Legal and regulatory environment

Particularly in the sphere of international and national supervisory law, the year under review again confronted the Group with a large number of new and sometimes complex developments in the legal environment that were not always adequately coordinated on the international level.

Most notable on the European level was the fact that the European Commission moved forward with its “Omnibus II Directive” proposal; on the one hand, this contains wide-reaching Solvency II transitional measures, while, on the other, it is intended – as an omnibus directive – to make amendments to other directives in order to bring them into line with the new EU regulatory architecture for financial supervision.

The new European regulatory agency for the insurance industry, the Frankfurt-based European Insurance and Occupational Pensions Authority (EIOPA), commenced its work on 1 January 2011. It forms part of the newly implemented European System of Financial Supervision (ESFS), which encompasses the European Systemic Risk Board (ESRB), the three new regulatory bodies – namely the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – and, last but not least, the national regulatory bodies.

Even though EIOPA probably will not, as a general principle, have any powers for operational supervision of the Group, its influence on our regulatory environment will be significant. In the first place, going forward it is envisaged that national regulators will have to justify divergences from EIOPA recommendations to EIOPA. Secondly, the “Omnibus II Directive” proposal includes powers to adopt so-called binding technical standards, on the basis of which EIOPA would like to develop a “single rule book” EU-wide by the end of 2011.

In general terms, particularly on the international level, an unchanged tendency – for example on the part of the Financial Stability Board – could again be observed in the year under review towards applying to the insurance sector considerations relating to the avoidance of crises in the banking sector without any discernible appreciation of the considerable material differences. The Group is closely tracking these tendencies and adds its appropriate critical input to the ongoing discussions.

Developments on the national level in the year under review included, for example, the replacement of the Requirements for Remuneration Systems in the Insurance Industry initially published in December 2009 in the form of a Circular by the Federal Financial Supervisory Authority (BaFin) with the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV), which entered into force on 13 October 2010. The legal basis for adoption of such a Regulation had been lacking in 2009; the legislator created it in the year under review in the form of the new § 64 b Para. 5 Sentences 1–4 of the Insurance Supervision Act (VAG). The content of the Regulation leans very heavily on the BaFin Circular on Requirements for Remuneration Systems in the Insurance Industry published in the previous reporting period. Essentially, it remains the case that the aim of legislators with the remuneration rules is to avoid negative incentives through inappropriate variable remuneration components.

The protracted period of low interest rates in the year under review has demonstrated that the stipulations contained in § 153 Paragraph 3 of the Insurance Contract Act (VVG) governing the participation of insureds in the valuation reserves need to be adjusted. Under the current legal regulations, such low-interest rate phases lead to excessive participation of departing policyholders in the area of long-dated bonds; this is not compatible with considerations of fairness within the collective of policyholders or with the imperative that the risk-bearing capacity of life insurers should be preserved. In the year under review the Group took an active part in discussions with lawmakers regarding the urgent need for immediate adjustment of the legal situation.