Insolvency practices under the spotlight

LONDON � A new European Union directive on insurance insolvency procedurescould cause upheaval in the way London market insurance companies are structured. The directive stipulates that, in the event of a primary insurer�s insolvency, both retail and commercial policyholder claims should be protected ahead of all other commercial creditors, including debtholders. Standard & Poor�s has noticed it only applies to insurers and not reinsurers. But it also points out the situation relating to hybrid insurance and reinsurance companies is unclear. "There is an element of ambiguity in the new directive and if a distinction is made between primaryand secondary market policyholder obligations, then its effects may be feltmost acutely in the London market where many companies traditionally write a mix of primary and secondary insurance, notably reinsurance," commented David Anthony, director in S&P�s financial services group.