COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT  PART I   Accompanying document to the   WHITE PAPER  on Insurance Guarantee Schemes   {COM(2010) 370} {SEC(2010) 841}
Date: 2010-07-12
Institutions: European Commission
Subjects: approximation of laws, consumer protection, domestic market, exchange of information, impact study, insurance company, insurance indemnity, public insurance

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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} 

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TABLE OF CONTENTS 

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT   
Accompanying document to the   White Paper on Insurance Guarantee Schemes ...................1 

INTRODUCTION ......................................................................................................................4 

1. 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

1.6. 

2. 

2.1. 

2.2. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ...6 

THE COMMISSION WORKING GROUP ON IGS..............................................................6 

THE OXERA REPORT ON IGS .......................................................................................6 

INVOLVEMENT OF CEIOPS..........................................................................................7 

OTHER CONSULTATIONS ..............................................................................................7 

EUROPEAN PARLIAMENT AND COUNCIL .....................................................................7 

IMPACT ASSESSMENT BOARD AND INTER-SERVICE STEERING GROUP ........................7 

PROBLEM DRIVERS .................................................................................................8 

POLICYHOLDERS LACK AND CANNOT PROCESS IMPORTANT RISK-RELATED 
INFORMATION (PROBLEM DRIVERS 1 AND 2)...............................................................9 

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 can produce substantial losses which are passed 

on to policyholders or taxpayers.................................................................................12 

2.3. 

THE 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 policyholders as a result of heterogeneous design 

features of existing IGS ..............................................................................................15 

2.4. 

CROSS-BORDER INSURANCE ACTIVITY IN THE INTERNAL MARKET (PROBLEM 
DRIVER 6)....................................................................................................................16 

2.4.1.  The non-negligible (and growing) cross-border insurance activity in the EU ...........16 

2.4.2. 

Insufficient protection of cross-border insurance activity by existing IGS................17 

3. 

PROBLEMS AND CONSEQUENCES .....................................................................18 

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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 insurance failure in a domestic or cross-border 
context (on policyholders or taxpayers) .....................................................................22 

3.2.2.  Distorted competition in the Internal Market for insurance services..........................22 

3.3. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

SUB-OPTIMAL DEVELOPMENT OF THE INTERNAL MARKET FOR INSURANCE 
SERVICES.....................................................................................................................23 

BASELINE SCENARIO, POSSIBLE ALTERNATIVES, SUBSIDIARITY AND 
LEGAL BASIS FOR ACTION, INTERNATIONAL COMPARISONS ..................24 

HOW WOULD THE SITUATION EVOLVE WITHOUT ACTION AT EU LEVEL? ................24 

ARE THERE VIABLE ALTERNATIVES TO SPECIFIC EU ACTION ON 
IGS? ...........................................................................................................................24 

SUBSIDIARITY ANALYSIS AND LEGAL BASIS...............................................................25 

IGS OUTSIDE EUROPE................................................................................................26 

OBJECTIVES OF AN EU ACTION .........................................................................27 

OBJECTIVE 1: ENSURE AN EVEN AND COMPREHENSIVE PROTECTION OF 
POLICYHOLDERS.........................................................................................................27 

OBJECTIVE 2: AVOID COMPETIVE DISTORTIONS .......................................................28 

OBJECTIVE 3: REDUCE ADVERSE INCENTIVES ...........................................................28 

OBJECTIVE 4: ENSURE COST EFFICIENCY..................................................................28 

Minimise welfare costs of protection.....................................................................................28 

Minimise set-up and operational costs of protection ...........................................................29 

5.5. 

OBJECTIVE 5: ENSURE MARKET CONFIDENCE AND STABILITY .................................29 

6. 

ANALYSIS OF AVAILABLE POLICY OPTIONS .................................................29 

6.1. 

THE NATURE OF A POSSIBLE EU ACTION...................................................................30 

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6.2. 

6.3. 

THE GUARANTEE SIZE (IGS FUNDING NEEDS) ...........................................................35 

TOOLS FOR AN EU ACTION ON IGS............................................................................39 

6.4.  MINIMUM VS MAXIMUM HARMONISATION ................................................................41 

7. 

7.1. 

7.2. 

7.3. 

7.4. 

7.5. 

7.6. 

7.7. 

7.8. 

7.9. 

EXPECTED ECONOMIC AND SOCIAL IMPACT OF RETAINED POLICY 
OPTIONS ...................................................................................................................44 

IMPACT ON POLICYHOLDERS .....................................................................................46 

IMPACT ON INSURANCE UNDERTAKINGS ...................................................................47 

IMPACT ON TAXPAYERS .............................................................................................47 

IMPACT ON EXISTING IGS SCHEMES .........................................................................48 

IMPACT ON SMALL OR MEDIUM ENTERPRISES (SME'S)..........................................49 

IMPACT ON SUPERVISORY AUTHORITIES ...................................................................49 

INTERNATIONAL IMPACT ...........................................................................................49 

ENVIRONMENTAL IMPACT .........................................................................................49 

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 – MONITORING 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 loopholes and inconsistencies, the report of the de Larosière 
Group  has  recommended  the  setting-up  of  harmonised  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 would review the adequacy of existing guarantee schemes in the 
insurance sector and make appropriate legislative proposals. To this end the Commission will 
adopt in 2010 a White Paper setting out a European approach to IGS including indications on 
appropriate follow-up measures. 

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IGS  provide  protection  to  consumers  when  insurers  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  becomes  insolvent.  IGS  provide  protection  either  by  paying 
compensation  to  policyholders  for  their  claims,  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/domestic 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 suboptimal allocation of insurance failure losses 
and to preserve the stability of financial markets. 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  allocation  of  the  losses  stemming  from  defaulted 
insurers and of avoiding competitive distortions between EU insurance undertakings. 

Guarantee schemes have been set up in other sectors of the financial services industry. All EU 
Member  States  have  deposit  guarantee  and  investor  compensation  arrangements  and 
minimum  protection  standards  were  harmonised  at  European  level  by  the  1994  Deposit 
Guarantee  Scheme  (DGS)  Directive  and  the  1997  Investor  Compensation  Scheme  (ICS) 
Directive.4 However, there is no such common European 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,  because  relevant  EU  legislation  on  occupational 
pension  funds  is  currently  under  revision  in  a  parallel  workstream  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 general, not directly affected by the failure of a 
reinsurance undertaking.6 

This IA is structured as follows: Section 1 presents the main procedural issues, including the 
consultation of interested parties. Section 2 focuses on the six main problem drivers: (i) the 
fact that policyholders lack important risk-related information; (ii) the fact that policyholders 
cannot  process  important  risk-related  information;  (iii)  the  fact  that  insurers  can  fail  and 
produce substantial losses; (iv) the fact that protection of consumers in some Member States 
is low or insufficient;  (v) the  fact that protection of consumers in several Member States is 
uneven; (vi) the fact that cross-border activity in the EU is growing.  

Section  3  presents  the  two  main  problems  generated  by  these  six  drivers:  the  fact  that 
substantial losses can be passed on from insurance undertakings to large groups of consumers 

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or to taxpayers, and the fact that there is the possibility of a mismatch between consumer risk 
preferences  and  the  risk  of  default  of  insurance  undertakings.  These  two  problems  are 
analysed both in a domestic and in a cross-border 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 action 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 impacts of the retained set of 
policy options. 

1.  PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

The  Commission's  attention  was  drawn  to  IGS  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 failure 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 working group which was mandated to examine 
IGS related issues. The working group quickly recognised that the subject was probably even 
more complex in the insurance field than in the banking and securities markets areas where 
EU  Directives  already  require  all  Member  States  to  have  a  national  guarantee  scheme  in 
place.  At  the  final  meeting  of  the  working  group  at  the  end  of  2005  most  Member  States 
indicated that they were in favour of some European coordination in this area, although there 
was no consensus on the extent and content of such coordination.7 

1.2.  THE OXERA REPORT ON IGS 

In order to have a comprehensive picture of the situation in EU Member States and a better 
insight  into  the  functioning  of  existing  schemes,  the  Commission  contracted  Oxera 
Consulting Ltd to prepare a report - 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 Commission's website in January 20088. 

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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. Moreover, CEIOPS was asked to give its view on 
whether,  if  the  EU  were  to  introduce  a  European  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 Commission carried out a public consultation exercise in 
200811.  It  received  30  contributions,  from  European  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  consultation  and  hearing  were  put  together  in  a 
summary feedback statement which was published on the Commission's website.12 

In May and June 2009, the Commission met with representatives of CEA, FINUSE, AMICE, 
CEIOPS,  EFRP  and  EFDI  to  discuss  the  content  of  the  forthcoming  White  Paper.  The 
minutes of the meetings are published on the Commission's website13. 

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 Directive15 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, 

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ECFIN,  EMPL,  ENTR  and  TAXUD.  The  minutes  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  extent  of  the  problem,  explaining  why  EU 
intervention is needed and how this initiative 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  expected  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  follow-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 action at EU level; 
to simplify the presentation of the objectives and the most relevant policy options; 
to improve the understanding of the report by removing repetitions and unnecessary 
details. 

These recommendations led to a revision 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  clearly  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  action  exist,  they  do  not  sufficiently  address  the 
shortfalls  identified  (see  particular  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 particular section 5 and 6). 

2.  PROBLEM DRIVERS 

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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 discussed one by one. The resulting problems and 
consequences will then be presented in Section 3. 

Figure 1 - Problem tree 

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Consumers do not know risk of 
failure of insurers

Consumers are not aware of IGS 
protection 

1. Consumers lack 
important risk-related 
information 

Consumers cannot compare “quality”
(VaR) of insurance products

Consumers cannot price the “quality”
(VaR) of insurance products

2. Consumers lack
the ability to process 
important risk-related 
information 

Losses can hit both life and non-life 
insurers

Insurers can be affected by severe 
principal-agent problems

Existing internal risk management / 
controls and prudential requirements 
do not create a zero / non-substantial 
losses environment

Public authorities tend not to be 
proactive but only reactive to 
financial risks

Not all Member States have 
experienced substantial losses (taking 
place notwithstanding internal risk 
management controls and prudential 
regulation) 

3. Insurers can fail and  
produce substantial 
losses

4. Low / insufficient 
protection of consumers 
in some Member States 
(unless ex-post State 
intervention)

5. Uneven protection of 
consumers in the various 
Member States
(unless ex-post State 
intervention)

Single passport for insurers

6. Cross-border activity 
(growing)

DOMESTIC

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 
insurers

CROSS-BORDER

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)

IV.
Mismatch between consumer 
risk preferences and risk of 
default of non-domestic 
insurers

1. 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)

6. Slowdown of real economy

7. Potential financial market 
instability

8. 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)

10. Decreased consumers’
confidence in the Internal Market

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)

13. Potential disputes between 
Member  States on allocation of costs 
of insurance failures

14. Distorted competition in the 
Internal Market for insurance 
services

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2.1.  POLICYHOLDERS  LACK  AND  CANNOT  PROCESS 
INFORMATION (PROBLEM DRIVERS 1 AND 2) 

IMPORTANT  RISK-RELATED 

For a number of reasons, it is almost impossible 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 services on the basis of their level of security. In fact, while 
policyholders  can  compare  insurance  undertakings'  products  on  the  basis  of  the  premiums 
they would pay for any specific product, they hardly have any reliable information on the risk 
of failure of individual insurance undertakings. Moreover, policyholders are usually unaware 

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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  know  about  the  risk  of  failure  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  information17,  they  are  more  exposed  to  the  risk  of  choosing  insurers  which  are  not 
financially  sound.  This  may  lead  to  a  systematic  mismatch  between  policyholders'  risk 
aversion18  (supposedly  high,  as  they  are  looking  for  insurance)  and  the  risk  of  an  insurer's 
default which they continue to run.  

 INSURANCE  UNDERTAKINGS  CAN  FAIL  AND  PRODUCE  SUBSTANTIAL  LOSSES 

2.2. 
(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 financial market developments. Their 
losses  tend  to  arise  from  non-financial  liabilities.  In  fact,  losses  by  non-life  insurers  are 
typically  caused  by  higher  than  expected  claims  (due,  for  example,  to  natural  catastrophes, 
etc.) rather than by investment losses (see Error! Reference source not found. for the high 
variability over time of losses from natural 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 insurers: indeed, on most policies, life 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 undertakings are more exposed to losses: 

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•  When interest rates fall (thus reducing returns 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, losses 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  severe  losses  and  have  been  forced  to  inject 
large amounts of new capital (for example, Allianz, 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 insurance undertakings might also be generated by 
fraud  and,  more  generally,  by  the  severe  agency  problems  that  insurance  undertakings  are 
potentially  subject  to.  These  agency  problems  are  mainly  caused  by  the  length  and  the 
"inversion" feature of the insurance cycle, i.e. the fact that premiums 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 insurance undertakings in the EU 

Default  occurs  when  an  insurance  undertaking  is  unable  to  meet  its  financial  obligations. 
Because of prudential requirements 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 particular sub-section 4.1.3) provides a calculation of the Probability 
of  Default  (PD)  by  a  major  European  insurer  rated  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). 

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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 solvency regimes create or 
can  create  a  zero-failure  environment  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  conditions  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 years; 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  failure  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  intervention  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 failure is resolved. Failure of a life insurer 
may  cause  the  loss  of  expected  policy  benefits,  which  can  be  significant  particularly  if  the 
policy  was  purchased  to  provide  for  retirement  income.  Losses  on  savings  and  investment 
products  may  equally  result  in  important  wealth  losses,  when  guarantees  given  cannot  be 
honoured. With regard to non-life insurance failures, 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.  

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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 time. What lessons can we learn from this with 
regard to future developments?  

One  recent  indicator  is  the  2009  failure  of  five  insurance  undertakings  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 and 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, that 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 beneficiaries 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 various elements, such as: the EAD, the PD, the 
correlation of defaults between insurers (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 might hit consumers in each Member State in a 
one year time horizon.29 The order of magnitude of the estimated 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  insurance  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: 

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•  51.5  billion  EUR  for  total  (life  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,  which  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 insurance 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  introduced  depends  on  the  risk  of  failure  of 
insurance undertakings and the potential impact that such failures could have on consumers. 
Given that clear evidence suggests that the latter can be considerable, the question arises as to 
the  ability  of  the  current  (fragmented)  framework  of  IGS  to  mitigate  the  risk  or  insurance 
failure or to reduce the losses for policyholders and beneficiaries if the risk materialises.  

Unlike  the  banking  and  securities  sectors,  the  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  fact  that  many  IGS  were  introduced  following  a 
major  default  of  one  or  more  insurance  undertakings  or  have  been  triggered  by  insurers 
experiencing serious financial difficulties in a given Member State. 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 

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Given the limited number of existing IGS, a large 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 available 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, major 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 stress and taking into account existing IGS, losses 
that might (with a 99th confidence level) be passed 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 undertakings 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 also stem from differences with regard to the 
design  features  of  existing  IGS.  There  are  significant  differences  between  national  IGS  not 
only  in  terms  of  whether  a  scheme  exists  at  all  and  whether  it  has  a  general  or  a  specific 
coverage,  but  also  in  relation  to  other  aspects  such  as:  geographical  scope  (home  country 
principle,  host  country  principle37,  etc),  eligibility  restrictions,  protection  limits,  nature  of 
intervention, funding arrangements, 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 detail the consequences (in terms of loopholes 
in  the  protection  of  policyholders  in  Member  States)  of  all  these  differences  because  of  the 

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complexity of the elements involved.39 It has therefore not been possible 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 features of cross-border insurance activity in the 
EU.  Sub-section  2.4.2  quantifies  the  losses  that  could  hit  policyholders  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)  have,  for  instance,  recently  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  the  fact  that  Solvency  II  will  not  introduce  the 
group support regime as initially 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  which  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  activity  is  mostly  related  to  life  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  total  activity.  The  share  of  EU-wide 
imported  activity  is  instead  relatively  homogeneous  between  Member  States.  LT  (13.45%), 
LV (12.60%) and CZ (11.97%), are the Member States where imported activity 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.) 

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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  insurance  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 concentrated in a few countries: 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-border insurance activity by existing IGS 

Error!  Reference  source  not  found.  shows  in  detail  whether  existing  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  based  IGS  (see  Endnote  37)  in  place  for  life 
insurance and only four Member States (LV, MT, PL, UK) have 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 insurance sold out of IE and FR 
is covered by a home principle based IGS, insurance 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  insurance  services.  In  a  situation  of  market 
stress, losses that might (with a 99th 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 

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•  1.80 billion EUR for total insurance, 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 billion EUR taking into account 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  taking  into  account 
existing IGS44). 

Error!  Reference  source  not  found.  demonstrates  for  each  Member  State  the  losses  that 
might hit domestic policyholders or taxpayers from (imported) cross-border insurance which 
is not covered by existing (home and host) IGS available funds. In a situation of market stress 
and taking into account  the coverage of existing home and host state principle based IGS in 
the EU, losses that might (with a 99th confidence level) result 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  defaults  of  insurance 
undertakings  operating  in  a  cross-border  setting  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 the 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 thousands of policyholders. Quantifying and estimating the exact number 
has not been possible in this IA, as statistics on the number of the policyholders of individual 
insurance undertakings in Member States are currently not available 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 case, the totality of taxpayers is hit by the 

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losses  produced  by  the  failure.  Even  if  the  effect  on  individual  taxpayers  might  be  limited, 
overall, the effect on public finances could be significant. 

3.1.1.  Negative consequences of losses passed on to policyholders in a domestic context (no 

ex-post State intervention) 

Losses  passed  on  to  policyholders  can  substantially  reduce  their  wealth  and  income, 
particularly for households.  

Life  insurance  policies  are  generally  important  components  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 amounts 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 policyholders’ wealth may also be important 
but it presents different features. These losses generally affect only those policyholders with 
outstanding (or already incurred but 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 insurance undertakings together with the absence of policyholder 
protection mechanisms, are likely to decrease consumer confidence in the insurance industry. 
This  may  result  in  a  weaker  insurance  sector,  and  may  eventually  generate  financial 
contagion between insurers. An OECD study (Yasui 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  ability  to  appropriately  assess  the  risks  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 argument of the banking sector".47 

In addition, unprotected insurance failures may lead to a slowdown of the real economy for 
two  reasons.  First,  the  reduction  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 

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undertakings  can  significantly  harm  the  development  of  the  economy  over  the  following 
months or years.49 The likelihood of such disruptions is clearly greater where the insurance 
market is concentrated or the collapse affects many undertakings at the same time. 

Finally, losses of insurance undertakings passed on to policyholders 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 policyholders decide to surrender their policies at 
the  same  time,  this  may  lead  to  an  exacerbated  downward  spiral  in  stock  market  prices  as 
insurers may have to sell large quantities of assets in order to obtain the necessary liquidity.50 

To  summarize,  when  substantial  losses  are  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  losses,  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  substantial  loss  and  the  
state  of  public  finances  is  weak.  Error!  Reference  source  not  found.  shows  the  estimated 
losses of policyholders as a percentage 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 insurance 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 billion EUR;  ING: 4.75 billion EUR;  KBC: 
1.5 billion EUR).  

Moreover, losses from insurance failures that are absorbed by public finances also eventually 
lead,  due  to  public  budget  constraints,  to  a  reduction  in  public  spending  (for  example  on 
public services offered to citizens) for an amount equal to the loss. This may, depending on 
the amounts involved, have significant long-run effects on the 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  substantial  reductions  in  their 
wealth. Error! Reference source not found. shows that in 2007 the embedded EU value for 

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non-domestic  policyholders  in  the  insurance  sector  as  a  share  of  GDP  was  1.70%.  This 
includes an estimated value of 178.7 billion 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 that non-domestic consumers might incur, taking into account 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, compensation across countries of the losses 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  the  public  finances  of 
another Member State also eventually lead, due to public budget constraints, to a reduction in 
public spending (for example on public services offered to citizens) for  an amount equal to 
the loss. This may, depending on the amounts involved, have significant long term effects on 
the real economy. 

In  addition,  when  non-domestic  taxpayers  are  asked  to  absorb  the  losses  of  a  defaulted 
insurance undertaking operating cross-border, this may adversely 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, compensation across countries of the losses 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) 

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3.2.1.  Sub-optimal allocation of losses from insurance failure in a domestic or cross-border 

context (on policyholders or taxpayers) 

As  set  out  above,  individual  policyholders  are  hardly  able  to  process  important  risk-related 
information which leads him/her to underestimate the risk of his/her insurer going bankrupt. 
This  creates  a  mismatch  with  the  risk  preference  of  policyholders  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 affected by the loss resulting from 
a default. 

The resulting welfare  problem  stems  from the absence of  an efficient insurance  market. An 
inefficient insurance market does not allow society 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  against  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  that  case  be  incurred  by  the  totality  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  levels  of  protection  for  policyholders  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 insurance 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  exporting  Member  State  based  on  the  host  state 
principle, and in the importing Member State based on the home state principle (cross-
border activity less protected than the domestic activity); 

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an IGS is in place in the exporting Member State based on the home plus host 
• 
state  principle,  while  there  is  no  IGS  in  the  importing  Member  State  (cross-border 
activity more protected than the domestic activity); 

• 
no IGS is established in the exporting Member State, while there is an IGS in 
the  importing  Member  State  based  on  the  home  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 cause distortions in competition between these two groups of 
insurers.  These  competitive  distortions  are  closely  related  to  the  general  inability  of 
consumers  to  correctly  process  complex  risk-related  information.  Consumers  may,  for 
instance,  prefer  to  buy  policies  that  are  covered  by  an  IGS  to  the  detriment  of  insurers 
offering  policies  that  are  not  covered.  On  the  other  hand,  belonging  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 which offer protected insurance products.53 

3.3. 

SUB-OPTIMAL DEVELOPMENT OF THE INTERNAL MARKET FOR INSURANCE SERVICES 

Ideally, in a perfectly functioning internal market, cross-border 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 domestic activity (34%). In other words, existing national IGS 
are  designed  in  such  a  way  that  domestic  insurance  activity  is  better  protected  than  cross-
border activity. 

For  life  insurance,  62%  of  cross-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 discrepancy in the  coverage provided by  existing IGS 
with regard to domestic and cross-border insurance activity. This argument holds particularly 
true for the life insurance sector.  

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4.  BASELINE SCENARIO, POSSIBLE ALTERNATIVES, SUBSIDIARITY AND 

LEGAL BASIS FOR ACTION, INTERNATIONAL 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 alternatives to specific EU action on IGS.  

4.1.  HOW 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 continue 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  market  integration  in  Europe,  but  also  to  the 
recently  introduced  Solvency  II  requirements.  The  lack  of  recognition  of  group  support  has 
already  prompted  some  international  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 impact that such failures could have 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 Directive1 which 
will become applicable by 31 December 2012 provides 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. 

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to  solvency.  It  requires  insurance  and  reinsurance  undertakings  to  hold  sufficient  capital  to 
cover their obligations over a 1-year time horizon subject to a 99.5% VaR confidence level. 
This  should  ensure  that  failure  of  an  insurer  occurs  no  more  often  than  once  in  every  200 
cases. Effective risk management and comprehensive governance structures are cornerstones 
of the future solvency system, in addition to capital requirements and appropriate supervisory 
powers of varying degrees of intensity. In spite 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 requirements at a level that would be 
sufficient to absorb all unexpected losses. 

Preferential  treatment  of  policyholders  in  winding-up  proceedings:  in  the  event  of  the 
winding  up  of  an  insurance  undertaking,  current  EU  winding-up  legislation  offers  Member 
States  a  choice  between  two  alternatives  in  national  law  for  giving  priority  treatment  to 
policyholders  over  other  creditors  of  the  insurer  in  liquidation2.  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. Secondly, winding-up proceedings of insurance 
undertakings are not only complex but also expensive and time-consuming. This may create 
serious  liquidity  shortages  for  policyholders  with  outstanding  claims  at  the  time  of 
insolvency, if their claims cannot be satisfied within a reasonable period of time. 

Case-by-case government intervention: case-by-case solutions such as ex-post government 
interventions,  while  by  their  nature  flexible,  also  have  serious  drawbacks.  Unequal 
interventions  may  raise  concerns  regarding  fairness  and  transparency,  as  relevant  decisions 
are made on an ad-hoc basis rather than according to a set of pre-designed rules. In addition, 
case-by-case  intervention  may  be  perceived  as  privileging  larger  undertakings  thereby 
incentivising  risk  and  creating  moral  hazard  through  the  assurance  of  safety  nets  for  which 
others have to pay. Ad-hoc interventions may create uncertainty both for policyholders and, 
depending on their financing, for 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 for themselves. These approaches rely on the 
assumption that relevant information is properly 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  IGS  protection,  enhanced 
information  may  in  principle  alleviate  concerns  about  consumer  protection  within  Member 
States.  However,  it  is  highly  unlikely  that  policyholders  are  capable  of  understanding  and 
processing  all  relevant  information,  particularly  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 lack of IGS in many Member States. 

4.3. 

SUBSIDIARITY 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. 

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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 insurance 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 phenomenon, it is just as essential to protect 

the interests of third parties. 

Although action at Member State level could in principle contribute 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  inconsistent  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 Article 5 TFEU, the objectives of the proposed action cannot be 
sufficiently  achieved  by  Member  States  and  can  therefore  be  better  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  policyholders  and  beneficiaries  acquiring  insurance 
policies  in  the  EU  benefit  from  equal  and  comprehensive  protection  in  the  event  that  an 
insurance undertaking defaults, which also ensures a level playing 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  characterised  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  Market  shall  constitute  an  area  without  internal 
frontiers  in  which  the  free  movement  of  goods,  persons,  services  and  capital  is  ensured  in 
accordance  with  the  provisions  of  the  TFEU  Treaty.  Any  follow-up  action  is  likely  to  be 
based on Article 53 (2) of the TFEU which is the 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  established  IGS.  In  North  America 
schemes  for  life  and  non-life  insurance  have  been  established  in  Canada  and  in  the  USA. 

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Already in the 1970s the USA established distinct IGS, covering the life and non-life sector 
respectively,  in  each  State.  Before  doing  business  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 operational characteristics of the US IGS system.54 

In the Asia-Pacific region, Japan and Korea have established national schemes, covering both 
life and non-life insurance. Regarding Japan, the Non-life Insurance Policyholders Protection 
Corporation and the Life Insurance Policyholders Protection Corporation were  established in 
1998.55  The  OECD  reports  the  existence  of  IGS  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, potential 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  adequately  high  and  even  protection  of  policyholders, 
sufficiently reducing the risk that the non-payment 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 adequate in all Member States; 

2.  that  the  geographical  scope  of  protection  schemes  does  not  maintain  or  produce 

loopholes in the protection of policyholders 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 particularly important as the 
geographical scope is strongly intertwined with other design features: when these are 
not sufficiently homogeneous, loopholes in the protection of policyholders in Member 
States can arise in spite of a harmonised geographical scope throughout the EU. 

SUPPORTING OBJECTIVES 

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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  insurance  companies  and  improving  competitive 
neutrality  of  business  conducted  by  domestic  undertakings  and  incoming  EU  insurers  who 
operate under the freedom to provide services 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 introduction of a protection mechanism will not provide 
for  the  wrong  incentives.  Similarly  a  harmonised  framework  on  IGS  should  prevent  tax-
payers from ultimately bearing the costs of an undertaking's mismanagement by introducing a 
legal  framework  which  is  financed  by  the  undertakings  themselves  and  that  does  not 
incentivise excessive risk-taking. 

When there is a safety net to protect the interests of policyholders, supervisors might feel less 
pressured  to  carry  out  their  supervision.  The  design  of  the  protection  mechanism  should 
therefore  also  ensure  that  potential  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 means that both welfare costs of protection as set-
up costs need to be minimised. In the end, an IGS that is not cost efficient will lead to higher 
costs for policyholders. 

Minimise welfare costs of protection 

From  a  societal  point  of  view,  the  effects  associated  with  the  introduction  of  protection 
mechanisms  in  the  case  of  insurance  failure  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 the losses that would hit consumers (or taxpayers) 
in the absence of a protection mechanism.59 

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Under this distributional angle, the argument that 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 difficult 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 can be determined by induction when looking at 
the resources needed by the protection mechanism 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 adverse incentives produced by IGS. 

Minimise set-up and operational costs of protection 

Welfare  losses  represent  the  main  costs  for  society  that  can  stem  from  the  creation  of  a 
protection  mechanism.  However,  when  a  protection  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  objective  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  adequately  taking  into  account  European  rules  on  state  aid.  As 
competitive distortions between insurance undertakings operating in the same Member State 
may also be generated when protection is linked 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  enhancing  market  confidence  and  furthering  the 
stability of the EU internal market in insurance services. By increasing consumer confidence 
in insurance undertakings and products, an IGS 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 policy options that are analysed 
in this IA. An extended list of policy options is set out in Annex A. 

Figure 2 - Option tree 

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1.    Nature of intervention
1.1   No action
1.2.   Further reduce the probability of failure
1.3   Ex-post protection mechanisms
1.4   Explicit unlimited public guarantee
1.5   Explicit limited guarantee (IGS)

2.   Guarantee size (IGS funding needs)
2.1  No action
2.2  Harmonisation

3. Tools of a EU action on IGS
3.1 No action 
3.2 A coordinated EU non-binding approach
3.3 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 harmonization

5. Level of IGS centralisation
5.1 No action 
5.2 An IGS in all MS
5.3 EU-wide IGS
5.4 EU-wide IGS for cross-border 
5.5 EU-wide IGS for groups + national schemes
5.6 28th regime
5.7 An IGS in all MS + mutual support

6. Role of an insurance guarantee scheme
6.1 No action (harmonization) at EU level
6.2 Last resort protection
6.3 Failure prevention and last resort prot.

7. Geographic scope
7.1 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 covered
8.1 No action 
8.2 Life only
8.3 Non-life only
8.4 Life and non-life
8.5 Life and selected non-life

9. Eligible claimants
9.1 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 funding
10.1 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 intervention
11.1 No action
11.2 Portfolio transfer
11.3 Compensation of claims

As the option tree shows, the first (1 to 4) group of alternative options requires the selection 
of  a  preferred  option  before  identifying  the  next  group  of  alternative  options.  When  certain 
options  are  not  mutually  exclusive,  this  is  indicated  in  the  analysis.  The  second  group  of 
options  (5  to  11)  represent  different  design  features  of  an  IGS  scheme.  They  do  not  follow 
from one another, but they are closely intertwined 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  following  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 negligible impact: void. 

6.1.  THE 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 Internal Market for insurance services. 

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-  Option 1.2:   Further reduce the probability of failure of insurance undertakings 

Failures  can  be  prevented  by  strengthening  the  risk  management  system  in  insurance 
undertakings or by enhancing prudential supervision, particularly through an increase of the 
solvency requirements. 

1.2.1. Strengthening the risk management system  

The  risk  management  system  encompasses  the  whole  range  of  processes  present  in  the 
operational  activity  of  insurance  undertakings  that  aim  at  ensuring  that  an  insurance 
undertaking  is  able  to  correctly  and  professionally  manage  its  risks.  However,  practice 
suggests  that  even  a  very  solid  risk  management  system  cannot  fully  exclude  the  risk  of 
default. Solvency II substantially strengthens the 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  stakeholders  because  of  the  additional  costs  and 
administrative burden that would follow from this. 

1.2.2. Enhanced prudential supervision and higher solvency requirements 

If  designed  in  an  appropriately  risk-sensitive  way,  solvency  requirements  can  mitigate  a 
potentially  excessive  risk-taking  behaviour  by  insurance  undertakings,  limit  the  probability 
that they fail and therefore protect (up to a certain extent) the economy and society from the 
negative consequences linked to their failure. 

It  is  however  impossible  to  set  solvency  requirements  at  a  level  which  is  high  enough  to 
absorb  all  losses.  Capital  requirements  would  in  such  a  case  be  so  high  that  insurance 
undertakings would no longer be able to offer their services at a price which is affordable for 
consumers. In a worst case scenario this would lead to the implosion of the whole insurance 
market. Statistical evidence61 shows that solvency requirements are optimally designed when 
they  are  sufficient  to  absorb  losses  of  insurance  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 policyholders after failure of an insurance 
undertaking has occurred 

EN 

31 

   EN 

 
 
 
 
 
 
 
 
 
1.3.1. Improved transparency under a caveat emptor approach62 

Enhancing  the  information  available  to  policyholders  (about  the  existence  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 the 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-related information and are incapable to correctly 
process important but complex risk-related information (problem drivers 1 and 2). If  the EU 
were  to  increase  transparency,  it  would  still  be  very  unlikely  that  the  great  majority  of 
policyholders  would  fully  understand  and  be  capable  to  appropriately  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  uneven  or  inappropriate  levels  of 
policyholder  protection  in  several  Member  States.  The  Oxera  report  argues  that  adopting  a 
caveat emptor approach might not be acceptable, especially when substantial losses or a large 
number of claimants are involved. 

1.3.2. Legal priority for consumers in winding-up 

Notwithstanding  common  principles  contained  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 proceedings 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  processes  taking  a  long  time.  They  can,  therefore, 
hardly provide an effective and immediate protection for policyholders.  

-  Option 1.4:   Explicit unlimited guarantee from public authorities 

An  explicit  unlimited  guarantee  from  public  authorities  has  the  obvious  drawback  of  using 
(potentially a very large amount of) taxpayers money and thereby affecting public finances. It 
would  entail  a  sub-optimal  allocation  of  insurance  failure  losses  leading  to  a  reduction  in 

EN 

32 

   EN 

 
 
 
 
 
 
 
 
 
welfare, resulting from a too-large redistribution of failure losses. Moreover, a guarantee from 
public authorities can also create a moral hazard behaviour (insurers might be less inclined, 
for example, to limit their risks through reinsurance contracts). 

-  Option 1.5:  Explicit limited guarantee (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  with  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  sufficiently  large.  Furthermore,  a  guarantee  scheme 
may  spread  the  funding  needed  to  provide  protection  against  these  excess  losses  among  a 
higher  number  of  consumers  and  therefore  provide  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  insurance  undertakings  facilitates  a  consistent 
distribution of excess losses (losses in excess of solvency requirements plus excess capital, if 
any) for the guarantee scheme. 

Another important argument in favour of IGS is that they, if properly designed, may reduce 
the  problems  of  a  suboptimal  allocation  of  insurance  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 cases.  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 report, IGS also have the advantage of: (1) being 
able to guarantee a speedy payment to policyholders; (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 insurance undertaking for its policyholders. 

The most commonly raised argument against introducing 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 suggesting that this argument is not as strong as 
it might seem.  

EN 

33 

   EN 

 
 
 
 
 
 
 
Similarly,  the  Oxera  report  notes  that  although  there  is  very  little  evidence  on  how  the 
introduction of IGS can influence the proper/inappropriate allocation of economic incentives, 
it  may  be  concluded  that  the  proper  design  of  IGS  features  can  in  general  address  and 
appropriately manage potential moral hazard effects. 

Regarding set up and operational costs, the Oxera report notes in section 5 that in the absence 
of failure, financial costs associated 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 report 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 were in favour of maintaining the status quo 
or  improving  transparency.  In  the  consultation  there  were  also  split  views  regarding  the 
possibility  to  mitigate  the  possible  moral-hazard  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  IGS  stressed  how  IGS  would  be  effective  in 
solving  the  problems/consequences  identified  in  this  IA:  increased  consumer  protection, 
increased  consumer  confidence,  increased  financial  stability,  level  playing  field  between 
insurers. They also stressed that EU action on IGS could encourage the development of the 
single  market.  In  contrast,  respondents  against  IGS  stressed  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 arguments discussed above. The preferred policy option 
is therefore Option 1.5 (Explicit Limited Guarantee / IGS).  

EN 

34 

   EN 

 
 
 
 
 
Table  1  -  Summary  of  policy  options'  evaluations  –  The  nature  of  a  possible  public 
authority intervention 

Objectives 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

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 - 

- 

++ 

Options 

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 

Explicit 

1.4 
unlimited  
Guarantee 

Explicit 

1.5 
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 

35 

   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 default (PD) of insurance undertakings and the level 
of  targeted  security  for  policyholders.  As  has  been  set  out  above,  the  PD  for  insurers 
oscillates between 0.1% and 0.5% depending on market conditions. Besides the probability of 
default  of  insurance  undertakings,  IGS  funding  needs/financial  endowments  are  mostly 
influenced by the level of security provided to consumers: the higher the security provided by 
an IGS, the higher the required IGS financial endowments/funding 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 determined in relation to 
the  part  (statistically,  the  percentile)66  of  the  IGS  loss  distribution  that  the  IGS  financial 
endowments can cover.67 The percentile (level of security) 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  sufficiently  high  protection  of  policyholders, without 
requiring excessive resources.  

In order to identify an appropriate level of protection offered by IGS, the coverage levels of 
existing national schemes have been analysed, and past cases of large insurance failures have 
been  examined,  estimating  how  many  resources  would  be  needed  to  protect  policyholders 
against similar failures across the EU. It appears 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 consideration both the probability of default of insurers and the level 
of security for consumers:69 

-  Option 2.1:   No action (harmonization) at EU level 
-  Option 2.2:   Harmonization at EU level 
-  Sub-option 2.2.1:  
Low risk, low security (PD=0.1%, percentile=75%) 
-  Sub-option 2.2.2:  
Low risk, medium security (PD=0.1%, percentile=90%) 
-  Sub-option 2.2.3:  
Low risk, high security (PD=0.1%, percentile=99%) 
-  Sub-option 2.2.4:   High risk, low security (PD=0.5%, percentile=75%) 
-  Sub-option 2.2.5:   High risk, medium security (PD=0.5%, percentile=90%) 
-  Sub-option 2.4.6:   High risk, high security (PD=0.5%, percentile=99%) 

While  option  2.1  is  inconsistent  with  the  objective  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 

36 

   EN 

 
 
 
 
 
 
 
The  benefit  must  be  considered  in  terms  of  the  security  provided  to  consumers,  which  is 
expressed in percentiles, with higher percentiles meaning higher 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 biggest failure that IGS financial endowments under 
the various policy options can cope with in the life and non-life sector. 

It appears very clearly that IGS are not able to deal alone with the biggest failures70, 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 undertaking and above in the respective Member State. 
Option 2.2.2 protects policyholders against the losses of medium size insurance undertakings, 
covering losses in the range of the 11th – 15th biggest insurance undertaking's failure, but not 
above that. Options 2.2.3 and 2.2.5 are quite similar in their coverage and they are providing 
higher protection against medium-size insurer failures than the previously described options. 
They  cover  up  to  the  11th  –  6th  biggest  insurance  undertaking  in  most  Member  States. 
Finally, option 2.2.6 (high risk/high protection) is protecting policyholders against the failure 
of one among the biggest five insurance undertakings 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 caused by failure of the 10th biggest insurance undertaking. 

An analysis of the funding needs of an IGS should 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 consideration 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 evaluation 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  preference  for  option  2.2.3  which  would  ensure  a 
high level of protection under normal market conditions while equally ensuring a sufficiently 
high level of protection in times of stress. 

EN 

37 

   EN 

 
 
 
 
Table  2  -  Summary  of  policy  options'  evaluations  –  The  guarantee  limit  (IGS  funding 
needs) 

Objectives 

Options 

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 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

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- 

- 

38 

- 

- 

+ 

- 

- 

+ 

-- 

- 

+++ 

- 

- 

+ 

-- 

- 

++ 

   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 would mean preserving existing loopholes as well 
as  uneven  levels  of  policyholder  protection  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  inconsistencies  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  IGS  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 highlighted 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 could effectively address the problems determined 
by the absence of a comprehensive and consistent framework for IGS in the EU. 

-  Option 3.3:  Case-by-case legally binding interventions (infringements) 

Unsatisfactory  situations  of  IGS  protection  could  be  addressed  through  selective  policy 
interventions that, in practice, could take the form of formal infringement proceedings against 
Member States so as to determine appropriate changes in national IGS or their set-up. 

EN 

39 

   EN 

 
  
  
  
  
 
 
 
 
 
 
 
 
 
Although  selective  measures  might  occasionally  close  existing  gaps  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 approach to IGS is most likely the best way to 
provide  an  adequate  remedy  to  the  existing  loopholes  and  inequalities  in  policyholder 
protection. Moreover it seems to be the most adequate and proportional tool 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  regard  to  their  implementation. 
the  absence  of  any  EU 
Given 
coordination/harmonization  in  this  field  to  date,  it  can  be  assumed  that  a  Regulation  would 
excessively restrict Member State action to implement an EU framework for IGS. 

the  existing  fragmented 

landscape  on  IGS  and 

EU Directive 

Another legal instrument provided for by Article 288 of the TFEU is that of the Directive. It 
has individual application, meaning that it is binding upon those to whom it is addressed. It 
requires Member States to achieve a certain result but, unlike a regulation, 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  Directive  in  case  of  binding  measures  on  IGS, 
given  the  complexity  of  the  issue  and  the  required  degree  of  flexibility  with  regard  to  the 
national implementation of each design feature. 

Table 3 presents a summary evaluation of the various policy options related to the choice of 
the  tool  for  EU  action  on  IGS.  In  conclusion,  and  in  view  of  the  above  considerations,  the 
Commission prefers a legally binding EU-wide approach to IGS based on a Directive. 

EN 

40 

   EN 

 
 
 
 
 
 
 
 
 
Table 3 - Summary of policy options' evaluations – Tools for a EU intervention on IGS 

Objectives 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

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Options 

3.1 No action 

A 

non 

3.2 
coordinated 
EU 
binding 
approach  

3.3  Case-by-
case 
intervention 
(infringements) 

+ 

+ 

3.4.1 
Regulation 

EU 

++ 

++ 

3.4.2 
Directive 

EU 

++ 

++ 

- 

- 

- 

- 

- 

- 

+ 

--- 

--- 

+ 

-- 

- 

+++ 

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  would  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 

41 

   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 national or at European level? 
-  Role: Should an IGS operate as a last resort protection mechanism or should it have a 

wider role? 

-  Geographical scope: Should an IGS operate on the basis of the home or host country 

principle (or on a combination of the two)? 

-  Policies  covered:  Which  classes  of  insurance  (life,  non-life,  etc.)  should  the  IGS 

cover? 

-  Eligible  claimants:  Which  policyholders/claimants  (natural  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 compensate losses or should it 

also be designed to secure the continuity of policies (portfolio transfer)? 

During  the  2008  public  consultation  most  respondents  said  to  be  in  favour  of  minimum 
harmonisation,  though  some  preferred  maximum  harmonisation.  The  vast  majority  of 
respondents  were  in  favour  of  harmonising  the  geographical  scope.  A  large  number  of 
respondents  were  also  in  favour  of  harmonising  policies  covered  and  eligible  claimants. 
Fewer respondents supported harmonisation of the 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 adoption 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 indicated  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 approach be chosen, at least the following 
design  features  should  be  harmonised:  geographical  scope,  policy  covered  and  eligible 
claimants.  AMICE,  EFRP  and  EFDI  agreed  with  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  that  national  legislation  may  not  exceed  the 
terms of EU legislation. In other words, provisions adopted at EU level have to be considered 
as  exhaustive,  leaving  Member  States  no  further  room  for  manoeuvre  with  regard  to  the 
adoption  of  supplementary  procedures.  A  possible  set  of  additional  design  features  to  be 
considered in this case might comprise the following: 

EN 

42 

   EN 

 
 
 
 
 
 
 
-  Pooling/separation  of  funding:  Should  the  IGS  funds  be  pooled  (or  kept  separated) 

between classes of insurance activity (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  situations  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 suited to enhance completion of the Internal 
Market, there seems to be a great deal of reluctance among Member States to adopt such an 
approach.   

Table 4 presents a summary evaluation of the three 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 given the wide consensus among stakeholders, the 
preferred option is that of minimum harmonisation.   

Table  4  Summary  of  policy  options'  evaluations  –  Scope  of  a  possible  EU  level  IGS 
binding intervention 

Objectives 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

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Options 

4.1No  action 
(no 
harmonization 
of the scope) 

EN 

43 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
4.2  Minimum 
Harmonisation 

4.3  Maximum 
Harmonisation 

+ 

+ 

++ 

++ 

- 

- 

++ 

--- 

--- 

+ 

Conclusion: On the basis of the 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  remains  rather  abstract  and  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  interested  in  collecting  feedback  from  stakeholders 
on  its  White  Paper.  Therefore  preferences  expressed  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  illustrates  the  considerations  which  have  been 
taken into account by the Commission when setting out preliminary preferences. Conducting 
an  open  dialogue  with  stakeholders  on  these  preliminary  preferences  will  allow  the 
Commission to monitor and possibly update its evaluation 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  measures,  which  will  analyse  in  detail  the 
possible  combinations  of  IGS  design  features,  and  choose  in  a  more  definitive  way  the 
optimal vector of features for an IGS solution at EU level.72 

On the basis of the analysis contained in Annex 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 

44 

   EN 

 
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
-  Level  of  centralisation:  the  Commission  prefers  introducing  an  IGS  in  all  Member 
States  because  this  is  consistent  with  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  insurance  undertakings  and  possible  state  aid 
issues;  

-  Geographical  scope:  in  the  Commission's  view,  the  home  state  principle  is  the 
preferable  policy  option,  especially  because  of  its  consistency  with  the  existing 
supervisory framework; 

-  Policies covered: the Commission prefers to cover life policies and selected non-life 
policies as this strikes the right balance between 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  strike  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 encourages portfolio transfer 
where it is reasonably practicable to do so and justified in terms of costs and benefits. 
However, when all other means are exhausted, 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 

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1.3.5  Explicit 
Limited 
Guarantee 
(IGS) 

++ 

++ 

- 

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EN 

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 - 

- 

++ 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
2.2.3 
Harmonization 
low  risk,  high 
protection 
(PD=0.1%,  
alpha=99%) 

3.4.2 
Directive 

EU 

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 

Natural 
9.3 
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 these retained policy options is presented in the 
following . 

7.1. 

IMPACT ON POLICYHOLDERS 

Action  taken  at  EU  level  can  be  expected  to  benefit  policyholders  by  increasing  their 
protection in the event that insurance undertakings are unable 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 

46 

   EN 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
  
  
  
 
 
 
 
This point can be illustrated by a (theoretical) example: If, (compared 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  and  non-life  policies,  (up  to  the  99th  percentile  and  based  on  a 
scenario  of  PD=0.1%),  this  would  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 premiums. Applying this target level over, for instance, a 10-
year  time  horizon  would  translate  into  an  annual  contribution  of  0.124%  of  gross  written 
premiums by each contributing undertaking/policyholder.73 

These funds should be considered as additional premiums. Policyholders are paying to insure 
themselves  against  the  possibility  that  their  insurance  undertaking  defaults.  The  payments 
provided by policyholders can be considered to be roughly equivalent to the expected value 
of  the  losses  they  would  avoid  in  case  their  insurance  undertaking  defaults.  The  financial 
costs  for  policyholders  can  be  computed  considering  a  cost  of  capital  of  6%  (in  line  with 
Solvency II quantitative impact studies). For an IGS with a funding endowment of 1.24% of 
annual premiums, this would translate into financial costs of 0.08% of annual premiums. 

7.2. 

IMPACT ON INSURANCE UNDERTAKINGS 

EU action on IGS will affect insurance undertakings in different ways, depending on whether 
they operate in Member States already having an IGS or not. In those cases where no IGS has 
been established so far, insurance companies might face – in all circumstances in the case of 
ex-ante  funding  and  whenever  insurance  undertakings  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 insurance undertakings, as losses hitting insurance undertakings in 
case of default only depend on capital (and not on premiums paid). 

7.3. 

IMPACT ON TAXPAYERS 

The introduction of IGS in all Member States can be expected to benefit 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 practical 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 resident in a Member State already having an 
IGS or not.  

EN 

47 

   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 already 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  performed  in  Table  3.12  of  the  Methodological  report 
where  the  impact  on  IGS  funds  is  analysed  in  terms  of  the  implied  change  in  the  level  of 
security provided to policyholders. 

Geographical scope: Currently, only MT (life and non-life) and NO (non-life) are operating 
an IGS on a host country principle basis, while LV (life and non-life), UK (life and non-life), 
PL (life) operate their IGS on a home plus host country principle basis. These schemes would 
need  to  modify  their  geographical  scope  and  start  operating  on  a  home  country  principle 
basis. 

Nature of scheme intervention: Currently only six IGS (DE life, FR life, UK life, 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  policies  considered  is  defined,  it  is  not 
possible  to  draw  definitive  conclusions  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 legal 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  has  not  yet  been  defined,  it  is  not 
possible  to  draw  definitive  conclusions  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 

48 

   EN 

 
 
 
 
 
 
 
 
introduce  an  ex-ante  funding  element  in  addition  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 their commitments. On the other hand, introducing 
IGS protection for SME's throughout the EU will have an impact on SME's, as insurers will 
pass  a  part  of  their  contributions  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 considered roughly equivalent to the expected value 
of the losses they would avoid in case their insurance undertaking defaulted. 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. 

IMPACT 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 accompanying the follow-up measures once the precise 
set of IGS design features will be definitively decided. 

7.7. 

INTERNATIONAL IMPACT 

As  a  general  rule,  third  country  insurance  undertakings  that  provide  or  want  to  provide 
insurance services in the EU must have their branches authorised in at least one EU Member 
State.74  This  means  that  after  the  authorisation  these  branches  of  third  country  insurance 
undertakings  fall  within  the  scope  of  this  IA.    The  impact  on  third  country  insurers  can 
therefore be expected to be the same as for EU-EEA insurers. 

7.8.  ENVIRONMENTAL IMPACT 

Environmental impacts are expected to be marginal. 

EN 

49 

   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 size do not produce threats to financial stability (since IGS are 
able to absorb them). 

7.10.  IMPACT ON THE ECONOMY  

The retained policy options are expected to bring two main benefits to the economy. First, a 
level playing field will be created that avoids competitive distortions between domestic and 
non-domestic  insurers.  Second,  the  possibility  of  sub-optimal  allocation  of  losses  on 
policyholders  and  taxpayers  will  be  reduced.  This  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 are highly risk averse – from uncertainty 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 taxpayers 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.  ADMINISTRATIVE BURDEN 

Administrative burden cannot be assessed with precision 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  preferred  options  are  not  expected  to  lead  to  any 

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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  evidence  supporting  the  need  for  a  legally  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 measures, will monitor and update its assessment 
of  the  various  policy  options  linked  to  the  proposed  EU  solution  for  IGS.  In  particular,  the 
Commission  will  carefully  evaluate  the  feedback  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  impact  assessment  will  then  be  conducted  and  the 
Commission  will  put  forward  a  legislative  proposal  on  insurance  guarantee  schemes  which 
will be presented to the Council and to the European Parliament.  

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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 probability of failure of insurance undertakings 

o 

o 

Sub-option 1.2.1:   Strengthening the risk management system 

Sub-option 1.2.2:   Enhanced  prudential  supervision  and  higher  solvency 
requirements 

o  Option 1.3:   Introduce  a  protection  of  policyholders  after  failure  of  an  insurance 

undertaking has occurred 

o 

o 

o 

o 

Sub-option 1.3.1:  

Improved transparency under a caveat emptor approach 

Sub-option 1.3.2:   Legal priority for consumers in winding-up 

Option 1.4:  Explicit unlimited guarantee from public authorities 

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 

o 

o 

o 

o 

o 

Sub-option 2.2.1:   Low risk, low security (PD=0.1%, percentile=75%) 

Sub-option 2.2.2:   Low risk, medium security (PD=0.1%, percentile=90%) 

Sub-option 2.2.3:   Low risk, high security (PD=0.1%, percentile =99%) 

Sub-option 2.2.4:   High risk, low security (PD=0.5%, percentile=75%) 

Sub-option 2.2.5:   High risk, medium security (PD=0.5%, percentile=90%) 

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 action 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 

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o  Option 3.3:   Case-by-case legally binding interventions (Infringements) 

o  Option 3.4:   A legally binding EU-wide approach to IGS 

o 

o 

Sub-option 3.4.1:   EU Regulation 

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 (Single 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  (including  subsidiaries)  plus  national  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 between 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 providing 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. 

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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 and 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 legal 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  specifically  dealt  with  in  the  White  Paper  but  may 
become relevant for a legally binding EU solution on IGS at a later stage. Some or all of them 
will then be addressed in a separate Impact Assessment. These options include the following:  

o  Pooling (or not) of funding between classes of insurance activity; 

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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 contributions 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. 

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POSSIBLE  CONTENT  OF  A  LEGALLY  BINDING  EU  SOLUTION  FOR  IGS 
FOLLOWING  A  MINIMUM  HARMONISATION  APPROACH:  PRELIMINARY 
ANALYSIS OF THE OPTIONS75 

LEVEL OF IGS CENTRALISATION (SINGLE EU-WIDE SCHEME VS. NATIONAL SCHEMES) 

-  Option 5.1:   No action (harmonisation) at EU level 

Maintaining  the  status  quo  implies  a  continuation  of  the  existing  fragmented  landscape  for 
IGS.  This  may  hinder,  for  the  reasons  explained  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 views with regard to keeping 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 national (home country principle) IGS (m €) 

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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-life  (i.e.  total)  insurance,  the  Member  State  (see  Table  3.2, 
MR)  with  the  highest  funding  need  is  the  UK.  The  Member  State  with  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 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  with  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 stakeholders, CEA, AMICE, FINUSE and EFDI showed 
support for this option. 

-  Option 5.3:   A single EU-wide IGS replacing (where relevant) national schemes 

The creation of a single EU-wide IGS that covers all relevant policies written and purchased 
within  the  EU  would  overcome  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 single EU-wide IGS are presented in Table 7. 

Table 7 – Funding needs for the EU with a single EU-wide scheme and comparison with 
funding needs under national IGS (m €) 

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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. 

L 

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  way  which  is  very  dependent  on  the  level  of 
security chosen. If the level of security chosen is high, funding needs decrease with a global 
saving of funds. If instead the level of targeted security is low, funding needs increase76. 

The impact in each Member State on IGS funding needs when opting for a single EU-wide 
IGS  instead  of  national  schemes  based  upon  the  home  country  principle  for  total  insurance 
(life and non-life), as well as life and non-life insurance separately are shown in Tables 20, 22 
and 24 of Annex 5 to the MR respectively. 

The 2008 public consultation showed that there was no support for introducing a single EU-
wide IGS. 

-  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 

The creation of an EU-wide IGS that covers only 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 complications. First of all, 
an EU-wide IGS for cross-border business would not be consistent with the existing national 

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micro-prudential  supervisory  framework.  Furthermore,  insurers  with  cross-border  business 
would need to take part in both 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 business protection were different. 

Overall, the funding needs for the EU under this option are the same as under option 5.2. The 
funding  needs  specific  to  domestic  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 domestic national schemes 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 few of them would have to contribute a very 
large share. The Member State with the highest 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  when  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 for the single EU-wide IGS covering cross-border 
insurance activity are shown in Table 9. 

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Table  9  -  Funding  needs  for  the  EU  with  national  schemes  for  domestic  activity 
supplemented by an EU-wide IGS covering 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 States would not contribute much of their funding endowments 
to the EU-wide cross-border IGS, a few of them would have to contribute a significant share. 
The  Member  State  with  the  highest  contribution  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  (including  subsidiaries)  plus  national 
schemes for all other relevant policies (domestic and cross-border) 

It would be possible to set up an EU-wide IGS that covers only those insurers who are part of 
a  strengthened  group  supervision  regime  –  yet  to  be  established  -  or  that  covers  only 
systemically important insurers (including their subsidiaries). However, this is likely to create 
the  same  complications  of  option  5.4.  In  addition,  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 could 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  supervision  regime  was  supported  by  some 
respondents. 

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In the 2009 informal meetings with stakeholders, the EFRP showed support for this option. 

-  Option 5.6:   Complement existing 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  cross-border  insurance  activity,  a  28th  regime  would 
simply complement national IGS. 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  depend on the operational characteristics of the 
national  IGS  and  of  the  28th  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 between 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 would require an agreed fund-raising mechanism 
setting out the proportion each IGS is contributing, and under which circumstances. 

Such  a  mechanism  might  create  moral  hazard  problems  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  the  operational  characteristics  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 main advantages of this option are a mitigation 
of the funding problems particularly in small national markets because of the concentration in 
those markets and a broader distribution of the losses. CEIOPS also indicates that if there are 
national differences between the scopes of coverage 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 creation of a mutual support system. Finally, CEIOPS 
also notes that it would not be fair if a national IGS that is funded ex ante supports the IGS of 

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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. 

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Table  10  Summary  of  policy  options'  evaluations  –  Level  of  IGS  centralisation  (Single 
EU-wide scheme vs. national schemes) 

Op. Objectives 

Constraints 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

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Options 

5.1  No  action 
at EU level 

5.2  An  IGS  in 
all MS 

5.3 Single EU-
wide IGS  

5.4  EU-wide 
cross-
IGS 
border  activity 
+ 
national 
schemes 

5.5  EU-wide 
IGS 
lead-
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schemes 

5.6 
regime 

28th 

5.7  IGS  in  all 
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- 

ROLE OF AN INSURANCE GUARANTEE SCHEME 

-  Option 6.1:   No action (harmonization) at EU level 

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The understanding of the Commission is that all existing IGS perform the role of a last resort 
mechanism. 

In  the  2009  informal  meetings  with  stakeholders,  FINUSE  and  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 undertaking from getting into financial difficulties or 
becoming  insolvent.  This  is  the  job  of  the  supervisory  authority  and  of  other  prudential 
regulatory tools such as solvency requirements. 

In  its  advice,  CEIOPS  (2009b)  recommends  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 providing last resort protection. 

-  Option 6.3:   Preventing failure prevention and providing last-resort protection 

IGS may also be that of intervene 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 important disadvantages. Indeed, it creates distortions 
of  competition  and  increases  moral  hazard.  It  may  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  problems  (leading  to  failure).  Consequently,  

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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. 

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- 

Options 

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 (harmonization) at EU level 

Some national IGS are based on the home country principle (for 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  existing  conditions  of  insufficient  and  uneven 
protection of policyholders in several Member States. 

EN 

65 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
-  Option 7.2:   Home country principle 

The main advantage  of  the  home  country principle (see Endnote 37) is its consistency  with 
the  supervisory  framework,  since  the  home  country  supervisor  is  responsible  for  prudential 
regulation, including solvency requirements, and for starting the winding-up process. This is 
of particular importance if the IGS serves to facilitate the transfer of portfolio. Moreover, the 
home  country  principle  is  the  principle  followed  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  closely  linked  with  rules  regarding  insolvency  and 
liquidation, which are under the responsibility of the home Member State. Funding needs are 
as assessed under option 5.2. 

The  Oxera  report  states  that  the  main  advantages  of  the  home  country  principle  are: 
correspondence with the current supervisory structure, 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: the possible uneven protection 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  that  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 preference 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 

66 

   EN 

 
 
 
 
 
 
 
 
 
The main advantage of a host country principle (see Endnote 37) is that it ensures that there is 
no  uneven  policyholder  protection  in  all  Member  State,  thus  preventing  any  possible 
distortions of the level playing field between insurers competing in the same country. 

Adopting  a  host  state  principle  nonetheless  has  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 difficult in practice: the authorities that operate 
the  scheme  would  not  be  the  ones  that  conduct  and  supervise  the  winding-up  proceedings, 
and this is likely to cause difficulties.  

If one opts for a national IGS in each Member State based on the host country principle, the 
funding  needs  are  as  shown  in  Table  12.  Funding  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  State  according  to  the  host  country  principle 
instead of the home country principle is estimated 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 needs is in NO (14.78%) as the Norwegian insurance market is 
covered  for  some  17%  by  branches  of  insurance  undertakings  based  in  other  EU-EEA 
countries.  The  biggest  decrease  in  funding  needs  is  in  EE  (-30.00%)  as  some  33%  of  the 
activity  of  Estonian  insurance  undertakings  takes  place  via  branches  in  other  EU  Member 
States. 

EN 

67 

   EN 

 
 
 
 
 
 
 
The  picture  changes  somewhat  if  IGS  protection  is  limited  to  cover  life  policies.  While  for 
most  Member  States  the  variation  in  the  funding  needs  is  relatively  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%) and CZ (13.31%) as in these Member States 
the  market  is  covered  to  a  large  extent  by  branches  of  insurances  established  in  other  EU-
EEA countries. The most important decreases 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  needs  is  relatively  modest,  the  change  becomes 
important  for  a  few  Member  States.  In  particular,  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 Member States and a level playing field between 
insurers competing in the same Member State. The main disadvantages are: possible double 
payments  of  insurers  with  cross-border  business  (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  level,  however,  it  does  not  provide  substantial 
additional  benefits  compared  to  the  home  country  principle  (in  the  case  of  a  sufficient 
harmonisation of the IGS design features). The benefits of this regime are far outweighted by 
the drawbacks/complexity added to the system. 

-  Option 7.5:   Home country principle with lead supervisor 

EN 

68 

   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. The disadvantages identified in the Oxera report 
are: uneven consumer protection in Member States for insurance undertakings authorised and 
supervised  in  that  Member  State,  unlevel  playing  field  between  insurers  competing  in  the 
same  Member  State,  incentive  for  moral  hazard  behaviour  of  public  authorities  in  case  of 
preponderant cross-border (compared to domestic) 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 the arguments supporting this conclusion. 

EN 

69 

   EN 

 
 
 
Table 13 Summary of policy options' evaluations – Geographic Scope 

Op. Objectives 

Constraints 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

Options 

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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 

++ 

++ 

+++ 

++ 

-- 

++ 

+ 

- 

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-- 

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+++ 

--- 

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-- 

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+ 

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-- 

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++ 

- 

- 

- 

POLICIES COVERED  

-  Option 8.1:   No action (harmonization) 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 life policies, while ES, FR LV, MT, RO and UK 
protect both life and non-life policies. Finally, DK, IE and NO only protect non-life policies. 

Preserving the status quo means that uneven protection of policyholders within and between 
Member States is maintained. 

-  Option 8.2: 

Protection of life policies only 

EN 

70 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
The collapse of a life insurer can often cause very severe financial hardship for large groups 
of consumers. It is therefore advisable to include 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  majority  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 average loss to policyholders is generally smaller 
in  the  case  of  a  non-life  insurer  going  into  default,  there  are  instances  where  losses  to 
individual  policyholders  and  third  party  claimants  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  different  ways  and  under  different  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 and 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 life and selected non-life policies 

The  Oxera  report  argues  that  there  may  be  reasons  to  exclude  particular  classes  of  non-life 
insurance from protection and to include only liability insurance, compulsory insurance and 

EN 

71 

   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 protection as they cover commercial risks only. 

In the 2009 informal stakeholders meetings, the EFRP explained that if the IGS is a genuinely 
last resort protection measure, life and a selection of non-life 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 

8.1  No  action 
at EU level 

8.2 
policies only 

Life 

8.3  Non-life 
policies only 

8.4  Life  and 
non-life 
policies 

8.5  Life  and 
selected  non-
life policies 

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+++ 

--- 

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+++ 

-- 

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--- 

-- 

-- 

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ELIGIBLE CLAIMANTS 

-  Option 9.1:   No action (harmonization) at EU level 

EN 

72 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
Existing  IGS  restrict  the  eligibility  of  claimants  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  States  (ES,  FR,  RO)  provide  coverage  to  all 
policyholders.  Some  other  Member  States  (IE,  LV,  MT)  only  protect  natural  persons,  and 
three Member States (DK, NO, UK) protect both natural persons and SME. 

Preserving  this  situation  is  not  advisable  as  it  would  maintain  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 main objective of IGS, i.e. the protection of retail customers.  

-  Option 9.3:   Natural and selected legal persons (including SME's) 

In order to reduce funding needs, eligibility could be restricted 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  policyholders  can  also  diversify  their  risks  by 
purchasing policies with various insurance companies 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  claimants  should  be  consumers  and  possibly  small 
businesses. 

EN 

73 

   EN 

 
 
 
 
 
 
 
 
 
 
In  the  2009  informal  stakeholders  meetings,  FINUSE  expressed  a  view  in  favour  of 
protecting  natural  persons  and  SME's.  FINUSE  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 legal persons that resemble retail customers. 

In  its  advice,  CEIOPS  (2009b)  recommends  that  eligible  claimants  should  be  at  least  all 
natural persons, and that Member States should be allowed to extend 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 objective of IGS is consumer protection and not 
company  protection.  EFDI  suggested  that  Member  States  should  be  given  the  possibility  to 
introduce additional cover for SME's at national level. 

Table 15 presents a summary of the reasons why the Commission believes that eligibility of 
natural  and  selected  legal  persons  (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 

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9.1  No  action 
at EU level 

Natural 
legal 

9.2 
and 
persons  

++ 

++ 

-- 

s
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74 

EN 

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   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Natural 
9.3 
and 
selected 
legal  persons 
(incl. SME) 

Natural 

9.4 
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 element 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  schemes  in  terms  of  when  contributions  are 
collected.  These  differences  have  an  impact  on  the  protection  of  policyholders  in  Member 
States. 

In the 2009 informal stakeholders 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 the timing of funding was important. 

-  Option 10.2:   Ex-post funding 

In  an  ex-post  funded  scheme,  resources  remain  with  the  contributing  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  lower  cost  for  insurance  undertakings,  the  possibility  that 
collected  funds  are  tailored  on  actual  default  losses.  The  main  disadvantages  are:  the 
difficulty  to  ensure  a  prompt  pay-out  to  policyholders,  the  fact  that  failed  insurance 

EN 

75 

   EN 

 
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
undertakings do not contribute to the loss caused by their 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  anticipation  of  possible  future  failures,  with 
resources transferred to, and managed 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 the pro-cyclicality associated 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  advantages  of  ex-ante  funding  are:  that  funds  are  in 
principle more quickly available to the IGS, that failed insurance undertakings contribute to 
the loss of their failure, that funds are collected in a possibly less pro-cyclical way. The main 
disadvantages are: the higher set-up, administrative and operational costs and  the possibility 
that collected funds are insufficient (if not complemented by ex-post funding). 

In its advice, CEIOPS (2009b) recommends that IGS should be required to make payments as 
soon as practicable after claims have been assessed. However CEIOPS does not express itself 
clearly in favour of ex-ante or ex-post funding. 

In  the  2009  informal  stakeholders  meeting,  CEA  stated  that  the  insurance  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 imposing too  high ex-ante costs / mobilization of 
funds on industry and consumers. 

In the 2009 informal stakeholders meeting, CEIOPS favoured a combination of ex-ante and 
ex-post funding. 

EN 

76 

   EN 

 
 
 
 
 
 
 
 
 
In  conclusion,  the  Commission  believes  that  an  appropriate  combination  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. 

s
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e
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p
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S

d
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R

+ 

+ 

- 

- 

++ 

++ 

--- 

++ 

++ 

-- 

d
r
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d
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I

-- 

- 

- 

s
t
s
o
c

- 

-- 

-- 

Options 

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 

c
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/

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A

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-
t
s
o
C

- 

- 

-- 

-- 

+ 

-- 

-- 

++ 

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, IGS compensate policyholders or beneficiaries for 
their losses if an insurance 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 transfer (DE, FR, ES, UK). In non-life insurance 

EN 

77 

   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 maintaining a situation of uneven levels of policyholder protection 
in Member States. 

In its advice, CEIOPS (2009b) recommends to leave flexibility to Member States regarding 
the question whether IGS should only deal with compensation of claims or portfolio transfer. 

-  Option 11.2:  Portfolio Transfer 

From  a  policyholder  protection  point  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 protection point of view and in order to limit 
wider  market  impacts,  continuity  may  be  preferable,  particularly  for  life  insurance 
policyholders.  In  the  case  of  non-life  insurance,  the  arguments  for  continuity  may  be  less 
relevant, since contracts are generally short-term. Nevertheless there may be instances where 
there could be benefits for an IGS to secure continuity of non-life policies e.g. where policies 
are ‘non-standard’ or the failed insurer has a significant share of the market and it is difficult 
for policyholders to find alternative cover quickly at the same price if supply is restricted. 

-  Option 11.3:  Compensation of Claims 

All the funding needs presented above for the various options of the IGS design features are 
based on the assumption of portfolio transfer.  If IGS provide compensation (only) both for 
life  and  non-life  insurance,  the  funding  needs  for  the  whole  EU  under  option  5.2  are  those 
presented in Table 17. 

EN 

78 

   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 compensation (only) for non-life insurance 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 insurance 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 

79 

   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' evaluations – Nature of scheme intervention 

Op. Objectives 

Constraints 

Effectiveness 

Costs 

Incentives 

Ease Imp. 

Options 

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u
o
s
e
R

11.1 No action 
at EU level 

11.2  Portfolio 
Transfer 

11.3 
Compensation 
of claims 

++ 

++ 

-- 

+ 

+ 

- 

s
t
s
o
c

- 

- 

d
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- 

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+++ 

++ 

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 

80 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
Figure 0.1 - Insured losses from natural catastrophes and man-made disasters throughout the world 

Source: European Central Bank (European Central Bank 2009) 

EN 

81 

   EN 

 
 
 
 
Figure 0.2 - Stock prices in the Euro area 

Source: European Central Bank (European Central Bank 2009) 

EN 

82 

   EN 

 
 
 
Figure 0.3 - Investment-grade corporate bond spreads in the Euro area 

Source: European Central Bank (European Central Bank 2009) 

EN 

83 

   EN 

 
 
 
Figure 0.4 - Write-downs and losses at selected insurance companies (since beginning 2007, total of USD 
261.2 billion) 

Source: Schich (2009) 

EN 

84 

   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 defaults per year and average time between defaults. 

f
o

r
e
b
m
u
n

e
g
a
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v
A

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d

)

%

1
.
0
=
D
P
(

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)

%

5
.
0
=
D
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(

r
a
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y

r
e
p

AT 

BE 

BG 

0.08 

0.16 

0.04 

0.39 

0.78 

0.20 

85 

s
t
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a
f
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d

n
e
e
w
t
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b

s
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Y

)

%

1
.
0
=
D
P
(

13.0 

6.4 

25.0 

s
t
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u
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n
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w
t
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b

s
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a
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Y

)

%

5
.
0
=
D
P
(

2.6 

1.3 

5.0 

   EN 

EN 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

SE 

SK 

SL 

UK 

EU 

27.8 

19.2 

2.0 

5.2 

52.6 

3.4 

28.6 

2.6 

12.5 

20.8 

2.9 

83.3 

4.1 

15.9 

35.7 

2.8 

45.5 

23.3 

3.3 

7.5 

12.3 

12.2 

23.8 

4.9 

28.6 

52.6 

2.3 

0.24 

5.6 

3.8 

0.4 

1.0 

10.5 

0.7 

5.7 

0.5 

2.5 

4.2 

0.6 

16.7 

0.8 

3.2 

7.1 

0.6 

9.1 

4.7 

0.7 

1.5 

2.5 

2.4 

4.8 

1.0 

5.7 

10.5 

0.5 

0.05 

0.04 

0.05 

0.50 

0.19 

0.02 

0.29 

0.04 

0.39 

0.08 

0.05 

0.35 

0.01 

0.24 

0.06 

0.03 

0.36 

0.02 

0.04 

0.30 

0.13 

0.08 

0.08 

0.04 

0.21 

0.04 

0.02 

0.43 

0.18 

0.26 

2.52 

0.97 

0.10 

1.46 

0.18 

1.94 

0.40 

0.24 

1.74 

0.06 

1.22 

0.32 

0.14 

1.78 

0.11 

0.22 

1.50 

0.67 

0.41 

0.41 

0.21 

1.03 

0.18 

0.10 

2.14 

4.15 

20.74 

86 

   EN 

EN 

 
EEA 

4.36 

21.79 

0.23 

0.05 

EU avg 

EU-EEA avg 

0.29 

0.28 

1.46 

1.42 

3.4 

3.5 

0.7 

0.7 

Note:  based  on  average  probabilities  of  default  and  ignoring  correlation.  EU  and  EEA 
averages are weighted by number of insurers in each country in 2007. 

Source: CEIOPS data, own elaboration 

EN 

87 

   EN 

 
Table 0.22: Losses of historical selected defaults. 

e
r
u
l
i
a
f

t
s
e
g
g
i
B

t
l
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a
f
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d
f
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a
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Y

r
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S

Metropol 

2003  Composite 

Europavie 

2000 

Life 

)
€
m

(

s
s
o
l

l
a
t
o
T

2.9 

0.4 

s
s
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a
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T

)
s

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f
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%

s
a
(

/

s
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d
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c
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f
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b
m
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N

s

m
i
a
l
c

0.2% 

8 427 (3 573 paid)

0.0% 

N.A.

Mannheimer 

2003 

Life 

100.0 

0.1% 

344 000

ICI 

1985 

Non life 

315.0 

8.1% 

Reunión 

1992 

Non life 

35.4 

0.1% 

International Claims 
Services SA 

1999 

Non life 

10.2 

0.0% 

N.A.

N.A.

260

Independent Insurance 

2001 

Non life 

738.0 

0.8% 

190 000

Chester Street 

2001 

Non life 

146.5 

0.2% 

Plus Forsiking A/S 

2002 

Non life 

12.4 

0.2% 

N.A.

N.A.

y
r
t
n
u
o
C

RO 

FR 

DE 

IE 

ES 

FR 

UK 

UK 

DK 

Source: Oxera report(Oxera 2007) and CEIOPS updates (CEIOPS 2009b; CEIOPS 2009a) 

EN 

88 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 0.23: Estimated average and largest losses under different default probability scenarios (m €). 

s
s
o
L

)

%
5
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,

%
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%
5
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Non-Life 

s
s
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%
5
1
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%
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8.73 

43.64 

2'117.93

25.22 

126.12 

5'491.50

0.03 

0.41 

0.98 

0.15 

2.04 

4.91 

7.44

107.48

312.04

1.65 

2.89 

0.03 

0.05 

0.28 

8.24 

379.80

14.43 

479.11

0.16 

0.26 

1.41 

4.28

8.21

66.06

114.78 

573.89 

10'662.79

37.30 

186.48 

3'335.71

17.71 

0.08 

88.57 

2'707.70

0.38 

36.98

24.74 

123.70 

2'418.82

5.56 

27.82 

1'705.75

1.51 

0.02 

7.51 

1.18 

7.56 

0.08 

273.26

5.49

37.56 

1'372.05

5.92 

326.19

178.44 

892.22 

29'584.48

25.21 

126.05 

3'505.44

1.14 

0.79 

5.72 

3.96 

207.78

120.90

22.12 

110.58 

4'099.66

0.02 

0.11 

9.86

58.37 

291.84 

15'157.57

N.A. 

0.08 

N.A. 

0.39 

N.A.

18.94

11.49 

57.43 

1'627.13

0.01 

0.19 

39.95 

11.92 

0.06 

0.97 

5.05

38.78

199.74 

8'880.76

59.60 

3'947.70

0.25 

0.05 

2.01 

0.10 

4.89 

1.27 

0.26 

37.12

10.86

10.07 

436.71

0.49 

29.88

24.47 

1'086.66

N.A. 

N.A. 

N.A.

4.88

130.87

5.69

14.26

0.12 

2.67 

0.14 

0.44 

61.97 

2'499.79

5.85 

260.47

0.02 

0.53 

0.03 

0.09 

12.39 

1.17 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

EN 

89 

   EN 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PL 

PT 

RO 

SE 

SI 

SK 

UK 

EU 

2.56 

6.04 

0.12 

12.79 

981.34

30.22 

1'303.30

0.59 

32.87

28.73 

143.63 

4'735.41

0.31 

0.34 

1.53 

1.72 

115.49

90.30

0.52 

0.75 

0.10 

8.05 

0.22 

0.07 

2.62 

3.74 

0.48 

243.93

244.26

26.30

40.27 

2'018.13

1.09 

0.37 

84.02

29.23

305.10 

1'525.50 

27'864.42

15.53 

77.67 

2'533.59

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 assuming a Loss Given Default of 15% 

Source: Methodological report, Table A4.1 and own elaboration. 

EN 

90 

   EN 

 
 
 
 
 
Table 0.24: Updated calculation of average and stressed Probabilities 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) 

AAA 

AA+ 

AA 

AA- 

A+ 

A 

A- 

BBB+ 

BBB 

BBB- 

BB+ 

BB 

0 

0 

0.43% 

0.40% 

0.31% 

0.21% 

0.58% 

0.18% 

0.59% 

0.71% 

1.14% 

0.63% 

2005  2006  2007  2008  2009 

0 

0 

2 

5 

6 

6 

6 

0 

1 

0 

0 

0 

0 

0 

2 

7 

5 

6 

6 

1 

1 

0 

0 

0 

0 

0 

3 

7 

8 

3 

5 

1 

1 

0 

0 

0 

0 

0 

3 

6 

8 

3 

5 

1 

0 

2 

0 

0 

0 

0 

1 

5 

6 

9 

5 

0 

0 

2 

0 

0 

0 

0 

0.02% 

0.03% 

0.05% 

0.06% 

0.08% 

0.16% 

0.28% 

0.28% 

0.68% 

0.89% 

Average 

0.404% 

0.065% 

Adjusted 
average (to 
account 
for 
unrated 
companies) 

0.100% 

Note:  Average  PD  is  calculated  as  weighted  average  of  average  historical  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 weighted 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 

91 

   EN 

 
  
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
 
Table 0.25: Updated table of IGS characteristics (Part I) 

EN 

92 

   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 1mil (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  contracts  not  covered  by  a  home  scheme  need  to  be 
covered by the scheme; (f.4) unless branches of EU insurer protected to an equivalent level; 
(f.5)  mandatory  for  insurers  providing  insurance  which  is  mandatory  by  law  or  regulation; 
(f.6) required to participate but protected only if wound up under Irish law; (f.7) branches not 
protected but required to contribute for non-life risks located 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  representatives  chosen  by  industry  and  vetted  by 
supervisor. Subject to supervision of insurance supervisor. 

Sources: CEIOPS update to the Oxera report (CEIOPS 2009b; CEIOPS 2009a) 

EN 

93 

   EN 

 
 
 
 
Table 0.27: Estimated funds available to existing IGS (m €). 

Estimated 
funds 
available 

0,70 

640,00 

Sector 

Life

Life

40,30 

Non life

1 331,00  Life +Non life

569//250  Life//Non life

26,48 

Non life

0.8//2.8  Life//Non life

2.33//2.33  Life//Non life

16,04 

Non life

39,03 

Life

17.10//84.50  Life//Non life

BG* 

DE 

DK 

ES 

FR 

IE* 

LV 

MT 

NO* 

PL* 

RO 

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  schemes  with  ex-post  payment  are  estimated 
(numbers  in  italics)  based  on  average  fund  size  of  ex-ante  schemes  with  respect  to  Gross 
Premium Written 

Source: Oxera Report (Oxera 2007), CEIOPS update (CEIOPS 2009b; CEIOPS 2009a), own 
elaboration 

EN 

94 

   EN 

 
 
 
 
Table 0.28: Estimated funding needs as a share 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 

BE 

BG 

CY 

CZ  

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

0.32% 

0.98% 

0.42% 

1.28% 

0.08% 

0.21% 

0.34% 

1.08% 

0.18% 

0.51% 

0.52% 

1.33% 

0.56% 

1.42% 

0.10% 

0.47% 

0.37% 

0.95% 

4.74%

6.16%

0.88%

5.46%

2.27%

5.21%

5.54%

3.68%

3.80%

0.04% 

0.17% 

0.06% 

0.22% 

0.01% 

0.04% 

0.05% 

0.18% 

0.03% 

0.09% 

0.08% 

0.25% 

0.09% 

0.26% 

0.01% 

0.06% 

0.06% 

0.18% 

0.45% 

1.67% 

10.00%

0.05% 

0.26% 

0.51% 

1.38% 

0.19% 

0.51% 

0.17% 

0.41% 

0.28% 

0.74% 

0.18% 

0.64% 

0.35% 

1.02% 

0.00% 

0.00% 

0.13% 

0.38% 

0.58% 

1.37% 

0.07% 

0.23% 

0.24% 

0.80% 

0.30% 

0.85% 

0.32% 

1.24% 

0.12% 

0.44% 

0.23% 

0.73% 

0.11% 

0.27% 

5.88%

2.20%

1.57%

3.11%

3.70%

4.74%

0.00%

1.67%

4.92%

1.08%

4.28%

3.78%

7.91%

2.51%

3.67%

1.01%

95 

0.07% 

0.25% 

0.03% 

0.09% 

0.03% 

0.08% 

0.04% 

0.13% 

0.02% 

0.10% 

0.05% 

0.18% 

0.00% 

0.00% 

0.02% 

0.07% 

0.09% 

0.26% 

0.01% 

0.04% 

0.03% 

0.13% 

0.04% 

0.15% 

0.04% 

0.18% 

0.01% 

0.07% 

0.03% 

0.12% 

0.02% 

0.05% 

1.18%

1.54%

0.22%

1.36%

0.57%

1.32%

1.41%

0.85%

0.96%

2.43%

1.49%

0.55%

0.40%

0.79%

0.90%

1.19%

0.00%

0.42%

1.25%

0.27%

1.06%

0.95%

1.90%

0.61%

0.91%

0.26%

   EN 

EN 

 
  
SE 

SI 

SK  

UK 

EU 

0.74% 

2.21% 

10.51%

0.10% 

0.38% 

0.14% 

0.55% 

0.14% 

0.45% 

0.43% 

1.14% 

3.47%

2.41%

4.62%

0.02% 

0.08% 

0.02% 

0.07% 

0.07% 

0.21% 

2.63%

0.83%

0.60%

1.17%

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 default and levels of protection. 

Source: Methodological report, Table 3.2 - CEIOPS (CEIOPS 2008), CEA (CEA 2009), own 
elaboration. 

EN 

96 

   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 

BE 

BG 

CY 

CZ  

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

.. 

.. 

.. 

.. 

.. 

.. 

.. 

.. 

.. 

3 

.. 

.. 

.. 

.. 

.. 

.. 

.. 

.. 

.. 

2 

2 

.. 

4 

.. 

.. 

3 

.. 

4 

.. 

.. 

.. 

.. 

.. 

.. 

4 

3 

4 

4 

.. 

.. 

.. 

4 

.. 

.. 

3 

2 

2 

.. 

3 

.. 

4 

3 

2 

3 

.. 

3 

3 

4 

3 

2 

4 

3 

4 

4 

2 

2 

.. 

3 

.. 

.. 

3 

2 

2 

2 

3 

4 

3 

2 

97 

EN 

.. 

4 

.. 

.. 

.. 

4 

3 

.. 

4 

3 

4 

4 

.. 

.. 

.. 

4 

3 

.. 

3 

2 

2 

.. 

3 

4 

4 

2 

2 

3 

.. 

.. 

3 

4 

3 

.. 

4 

3 

4 

4 

3 

2 

.. 

4 

3 

.. 

3 

2 

2 

2 

3 

4 

3 

2 

1 

2 

1 

1 

1 

2 

2 

1 

2 

2 

2 

2 

2 

2 

1 

2 

2 

2 

3 

1 

2 

2 

1 

1 

2 

2 

   EN 

 
  
SE 

SI 

SK  

UK 

4 

.. 

.. 

4 

4 

.. 

4 

4 

3 

3 

3 

4 

4 

.. 

4 

4 

3 

3 

3 

4 

3 

1 

1 

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 

98 

   EN 

 
 
Table 0.30: Ranking group, in terms of market share, of largest company 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 

BE 

BG 

CY 

CZ  

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

.. 

.. 

.. 

.. 

.. 

4 

.. 

.. 

.. 

4 

4 

.. 

.. 

3 

.. 

4 

.. 

.. 

.. 

3 

4 

.. 

.. 

.. 

.. 

.. 

.. 

4 

.. 

.. 

3 

4 

3 

.. 

4 

3 

4 

.. 

.. 

3 

.. 

4 

3 

.. 

3 

3 

4 

2 

3 

.. 

4 

3 

2 

4 

3 

.. 

3 

4 

3 

2 

4 

2 

4 

4 

3 

3 

.. 

3 

3 

3 

3 

3 

3 

2 

3 

3 

4 

3 

99 

EN 

.. 

4 

.. 

.. 

3 

4 

3 

.. 

4 

3 

4 

.. 

3 

3 

.. 

4 

3 

.. 

3 

3 

4 

2 

3 

4 

4 

3 

2 

4 

3 

.. 

3 

4 

3 

2 

4 

3 

4 

4 

3 

3 

.. 

3 

3 

3 

3 

3 

3 

2 

3 

4 

4 

3 

1 

2 

3 

2 

2 

2 

2 

1 

1 

2 

1 

2 

2 

2 

..  

1 

2 

2 

2 

2 

2 

2 

2 

1 

2 

2 

   EN 

 
  
SE 

SI 

SK  

UK 

4 

.. 

.. 

.. 

4 

3 

4 

4 

3 

2 

3 

4 

4 

3 

4 

4 

3 

3 

3 

4 

2 

1 

1 

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 

100 

   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%

0.0153% 

0.0468% 

0.2276% 

0.0021% 

0.0080% 

0.0568%

0.0354% 

0.1068% 

0.5127% 

0.0048% 

0.0183% 

0.1282%

0.0010% 

0.0026% 

0.0108% 

0.0001% 

0.0005% 

0.0027%

0.0114% 

0.0360% 

0.1817% 

0.0015% 

0.0060% 

0.0452%

0.0048% 

0.0134% 

0.0595% 

0.0007% 

0.0024% 

0.0150%

0.0310% 

0.0791% 

0.3105% 

0.0048% 

0.0147% 

0.0788%

0.0449% 

0.1143% 

0.4467% 

0.0070% 

0.0213% 

0.1134%

0.0012% 

0.0058% 

0.0455% 

0.0001% 

0.0008% 

0.0105%

0.0150% 

0.0386% 

0.1538% 

0.0023% 

0.0071% 

0.0390%

0.0119% 

0.0436% 

0.2620% 

0.0014% 

0.0067% 

0.0636%

0.0497% 

0.1356% 

0.5768% 

0.0073% 

0.0244% 

0.1457%

0.0029% 

0.0080% 

0.0343% 

0.0004% 

0.0014% 

0.0087%

0.0045% 

0.0111% 

0.0423% 

0.0007% 

0.0021% 

0.0108%

0.0602% 

0.1621% 

0.6787% 

0.0089% 

0.0294% 

0.1717%

0.0027% 

0.0096% 

0.0554% 

0.0003% 

0.0015% 

0.0135%

0.0176% 

0.0517% 

0.2404% 

0.0025% 

0.0090% 

0.0603%

N.A. 

N.A. 

N.A. 

N.A. 

N.A. 

N.A.

0.0015% 

0.0043% 

0.0190% 

0.0002% 

0.0008% 

0.0048%

0.1707% 

0.4057% 

1.4575% 

0.0276% 

0.0777% 

0.3711%

0.0008% 

0.0024% 

0.0115% 

0.0001% 

0.0004% 

0.0029%

0.0202% 

0.0669% 

0.3559% 

0.0026% 

0.0108% 

0.0879%

0.0368% 

0.1045% 

0.4664% 

0.0053% 

0.0185% 

0.1174%

0.0138% 

0.0533% 

0.3401% 

0.0015% 

0.0079% 

0.0818%

0.0034% 

0.0121% 

0.0698% 

0.0004% 

0.0019% 

0.0171%

0.0166% 

0.0520% 

0.2603% 

0.0022% 

0.0087% 

0.0648%

0.0009% 

0.0022% 

0.0085% 

0.0001% 

0.0004% 

0.0022%

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

EN 

101 

   EN 

 
  
SE 

SI 

SK 

UK 

EU 

0.0452% 

0.1355% 

0.6448% 

0.0062% 

0.0233% 

0.1614%

0.0051% 

0.0197% 

0.1250% 

0.0006% 

0.0029% 

0.0301%

0.0029% 

0.0096% 

0.0509% 

0.0004% 

0.0016% 

0.0126%

0.0744% 

0.1954% 

0.7948% 

0.0112% 

0.0358% 

0.2014%

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, Table 3.2; Eurostat; own elaboration 

3.  estimates of Coverage and protection of cross border flows 

Based on the approximate estimation of bilateral trade flows presented 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 claimants 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 Default to imported and exported flows of premiums. 

EN 

102 

   EN 

 
 
Table 0.32: Estimated shares of domestic and imported premiums not covered, at least partially, by any 
IGS. 

Life 

c
i
t
s
e
m
o
d
f
o
e
r
a
h
S

y
t
i
v
i
t
c
a

+
y
t
i
v
i
t
c
a

c
i
t
s
e
m
o
D

d
e
t
r
o
p
m

i

d
e
t
a
m

i
t
s
e

Non Life 

Total Insurance 

f
o

e
r
a
h
s

d
e
t
a
m

i
t
s
E

t
r
o
p
m

i

l
a
t
o
t

+
y
t
i
v
i
t
c
a

c
i
t
s
e
m
o
D

d
e
t
r
o
p
m

i

d
e
t
a
m

i
t
s
e

c
i
t
s
e
m
o
d
f
o
e
r
a
h
S

y
t
i
v
i
t
c
a

f
o

e
r
a
h
s

d
e
t
a
m

i
t
s
E

t
r
o
p
m

i

l
a
t
o
t

+
y
t
i
v
i
t
c
a

c
i
t
s
e
m
o
D

d
e
t
r
o
p
m

i

d
e
t
a
m

i
t
s
e

c
i
t
s
e
m
o
d
f
o
e
r
a
h
S

y
t
i
v
i
t
c
a

f
o

e
r
a
h
s

d
e
t
a
m

i
t
s
E

t
r
o
p
m

i

l
a
t
o
t

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

88%

100% 

100% 

98%

92% 

100% 

22%

98% 

100% 

71%

4% 

0% 

99%

99% 

100% 

45%

66% 

66% 

78%

100% 

100% 

95%

96% 

100% 

33%

98% 

100% 

78%

99% 

100% 

93%

98% 

100% 

36%

99% 

100% 

87%

5% 

0% 

98%

98% 

100% 

27%

49% 

48% 

74%

100% 

100% 

99%

1% 

0% 

47%

76% 

75% 

94%

100% 

100% 

99%

95% 

100% 

32%

97% 

100% 

50%

4% 

0% 

99%

1% 

0% 

45%

2% 

0% 

88%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

89%

4% 

0% 

99%

1% 

0% 

49%

3% 

0% 

95%

100% 

100% 

98%

98% 

100% 

35%

99% 

100% 

81%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

93%

99% 

100% 

85%

18% 

0% 

41%

94% 

97% 

75%

100% 

100% 

99%

99% 

100% 

45%

99% 

100% 

65%

100% 

100% 

94%

96% 

100% 

31%

99% 

100% 

85%

99% 

100% 

99%

45% 

100% 

45%

99% 

100% 

98%

99% 

100% 

93%

96% 

100% 

33%

98% 

100% 

83%

100% 

100% 

97%

90% 

100% 

30%

88% 

100% 

84%

0% 

0% 

0% 

0% 

0%

0%

0% 

0% 

0% 

0% 

0%

0%

0% 

0% 

0% 

0% 

0%

0%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

80%

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

EN 

103 

   EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NO 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

100% 

100% 

97%

55% 

100% 

0%

88% 

100% 

22%

4% 

0% 

99%

99% 

100% 

45%

24% 

22% 

94%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

95%

4% 

0% 

99%

1% 

0% 

45%

2% 

0% 

81%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

91%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

79%

100% 

100% 

99%

99% 

100% 

45%

100% 

100% 

93%

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  using  approximate  estimate  of  bilateral  flows  based  on 
proportionality  assumptions.  All  exports  exiting  a  country  with  a  home  principle  IGS  are 
considered  'covered'  (at  least  partially),  all  imports  entering  a  country  with  a  host  state 
principle IGS are considered 'covered' (at least partially). 

Source: Table 2.1, Annex on cross-border insurance activity in the EU-EEA, Tables 2.6-2.8; 
own elaboration. 

Table 0.33: Estimates of net losses after intervention of existing 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 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

41.56 

126.82 

616.39

118.45 

357.71 

1 717.44

0.00 

1.82 

6.06 

0.05 

5.74 

17.09 

2.41

28.98

75.76

113.31 

1 281.86 

6 899.74

61.72 

219.19 

973.91

0.19 

0.00 

0.90 

0.00 

7.11

288.01

5.63 

16.17 

0.00 

0.24 

0.87 

0.00 

0.00 

0.02 

0.00 

21.59 

61.22 

0.00 

0.96 

3.03 

0.00 

7.97 

0.12 

0.00 

153.91

429.37

0.09

7.21

19.08

1 273.98

217.20

1.64

0.00

EN 

104 

   EN 

 
 
 
 
 
FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

EU 

21.33 

78.33 

470.36

122.76 

1 749.60 

10 109.65

6.58 

4.51 

18.09 

11.23 

77.66

42.79

87.77 

281.05 

1 261.37

0.40 

1.43 

8.27

2.48 

0.00 

0.96 

0.71 

0.00 

0.05 

12.01 

114.23

0.00 

3.25 

2.11 

29.26 

0.22 

1 942.11

19.61

10.88

299.25

2.02

272.42 

800.06 

3 717.40

37.98 

138.92 

932.40

N.A. 

0.43 

N.A. 

1.22 

N.A.

5.44

N.A. 

0.06 

N.A. 

0.22 

N.A.

1.37

63.97 

152.01 

546.08

10.34 

29.11 

139.03

0.00 

0.00 

0.00 

0.00 

0.00

14.77

0.00 

0.00 

0.00 

0.00 

209.47 

594.48 

2 652.50

29.96 

105.03 

22.97 

135.12 

0.00 

0.00 

27.09 

84.78 

0.00 

0.00 

947.64

178.05

424.36

0.00

0.00 

0.00 

3.60 

0.00 

6.41 

0.00 

14.24 

0.00 

0.00

0.14

667.70

215.76

14.00

105.62

0.00

149.65 

448.61 

2 135.34

20.54 

77.07 

534.33

1.76 

1.60 

6.80 

5.27 

43.21

27.97

0.00 

1 911.02 

14 163.42

0.20 

0.20 

0.00 

1.01 

0.86 

0.00 

10.40

6.91

2 033.31

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 methodological report. IGS fund sizes as per Table 
0.27. Home principle loss distribution 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 

105 

   EN 

 
 
Table 0.34: Estimates of losses exported to other countries after intervention of existing  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 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

0.15 

6.11 

0.00 

0.39 

0.02 

1.31 

3.91 

0.06 

0.00 

0.93 

6.72 

0.00 

0.00 

0.44 

18.46 

0.00 

1.24 

0.04 

13.60 

12.95 

0.30 

0.00 

3.42 

2.16

88.63

0.00

6.26

0.19

72.66

56.27

2.32

0.00

20.53

39.72 

209.27

0.00 

0.00 

0.00

0.00

50.72 

162.18 

727.49

0.00 

3.24 

N.A. 

0.00 

0.01 

9.52 

N.A. 

0.01 

0.06

44.22

N.A.

0.03

61.57 

146.30 

525.56

0.00 

0.48 

0.00 

0.71 

0.00 

0.26 

0.00 

1.58 

0.00 

2.74 

0.00 

0.81 

0.00

8.42

0.00

17.45

0.03

4.03

106 

EN 

0.02 

0.83 

0.00 

0.05 

0.00 

0.00 

0.00 

0.01 

0.00 

0.11 

0.00 

0.00 

0.00 

0.00 

0.00 

0.45 

N.A. 

0.00 

9.95 

0.00 

0.06 

0.00 

0.08 

0.00 

0.03 

0.08 

3.16 

0.00 

0.21 

0.01 

0.00 

0.82 

0.04 

0.00 

0.52 

0.00 

0.00 

0.00 

0.54

22.16

0.00

1.56

0.05

13.51

12.83

0.54

0.00

4.98

43.62

0.00

0.00

16.99 

172.67

0.00 

1.65 

N.A. 

0.00 

0.02

11.09

N.A.

0.01

28.01 

133.80

0.00 

0.26 

0.00 

0.41 

0.00 

0.14 

0.00

2.08

0.00

4.20

0.01

1.00

   EN 

 
  
RO 

SE 

SI 

SK 

UK 

EU 

0.00 

0.00 

0.00 

0.00 

0.00 

0.00 

0.00 

0.00 

0.02 

0.00 

0.00

0.00

0.02

0.08

0.00

135.86 

410.58 

1 768.16

EU-EEA 

136.57 

413.33 

1 785.67

0.00 

0.00 

0.00 

0.00 

0.00 

11.51 

11.59 

0.00 

0.00 

0.00 

0.00 

0.00 

0.00

0.00

0.01

0.02

0.00

51.89 

420.47

52.30 

424.69

Note 1: Loss scenarios as per table 3.2 of methodological 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 proportional 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 insurance activity in the EU-EEA, Tables 2.9 and 
2.10; Methodological report,  Table 5 of Annex 5. 

EN 

107 

   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 

BE 

BG # 

CY 

CZ 

DE # 

DK # 

EE 

ES # 

FI 

FR # 

GR 

HU 

IE # 

IS 

IT 

LI 

LT 

LU 

LV # 

MT 

NL 

NO 

PL # 

PT 

1.12 

4.54 

0.02 

0.11 

1.21 

3.42 

13.89 

0.07 

0.32 

3.71 

14.85

59.99

0.32

1.41

16.09

18.02 

53.68 

231.04

1.75 

0.03 

3.69 

0.40 

5.34 

0.08 

11.28 

1.21 

23.18

0.33

48.97

5.24

17.54 

50.73 

214.70

0.45 

0.28 

4.00 

0.01 

1.38 

0.86 

11.90 

0.04 

6.00

3.72

50.57

0.16

18.99 

58.13 

251.92

0.32 

0.13 

0.63 

0.00 

0.00 

5.03 

0.00 

0.00 

1.23 

0.97 

0.41 

2.24 

0.00 

0.00 

15.38 

5.66 

0.00 

3.76 

4.19

1.76

10.62

0.00

0.00

66.79

74.34

0.00

16.30

108 

EN 

0.09 

0.37 

0.00 

0.01 

0.10 

1.52 

0.15 

0.00 

0.31 

0.03 

1.54 

0.04 

0.02 

0.53 

0.00 

1.55 

0.03 

0.01 

0.01 

0.00 

0.00 

0.42 

0.00 

0.00 

0.10 

0.42 

1.69 

0.01 

0.04 

0.46 

6.92 

0.67 

0.01 

1.40 

0.15 

7.04 

0.17 

0.11 

1.63 

0.00 

7.14 

0.12 

0.05 

0.20 

0.00 

0.00 

1.91 

0.00 

0.00 

0.47 

3.52 

14.19 

0.08 

0.33 

3.81 

55.34 

5.50 

0.08 

11.61 

1.24 

51.82 

1.42 

0.88 

11.98 

0.04 

59.64 

0.99 

0.42 

2.44 

0.00 

0.00 

15.84 

10.44 

0.00 

3.87 

   EN 

 
  
RO 

SE 

SI 

SK 

UK # 

EU 

0.08 

1.91 

0.09 

0.12 

0.00 

0.23 

5.85 

0.27 

0.36 

0.00 

1.02

25.38

1.16

1.57

0.00

81.35 

244.50 

1 052.93

EU-EEA 

81.68 

251.16 

1 131.62

0.01 

0.16 

0.01 

0.01 

0.00 

7.00 

7.02 

0.03 

0.73 

0.03 

0.04 

0.00 

0.24 

6.02 

0.27 

0.37 

0.00 

31.33 

250.93 

31.46 

262.40 

Note 1: Countries with an host IGS in place are indicated 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  exported). Losses imported calculated 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  reduced  by  the  average  amount  of 
expected losses generated by domestic companies). 

Source:  Table  0.27;  Annex  on  cross  border  insurance  activity  in  the  EU-EEA  –  Tables  2.9 
and 2.10; Methodological Report - Table 5 of Annex 5. 

4.  Preliminary analysis: comparison of potential 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 the total insurance sector in 
Greece, has seen its license to trade in the insurance sector revoked in September 2009. In the 
run-up  to  the  revocation,  EPEIA  (the  Greek  regulator)  asked  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  guarantees  which,  after  negotiations  with  the 
company, were reduced to 203.5 Eur million. A final 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 corresponds to the concept of 
expected losses used in the in case of a `portfolio transfer` intervention. 

EN 

109 

   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  based  on  Greek  market  data  and  different 
assumptions on default probabilities, are presented in Table 0.37 (taken from MR Table 3.2). 

As it can be seen, these numbers are much lower 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 Methodology 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  between  0.55%  and  2.2%  of  total  gross  premiums 
written in the Greek market had been in place, the 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, resulting 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  

4  

5  
6  

All calculations in the IGS IA Methodology Report exclude motor insurance, as it is covered by its own 
separate arrangements. 
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 exposure 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%. 
A loss of 3.96% of gross premiums written in the domestic market (excluding Motor). 
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 

110 

   EN 

 
 
 
 
 
                                                 
Total GR Gross Premiums Written (excl. motor) (2007)  MR table 2.2 

Total GR Gross Premiums Written (incl. motor) (2007) 

MT table 4.3 

Company Total Gross Premiums Written (2009) 

internal communication 

m€ 

m€ 

m€ 

B 

C 

D 

3 537 

5 141 

694 

Market share of Company 

Share of Motor in Greek market 

calculation 

calculation 

E=D/C 

13.50% 

F=(C-B)/C 

31.20% 

Share of company without motor on market without motor 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 

Estimated loss using MR model = EAD*LGD(15%) 

calculation 

m€ 

H=G*15% 

Estimation of gap by Greek supervisor (incl. motor) 

internal communication 

m€ 

I 

Estimation of gap by Greek supervisor (excl. motor) 

calculation 

m€ 

J=I*(1-F) 

1282 

192

203.5 

140.0

Implied LGD (excl. Motor) 

calculation 

K=J/G 

10.92% 

Table  0.37:  IGS  funding  needs  for  Total  Insurance  sector  under  Home  state  principle  for  different 
confidence levels and default probabilities; funding needs in absolute values and as a share of total gross 
premiums written 

PD = 0.5% 

PD=0.1% 

α (cid:198) 

75% 

90% 

99%

75% 

90% 

99% 

GR 

Funding needs (m€) 

6.58 

18.09 

77.66 

0.96 

3.25 

19.61 

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 Aspis default on the estimated loss distribution function 
for  the  total  insurance  sector  in  Greece,  under  home  state  principle  and  two  different  probabilities  of 
default 

EN 

111 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greece, total insurances (€203.5m)

100.0%

90.0%

80.0%

70.0%

60.0%

α

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

0.00%

0.00%

0.01%

0.10%

1.00%

10.00%

100.00%

Loss as share of Total Premiums

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  Insurance  and  Occupational  Pensions 
at: 
Supervisors 
http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_clean_.pdf 
2009]. 

[Accessed  October  8, 

(CEIOPS). 

Available 

CEIOPS, 2009b. CEIOPS Input to the EC work on Insurance Guarantee Schemes, Brussels: 
Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS). 
Available 
at: 
http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_clean_.pdf 
2009]. 

[Accessed  October  8, 

CEIOPS, 2009c. CEIOPS' Second Bi-annual Financial Stability Report, Brussels: Committee 
of  European  Insurance  and  Occupational  Pensions  Supervisors  (CEIOPS).  Available 
at: 
http://www.ceiops.eu/media/files/publications/reports/Fin-Stability-autumn-
2009/CEIOPS-second-bi-annual-Financial-Stability-Report-2009-20091210.pdf. 

EN 

112 

   EN 

 
 
 
 
 
 
 
 
CEIOPS,  2008.  Statistical  Annex  2007  to  the  report:  Financial  Conditions  and  Financial 
Stability 
Insurance 
the 
and Occupational Pension Fund Sector 2007-2008. Risk Update, Brussels: Committee 
of  European  Insurance  and  Occupational  Pensions  Supervisors  (CEIOPS).  Available 
at: 
http://www.ceiops.eu/media/files/publications/reports/CEIOPS-Autumn-Report-
2008.pdf [Accessed October 8, 2009]. 

European 

in 

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  problems  and  evaluation  of  options,  Brussels:  European 
Commission 
at: 
http://ec.europa.eu/internal_market/insurance/docs/guarantee_schemes_en.pdf 
[Accessed July 3, 2009]. 

Internal  Market 

Available 

Services. 

DG 

and 

Schich,  S.,  2009.  Insurance  companies  and  the  financial  crisis.  OECD  Journal:  Financial 

Market Trends, 2009(2). 

EN 

113 

   EN 

 
 
 
 
 
 
Standard 

Standard  and  Poor's,  2009.  2008  Annual  Global  Corporate  Default  Study  and  Rating 
Transitions, 
at: 
and 
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_1B7hQdXzDNNRp_d3g&sig2=Jjj7KrW2n6CVOGBKSOLq
zA. 

Available 

Poor's. 

Annex D  ANNEX ON CROSS-BORDER INSURANCE 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 

x 

x 

x 

x 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

EN 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

   EN 

x (1) 

x 

x 

x 

x 

114 

 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

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 

115 

   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 insurance services to countries listed on columns. 

White cell: 

no IGS coverage. 

Small black dot: 

exports  are  covered  by  an  IGS,  but  domestic  insurance  activity  in  the 
importing country is not covered. 

Big black dot: 

exports are not covered by an IGS, but domestic 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  (CEIOPS  2009),  own  graphical 
presentation 

EN 

116 

   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  which  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 services to countries listed on columns. 

White cell: 

no IGS coverage. 

Small black dot: 

exports  are  covered  by  an  IGS,  but  domestic  insurance  activity  in  the 
importing country is not covered. 

Big black dot: 

exports are not covered by an IGS, but domestic 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  (CEIOPS  2009),  own  graphical 
presentation 

EN 

117 

   EN 

 
 
EN 

118 

   EN 

 
 
Table 0.41: Uneven protection of policyholders within Member States 

Importing Member State 

Home IGS 

Host IGS 

Home and Host 
IGS 

No IGS 

Exporting 
Member State 

Home IGS 

Host IGS 

Home and Host IGS 

No IGS 

- 

- 

+ 

+ 

Legend: 

+ = The cross border activity is more protected than the domestic one 

- = The cross border activity is less protected than the domestic one 

Note:  Uneven  policyholders'  protection  due  to  IGS  design  features  other  than  geographic 
scope are also possible (not considered in the Table). 

Source: own elaboration. 

EN 

119 

   EN 

 
 
 
 
 
  
  
  
  
  
  
 
  
  
  
  
  
 
 
 
Table 0.42: Life insurance – Cases of uneven protection of policyholders within each Member State. 

Legend: + / - = The cross border activity is more / less protected than the domestic one 

Source:  Oxera  report  (Oxera  2007),  CEIOPS  updates  (CEIOPS  2009),  own  graphical 
presentation 

EN 

120 

   EN 

 
 
Table 0.43: Non-life insurance – Cases of uneven protection of policyholders within each Member State. 

Legend: + / - = The cross border activity is more / less protected than the domestic one 

Source:  Oxera  report  (Oxera  2007),  CEIOPS  updates  (CEIOPS  2009),  own  graphical 
presentation 

EN 

121 

   EN 

 
 
Table 0.44: Life insurance - coverage limits and deductions across Member States 

EN 

122 

   EN 

 
EN 

123 

   EN 

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

EN 

124 

   EN 

 
EN 

125 

   EN 

 
 
2.  Cross Border Activity 

2.1. Exports 

Official data by CEIOPS provides a breakdown of export flows of insurance by business line 
(life, non-life and composite companies) and by channel, in terms of gross premiums written. 
(CEIOPS 2008) 

A  breakdown  into  life  and  non-life  business  lines  is  obtained  by  attributing  premiums  of 
composite  companies  based  on  a  comparison  with  CEA  data  (CEA  2009),  which  applies  a 
life/non-life  classification  to  data  provided  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 total premiums written in all non-motor sub-lines 
of non-life insurance. 

EN 

126 

   EN 

 
 
 
 
 
Table 0.46: Exports of insurance services towards other EEA countries, 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 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

EN 

45.47 

45.47

1 052.62 

1 409.73

0.00 

12.09 

7.22 

0.00

60.09

8.44

1 060.28 

1 496.05

769.61 

63.00 

0.00 

196.00 

887.45

63.00

0.00

205.28

2 424.69 

2 809.34

0.00 

0.00 

0.00

0.00

0.35% 

3.77% 

0.00% 

2.28% 

0.22% 

0.73% 

4.20% 

0.35%

5.06%

0.00%

11.32%

0.25%

1.03%

4.85%

32.62% 

32.62%

0.00% 

4.17% 

1.30% 

0.00% 

0.00% 

4 881.60 

23 714.40

11.78% 

0.00 

281.52 

1.55 

0.94 

1.74

808.66

2 777.48

1.51

851.35 

10 984.09

7.59 

1.72 

0.00 

6.24 

1.00 

7.59

196.64

0.00

220.56

1.00

127 

0.00% 

0.36% 

0.06% 

0.29% 

7.67% 

3.38% 

0.38% 

0.00% 

0.05% 

0.01% 

0.00%

4.36%

1.51%

0.00%

0.00%

57.24%

0.78%

1.03%

99.27%

0.46%

98.89%

3.38%

43.32%

0.00%

1.81%

0.01%

   EN 

 
 
 
PT 

RO 

SE 

SI 

SK 

UK 

EU 

106.96 

108.90

0.00 

0.00 

0.00 

2.67 

0.00 

0.00

0.00

0.64

3.47

0.00

11 766.33 

42 811.76

EU-EEA 

11 774.12 

45 811.54

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009) 

0.93% 

0.00% 

0.00% 

0.00% 

0.23% 

0.00% 

1.13% 

1.11% 

0.94%

0.00%

0.00%

0.05%

0.30%

0.00%

4.10%

4.32%

EN 

128 

   EN 

 
 
 
Table 0.47: Exports of insurance services towards other EEA countries, Life business line (m€). 

(m €) 

(as a share of home activity) 

Branches only 

Branches 
FPS  

plus 

Branches only  

Branches plus FPS  

Calculations 

3 

2+3 

3/(1+5) 

(2+3)/(1+5) 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

19.56 

283.60 

0.00 

5.00 

4.48 

19.56

498.88

0.00

53.00

4.93

158.37 

399.50

73.25 

63.00 

0.00 

196.00 

314.58 

0.00 

0.00 

89.70

63.00

0.00

196.00

446.67

0.00

0.00

3 215.00 

20 462.00

0.00 

161.30 

0.00 

0.00 

0.00

463.87

2 735.17

0.00

841.16 

10 415.00

0.00 

0.24 

0.00 

0.00 

1.00 

0.00

5.47

0.00

0.00

1.00

0.27% 

1.28% 

0.00% 

1.40% 

0.22% 

0.21% 

0.56% 

0.27%

2.25%

0.00%

14.83%

0.24%

0.53%

0.68%

53.39% 

53.39%

0.00% 

7.04% 

0.23% 

0.00% 

0.00% 

8.56% 

0.00% 

0.26% 

0.00% 

0.00% 

8.33% 

0.00% 

0.11% 

0.00% 

0.00% 

0.01% 

0.00%

7.04%

0.33%

0.00%

0.00%

54.47%

0.00%

0.76%

99.26%

0.00%

103.19%

0.00%

2.55%

0.00%

0.00%

0.01%

EN 

129 

   EN 

 
 
 
PT 

RO 

SE 

SI 

SK 

UK 

EU 

92.07 

93.13

0.00 

0.00 

0.00 

0.00 

0.00 

0.00

0.00

0.41

0.00

0.00

5 428.61 

33 212.11

EU-EEA 

5 428.61 

35 947.28

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009) 

1.00% 

0.00% 

0.00% 

0.00% 

0.00% 

0.00% 

0.71% 

0.70% 

1.01%

0.00%

0.00%

0.09%

0.00%

0.00%

4.37%

4.66%

EN 

130 

   EN 

 
 
 
Table 0.48: Exports of insurance services towards other EEA countries, Life business line (m€). 

(m €) 

(as a share of home activity) 

Branches only 

Branches 
FPS  

plus 

Branches only  

Branches plus FPS  

Calculations 

3 

2+3 

3/(1+5) 

(2+3)/(1+5) 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

25.91 

769.02 

0.00 

7.09 

2.75 

901.90 

696.36 

0.00 

0.00 

0.00 

25.91

910.85

0.00

7.09

3.52

1 096.55

0.44% 

13.48% 

0.00% 

4.09% 

0.21% 

1.30% 

0.44%

15.96%

0.00%

4.09%

0.27%

1.58%

797.75

13.62% 

15.60%

0.00

0.00

9.28

2 110.11 

2 362.67

0.00 

0.00 

0.00

0.00

0.00% 

0.00% 

0.00% 

4.28% 

0.00% 

0.00% 

1 666.60 

3 252.40

43.12% 

0.00 

120.22 

1.55 

0.94 

10.19 

7.59 

1.48 

0.00 

6.24 

0.00 

1.74

344.79

42.31

1.51

569.09

7.59

191.18

0.00

220.56

0.00

0.00% 

0.71% 

3.66% 

0.77% 

1.00% 

4.43% 

0.62% 

0.00% 

0.27% 

0.00% 

0.00%

0.00%

0.48%

4.79%

0.00%

0.00%

84.15%

0.92%

2.03%

100.00%

1.24%

56.12%

4.43%

79.67%

0.00%

9.42%

0.00%

EN 

131 

   EN 

 
 
 
PT 

RO 

SE 

SI 

SK 

UK 

EU 

EU-EEA 

14.88 

15.77

0.00 

0.00 

0.00 

2.67 

0.00 

0.00

0.00

0.23

3.47

0.00

6 337.72 

6 345.50 

9 599.65

9 864.26

0.63% 

0.00% 

0.00% 

0.00% 

0.85% 

0.00% 

2.22% 

2.20% 

0.67%

0.00%

0.00%

0.03%

1.11%

0.00%

3.36%

3.42%

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009) 

EN 

132 

   EN 

 
 
Figure 0.7: Total insurance sector, exports of insurance services to other EEA countries, by branches and 
via Free Provision of Services, in absolute terms (m €). 

25000

20000

15000

10000

5000

0

E

I

U
L

I

R L
F

E
D

E
B

T
K I
D

I

O F
N

T
M

T
P

E
E

Y
C

T
A

Z
C

V
L

K
S

S

I

T
L

I

L S
P

G
B

S
E

K
U

R
G

U
H

L
N

O
R

E
S

g
v
a
U
E

g
v
a
A
E
E
U
E

-

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, exports of insurance services to other EEA countries, by branches and 
via Free Provision of Services, as a share of total home activity. 

120%

100%

80%

60%

40%

20%

0%

E

I

U
L

I

R L
F

E
D

E
B

T
K I
D

I

O F
N

T
M

T
P

E
E

Y
C

T
A

Z
C

V
L

K
S

S

I

T
L

I

L S
P

G
B

S
E

K
U

R
G

U
H

L
N

O
R

E
S

g
v
a
U
E

g
v
a
A
E
E
U
E

-

Life Branches

Life FPS Non life Branches Non life FPS

Note: Countries ordered by exports of insurance services in absolute terms 

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 

EN 

133 

   EN 

 
 
 
 
 
 
 
 
 
Figure  0.9  -  Life  insurance,  exports  of  insurance  services  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)

25,000

20,000

15,000

10,000

5,000

0

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, exports of insurance services to other 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)

3,500

3,000

2,500

2,000

1,500

1,000

500

0

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 

134 

   EN 

 
 
 
 
 
 
 
Table 0.49: Estimates of EAD corresponding to export flows 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 
channels 

all 

AT 

BE 

BG 

CY 

CZ  

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

159.4 

0.0 

159.4

48.6 

0.0 

48.6 

208.0

2 150.3 

1 632.3 

3 782.5

2 592.3 

478.1 

3 070.4 

6 852.9

0.0 

38.0 

14.4 

0.0 

0.0

364.8 

402.8

1.4 

15.9

0.0 

14.1 

4.0 

0.0 

0.0 

1.1 

0.0 

14.1 

5.1 

0.0

416.9

20.9

1 612.1 

2 454.5 

4 066.6

3 222.9 

695.5 

3 918.5 

7 985.1

655.8 

147.3 

803.1

1 371.9 

199.7 

1 571.6 

2 374.7

271.9 

0.0 

2 611.9 

0.0 

0.0 

0.0 

271.9

0.0

2 611.9

0.0 

0.0 

0.0 

0.0 

0.0 

0.0 

0.0 

271.9

0.0

38.1 

38.1 

2 650.0

2 741.0 

1 151.0 

3 892.0

7 193.9 

861.1 

8 054.9 

11 946.9

0.0 

0.0 

0.0 

0.0 

0.0

0.0

0.0 

0.0 

0.0 

0.0 

0.0 

0.0 

0.0

0.0

12 619.7 

67 698.9 

80 318.5

5 788.8 

5 508.1 

11 296.9 

91 615.5

0.0 

0.0 

0.0

0.0 

6.0 

6.0 

6.0

1 021.6 

1 916.4 

2 938.0

230.5 

430.6 

661.1 

3 599.1

0.0 

0.0 

20 841.1 

20 841.1

0.0 

0.0

4.5 

1.2 

117.2 

121.7 

20 962.8

0.7 

1.9 

1.9

6 381.6 

72 633.3 

79 014.9

35.8 

1 960.9 

1 996.7 

81 011.5

0.0 

1.5 

0.0 

0.0 

0.0 

31.6 

0.0 

0.0 

0.0

33.0

0.0

0.0

8.5 

3.6 

0.0 

0.0 

8.5 

8.5

465.6 

469.2 

502.2

0.0 

0.0 

0.0

20.8 

714.4 

735.2 

735.2

EN 

135 

   EN 

 
 
 
 
PL 

PT 

RO 

SE 

SI 

SK  

UK 

EU 

2.5 

403.1 

0.0 

0.0 

0.0 

0.0 

0.0 

0.0 

4.6 

0.0 

0.0 

1.9 

0.0 

0.0 

2.5

407.7

0.0

0.0

1.9

0.0

0.0

0.0 

31.5 

0.0 

0.0 

0.0 

4.2 

0.0 

0.0 

1.9 

0.0 

0.0 

0.4 

1.3 

0.0 

0.0 

33.4 

0.0 

0.0 

0.4 

5.5 

0.0 

2.5

441.1

0.0

0.0

2.3

5.5

0.0

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 Report, Table 2.2; CEIOPS (CEIOPS 2008) 

EN 

136 

   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 
home/GDP 

EAD 

Total 
exported/GDP 

EAD 

AT 

BE 

BG 

CY 

CZ  

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

RO 

270 782.4 

334 948.0 

25.55% 

55.95% 

0.077% 

2.046% 

28 898.6 

1.43% 

0.000% 

15 951.1 

19.19% 

2.613% 

127 330.5 

6.61% 

0.016% 

2 428 200.0 

41.75% 

0.329% 

227 024.9 

56.45% 

1.046% 

15 626.6 

3.91% 

1.740% 

1 052 730.0 

20.42% 

0.000% 

179 536.0 

25.06% 

1.476% 

1 894 646.0 

71.66% 

0.631% 

226 437.0 

101 086.5 

4.12% 

5.56% 

0.000% 

0.000% 

189 751.2 

84.78% 

48.282% 

14 932.3 

5.34% 

0.040% 

1 546 177.4 

27.28% 

0.233% 

3 363.1 

627.92% 

623.317% 

28 576.6 

2.39% 

0.007% 

37 465.8 

213.87% 

216.228% 

21 111.0 

1.30% 

0.040% 

5 458.7 

568 664.0 

34.47% 

61.36% 

9.201% 

0.000% 

283 366.4 

30.80% 

0.259% 

311 001.7 

6.61% 

0.001% 

163 051.5 

27.78% 

0.271% 

124 728.5 

1.14% 

0.000% 

EN 

137 

   EN 

 
 
SE 

SI 

SK  

UK 

EU 

331 147.2 

34 568.2 

74.05% 

10.12% 

0.000% 

0.007% 

54 897.6 

5.09% 

0.010% 

2 044 133.0 

104.57% 

0.000% 

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 insurance services via Freedom of Provision of 
Services (FPS) within the EEA and also lack information 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  necessary  to  distribute  the  exports  of  each  country  across  all 
importing countries. 

Imports via FPS are attributed proportionally to the size 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 their 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 insurance 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. Total imports in each country estimated in this 
way  slightly  differ  from  total  imports  as  reported  by  CEIOPS  but  differences  seem  to  be 
contained in the vast majority of cases. 

After  an  estimate  of  the  of  the  origins  of  flows  of  imports  is  produced,  an  estimate  of  all 
bilateral trade flows in insurance services through the EEA can be obtained by summing these 
two quantities. 

A  summary  of  total  estimated  imports  for  each  EEA  country  is  presented  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 

138 

   EN 

 
 
 
Table 0.51: Imports of insurance services from other EEA countries, Total insurance sector (m€). 

(m €) 

(as a share of home activity) 

Branches only 

Branches 
FPS  

plus 

Branches only  

Branches plus FPS  

Calculations 

6 

6+7 

6/(1+5) 

(6+7)/(1+5) 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

0.00 

609.35 

0.00 

20.64 

298.99 

369.19 

1 566.23 

7.99 

35.10 

399.55 

2 108.86 

6 003.87 

0.00 

5.05 

0.00 

0.00 

0.00 

32.44 

0.00 

593.69 

8.30 

1 216.18 

131.54 

6 115.76 

149.02 

92.35 

1 493.23 

2 112.94 

0.00 

3.86 

3 732.10 

6 431.71 

0.00 

33.85 

92.40 

23.95 

15.72 

0.00 

104.12 

43.83 

367.16 

28.27 

27.47 

1 658.58 

0.00% 

2.19% 

0.00% 

3.89% 

8.96% 

1.46% 

0.00% 

2.61% 

0.00% 

0.00% 

0.00% 

0.92% 

0.00% 

3.60% 

0.00% 

4.76% 

0.00% 

10.39% 

0.83% 

10.67% 

3.46% 

0.00% 

1 806.09 

2 239.92 

14.83% 

0.00 

302.31 

0.00% 

2.84%

5.62%

2.26%

6.61%

11.97%

4.15%

3.24%

4.30%

2.85%

2.80%

3.29%

4.21%

3.38%

5.10%

1.73%

8.20%

3.72%

13.45%

3.31%

12.60%

6.05%

2.36%

18.39%

3.50%

EN 

139 

   EN 

 
 
 
PT 

RO 

SE 

SI 

SK 

UK 

EU 

0.00 

0.00 

0.00 

0.00 

0.00 

405.78 

25.29 

630.33 

28.71 

38.97 

2 340.12 

15 512.19 

10 806.70 

44 302.31 

EU-EEA 

12 612.79 

46 650.21 

0.00% 

0.00% 

0.00% 

0.00% 

0.00% 

0.67% 

1.03% 

1.19% 

3.51%

2.42%

3.10%

2.30%

3.36%

4.41%

4.25%

4.40%

Note:  FPS  bilateral  flows  are  estimated  based  on  proportionality  assumptions,  italics 
indicates numbers containing estimations 

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 

EN 

140 

   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) 

293.29

1 011.32

4.94

25.30

0.00% 

0.52% 

0.00% 

3.64% 

4.11% 

4.56% 

4.10% 

7.08% 

358.85

13.53% 

17.64%

0.00 

115.87 

0.00 

13.00 

275.24 

925.08 

0.00 

0.00 

0.00 

0.00 

0.00 

4.98 

0.00 

3 988.40

539.75

2.27

966.03

106.59

5 555.60

108.11

83.07

1 025.00 

1 629.84

0.00 

1.40

2 967.00 

5 461.43

0.00 

28.12 

29.68 

23.00 

3.08 

0.00 

106.00 

0.00 

0.00 

103.63

36.52

293.67

25.18

11.89

1 088.85

511.20

277.68

375.28

1.23% 

0.00% 

0.00% 

0.00% 

0.00% 

0.00% 

0.20% 

0.00% 

2.73% 

0.00% 

4.83% 

0.00% 

13.79% 

0.29% 

43.40% 

1.44% 

0.00% 

1.08% 

0.00% 

0.00% 

5.31% 

4.09% 

1.92% 

4.12% 

3.83% 

4.07% 

4.32% 

4.12% 

4.34% 

4.09% 

8.89% 

3.76% 

17.90%

2.91% 

47.51%

5.56% 

4.12% 

5.20% 

4.12% 

4.08% 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

EN 

141 

   EN 

 
 
 
RO 

SE 

SI 

SK 

UK 

EU 

0.00 

0.00 

0.00 

0.00 

9.78 

17.09

534.81

18.25

34.93

12 579.31

5 419.83 

35 428.25

EU-EEA 

5 525.83 

36 044.48

0.00% 

0.00% 

0.00% 

0.00% 

0.00% 

0.71% 

0.72% 

4.11% 

4.12% 

4.12% 

4.12% 

4.12% 

4.67% 

4.67% 

Note:  FPS  bilateral  flows  are  estimated  based  on  proportionality  assumptions,  italics 
indicates numbers containing estimations 

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 

EN 

142 

   EN 

 
 
Table 0.53: Imports of insurance services from other EEA countries, Non-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 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IS 

IT 

LI 

LT 

LU 

LV 

MT 

NL 

NO 

PL 

PT 

0.00 

493.48 

0.00 

7.64 

23.75 

75.90

554.91

3.05

9.80

40.70

1 183.78 

2 015.47

0.00 

5.05 

0.00 

0.00 

0.00 

27.46 

0.00 

468.23 

0.00 

765.10 

0.00 

5.73 

62.72 

0.95 

12.64 

0.00 

53.94

6.03

250.15

24.95

560.16

40.91

9.28

483.10

2.46

970.28

0.49

7.31

73.49

3.09

15.58

569.73

0.00% 

8.65% 

0.00% 

4.41% 

1.82% 

1.70% 

0.00% 

6.72% 

0.00% 

0.00% 

0.00% 

2.66% 

0.00% 

1.30% 

9.72% 

1.31% 

5.66% 

3.12% 

2.90% 

1.05% 

8.02% 

1.30% 

1.30% 

1.14% 

3.96% 

1.30% 

12.11% 

12.50%

0.00% 

4.50% 

0.00% 

4.71% 

6.19% 

0.55% 

5.27% 

0.00% 

1.30% 

5.70% 

1.16% 

6.00% 

7.25% 

1.80% 

6.49% 

1.30% 

1 700.09 

1 728.72

72.63% 

73.85%

0.00 

0.00 

24.63

30.50

0.00% 

0.00% 

1.30% 

1.29% 

EN 

143 

   EN 

 
 
 
RO 

SE 

SI 

SK 

UK 

EU 

0.00 

0.00 

0.00 

0.00 

2 330.34 

5 386.87 

8.20

95.52

10.46

4.04

2 932.88

8 874.06

EU-EEA 

7 086.96 

10 605.73

0.00% 

0.00% 

0.00% 

0.00% 

5.04% 

1.88% 

2.46% 

1.30% 

1.30% 

1.30% 

1.29% 

6.34% 

3.10% 

3.68% 

Note:  FPS  bilateral  flows  are  estimated  based  on  proportionality  assumptions,  italics 
indicates numbers containing estimations 

Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 

EN 

144 

   EN 

 
 
 
Figure 0.11: Total insurance sector, imports of insurance services from other EEA countries, by branches 
and via Free Provision of Services, in absolute terms (m €). 

Total Imports from EEA countries (m €)

18000

16000

14000

12000

10000

8000

6000

4000

2000

0

UK IT FR DENO IE NL BE ES SE DK PTCZ  AT LU PL GR FI LI HU LT SK CY SI LV MT ROEE BG IS EU
avg

EEA
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 insurance 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)

20.00%

18.00%

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

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
avg

EEA
avg

Life branches

Life FPS Non-life branches Non-life FPS

Note: Countries ordered by imports of insurance services in absolute terms 

EN 

145 

   EN 

 
 
 
 
Source: CEIOPS (CEIOPS 2008) and CEA (CEA 2009), own elaboration 

EN 

146 

   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 

147 

   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 presented in previous sections it is possible to 
calculate  an  index  of  openness  to  trade  in  the  insurance  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 total production within any given sector. 

Here,  as  we  are  interested  in  openness  towards  EU/EEA  members,  imports  and  exports 
considered are only those to and from other EU/EEA countries. 

EN 

148 

   EN 

 
 
 
 
 
Figure 0.13: Trade openness index towards trade with other EEA members for all EEA Member States 
and overall for EU and EEA. 

120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%

Life 

Non-Life

Total Insurance

AT 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 EEA

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 Occupational Pensions Supervisors (CEIOPS). 
Available 
at: 
http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-18-
09%20_Input_to_EC_work_on_IGS-approved_clean_.pdf 
2009]. 

[Accessed  October  8, 

CEIOPS,  2008.  Statistical  Annex  2007  to  the  report:  Financial  Conditions  and  Financial 
Stability 
Insurance 
the 
and Occupational Pension Fund Sector 2007-2008. Risk Update, Brussels: Committee 
of  European  Insurance  and  Occupational  Pensions  Supervisors  (CEIOPS).  Available 
at: 
http://www.ceiops.eu/media/files/publications/reports/CEIOPS-Autumn-Report-
2008.pdf [Accessed October 8, 2009]. 

European 

in 

EN 

149 

   EN 

 
 
 
 
 
 
 
 
Council  of  Bureaux,  2009.  4th  Motor  Insurance  Directive  Home  Site.  Available  at: 

http://www.4directive.org/ [Accessed April 26, 2010]. 

Henk  Kox  &  Arjan  Lejour,  2005.  Regulatory  heterogeneity  as  obstacle  for  international 
services trade, CPB Netherlands Bureau for Economic 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  problems  and  evaluation  of  options,  Brussels:  European 
Commission 
at: 
http://ec.europa.eu/internal_market/insurance/docs/guarantee_schemes_en.pdf 
[Accessed July 3, 2009]. 

Internal  Market 

Available 

Services. 

DG 

and 

Walsh,  K.,  2006.  Trade  in  Services:  Does  Gravity  Hold?  A  Gravity  Model  Approach  to 
Estimating  Barriers  to  Services  Trade,  Dublin,  Ireland:  Institute  for  International 
Integration Studies. 

the 

terms 

third  parties  who  may 

the  setting-up  of  harmonised 

Directive  1994/19/EC  as  amended  by  Directive  2009/14/EC  on  Deposit  Guarantee  Schemes  and 

The  various  types  of  guarantee  schemes,  while  all  providing  a  certain  level  of  consumer  protection, 

In  the  context  of  this  IA  consumers  include  policyholders,  beneficiaries  and,  in  the  case  of  non-life 
"consumer"  and 
seek  compensation.  Therefore, 

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  
insurance, 
"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 
insurance  guarantee  schemes.”, 
http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf  
4  
Directive 1997/9/EC on Investor Compensation Schemes. 
5  
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  client'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  necessary  to  dispose  of  firm  level  data  which  is  not  the  available  to  the 

EN 

150 

   EN 

 
 
 
 
  
                                                 
The proceedings of the activities of the Working Group can be consulted on 

Oxera (2007), http://ec.europa.eu/internal_market/insurance/docs/guarantee_schemes_en.pdf. 

In financial mathematics and risk management, the most common quantitative measure of the risk of 

CEIOPS (2009b), http://www.ceiops.eu/media/files/publications/submissionstotheec/CEIOPS-DOC-18-

http://ec.europa.eu/internal_market/insurance/guarantee_en.htm#cons. 
http://ec.europa.eu/internal_market/insurance/docs/guarantee/summary_en.pdf. 
http://ec.europa.eu/internal_market/insurance/guarantee_en.htm#whitepaper. 
http://www.europarl.europa.eu/comparl/tempcom/equi/default_en.htm.  
Directive  2009/138/EC  of  the  European  Parliament  and  of  the  Council  of  25  November  2009  on  the 

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  
http://ec.europa.eu/internal_market/insurance/guarantee_en.htm#docs  
8  
The information presented in the Oxera report has recently been updated by CEIOPS (2009a), 
http://www.ceiops.eu/media/files/publications/submissionstotheec/annex_2.pdf 
CEIOPS  is  the  Committee  of  European  Insurance  and  Occupational  Pensions  Supervisors.  It  is 
9  
composed of high level representatives from the insurance and occupational pensions supervisory authorities of 
EU  Member  States.  The  authorities  of  EEA  countries  also  participate  in  CEIOPS.  CEIOPS'  website  is: 
http://www.ceiops.org 
10  
09%20_Input_to_EC_work_on_IGS-approved_clean_.pdf  
11  
12  
13  
14  
15  
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:335:0001:0155:EN:PDF  
16  
loss on a specific portfolio of assets is the so-called Value at Risk (VaR).  
17  
About the absence of market discipline in the insurance market, see for example Eling M., Schmit J.T. 
(2008). Also, in Yasui T. (2001) one can read: "The financial 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 information to make a wise decision is significantly high". 
18  
19  
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  undertaking.  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  insurance  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  terms  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  possibility  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’ behaviour. 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  can  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 reaction in case of exposure of 
both banks and insurances belonging to the same financial 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  undertakings.  Besides,  the  Financial  Services  Compensation 

For a definition, see for example http://en.wikipedia.org/wiki/Risk_aversion. 
For an in-depth complementary analysis of the risks faced by insurance undertakings, please see sub-

EN 

151 

   EN 

 
                                                                                                                                                        
On the methodology used to estimate the EAD, see in the Methodological report (MR - Annex D to this 

Both calculations are under the assumption of a 15% Loss Given Default (LGD) rate estimate. For an 

Once  Solvency  II  will  enter  into  force  in  2012,  it  is  expected  to  maintain  the  PD  of  EU  insurance 

In a skewed distribution such as the one of losses incurred by insurers, the average (expected value) is 

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  
undertakings to 0.5% or less. 
24  
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 other cases of default of European insurers, see sub-section 
4.5 of the Oxera report. 
27  
explanation of the reasons supporting the choice of LGD=15%, see in the MR sub-section A3.8. 
28  
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 model 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 exceptional consequences of the recent default of the Aspis 
Pronia group in Greece are also compatible with the estimated loss distributions for Greece. They correspond in 
fact to the loss estimated with a PD = 0.5% at a confidence level slightly above 99.5% (see Error! Reference 
source not found.). 
31  
If  one  also  considers  the  diversification  effect  produced  by  the  less  granular  nature  of  the  entire  EU 
market  compared  to  national  Member  State  markets,  losses  can  be  considered  to  be  lower  of  some  20% 
compared  to  those  indicated  (see  sub-section  4.5  of  the  MR).  It  should  also  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 sector (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  
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  Directive  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 their already compulsory guarantee schemes 
for motor insurance. In conclusion, as IGS are today already 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 general 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  mean  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 

Finally, six countries have (only or also) special schemes that cover very specific classes of non-life 

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Amounts for life and non-life are estimated proportionally to losses gross of IGS protection due to the 

preferred to react setting up an IGS instead of immediately 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 cases of a home state principle based IGS 
and  of  a  host  principle  based  IGS  by  the  IGS  of  the  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 set 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 insurance 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 State indicate the losses that can be exported from insurers authorized 
in  that  Member  State  and  that  default.  Estimated  losses  are  to  be  considered  as  fully  taking  into  account  the 
effects of the existence of minimum solvency 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  
difficulty to split IGS available resources when current IGS cover both 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 resources when current IGS cover 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  injuring  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 that: "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 effect, 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,  evidence  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. 

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The problem  of  insurers  causing  a downward  spiral  in financial  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  specified  triggering  event  takes  place  rather  than  on 
demand,  and  because  insurance  undertakings'  assets  are  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  certain  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. 

For more details on the life and health guarantee system in the USA, see also http://www.nolhga.com/; 

For more information see Yasui T. (2001). 
See OECD (1999). 
See sub-section 3.2.2 for the various combinations of geographic scope (home and host state) that can 

In  Yasui  T.  (2001)  one  can  read:  "A  run  could  put  …  insurers  in  a  serious  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 because there are other factors, such as - for example - taxation, that certainly also have 
a very important impact on the price and demand for insurance services. 
54  
and for more details on the non-life guarantee system in the USA, see also http://www.ncigf.org/ 
55  
56  
57  
produce a lack of policyholder protection in Member States. 
58  
This  statement  is  true  for  society.  It  is  however  not  necessarily  true  for  single  categories  of 
stakeholders, such as policyholders, taxpayers, 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 (at the level of the entire society) 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 establishing 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  
61  
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 requirements in place (plus excess capital, if any). The relevant 
concept of losses for IGS is therefore 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 related to IGS contributions. 
66  
On the concept of percentile, see also sub-section 2.2.3. 
67  
When the financial endowments are, for example, sufficient 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 other 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 

For further details on this theoretical framework, see for example Smith W.T. (1996). 
Insurance undertakings' loss distributions tend to be skewed to the left, with very frequent small losses 

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For the details of the analysis performed to identify this range of security levels, see sub-section 3.4 in 

have not enough resources and therefore pass losses onto consumers only every 4, 10, 100 times that an insurer 
fails. 
68  
the MR. 
69  
A more precise analysis of whether these IGS funding 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 analysis 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. Its 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 and feedback received from stakeholders some of them 
might become as well the content of a EU legislative binding 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-country  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  regulates  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  the  level  of  IGS  centralisation  is  for  example  presented 
before the analysis on geographic scope) in order to highlight 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 design 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 basis 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 exist. Net funding needs can be computed 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 reduction 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 IGS 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 losses (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. 

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77  
78  
79  
weighted by the risk of failure of the contributing insurance undertaking. 

For a full set of figures please refer to sub-section 4.3 and Annex A5.2 of the MR. 
For a full set of figures please refer to sub-section 4.4 and Annex A5.3 of the MR. 
This  positive  feature  of  ex-ante  funded  IGS  can  be  reinforced  by  introducing  ex-ante  levies  that  are 

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