INTEGRATION OF FINANCIAL SERVICES
Prepared for the AIDA XI World Congress
October 20-24, 2002
New York, NY USA
Jonathan R. Macey, General Reporter
Prof. Herman A. COUSY
Prof. Caroline VAN SCHOUBROECK
Centre for Risk and Insurance Studies
Catholic University of Leuven (K.U.Leuven)
1. What is the current level of integration among commercial banking,
investment banking and insurance in your country?
(a) fully integrated
(b) partially integrated but moving towards full integration
(c) partially integrated and in a state of equilibrium
(d) not integrated at all
(e) other (please explain)
1. In Belgium the rapprochement of commercial banking, insurance and other
financial services and the integration of the various providers of such services
has been the object of a long-lasting and rather slow process, that has taken
momentum only during the very last decade of the nineteen-nineties.
It is true that in the middle of the 19th century a central and public savings and
loans institution, the “Caisse Générale d‟Epargne et de Retraite” (ASLK -
CGER) had been installed, combining in its lap a savings bank and a life
insurance company. The CGER remained however an unique exception in a
financial landscape which was otherwise characterised by a far-reaching
fragmentation of financial services, offered by specialised categories of
Prof. H. Cousy is currently President (since 1986) and Prof. C. Van Schoubroeck a Member,
of the “Commission des Assurances”, official advisory body to the Belgian government in
providers under a regulatory scheme that imposed such obligatory
2. The very first and timid signs of the current move toward “despecialisation”
would appear in the nineteen-sixties. A first and timid rapprochement of the
legal status (more precisely of the list of authorised investments) of so-called
deposit banks and savings banks came in 1967. The Royal Decree n° 11 of 18
April 1967 extended the list of assets in which savings banks were allowed to
invest, thereby narrowing the difference with the more liberal rules governing
A next step came with the so-called “Loi-Mammouth” (Act of Parliament of 30
June 1975 on the legal status of deposit banks, savings banks and other
financial undertakings) which made the integration of the legal status of deposit
banks and savings banks official 1.
3. A next step would be the integration between the banking and the insurance
industry, which came slowly and rather late in Belgium. The trend started
indeed slowly but then suddenly expanded into impressive proportions. The
very early signs of rapprochement between banking and insurance could
already be observed around 19862, but the effective despecialisation would
take off only later on, i.e. in the late nineteen-eighties and through the nineteen-
With respect to this process of rapprochement between banks and insurance, it
is important to distinguish between the following three concepts (and methods):
bancassurance, assurfinance and all finance. As a recent commentary by L.
VAN DEN BERGHE and K. VERWEIRE, (a book that will be our companion
and guide through several of the answers that follows hereafter 3), puts it:
“bancassurance” designates the strategy where a bank wants to cross-sell
insurance products through its own distribution channels, usually branches. In
such case, the bank can either become the risk bearer herself by creating or
acquiring her own insurance company or the bank can look for the help of a
creative joint venture, or she can limit herself to being a pure agent or broker.
“Assurfinance” is the opposite modus of diversification in which an insurance
company or an insurance intermediary practices cross selling of “financial
products” (such as credit or investment or savings operations) to its clients.
About this legislations, see BRUYNEEL, A., “La loi du 30 juin 1975: Mammouth, souris ou pot-
pourri”, Journal des Tribunaux 1975, p. 645; COUSY, H., “De wet van 30 juni 1975 betreffende
het statuut van de banken, de private spaarkassen en bepaalde andere financiële instellingen”,
Rechtskundig Weekblad, 1975-1976, 1387-1406.
Compare COUSY, H., “Vers la déspécialisation entre secteur bancaire, assurance et sécurité
sociale”, Bulletin de l'Association Royale des Actuaires Belges, 1986, n° 80, p. 15-31.
VAN DEN BERGHE, L.A.A. and VERWEIRE, K., Creating the Future with All Finance and
Financial Conglomerates, Kluwer Academic Publishers, 1998 (hereafter cited as Creating the
Future), p. 5; see also ROMAIN, J.F., “La “Bancassurfinance” et le statut des intermédiaires
financiers primaires et secondaires”, in Bancassurfinance, Cahiers EVBFR-Belgium, Brussels,
Bruylant, 2000, p. 185-194;
A third form is called “all-finance”: here the products of banks and insurance
companies are unbundled and rebounded in a different manner in view of
adapting them to the specific needs of the customer4.
Bancassurance has now been fully realised in the sense that most banks have
close relationships or established co-operations with insurance companies
whose products they sell as intermediaries.
Assurfinance is much less practised because of regulatory constraints:
insurance undertakings are only within very limited conditions allowed to offer
certain other financial services because of the specialisation principle that
governs insurance undertakings (see answer to question n° 6).
All-finance is practised, but at the level of the conglomerate groups that have
been formed: the various subsidiaries of the group offer different financial
services, but it is in such co-operation with other members of the group that
tailor-made solutions can be proposed to the client.
4. For a good understanding of the history and present situation on the Belgian
market, particular attention must be given to two special characteristics of it:
first, the absence of a significant tradition in investment banking and second the
traditional, be it now largely historic, existence of a variety of so-called public (in
the sense of state-owned) credit institutions.
5. With respect to the activity of investment banking one must bear in mind that
from an historical point of view the Belgian legislation and scenery have been
profoundly influenced by the crash and the ensuing economic crisis in the early
nineteen-thirties. As a result of and in an effort to avoid similar future crises, the
Belgian financial legislation of the mid thirties had introduced an absolute ban
on “mixed banking”. The well-known regulation of the Royal Decree n° 185 of 9
July 1935 (now largely replaced by the Act of 22 March 1993 on the
organisation and supervision of Credit Institutions (Credit Institutions Act)
prohibited banks to invest the proceeds of the deposits in shares. The activity of
providing undertakings with equity and the function of investment banking were
not the object of any specifically regulated type of institution. In 1967 a specific
legislation was issued concerning the organisation and supervision of so-called
“sociétés de portefeuille”, i.e. of “holding companies” (Royal Decree n° 64 of 10
November 1967). Also in 1962 a public (state-owned) investment company
(“société nationale d‟investissement”) was established. But a tradition of
investment banking did not come off the ground. Most analysts would agree
that the absence of such institution has exercised a profound influence upon
the general investment climate in Belgium. However, the situation has
In due time the absolute ban on the possession by banks of risk sharing capital
was gradually softened. A major change occurred however when the Act of 22
March 1993 on Credit Institutions (implementing several European directives,
VERWILST, H., “Huidige praktijk en ontwikkeling in Bancassurance”, Bancassurfinance,
Cahiers EVBFR-Belgium, Brussels, Brylant, 2000, p. 24-29; see also Creating the future.
and especially the so-called European Banking Directives (First Banking
Directive of 12 December 1977 and the Second Banking Directive of 15
December 1989)5 came along.
Giving a broad definition of credit institutions as undertakings that receive
deposits or other repayable funds from the public and invest them in giving
credits; the Act of 22 March 1993 on Credit Institutions entirely reverses the
previously prevailing rule against mixed banking. Whereas under the old rule
the possession of shares in commercial undertakings was in principle
prohibited, except in these cases where the law explicitly permitted so, the new
rule is that such possession is in principle allowed, be it within the limits laid
down by the Act6.
One other recent development must be signalled. Implementing several
European directives in that field, the Belgian Act of 6 April 1995 on Secondary
Markets in Financial Instruments has introduced into Belgian law a regulatory
framework for “investment firms” (“entreprises d‟investissement”).
As defined in the Investment Services Directive (Directive (93/22/EEC) of 4
May 1993 on Investment Services in the Securities Field), an investment firm is
any legal person the regular occupation or business of which is the provision of
investment services for third persons on a professional basis7.
To qualify as an investment firm, an undertaking must obtain an authorisation
(from the financial authority, i.e. the “Commission Bancaire et Financière –CBF)
as either a securities brokers firm (“société de bourse”), a “société de gestion
de patrimoine”, a “société de courtage en instruments financiers” or as a
“société de placement d‟ordres en instruments financiers”. Besides the
services that they are authorised to provide by virtue of their specific license,
investment firms may not perform other tasks. Credit institutions are allowed to
call themselves investment firms and can perform investment services.
6. Typical for the Belgian situation was also the existence at one time of a large
number of highly specialised so-called “public” (in the sense of state-owned)
credit institutions. In a spirit of counterbalancing the power of privately owned
financial undertakings the Belgian legislator had, ever since the middle of the
nineteen-thirties, created a vast number of highly specialised public credit
institutions. In fact, almost for every separate branch of credit activity one or
more public institutions had been established; several for home acquisition
credit, one for agricultural credit, one for export credit, one for credit to industry,
one for credit to public entities like “provinces” or “towns”, etc. Under the
The first and second banking directives have now been replaced by a coordinated and
codified version of one single Directive (2000/12/EC) of 20 March 2000 on credit institutions.
See answer tot question n° 6.
Investment services include: (a) reception and transmission, on behalf of investors, of orders
in relation to financial instruments; (b) execution of such orders other than for own account; (c)
managing portfolios of investments in accordance with mandates given by investors on a client
by client basis; (d) underwriting in respect of financial instruments and placing of such issues
(Annex A to the European directive on Investment Services).
influence of the E.C. Commission, actively encouraging a policy of
demonopolisation, nearly all of these public credit institutions have now been
“privatised” or otherwise changed.
As a result of and in view of the European integration, such public credit
institutions have sought to strengthen their position first by trying to merge with
similar public or semi-public institutions. Later on all of them were privatised,
i.e. sold to and integrated into private institutions. All public institutions, even
the hereabove already mentioned “Caisse Générale d‟Epargne et de Retraite”
(CGER-ASLK) have thus been sold to a private financial conglomerate (in casu
Fortis) and indeed disappeared from the Belgian financial scenery.
7. By way of summary, it may be stated that the current level of integration
among commercial banking, investment banking and insurance, is situated at
the level of full integration, as far as some of the very large groups (see
examples under question nr. 2) are concerned, and at the level of partial
integration in a number of other cases. The situation is developing rapidly, and
from the very outlook of the publicized activities of some major financial groups,
the diversification of financial services, and the terminology used, are still very
much in rapid evolution.
There is the activity of “Network banking”, which includes retailbanking, full
service to industrial clients, trade and commodity finance.
There is the activity of “merchant banking”, which refers to such activities as
investment banking, financial markets, information banking and private equity.
And there is the activity of “private banking” and asset management.
2. Compare the level of integration in the insurance industry in your
country with the level of integration in developed countries generally.
Specifically, is your country’s insurance industry more heavily
integrated, less heavily integrated or integrated at about the same
level as the average level in countries that are members of G7 group of
industrialised nations (Australia, Canada, France, Germany, Japan,
Italy and the U.K.)? Feel free to discuss this question in some detail,
explaining which aspects of the insurance industry are more or less
well integrated than others.
The integration of the insurance undertakings into larger financial groups has
started off at about the same time as it happened in some other E.U.-Member
States. It has indeed lasted until the late nineteen-eighties and early nineteen-
nineties when the first major conglomerate entities (banks and insurance
undertakings) were formed.
Since then however the integration has proceeded rapidly and rather
Our perception is that, certainly in this last phase, the integration occurred
almost synchronically in the various Western European countries, bordering
In an effort to give an idea of what has been going on in the Belgian scenery,
we allow ourselves to report on two of the major cases of integration between
bank and insurance, that have occurred in Belgium, in the course of the
nineties: the Fortis case, and the KBC case8
A. THE FORTIS CASE
1. (Source: Creating the Future , footnote n°3, p. 114.)
Fortis is a somewhat special and interesting case.
Originally “Fortis” was the name for the operating subsidiaries of the two mother
insurance companies: the Belgian AG Group and the Dutch AMEV Group.
These parent companies had retained their own independence and identity in
full for several reasons: differences in legal structures tax positions and
differences in power exercised by the main shareholders. This structure was
also used by other financial institutions aiming at cross-border alliances such as
Crédit Local de France and Gemeentekrediet (1996) and recently by Zurich and
the insurance companies of the British BAT (1997).
In 1993 Fortis acquired the CGER-Group (see about this originally public bank
and insurance institution, under question nr. 1) and thus strengthened its
position in the Belgian home market. In 1992 Fortis created a joint venture,
Caifor, with the largest Spanish savings bank La Caixa. This joint venture was
very successful and this insurance group became one of the largest insurers in
Spain. At the end of 1996 Fortis took over MeesPierson, the investment
subsidiary of the Dutch bank ABN-AMRO and thus significantly strengthened its
banking position in the Netherlands.
Fortis‟s strategy can be summarised in the following words: multi-domestic,
multi-channel and multi-product.
Since then the complex organisational structure has often been changed. In
1996 the structure presented in the figure hereafter was adopted.
Although this structure seems very decentralised, the central idea was one of
controlled freedom, achieved by a linking pin principle.
Of direct importance to Belgium has been the setting up in the Netherlands, of the ING-Group:
see Creating the Future, footnote n° 3, p.138.
Organisation structure of Fortis after 1996
FORTIS AG FORTIS AMEV
50% 50% 50% 50% 50% 50%
Foris Fortis Fortis Fortis
België Nederland Internationaal VS Inc.
operating operating operating operating
companies companies companies companies
2. (Source: Fortis, Information Memorandum with respect to the unification of
the shares of Fortis and Prospectus with respect to the application for listing of
the Fortis Share, 15 November 2001, p. 16-25; www.fortis.com).
“In 1998 the shareholders of Fortis (B) and Fortis (Nl) approved an Equalisation
Agreement pursuant to which all shareholders share identical economic rights
per share with respect to earnings, dividents and net asset value. Until 1998 the
voting rights and other legal rights of Fortis Shareholders pertained only to the
company of the share held, i.e. Fortis (B) and Fortis (Nl). With the creation of
the Fortis Share, all shareholders will have the same economic and legal
(including voting) rights” (p. 16).
Fortis structure after the Unfication (p.18)
Fortis SA/NV Fortis NV
Fortis Brussels Fortis Utrecht
Fortis Bank Fortis Insurance
B. THE KBC CASE
(Source: KBC website www.kbc.com)
Formed in 1998 after the merger of Kredietbank (a retail and corporate bank),
CERA Bank a co-operative bank), and ABB (an insurance company), KBC has
43.000 employees world wide, and is especially active in Belgium and Central
The organisational structure is based on a vertical structure with a holding
company, harbouring a banking and an insurance leg.
KBC Bank and Insurance Holding Company is the holding company of the KBC
Group. It is the direct parent company of KBC Bank NV, KBC Insurance NV
and KBC Asset Management NV. All other companies of the KBC Group are
direct or indirect subsidiaries of these three companies.
KBC Bank (wholly-owned by the KBC Bank and Insurance Holding Company)
is the banking arm of the KBC Group. It is the parent company of all the KBC
Group Companies that are involved in banking and other financial activities in
Belgium and abroad.
KBC Insurance (wholly-owned by the KBC Bank and Insurance Holding
Company) is the insurance arm of the KBC Group. It is the parent company of
all the KBC Group companies that are involved in insurance activities in
Belgium and abroad.
KBC Asset Management (55%-owned by the KBC Bank and Insurance Holding
Company and 45%-owned by KBC Bank) is the asset management arm of the
KBC Group. It is the parent company of KBC Asset Management Ltd.
3. What are the principal similarities between investment banking,
commercial banking, and insurance? Be sure to discuss both sides of
the balance sheet: i.e. investments by banks and insurance
companies, as well as capitalisation and funding.
A “Belgian” answer will, in view of what was said with respect to investment
banking supra question n° 1 (in fine), remain limited to the comparison of the
activities of credit institutions (legal term for deposit and savings banks since
the Act of 1993 (see question n° 1) and insurance undertakings. However, the
results will probably not be very different in Belgium as compared to other
1. At a very general level, one can state that both sorts of financial institutions
attract their clients money (through deposits c.q. payment of premium) in return
for a promise of a later payment. Such payment will take place when, in the
case of a bank, the client withdraws his money from his account or makes
otherwise use of his deposit, or when, in the case of an insurance company, the
insured recovers a claim against the insurer.
At the time when a distinction was made between deposit banks and savings
banks (see under question, n° 1), the first one‟s attracted short-term deposits,
the second one‟s attracted so-called savings deposits and other long term
money. Since the merger of the two types of banks by the Act of 22 March
1993 on Credit Institutions, the distinction has faded. Nearly all credit
institutions have diversified the structure of their liabilities, by attracting short-,
medium- and long term money. The widening of the range of their deposits and
other sources would allow them to also diversify the range of their investments.
At present, life insurance companies and some credit institutions (commercial
banks) (oriented toward attracting savings) attract to a certain degree the same
money, more precisely the long-term savings of private households. Whereas
insurers traditionally attracted principally pension-oriented savings, other
institutions like savings banks would principally attract savings oriented toward
the acquisition of real property. The situation has since undergone significant
changes, precisely in the sense of more despecialisation. Credit institutions
(commercial banks) have attracted pension oriented savings and investments,
while on the other hand insurers offer their new life insurance products like e.g.
Unit linked Life Insurance or other flexible insurance products, that come closer
to traditional bank and especially investment products.
2. On the asset side of the balance sheet, there is a remarkable difference
between credit institutions (commercial banks) and insurance undertakings.
Whereas under Belgian law, the rule has traditionally been that credit
institutions (commercial banks) are free to invest in the assets and activities of
their choice, (given some legally imposed restrictions ruled in Article 32 of the
Credit Institutions Act of 1993), the opposite principle applies to insurance
companies. Here the authorised investments of technical provisions are limited
to those assets that are listed. Largely following in that respect the detailed
prescriptions of the European Insurance Directives (see Articles 21 and 22 of
the Third Life and of the Third Non-life Insurance Directives of 1992), the
Belgian insurance supervisory regulation holds a detailed list of categories of
investments, with specifications of the maximum allowed percentages that can
be invested in any given category (see especially Articles 17- 17bis of the
Insurance Supervision Act of 9 July 1975 and Article 10 of the Royal Decree of
22 February 1991 holding the so-called “Réglement Général de Contrôle”).
One of the important rules that were introduced by the European Insurance
Directives is the prohibition addressed to the Member States to require
investment in particular categories of assets (Articles 22, 5 Third Non-Life
Insurance Directive (92/49/EEC) of 18 June 1992 and Third Life Insurance
Directives (92/96/EEC) of 10 November 1992).
4. To what extent to you agree or disagree with the following statement:
Investment banking, commercial banking, and insurance are similar
because they each involve: (a) risk-management; (b) evaluating
investments and managing financial assets on a large-scale basis; (c)
large-scale investing on behalf of small clients (depositors, investors,
and insured individuals)?
The statement especially in its subparts (b) and (c) can be largely subscribed,
at least while one looks at the comparison between the life insurance business
and the savings formulas offered by banks.
5. What are the principal reasons for integration among commercial
banking, investment banking and insurance in your country (circle all
(a) achieving significant economies of scale in operations, i.e. cost
(b) achieving economics of scope in operations, i.e. achieving more
efficient delivery of some services or products because of
information or skills acquired in delivering other services;
(c) increasing overall market share;
(d) reducing the risks associated with future trends in consumer
demand by diversifying product lines;
(e) cross-marketing opportunities
(f) matching competitors’ strategic moves;
(g) reducing the risk associated with the insurance business
through diversification into other areas;
(h) the need to meet international competition;
(i) other, please explain
1. This enumeration of possibilities gives a fine oversight of the many motives
and reasons involved. In Belgium the specific reasons and motives for moving
toward integration, and specifically toward bancassurance (and other further
reaching) integration of financial services are generally considered to be the
(1) a general move toward rationalisation and integration within the financial
services (e.g. in Belgium, since the legislation of 1975, the move toward
“despecialisation” between savings banks and deposit banks and between
public and private credit institutions) in view of a growing demand for
integrated and even “holistic” services;
(2) the decrease of the “marge d‟intermédiation” (difference between „debit‟ and
„credit‟ interest rates) and ensuing decrease of profits of traditional banks,
obliging them to look for new profitable activities;
(3) the need of commercial banks to make a renewed effective use of their
highly refined net of local banking agencies (almost one per street) and of
their highly trained personnel (deprived by lot of their tasks by fast growing
electronic finance and threatened with redundancy because of merger
between banks) ;
(4) the desire of insurance companies to gain access to the vast amounts of
savings in the hands of private households and to offer and sell their own
expertise and counselling services in the field of investment.
2. Compare the analysis by VAN DEN BERGHE and VERWEIRE, in Creating
the Future, footnote n°3, p. 7 where they write: “The formation of financial
conglomerates does not coincide completely with the growing market interface
between insurance companies, banks and investment firms. Belgium for
instance has been a country of financial holdings, which did not operate in the
market as financial conglomerates for quite a long time. The diversification of
the banking sector was driven by different forces. One of the most significant
forces has been the desintermediation in commercial banking. (...) During the
former decade, some structural trends have evolved, both on the assets and
the liabilities side of the bank balance sheet. On the asset side, credit
institutions are confronted with the replacement of straight bank loans by
market-determined sources of financing (...). On the liabilities side, there is a
substantial outflow of deposits to a wide range of financial products offered by
companies of different sectors. In addition banks faced new capital adequacy
rules which put further pressure on the bank‟s profitability (...). Therefore banks
have looked for new sources of profit, preferably without increasing their
necessary solvency level. All fee income was therefore a welcome source of
3. Another important factor, which has played a decisive role, has been the
opening of the European internal market for credit institutions, insurance
undertakings and investment firms. The perspective of the coming into
existence of huge and liberalised Community wide markets for financial
services has convinced many smaller financial institutions that they necessarily
had to adapt their size to the size of the markets. Numerous take-overs and
mergers have taken place. In a way both the objectives of acquiring larger
scale (acquiring more market share) and of acquiring large scope
(diversification and despecialisation) have been achieved more or less
simultaneously in the course of this process.
6. Are there significant regulatory obstacles to integration among
investment banking, commercial banking, and insurance businesses
in your jurisdiction?
If your answer is yes, please explain.
Under this heading we will first examine what are the regulatory restrictions that
limit the acquisition by a credit institution (commercial bank) of shares in or of a
holding in an insurance company, and second what are the limitations to the
participation of an insurance company in the capital of a credit institution.
1. As to the first point, the basic idea has already been expressed. Whereas
Belgian law had traditionally adhered to the principle prohibiting banks to invest
their depositor‟s money into risk bearing equity (see question n°1), this rule has
been overturned since the so-called Second European Banking Directive
(89/646/EEC) of 15 December 1989 on credit institutions. Henceforward
investing in equity is allowed in principle be it that a number of limitations of a
prudential nature are imposed.
The basic rule is laid down in Article 12 of this Second Banking Directive. This
provision was implemented in the Belgian Act of 22 March 1993 on the
organisation and supervision of Credit Institutions (Credit Institutions Act).
Roughly speaking credit institutions are allowed to directly or indirectly possess
shares within the following limits and conditions. A first category of shares is
those that a credit institution can have without limitations in time or in amounts.
These are the shares in other credit institutions, securities brokerage firms,
insurance undertakings and other financial institutions that offer non-core
services like leasing, factoring and the like.
The second category are the shares that the bank may keep in her commercial
portfolio for a limited time: the shares that are envisaged here are those that the
bank is holding in the normal course of underwriting, in her own name or on
behalf of others, and the shares that the bank is holding to cover dubious or
The third category contains the shares other than those referred to in the
previous categories. Those (shares in commercial undertakings generally) can
be held insofar as each item does not exceed 10 % and the total amount of the
various items does not exceed 35 % of the bank‟s own funds. These
percentages can be drawn up by the banking supervisory authority (that is in
Belgium the “Commission Bancaire et Financière – CBF”), with this limitation
that the amount of a credit institution‟s qualifying holdings in any undertaking
(other than those mentioned hereabove) does not exceed 15 % of the bank‟s
own funds and that the total amount of the bank‟s qualified holdings does not
exceed 60 % of the own funds of the credit institution).
Apart from the European Banking Directives, many other European rules and
the national legislation that have implemented them, have an impact or impose
limitations (and indeed obstacles) to the acquisition by a bank of the entirety or
part of an insurance undertaking. In this respect one can mention the
European Banking Solvency Directive (89/64/EEC) of 18 December 1989 or the
European Directive (92/121/EEC) of 21 December 1992 on the monitoring and
control of large exposures of credit institutions. The European Insurance
Directives from their side also put up obstacles to the easy acquisition of
insurance undertakings by obliging Member-States or their competent
authorities to check the identity of the persons who possess or acquire a
qualified holding in an insurance undertaking and to check the fitness of the
shareholders. Also changes in an existing shareholders structure must be
signalled through all means to the competent authorities (Article 8 Third Non-
Life Insurance Directive (92/49/EEC) of 18 June 1992 and Article 14 Third Life
Insurance Directives (92/96/EEC) of 10 November 1992 and implemented by
Article 23bis Belgian Insurance Supervision Act of 9 July 1975).
Neither credit insurance institutions, nor insurance companies are excluded
from the field of application of the so-called European transparency directive
(88/627/EEC) of 12 December 1988 on the information to be published when a
major holding in a listed company is acquired or disposed off, imposing (again)
an information duty on those acquiring a significant holding in a target public
2. Many more obstacles are refraining an insurance company from wholly or
partially “buying” a bank. There are especially the limitations on the authorised
investments that must be taken into account. Both in the European Life and
Non-Life Insurance Directives there are explicit prescriptions limiting the
categories of assets with which insurance undertakings may cover their
technical provisions (Articles 20 and 21 of both the Third Non-Life and the Third
Life Directive, see also question n° 3). In addition, these European Directives
contain percentagewise limitations of the authorised investments (Articles 22).
According to the Belgian insurance legislation and regulation (Article 17 of the
Insurance Supervision Act of 9 July 1975 and Article 10 of the Royal Decree of
22 February 1991) investments in shares and other negotiable securities
treated as shares and bonds from the same undertaking may not exceed 5 %
of its total gross technical provision. The limit is raised to 10 % if the
investments is in shares of a European undertaking that is controlled like an
insurance undertaking (say a bank) and if the insurance undertaking does not
Those who enjoy the pleasure of reading (and understanding) the Dutch language will find a
thoroughly detailed account of these and other obstacles, in DEVROE, W. “Bank en
verzekering: deelname in elkaars kapitaal (Europa en U.S.A.)”, in Bank, Financiewezen en
Verzekering, (H. Cousy & H. Claassens, ed.), Maklu, 1994, p. 93-142.
invest more than 40 % of its gross technical provisions in the shares of bodies
in each of which it invests more than 5 % of its assets.
3. Among the legal obstacles to integration among banks and insurance,
certain private law rules, more specifically rules relating to unfair trade
practices, should be mentioned. In view of protecting the consumer and his
freedom of choice, the Belgian legislator had traditionally been firmly opposed
against the practices of so-called “joint-offers” (“conditional sale”) whereby the
acquisition of products or services is linked to the acquisition of the other (even
identical) products or services (Article 54 of the Act of 14 July 1991 on Unfair
Trade Practices and the Protection of the Consumer, repealing the Act of 14
July 1971). Products or services can be offered jointly if they form “one whole”.
Although the legal provision authorises the minister to further define what
constitutes “a whole” in the field of financial services, such governmental
regulation was never issued. Recent case law has given a rather liberal
interpretation to the rule by not considering as a forbidden joint offer the
situation where a bank is offering a reduced interest rate on a loan if the client
buys the required insurance coverage from an insurance undertaking indicated
by the bank10.
7. Are there significant cultural, economic or other non-regulatory
obstacles to integration among commercial banking and insurance
businesses in your jurisdiction?
If your answer is yes, please explain.
The rapprochement of banks and insurance undertakings in the context of
bancassurance has shown that different business cultures do exist between
banks and insurance undertakings. Insurance products, so it is said, are sold
(the client has to be pushed to buy), whereas banking products are bought (the
client is pulled to the bank).
Other differences exist at several levels: at the level of the highest executive
officers, in the internal relationships inside the companies, at the level of the
relationships with clients. It may very well be that bankers have a light
tendency to look down upon insurers. Unlike, or less than bankers, insurance
undertakings have a tendency to hide away and to refrain from entering into
direct contact with clients: the whole network of distribution through
intermediaries works as a shield. Bankers are their clients creditors (claiming
the payment of credits and loans), insurers are their clients debtors. This casts
quite a different light on the relationship between the operators and their clients.
It is a very much asked question what the effect of integration and
bancassurance will be. From the standpoint of the consumer the perception
and appreciation of the one and other financial service provider may change.
Case law Court of Cassation (High Court) of 30 March 2001, www.cass.be; Revue Banque et
Finance 2001, 256, note G. Straetmans.
From the standpoint of the operator however, the new role of bancassureur
may give rise to advantages (better information about the client) and to
disadvantages (interrelation between different services and possible conflicts of
interests, possibility of "cannibalism" whereby a competitive relationship
develops between the bank product and the insurance product that are
emanating from the same bancassurance group.
Most people do not think that these (and other) differences should constitute an
obstacle. However at least one very well known captain of industry has spoken
out against bancassurance. Mr. Kees Storm, CEO of Aegon insurance
company (Netherlands), has said that leading both an insurance company and
a bank is like simultaneously driving two cars at the same time.
Other business leaders have spoken and do speak rather enthusiastically in
favour of the opportunities offered by bancassurance, like Mr. H. Verwilst,
Deputy CEO of Fortis (Belgium)11.
8. In your view, what are the principal obstacles to integration among
investment banking, commercial banking, and insurance businesses?
Please rank the following in order of importance with the number 1
(one) indicating the most significant obstacle to integration and higher
numbers indicating less significant obstacles to Integration:
(a) regulatory obstacles unrelated to anti-trust concerns (please
specify the precise source of these regulatory obstacles);
(b) anti-trust concerns (please specify whether these anti-trust
concerns emanate from country-specific anti-trust rules, or
derive from international sources);
(c) local cultural norms;
(d) legal uncertainty concerns (please specify the precise source of
the legal uncertainty);
(e) business risks associated with taking on new lines of business;
(g) lack of compelling business justification;
(h) other, please explain.
Reference can here be made to a paper on the performance consequences of
financial conglomerates in Belgium and the Netherlands. In this paper existing
theoretical models to investigate the performance consequences of
diversification within the financial services industry are applied, thereby taking
into account the multidimensionality of diversification by considering aspects of
strategic and organisational fit simultaneously: VERWEIRE, K. and VAN DEN
BERGHE, L., "The performance consequences of diversification in the financial
H. VERWILST, "Huidige praktijk en ontwikkelingen in Bancassurance", in Bancassurfinance,
Cahiers EVBFR-Belgium, Brussels, Bruylant, 2000, p. 13-30.
services industry: the case of financial conglomeration in Belgium and the
Netherlands", Vlerick Working Papers 2001/1, www.vlerick.be/research/WP.
9. As a general matter, which industry is more heavily regulated in your
country at the present time, Investment banking, commercial banking,
1. Both the insurance undertakings and the credit institutions are regulated by
virtue of national supervisory legislation which find its basis in European
directives, issued on the basis of the E.C Treaty Provisions concerning free
establishment and free (cross border) provision of services (Articles 49-55 (ex
59-66) E.C. Treaty).
The insurance industry has been a little bit more resistant toward the European
harmonization than the banking sector. This appears inter alia from the fact
that to set up the legal framework for an "internal market of banking" only two
generations of co-ordination directives were needed (First Banking Directive
(77/780) of 12 December 1977 and the Second Banking Directive (89/646) of
15 December 1989). In the sector of insurance however, things went a little
less smoothly: three generations of co-ordination directives were needed (First
Insurance Directives of 1973 (Non-Life) and 1979 (Life), Second Insurance
Directives of 1988 (Non-Life) and 1990 (Life) and Third Insurance Directives of
1992). At least in the continental European Member States (with the exception
of the Netherlands) insurance markets were, much more than the markets of
banking and other financial services, very much more split up along national
borderlines and frontiers.
2. Both in the banking and in the insurance area the European directives were
issued in the context of the creation of a European internal market. The basic
concepts and techniques were laid down in a 1985 White Paper of the
European Commission. According to this White Paper, the creation of an
internal market was to rest on three legal-technical principles: (1) the principle
of minimal harmonisation; (2) equivalency of national legislation (after minimal
harmonisation) and mutual recognition of national legislation; (3) home country
control (applicability of the national supervisory legislation of the Member-State
where the head office of the undertaking is established, and where the
undertaking obtained authorisation to take-up the activities in that Member-
State and establish an agency or offer cross border services in another
Some fear that the combination of the three principles might have as a
consequence that Member-States will be encouraged to scale down the
severity of their legislation. In other words the principles, laid down in the
Internal Market White Paper might lead to the (in-) famous "regulatory
competition" between Member-States.
We have no hard data about the exact "deregulatory" effect of European
directives. And such effect must most probably not be exaggerated. In fact,
European directives are generally considered to increase rather than to
decrease the amount and the density and severity of legislation. And such is
3. It is unclear whether the deregulatory/regulatory effect of the European
directives is more explicit in the one or the other sector of the financial services.
What is for sure is that the European directives have given rise to an
impressive increase of national regulation, in the insurance sector even more
than in the other ones. This is clearly the case with respect to the
generalisation of a supervisory legislation and with respect tot the regulation of
insurance distribution. As far as the banking sector is concerned, there already
existed a fairly elaborated legislation.
4. A remarkable difference between banks and insurance undertakings relates
to the applicability of the regulation and the supervision to the contractual
relationships between respectively the bank and her client and between the
insurance company and the insured and other third parties concerned.
The basic idea of the European legislation, as it was laid down in the banking
directives as well as in the insurance directives, is that the legal framework
must serve to optimalize free competition among banks and among insurance
undertakings. If such competition is optimal, than the consumer must be able
to find the most suitable product among the many banks or insurers who have
their headquarters in an E.U. Member-State and who offer cross border
services to potential clients in other Member States. In this legal framework,
the consumer is mainly protected through the guaranteed access of the
operators to the different insurance markets on the one hand and through the
supervision of the financial stability of the financial institution (bank or insurance
undertaking) on the other hand. Article 1 of the Belgian Insurance Supervision
Act of 9 July 1975, as well as article 1 of the Belgian Credit Institutions Act of
22 March 1993 acknowledge the same basic idea that the consumers
protection runs through the smooth operation of a free market and an effective
prudential supervision. But the Belgian legislator goes further, be it only in the
field of insurance.
Unlike the banking regulation, the Belgian insurance legislation also contains
clear and specific rules concerning the contractual relationship between the
parties to the insurance contract. First there is a fairly elaborated and
compulsory legislation concerning the insurance contract in general and
concerning certain specific insurance contracts (e.g. motor vehicle liability
insurance) and for specific consumer risks (e.g. fire Insurance and household
insurance). Secondly there is the power of the supervisory authority (Office de
Contrôle des Assurances-OCA) to not only control the financial stability of the
insurance undertaking but also to have a look at the contents of the insurance
contract and to sanction infringements. Such “contrôle matériel” (substantive
control) of insurance conditions and premium tariffs used to be a cornerstone in
the task of the Office de Contrôle des Assurances. Since the implementation of
the third generation of insurance directives of 1992 however, no such ex ante
control of tariff conditions and tariffs nor any systematic control (even ex post)
can be exercised.
During more recent years also the European legislator appears to have given
more attention to the aspect of the protection of contractual relationships (micro
level). In this respect the legislator used mainly the approach of so-called
vertical legislation and focused on consumer contracts. Such was the case in
the European directive on unlawful clauses to various categories of consumer
contracts, in a proposal for a European directive on distance selling of financial
services, as well as in the Communication of the E.U. Commission concerning
the harmonisation of general contract law.
10. In your country? what are the specific regulations that impose the
highest costs on: (a) the commercial banking Industry; (b) the
investment banking industry, and (c) the insurance industry?
Without going into any detail, it might be argued that a very important factor is
that the new regulations applying to the banking, insurance, and investment
industry, hold high requirements of solvency (insurance) and "own funds"
ratio's (banking and investment banking industry). The gradual reinforcement
of such solvency requirements has given rise to a major restructuring of the
landscape of financial institutions. Many of the smaller ones have been obliged
to join bigger ones, inter alia because of insufficient degree of solvency and
insufficient own funds. Such requirements are however not specific to Belgium
since they directly originated in European and international regulations aiming
at financial stability and solvency of financial intermediaries.
11. Describe the general structure of the regulations that govern the
insurance industry in your country.
A. 1. Before 1975 only three insurance branches were subject to state
supervision and regulation (industrial accidents compensation, life insurance
and motor vehicle liability insurance). Generalisation of state supervision and
control of the taking-up and pursuit of insurance activities came about under the
influence of the European insurance directives, in particular the First Non-Life
Insurance Directive of 1973 and the First Life Insurance Directive of 1979). The
gist of the Belgian regulatory apparatus is found in the Belgian Insurance
Supervision Act of 9 July 1975, the Royal Decree of 22 February 1991
(repealing the Royal Decree of 1976), the Royal decree of 17 December 1992
(repealing Royal Decree of 1985) concerning Life Insurance and the Royal
Decrees of 14 May 1985 and 7 May 2000 concerning (company) Pension
Funds. Over the years the Belgian regulation has been modified numerous
times, mainly pursuant to a change in the subsequent European Insurance
Directives (in particular the Second and Third Life and Non-Life Insurance
Directives; the European Directive (95/26/EEC) of 29 June 1995 on reinforcing
prudential supervision and the European Directive (98/78/EEC) of 27 October
1998 on supplementary supervision of insurance undertakings in an insurance
group (see hereafter, under B.2.)12.
2. As was already mentioned, the Belgian insurance supervisory legislation
declares to have consumer protection as its primary goal (see question n°9).
Article 1 of the Act of 9 July 1975 indeed declares that "this Act aims to protect
the insured and all parties to the contract concerned".
3. Access to insurance activities is subject to the requirement of obtaining prior
(governmental) official authorisation from the competent authority by every
undertaking which establishes its head office within the territory of Belgium or
by any undertaking which, having received this authorisation, extends its
business to an entire class or to other classes of insurance. Insurance
undertakings must adopt the form of a company with limited liability ("société
anonyme" or "société coopérative") or of a "mutual insurance association". As
already mentioned, the objet of an authorised insurance undertaking is limited
to insurance and some operations flowing directly therefrom (like loans), capital
redemption and the management of pension funds.
4. Essential substantive rules of the supervisory legislation are those that relate
to the financial supervision13: adequate solvency margins, the technical
provisions, the presence of adequate matching assets, the prudential
investment rules concerning of the matching assets, the transfer of all or part of
portfolios of contracts, the measures to be taken in case of insolvency of the
company, the acquisition of a qualifying holding in an insurance undertaking
and rules concerning fitness and properness of shareholders and directors.
Specific rules are enacted regarding the supervision of insurance undertakings
being part of an insurance group (see hereafter, B).
As was already mentioned (sub question 9, 4) Belgium used to impose a
notification and ex ante approval of general and special policy conditions,
premium tariffs, or forms and other printed documents of the insurance
undertaking, as a prior condition for this insurance undertaking's carrying on its
business. By virtue of the European Insurance Directives this requirement has
been changed in an ex post non-systematic notification (with the exception of
compulsory insurance for which systematic notification is still allowed) of those
policy conditions and other documents and for the sole the purpose of verifying
compliance with national provisions concerning insurance contracts.
5. Insurance undertakings with head office established in a Member States of
the European Union are exempt from obtaining an official authorisation in
For an unofficial co-ordination of the Eurpean Insurance Directives see VAN
SCHOUBROECK, C., “Codex European Insurance Laws”, in BLANPAIN, R. (ed.), International
Encyclopaedia of Laws, Kluwer Law International, Den Haag, 1998, 450 p.
See COUSY, H. and CLAASSENS, H., “Ex post control of insurance in Belgium”, The
Geneva Papers on Risk and Insurance, 1994, 46-59.
Belgium and remain entirely subject to the financial supervision of the
authorities of their home State, being the Member State in which the head
office of the insurance undertaking covering a risk is situated. This regulation is
based upon the principle of the single license and the "home country control"
principle. These insurance undertakings are allowed to provide insurance
activities in Belgium under the right of establishment (establishing a branch or
agency) or by means of free provision of services upon notification to the
Belgian competent control authority and under the financial supervision of the
control authority of their so-called home Member State. Nonetheless, the OCA
remains in charge of an observatory task and can perform investigatory acts on
account of a foreign supervisory authority and, in certain circumstances, even
impose sanctions. The OCA has controlling authority over all Belgian insurance
undertakings, irrespective of the country in which they provide their insurance
6. The supervision of insurance is entrusted to a separate autonomous public
authority the "Office de Contrôle des Assurances - OCA" (which has also
jurisdiction for capital redemption operations, pension funds, mortgage loans,
even when these are carried out by other financial institutions and insurance
In addition the OCA obtains information from the "commissaires agréés",
appointed by each insurance undertaking among a list of certified accountants
who are specifically accredited by the OCA. Their task consists of reporting to
the OCA. all illegalities and irregularities in the management of the insurance
Since about ten years Belgian legislation has also adhered to the Anglo-Saxon
tradition of appointing obligatory one (or more) "certified actuary" in each
insurance undertaking charged with advising the company's directors, prior to
every decision on tariffs, reinsurance and the evaluation of technical provisions.
The flow of information between the insurance supervisory authority (OCA), the
banking supervisory authority (CBF) and the fiscal administration as well as the
professional secrecy obligations are carefully regulated.
7. The Belgian supervision authority and the Minister in charge of insurance
matters can, and often are legally obliged to, consult the official advisory body,
the "Commission des Assurances". This board is composed of representatives
of the insurance undertakings, the insurance intermediaries, the consumers,
and experts. The tasks of this Commission is very similar to the one held by
similar bodies that exist in other E.U. Member States (like e.g. the “Conseil
National de l'Assurance" in France). The Commission gives advice at the
request of the Minister or on its own initiative concerning all (draft) regulations
relating to insurance. Its role is double: representation of the interests of the
parties involved (insurers, banks, intermediaries, consumers and experts) and
also expert advise.
8. In accordance with the European accountancy directives, there exists in
Belgium, like in the other Member States, a specific regulation concerning the
annual accounts and accountancy of insurance undertaking (Royal Decrees of
17 November 1994 and 8 October 1996). Comparable specific regulations
were issued for credit institutions and pension funds.
9. Typical for insurance is the fact that the OCA has not only the authority to
control the financial situation of insurance undertakings. In addition the OCA
has a specific authority regarding the contractual relation between the insurer
and the insured and other parties concerned. Besides the already mentioned ex
post non systematic control of insurance conditions and forms (see hereabove
point 4), the OCA can controle and sanction unclear or unlawfull policy
conditions. Moreover, the OCA organises a consumer complaints board to
reach out of court settlement. This authority of the OCA is not limited to Belgian
B. 1. A word must be said about the general outlook of the E.U.-legal structure
for financial undertakings. The European legal structure for financial
undertakings shows the adherence of the European authorities to the
The specialisation principle is entrenched in different European Directives on
financial services: (1) the Second Banking Directive of 15 December 1989
explicitly rules that: "the Member States shall prohibit persons or undertakings
that are not credit institutions from carrying on the business of taking deposits
or other repayable funds from the public" and (2) the first Non-Life and Life
Insurance Directives (respectively 1973 and 1979 - as amended by the Third
Directives of 1992) state that: "Member States shall require every insurance
undertaking for which authorisation is sought to (...) limit its business activities
to the business of insurance and operations arising directly therefrom, to the
exclusion of all other commercial business". Moreover, life insurance
undertakings must limit their business to life insurance (and ancillary non-life
insurance business) as defined in Articles 1-3 of the First Life Insurance
Directive of 5 March 1979. This specialisation principle is also implemented in
the Belgian regulation (Article 9 Insurance Supervision Act of 9 July 1975).
Pursuant to the principle laid down in article 13, 3 and 14 of the First Life
Insurance Directive of 5 March 1979, the Belgian Insurance Supervision Act
prohibits Insurance companies to practise both life and non-life insurance,
except if they were already doing so in 1992 (vested rights).
2. The European legislative authorities could not stay blind for the important
consequences, from the point of view of adequate prudential regulation and
supervision of the phenomenon of the formation of groups and concerns of
insurance undertakings and other financial institutions.
The regulatory approach to the phenomenon takes place in two phases. In a
first move the European legislator tackled the homogeneous groups by
introducing supplementary supervision of (individual) insurance undertakings
that are part of an insurance group (i.e. any insurance company which is a
participating undertaking in at least one insurance undertaking, reinsurance
undertaking or non-member-country insurance undertaking, and any insurance
company whose parent undertaking is an insurance holding company or a
reinsurance undertaking or a non-member-country or a mixed activity insurance
holding company) (European Directive (98/78/EC) of 27 October 1998 on the
supplementary supervision of an insurance undertaking in an insurance group).
The objective of the directive's regime is to enable the supervisory authorities to
form a more soundly based judgement of the financial situation of the company
under control, through a better access to information, through extending
general supervision to intra-group transactions and especially through
calculation of an adjusted solvency situation for an insurance undertaking
forming part of an insurance group. A similar legislation was issued for banking
groups (European Directive (2000/12/EC) of 20 March 2000 on the taking up
and pursuit of the business of credit institutions and Directive (93/6/EC) of 15
March 1993 on the capital adequacy of investments firms and credit
3. Quite recently, the second phase (heterogeneous group) was entered into
when the E.U. Commission has submitted a proposal for a directive on the
supplementary supervision of credit institutions, insurance undertakings and
investment forms in a financial conglomerate (Proposal (213), Brussels 24 April
2001). The Commission observes that the importance of financial
conglomerates is significant in the Benelux and Scandinavian countries and
that some of the bigger actors in the market are financial conglomerates. The
proposed directive seeks to introduce specific prudential legislation for financial
conglomerates, and also to align the regimes for homogeneous and for
heterogeneous financial groups. A central issue is to ensure that the capital
adequacy of the entities should not be impaired by such dangers as "multiple
gearing" (the same capital is used simultaneously as a buffer in two or more
entities) as "excessive leveraging" (parent issues debt and down streams the
proceeds as equity to its regulated subsidiaries). The proposed directive also
addresses supervisory concerns about intra-group transactions and risk
exposures in a financial conglomerate (by insisting on an internal management
policy with effective internal control; reporting requirements to supervisors,
effective supervisory enforcement powers). Co-ordination arrangements
between supervisors is organised through the appointing of a co-ordinator
authority for a financial conglomerate and through co-operation and information
12. Is the insurance industry in your country regulated by the same
regulatory agency that regulate commercial banking and/or investment
1. Whereas the insurance industry is supervised by the Office de Contrôle des
Assurances - OCA (see question n° 11), credit institutions and other financial
undertakings are controlled by the "Commission Bancaire et Financière - CBF"
(successor to the earlier "Commission Bancaire", which was originally set up by
the Royal Decree n° 185 of 9 July 1935).
The insurance supervisory authority was described under question n° 11. We
add here some data about the CBF.
The task that is presently exercised by the Commission Bancaire et Financière
is double. The CBF exercises the prudential control on credit institutions (as
well as on a number of other financial institutions14) in accordance with the
prescriptions of the banking directives and the Belgian 1993 Credit Institutions
Act. In the exercise of its control the CBS traditionally (partially) relies on the
system of the "contrôle revisoral" which in every bank is exercised by a
"commissaire-réviseurs agréé". An important and traditional instrument in the
field of bank supervision are the so-called "coefficients règlementaires"
(regulatory ratio's). and specifically the ratio's concerning the "own funds" of the
bank. Here again European directives have forced Member-States to repeated
changes of legislation.
The second major assignment given to the CBF consists in controlling the
public offering for sale of shares, stocks. This task is still governed by what
remains of the old (but recently updated) Royal Decree n° 185 of 9 July 1935
(see also the Royal Decree of 7 July 1999 on the definition of the "public"
character of financial operations). One of the important aspects of the CBF's
control consists in controlling the contents of the "emission prospectus".
2. At present, the government is working thoroughly on a quite fundamental
reform of the structure of the supervisory bodies in the financial area, precisely
in view of the ongoing integration of financial services.
The basic idea of the reform appears to be not one of total integration or
unification of existing supervisory authorities, but one of co-ordination of the
supervision of the financial sector. Such co-ordination implies a close co-
operation between the central bank (the "Banque Nationale de Belgique",
NBB), the Office de Contrôle des Assurances (OCA) and the Commission
Bancaire et Financière (CBF). According to the proposed legislation (of which
only unofficial and not up-to-date copies were available to the authors), such
co-operation would be embodied in the operation of the "Comité de Stabilité
Financière". This new body will be composed of the members of the "comités
de direction" of three authorities and charged with examining issues of common
interest to the three authorities, like the stability of the financial system, the
interactions of the prudential control, the "oversight" of the payment and
clearing systems, crisis management, deposit guarantees and protection of
investors, etc. A second new organ to be created is the "Conseil de
Surveillance de l'Autorité des Services Financières", composed of the members
of the boards of the three authorities, and acting as an advisory body to the
Minister of Finance. The relative weight of the three authorities inside the
newly envisaged co-operation or bodies is at present the object of intensive
debate and speculation.
The prudential control of the CBF extends also to a Member of financial institutions such as
collective investments funds and “sicav” type investment institutions, holding companies
(sociétés de portefeuille), etc.
13. If the insurance industry In your country is not regulated by the same
regulatory agency that regulates commercial Banking and/or
investment banking, which regulatory agency is:
(a) more efficient;
(b) more technically competent;
(c) more sophisticated;
(d) more transparent;
(e) more free of corruption, special interest group pressures, and/or
14. Which Industry do you believe has been more profitable globally
during the last decade? investment Banking, commercial banking? or
15. Which industry do you believe has been more profitable in your
jurisdiction during the last decade, vestment banking, commercial
banking, or insurance?
16. Which Industry is likely to be more profitable over the coming decade?
investment banking, commercial banking, or Insurance?
17. Which industry has been more risky during the last decade,
investment banking, commercial banking, or insurance:
(a) In your country?
18. Which industry is likely to be more risky over the coming decade
(2000-2010), investment banking, commercial banking, or insurance:
(a) in your country?
19. What sort of firm would be riskier: an integrated financial services firm
that offers investment banking, commercial banking, and insurance
services or an insurance company:
(a) in your country?
20. What sort of firm would be riskier: an integrated financial services firm
that offers investment banking, commercial Banking, and insurance
services or a commercial bank:
(a) In your country?
21. What sort of firm would be riskier: an integrated financial services firm
that offers investment banking, commercial banking, and insurance
services or an investment bank:
(a) in your country?
Question 17 to 21 dealing with the risks run by the different financial institutions
and by their integrated counterparts.
In their book Creating the Future with All Finance and Financial Conglomerates
(footnote 3, p. 161 et seq. ) VAN DEN BERGHE, L. and VERWEIRE, K. list
the following risk and policy considerations, related to concentration:
- risk of contamination: problems of one part of the organisation can infect
another healthy part; important psychological effects on the image, reputation
- risk of double gearing: capital may be counted several times in determining
the adequate capital coverage for the group as well as for the different parts of
the conglomerate (cfr. proposal for a European directive on supplementary
supervision of credit institutions, insurance undertakings and investment forms
in a financial conglomerate (Proposal (213), Brussels 24 April 2001));
- creation of opaque structures: supervisory problems (cfr. the post BCCI-
European Directive (95/26/EEC) of 29 June 1995 on reinforcing prudential
- external conflicts of interests: what happens if a bank has a credit exposure in
a firm, in which the insurance undertaking has an equity stake; need for
Chinese walls, codes of ethics;
- internal conflicts of interests: danger of cannibalisation, cross-subsidisation
and marginal tarification; struggle between different distribution outlets; cultural
conflicts (different selling techniques, different attitudes toward risk, etc.);
- quality downgrading because of insufficient control on all elements of the
- abuse of power.
22. The following question deals with the issue of national identity. For
many years people involved an international finance have observed
that countries’ national identities are closely intertwined with certain
industries. Such industries sometimes are called “flags up
Industries”. The banking and airlines industries commonly are
regarded as flagship Industries. For example, we still retain the idea of
a national “flag carrier” in the airline industry. Italy’s Alitalia, and
Britain’s British Airways, are thought of as flag carriers, despite
financial problems at Alitalia, and despite the fact that British Airways
has long been a private company. Many people think that the recent
wave of mergers and merger-related consolidations within the
Netherlands, France and Italy are attributable, at least in part, to a
desire to avert future cross-border acquisitions in these countries,
particularly by British, German and U.S. banks. Please respond to the
flowing questions, which are related to the ways in which issues of
national identity are intertwined with the issue of financial integration:
(a) As a general matter, do you agree or disagree with the assertion
that countries’ national identities are closely intertwined with
(b) If your answer to the above question is “yes”, please list the
industries that you think are closely associated with national
(c) Do you think that national identities are closely intertwined with
certain industries in your country?
(d) Do you think that national identities are closely intertwined with
certain industries in your country, which particular Industries
are closely associated with national identity?
(e) If you think that national identities are closely intertwined with
certain industries in your country, do you think that regulators
should have the Power to block a cross-border merger on the
grounds that such a merger would result in the elimination of a
major firm in a “flagship Industry”?
(f) Do you think that the insurance industry is a “flagship industry”
in any country?
(g) Do you think that the insurance industry is a “flagship industry”
In your country?
In a small country like Belgium (10 million inhabitants) situated on the border
line of (Germanic and Romanic) cultures and languages and with a traditionally
very open economy, national identities may have a somewhat lower weight and
impact than may be the case elsewhere.
Nevertheless, Belgium did use to be proud of its own major industries, like the
airline company, Sabena (which however went bankrupt in 2001) and like its
major financial undertakings.
One cannot but observe (and deplore, according to some) that in the course of
the rather stormy integration movement which has taken place, many of these -
even most venerable - flagbearers were almost all absorbed by groups or
holdings which were most often of foreign origin. The insurance company
"Royale Belge" has now been integrated in the French Axa group, the "Banque
de Bruxelles" and the Insurance company "La Patriotique" are owned by the
Dutch ING-Group, etc.
23. Commercial Banks, insurance companies and investments banks all
play an important role in the financial security of the citizenry. It is
generally thought that the government has a strong role in assuring
the soundness of these institutions and in preventing the kinds of
systemic failures observed in the period following the collapse of the
securities markets in 1929. The following questions relate to the
integration of insolvency regulation by banks:
(a) Describe the way that Insurance company insolvency is
regulated in your country. If there are guaranty funds, describe
the way that these work. Be sure to identify who many initiate
an Insurance company insolvency proceeding: creditors,
regulators, or Both;
(b) To the extent that you are familiar with insolvency regulation for
commercial banks and investment Banks, describe those
(c) Regulators in general, and guaranty fund administrators in
particular, have an Interest in the solvency and stability of Out-
of-state (foreign) insurance companies operating within their
jurisdiction. Describe the extent to which regulators at the state
level are able to enforce safety-and-soundness regulations,
capital requirements and related solvency regulations on
foreign, i.e. out-of-state insurance providers.
(d) To what extent does solvency regulation or concern over issues
related to solvency affect cross-border mergers of firms in the
(e) To what extent does solvency regulation, or related concerns
about solvency issues, affect mergers between firms in the
insurance industry and firms in other industries, such as
manufacturing, investment banking, and commercial Banking?
1. Preliminary remark: since the end of 1920, no single Belgian insurance
company has been declared insolvent, with the sole exception of the Belgian
subsidiary of a British insurance undertaking whose entire debts in Belgium
were eventually paid.
2. The Insurance Supervision Act of 9 July 1975 entrusts the supervisory
authority (OCA) with specific tasks in each case of withdrawal (as in the case of
bankruptcy) or renunciation of the licence or authorization of an insurance
company. In case of winding up (liquidation) of an insurance company, the
appointment of the liquidator is subject to the OCA's approval.
The Insurance Supervision Act holds the rule that the joint matching assets
representing technical provisions shall constitute, per separate portfolio (life,
non-life) an estate on which insurance claims shall take precedence (Articles 18
and 48 Act of 9 July 1975).
Every insurance undertaking offering industrial accident insurance or motor
vehicle liability insurance must participate in the Guarantee fund on Industrial
Accidents and Motor Vehicle Guarantee Fund. This is a condition prior to obtain
the official authorization to take up the insurance activity and to obtain
notification to set up a branch in an other member State or provide services by
way of free provision of services. The tasks of this Motor Vehicle Guarantee
fund will be extended in the near future, in order to implement the Fourth
European Motor Vehicle Insurance Directive(2000/26/EC) of 16 May 2000 on
visiting motorists. The Fund will be in charge of guaranteeing the payment of
insurance claims to insured and injured third parties having claims against an
insolvent insurer covering those risks.
3. Just recently the European Community has issued directive (2001/17/EC) of
19 maart 2001 on the reorganisation and winding up of insurance undertakings.
Under the Directive, where an insurance undertaking with branches in other
Member States fails, the winding up process will be subject to a single
bankruptcy proceeding initiated in the Member State where it has its registered
An important substantive rule in this directive is the one laid down in its article
10 giving the Member States the choice between two alternative methods of
protecting insurance claims (method 1: insurance claims take absolute priority
over all other claims over the assets representing the technical provisions;
method 2: insurance claims take priority - subject to certain preferred creditors -
over all the company's assets). A parallel Directive on the winding up of Credit
Institutions was equally promulgated.
4. A remarkable difference between the regulatory regimes of banks and
insurance undertakings is that with respect to credit institutions deposit
guarantee schemes (Directive 94/19/EC of 30 May 1994) and with respect to
investment firms investor compensation schemes (Directive 97/9/EC of 3 March
1997) have been set up. So far such no comparable regulation exists at the
European level in the field of insurance. In the United Kingdom a scheme was
introduced under the Policyholder Protection Act (now: Financial Services
Compensation Scheme). In Europe there is fierce discussion going on as to
the question whether such scheme should be generalized.
5. In view of enhancing the overall solvency situation of financial undertakings,
the European authorities have engaged in an ambitious two-phased program
(Solvency I and Solvency II). Solvency I laid to the promulgation of the two
Directives (2002/13/EC and 2002/12) of 5 March 2002 aiming at improving the
existing rules for calculating the solvency margin requirement and giving the
supervisory authorities extra powers for early intervention. Solvency II involves
a long-term effort to introduce more sophisticated approaches to solvency
(better matching the solvency requirements to the true risk encountered by an
insurance undertaking). Similar developments take place in the banking field.
Leuven, 1 June 2002