The new Law and its impacts on the insurance sector

The new Law of December 7th 2015 on the insurance sector in Luxembourg

January 7, 2016

Publication of the law of December 7th 2015 on the insurance sector and the Regulation of the CAA number 15/03 on insurance and reinsurance companies

The OneLife Company (formerly NPG Wealth Management Group) welcomes the publication of:

the new Law of December 7^th 2015 on the insurance sector in Luxembourg (the Law) and
the regulation of the Commissariat aux Assurances (CAA) number 15/03 of December 7^th 2015 (the Regulation) that came into force on January 1^st 2016.

A new Law for a new regulatory environment

This new Law replaces and modernises the law of December 6^th 1991 on the insurance sector, (the Law of 1991). This Law transposes in Luxembourg law the Directive 2009/138/CE as modified, commonly referred to as Solvency 2 Directive.

Modernising and reinforcing Regulatory powers

The Law modernises the access and exercise of insurance and reinsurance activities. It integrates measures reinforcing the role and powers of the CAA on controlling and coordinating the insurance sector in Luxembourg. It also imposes new measures on solvency calculations for all insurance companies practicing in Luxembourg but also for branches of European Economic Area (EEA) insurance companies.

The role and powers of the CAA are especially reinforced vis-à-vis financial groups specialised in insurance. Sanctions available to the CAA are also enlarged by this new Law.

Translating Solvency II into concrete and applicable rules

The Law integrates new requirements for insurance companies and transposes rules of the European Solvency 2 Directive, in order to reinforce the European insurance solvency calculation framework. Indeed the rules applicable to the solvency calculation were somewhat outdated and did not take into account all risks incurred by insurance companies such as market or counterparty risk.

The main purpose of this new Law is to better consider these risks in the solvency calculation of all European insurance companies which will increase the protection granted to policyholders.

Significant preparation work has been completed by all insurance players on the three pillars of the Solvency 2 Directive (Governance, Quantitative and Qualitative pillars). The NPG Group has realised very early on the challenges of this new regulation and has put in place the actions and resources necessary to finalise implementation of the provisions.

The new rules imposed with this Law should be seen as a way to help European insurance companies to better ensure their solvency whilst building a unique European framework in the field of insurance.

For the rest, the Law confirms most of the rules and requirements already in place in the Law of 1991; it also reorganises and clarifies the other standards applicable to insurance companies in Luxembourg.

It has to be noted however that the historic missions of the CAA in relation to the promotion of the activity and dynamism of the insurance sector in Luxembourg have not been kept under the new Law (Article 2 point 8 of the Law of 1991 for instance), maybe due to the willingness of making a clear distinction between the controlling and supervisory roles on one hand and the promoting role of the Luxembourg business center. It appears nevertheless that promoting and advertising actions of this renewed and modernized framework would be beneficial for all market players.

Contributing to a coordinated and efficient European insurance industry framework

This law reaches a new level of technicality, sophistication and reinforces the transparency of the sector (for instance art. 12 of the Law on the exchange of information with other authorities). To build a strong European supervisory framework, the Law also provides for possible exchanges of information between the different supervision authorities not only in Luxembourg (Commission de Surveillance du secteur Financier for instance) but also towards EIOPA, European Insurance supervisory authority. These exchanges aim to improve the coordination of the supervisory authorities. These exchanges will not undermine the Professional secrecy applicable in Luxembourg and preserved by the new Law.

In summary this new Law complements well the high regulation standards of the Luxembourg Financial center and will without any doubt be a precious tool for all Luxembourg insurance companies’ activities in a modernised, clarified and transparent legal Framework.