Marie-Louise Rossi explains why the IUA has stepped up its efforts to help the London company market meet an ever-growing compliance burden

When the International Underwriting Association (IUA) announced the creation of a new Compliance Committee, the immediate response from its members was extremely favourable. In my ten years of running a trade body it is difficult to recall an initiative that has drawn so many volunteers wanting to get involved.

Monitoring compliance and regulatory developments has always been amongst the IUA's core services to its member companies, but an expansion of this role is now clearly necessary. Without doubt this is an issue of great importance to the London company market.

The reasons are not difficult to trace. Over the past few years numerous new insurance and reinsurance regulatory changes have been debated and implemented. At a national level, the Financial Services Authority (FSA) alone has issued well in excess of 200 consultation papers since it assumed its full regulatory powers in December 2001. Many of these items will have material effects on the way IUA members run their businesses.

International burden

But the growing compliance burden has been far from just a local phenomenon.

Other national governments as well as international bodies have also pursued their own initiatives. London, of course, is an international market and it can ill afford to ignore such developments occurring overseas. The very nature of our industry means we must be on top of regulatory movements across the globe, for example the recent spate of terrorism insurance legislation introduced in several countries including the US and Australia.

Whenever there is significant change in the insurance and reinsurance market, more often than not it is because of something happening around the legal, regulatory and tax environments in which we operate. The IUA has always viewed the monitoring of such changes on behalf of its members as one of its core activities.

Rarely do legislative changes in any part of the world happen overnight, and many of the association's most important projects in this area are long-term undertakings. But the concentration of effort and unified voice that an active trade body is able to provide has helped achieve some significant progress.

In the UK, for example, it successfully put the case for a relaxation of planned taxes on claims reserves proposed under Section 107 of the Finance Act 2001. At a European level, the IUA was also responsible for beginning work with the German Insurance Association to promote the idea of a single passport among insurance associations across Europe. This 'level playing field' principle has now gained widespread acceptance and is firmly on the European Commission's agenda.

Meanwhile, in the US the IUA has long campaigned for reform of the 100% collateral requirements imposed on foreign reinsurers. It has played a leading role in presenting an 'approved list' proposal that would allow top tier companies to operate under more relaxed collateralisation rules.

The increasing complexity of international regulations has, however, prompted the IUA to reassess its service provision on such issues.

FSA-related inquiries

Over the past year the association's secretariat has noticed an increasing number of enquiries from member companies regarding compliance. These questions frequently relate to the activities of the FSA, but by no means exclusively so. The IUA's response has been to expand its information services, with the new Compliance Committee being the most obvious example of this effort.

Providing practical help and information for companies working to meet the growing compliance burden will be the main aim of the committee. It will also provide a forum for the exchange of information and ideas.

Rob Mankievitz, Compliance Officer at Aspen Re and Chairman of the committee, has identified three key targets. Firstly - and most importantly - the new body will seek to provide useful information, distilling complex regulatory documents to identify those areas of particular relevance to commercial and wholesale insurance and reinsurance businesses. In short, the committee intends to help IUA members better understand regulatory requirements.

Secondly, it hopes to aid the flow of communication between companies and regulatory bodies including the FSA. Finally, the committee will also try and foster relations with other elements of the London market in an attempt to try and improve the response of the market as a whole to compliance challenges.

The committee has been formed from compliance officers, legal counsel and company secretaries within IUA member firms, together with key individuals from the association's secretariat. It expands on the work of the existing Solvency, Accounts and Taxation Sub-committee (SATS), which will continue to monitor new legislation and regulation. Like SATS, the new Compliance Committee will report to the IUA's main Representation and Legislation Executive Committee, currently chaired by myself.

The agenda for the first meeting of the Compliance Committee was certainly a full one with no shortage of potential issues to be discussed. The meeting's first task was to prioritise those topics requiring most urgent attention, thus providing an interesting snapshot of current compliance concerns in our industry.

Perhaps unsurprisingly, new demands from the FSA were top of the list.

In particular, the requirement to outline operational risk measures according to the risk categories contained in the FSA's Prudential Sourcebook proved a hot topic.

Also of concern were the FSA's General Insurer Capital Requirements, commonly referred as CP190. These rules correspond with the European Union's own work on solvency, but are likely to be implemented before any EU changes.

It is hoped, however, that the FSA regulations will closely mirror the European project known as Solvency II.

Registration requirements

Another key issue was the FSA's CP187 proposal concerning the authority's registration requirements for insurance intermediaries. As insurance and reinsurance carriers, IUA members would not appear at first glance to be directly affected by this regulation. But after the deadline for registration passes in January 2005, insurers will not be allowed to continue dealing with any intermediaries who have not made the necessary arrangements with the FSA.

Internationally, the Sarbanes-Oxley legislation, passed in the US in July last year to tighten up corporate governance rules in the wake of several large-scale accounting scandals, received attention.

Also in the US, a number of important developments on surplus lines regulations and the new Federal Excise Tax regime were both identified as potential areas of future work for the Compliance Committee.

At present the committee intends to convene every six weeks; judging from the inaugural meeting, these gatherings will be busy indeed.

In addition to the creation of the new committee, the IUA has also sought to improve the general provision of information it publishes for members on compliance issues. The association's secretariat possesses a wealth of knowledge in these areas and is in constant contact with regulators and legislators internationally, especially the FSA, European Commission and US authorities.

The IUA research team, led by Pam Byrnes, Director of Knowledge Management, has been identified as the first point of contact for compliance-related questions in an effort to make it easier for members to find the answers they need. The team is available to deal with a range of topics including insurance premium taxes, EU regulation, terrorism and terrorism pools, international sanctions and surplus lines rules.

This list is not exhaustive and where the research team is unable to answer a particular enquiry, it will have access to other IUA staff with different expertise.

The subjects under consideration are also far from fixed since the most pressing compliance questions are continually evolving. Ultimately, the direction of the IUA's information provision will be directed by the needs and demands of the association's members.

Of course, the bulk of compliance work will always be carried out by member companies themselves rather than their trade association. But the increasing complexity of international regulations means that it has become extremely difficult for any one firm to constantly maintain all necessary, up-to-date knowledge. The role of the IUA therefore will be to fill in the gaps providing clarification and additional input on difficult and fast-changing issues.

Regulatory assistance

The association also continues its work in seeking to influence the regulatory and compliance environment in which its members operate. At times this involves an extremely proactive approach, championing proposals that the London company market feels deserve attention from those in authority.

A great deal of this effort though is necessarily reactive: providing responses to consultation papers published by governments and other bodies as well as meeting the requests of legislators and supervisors for market data and information.

For example, the IUA recently liaised with the Singapore Monetary Authority regarding the introduction of new rules for cross-border reinsurance business and marine aviation and transport (MAT) insurance placements.

No industry can thrive with excessive regulation: too much interference reduces efficiency, yet a certain level of supervision is essential to maintain confidence in the marketplace. Getting this balance right is no easy task and the IUA has a significant role to play in helping regulators to carefully weigh conflicting economic and prudential considerations.

As insurers and reinsurers are now undergoing a period of enormous regulatory change, that task is as important as ever.