The European Commission
has decided to request the UK to provide additional information concerning the regulation and supervision of the Lloyd's insurance market. The request is the first stage of the infringement procedure under Article 226 of the EC Treaty. Based on the information currently available, the Commission has concerns about the supervision and regulation of Lloyd's with respect to the requirements of the first non-life insurance Directive (73/239/EEC). The Commission is examining the compatibility of the current regulatory and supervisory arrangements for Lloyd's, and on the basis of the information received from the UK, the Commission will decide whether or not it considers there is a violation of Community law.
Under the current Article 13(2) of Directive 73/239/EEC, as amended by Directive 92/49, the financial supervision exercised by national authorities includes the verification of the state of solvency of an insurance undertaking
's entire business. The Lloyd's market comprises individual Names (or corporate entities) that write business through various syndicates. For the purposes of the Directive, the Lloyd's market is treated as a whole, the overall financial position being built up and verified from the position at Name level. The Commission is examining how the audit arrangements have operated in respect of Lloyd's which should allow a proper verification of the state of solvency of the insurance undertaking's entire business, as required by the Directive.
The audit certificate at Name level is used as the building block for testing the sufficiency of technical reserves to cover liabilities as required by Article 15(1) and (4) of the Directive. Article 16(1) requires an undertaking to establish an adequate solvency margin in respect of its entire business and Article 19(2) requires undertakings to render periodically the returns, together with statistical documents, necessary for purposes of supervision. Given the concerns with solvency verification and auditing arrangements, it is not clear that these requirements of the Directive have been and are respected.
The regulatory and supervisory framework of Lloyd's is extremely complex and has been in a state of flux. The Commission has now decided to send a letter based on Article 226 of the EC Treaty to the UK authorities inviting them to respond to the concerns identified and to allow the compatibility of current arrangements with the Directive's requirements to be confirmed.
Source: HK Law