered by IGS, the coverage levels of 
existing national schemes have been analysed, and past cases of large in surance failures have 
been examined, estimating how many resources would be needed to protect policyholders 
against similar failures across the EU. It appear s from this analysis that existing IGS protect 
consumers from losses up to a percentile that ranges between the 75th and the 99th.68 On the 
basis of available evidence,  three funding levels are considered: 75%, 90%, and 99%. 
 The following list of policy options can be drawn up with regard to the level of IGS financial 
endowments, taking into considerat ion both the probability of defa ult of insurers and the level 
of security for consumers:
69 
 
- Option 2.1:  No action (har monization) at EU level  
- Option 2.2:  Harmonization at EU level  
- Sub-option 2.2.1:  Low risk, low s ecurity (PD=0.1%, percentile=75%)  
- Sub-option 2.2.2:  Low risk, medium s ecurity (PD=0.1%, percentile=90%)  
- Sub-option 2.2.3:  Low risk, high s ecurity (PD=0.1%, percentile=99%)  
- Sub-option 2.2.4:  High risk, low s ecurity (PD=0.5%, percentile=75%)  
- Sub-option 2.2.5:  High risk, medium s ecurity (PD=0.5%, percentile=90%)  
- Sub-option 2.4.6:  High risk, high s ecurity (PD=0.5%, percentile=99%)  
 
While option 2.1 is inconsistent with the objec tive of providing a high and even level of 
protection to policyholders in all Member States , the choice between the various sub-options 
in option 2.2 clearly depends on a cost-benefit analysis. 
 
 
EN 37   EN The benefit must be considered in terms of the security provided to consumers, which is 
expressed in percentiles, with  higher percentiles meaning hi gher security. In addition, Error! 
Reference source not found.  and 50 provide a more tangible indication of the security 
offered to policyholders in terms of the bigge st failure that IGS financial endowments under 
the various policy options can cope w ith in the life and non-life sector. 
 It appears very clearly that IGS are not able to deal alone with the biggest failures
70, but their 
capacity to do so increases when financial endowments are higher. Options 2.2.1 and 2.2.4 
would only allow to compensate losses that arise from the failure of small insurance firms, in 
the order of the 16th biggest insurance undertak ing and above in the respective Member State. 
Option 2.2.2 protects policyholde rs against the losses of medi um size insurance undertakings, 
covering losses in the range of the 11th – 15t h biggest insurance undertaking's failure, but not 
above that. Options 2.2.3 and 2.2.5 are quite similar in  their coverage a nd they are providing 
higher protection against medium-s ize insurer failures than the previously described options. 
They cover up to the 11th – 6th biggest insu rance undertaking in most Member States. 
Finally, option 2.2.6 (high risk/hig h protection) is protecting po licyholders against the failure 
of one among the biggest five insurance undertak ings in many Member States, and against the 
failure of the 6th-10th biggest insurers in others. Only in three countries (UK, SWE, LU) it 
would not cover the losses cau sed by failure of the 10th bi ggest insuran ce undertaking. 
 An analysis of the funding needs of an IGS shoul d also take into account the annual costs that 
a certain funding may impose on society, in case resources are anticipated but losses do not 
eventually materialise. Error! Reference source not found.  indicates the share of annual 
premiums that correspond to each funding need. For example, the funding needs for option 2.2.3 (PD=0.1%, percentile=99%), taking into consid eration a cost of capital of 6% (in line 
with Solvency II quantitative impact studies,) amounts to an annual cost of 0.08% of annual 
premiums. 
 Table 2 presents a summary evalua tion of the various policy options  related to the size of the 
guarantee offered by IGS. On the basis of the preliminary conclusions drawn by the 
Commission so far, it shows a tentative pr eference for option 2.2.3 which would ensure a 
high level of protection under normal market c onditions while equally ensuring a sufficiently 
high level of protection in times of stress. 
 
EN 38   EN Table 2 - Summary of policy options' evalua tions – The guarantee limit (IGS funding 
needs) 
 Objectives 
  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
2.1 No action                       
2.2.1 
Harmonization 
low risk, low protection 
(PD=0.1%,  
alpha=75%) + + -   -       - - + 
2.2.2 
Harmonization 
low risk, 
medium protection 
(PD=0.1%,  
alpha=90%) + + -   -       - - + 
2.2.3 
Harmonization 
low risk, high protection 
(PD=0.1%,  
alpha=99%) ++ ++ --   -       -- - +++ 
2.2.4 
Harmonization 
high risk, low 
protection (PD=0.5%,  
alpha=75%) + + -   -       - - + 
2.2.5 
Harmonization high risk, 
medium 
protection (PD=0.5%,  
alpha=90%) ++ ++ ---   -       -- - ++ 
 
EN 39   EN 2.4.6 
Harmonization 
high risk, high protection 
(PD=0.5%, 
alpha=99%) ++ ++ ---   -       --- - + 
 
6.3. TOOLS FOR AN EU ACTION ON IGS 
 
- Option 3.1: No action  
 
Leaving relevant action to Member States w ould mean preserving exis ting loopholes as well 
as uneven levels of policyholder prot ection in several Member States, unless all Member 
States would decide to coordinate and adopt  IGS along appropriately coherent principles. 
Even if action at national level were taken, Member States acting on their own would not be 
able to address the problem of inconsistencie s in the geographical scope and other design 
features of IGS.  
 
- Option 3.2: A coordinated EU non-binding approach to IGS to be followed by 
Member States on a voluntary basis  
 
Current shortfalls could also be corrected by  means of soft law instruments, such as 
recommendations, communications, guidelines and codes of conduct. By adopting these 
tools, the Commission might indicate the IG S design features that it considers most 
appropriate. However, these instruments do not have any legally binding force and Member 
States would be asked to remedy the highl ighted shortfalls on a voluntary basis. 
 Even in the case of positive reactions by Member  States, it is difficult to foresee how non 
coordinated responses by Member States coul d effectively address th e problems determined 
by the absence of a comprehensive and c onsistent framework for IGS in the EU. 
 
- Option 3.3: Case-by-case legally bi nding interventions (infringements)
 
 
Unsatisfactory situations of IGS protection could be addressed through selective policy 
interventions that, in practice, could take the fo rm of formal infringement proceedings against 
Member States so as to determine appropria te changes in national IGS or their set-up. 
 
 
EN 40   EN Although selective measures might occasiona lly close existing ga ps in policyholders' 
protection in some Member States, it can be assumed that they would fail to effectively 
address the problems linked to the absence of a comprehensive and consistent framework for 
IGS in the EU. The 2008 public consultation clearly showed no support for case-by-case 
interventions. 
 
- Option 3.4: A legally binding EU-wide approach to IGS  
 
The introduction of a legally binding EU-wide appr oach to IGS is most likely the best way to 
provide an adequate remedy to the existing loopholes and inequaliti es in policyholder 
protection. Moreover it seems to be the most ad equate and proportional t ool to guard against 
the need for taxpayer involvement. In case of  binding legislative measures on IGS at EU 
level, two possible legal instruments are available: 
 
EU Regulation  
Regulations are normative acts defined in Article 288 of the TFEU . They have general 
application, are binding in their entirety and directly applicable  in all Member States, thus 
leaving the national authorities hardly any flexibility with re gard to their implementation. 
Given the existing fragmented landscap e on IGS and the absence of any EU 
coordination/harmonization in this field to da te, it can be assumed th at a Regulation would 
excessively restrict Member State action to implement an EU framework for IGS. 
 
EU Directive 
 
Another legal instrument provided  for by Article 288 of the TFEU is  that of the Directive. It 
has individual application, mean ing that it is binding upon those to whom it is addressed. It 
requires Member States to achieve  a certain result but, unlike a re gulation, leaves them free to 
choose their own forms and methods. In the view of the Commission there are strong 
arguments for choosing the legal form of a Di rective in case of binding measures on IGS, 
given the complexity of the issue and the requir ed degree of flexibility with regard to the 
national implementation of  each design feature. 
 Table 3 presents a summary evaluation of the va rious policy options rela ted to the choice of 
the tool for EU action on IGS. In conclusion, a nd in view of the above considerations, the 
Commission prefers a legally binding EU-wide approach to IGS based on a Directive.  
 
 
EN 41   EN Table 3 - Summary of policy options' evaluati ons – Tools for a EU intervention on IGS 
 Objectives 
  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses Set-up and operational
costs 
Consumers moral hazard 
Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden Cost-effectiveness 
3.1 No action                       
3.2 A 
coordinated 
EU non 
binding approach          -             
3.3 Case-by-
case intervention 
(infringements) + +     -       - - + 
3.4.1 EU 
Regulation ++ ++     -       --- --- + 
3.4.2 EU 
Directive ++ ++     -       -- - +++ 
 
6.4. MINIMUM VS MAXIMUM HARMONISATION  
 
Even if binding measures were to be introduced in the EU, there are still many ways in which 
an IGS can be designed and an analysis of the various options available is therefore 
necessary. 
 
- Option: 4.1:   No action  
 
A coherent IGS framework at EU level woul d not be achievable without harmonising the 
scope of the action. Therefore, in case of no action, the objectives would not be fulfilled. 
 
- Option: 4.2:   Minimum scope of harmonisation  
 
 
EN 42   EN Harmonisation of the following design features  seems necessary in order to ensure a 
minimum level of coherence and effectiveness at EU level: 
 
- Level of centralisation : Should an IGS be created at na tional or at European level? 
- Role: Should an IGS operate as a last resort protection mech anism or should it have a 
wider role? 
- Geographical scope : Should an IGS operate on the ba sis of the home or host country 
principle (or on a combination of the two)? 
- Policies covered : Which classes of insurance (lif e, non-life, etc.) should the IGS 
cover? 
- Eligible claimants : Which policyholders/claimants (n atural persons, legal persons, 
SME, etc.) are to benefit from IGS? 
- Timing of funding : Should the IGS be funded ex-ante or ex-post (or a combination of 
the two)? 
- Nature of scheme intervention : Should the IGS simply compen sate losses or should it 
also be designed to secure the continu ity of policies (portfolio transfer)? 
 
During the 2008 public consultation most res pondents said to be in favour of minimum 
harmonisation, though some preferred maximu m harmonisation. The vast majority of 
respondents were in favour of harmonising th e geographical scope. A large number of 
respondents were also in favour of harmonisi ng policies covered and eligible claimants. 
Fewer respondents supported harmonisation of th e nature of the intervention and the timing 
of the funding. It was also stressed that a too limited approach might put into question the 
relevance of an EU action.  
 In its advice, CEIOPS (2009b) recommends adop tion of a minimum harmonisation approach 
in order to fill the gaps in the current protection of policyholders in the EU. In the 2009 
informal stakeholders meetings, the CEA indi cated that a majority of CEA members would 
be in favour of minimum harmonisation whilst  a minority would be in favour of maximum 
harmonisation. Should the minimum harmonisation a pproach be chosen, at least the following 
design features should be harmonised: geogr aphical scope, policy covered and eligible 
claimants. AMICE, EFRP and EFDI agreed w ith the CEA. FINUSE was of the view that 
more design features should be harmonised. 
 
- Option 4.3: Maximum scope of harmonisation
 
 
Maximum harmonisation at EU level means th at national legislati on may not exceed the 
terms of EU legislation. In othe r words, provisions adopted at EU  level have to be considered 
as exhaustive, leaving Member States no furt her room for manoeuvre with regard to the 
adoption of supplementary procedures. A possibl e set of additional design features to be 
considered in this case mi ght comprise the following: 
 
 
EN 43   EN - Pooling/separation of funding : Should the IGS funds be p ooled (or kept separated) 
between classes of insurance ac tivity (life , non-life, etc.)? 
- Compensation limits and reductions in benefits : Should there be restrictions (and if so, 
which ones) in IGS payments per claimant or per policy? 
- Exclusions from eligible claimants : Should specific situati ons be excluded from  
protection by an IGS? 
- IGS contributions : How should insurance undertakings  contribute to the IGS fund? 
- Ownership, management and administration : How are IGS set up, managed and 
administered? 
- Advertising/information requirements : How can insurance undertakings communicate 
IGS-related information to their customers? 
 
Although maximum harmonisation is be better suite d to enhance completion of the Internal 
Market, there seems to be a great deal of relu ctance among Member States to adopt such an 
approach.   
 Table 4 presents a summary evaluation of the th ree policy options dealing with the level of 
harmonisation of the various IGS design features. In view of the existing differences relating 
to IGS protection in Member States, and give n the wide consensus among stakeholders, the 
preferred option is that of  minimum harmonisation.   
  
 
Table 4 Summary of policy options' evaluati ons – Scope of a possible EU level IGS 
binding intervention 
 Objectives 
  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
4.1No action 
(no 
harmonization 
of the scope)                     
  
 
EN 44   EN 4.2 Minimum 
Harmonisation + +             - - ++ 
4.3 Maximum 
Harmonisation ++ ++             --- --- + 
 
Conclusion: On the basis of th e evidence provided in this IA , the White Paper will propose to 
introduce a Directive in order to ensure that IGS exist in all Member States and that they comply with a minimum set of design features as proposed under option 4.2.  
71 
  
7. EXPECTED ECONOMIC AND SOCIAL IMPACT OF RETAINED POLICY 
OPTIONS 
 
As there is currently no legislation on IGS at EU level, information on the economic and 
social impact of an EU action in this field re mains rather abstract an d general. The impact 
mainly depends on the way in which the specific design features are implemented.  For more 
reliable information it is therefore necessary to  continue the analysis  based on a set of pre-
defined policy options. 
 At the current stage, the Commission is interest ed in collecting feedback from stakeholders 
on its White Paper. Therefore preferences ex pressed on specific IGS design features are 
meant as preliminary ones, which remain open to the feedback of stakeholders.  
 Annex B presents the analysis carried out so far by the Commission on the IGS specific 
design features mentioned in option 4.2, and illus trates the consideratio ns which have been 
taken into account by the Commission when se tting out preliminary preferences. Conducting 
an open dialogue with stakeholders on these preliminary preferences will allow the Commission to monitor and possibly update its ev aluation of the various policy options when 
drafting follow-up measures, and to assess and possibly confirm whether the retained options 
on IGS design features satisfy the main objectives set out in this IA. A further impact assessment will therefore accompany follow-up meas ures, which will analyse in detail the 
possible combinations of IGS design features , and choose in a more definitive way the 
optimal vector of features fo r an IGS solution at EU level.
72 
 On the basis of the analysis contained in A nnex B, the Commission's preliminary preferences 
with regard to the IGS design features mentioned under the minimum harmonization 
approach as set out under option 4.2 are the following: 
 
EN 45   EN - Level of centralisation : the Commission prefers introduc ing an IGS in all Member 
States because this is consistent w ith the existing national micro-prudential 
supervisory framework; 
- Role: the Commission believes that the role of an IGS should be that  of solely acting 
as a last resort protection mechanism in order to avoid as much as possible moral 
hazard problems in the behaviour of insu rance undertakings and possible state aid 
issues;  
- Geographical scope : in the Commission's view, th e home state principle is the 
preferable policy option, especially becau se of its consistency with the existing 
supervisory framework; 
- Policies covered : the Commission prefer s to cover life policie s and selected non-life 
policies as this strikes the right balance be tween ensuring a sufficiently large and solid 
protection of consumers on the one hand, and limiting costs on the other hand; 
- Eligible claimants : the Commission believes that covering natural persons and 
selected legal persons (including SME) is the best way to stri ke the right balance 
between ensuring a sufficiently large and solid protection for consumers on the one 
hand, and cost efficiency on the other hand; 
- Timing of funding : the Commission has a preference for of ex-ante funding which 
could be complemented by ex-post funding where necessary. This will ensure the immediate availability of funds while limiting costs to industry and consumers; 
- Nature of scheme intervention
: the Commission strongly enc ourages portfolio transfer 
where it is reasonably practicab le to do so and justified in terms of costs and benefits. 
However, when all other means are exhaus ted, IGS should at least compensate losses 
of policyholders and beneficiaries.  
 
The table below summarises the preferred set of tentative policy options as examined in this 
IA. 
 
Table 5 - Summary of policy options' evaluations – Retained policy options 
 Objectives 
  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
1.3.5 Explicit 
Limited 
Guarantee (IGS) ++ ++ -   -   -    - - ++ 
 
EN 46   EN 2.2.3 
Harmonization 
low risk, high protection 
(PD=0.1%,  
alpha=99%) ++ ++ --   -       -- - +++ 
3.4.2 EU 
Directive ++ ++     -       -- - +++ 
4.2 Minimum 
Harmonization + +             - - ++ 
5.2 An IGS in 
all MS ++ ++ -   -       - - ++ 
6.2 Last resort 
protection ++ + --   -       - - ++ 
7.2 Home state 
principle ++ + -   -       -- - +++ 
8.5 Life and 
selected non-
life policies +++ +++ --   -       -- - +++ 
9.3 Natural 
and selected 
legal persons 
(incl. SME) ++ ++ --   -       -- - +++ 
10.4 
Combination 
of ex-post and 
ex-ante funding ++ ++ --   --  -  -- -- ++ 
11.2 Portfolio 
Transfer ++ ++ --   -       -- - +++ 
 
The expected economic and social impact of thes e retained policy options is presented in the 
following . 
 
7.1. IMPACT ON POLICYHOLDERS  
 
Action taken at EU level can be expected to benefit po licyholders by increasing their 
protection in the event that insurance undertakings are unabl e to fulfil their commitments. On 
the other hand, insurance undertakings are expected to pass a part of their contributions on to 
consumers which most likely will result in an increase of their premiums. 
 
 
EN 47   EN This point can be illustrated by  a (theoretical) example: If, (c ompared to a situation where no 
IGS existed), IGS are established at the level of each Member State, based on the home state principle and covering life a nd non-life policies, ( up to the 99th percen tile and based on a 
scenario of PD=0.1%), this w ould require EU policyholders to contribute to the creation of 
funds amounting to a total of 13 billion EUR (see Table 6). This currently corresponds to 
1.24% of annual gross written pr emiums. Applying this target level over, for instance, a 10-
year time horizon would translate into an a nnual contribution of 0.124% of gross written 
premiums by each contributing undertaking/policyholder.
73 
 These funds should be considered as additiona l premiums. Policyholders are paying to insure 
themselves against the possibility that thei r insurance undertaking de faults. The payments 
provided by policyholders can be considered to be r oughly equivalent to the expected value 
of the losses they would avoid in case their insurance undertaking defaults. The financial 
costs for policyholders can be co mputed considering a cost of  capital of 6% (in line with 
Solvency II quantitative impact studies). Fo r an IGS with a funding endowment of 1.24% of 
annual premiums, this would translate into fi nancial costs of 0.08%  of annual premiums. 
 
7.2. I
MPACT ON INSURANCE UNDERTAKINGS  
 
EU action on IGS will affect insurance undertak ings in different ways, depending on whether 
they operate in Member States already having an IGS or not. In thos e cases where no IGS has 
been established so far, insurance companies mi ght face – in all circumstances in the case of 
ex-ante funding and whenever insurance underta kings fail in case of ex-post funding – 
financial costs due to the introduction of the IGS if they are not able to pass their IGS 
contributions entirely onto consumers.  
 These funds, unlike the case of policyholders, constitute a financial cost (and not an 
anticipation of funds) for insura nce undertakings, as losses hitt ing insurance undertakings in 
case of default only depend on capital (and not on premiums paid). 
 
7.3. I
MPACT ON TAXPAYERS  
 
The introduction of IGS in all Member States can  be expected to bene fit taxpayers as there 
will be less need in the future to use their money in the case of default of an insurance 
undertaking. Based on the practi cal example set out above this  would save taxpayers money 
up to 13 billion EUR (see Table 6) upon a timeframe, for example, of 5 or 10 years. It is 
important to bear in mind that EU action on IGS will affect taxpayers in Member States in different ways, depending on whether they are re sident in a Member St ate already having an 
IGS or not.  
 
 
EN 48   EN 7.4. IMPACT ON EXISTING IGS  SCHEMES  
 
EU action will affect existing IGS to the extent  that the framework established at EU level 
deviates from the national IGS framework alrea dy in place. Main impacts may, in particular, 
include:  
 IGS funding needs
: The size of existing IGS funds may be affected. A preliminary rough 
calculation of the respective amounts (only if positive, i.e. an increase in funds), can be 
derived from the last column of Error! Reference source not found. . DK, for example, 
would roughly need to raise its endowments  by 217.20 million EUR. A further analysis for 
existing ex-ante funded IGS is also performe d in Table 3.12 of the Methodological report 
where the impact on IGS funds is analysed in te rms of the implied cha nge in the level of 
security provided to policyholders. 
 Geographical scope
: Currently, only MT (life and non-lif e) and NO (non-life) are operating 
an IGS on a host country principle basis, whil e LV (life and non-life) , UK (life and non-life), 
PL (life) operate their IGS on a home plus host country princi ple basis. These schemes would 
need to modify their geographical scope a nd start operating on a home country principle 
basis. 
 Nature of scheme intervention
: Currently only six IGS (DE life,  FR life, UK lif e, FR non-life, 
NO non-life and ES) operate portfolio transfer, while the other existing IGS limit themselves 
to paying compensation to claimants.  
 Policies covered
: Unless a precise scope of non-life polic ies considered is defined, it is not 
possible to draw definitive co nclusions on the expected impact . However, it is likely that 
existing IGS in DK, IE, and NO would have to  extend their scope of protection to life 
insurance products. 
 Eligible claimants
: As the precise scope of selected le gal persons has not yet been defined, no 
definitive conclusions on the expected impact can be drawn. However, it is likely that existing IGS in LV and PL for life insurance and in IE, LV and MT for non-life insurance have to extend the scope of their eligible claimants. 
 Timing of funding
: As the extent of ex-ante funding ha s not yet been defined, it is not 
possible to draw definitive co nclusions on the expected impact . However, it is likely that 
existing IGS in PL life, UK life and non-life,  IE non-life and NO non-life would have to 
 
EN 49   EN introduce an ex-ante funding element in a ddition to their current ex-post funding 
arrangements. 
 
7.5. IMPACT ON SMALL OR MEDIUM ENTERPRISES (SME' S) 
 
Action taken at EU level can be expected to benefit SME's by increasing their protection in 
the event that insurers are unable to fulfil th eir commitments. On the other hand, introducing 
IGS protection for SME's throughout the EU will have an impact on SM E's, as insurers will 
pass a part of their co ntributions on to SME's which will result in an increase of their 
premiums. These funds should be considered as  additional premiums which they are paying 
to insure themselves against the possibility that their insurance undertaking defaults. The 
payments provided by each SME can be consider ed roughly equivalent to the expected value 
of the losses they would avoid in case thei r insurance undertaking de faulted. Moreover, the 
impact on SME will depend to whether they are already protected or not by an existing IGS in the various national frameworks. 
 
7.6. I
MPACT ON SUPERVISORY AUTHORITIES  
 
Supervisory authorities in Member States that do  not have yet an IGS in place, might need to 
be involved in their set-up and possibly also start managing them , while those authorities that 
already manage IGS, would have to ensure that  their scheme is compliant with the proposed 
design features. A more precise analysis of the impact on supervisory authorities will be considered in the impact assessment accompa nying the follow-up measures once the precise 
set of IGS design features will be definitively decided. 
 
7.7. I
NTERNATIONAL IMPACT  
 
As a general rule, third country  insurance undertakings that provide or want to provide 
insurance services in the EU must have their br anches authorised in at least one EU Member 
State.74 This means that after the authorisation these branches of th ird country insurance 
undertakings fall within the scope  of this IA.  The impact on third country insurers can 
therefore be expected to be th e same as for EU-EEA insurers. 
 
7.8. ENVIRONMENTAL IMPACT  
 
Environmental impacts are expected to be marginal.  
 
EN 50   EN 7.9. IMPACT ON FINANCIAL STABILITY  
 
The retained policy options are expected to bring benefits to financial stability, as they ensure 
that failures up to a relevant si ze do not produce thr eats to financial stab ility (since IGS are 
able to absorb them). 
 
7.10. IMPACT ON THE ECONOMY  
 
The retained policy options are expected to bring two main be nefits to the economy. First, a 
level playing field will be created that avoi ds competitive distortions between domestic and 
non-domestic insurers. Second, the possibility of sub-optimal allocation of losses on 
policyholders and taxpayers will be reduced. Th is should, in turn, have positive effects 
improving the economy's growth path. 
 
7.11. IMPACT ON SOCIAL WELFARE  
 
The retained policy options may improve  social welfare for three reasons: 
• increased protection of policyholders; 
• less use of taxpayers' money; 
• insignificant welfare losses while redistributing insurance default losses. 
 
Increased protection of policyholders is the most  important impact on social welfare resulting 
from the introduction of a harmonised framework of IGS protection at EU level. Protecting 
policyholders – who in general ar e highly risk averse – from un certainty and financial losses, 
is expected to increase social welfare substantially. 
 With regard to taxpayers, the options chosen have a significant positive impact in terms of 
saving taxpayers' money. As taxpa yers can be assumed to be in part low risk averse, guarding 
against the need of taxpayers' involvement can be  interpreted as a source  of increased social 
welfare. 
 
7.12. A
DMINISTRATIVE BURDEN  
 
Administrative burden cannot be assessed with pr ecision at this stage, but will be subject to 
burden measurement under the standard cost model in the impact assessment accompanying 
any follow-up measure. In any case, the preferre d options are not expected to lead to any 
 
EN 51   EN significant administrative burden, especially because they are in line with the existing 
structure of supervision. 
 
8. FOLLOW-UP  MEASURES  – MONITORING  AND  EVALUATION 
 
The IA clearly provides evid ence supporting the need for a le gally binding EU solution on 
IGS protection based on minimum harmonization in  order to ensure that IGS exist in all 
Member States and that they comply with a minimum set of design features. 
 The Commission, while drafting follow-up measur es, will monitor and update its assessment 
of the various policy options li nked to the proposed EU soluti on for IGS. In particular, the 
Commission will carefully evaluate the feedba ck received and take it into account when 
coming forward with a legislative proposal. The Commission will sum up the contributions 
received by the first half of 2011. An imp act assessment will then be conducted and the 
Commission will put forward a legislative prop osal on insurance guarantee schemes which 
will be presented to the Council a nd to the European Parliament.  
 
EN 52   EN ANNEXES 
 
Annex A  LIST  OF POLICY  OPTIONS 
 
1  The nature of a possible EU action  
o Option 1.1 :  No action  
o Option 1.2 :  Further reduce the pr obability of failure of insurance undertakings  
o Sub-option 1.2.1 :  Strengthening the risk management system  
o Sub-option 1.2.2 :  Enhanced prudential supe rvision and higher solvency 
requirements  
o Option 1.3:  Introduce a protection of policyholders  after failure of an insurance 
undertaking has occurred  
o Sub-option 1.3.1 :  Improved transparency under a caveat emptor  approach 
o Sub-option 1.3.2 :  Legal priority for consumers in winding-up 
o Option 1.4 : Explicit unlimited guarantee from public authorities 
o Option 1.5 :  Explicit limited guarantee (Insurance Guarantee Schemes) 
2 The guarantee size (IGS funding needs)  
o Option 2.1 :  No action (harmonization) at EU level  
o Option 2.2 :  Harmonization at EU level  
o Sub-option 2.2.1 :  Low risk, low security  (PD=0.1%, percentile=75%) 
o Sub-option 2.2.2 :  Low risk, medium security (PD=0.1%, percentile=90%) 
o Sub-option 2.2.3 :  Low risk, high security  (PD=0.1%, percentile =99%) 
o Sub-option 2.2.4 :  High risk, low security  (PD=0.5%, percentile=75%) 
o Sub-option 2.2.5 :  High risk, medium security (PD=0.5%, percentile=90%) 
o Sub-option 2.2.6 :  High risk, high security  (PD=0.5%, percentile=99%) 
3 Tools for an EU action on IGS  
o Option 3.1 : No action (Only spontaneous act ion at Member States level)  
o Option 3.2 :  A coordinated EU non-binding approach to IGS to be followed by 
Member States on a voluntary basis  
 
EN 53   EN o Option 3.3 :  Case-by-case legally bindi ng interventions (Infringements) 
o Option 3.4 :  A legally binding EU-wide approach to IGS  
o Sub-option 3.4.1 :  EU Regulation 
o Sub-option 3.4.2 :  EU Directive 
4 Minimum vs. maximum harmonisation  
o Option: 4.1 : No action  
o Option: 4.2 : Minimum scope of harmonisation 
o Option: 4.3 : Maximum scope of harmonisation 
5  Level of IGS centralisation (Singl e EU-wide scheme vs. national schemes)  
o Option 5.1 :  No action (harmonisation) at EU level  
o Option 5.2 : An IGS in all Member States  
o Option 5.3:   A single EU-wide IGS replacing (where relevant) national schemes  
o Option 5.4 : An EU-wide IGS that covers only  policies written and sold cross-
border via branches and/or free provision of  services, plus national schemes covering 
domestic insurance activity;  
o Option 5.5 : An EU-wide IGS that covers only insurers who are part of a group 
supervision regime (includi ng subsidiaries) plus natio nal schemes for all other 
relevant policies (domestic and cross-border)  
o Option 5.6 : Complement existing IGS with a 28th regime 
o Option 5 .7: Introducing an IGS in all Member States complemented by a system of 
mutual support be tween national IGS.  
6 Role of an insurance guarantee scheme  
o Option 6.1 :  No action (harmonisation) at EU level 
o Option 6.2 :  IGS as a last resort protection mechanism 
o Option 6.3 :  Preventing failure and provi ding last resort protection 
7 Geographical scope  
o Option 7.1 : No action (harmonisation) at EU level 
o Option 7.2 : Home country principle 
o Option 7.3 : Host country principle. 
 
EN 54   EN o Option 7.4 : Home plus host country principle. 
o Option 7.5 : Home country principle with lead supervisor 
8 Policies covered  
o Option 8.1 : No action (harmonisation) at EU level 
o Option 8.2 :  Protection of life policies only 
o Option 8.3 : Protection of non-life policies only 
o Option 8.4 :  Protection of both life and non-life policies 
o Option 8.5 :  Protection of both life a nd selected non-life policies 
9 Eligible claimants  
o Option 9.1 : No action (harmonisation) at EU level; 
o Option 9.2 : Natural and legal persons; 
o Option 9.3 : Natural and selected lega l persons (including SME's); 
o Option 9.4 : Natural persons only; 
10 Timing of funding  
o Option 10.1 : No action (harmonisation) at EU level; 
o Option 10.2 : Ex-post funding 
o Option 10.3 : Ex-ante funding 
o Option 10.4 : Combination of ex-post and ex-ante funding 
11 Nature of scheme intervention  
o Option 11.1 : No action (harmonisation) at EU level 
o Option 11.2 : Portfolio transfer  
o Option 11.3 :  Compensation of claims 
 A number of options will not be specifi cally dealt with in the White Paper  but may 
become relevant for a legally bi nding EU solution on IGS at a late r stage. Some or all of them 
will then be addressed in a separate Impact A ssessment. These options include the following:  
 
o Pooling (or not) of funding between  classes of insurance activity; 
 
EN 55   EN o Compensation limits and other reductions in benefits (restrictions to IGS payments); 
o Compensation limits and other reduction in benefits – per customer or per policy; 
o Exclusions from eligible claimants; 
o Allocation of contribut ions among insurers; 
o Capping the level of contributions that  can be raised in any time period; 
o Ownership, management and administration; and 
o Advertising/information requirements. 
 
EN 56   EN POSSIBLE CONTENT OF A LEGALLY BINDING EU  SOLUTION FOR IGS 
FOLLOWING A MINIMUM HARMONIS ATION APPROACH: PRELIMINARY 
ANALYSIS OF THE OPTIONS75 
 
LEVEL OF IGS  CENTRALISATION (SINGLE EU- WIDE SCHEME VS . NATIONAL SCHEMES ) 
 
- Option 5.1:  No action (har monisation) at EU level  
 
Maintaining the status quo implies a continua tion of the existing fragmented landscape for 
IGS. This may hinder, for the reasons explaine d in this IA, the correct functioning of the 
Internal Market for insurance services, by creating conditions of uneven and insufficient 
policyholder protection in several Member States. 
 In the 2008 public consultation, there were split vi ews with regard to ke eping the status quo. 
Some respondents preferred this, while others were in favour of EU actionn. 
 
- Option 5.2:  An IGS in all Member States
 
 
The creation of an IGS in all Member States is  consistent with the existing national micro-
prudential supervisory framework. 
 Funding needs for the EU when opting for a home  country principle national scheme in each 
Member State are those presented in Table 6. 
 
Table 6 - Funding needs for the EU with na tional (home country principle) IGS (m €) 
 
 
EN 57   EN Source : Methodological report, Table 3.8. For a full analysis and figures for each Member 
State see sub-section 3.2 or the MR. 
 If IGS cover both life and non-li fe (i.e. total) insurance, th e Member State (see Table 3.2, 
MR) with the highest funding n eed is the UK. The Member St ate with the lo west funding 
need is LV. As a percentage of written premiu ms, the Member State with the highest funding 
need is SE, while the Member State with the lowest funding need is BG. 
 
If IGS only cover life insurance (see Table 3. 4, MR), the Member State with the highest 
funding need is the UK. The Member State w ith the lowest funding need is LV. As a 
percentage of written premiums, the Member State with the highest funding need is SE, while the Member State with the lowest funding need is LV. 
 
If IGS only cover non-life insurance (see Table 3.6, MR), the Member State with the highest 
funding need is DE. The Member State with the lowest funding need is LT. As a percentage 
of written premiums, the Member State with the highest funding need is DE, while the 
Member State with the lowest funding need is HU. 
 
The 2008 public consultation showed that if an EU action were to be taken, there would be 
support for introducing an IGS in all Member States. 
 In the 2009 informal meetings with stakeholde rs, CEA, AMICE, FINUSE and EFDI showed 
support for this option. 
 
- Option 5.3:  A single EU-wide IGS replac ing (where relevant) national schemes
 
 
The creation of a single EU-wide IGS that covers all relevant policies written and purchased 
within the EU would overcom e the problems stemming from the existence of various 
different national legal frameworks. However, a single EU-wide IGS would not be consistent 
with the existing national micro- prudential supervisory framework. 
 Funding needs for the EU when opting for a si ngle EU-wide IGS are presented in Table 7. 
 
Table 7 – Funding needs for the EU with a si ngle EU-wide scheme and comparison with 
funding needs under national IGS (m €) 
 
 
EN 58   EN 
 
L 
Source : Methodological report, Table 4.29. For a full analysis and figures for each Member 
State see sub-sections 4.5 and A5.4 of the MR. 
 If a single EU-wide scheme were established, funding needs would change compared to the 
case of an IGS in each Member State in a wa y which is very dependent on the level of 
security chosen. If the level of security chos en is high, funding needs decrease with a global 
saving of funds. If instead the level of targ eted security is low,  funding needs increase
76. 
 The impact in each Member State
 on IGS funding needs when opting for a single EU-wide 
IGS instead of national scheme s based upon the home country pr inciple for total insurance 
(life and non-life), as well as life and non-life in surance separately are shown in Tables 20, 22 
and 24 of Annex 5 to the MR respectively. 
 
The 2008 public consultation showed that ther e was no support for introducing a single EU-
wide IGS. 
 
- Option 5.4:  An EU-wide IGS that covers  only policies writ ten and sold cross-
border via branches and/or free pr ovision of services, plus national 
schemes covering domestic insurance activity  
 
The creation of an EU-wide IGS that covers on ly cross-border business, i.e. policies written 
and sold cross-border via branches and/or FPS, can address the specific problems that arise in 
the cross-border context whilst maintaining national flexibility when it comes to purely 
domestic business. 
 In practice, however, such a solution is likely to  create a number of comp lications. First of all, 
an EU-wide IGS for cross-border business would not be consiste nt with the existing national 
 
EN 59   EN micro-prudential supervisory fr amework. Furthermore, insurers  with cross-border business 
would need to take part in bot h the cross-border scheme and their national scheme. Uneven 
protection levels between and within Member States would also continue, especially if 
domestic and cross-border busin ess protection were different. 
 Overall, the funding needs for the EU under th is option are the same as under option 5.2. The 
funding needs specific to domes tic national IGS and to the single EU -wide IGS covering 
cross-border insurance activity  are presented in Table 8. 
 
Table 8 - Funding needs for the EU with dome stic national scheme s supplemented by an 
EU-wide IGS covering cross-border (branches and freedom to provide services
) activity 
(m €) 
 
Source : Methodological report, Table 4.19. For a full analysis and figures for each Member 
State see sub-sections 4.3 and A5.2 of the MR. 
 While the great majority of Member States  would not contribute much of their funding 
endowments to the EU-wide cross-border IGS, a fe w of them would have to contribute a very 
large share. The Member State with the high est contribution would be  LU (96.24%), followed 
by IE (57.67%) and MT (43.32%)
77. 
 The funding needs in the EU as a whole wh en opting for a single EU-wide IGS covering 
cross-border insurance activity (branches only
) complemented by national IGS in all Member 
States for domestic business are overall the same as under option 5.2. The funding needs 
specific to domestic national IGS and those fo r the single EU-wide IGS covering cross-border 
insurance activity ar e shown in Table 9. 
 
 
EN 60   EN Table 9 - Funding needs for the EU with national schemes for domestic activity 
supplemented by an EU-wide IGS cov ering all cross-border (branches only ) activity (m 
€) 
 
Source : Methodological report, Table 4.24. For a full analysis and figures for each Member 
State see sub-sections 4.4 and A5.3 of the MR. 
 While a majority of Member St ates would not contribute much  of their funding endowments 
to the EU-wide cross-border IGS, a few of them  would have to contri bute a significant share. 
The Member State with the highest contri bution would be EE (32.62%), followed by IE 
(12.21%) and CY (12.56%)
78. 
 
- Option 5.5: An EU-wide IGS that only covers  insurance undertakings that are part 
of a group supervision regime (inc luding subsidiaries) plus national 
schemes for all other relevant pol icies (domestic and cross-border)  
 
It would be possible to set up an EU-wide IGS that covers on ly those insurers who are part of 
a strengthened group supervision regime – yet to be established - or that covers only 
systemically important insurers (including their s ubsidiaries). However, this is likely to create 
the same complications of option 5.4. In a ddition, there is the question-mark over the 
financing of such a scheme, as this would mean  that Member States supervising a large group 
would have to compensate for the failure of the entire group throughout Europe. Finally, in 
highly concentrated markets it co uld be very difficult for the remaining insurers to set up a 
national scheme. 
 
The 2008 public consultation showed that an  EU wide guarantee fund for insurance 
undertakings which are part of a group superv ision regime was supported by some 
respondents. 
 
 
EN 61   EN In the 2009 informal meetings with stakeholde rs, the EFRP showed support for this option. 
 
- Option 5.6:  Complement exis ting IGS with a 28th regime  
 
Existing national IGS could be complemented by a 28th regime. Whilst options 5.3 and 5.4 
would replace national schemes for cr oss-border insurance activity, a 28th regime would 
simply complement national IG S. Depending on its design, a 28th regime might not only add 
additional complexity to the system, but could also cause the same complications that arise 
under option 5.4. 
 The funding needs EU wide for Option 1.6 depe nd on the operational characteristics of the 
national IGS and of the 28
th regime. Given certain assumptions, the overall funding needs 
might be the same as under Option 5.2. 
 
- Option 5.7: Introducing an IGS in all Member  States complemented by a system of 
mutual support be tween national IGS  
 
With a mutual support system between national IGS, any scheme that lacks sufficient funds 
would be financially supported by all the other schemes. To ensure that the potential costs are 
transparent and predictable, such a system w ould require an agreed fund-raising mechanism 
setting out the proportion each IGS is c ontributing, and under which circumstances. 
 Such a mechanism might create moral hazard pr oblems and Member States that have not 
experienced any insurance failure may feel that they are subsidising failing insurers (and their 
customers) in other Member States. 
 The funding needs for this option depend on th e operational characteris tics of the national 
IGS and on the characteristics of the mutual support. Given certain assumptions the funding 
needs for the whole EU might be the same as under Option 5.2. 
 In its advice, CEIOPS (2009b) argues that the ma in advantages of this option are a mitigation 
of the funding problems particularly in small na tional markets because of the concentration in 
those markets and a broader distri bution of the losses. CEIOPS also  indicates that if there are 
national differences between the scopes of covera ge of the various national IGS, the mutual 
support system should be limited to the scope  harmonised across the EU. CEIOPS observes 
that this may limit the benefits from the crea tion of a mutual support system. Finally, CEIOPS 
also notes that it would not be fair if a nationa l IGS that is funded ex ante supports the IGS of 
 
EN 62   EN another Member State which is funded ex post, at  least if the financial difficulties of the latter 
could have been avoided through ex ante funding. 
 
Table 10  presents a summary of the arguments which make the Commission come forward in 
the White Paper with the solution of an IGS in all Member States as a preliminary preferred 
solution . 
 
 
EN 63   EN Table 10 Summary of policy options' evaluati ons – Level of IGS centralisation (Single 
EU-wide scheme vs. national schemes) 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
5.1 No action 
at EU level            
5.2 An IGS in 
all MS ++ ++ -  -    - - ++ 
5.3 Single EU-
wide IGS  ++ ++ - -- ---   - -- ---  
5.4 EU-wide 
IGS cross-
border activity 
+ national schemes ++ ++ - -- ---   - -- ---  
5.5 EU-wide 
IGS lead-
supervisor + national 
schemes ++ + - -- ---   - -- ---  
5.6 28th 
regime ++ +  -- ---   - -- ---  
5.7 IGS in all 
MS + system 
of mutual support +++ ++ - -- ---   - -- --- + 
 
 
ROLE OF AN INSURANCE GUARANTEE SCHEME  
 
- Option 6.1:  No action (har monization) at EU level  
 
 
EN 64   EN The understanding of the Commission is that all existing IGS perfor m the role of a last resort 
mechanism. 
 In the 2009 informal meetings  with stakeholders, FINUSE a nd representatives of the DGS 
sector supported the view of leaving decisions on the role of an IGS to Member States. 
 
- Option 6.2:  IGS as a last resort protection mechanism
 
 
The role of an IGS as a last resort protection mechanism is to  protect policyholders, but not to 
prevent a crisis or to stop an insurance undert aking from getting into financial difficulties or 
becoming insolvent. This is the job of the supervisory authority an d of other prudential 
regulatory tools such as solvency requirements. 
 
In its advice, CEIOPS (2009b) re commends that IGS are set up as a last resort protection 
mechanism. 
 
In the 2009 informal meetings  with stakeholders, CEA, AMICE, CEIOPS and EFRP were 
concerned that extending the role of an IGS to preventing the failure of an insurance 
undertaking would create competitive distortions and increase moral hazard. They also considered it unfair that industry might be called upon to help a competitor that would 
eventually stay in the market. CEA, AMICE,  CEIOPS and EFRP were in favour of limiting 
the role of IGS to providi ng last resort protection. 
 
- Option 6.3:  Preventing failure preventi on and providing last-resort protection
 
 
IGS may also be that of interv ene to prevent the failure of an insurance undertaking. The IGS 
would guide the insurance undertaking through its  financial difficulties and ensure that it 
stays in business. 
 Giving an IGS this wider role presents importa nt disadvantages. Indeed , it creates distortions 
of competition and increases moral hazard. It ma y also be considered unfair to ask other 
insurance undertakings to help a competitor stay in business. 
 It should be remembered that, compared to the banking sector, there is less cause for concern 
in the insurance sector over liquidity prob lems (leading to failure). Consequently,  
 
EN 65   EN introducing a "preventing failures" function in the insurance field does not seem as valuable 
as it might be in the banking sector. 
 Table 11 presents a summary of the arguments which make the Commission support the view  
that the role of an IGS should be that of solely acting as a last resort protection mechanism . 
 
Table 11 Summary of policy options' evaluations – Role of an IGS 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
6.1 No action 
at EU level                       
6.2 Last resort 
protection ++ + --   -       - - ++ 
6.3 Prevention 
of failure and last resort 
protection +++ + --   -   --- - --- - + 
 
GEOGRAPHICAL SCOPE  
 
- Option 7.1:  No action (har monization) at EU level  
 
Some national IGS are based on the home country principle (fo r life insurance: BG, DE, ES, 
FR, RO; for non-life insurance: DK, ES, FR, IE, RO), while others (for  life insurance: MT; 
for non-life insurance: MT, NO) are structured  around the host country principle, and some 
others (for life insurance: LV, PL, UK; for non-life insurance: LV, UK ) are structured under 
the home plus host country principle. 
 Preserving the status quo would maintain ex isting conditions of insufficient and uneven 
protection of policyholders in several Member States. 
 
EN 66   EN  
- Option 7.2:  Home country principle  
 
The main advantage of the home country princi ple (see Endnote 37) is its consistency with 
the supervisory framework, since the home country  supervisor is responsible for prudential 
regulation, including solvency requ irements, and for starting the winding-up process. This is 
of particular importance if the IGS serves to f acilitate the transfer of portfolio. Moreover, the 
home country principle is the principle fo llowed for guarantee schemes in the banking and 
securities sector. Finally, an important consideration supporting the home country principle is 
that the administration of an IGS is closel y linked with rules rega rding insolvency and 
liquidation, which are under the responsibility of the home Memb er State. Funding needs are 
as assessed under option 5.2. 
 The Oxera report states that the main adva ntages of the home country principle are: 
correspondence with the current supervisory struct ure, ease and efficiency  in handling cases, 
acceptance by the insurance industry, alignment with the approach followed for DGS and 
ICS, ease of treatment of insurance default cases and administrative feasibility. The main 
disadvantages identified in the report are: th e possible uneven protecti on of consumers within 
a Member State (if the level of protection is not harmonised), unlevel playing field between 
domestic and non-domestic insurers  (if the level of protection is not harmonised), incentives 
to moral hazard of public authorities in case of preponderant cross-border (compared to domestic) activity of domestic insurers. 
 In the 2008 public consultation, the vast majority  of respondents showed a preference for the 
home country principle, as this approach is consistent with the EU supervisory framework. 
Most respondents were however  not in favour of the idea th at subsidiaries should also 
participate in and be covered by the IGS of the Member State in which the group supervisor is 
located (in case of a group support regime). 
 In its advice, CEIOPS (2009b) expresses a pr eference for the home country principle. 
 In the 2009 informal stakeholders meetings , all participants supported the home country 
principle. 
 
- Option 7.3:  Host country principle
 
 
 
EN 67   EN The main advantage of a host country principle (s ee Endnote 37) is that it ensures that there is 
no uneven policyholder protectio n in all Member State, t hus preventing any possible 
distortions of the level playing field between  insurers competing in the same country. 
 Adopting a host state principle nonetheless ha s its drawbacks. First, it duplicates 
administrative costs as it requires insurers with cross-border business to take part in two or 
more IGS. Second, IGS intervention might be diffi cult in practice: the au thorities th at operate 
the scheme would not be the ones that condu ct and supervise the winding-up proceedings, 
and this is likely to cause difficulties.  
 If one opts for a national IGS in each Member St ate based on the host country principle, the 
funding needs are as shown in Table 12. Fundi ng needs would be reduced by some 0-1%  
compared with home country based national schemes in each Member State. 
 
Table 12 - Funding needs for the EU with national host country principle IGS, 
compared with national home country principle IGS (m €) 
 
Source : Methodological report, Table 4.14. For a full analysis and figures for each Member 
State see sub-sections 4.2 and A5.1 of the MR. 
 
Opting for a national IGS in each Member Stat e according to the host country principle 
instead of the home country principle is estima ted to have important distributional (between 
Member States) effects (see sub-section 4.2 of the MR and Table 4 of Annex 5 to the MR). 
While in the great majority of Member States  funding needs change only slightly (between -
5% and +5%), they change considerably for a few Member States. In particular, the most 
important increase in funding n eeds is in NO (14.78%) as the No rwegian insurance market is 
covered for some 17% by branches of insu rance undertakings based in other EU-EEA 
countries. The biggest decrease in funding n eeds is in EE (-30.00%) as some 33% of the 
activity of Estonian insurance undertakings ta kes place via branches in other EU Member 
States. 
 
 
EN 68   EN The picture changes somewhat if IGS protection is limited to cover life policies. While for 
most Member States the variat ion in the funding needs is re latively modest, the situation 
becomes important for a few Member States. In particular, the most important increases in 
funding needs are in LV (43.40%), LT (13.78%) a nd CZ (13.31%) as in these Member States 
the market is covered to a large extent by bran ches of insurances es tablished in other EU-
EEA countries. The most important decrease s in the funding needs are in EE (-53.39%) and 
Cyprus (-12.87%) as from these Member States a part of life insurance policies are sold in 
other EU Member States via branches. 
 The picture changes again when IGS protection is limited to non-life policies. While for most 
Member States the variation in the funding n eeds is relatively modest, the change becomes 
important for a few Member States. In particul ar, the most important increase in funding 
needs is NO (72.36%) as in NO the market is covered for more than half by branches of insurance undertakings based in  other EU-EEA countries. The most important decreases in 
funding needs are in IE (-35.54%) and DK (-16.71%) as a  part of  non-life insurance policies 
are sold via branches from these Member  States in other EU Member States. 
 The Oxera report states that the main advantages  of the host country principle are: an even 
level of protection of all policyholders in all Me mber States and a level playing field between 
insurers competing in the same Member Stat e. The main disadvantag es are: possible double 
payments of insurers with cross-border busin ess (if there is an IGS under the home state 
principle in their Member State of origin), misalignment with the supervisory structure, 
possible difficulties in the treatment of insurance undertakings' defaults, and difficult 
acceptance by the insurance industry and by supervisors. 
 In the 2008 public consultation only very few respondents showed support for the host 
country principle. 
 
- Option 7.4:  Home plus host country principle
 
 
The home plus host country principle can bring an  effective solution to the problems of an 
isolated country. When adopted at the EU le vel, however, it does no t provide substantial 
additional benefits compared to the home co untry principle (in the case of a sufficient 
harmonisation of the IGS design features). The bene fits of this regime are far outweighted by 
the drawbacks/complexity added to the system. 
 
- Option 7.5:  Home country prin ciple with lead supervisor  
 
 
EN 69   EN The Oxera report states that the main advantages  of a national IGS with a lead supervisor are 
the following: an even consumer protection across Member States in the event of failure of an 
entity belonging to the group, the neutrality of the IGS with respect to the decision to enter a 
Member State via a branch or a subsidiary. Th e disadvantages identified in the Oxera report 
are: uneven consumer protection in Member Stat es for insurance undertakings authorised and 
supervised in that Member State, unlevel pl aying field between insurers competing in the 
same Member State, incentive for moral hazard  behaviour of public au thorities in case of 
preponderant cross-border (compared to dom estic) activity of domestic insurers. 
 In conclusion, the Commission believes at this stage that the adoption of IGS on the basis of 
the home country principle provides the most benefits to consumers and minimises the 
problems of implementation. This solution is therefore put forward as the Commission's 
preferred option . Table 13 presents a summary of th e arguments supporting this conclusion. 
 
 
EN 70   EN Table 13 Summary of policy options' evaluations – Geographic Scope 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
7.1 No action 
at EU level                       
7.2 Home state 
principle ++ + -   -       -- - +++ 
7.3 Host state 
principle ++ ++ - - -     - --- -- + 
7.4 Home + 
Host principle +++ ++ -- - -     - --- -- ++ 
7.5 Home state 
principle with 
lead supervisor 
perimeter ++ + - - -     - -- -- ++ 
 
POLICIES COVERED  
 
- Option 8.1:  No action (har monization) at EU level  
 
In those countries that have already set up an IGS, the scope of coverage is rather 
heterogeneous: BG, DE, and PL only cover lif e policies, while ES, FR LV, MT, RO and UK 
protect both life and non-life polic ies. Finally, DK, IE and NO only protect non-life policies. 
 Preserving the status quo means that uneven pr otection of policyholder s within and between 
Member States is maintained. 
 
- Option 8.2: Protection of life policies only
 
 
 
EN 71   EN The collapse of a life insurer can often cause ve ry severe financial ha rdship for large groups 
of consumers. It is therefore advisable to incl ude life policies in an IGS in order to provide a 
high level of protection to retail consumers. 
 In the 2009 informal stakeholders meetings, CEA reported that a majo rity of its members 
considered were in favour of covering only life policies as the practical relevance of covering 
non-life policies was lower. AMICE and EFDI supported this view. 
 It should however be noted that even if the av erage loss to policyholders is generally smaller 
in the case of a non-life insurer going into de fault, there are inst ances where losses to 
individual policyholders and third party claima nts may well exceed that of a typical life 
insurance product. 
 
- Option 8.3:  Protection of non-life policies only
 
 
The severe consequences which may result for policyholders from failure of a life insurer 
make this option not advisable. 
 
- Option 8.4:  Protection of both life and non-life policies  
 
Since substantial losses can be passed on to the holders of both life and non-life policies, 
policyholders will receive a more complete and appropriate protection if the EU acts to protect both types of policy – albeit in differe nt ways and under differe nt rules. However, 
doubts exist, also in view of the comments of some stakeholders, on whether this full 
coverage is entirely justified. 
 In its advice, CEIOPS (2009b) recommends that  IGS cover both life a nd non-life policies. 
 In the 2009 informal stakeholders meetings , CEIOPS and FINUSE supported the protection 
of both life and non-life policies. 
 
- Option 8.5:  Protection of both lif e and selected non-life policies
 
 
The Oxera report argues that there may be reas ons to exclude particular classes of non-life 
insurance from protection and to include only li ability insurance, compulsory insurance and 
 
EN 72   EN retail policies. The Oxera report also states that if the IGS protection is limited to natural 
persons only, a case can be made for excluding  certain policies (e.g. marine, aviation and 
transit) from the scope of IGS protecti on as they cover commercial risks only. 
 In the 2009 informal stakeholders meetings, the EF RP explained that if the IGS is a genuinely 
last resort protection measure, life and a se lection of non-lif e policies should be covered. 
 Table 14 presents a summary of the reasons why the Commission believes that preference 
should be given to covering life and selected non-life insurance policies . 
 
Table 14 Summary of policy options' evaluations – Policies covered 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
8.1 No action 
at EU level                       
8.2 Life 
policies only ++ ++ --   -       - - ++ 
8.3 Non-life 
policies only + + -   -       --- - + 
8.4 Life and 
non-life 
policies +++ +++ ---   -       -- - ++ 
8.5 Life and 
selected non-life policies +++ +++ --   -       -- - +++ 
 
ELIGIBLE CLAIMANTS  
 
- Option 9.1:  No action (har monization) at EU level  
 
 
EN 73   EN Existing IGS restrict the eligibility of clai mants in various uncoordinated ways. In life 
insurance, while a majority of Member States  (DE, ES, FR, MT, RO) provide coverage to 
basically all policyholders, two Member States  (BG, UK) only provide coverage to natural 
persons and SME, and two other Member States  (LV, PL) only provide coverage to natural 
persons. In non-life insurance, some Member St ates (ES, FR, RO) provi de coverage to all 
policyholders. Some other Member States (IE,  LV, MT) only protec t natural persons, and 
three Member States (DK, NO, UK) pr otect both natural persons and SME. 
 Preserving this situation is not  advisable as it would mainta in uneven levels of protection 
within and between Member States for various classes of policyholders. 
 
- Option 9.2:  Natural and legal persons
 
 
Covering all natural and legal persons might be excessively expensive. It may also not be 
fully justified because of the ma in objective of IGS, i.e. the pr otection of retail customers.  
 
- Option 9.3:  Natural and selected  legal persons (including SME's)  
 
In order to reduce funding needs, eligibility could be restri cted to those claimants who meet 
certain criteria. 
 One possibility might be to exclude large corporate policyholders from protection of non-
compulsory insurance policies. Not only are these policyholders better equipped to assess the 
financial soundness of insurers, but they also have access to a network of insurance brokers 
who can scan the market and find insurers with the skills, capacity and financial strength to 
underwrite the risk. Finally, large corporate pol icyholders can also di versify their risks by 
purchasing policies with various insurance co mpanies or seek other forms of protection. 
 
Another possibility could be to  limit coverage to natural persons and SME's. In that case, 
particular care would have to be taken in defining an SME. 
 
The Oxera report indicates that eligible clai mants should be consumers and possibly small 
businesses. 
 
 
EN 74   EN In the 2009 informal stakeholders meeti ngs, FINUSE expressed a view in favour of 
protecting natural persons and SME's. FINU SE acknowledged however that it would be 
difficult to give a proper  definition of  SME. 
 
- Option 9.4:  Natural persons only  
 
One possibility is to restrict IGS protection to  natural persons only. However, this might raise 
concerns about inadequate protection for lega l persons that resemble retail customers. 
 In its advice, CEIOPS (2009b) r ecommends that eligible clai mants should be at least all 
natural persons, and that Member States should be allowed to ex tend the scope of coverage to 
other claimants. 
 In the 2009 informal stakeholders meetings CEA and EFDI expressed preference for  
protecting natural persons only as the main obj ective of IGS is consum er protection and not 
company protection. EFDI suggested that Member  States should be give n the possibility to 
introduce additional cover for SME's at national level. 
 Table 15 presents a summary of the reasons w hy the Commission believes that eligibility of 
natural and selected legal pers ons (including SME's) should be retained as the preferable 
option.  
 
Table 15 Summary of policy options' evaluations – Eligible claimants 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
9.1 No action 
at EU level                       
9.2 Natural 
and legal persons  ++ ++ --   -       --- - ++ 
 
EN 75   EN 9.3 Natural 
and selected 
legal persons (incl. SME) ++ ++ --   -       -- - +++ 
9.4 Natural 
persons only + + --   -       - - + 
 
TIMING OF FUNDING  
 
- Option 10.1:  No action (harmonization) at EU level  
 
Currently, the majority of existing schemes covering life insurance are funded ex-ante or 
involve a sizeable elem ent of ex-ante funding (BG, DE, ES, FR, LV, MT, RO). Exceptions 
are UK and PL. In non-life insurance, Member States with an important component of ex-
ante funding are DK, ES, FR, LV, MT and RO, while the UK, NO and IE have ex-post 
funded IGS. 
 The lack of any IGS harmonisation at EU level would imply maintaining a situation in which 
there are considerable differences between sc hemes in terms of when contributions are 
collected. These differences have an impact on the protection of policyholders in Member 
States. 
 In the 2009 informal stakeholde rs meeting, CEA, EFDI and AMICE expressed a preference 
for no harmonisation at EU level with regard to the timing of funding.  On the other hand, 
CEIOPS argued that harmonisation of th e timing of funding was important. 
 
- Option 10.2:  Ex-post funding
 
 
In an ex-post funded scheme, resources rema in with the contribu ting institutions until a 
failure occurs, and levies are paid to the scheme only once losses arise. It follows that set-up and operational costs are limited. Ex- post funding is more subject to moral hazard  as failed 
institutions never contribute to the IGS. 
 The Oxera report states that the main advantages  of ex-post funding are: the very low set-up 
and administrative costs, the lo wer cost for insurance undert akings, the possibility that 
collected funds are tailored on actual defaul t losses. The main disadvantages are: the 
difficulty to ensure a prompt pay-out to policyholders, the fact that failed insurance 
 
EN 76   EN undertakings do not contribute to  the loss caused by thei r failure, that funds are collected in a 
possibly more pro-cyclical way, the fact that it  might in the end not be possible to collect 
funds from the insurance industry due to their weak general conditions. 
 
- Option 10.3:  Ex-ante funding  
 
In a pre-funded scheme, funds are raised in an ticipation of possible future failures, with 
resources transferred to, and ma naged by, the IGS via a system of  levies on industry. The first 
advantage therefore is the fact that money is readily available to protect consumers should a 
failure occur. Moreover, ex-ante funding is less  subject to moral hazard problems because 
insurers that become insolvent will have already contributed to the IGS.79 Finally, ex ante 
funding is more likely to avoid th e pro-cyclicality asso ciated with ex-post funded schemes. It 
is obvious that set-up and operational costs tend to  be higher here than in the case of ex-post 
funding. 
 
The Oxera report states that the main advantag es of ex-ante funding ar e: that funds are in 
principle more quickly available to the IGS, that failed insurance unde rtakings contribute to 
the loss of their failure, that funds are collect ed in a possibly less pro- cyclical way. The main 
disadvantages are: the hi gher set-up, administrative and oper ational costs and  the possibility 
that collected funds are insufficient (i f not complemented by ex-post funding). 
 
In its advice, CEIOPS (2009b) recommends that IG S should be required to  make payments as 
soon as practicable after claims have been a ssessed. However CEIOPS does not express itself 
clearly in favour of ex -ante or ex-post funding. 
 
In the 2009 informal stakeholders meeting, CE A stated that the insu rance industry saw no 
merit in ex-ante funding.  
 
- Option 10.4: Combination of ex-post and ex-ante funding  
 
When part of the IGS funding is  ex-ante and part is ex-post,  some of the funds would be 
immediately available to the IGS without impos ing too high ex-ante costs / mobilization of 
funds on industry and consumers. 
 In the 2009 informal stakeholders meeting, CE IOPS favoured a combination of ex-ante and 
ex-post funding.  
 
EN 77   EN  
In conclusion, the Commission be lieves that an appropriate co mbination of ex-ante and ex-
post funding is preferable.  Table 16 presents a summary of the arguments that support this 
conclusion. 
 
Table 16 Summary of policy options' evaluations – Timing of funding 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
10.1 No action 
at EU level                       
10.2 Ex-post 
funding + + - - -  --   - -   
10.3 Ex-ante 
funding ++ ++ ---   --  -  -- -- + 
10.4 
Combination 
of ex-post and 
ex-ante funding ++ ++ --   --  -  -- -- ++ 
 
NATURE OF SCHEME INTERVENTION (PORTFOLIO TRANSFER /COMPENSATION ) 
 
IGS can work in different ways. In the first scenario, IGS secure the continuity of the policies 
by, for instance, facilitating their transfer to a solvent insurer or  taking direct charge of them 
(portfolio transfer). In the second scenario, IG S compensate policyholders or beneficiaries for 
their losses if an insuran ce undertaking becomes insolvent (compensation of claims).  
 
- Option 11.1: No action (harmonization) at EU level  
 
In life insurance, existing IGS are split between  those that provide compensation (BG, LV, 
MT, PL, RO) and those that ensure portfolio tr ansfer (DE, FR, ES, UK ). In non-life insurance 
 
EN 78   EN the majority of IGS provide compensation (DK, IE, LV, MT, RO, UK), while portfolio 
transfer is ensured in FR, NO and ES. 
 The absence of any harmonisation at EU level concerning the nature of the intervention of 
IGS schemes would imply mainta ining a situation of  uneven levels of policyholder protection 
in Member States. 
 In its advice, CEIOPS (2009b) recommends to leav e flexibility to Member States regarding 
the question whether IGS should onl y deal with compensation of cl aims or portfolio transfer. 
 
- Option 11.2: Portfolio Transfer
 
 
From a policyholder protection po int of view, continuity of insurance cover may be more 
advantageous than compensation, particularly  in those cases where policyholders would 
otherwise find it difficult to get equivalent cover (on similar terms) with an alternative insurer. 
 The Oxera report notes that from a consumer pr otection point of view and in order to limit 
wider market impacts, continuity may be pr eferable, particularly  for life insurance 
policyholders. In the case of non-life insurance, the arguments for continuity may be less 
relevant, since contracts are ge nerally short-term. Nevertheless there may be instances where 
there could be benefits for an IGS to secure continuity of non-life pol icies e.g. where policies 
are ‘non-standard’ or the failed insurer has a sign ificant share of the market and it is difficult 
for policyholders to find alternat ive cover quickly at the same price if supply is restricted. 
 
- Option 11.3: Compensation of Claims
 
 
All the funding needs presented above for the va rious options of the IG S design features are 
based on the assumption of portfolio transfer .  If IGS provide comp ensation (only) both for 
life and non-life insurance, th e funding needs for the whole EU under option 5.2 are those 
presented in Table 17. 
 
 
EN 79   EN Table 17 - Funding needs for total insurance for the EU with national IGS providing 
compensation only and comparison with  the portfolio transfer case (m €) 
 
Source : Methodological report, Table 4.31. For a full analysis and figures for each Member 
State see sub-sections 4.6 and A5.5 of the MR. 
 
If IGS provide compensation (only) for life insurance only, the funding needs for the whole 
EU under option 5.2 are those presented in Table 18. 
 
Table 18 - Funding needs for life insurance for the EU with national IGS providing 
compensation only and comparison with  the portfolio transfer case (m €) 
 
Source : Methodological report, Table 4.35. For a full analysis and figures for each Member 
State see sub-sections 4.6 and A5.5 of the MR. 
 Finally, if IGS provide compen sation (only) for non-life insura nce only, the funding needs for 
the whole EU under option 5.2 are those presented in Table 19. 
 
Table 19 - Funding needs for non-life insuran ce for the EU with national IGS providing 
compensation only and comparison with  the portfolio transfer case (m €) 
 
Source : Methodological report, Table 4.37. For a full analysis and figures for each Member 
State see sub-sections 4.6 and A5.5 of the MR. 
 The total funding needs tend to be lower (some 7%) because not all policies need to be 
protected, but only those that  actually lead to a real claim against the insurer. 
 
EN 80   EN  
Table 20 presents a summary of the reasons  why the Commission believes that portfolio 
transfer is the preferred option.  
 
Table 20 Summary of policy options' evalua tions – Nature of scheme intervention 
 Op. Objectives Constraints  
 Effectiveness Costs Incentives Ease Imp. 
Options 
High policyholders
protection 
Even policyholders
protection 
Resources needed 
Correct allocation o f
losses 
Set-up and operational
costs 
Consumers moral hazard Insurers moral hazard 
Supervisors / public
authorities moral hazard 
Consensus among
stakeholders 
Administrative burden 
Cost-effectiveness 
11.1 No action 
at EU level                       
11.2 Portfolio 
Transfer ++ ++ --   -       -- - +++ 
11.3 
Compensation of claims + + -   -       - - ++ 
 
Annex B  METHODOLOGICAL  REPORT  ON  THE  DERIVATION  OF IGS  LOSS  
DISTRIBUTIONS 
See separate document 
 
Annex C  SUPPLEMENTARY TABLES TO THE METHODOLOGICAL REPORT 
 
1. Additional statistics on distribution of losses and balance sheets of insurers 
 
 
EN 81   EN Figure 0.1 - Insured losses from natural catastrophe s and man-made disasters throughout the world 
 
Source:  European Central Bank (European Central Bank 2009) 
 
 
 
EN 82   EN Figure 0.2 - Stock prices in the Euro area 
 
Source:  European Central Bank (European Central Bank 2009) 
 
 
EN 83   EN Figure 0.3 - Investment-grade corporat e bond spreads in the Euro area 
 
Source:  European Central Bank (European Central Bank 2009) 
 
 
EN 84   EN Figure 0.4 - Write-downs and losses at selected insu rance companies (since begi nning 2007, total of USD 
261.2 billion) 
 
Source:  Schich (2009) 
  
 
EN 85   EN Figure 0.5 – Expected default frequency for the euro area insurance sector 
 
Source:  European Central Bank (European Central Bank 2009) 
   
2. Additional descriptive statistics 
 
Table 0.21: Estimated average number of defaul ts per year and average time between defaults. 
  
Average number o f
defaults 
per year (PD=0.1%) 
Average number o f
defaults 
per year (PD=0.5%) 
Years between defaults 
(PD=0.1%) 
Years between defaults 
(PD=0.5%) 
AT 0.08 0.39 13.0 2.6 
BE 0.16 0.78 6.4 1.3 
BG 0.04 0.20 25.0 5.0 
 
EN 86   EN CY 0.04 0.18 27.8 5.6 
CZ 0.05 0.26 19.2 3.8 
DE 0.50 2.52 2.0 0.4 
DK 0.19 0.97 5.2 1.0 
EE 0.02 0.10 52.6 10.5 
ES 0.29 1.46 3.4 0.7 
FI 0.04 0.18 28.6 5.7 
FR 0.39 1.94 2.6 0.5 
GR 0.08 0.40 12.5 2.5 
HU 0.05 0.24 20.8 4.2 
IE 0.35 1.74 2.9 0.6 
IS 0.01 0.06 83.3 16.7 
IT 0.24 1.22 4.1 0.8 
LI 0.06 0.32 15.9 3.2 
LT 0.03 0.14 35.7 7.1 
LU 0.36 1.78 2.8 0.6 
LV 0.02 0.11 45.5 9.1 
MT 0.04 0.22 23.3 4.7 
NL 0.30 1.50 3.3 0.7 
NO 0.13 0.67 7.5 1.5 
PL 0.08 0.41 12.3 2.5 
PT 0.08 0.41 12.2 2.4 
RO 0.04 0.21 23.8 4.8 
SE 0.21 1.03 4.9 1.0 
SK 0.04 0.18 28.6 5.7 
SL 0.02 0.10 52.6 10.5 
UK 0.43 2.14 2.3 0.5 
EU 4.15 20.74 0.24 0.05 
 
EN 87   EN EEA 4.36 21.79 0.23 0.05 
EU avg 0.29 1.46 3.4 0.7 
EU-EEA avg 0.28 1.42 3.5 0.7 
Note:  based on average probabilities of defau lt and ignoring correlation. EU and EEA 
averages are weighted by number of insurers in each country in 2007. 
Source : CEIOPS data, own elaboration 
 
EN 88   EN Table 0.22: Losses of historical selected defaults. 
Country 
Biggest failure 
Year of default 
Sector 
Total l oss (m€) 
Total loss 
(as % of total premiums) 
Number of policyholders / 
claims 
RO Metropol 2003 Composite 2.9 0.2% 8 427 (3 573 paid)
FR Europavie 2000 Life 0.4 0.0% N.A.
DE Mannheimer 2003 Life 100.0 0.1% 344 000
IE ICI 1985 Non life 315.0 8.1% N.A.
ES Reunión 1992 Non life 35.4 0.1% N.A.
FR International Claims 
Services SA 1999 Non life 10.2 0.0% 260
UK Independent Insurance 2001 Non life 738.0 0.8% 190 000
UK Chester Street 2001 Non life 146.5 0.2% N.A.
DK Plus Forsiking A/S 2002 Non life 12.4 0.2% N.A.
Source:  Oxera report(Oxera 2007) and CEIO PS updates (CEIOPS 2009b; CEIOPS 2009a)  
 
 
EN 89   EN Table 0.23: Estimated average and largest losses un der different default prob ability scenarios (m €). 
 Life Non-Life 
  
Average Loss 
PD=0,1%, (LGD=15%) 
Average Loss 
PD=0,5% (LGD=15%) 
Largest loss 
(LGD=15%) 
Average Loss 
PD=0,1%, (LGD=15%) 
Average Loss 
PD=0,5% (LGD=15%) 
Largest loss 
(LGD=15%) 
AT 8.73 43.64 2'117.93 1.65 8.24 379.80
BE 25.22 126.12 5'491.50 2.89 14.43 479.11
BG 0.03 0.15 7.44 0.03 0.16 4.28
CY 0.41 2.04 107.48 0.05 0.26 8.21
CZ 0.98 4.91 312.04 0.28 1.41 66.06
DE 114.78 573.89 10'662.79 37.30 186.48 3'335.71
DK 17.71 88.57 2'707.70 1.51 7.56 273.26
EE 0.08 0.38 36.98 0.02 0.08 5.49
ES 24.74 123.70 2'418.82 7.51 37.56 1'372.05
FI 5.56 27.82 1'705.75 1.18 5.92 326.19
FR 178.44 892.22 29'584.48 25.21 126.05 3'505.44
GR 1.14 5.72 207.78 0.25 1.27 37.12
HU 0.79 3.96 120.90 0.05 0.26 10.86
IE 22.12 110.58 4'099.66 2.01 10.07 436.71
IS 0.02 0.11 9.86 0.10 0.49 29.88
IT 58.37 291.84 15'157.57 4.89 24.47 1'086.66
LI N.A. N.A. N.A. N.A. N.A. N.A.
LT 0.08 0.39 18.94 0.02 0.12 4.88
LU 11.49 57.43 1'627.13 0.53 2.67 130.87
LV 0.01 0.06 5.05 0.03 0.14 5.69
MT 0.19 0.97 38.78 0.09 0.44 14.26
NL 39.95 199.74 8'880.76 12.39 61.97 2'499.79
NO 11.92 59.60 3'947.70 1.17 5.85 260.47
 
EN 90   EN PL 2.56 12.79 981.34 0.52 2.62 243.93
PT 6.04 30.22 1'303.30 0.75 3.74 244.26
RO 0.12 0.59 32.87 0.10 0.48 26.30
SE 28.73 143.63 4'735.41 8.05 40.27 2'018.13
SI 0.31 1.53 115.49 0.22 1.09 84.02
SK 0.34 1.72 90.30 0.07 0.37 29.23
UK 305.10 1'525.50 27'864.42 15.53 77.67 2'533.59
EU 854.03 4 270.14 120 432.62 123.16 615.78 19 161.88
EU-EEA 865.97 4 329.85 124 390.18 124.42 622.12 19 452.23
Note 1:  Numbers in Italic refer to estimates  based on approximate market structure 
Note 2: losses are calculated assumi ng a Loss Given Default of 15%  
Source: Methodological report, Table A4.1 and own elaboration.  
    
 
EN 91   EN Table 0.24: Updated calculation of average and stressed Probabilitie s of Default (PD). 
Rating 
Grade (S&P) Probability of default over one 
year (S&P) Number of Leading European 
Insurance groups in each rating 
class, by year 
  In 2008  
(during 
financial crisis) 
 Average 
 (1981-2008) 
 
 2005 2006 2007 2008 2009 
AAA 0 0 0 0 0 0 0 
AA+ 0 0 0 0 0 0 0 
AA 0.43% 0.02% 2 2 3 3 1 
AA- 0.40% 0.03% 5 7 7 6 5 
A+ 0.31% 0.05% 6 5 8 8 6 
A 0.21% 0.06% 6 6 3 3 9 
A- 0.58% 0.08% 6 6 5 5 5 
BBB+ 0.18% 0.16% 0 1 1 1 0 
BBB 0.59% 0.28% 1 1 1 0 0 
BBB- 0.71% 0.28% 0 0 0 2 2 
BB+ 1.14% 0.68% 0 0 0 0 0 
BB 0.63% 0.89% 0 0 0 0 0 
Average 0.404% 0.065%           
Adjusted 
average (to 
account for 
unrated 
companies)  0.100% 
     
Note: Average PD is calculated as weighted aver age of average histor ical PD over period 
1981-2008) weighted by number of companies in each rating class over last 5 years. Average 
PD in 2008 is calculated as we ighted average of observed default rates during 2008 weighted 
by number of companies in each rating class in 2008. 
Source: CEIOPS, Standard&Poor's, Oxera report, own elaboration 
  
 
EN 92   EN Table 0.25: Updated table of IGS characteristics (Part I) 
 
 
 
 
EN 93   EN Table 0.26: Updated table of IGS characteristics (Part II) 
 
Notes:  Belgium is not included as reported by Oxera as the Belgian IGS only has one 
participant; (a.1) only  in case of a long term life insurance continuation; (c.1) maximum 
payout for any single insurer capped to MTL 1m il (around Eur 2'329'000); (c.2) policyholders 
90%, third party claimants 100%; (c.3) individual claims are unlimited but there is a total 
payout limit of 700m euro; (c.4) 100% is for residential property and compulsory liability 
insurance; (d.1) levies are raised for costs expected during the next 12 months; (f.1) home 
state for protection and host state for contribution; (f.2)  participation of foreign branches not 
required and not permitted; (f.3) all contract s not covered by a home scheme need to be 
covered by the scheme; (f.4) unless branches of EU insurer protec ted to an equivalent level; 
(f.5) mandatory for insurers pr oviding insurance which is ma ndatory by law or regulation; 
(f.6) required to participate bu t protected only if wound up under Irish law; (f.7) branches not 
protected but required to  contribute for non-life risks locate d in Spain; (f.8) the fund covers 
claims arising under a contract  protecting a a risk situated  in Malta or originating a 
commitment in Malta; (i.1) Public ownership and management, but formally a private right 
corporation; (j.1) The fund responds to the National Supervisory Authority but it is not 
foreseen that it will receive staff in case of a default; (j.2) Privately managed, with a board appointed by regulator; (j.3) Managed by repr esentatives chosen by industry and vetted by 
supervisor. Subject to supervis ion of insurance supervisor. 
Sources:  CEIOPS update to the Oxera re port (CEIOPS 2009b; CEIOPS 2009a) 
  
 
EN 94   EN Table 0.27: Estimated funds available to existing IGS (m €). 
 Estimated 
funds 
available Sector 
BG* 0,70 Life
DE 640,00 Life
DK 40,30 Non life
ES 1 331,00 Life +Non life
FR 569//250 Life//Non life
IE* 26,48 Non life
LV 0.8//2.8 Life//Non life
MT 2.33//2.33 Life//Non life
NO* 16,04 Non life
PL* 39,03 Life
RO 17.10//84.50 Life//Non life
UK* 1 766//316 Life//Non life
Note 1:  * – ex-post funded scheme 
Note 2: Funds available for schemes with ex-ante payment are based on figures reported by 
Oxera and CEIOPS. Funds available for sche mes with ex-post payment are estimated 
(numbers in italics ) based on average fund size of ex-a nte schemes with respect to Gross 
Premium Written 
Source:  Oxera Report (Oxera 2007), CEIOPS u pdate (CEIOPS 2009b; CEIOPS 2009a), own 
elaboration  
  
 
EN 95   EN Table 0.28: Estimated funding needs as a shar e of gross premiums written in each country. 
PD=0.5% PD=0.1% 
  α=75%  α=90% α=99% α=75% α=90% α=99%
AT 0.32% 0.98% 4.74% 0.04% 0.17% 1.18%
BE 0.42% 1.28% 6.16% 0.06% 0.22% 1.54%
BG 0.08% 0.21% 0.88% 0.01% 0.04% 0.22%
CY 0.34% 1.08% 5.46% 0.05% 0.18% 1.36%
CZ  0.18% 0.51% 2.27% 0.03% 0.09% 0.57%
DE 0.52% 1.33% 5.21% 0.08% 0.25% 1.32%
DK 0.56% 1.42% 5.54% 0.09% 0.26% 1.41%
EE 0.10% 0.47% 3.68% 0.01% 0.06% 0.85%
ES 0.37% 0.95% 3.80% 0.06% 0.18% 0.96%
FI 0.45% 1.67% 10.00% 0.05% 0.26% 2.43%
FR 0.51% 1.38% 5.88% 0.07% 0.25% 1.49%
GR 0.19% 0.51% 2.20% 0.03% 0.09% 0.55%
HU 0.17% 0.41% 1.57% 0.03% 0.08% 0.40%
IE 0.28% 0.74% 3.11% 0.04% 0.13% 0.79%
IS 0.18% 0.64% 3.70% 0.02% 0.10% 0.90%
IT 0.35% 1.02% 4.74% 0.05% 0.18% 1.19%
LI 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
LT 0.13% 0.38% 1.67% 0.02% 0.07% 0.42%
LU 0.58% 1.37% 4.92% 0.09% 0.26% 1.25%
LV 0.07% 0.23% 1.08% 0.01% 0.04% 0.27%
MT 0.24% 0.80% 4.28% 0.03% 0.13% 1.06%
NL 0.30% 0.85% 3.78% 0.04% 0.15% 0.95%
NO 0.32% 1.24% 7.91% 0.04% 0.18% 1.90%
PL 0.12% 0.44% 2.51% 0.01% 0.07% 0.61%
PT 0.23% 0.73% 3.67% 0.03% 0.12% 0.91%
RO 0.11% 0.27% 1.01% 0.02% 0.05% 0.26%
 
EN 96   EN SE 0.74% 2.21% 10.51% 0.10% 0.38% 2.63%
SI 0.14% 0.55% 3.47% 0.02% 0.08% 0.83%
SK  0.14% 0.45% 2.41% 0.02% 0.07% 0.60%
UK 0.43% 1.14% 4.62% 0.07% 0.21% 1.17%
EU 0.43% 1.17% 4.92% 0.06% 0.21% 1.24%
EU-EEA 0.43% 1.17% 4.95% 0.06% 0.21% 1.25%
Note:  estimates based on the home state principle,  under different scenarios for the ‘over the 
cycle’ probability of defau lt and levels of protection. 
Source: Methodological report, Table 3.2 - CEIO PS (CEIOPS 2008), CEA (CEA 2009), own 
elaboration. 
 
EN 97   EN Table 0.29: Ranking group, in terms of market share, of largest company in the Life insurance sector 
covered by IGS under different funding scenarios. 
  PD=0.1% 
α=75% PD=0.1% 
α=90% PD=0.1% 
α=99%  PD=0.5% 
α=75%  PD=0.5% 
α=90%  PD=0.5% 
α=99%  
AT .. .. 2 .. 2 1 
BE .. 4 3 4 3 2 
BG .. .. .. .. .. 1 
CY .. .. 3 .. .. 1 
CZ  .. .. 3 .. 3 1 
DE .. .. 4 4 4 2 
DK .. .. 3 3 3 2 
EE .. .. 2 .. .. 1 
ES .. 4 4 4 4 2 
FI 3 3 3 3 3 2 
FR .. 4 4 4 4 2 
GR .. 4 4 4 4 2 
HU .. .. 2 .. 3 2 
IE .. .. 2 .. 2 2 
IS .. .. .. .. .. 1 
IT .. 4 3 4 4 2 
LI .. .. .. 3 3 2 
LT .. .. .. .. .. 2 
LU .. 3 3 3 3 3 
LV 2 2 2 2 2 1 
MT 2 2 2 2 2 2 
NL .. .. 2 .. 2 2 
NO 4 3 3 3 3 1 
PL .. .. 4 4 4 1 
PT .. 4 3 4 3 2 
RO 3 3 2 2 2 2 
 
EN 98   EN SE 4 4 3 4 3 3 
SI .. .. 3 .. 3 1 
SK  .. 4 3 4 3 1 
UK 4 4 4 4 4 3 
Legend:  1 = company size rank is between 1 and 5; 2 = company size rank is between 6 and 
10; 3 = company size rank is between 11 and 15; 4 = company size rank is below 15; .. = not 
defined using current data 
Note:  funding needs estimated under home state principle and different scenarios for mean 
“over the cycle” probability of default and coverage level 
Source: Methodological report, Table 3.2, CEIOPS (CEIOPS 2008), CEA (CEA 2009), own 
elaboration. 
 
 
EN 99   EN Table 0.30: Ranking group, in terms of market share, of largest compan y in the Non life insurance sector 
covered by IGS under different funding scenarios 
  PD=0.1% 
α=75% PD=0.1% 
α=90% PD=0.1% 
α=99%  PD=0.5% 
α=75%  PD=0.5% 
α=90%  PD=0.5% 
α=99%  
AT .. .. 2 .. 2 1 
BE .. 4 4 4 4 2 
BG .. .. 3 .. 3 3 
CY .. .. .. .. .. 2 
CZ  .. 3 3 3 3 2 
DE 4 4 4 4 4 2 
DK .. 3 3 3 3 2 
EE .. .. 2 .. 2 1 
ES .. 4 4 4 4 1 
FI 4 3 2 3 3 2 
FR 4 4 4 4 4 1 
GR .. .. 4 .. 4 2 
HU .. .. 3 3 3 2 
IE 3 3 3 3 3 2 
IS .. .. .. .. .. ..  
IT 4 4 3 4 3 1 
LI .. 3 3 3 3 2 
LT .. .. 3 .. 3 2 
LU .. 3 3 3 3 2 
LV 3 3 3 3 3 2 
MT 4 4 3 4 3 2 
NL .. 2 2 2 2 2 
NO .. 3 3 3 3 2 
PL .. .. 3 4 4 1 
PT .. 4 4 4 4 2 
RO .. 3 3 3 3 2 
 
EN 100   EN SE 4 4 3 4 3 2 
SI .. 3 2 3 3 1 
SK  .. 4 3 4 3 1 
UK .. 4 4 4 4 2 
Legend:  1 = company size rank is between 1 and 5; 2 = company size rank is between 6 and 
10; 3 = company size rank is between 11 and 15; 4 = company size rank is below 15; .. = not 
defined using current data 
Note:  funding needs estimated under home state principle and different scenarios for mean 
“over the cycle” probability of default and coverage level 
Source: Methodological report, Table 3.2, CEIOPS (CEIOPS 2008), CEA (CEA 2009), own 
elaboration. 
 
 
EN 101   EN Table 0.31: Ratio of gross maximum losses  to GDP under different loss scenarios. 
PD=0.5% PD=0.1% 
  α=75%  α=90% α=99% α=75% α=90% α=99%
AT 0.0153% 0.0468% 0.2276% 0.0021% 0.0080% 0.0568%
BE 0.0354% 0.1068% 0.5127% 0.0048% 0.0183% 0.1282%
BG 0.0010% 0.0026% 0.0108% 0.0001% 0.0005% 0.0027%
CY 0.0114% 0.0360% 0.1817% 0.0015% 0.0060% 0.0452%
CZ 0.0048% 0.0134% 0.0595% 0.0007% 0.0024% 0.0150%
DE 0.0310% 0.0791% 0.3105% 0.0048% 0.0147% 0.0788%
DK 0.0449% 0.1143% 0.4467% 0.0070% 0.0213% 0.1134%
EE 0.0012% 0.0058% 0.0455% 0.0001% 0.0008% 0.0105%
ES 0.0150% 0.0386% 0.1538% 0.0023% 0.0071% 0.0390%
FI 0.0119% 0.0436% 0.2620% 0.0014% 0.0067% 0.0636%
FR 0.0497% 0.1356% 0.5768% 0.0073% 0.0244% 0.1457%
GR 0.0029% 0.0080% 0.0343% 0.0004% 0.0014% 0.0087%
HU 0.0045% 0.0111% 0.0423% 0.0007% 0.0021% 0.0108%
IE 0.0602% 0.1621% 0.6787% 0.0089% 0.0294% 0.1717%
IS 0.0027% 0.0096% 0.0554% 0.0003% 0.0015% 0.0135%
IT 0.0176% 0.0517% 0.2404% 0.0025% 0.0090% 0.0603%
LI N.A. N.A. N.A. N.A. N.A. N.A.
LT 0.0015% 0.0043% 0.0190% 0.0002% 0.0008% 0.0048%
LU 0.1707% 0.4057% 1.4575% 0.0276% 0.0777% 0.3711%
LV 0.0008% 0.0024% 0.0115% 0.0001% 0.0004% 0.0029%
MT 0.0202% 0.0669% 0.3559% 0.0026% 0.0108% 0.0879%
NL 0.0368% 0.1045% 0.4664% 0.0053% 0.0185% 0.1174%
NO 0.0138% 0.0533% 0.3401% 0.0015% 0.0079% 0.0818%
PL 0.0034% 0.0121% 0.0698% 0.0004% 0.0019% 0.0171%
PT 0.0166% 0.0520% 0.2603% 0.0022% 0.0087% 0.0648%
RO 0.0009% 0.0022% 0.0085% 0.0001% 0.0004% 0.0022%
 
EN 102   EN SE 0.0452% 0.1355% 0.6448% 0.0062% 0.0233% 0.1614%
SI 0.0051% 0.0197% 0.1250% 0.0006% 0.0029% 0.0301%
SK 0.0029% 0.0096% 0.0509% 0.0004% 0.0016% 0.0126%
UK 0.0744% 0.1954% 0.7948% 0.0112% 0.0358% 0.2014%
EU 0.0366% 0.0988% 0.4164% 0.0054% 0.0179% 0.1052%
EU-EEA 0.0361% 0.0976% 0.4141% 0.0054% 0.0176% 0.1045%
Note:  funding needs estimated under home state principle and different loss scenarios for 
mean “over the cycle” probability of default and loss frequency. 
Source:  Methodological Report, Table 3.2, Tabl e 3.2; Eurostat; own elaboration  
3. estimates of Coverage and protection of cross border flows 
Based on the approximate estimatio n of bilateral trade flows pr esented in the Annex on Cross 
Border Insurance Activity, it is possible to estimate the possible amounts of losses which 
could be passed on to policy-holders and clai mants across borders. As in the Methodological 
report, due to the absence of more detailed data, a proportionality assumption is going to be 
used to attribute quotas of Exposure At Defau lt to imported and exported flows of premiums. 
 
 
EN 103   EN Table 0.32: Estimated shares of do mestic and imported premiums not cov ered, at least partially, by any 
IGS. 
Life Non Life Total Insurance 
  
Domestic activity+ 
estimated imported 
Share of domestic 
activity 
Estimated share of 
total import 
Domestic activity+ 
estimated imported 
Share of domestic 
activity 
Estimated share of 
total import 
Domestic activity+ 
estimated imported 
Share of domestic 
activity 
Estimated share of 
total import 
AT 100% 100% 99% 99% 100% 45% 100% 100% 88%
BE 100% 100% 98% 92% 100% 22% 98% 100% 71%
BG 4% 0% 99% 99% 100% 45% 66% 66% 78%
CY 100% 100% 95% 96% 100% 33% 98% 100% 78%
CZ 99% 100% 93% 98% 100% 36% 99% 100% 87%
DE 5% 0% 98% 98% 100% 27% 49% 48% 74%
DK 100% 100% 99% 1% 0% 47% 76% 75% 94%
EE 100% 100% 99% 95% 100% 32% 97% 100% 50%
ES 4% 0% 99% 1% 0% 45% 2% 0% 88%
FI 100% 100% 99% 99% 100% 45% 100% 100% 89%
FR 4% 0% 99% 1% 0% 49% 3% 0% 95%
GR 100% 100% 98% 98% 100% 35% 99% 100% 81%
HU 100% 100% 99% 99% 100% 45% 100% 100% 93%
IE 99% 100% 85% 18% 0% 41% 94% 97% 75%
IS 100% 100% 99% 99% 100% 45% 99% 100% 65%
IT 100% 100% 94% 96% 100% 31% 99% 100% 85%
LI 99% 100% 99% 45% 100% 45% 99% 100% 98%
LT 99% 100% 93% 96% 100% 33% 98% 100% 83%
LU 100% 100% 97% 90% 100% 30% 88% 100% 84%
LV 0% 0% 0% 0% 0% 0% 0% 0% 0%
MT 0% 0% 0% 0% 0% 0% 0% 0% 0%
NL 100% 100% 99% 99% 100% 45% 100% 100% 80%
 
EN 104   EN NO 100% 100% 97% 55% 100% 0% 88% 100% 22%
PL 4% 0% 99% 99% 100% 45% 24% 22% 94%
PT 100% 100% 99% 99% 100% 45% 100% 100% 95%
RO 4% 0% 99% 1% 0% 45% 2% 0% 81%
SE 100% 100% 99% 99% 100% 45% 100% 100% 91%
SI 100% 100% 99% 99% 100% 45% 100% 100% 79%
SK 100% 100% 99% 99% 100% 45% 100% 100% 93%
UK 0% 0% 0% 0% 0% 0% 0% 0% 0%
EU avg 26% 25% 62% 56% 57% 23% 35% 34% 54%
EU-EEA avg 27% 26% 63% 56% 58% 19% 35% 34% 53%
Note:  Import flows calculated us ing approximate estimate of  bilateral flows based on 
proportionality assumptions. All exports exiting a c ountry with a home principle IGS are 
considered 'covered' (at least partially), all imports entering a countr y with a host state 
principle IGS are considered 'c overed' (at least partially).  
Source:  Table 2.1, Annex on cross-border insuran ce activity in the EU-EEA, Tables 2.6-2.8; 
own elaboration. 
  
Table 0.33: Estimates of net losses af ter intervention of ex isting IGS under different loss scenarios (m €). 
 PD=0.5% PD=0.1% 
 α=75%  α=90% α=99% α=75% α=90% α=99%
AT 41.56 126.82 616.39 5.63 21.59 153.91
BE 118.45 357.71 1 717.44 16.17 61.22 429.37
BG 0.00 0.05 2.41 0.00 0.00 0.09
CY 1.82 5.74 28.98 0.24 0.96 7.21
CZ 6.06 17.09 75.76 0.87 3.03 19.08
DE 113.31 1 281.86 6 899.74 0.00 0.00 1 273.98
DK 61.72 219.19 973.91 0.00 7.97 217.20
EE 0.19 0.90 7.11 0.02 0.12 1.64
ES 0.00 0.00 288.01 0.00 0.00 0.00
 
EN 105   EN FI 21.33 78.33 470.36 2.48 12.01 114.23
FR 122.76 1 749.60 10 109.65 0.00 0.00 1 942.11
GR 6.58 18.09 77.66 0.96 3.25 19.61
HU 4.51 11.23 42.79 0.71 2.11 10.88
IE 87.77 281.05 1 261.37 0.00 29.26 299.25
IS 0.40 1.43 8.27 0.05 0.22 2.02
IT 272.42 800.06 3 717.40 37.98 138.92 932.40
LI N.A. N.A. N.A. N.A. N.A. N.A.
LT 0.43 1.22 5.44 0.06 0.22 1.37
LU 63.97 152.01 546.08 10.34 29.11 139.03
LV 0.00 0.00 0.00 0.00 0.00 0.00
MT 0.00 0.00 14.77 0.00 0.00 0.14
NL 209.47 594.48 2 652.50 29.96 105.03 667.70
NO 22.97 135.12 947.64 0.00 6.41 215.76
PL 0.00 0.00 178.05 0.00 0.00 14.00
PT 27.09 84.78 424.36 3.60 14.24 105.62
RO 0.00 0.00 0.00 0.00 0.00 0.00
SE 149.65 448.61 2 135.34 20.54 77.07 534.33
SI 1.76 6.80 43.21 0.20 1.01 10.40
SK 1.60 5.27 27.97 0.20 0.86 6.91
UK 0.00 1 911.02 14 163.42 0.00 0.00 2 033.31
EU 1 312.45 8 151.91 46 480.12 129.96 507.98 8 933.77
EU-EEA 1 335.82 8 288.46 47 436.03 130.01 514.61 9 151.55
Note 1:  Loss scenarios as per table 3.2 of metho dological report. IGS fund sizes as per Table 
0.27. Home principle loss distributio n is used for all countries. 
Note 2:  Countries with an IGS in place are indicated in grey  
Source: Table 0.27, Methodological Report, Table 3.2.  
 
 
EN 106   EN Table 0.34: Estimates of losses export ed to other countries a fter intervention of exis ting  home principle 
IGS, under different loss scenarios (m €). 
PD=0.5% PD=0.1% 
  α=75%  α=90% α=99% α=75% α=90% α=99%
AT 0.15 0.44 2.16 0.02 0.08 0.54
BE 6.11 18.46 88.63 0.83 3.16 22.16
BG 0.00 0.00 0.00 0.00 0.00 0.00
CY 0.39 1.24 6.26 0.05 0.21 1.56
CZ 0.02 0.04 0.19 0.00 0.01 0.05
DE 1.31 13.60 72.66 0.00 0.00 13.51
DK 3.91 12.95 56.27 0.00 0.82 12.83
EE 0.06 0.30 2.32 0.01 0.04 0.54
ES 0.00 0.00 0.00 0.00 0.00 0.00
FI 0.93 3.42 20.53 0.11 0.52 4.98
FR 6.72 39.72 209.27 0.00 0.00 43.62
GR 0.00 0.00 0.00 0.00 0.00 0.00
HU 0.00 0.00 0.00 0.00 0.00 0.00
IE 50.72 162.18 727.49 0.00 16.99 172.67
IS 0.00 0.01 0.06 0.00 0.00 0.02
IT 3.24 9.52 44.22 0.45 1.65 11.09
LI N.A. N.A. N.A. N.A. N.A. N.A.
LT 0.00 0.01 0.03 0.00 0.00 0.01
LU 61.57 146.30 525.56 9.95 28.01 133.80
LV 0.00 0.00 0.00 0.00 0.00 0.00
MT 0.48 1.58 8.42 0.06 0.26 2.08
NL 0.00 0.00 0.00 0.00 0.00 0.00
NO 0.71 2.74 17.45 0.08 0.41 4.20
PL 0.00 0.00 0.03 0.00 0.00 0.01
PT 0.26 0.81 4.03 0.03 0.14 1.00
 
EN 107   EN RO 0.00 0.00 0.00 0.00 0.00 0.00
SE 0.00 0.00 0.00 0.00 0.00 0.00
SI 0.00 0.00 0.02 0.00 0.00 0.01
SK 0.00 0.02 0.08 0.00 0.00 0.02
UK 0.00 0.00 0.00 0.00 0.00 0.00
EU 135.86 410.58 1 768.16 11.51 51.89 420.47
EU-EEA 136.57 413.33 1 785.67 11.59 52.30 424.69
Note 1:  Loss scenarios as per table 3.2 of methodol ogical report. Losses exported calculated 
proportionally to export flows illustrated in tables 2.9 and 2.10 of Annex on Cross Border 
insurance activity in the EU- EEA. A quota of IGS funds proportio nal to the share of exports 
is used to reduce losses i.e. it is assumed that losses are equally distributed between domestic and cross-border activities).  
Note 2:  Countries with an existing home IGS in place are indicated in grey  
Source:  Table 0.27; Annex on cross border insuran ce activity in the EU-EEA, Tables 2.9 and 
2.10; Methodological report,   Table 5 of Annex 5.  
  
 
EN 108   EN Table 0.35: Estimates of losses imported by any EU  country under different loss scenarios, net of 
protection offered by existing home state principle IGS and existing host state principle IGS (m €). 
PD=0.5% PD=0.1% 
  α=75%  α=90% α=99% α=75% α=90% α=99%
AT 1.12 3.42 14.85 0.09 0.42 3.52 
BE 4.54 13.89 59.99 0.37 1.69 14.19 
BG # 0.02 0.07 0.32 0.00 0.01 0.08 
CY 0.11 0.32 1.41 0.01 0.04 0.33 
CZ 1.21 3.71 16.09 0.10 0.46 3.81 
DE # 18.02 53.68 231.04 1.52 6.92 55.34 
DK # 1.75 5.34 23.18 0.15 0.67 5.50 
EE 0.03 0.08 0.33 0.00 0.01 0.08 
ES # 3.69 11.28 48.97 0.31 1.40 11.61 
FI 0.40 1.21 5.24 0.03 0.15 1.24 
FR # 17.54 50.73 214.70 1.54 7.04 51.82 
GR 0.45 1.38 6.00 0.04 0.17 1.42 
HU 0.28 0.86 3.72 0.02 0.11 0.88 
IE # 4.00 11.90 50.57 0.53 1.63 11.98 
IS 0.01 0.04 0.16 0.00 0.00 0.04 
IT 18.99 58.13 251.92 1.55 7.14 59.64 
LI 0.32 0.97 4.19 0.03 0.12 0.99 
LT 0.13 0.41 1.76 0.01 0.05 0.42 
LU 0.63 2.24 10.62 0.01 0.20 2.44 
LV # 0.00 0.00 0.00 0.00 0.00 0.00 
MT 0.00 0.00 0.00 0.00 0.00 0.00 
NL 5.03 15.38 66.79 0.42 1.91 15.84 
NO 0.00 5.66 74.34 0.00 0.00 10.44 
PL # 0.00 0.00 0.00 0.00 0.00 0.00 
PT 1.23 3.76 16.30 0.10 0.47 3.87 
 
EN 109   EN RO 0.08 0.23 1.02 0.01 0.03 0.24 
SE 1.91 5.85 25.38 0.16 0.73 6.02 
SI 0.09 0.27 1.16 0.01 0.03 0.27 
SK 0.12 0.36 1.57 0.01 0.04 0.37 
UK # 0.00 0.00 0.00 0.00 0.00 0.00 
EU 81.35 244.50 1 052.93 7.00 31.33 250.93 
EU-EEA 81.68 251.16 1 131.62 7.02 31.46 262.40 
Note 1:  Countries with an host IGS in place are indi cated in grey; currently their whole fund 
is reduced with the average domestic losses; # indicates countries with a home state principle 
IGS 
Note 2:  Net losses scenarios as per Table 0.34 (A quota of IGS funds  proportional to the 
share of exports is used to reduce losses  e xported). Losses imported ca lculated proportionally 
to import flows illustrated in table 2.9 and 2.10 of Annex on Cross Border insurance activity 
in the EU-EEA. Losses imported by each country are reduced by amount of any host-state 
principle IGS present there. (The funds of the IGS are re duced by the average amount of 
expected losses generated by domestic companies).  
Source:  Table 0.27; Annex on cross bor der insurance activity in the EU-EEA – Tables 2.9 
and 2.10; Methodological Repor t - Table 5 of Annex 5.  
 
4. Preliminary analysis: comparison of pote ntial losses stemming from Aspis group 
insolvency with results of model used in the Methodological Report. 
 
Aspis group, a large insurance group making up roughly 13% of th e total insurance sector in 
Greece, has seen its license to trade in the in surance sector revoked in September 2009. In the 
run-up to the revocation, EPEI A (the Greek regulator) aske d Aspis group to provide a 
financial resurrection plan for the first time in 2008. In 2009 EPEIA asked the company to 
provide a total of 237 Eur million in cash guar antees which, after negotiations with the 
company, were reduced to 203.5 Eur million. A fina l request for a financial resurrection plan 
was advanced by EPEIA in September 2009 and license was revoked upon failure by Aspis to 
produce such plan. 
 The amount of guarantees requested by the regulator can be interpreted as the best estimate of 
the capital gap which needs to be filled to allow the company to continue operations. 
Using the terminology of the IGS IA Methodology Report, this co rresponds to the concept of 
expected losses used in the in case of a `portfolio tr ansfer` intervention. 
 
 
EN 110   EN By using a rather strong proportionality assumption, the part of this amount referring to losses 
in the non-motor lines of business3 can be estimated as 140 Eur million (see Table 0.36)4. 
 
The funding needs for an IGS, calculated ba sed on Greek market data and different 
assumptions on default probabilities, are presen ted in Table 0.37 (taken from MR Table 3.2). 
As it can be seen, these numbers are much lowe r than the currently expected loss of 140 Eur 
million. 
This can be explained by considering that, in terms of the probability distribution of losses 
generated by the model employed in the IGS Me thodology Report, an insolvency of this size5 
can be interpreted as an exceptional event, which should have happened in the Greek market with a 
probability lower than 0.5% or  α above 99.5% (see Figure 0.6 )6. 
 
Therefore, even in case an IGS holding funds be tween 0.55% and 2.2% of total gross premiums 
written in the Greek market had been in place, th e losses would still have required a State intervention 
in order to grant protection to all claimants and policy holders. 
 Nonetheless, if such an IGS had been in place, it would have held resources corresponding to roughly 
15% to 50% of the total intervention necessary, r esulting in a marked reduction of taxpayer-financed 
state involvement. 
 
Table 0.36: Estimated loss according to MR model assumptions and implied LGD based on estimated 
EAD 
Variable Source Unit Calc. Value 
Total GR Exposure at default (excl. motor) (2007) MR table 2.2 m€ A 9 495 
                                                 
3  All calculations in the IGS IA Methodology Report exclude motor insurance, as it is covered by its own 
separate arrangements. 
4  Although the model employed in the IGS IA Methodology Report is not meant to be used for making 
predictions on individual default cases, the magnitudes in this real-life case appear  to be in line with the 
assumptions used there: 
- the amount of the expected losses implied by the assumption of the model used in the IGS IA 
Methodology Report, in case of a default of the size of Aspis (13% of the market, proportionally reduced to exclude motor insurance) is 192 Eur million, as illustrated in Table 0.36, while the regulator 
seems to expect a loss of around 140 Eur million. 
- reversing the argument: the Loss Given Default (LGD) implied by a final loss of 140 Eur million (excluding Motor) and by an estimation of the exposu re at default based on proportionality assumptions 
is 10.92% (see Table 0.36), while the loss given default assumed in the methodology report model is 
15%. 
5  A loss of 3.96% of gross premiums written in the domestic market (excluding Motor). 
6  This probability is calculated based on the assumption that individual insurers have a default 
probability of 0.5% which is the maximum target probability of default under Solvency II. Under the 
assumptions that the probability of default of a single insurer is 0.1% the probability of such an event 
should be lower that 0.05% or an α of 99.95%. 
 
EN 111   EN Total GR Gross Premiums Written (excl. motor) (2007) MR table 2.2 m€ B 3 537 
Total GR Gross Premiums Written (incl. motor) (2007) MT table 4.3 m€ C 5 141 
Company Total Gross Premiums Written (2009) internal communication m€ D 694 
Market share of Company calculation  E=D/C 13.50% 
Share of Motor in Greek market calculation  F=(C-B)/C 31.20% 
     
Share of company without motor on market without mo tor stays constant due to proportionality assumptions 
Share of EAD attributed to company is equal to market share attributed to company 
     
Amount of EAD attributed to company  calculation m€ G=A*E 1282 
Estimated loss using MR model = EAD*LGD(15%) calculation m€ H=G*15% 192
Estimation of gap by Greek supervisor (inc l. motor) internal communication m€ I 203.5 
Estimation of gap by Greek supervisor (e xcl. motor) calculation m€ J=I*(1-F) 140.0
Implied LGD (excl. Motor) calculation  K=J/G 10.92% 
 
Table 0.37: IGS funding needs for Total Insuranc e sector under Home state principle for different 
confidence levels and default probabilit ies; funding needs in absolute values and as a share of total gross 
premiums written 
PD = 0.5% PD=0.1% 
α Æ 75% 90% 99% 75% 90% 99% 
Funding needs (m€) 6.58 18.09 77.66 0.96 3.25 19.61 GR 
Share of Premiums 0.19% 0.51% 2.20% 0.03% 0.09% 0.55% 
 
Figure 0.6: Position of the losses generated by the Aspi s default on the estimated lo ss distribution function 
for the total insurance sector in Greece, under home state principle and two different probabilities of 
default 
 
EN 112   EN Greece, total insurances (€203.5m)
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%
0.00% 0.00% 0.01% 0.10% 1.00% 10.00% 100.00%
Loss as share of Total Premiumsα
PD=0.1%  ρ=0.20 PD=0.5%  ρ=0.20 Failure 
 
 
5. References 
 
CEA, 2009. European Insurance in  Figures (2007 Data) dataset. CEA Statistics Home Page . 
Available at: http://www.cea.eu/index.php? page=statistics [Accessed October 5, 
2009]. 
 CEIOPS, 2009a. Annex 2 to: CEIOPS Input to the EC work on Insurance Guarantee 
Schemes , Brussels: Committee of European In surance and Occupational Pensions 
Supervisors (CEIOPS). Available at: http://www.ceiops.eu/media/files/public ations/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_ clean_.pdf [Accessed October 8, 
2009]. 
 CEIOPS, 2009b. CEIOPS Input to the EC work on Insurance Guarantee Schemes , Brussels: 
Committee of European Insurance and Occ upational Pensions Supervisors (CEIOPS). 
Available at: http://www.ceiops.eu/media/files/public ations/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_ clean_.pdf [Accessed October 8, 
2009]. 
 CEIOPS, 2009c. CEIOPS' Second Bi-annual Financial Stability Report , Brussels: Committee 
of European Insurance and Occupational Pe nsions Supervisors (CEIOPS). Available 
at: http://www.ceiops.eu/media/files/pub lications/reports/Fin-Stability-autumn-
2009/CEIOPS-second-bi-annual-Financ ial-Stability-R eport-2009-20091210.pdf. 
 
EN 113   EN  
CEIOPS, 2008. Statistical Annex 2007 to the repor t: Financial Conditions and Financial 
Stability in the European Insurance 
and Occupational Pension Fund Sector 2007-2008. Risk Update , Brussels: Committee 
of European Insurance and Occupational Pe nsions Supervisors (CEIOPS). Available 
at: http://www.ceiops.eu/media/files/public ations/reports/CEIOPS-Autumn-Report-
2008.pdf [Accessed October 8, 2009]. 
 European Central Bank, 2009. Financial Stability Review , Frankfurt am Main, Germany: 
European Central Bank. 
 Oxera, 2007. Insurance guarantee Schemes in the EU : comparative analysis of existing 
schemes, analysis of probl ems and evaluation of options , Brussels: European 
Commission DG Internal Market and Services. Available at: 
http://ec.europa.eu/internal_market/i nsurance/docs/guarantee_schemes_en.pdf 
[Accessed July 3, 2009]. 
 Schich, S., 2009. Insurance companies and the financial crisis. OECD Journal: Financial 
Market Trends , 2009(2). 
 
 
EN 114   EN Standard and Poor's, 2009. 2008 Annual Global Corporate Default Study and Rating 
Transitions , Standard and Poor's. Available at: 
http://www.google.co.uk/url?sa=t&source= web&ct=res&cd=1& ved=0CAgQFjAA&u
rl=http%3A%2F%2Fwww.valuation.co.il%2Fdata%2Fwacc%2FSnP-Default_Transition_and_Recovery _2008.pdf&ei=_QmzS7SXMZuosQaxupHhAQ&us
g=AFQjCNFPfsXxdf9Z_1B 7hQdXzDNNRp_d3g&sig2=J jj7KrW2n6CVOGBKSOLq
zA. 
  
Annex D  ANNEX ON CROSS-BORDER INSURA NCE ACTIVITY IN THE EU-
EEA 
 
1. IGS Coverage 
 
Table 0.38: Summary of geographic scope of existing IGS. 
Life Non-Life non-motor Non-Life motor 
Geographic scope Geographic scope Geographic scope 
  Home Host Home Host Home Domestic 
AT         x   
BE         x   
BG x         x 
CY         x   
CZ         x   
DE x       x   
DK     x   x   
EE         x   
ES x   x   x   
FI         x   
FR x   x x (1) x   
GR         x   
HU         x   
IE     x   x   
 
EN 115   EN IS             
IT         x   
LI         x   
LT           x 
LU           x 
LV x x x x   x 
MT   x   x   x 
NL         x   
NO       x     
PL x x     x   
PT         x   
RO x   x       
SE         x   
SI         x   
SK         x   
UK x x x x x   
Notes: (1) only for companies selling mandatory insurance  
Source: Methodological report, Table 3.13 - Oxera report (Oxera 2007), CEIOPS updates 
(CEIOPS 2009), Agreements and Conventions related to the implementation of the 4th Motor 
Directive (Council of Bureaux 2009).  
Annex E   
 
EN 116   EN Table 0.39: Coverage of life insurance by existing national IGS in EU-EEA countries 
 
Note and legend:  The table shows the cases in which an IGS covers life insurance activity, 
taking into consideration the existence of possible cross-border interactions between Member States. Countries listed on rows export insura nce services to countri es listed on columns. 
White cell:  no IGS coverage. 
Small black dot:  exports are
 covered by an IGS, but domes tic insurance activity in the 
importing  country is not  covered. 
Big black dot:  exports are not  covered by an IGS, but domes tic insurance activity in the 
importing  country is  covered. 
Black cell:  both exports and domestic activity in the importing country are covered 
by an IGS. 
Source:  Oxera report (Oxera 2007), CEIOPS updates (CEI OPS 2009), own graphical 
presentation 
 
EN 117   EN Table 0.40: Coverage of non-life insurance by existing national IGS in EU-EEA countries 
 
Note and legend:  The table shows the cases in whic h an IGS covers non-life insurance 
activity, taking into consideration the existence of possible cross-border interactions between 
Member States. 
Countries listed on rows export insurance se rvices to countries listed on columns. 
White cell:  no IGS coverage. 
Small black dot:  exports are  covered by an IGS, but domes tic insurance activity in the 
importing  country is not  covered. 
Big black dot:  exports are not  covered by an IGS, but domes tic insurance activity in the 
importing  country is  covered. 
Black cell:  both exports and domestic activity in the importing country are covered 
by an IGS. 
Source:  Oxera report (Oxera 2007), CEIOPS updates (CEI OPS 2009), own graphical 
presentation 
 
EN 118   EN  
 
EN 119   EN Table 0.41: Uneven protection of po licyholders within Member States 
  Importing Member State 
  Home IGS Host IGS Home and Host 
IGS No IGS 
Home IGS       + 
Host IGS -       
Home and Host IGS      + Exporting 
Member State 
No IGS -       
 
Legend : + = The cross border activity is mo re protected than the domestic one 
  - = The cross border activity is less protected than the domestic one Note : Uneven policyholders' prot ection due to IGS design features other than geographic 
scope are also possible (not considered in the Table). 
Source: own elaboration. 
 
EN 120   EN Table 0.42: Life insurance – Cases of uneven protec tion of policyholders wi thin each Member State. 
 
Legend:  + / - = The cross border activity is more / less protected than the domestic one 
Source:  Oxera report (Oxera 2007), CEIOPS updates (CEI OPS 2009), own graphical 
presentation 
 
EN 121   EN Table 0.43: Non-life insurance – Cases of uneven protec tion of policyholders with in each Member State. 
 
Legend:  + / - = The cross border activity is more / less protected than the domestic one 
Source:  Oxera report (Oxera 2007), CEIOPS updates (CEI OPS 2009), own graphical 
presentation 
 
EN 122   EN Table 0.44: Life insurance - coverage limits and deductions across Member States 
 
EN 123   EN  

 
EN 124   EN Table 0.45: Non-life insurance - coverage limits and deductions across Member States 
 
EN 125   EN  

 
EN 126   EN 2. Cross Border Activity 
 
2.1. Exports 
Official data by CEIOPS provi des a breakdown of export flows of insurance by business line 
(life, non-life and composite comp anies) and by channel, in te rms of gross premiums written. 
(CEIOPS 2008) 
 A breakdown into life and non-life business li nes is obtained by attributing premiums of 
composite companies based on a comparison w ith CEA data (CEA 2009), which applies a 
life/non-life classification to data provide d voluntarily by members of the national 
associations of insurers. 
Data in non-life insurance is reduced in each country proportionally to the share of motor 
insurance in order to obtain an estimate of to tal premiums written in  all non-motor sub-lines 
of non-life insurance. 
  
 
EN 127   EN Table 0.46: Exports of insurance s ervices towards other EEA countrie s, total insurance sector (m€). 
 (m €) (as a share of home activity) 
 Branches only Branches plus FPS Branches only  Branches plus FPS  
Calculations 3 2+3 3/(1+5) (2+3)/(1+5) 
AT 45.47 45.47 0.35% 0.35%
BE 1 052.62 1 409.73 3.77% 5.06%
BG 0.00 0.00 0.00% 0.00%
CY 12.09 60.09 2.28% 11.32%
CZ 7.22 8.44 0.22% 0.25%
DE 1 060.28 1 496.05 0.73% 1.03%
DK 769.61 887.45 4.20% 4.85%
EE 63.00 63.00 32.62% 32.62%
ES 0.00 0.00 0.00% 0.00%
FI 196.00 205.28 4.17% 4.36%
FR 2 424.69 2 809.34 1.30% 1.51%
GR 0.00 0.00 0.00% 0.00%
HU 0.00 0.00 0.00% 0.00%
IE 4 881.60 23 714.40 11.78% 57.24%
IS 0.00 1.74 0.00% 0.78%
IT 281.52 808.66 0.36% 1.03%
LI 1.55 2 777.48 0.06% 99.27%
LT 0.94 1.51 0.29% 0.46%
LU 851.35 10 984.09 7.67% 98.89%
LV 7.59 7.59 3.38% 3.38%
MT 1.72 196.64 0.38% 43.32%
NL 0.00 0.00 0.00% 0.00%
NO 6.24 220.56 0.05% 1.81%
PL 1.00 1.00 0.01% 0.01%
 
EN 128   EN PT 106.96 108.90 0.93% 0.94%
RO 0.00 0.00 0.00% 0.00%
SE 0.00 0.00 0.00% 0.00%
SI 0.00 0.64 0.00% 0.05%
SK 2.67 3.47 0.23% 0.30%
UK 0.00 0.00 0.00% 0.00%
EU 11 766.33 42 811.76 1.13% 4.10%
EU-EEA 11 774.12 45 811.54 1.11% 4.32%
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009) 
  
 
EN 129   EN Table 0.47: Exports of insurance services towards other EEA coun tries, Life business line (m€). 
 (m €) (as a share of home activity) 
 Branches only Branches plus 
FPS  Branches only  Branches plus FPS  
Calculations 3 2+3 3/(1+5) (2+3)/(1+5) 
AT 19.56 19.56 0.27% 0.27%
BE 283.60 498.88 1.28% 2.25%
BG 0.00 0.00 0.00% 0.00%
CY 5.00 53.00 1.40% 14.83%
CZ 4.48 4.93 0.22% 0.24%
DE 158.37 399.50 0.21% 0.53%
DK 73.25 89.70 0.56% 0.68%
EE 63.00 63.00 53.39% 53.39%
ES 0.00 0.00 0.00% 0.00%
FI 196.00 196.00 7.04% 7.04%
FR 314.58 446.67 0.23% 0.33%
GR 0.00 0.00 0.00% 0.00%
HU 0.00 0.00 0.00% 0.00%
IE 3 215.00 20 462.00 8.56% 54.47%
IS 0.00 0.00 0.00% 0.00%
IT 161.30 463.87 0.26% 0.76%
LI 0.00 2 735.17 0.00% 99.26%
LT 0.00 0.00 0.00% 0.00%
LU 841.16 10 415.00 8.33% 103.19%
LV 0.00 0.00 0.00% 0.00%
MT 0.24 5.47 0.11% 2.55%
NL 0.00 0.00 0.00% 0.00%
NO 0.00 0.00 0.00% 0.00%
PL 1.00 1.00 0.01% 0.01%
 
EN 130   EN PT 92.07 93.13 1.00% 1.01%
RO 0.00 0.00 0.00% 0.00%
SE 0.00 0.00 0.00% 0.00%
SI 0.00 0.41 0.00% 0.09%
SK 0.00 0.00 0.00% 0.00%
UK 0.00 0.00 0.00% 0.00%
EU 5 428.61 33 212.11 0.71% 4.37%
EU-EEA 5 428.61 35 947.28 0.70% 4.66%
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009) 
  
 
EN 131   EN Table 0.48: Exports of insurance services towards other EEA coun tries, Life business line (m€). 
 (m €) (as a share of home activity) 
 Branches only Branches plus 
FPS  Branches only  Branches plus FPS  
Calculations 3 2+3 3/(1+5) (2+3)/(1+5) 
AT 25.91 25.91 0.44% 0.44%
BE 769.02 910.85 13.48% 15.96%
BG 0.00 0.00 0.00% 0.00%
CY 7.09 7.09 4.09% 4.09%
CZ 2.75 3.52 0.21% 0.27%
DE 901.90 1 096.55 1.30% 1.58%
DK 696.36 797.75 13.62% 15.60%
EE 0.00 0.00 0.00% 0.00%
ES 0.00 0.00 0.00% 0.00%
FI 0.00 9.28 0.00% 0.48%
FR 2 110.11 2 362.67 4.28% 4.79%
GR 0.00 0.00 0.00% 0.00%
HU 0.00 0.00 0.00% 0.00%
IE 1 666.60 3 252.40 43.12% 84.15%
IS 0.00 1.74 0.00% 0.92%
IT 120.22 344.79 0.71% 2.03%
LI 1.55 42.31 3.66% 100.00%
LT 0.94 1.51 0.77% 1.24%
LU 10.19 569.09 1.00% 56.12%
LV 7.59 7.59 4.43% 4.43%
MT 1.48 191.18 0.62% 79.67%
NL 0.00 0.00 0.00% 0.00%
NO 6.24 220.56 0.27% 9.42%
PL 0.00 0.00 0.00% 0.00%
 
EN 132   EN PT 14.88 15.77 0.63% 0.67%
RO 0.00 0.00 0.00% 0.00%
SE 0.00 0.00 0.00% 0.00%
SI 0.00 0.23 0.00% 0.03%
SK 2.67 3.47 0.85% 1.11%
UK 0.00 0.00 0.00% 0.00%
EU 6 337.72 9 599.65 2.22% 3.36%
EU-EEA 6 345.50 9 864.26 2.20% 3.42%
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009) 
 
 
EN 133   EN Figure 0.7: Total insurance sector, ex ports of insurance services to oth er EEA countries, by branches and 
via Free Provision of Services, in absolute terms (m €). 
0500010000150002000025000
IE
LU
FR
LI
DEBEDK
IT
NO
FI
MT
PT
EECY
ATCZ
LV
SK
IS
LT
PL
SI
BG
ESUK
GR
HU
NL
RO
SE
EU-EEA avg
EU avg
Life Branches Life FPS Non life Branches Non life FPS 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
  
Figure 0.8: Total insurance sector, ex ports of insurance services to oth er EEA countries, by branches and 
via Free Provision of Services, as  a share of total home activity. 
0%20%40%60%80%100%120%
IE
LU
FR
LI
DE
BE
DK
IT
NO
FI
MT
PT
EE
CY
ATCZ
LV
SK
IS
LT
PL
SI
BG
ES
UK
GR
HU
NL
RO
SE
EU-EEA avg
EU avg
Life Branches Life FPS Non life Branches Non life FPS 
Note:  Countries ordered by exports of insu rance services in absolute terms 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
EN 134   EN  
Figure 0.9 - Life insurance, exports of insurance serv ices to other EEA countries, by branches and via 
Free Provision of Services, in absolute terms (m €). 
Life Cross Border activity intra EU-EEA out (branches and FPS activity)
05,00010,00015,00020,00025,000
IE LU LI BE IT FR DE FI PT DK EE CY AT MT CZ PL SI EEA EU
Branches FPS 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
  
Figure 0.10 - Non-life insurance, expo rts of insurance services to oth er EEA countries, by branches and 
via Free Provision of Services, in absolute terms (m €). 
Non-Life Cross Border activity intra EU-EEA out (branches and FPS activity)
05001,0001,5002,0002,5003,0003,500
IE FR DE BE DK LU IT NO MT LI AT PT FI LV CY CZ SK IS LT SI EEA EU
Branches FPS 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
 
EN 135   EN Table 0.49: Estimates of EA D corresponding to export fl ows within the EEA (m €) 
 Estimates of EAD corresponding to exports 
 Life Non-Life Total 
 Exports 
via 
branches Exports 
via FPS Total Life 
exports Exports 
via 
branches Exports 
via FPS Total non-
life 
exports Total 
exported 
via all channels 
AT 159.4 0.0 159.4 48.6 0.0 48.6 208.0
BE 2 150.3 1 632.3 3 782.5 2 592.3 478.1 3 070.4 6 852.9
BG 0.0 0.0 0.0 0.0 0.0 0.0 0.0
CY 38.0 364.8 402.8 14.1 0.0 14.1 416.9
CZ  14.4 1.4 15.9 4.0 1.1 5.1 20.9
DE 1 612.1 2 454.5 4 066.6 3 222.9 695.5 3 918.5 7 985.1
DK 655.8 147.3 803.1 1 371.9 199.7 1 571.6 2 374.7
EE 271.9 0.0 271.9 0.0 0.0 0.0 271.9
ES 0.0 0.0 0.0 0.0 0.0 0.0 0.0
FI 2 611.9 0.0 2 611.9 0.0 38.1 38.1 2 650.0
FR 2 741.0 1 151.0 3 892.0 7 193.9 861.1 8 054.9 11 946.9
GR 0.0 0.0 0.0 0.0 0.0 0.0 0.0
HU 0.0 0.0 0.0 0.0 0.0 0.0 0.0
IE 12 619.7 67 698.9 80 318.5 5 788.8 5 508.1 11 296.9 91 615.5
IS 0.0 0.0 0.0 0.0 6.0 6.0 6.0
IT 1 021.6 1 916.4 2 938.0 230.5 430.6 661.1 3 599.1
LI 0.0 20 841.1 20 841.1 4.5 117.2 121.7 20 962.8
LT 0.0 0.0 0.0 1.2 0.7 1.9 1.9
LU 6 381.6 72 633.3 79 014.9 35.8 1 960.9 1 996.7 81 011.5
LV 0.0 0.0 0.0 8.5 0.0 8.5 8.5
MT 1.5 31.6 33.0 3.6 465.6 469.2 502.2
NL 0.0 0.0 0.0 0.0 0.0 0.0 0.0
NO 0.0 0.0 0.0 20.8 714.4 735.2 735.2
 
EN 136   EN PL 2.5 0.0 2.5 0.0 0.0 0.0 2.5
PT 403.1 4.6 407.7 31.5 1.9 33.4 441.1
RO 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SE 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SI 0.0 1.9 1.9 0.0 0.4 0.4 2.3
SK  0.0 0.0 0.0 4.2 1.3 5.5 5.5
UK 0.0 0.0 0.0 0.0 0.0 0.0 0.0
EU 30 684.8 148 037.8 178 722.6 20 503.1 10 643.2 31 146.3 209 868.9
EEA 30 684.8 168 878.9 199 563.7 20 528.3 11 480.8 32 009.2 231 572.9
Source:  Table 0.46-Table 0.48; Methodological Re port, Table 2.2; CEIOPS (CEIOPS 2008) 
 
 
EN 137   EN Table 0.50: Ratios of estimated ‘exported’ EAD to GDP, Total insurance sector, exports via branches and 
via FPS (GDP in m €) 
 GDP Total EAD 
home/GDP Total EAD 
exported/GDP 
AT 270 782.4 25.55% 0.077% 
BE 334 948.0 55.95% 2.046% 
BG 28 898.6 1.43% 0.000% 
CY 15 951.1 19.19% 2.613% 
CZ  127 330.5 6.61% 0.016% 
DE 2 428 200.0 41.75% 0.329% 
DK 227 024.9 56.45% 1.046% 
EE 15 626.6 3.91% 1.740% 
ES 1 052 730.0 20.42% 0.000% 
FI 179 536.0 25.06% 1.476% 
FR 1 894 646.0 71.66% 0.631% 
GR 226 437.0 4.12% 0.000% 
HU 101 086.5 5.56% 0.000% 
IE 189 751.2 84.78% 48.282% 
IS 14 932.3 5.34% 0.040% 
IT 1 546 177.4 27.28% 0.233% 
LI 3 363.1 627.92% 623.317% 
LT 28 576.6 2.39% 0.007% 
LU 37 465.8 213.87% 216.228% 
LV 21 111.0 1.30% 0.040% 
MT 5 458.7 34.47% 9.201% 
NL 568 664.0 61.36% 0.000% 
NO 283 366.4 30.80% 0.259% 
PL 311 001.7 6.61% 0.001% 
PT 163 051.5 27.78% 0.271% 
RO 124 728.5 1.14% 0.000% 
 
EN 138   EN SE 331 147.2 74.05% 0.000% 
SI 34 568.2 10.12% 0.007% 
SK  54 897.6 5.09% 0.010% 
UK 2 044 133.0 104.57% 0.000% 
EU 12 363 930.0 52.69% 1.698% 
EU-EEA 12 665 591.8 52.30% 1.829% 
Source:  Table 0.49; Eurostat, own elaboration 
 
2.2. Imports 
 
Official data lacks information on imports of in surance services via Freedom of Provision of 
Services (FPS) within the EEA and also lack in formation on the origins of flows of insurance 
services imported via branches. In  order to obtain an estimate of the total imports in each 
country it is therefore be n ecessary to distribute the exports of each country across all 
importing countries. 
Imports via FPS are attributed pr oportionally to the si ze of each country’ s insurance market. 
This is justified by the fact that commerce of services within EU states seem to depend mostly on the relative size of th eir markets and on their legal and cultural similarities (Walsh 
2006; Henk Kox & Arjan Lejour 2005), so that shares dependent on the size of markets 
should represent an acceptable first approximation of the real flows. The data obtained in this 
way has been compared with an alternative estimate based on shares of total imports via EEA branches, and estimated were closer than 10 % for most countries, with the exception of 
import flows into Iceland and some of flows of life insura nce imported from Ireland by most 
countries. 
In order to obtain an estimate of the origin of  flows of imports via branches, total exports via 
EEA branches are redistributed in all countries proportionally to their shares of total imports 
via EEA branches as reported in CEIOPS data. To tal imports in each country estimated in this 
way slightly differ from total imports as re ported by CEIOPS but differences seem to be 
contained in the vast majority of cases. 
After an estimate of the of the origins of fl ows of imports is produced, an estimate of all 
bilateral trade flow s in insurance services through the EEA can be obtained by summing these 
two quantities. 
A summary of total estimated imports for eac h EEA country is pres ented in Table 0.51 - 
Table 0.53. 
Table 0.54 and Table 0.55 present the estimated bilateral trade flows of imports among each 
EEA country. 
 
EN 139   EN Table 0.51: Imports of insurance services from ot her EEA countries, Total insurance sector (m€). 
 (m €) (as a share of home activity) 
 Branches only Branches plus 
FPS  Branches only  Branches plus FPS  
Calculations 6 6+7 6/(1+5) (6+7)/(1+5) 
AT 0.00 369.19 0.00% 2.84%
BE 609.35 1 566.23 2.19% 5.62%
BG 0.00 7.99 0.00% 2.26%
CY 20.64 35.10 3.89% 6.61%
CZ 298.99 399.55 8.96% 11.97%
DE 2 108.86 6 003.87 1.46% 4.15%
DK 0.00 593.69 0.00% 3.24%
EE 5.05 8.30 2.61% 4.30%
ES 0.00 1 216.18 0.00% 2.85%
FI 0.00 131.54 0.00% 2.80%
FR 0.00 6 115.76 0.00% 3.29%
GR 32.44 149.02 0.92% 4.21%
HU 0.00 92.35 0.00% 3.38%
IE 1 493.23 2 112.94 3.60% 5.10%
IS 0.00 3.86 0.00% 1.73%
IT 3 732.10 6 431.71 4.76% 8.20%
LI 0.00 104.12 0.00% 3.72%
LT 33.85 43.83 10.39% 13.45%
LU 92.40 367.16 0.83% 3.31%
LV 23.95 28.27 10.67% 12.60%
MT 15.72 27.47 3.46% 6.05%
NL 0.00 1 658.58 0.00% 2.36%
NO 1 806.09 2 239.92 14.83% 18.39%
PL 0.00 302.31 0.00% 3.50%
 
EN 140   EN PT 0.00 405.78 0.00% 3.51%
RO 0.00 25.29 0.00% 2.42%
SE 0.00 630.33 0.00% 3.10%
SI 0.00 28.71 0.00% 2.30%
SK 0.00 38.97 0.00% 3.36%
UK 2 340.12 15 512.19 0.67% 4.41%
EU 10 806.70 44 302.31 1.03% 4.25%
EU-EEA 12 612.79 46 650.21 1.19% 4.40%
Note: FPS bilateral flows are estimated based on proportionality a ssumptions, italics 
indicates numbers containing estimations  
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
 
EN 141   EN Table 0.47: Imports of insurance services from  other EEA countries, Life business line (m€) 
 (m €) (as a share of home activity) 
 Branches only Branches plus FPS Branches only  Branches plus FPS  
Calculations 6 6+7 6/(1+5) (6+7)/(1+5) 
AT 0.00 293.29 0.00% 4.11% 
BE 115.87 1 011.32 0.52% 4.56% 
BG 0.00 4.94 0.00% 4.10% 
CY 13.00 25.30 3.64% 7.08% 
CZ 275.24 358.85 13.53% 17.64%
DE 925.08 3 988.40 1.23% 5.31% 
DK 0.00 539.75 0.00% 4.09% 
EE 0.00 2.27 0.00% 1.92% 
ES 0.00 966.03 0.00% 4.12% 
FI 0.00 106.59 0.00% 3.83% 
FR 0.00 5 555.60 0.00% 4.07% 
GR 4.98 108.11 0.20% 4.32% 
HU 0.00 83.07 0.00% 4.12% 
IE 1 025.00 1 629.84 2.73% 4.34% 
IS 0.00 1.40 0.00% 4.09% 
IT 2 967.00 5 461.43 4.83% 8.89% 
LI 0.00 103.63 0.00% 3.76% 
LT 28.12 36.52 13.79% 17.90%
LU 29.68 293.67 0.29% 2.91% 
LV 23.00 25.18 43.40% 47.51%
MT 3.08 11.89 1.44% 5.56% 
NL 0.00 1 088.85 0.00% 4.12% 
NO 106.00 511.20 1.08% 5.20% 
PL 0.00 277.68 0.00% 4.12% 
PT 0.00 375.28 0.00% 4.08% 
 
EN 142   EN RO 0.00 17.09 0.00% 4.11% 
SE 0.00 534.81 0.00% 4.12% 
SI 0.00 18.25 0.00% 4.12% 
SK 0.00 34.93 0.00% 4.12% 
UK 9.78 12 579.31 0.00% 4.12% 
EU 5 419.83 35 428.25 0.71% 4.67% 
EU-EEA 5 525.83 36 044.48 0.72% 4.67% 
Note: FPS bilateral flows are estimated based on proportionality a ssumptions, italics 
indicates numbers containing estimations  
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
 
EN 143   EN Table 0.53: Imports of insurance services from other EEA countries, No n-life business line (m€) 
 (m €) (as a share of home activity) 
 Branches only Branches plus FPS Branches only  Branches plus FPS  
Calculations 6 6+7 6/(1+5) (6+7)/(1+5) 
AT 0.00 75.90 0.00% 1.30% 
BE 493.48 554.91 8.65% 9.72% 
BG 0.00 3.05 0.00% 1.31% 
CY 7.64 9.80 4.41% 5.66% 
CZ 23.75 40.70 1.82% 3.12% 
DE 1 183.78 2 015.47 1.70% 2.90% 
DK 0.00 53.94 0.00% 1.05% 
EE 5.05 6.03 6.72% 8.02% 
ES 0.00 250.15 0.00% 1.30% 
FI 0.00 24.95 0.00% 1.30% 
FR 0.00 560.16 0.00% 1.14% 
GR 27.46 40.91 2.66% 3.96% 
HU 0.00 9.28 0.00% 1.30% 
IE 468.23 483.10 12.11% 12.50%
IS 0.00 2.46 0.00% 1.30% 
IT 765.10 970.28 4.50% 5.70% 
LI 0.00 0.49 0.00% 1.16% 
LT 5.73 7.31 4.71% 6.00% 
LU 62.72 73.49 6.19% 7.25% 
LV 0.95 3.09 0.55% 1.80% 
MT 12.64 15.58 5.27% 6.49% 
NL 0.00 569.73 0.00% 1.30% 
NO 1 700.09 1 728.72 72.63% 73.85%
PL 0.00 24.63 0.00% 1.30% 
PT 0.00 30.50 0.00% 1.29% 
 
EN 144   EN RO 0.00 8.20 0.00% 1.30% 
SE 0.00 95.52 0.00% 1.30% 
SI 0.00 10.46 0.00% 1.30% 
SK 0.00 4.04 0.00% 1.29% 
UK 2 330.34 2 932.88 5.04% 6.34% 
EU 5 386.87 8 874.06 1.88% 3.10% 
EU-EEA 7 086.96 10 605.73 2.46% 3.68% 
Note: FPS bilateral flows are estimated based on proportionality a ssumptions, italics 
indicates numbers containing estimations  
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
 
 
EN 145   EN Figure 0.11: Total insurance sector, imports of insuranc e services from other EEA countries, by branches 
and via Free Provision of Servi ces, in absolute terms (m €). 
Total Imports from EEA countries (m €)
020004000600080001000012000140001600018000
UK IT FR DENO IE NL BE ES SE DK PTCZ AT LU PLGR FI LI HU LTSK CY SI LV MTROEE BG IS EU
avgEEA
avg
Life branches Life FPS Non-life branches Non-life FPS
 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
Figure 0.12: Total insurance sector, imports of insuranc e services from other EEA countries, by branches 
and via Free Provision of Services, as a share of home activity. 
Total Imports from EEA countries (as share of total home activity)
0.00%2.00%4.00%6.00%8.00%10.00%12.00%14.00%16.00%18.00%20.00%
UK IT FR DENO IE NL BE ES SE DK PTCZ AT LU PL GR FI LI HU LT SK CY SI LV MTROEE BG IS EU
avgEEA
avg
Life branches Life FPS Non-life branches Non-life FPS
 
Note:  Countries ordered by imports of insu rance services in absolute terms 
 
EN 146   EN Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
 
EN 147   EN Table 0.54: Approximate estimate of bilateral flows of trade within the EEA based on proportionality 
assumption, Life business line (m €) 
 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
  
 
EN 148   EN Table 0.55: Approximate estimate of bilateral flows of trade within the EEA based on proportionality 
assumption, Non-Life business line (m €) 
 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
 
2.3. Trade openness 
 
Based on the export and estimated import data presen ted in previous secti ons it is possible to 
calculate an index of openness to trade in the insu rance sector for all EEA countries. The 
trade openness index, a standard indicator used in international trade economics, is defined as 
the share of imports plus exports over to tal production within any given sector. 
Here, as we are interested in openness towards EU/EEA me mbers, imports and exports 
considered are only those to a nd from other EU/EEA countries. 
 
 
EN 149   EN Figure 0.13: Trade openness index towards trade wi th other EEA members fo r all EEA Member States 
and overall for EU and EEA. 
0.00%20.00%40.00%60.00%80.00%100.00%120.00%
A T BE BG CY CZ DE DK EE ES FI FR UK GR HU IE IS IT LI LT LU LV MT NL NO PL PT RO SE SI SK EU EEALife 
Non-Life
Total Insurance
 
Source:  CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 
  
3. References 
 
CEA, 2009. European Insurance in  Figures (2007 Data) dataset. CEA Statistics Home Page . 
Available at: http://www.cea.eu/index.php? page=statistics [Accessed October 5, 
2009]. 
 CEIOPS, 2009. CEIOPS Input to the EC work on Insurance Guarantee Schemes , Brussels: 
Committee of European Insurance and Occ upational Pensions Supervisors (CEIOPS). 
Available at: http://www.ceiops.eu/media/files/public ations/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_ clean_.pdf [Accessed October 8, 
2009]. 
 CEIOPS, 2008. Statistical Annex 2007 to the repor t: Financial Conditions and Financial 
Stability in the European Insurance 
and Occupational Pension Fund Sector 2007-2008. Risk Update , Brussels: Committee 
of European Insurance and Occupational Pe nsions Supervisors (CEIOPS). Available 
at: http://www.ceiops.eu/media/files/public ations/reports/CEIOPS-Autumn-Report-
2008.pdf [Accessed October 8, 2009]. 
 
 
EN 150   EN Council of Bureaux, 2009. 4th Mo tor Insurance Directive Home Site. Available at: 
http://www.4directive.org/ [Accessed April 26, 2010]. 
 Henk Kox & Arjan Lejour, 2005. Regulatory heterogeneity as obstacle for in ternational 
services trade , CPB Netherlands Bureau for Economi c Policy Analysis. Available at: 
http://ideas.repec.org/p/cpb/discus /49.html [Accessed April 27, 2010]. 
 Oxera, 2007. Insurance guarantee schemes in the EU : comparative analysis of existing 
schemes, analysis of probl ems and evaluation of options , Brussels: European 
Commission DG Internal Market and Services. Available at: 
http://ec.europa.eu/internal_market/i nsurance/docs/guarantee_schemes_en.pdf 
[Accessed July 3, 2009]. 
 Walsh, K., 2006. Trade in Services: Does Gravity Hold? A Gravity Model Approach to 
Estimating Barriers to Services Trade , Dublin, Ireland: Instit ute for International 
Integration Studies. 
  
                                                 
1  Because information is available for the entire EU-EEA area, this Impact Assessment (IA) has been 
developed not only for the 27 EU Member States but also for EEA countries: Norway, Iceland and Lichtenstein. In order to enhance readability, the term "Member State" is used in this Impact Assessment as a synonym of 
"country" and therefore it might also refer to EEA countries. 
2  In the context of this IA cons umers include policyholders, beneficiar ies and, in the case of non-life 
insurance, third parties who may seek compensation. Therefore, the terms "consumer" and 
"policyholder/beneficiary" will be used interchangeably. 
3  "Recommendation 5: The Group considers that the Solvency 2 Directive must be adopted and include a 
balanced group support regime, coupled with sufficient safeguards for host Member States, a binding mediation 
process between supervisors and the setting-up of harmonised insurance guarantee schemes.”, 
http://ec.europa.eu/internal_market/fin ances/docs/de_larosiere_report_en.pdf   
4  Directive 1994/19/EC as amended by Directive 2009/14/EC on Deposit Guarantee Schemes and 
Directive 1997/9/EC on Investor Compensation Schemes. 
5  The various types of guarantee schemes, while all providing a certain level of consumer protection, 
have in part different objectives. 
DGS are designed to compensate depositors for deposits at banks up to a specified limit if the bank is not in a 
position to repay them. The objective is twofold: from the consumer protection perspective, a part of the depositors' wealth is protected from losses due to bank failures; from a financial stability perspective, the 
confidence that deposits are protected reduces the likelihood of bank runs and thus contributes to preserving the 
stability of the financial system. 
The ICS Directive applies instead to investment firms (including credit institutions) who provide investment 
services under the MiFID Directive (Directive 2004/39/EC on Markets in Financial Instruments). The ICS Directive provides for clients of investment firms to be compensated in two situations. Firstly, if an investment 
firm is unable to repay money owed or belonging to a client and held on his behalf in connection with 
investment services. Secondly, if an investment firm is unable to render a financial instrument belonging to the client and held, administered or managed on the clie nt's behalf. However, the Directive does not cover 
reductions in the value of the investments, i.e. if the value of the investments' underlying assets decline, the 
value of the market declines or if an issuer or fund fails. 
6  Nonetheless, reinsurance can produce contagion effects when insurance undertakings default. In order 
to analyse contagion, it is however n ecessary to dispose of firm level data  which is not the available to the 
 
EN 151   EN                                                                                                                                                         
Commission at the moment. In the Oxera (2007) report it  can be read how reinsurance policies are typically 
outside the scope of IGS protection. 
7  The proceedings of the activities of the Working Group can be consulted on 
http://ec.europa.e u/internal_market/insuran ce/guarantee_en.htm#docs   
8  Oxera (2007), http://ec.europa.eu/internal_market/insurance/docs/guarantee_schemes_en.pdf . 
The information presented in the Oxera report has recently been updated by CEIOPS (2009a), 
http://www.ceiops.eu/media/files/publi cations/submissionsto theec/annex_2.pdf  
9  CEIOPS is the Committee of European Insurance and Occupational Pensions Supervisors. It is 
composed of high level representatives from the insura nce and occupational pensions supervisory authorities of 
EU Member States. The authorities of EEA countries also participat e in CEIOPS. CEIOPS' website is: 
http://www.ceiops.org  
10  CEIOPS (2009b), http://www.ceiops.eu/media/files/publica tions/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_clean_.pdf   
11  http://ec.europa.eu/internal_market/insurance/guarantee_en.htm#cons . 
12  http://ec.europa.eu/internal_market/insurance/docs/guarantee/summary_en.pdf . 
13  http://ec.europa.eu/internal_market/insurance/guarantee_en.htm#whitepaper . 
14  http://www.europarl.europa.eu/comparl/tempcom/equi/default_en.htm.   
15  Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the 
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). 
http://eur-lex.europa.eu/LexUriServ/LexUriSe rv.do?uri=OJ:L:2009:335:0001:0155:EN:PDF   
16  In financial mathematics and risk management, the most common quantitative measure of the risk of 
loss on a specific portfolio of assets is the so-called Value at Risk (VaR).  
17  About the absence of market discipline in the in surance market, see for example Eling M., Schmit J.T. 
(2008). Also, in Yasui T. (2001) one can read: "The fina ncial and managerial situation of insurance companies is 
much more technical and complex than that of ordinary companies. Non-professional policyholders can hardly 
be expected to verify the credibility of an insurance company sufficiently" and "non-professional policyholders 
not only have limited ability to evaluate appropriately the financial soundness of insurance companies, but also 
they have little incentive to do so: because of the technical and complex nature of the financial situation of 
insurance companies, the cost of gathering sufficient info rmation to make a wise decision is significantly high". 
18  For a definition, see for example http://en.wikipedia.org/wiki/Risk_aversion. 
19  For an in-depth complementary analysis of the risks faced by in surance undertakings, please see sub-
section 4.1 of the Oxera report. 
20  Generally speaking, when life insurance contracts are non-unit linked, investment/market risk is 
normally borne by the insurance under taking. On the contrary, when life insurance contracts are unit-linked, 
investment/market risk is normally borne by policyholders. Looking at the split in life insurance business between unit-linked and non unit-linked activity in Member  States, it appears that non-unit linked life insurance 
reserves are much higher (60-90% of total) than those of unit-linked ones. However, distinctions are in reality 
very difficult as in both unit-linked and non-unit linked products investment risk is de facto shared between 
insurers and policyholders. In the unit-linked sector, in fact, there are many insuranc e undertakings that offer 
guarantees to policyholders. They take a wide variety of forms including minimum returns, fixed annuity rates 
as well as contractual terms such as early or regular withdrawal of funds on te rms that give policyholders 
valuable options. Thus, in these cases the insurance undertaking bears some of the market/investment risk and 
clear-cut distinctions are difficult to draw. 
21  The recent financial crisis has also shown the po ssibility of (loss) contagion from banks to insurers. 
Insurers tend to be, in fact, highly exposed to counterparty risk towards banks as they usually buy interest rate 
and equity derivatives from banks to hedge their market risk exposures. Losses to life insurers can also derive  from changes in policyholders’ behavi our. The recent financial crisis has 
shown how households (especially American) have, at a certain moment, accelerated the redemption of their 
investments in mutual funds. The same can in theory happen also with life insurers, although high redemption costs generally tend to discourage policyholders from doing so. 
Losses to life and non-life insurers ca n also derive from a contagion effect when they belong to a financial 
conglomerate. A spreading of the lack of confidence could in fact be a reasonable reac tion in case of exposure of 
both banks and insurances belonging to the same financ ial conglomerate to common management failings such 
as those stemming from high risk investment strategies and/or fraud. 
22  See sub-section 4.1.2 of the Oxera report for more details on these defaults and reference to various 
sources of information on failures of insurance underta kings. Besides, the Financial Services Compensation 
 
EN 152   EN                                                                                                                                                         
Scheme established in 2001 in the UK reports to have to date dealt with 30 insolvent insurance undertakings (28 
non-life and 2 life insurers). 
23  Once Solvency II will enter into force in 2012, it is expected to maintain the PD of EU insurance 
undertakings to 0.5% or less. 
24  On the methodology used to estimate the EAD, see in the Methodological report (MR - Annex D to this 
IA) section Annex A2. 
25  For further details, see section 4 of Annex E: Supplementary tables to the methodological report 
26  Error! Reference source not found.  is not a complete inventory of past failures in the EU. For a more 
detailed analysis of the losses generated by these and othe r cases of default of European insurers, see sub-section 
4.5 of the Oxera report. 
27  Both calculations are under the assumption of a 15 % Loss Given Default (LGD) rate estimate. For an 
explanation of the reasons supp orting the choice of LGD=15%, s ee in the MR sub-section A3.8. 
28  In a skewed distribution such as the one of losses incurred by insurers, the average (expected value) is 
not, generally speaking, a statistics that should be considered as a correct indicator of risk. 
29  The main reason supporting the choice of a Vasicek model has been the very limited amount of 
information available to feed in the model. A Vasicek mode l is also used, for example, in the derivation of FIRB 
capital requirements under Basel II. For more details on the Vasicek model, see Annex A1 in the MR. On 
considerations specifically related to  the appropriateness of the Vasicek model for estimating policyholders 
losses, see Annex A3 in the MR. 
30  See sub-section 3.4 of the MR. The very exceptiona l consequences of the recent default of the Aspis 
Pronia group in Greece are also compa tible with the estimated loss distribu tions for Greece. They correspond in 
fact to the loss estimated with a PD = 0.5% at a confidence level s lightly above 99.5% (see Error! Reference 
source not found. ). 
31  If one also considers the diversif ication effect produced by the less granular nature of the entire EU 
market compared to nationa l Member State markets, losses can be considered to be lower of some 20% 
compared to those indicated (see sub-s ection 4.5 of the MR). It should al so be remembered that the Vasicek 
model is a single factor model and that it does not allow introducing differences across countries of the 
correlation between insurances. 
32  A thorough analysis of the consequences for individual consumers requires detailed information on the 
distribution of individual policyholders' claims. The Oxera report only presents as an example the distribution of 
claims for limited parts of the German non-life insurance s ector (Table 4.9, page 77). And a recent survey with 
national insurance associations has failed to provide the Commission with the necessary data on the distribution of individual policyholders' claims. As information on the distribution of individual policyholders' claims is 
therefore not available at the moment  to the Commission, this analysis has not been possible in the IA. 
33  Finally, six countries have (only or also) special schemes that cover very specific classes of non-life 
insurance (BE, FI, DE, IT, PL and ES) For further details, see CEIOPS (2009a). 
34  The situation for the non-life motor insurance sector is, as shown in Error! Reference source not 
found. , completely different, with almost the entire EU-EEA area covered by an IGS. A guarantee scheme for 
motor insurance is required , in fact, in every Member State by Di rective 84/5/EEC (now recast in Directive 
2009/103), even though only for the case of uninsured vehicles. Member States have nonetheless voluntarily 
extended over time to the case of defaulted insurance undertakings th eir already compulsory guarantee schemes 
for motor insurance. In conclusion, as IGS are today al ready present almost in every EU-EEA country and do 
not create substantial loopholes in the protection of policyholders, there is no apparent necessity to intervene at 
the EU level. For this reason, this IA focuses only on  life insurance and non-life insurance (excluding motor). 
For further information on guarantee schemes for motor insurance, see http://www.4directive.org . 
35  Endnote 31 applies. Furthermore, amounts for life and non-life are estimated proportionally to losses 
gross of IGS protection due to the difficulty to split IGS available resources when current IGS cover both life 
and non-life insurance. 
36  The statement does not take into consideration the possibility of an ex-post State intervention. It will be 
however shown in section 6 that this alternative is in ge neral not preferable compared to setting-up an IGS. This 
is also proven by the fact that when Member States have experienced major defaults, they have, in general terms, 
preferred to introduce an IGS instead of keeping the existing situation (its is the case, for example, of DE and 
UK). 
The statement does also not take into consideration the possibility that consumers are protected by means of a 
preferential treatment for consumers in liquidation procedures. It is however shown in section 6 that preferential 
treatment in liquidation is in general a less effective me an for protecting consumers than the setting-up of an 
IGS. It should also be noticed that some Member States that have experienced important insurance defaults have 
 
EN 153   EN                                                                                                                                                         
preferred to react setting up an IGS instead of immediatel y reinforcing or introducing a preferential treatment for 
consumers in liquidation procedures (it is the case of DE and UK). 
37  “Under the home state principle, the IGS covers policies issued by domestic insurers as well as by the 
branches of domestic insurers established in other EU-EEA Member States. In contrast, under the host state 
principle, the policies issued by branches of incoming EU-EEA insurers are covered by the local IGS.” (Oxera 
report, footnote 8). In compliance with this definition, in this IA policies sold cross-border under free provision of services are considered to be, as a general principle, covered in both cas es of a home state principle based IGS 
and of a host principle based IGS by the IGS of th e Member States where the insurance undertaking is 
authorised/established. 
38  See also Table 3.13 of the MR, section 2 of the Oxera report and CEIOPS (2009a). 
39  For example, differences in the nominal amount covered by two IGS do not necessarily mean that 
policyholders are unevenly protected. A lower compensation limit in a less wealthy country might in fact 
provide higher relative protection than a higher compensation limit in a richer country. 
40  For a presentation of the precise se t of IGS design features that it has been possible to consider in the 
analysis, please refer to Table 3.13 in the MR. Some of the IGS design features not taken into account in the IA 
have anyhow been partially analysed in the MR. See sub-section 3.4 of the MR.  
41  Cross-border activity means insura nce services sold via Free Provision  of Services (FPS) and through 
branches. Selling through subsidiaries does not enter into the definition of cross-border  activity of this IA as 
sufficiently complete data on insurance groups is not available to the Commission at this moment. 
42  See Davies, J. Paul: 'Aviva to revamp European operations', FT.com, 21.10.2009, 
www.ft.com/cms/s/0/419da410-be73-11de-b4ab-00144feab49a.html   
43  The estimates for each Member Stat e indicate the losses that can be e xported from insurers authorized 
in that Member State and that default. Estimated losses are to be considered as fu lly taking into account the 
effects of the existence of minimum so lvency requirements for insurance undertakings in the EU (Solvency II in 
particular). See Tables 5, 7 and 9 of Annex5 to MR and Table 4.19 of the MR for further details on losses as 
share of premiums and for estimates of losses for life and non-life insurers only. 
44  Amounts for life and non-life are estimated proportionally to losses gross of IGS protection due to the 
difficulty to split IGS available resources when  current IGS cover bo th life and non-life. 
45  In this calculation, domestic policyholders are considered to be possibly protected both  by home and 
host principle based IGS. Amounts for life and non-life are estimated proportionally to losses gross of IGS 
protection due to the difficulty to split IGS available re sources when current IGS co ver both life and non-life. 
46  For all other non-life insurance policyholders who represent the great majority, instead, the 
consequence of the failure of a non-life insurance undertaking is generally limited to the amount of prepaid but 
still not used premiums. Additional costs may however well arise from the need to arrange for replacement 
cover which may be difficult to obtain and may take time. The consequences of the failure may also affect third parties, as is the case for classes of liability insurance. The failure of an insurer may lead to the non-payment of 
claims for those policies, which will leave the injuri ng party exposed to the liability and the injured party 
without compensation. For further analysis, please refer to pages 74 to 77 of the Oxera report. 
47  However, Yasui T. (2001) also correctly remarks th at: "it should be noted that the risk of bankruptcy 
contagion is likely to be smaller for the insurance sector". The reason behind this is that bank deposits can be 
withdrawn in basically full amounts. In contrast, policyholders normally incur (heavy) losses due to cancellation 
deductions, so that policyholders can be expected to think twice before terminating their insurance contract. On 
how the opacity of the insurance industry tends to cause firm-specific information to spill over to the entire industry and result in an industry wide eff ect, see also Akhigbe A., Madura J. (2001). 
48  For a general explanation of how insurance activity can foster economic growth, see CEA (2006). 
Furthermore, economic theory has also shown that negative shocks, and more in general uncertainty, can reduce growth in the absence of complete insurance markets. See for example Hansen G., Imrohoglu A. (1992). 
49  Lack of insurance cover may be particularly disruptive for those businesses that, in order to operate, 
have a legal obligation to be insured, as in the case of construction. See for example the case of HIH which 
failed in Australia and which had serious consequences on the construction activity in that country, presented in 
Impavido G., Tower I. (2009). 
50 There is, for example, evid ence from the equity markets fall in 2001–03 that life insurers contributed to a 
downward spiral in markets when limited equity disposals by major insurers seeking to bolster balance sheets 
led to further declines in the market, requiring further disposals to prevent solvency margins from coming under 
pressure. In the current crisis, sales of equities and other instruments have been even more widespread. 
 
EN 154   EN                                                                                                                                                         
The problem of insurers causing a downward spiral in fi nancial markets is especially prone to show up when 
insurance undertakings undergo liquidity problems and therefore need to sell high volumes of assets on the 
financial markets. In general terms, insurers structurally have low exposure to liquidity risk because they are premium funded and not funded from wholesale money markets (as banks are). Furthermore, liquidity risk is 
also limited because claims are usually paid when a sp ecified triggering event takes place rather than on 
demand, and because insurance undertakings' assets ar e predominantly marketable. There are, however, not 
negligible sources of liquidity risk that can come from: 
• collateral calls in derivative business and securities lending (an issue at AIG in the recent financial 
crisis, for instance); 
• market loss of liquidity on the trading of certai n assets (which affected, for example, insurance 
undertakings with investments in Asset Backed Securities during the crisis); 
• rising claims: it is possible - as experienced briefly by minor parts of the AIG group immediately after 
its rescue - that claims temporarily overwhelm available liquidity in what would be equivalent to a bank 
run. 
In Yasui T. (2001) one can read: "A run could put … insurers in a se rious liquidity crisis and possibly force 
them to go bankrupt." However it also notices that "repayments of insurance products are usually made less 
quickly than bank deposits. Insurance companies should have more time to build liquidity for repayments so as to meet their obligations."
 
51  For further details, see Atkeson A. and Lucas R. E. Jr (1995). 
52  For further details, see Sandmo A. (1998), and Varian H. (1980). 
53  It must be recalled that it is very difficult (and at the moment there has not been any possibility) to 
provide direct evidence of any significant distortion in the competition in Member States on the basis of these 
considerations. This also beca use there are other factors, such as - for ex ample - taxation, that certainly also have 
a very important impact on the price and demand for insurance services. 
54  For more details on the life and health guarantee system in the USA, see also http://www.nolhga.com/ ; 
and for more details on the non-life guarantee syst em in the USA, see also http://www.ncigf.org/ 
55  For more information see Yasui T. (2001). 
56  See OECD (1999). 
57  See sub-section 3.2.2 for the various combinations of geographic scope (home and host state) that can 
produce a lack of policyholder protection in Member States. 
58  This statement is true for society. It is ho wever not necessarily true for single categories of 
stakeholders, such as policyholders, ta xpayers, insurers, etc. Section 7 on expected economic and social impacts 
will take account of this and consider costs for individual categories of stakeholders. 
59   It follows that it is conceptually wrong to argue (a t the level of the entire soci ety) that if one creates a 
protection mechanism with a financial endowment able to absorb insurers' default losses they don't take place 
any more at the cost of esta blishing the protection mechanism. It is, in the same way, conceptually wrong to say 
that an implemented protection mechanism costs to society the amount of money given to its financial endowment. 
60  For further details on this theoretical framework, see for example Smith W.T. (1996) . 
61  Insurance undertakings' loss distributions tend to be skewed to the left, with very frequent small losses 
and very rare but also very high losses. 
62  It should be noted that a transparency policy option can also  be envisaged in combination with other 
policy options examined under this and/or the following sub-sections. In those cases  the policy option analysis 
will, by and large, appear as a combination of the various elements analysed under its components. 
63  It is important to stress that not all losses suffered by insurers will hit the guarantee schemes, but only 
the part of the losses that exceeds the solvency requirem ents in place (plus excess capita l, if any). The relevant 
concept of losses for IGS is th erefore that of residual losses  "downstream" of insurers ’ solvency requirements 
(plus excess capital, if any). 
64  See Yasui T. (2001). 
65  How to reach and maintain the target fund is  instead an issue relate d to IGS contributions. 
66  On the concept of percentile, see also sub-section 2.2.3. 
67  When the financial endowments are, for example, su fficient to cover the IGS loss distribution up to the, 
for example, 90th percentile, this by and large means that  the level of security chosen avoids that losses are 
passed on to consumers in 90% of the cases possible. In othe r terms, it can (by and large) also be said that if the 
financial endowments cover the IGS loss distribution up to the 75th ,90th , 99th percentile, the IGS is expected to 
 
EN 155   EN                                                                                                                                                         
have not  enough resources and therefore pass losses onto consum ers only every 4, 10, 10 0 times that an insurer 
fails. 
68  For the details of the analysis performed to identify this range of security levels, see sub-section 3.4 in 
the MR. 
69  A more precise analysis of whether these IGS fund ing needs have to be considered as minimum values 
(minimum harmonisation) or exact values (maximum values) is not necessary at this stage where the 
Commission is keeping the various options open for discussion with stakeholders (see end of this sub-section). 
70 Also the Oxera report notes that "IGS  can best deal with failures that do not involve potential losses that are 
large relative to the size of the market" and that "large failures may need to be dealt with though other mechanisms". 
71  The list of IGS design features indicated under option 4.2 is not the only possible harmonization 
perimeter under a minimum scope of harmonization approach. It can, for example, also be envisaged that some of the design features listed under option 4.3.might be added under option 4.2 in the follow-up measures. 
72  Annex C presents some (even more) preliminary an alysis of each of the items from the maximum scope 
of harmonisation list of option 4.3. The analysis in Annex C is mainly focused on the need to harmonise or not harmonise at the EU level each of the design features. It s main purpose is to foster feedback from stakeholders 
as to whether the list of design features under option 4.2 should (or not) be enlarged and in which way. At the 
follow-up measures impact assessment stage, therefore, options related to these design features will be also 
analysed more in depth, and also thanks to comments an d feedback received from stakeholders some of them 
might become as well the content of a EU legislative bind ing action on IGS. It might be the case, for example, 
for contributions to IGS and/or advertisement/information requirements. 
73   This means that for a home insurance premium of  500 EUR a year, there would be – for example for 
10 years - a price increase of some 60 EUR-cents per year . In case of a life insurance premium of 1000 EUR per 
year, the price would go up for 10 years by some 1.24 EUR.  
74  The explicit request of authorisation for third-co untry branches is for life- insurer in Article 51 of 
Directive 2002/83/EC and for non-life insurers in Article 29a of Directive 73/239/EEC. The only exception is for Swiss non-life insurers as a specific agreement regu lates their possibility to freely provide services cross-
border in EU Member States (see http://ec.europa .eu/internal_market/insurance/solvency/index_en.htm
) 
75  It is important to draw the reader’s attention to the following. The various IGS design features are 
analysed in Annex B one at a time (the analysis on th e level of IGS centralisation is for example presented 
before the analysis on geographic scope) in order to hi ghlight the consequences of moving from one to another 
option available for each IGS design feature. Nonetheless, funding needs are always necessarily computed for a collection (vector) of options covering all desi gn features and applying at the same time.
 
The particular vector of options used  as a benchmark to compute funding needs in the IA can be found in Table 
4.1 of the MR. In particular, funding needs have been computed for the home state principle option of the geographic scope design feature (unless differently indicated). This implies that, in general, comparisons 
between options are always made in this IA on the basi s of the home state principle option, which constitutes the 
benchmark for comparisons. Presented funding needs in Annex B are to be intended gross
 of existing financial 
endowments where national IGS already ex ist. Net funding needs can be com puted simply subtracting available 
funds in Member States  that have IGS in place. Estimated  available funds are presented in Error! Reference 
source not found. . See also sub-section 3.3 of the MR. 
76 The decreased/increased funding needs compared to  the home state national IGS case depend on the 
decreased concentration ( δ) of the insurance market considered for the calculations: in fact, as the market share 
of each market participant is smaller in the EU than in each national market , the concentration of the insurance 
market decreases. This lower concentration entails a redu ction in the probability of extreme losses and a higher 
probability of medium-high losses (see in the figure below how the loss distribution changes progressively from 
δ=0.1 to δ=0). The final effect on estimated losses depends on which of the two effects prevails. Consider for 
example the case of PD=0.1% and a 90th percentile of the IG S loss distribution. With this low PD, the effect of 
a reduction in the probability of extreme losses (a thinner tail, meaning smaller funding needs) is less important than the effect of a higher probability of medium-high lo sses (a fatter shoulder, meaning higher funding needs) 
in the portion of the loss distribution around the 90% percentile. It follows that funding needs increase. If 
funding needs are instead considered for the same PD (0 .1%) but at the 99th percentile or at the same 90th 
percentile but for a higher PD (0.5%), the thinner tail effect prevails, with a reduction in funding needs. 
 
EN 156   EN                                                                                                                                                         
 
77  For a full set of figures please refer to sub-section 4.3 and Annex A5.2 of the MR. 
78  For a full set of figures please refer to sub-section 4.4 and Annex A5.3 of the MR. 
79  This positive feature of ex-ante funded IGS can be  reinforced by introducing ex-ante levies that are 
weighted by the risk of failure of the contributing insurance undertaking.