Aviva 2009 Annual Report Download - page 126

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Aviva plc Additional information for Shareholders continued
Annual Report and Accounts 2009
Reinsurance directive
On 16 November 2005, the Council and the European
Parliament adopted Directive 2005/68/EC on reinsurance (the
“Reinsurance Directive”) which member states were obliged
to transpose into national law by 10 December 2007. The
Reinsurance Directive requires that all reinsurance undertakings
be authorised in their home member state. To obtain that
authorisation, they will need to meet strict requirements. Once
they have done so, they will be free to carry out their activity
anywhere in the EU through the single market passport. The
FSA has implemented the requirements of the Directive by
changing its Handbook with effect from 31 December 2006.
Distance marketing directive
Under the Distance Marketing Directive, EU member states are
required to implement a framework of rules and guidance in
order to protect consumers by:
— Setting minimum standards for information that must be
provided to consumers before entering into a financial
services contract by ‘distance means’.
— For certain products and services, giving a cooling-off period,
which for general insurance is 14 days, in which a consumer
may, without penalty, cancel such a contract.
Insurance mediation directive
Under the Insurance Mediation Directive, EU member states
are required to establish a framework to:
— Ensure that insurance and reinsurance intermediaries have
been registered on the basis of a minimum set of
professional and financial requirements.
— Ensure that registered intermediaries will be able to operate
in other member states by availing themselves of the
freedom to provide services or by establishing a branch.
— Impose minimum requirements, with certain limitations, as
regards the content of the information which the insurance
intermediaries must make available to their potential
customers, and the arrangements for its provision.
Financial Services Action Plan (FSAP)
Further measures towards the creation of a single market in
financial services were incorporated into the Financial Services
Action Plan (FSAP) adopted in 2000. The FSAP included specific
legislative action aimed at extending (i) the single wholesale
market (ii) creating an open and secure retail market and (iii)
introducing state of the art prudential rules and supervision.
The FSAP also included measures towards harmonising
conduct of business rules, notably The Insurance Mediation
Directive and the Distance Marketing Directive described above.
Investment business
With the introduction of the Investment Services Directive (ISD)
the same home country control and passporting regime applied
to fund management activities. In November 2007 the ISD was
superseded by the Markets in Financial Instruments Directive
(MiFID). MiFID builds on the home country control principle but
extends the range of ‘core’ investments services and activities
that may be passported from one member state to another
and increased clarity of responsibilities between home and
host country jurisdictions. MiFID also introduces greater
harmonisation governing the organisation and conduct of
business of investment firms.
The Capital Requirement Directive which came into force
on 1 January 2007 sets out for the first time directive-based
capital requirements for all investment firms brought into
regulation by MiFID.
International Financial Reporting Standards (IFRS)
The standards drafted by the International Accounting
Standards Board (IASB) have been mandatory for about 7,000
EU listed companies since 1 January 2005. For standards on
insurance contracts a two phased approach has been adopted
by the IASB. Under the interim solution adopted as IFRS 4
Insurance Contracts, insurers apply a variety of existing local
accounting practices subject to a number of adjustments.
Proposals for a final standard for accounting for insurance
contracts are currently under review but might not be agreed
before 2011 or later.
Solvency II
On 5 May 2009, the European Parliament formally adopted
the Solvency II Level 1 Directive. Solvency II represents a
fundamental change in European regulation and will result in
a more sophisticated risk based capital approach. It establishes
a solvency system that is better matched to the true risks of
insurers enabling supervisors to protect policyholder interests
as effectively as possible in accordance with common principles
across the EU.
Since the approval, the focus has been on the development
of the Level 2 implementing measures advice published by the
CEIOPS which fill in the detail under Level 1 and focused on
technical issues. Aviva has been actively participating in the
process by providing responses to the CEIOPS as well as
participating in the key European industry working groups who
provide the voice of industry in on-going negotiation in Brussels.
The formal CEIOPS consultation process has already closed
and the European Commission are now considering the
wording on the implementing measures that will be finalised
by the end of 2010. Full implementation of Solvency II will be
required in October 2012.
Future EU developments
The integration of retail financial services and the increased
awareness of consumers to financial issues remain high on
the EU agenda. This is tending to drive a number of initiatives
including the Single Market review which will encompass
reviews of the working of the retail financial services markets,
adequacy of consumer protection and contractual rights
provisions as well as more specific proposals on investment
products and mortgages.
In addition to the EU wide initiatives there have also been
developments within our major EU markets, including:
In France all applicable EU Directives have now been
brought together in a single insurance code supervised by
the Authorité de Contrôle des Assurances et des Mutuelles
(ACAM). In the Netherlands, where Aviva operates under the
Delta Lloyd brand, a new Financial Services Act replacing eight
former supervision Acts came into force on 1 January 2007.
Under the new Act the role of the two market regulators –
The Nederlandische Bank (DNB) for prudential issues and the
Authority for Financial Markets (AFM) for conduct of business
are clearly defined.
Primary EU insurance regulation in Ireland has been
implemented through two Acts and supervised by the Financial
Regulator. In July 2007 the Consumer Protection Code was
introduced, a major legislative development bringing together
comprehensive rules to apply across the financial services sector.
In both Spain and Italy where we operate through joint
ventures with local banks and savings institutions there has
been significant progress in revising local regulation and