Cooperative Insurance Companies

The classification of insurance risks is an essential tool in the exercise of effective supervision of insurance companies. It is a means of categorising insurance business for licensing purposes in order that the supervisory authority can ensure that only companies with sufficiently specialised expertise and the appropriate business framework conduct a particular type of insurance. It allows for additional licensing requirements to be imposed for certain insurance branches. Classification is the principal method by which variations may be imposed in relation to liability assessment; technical reserves and investment rules, in order adequately reflect the differing level of risk pertaining to each type of insurance. It also allows for differentiation of tax and duty rates, should the legislator so wish, in order to reflect national and business priorities.

The unification of classification systems between the European Union Member States allows for the free movement of insurance companies within Europe on a uniform regulatory model. Beyond Europe, the harmonisation of classification systems has significance for insurance companies from one country seeking to establish branches or subsidiaries abroad, as well as for rating of insurance companies and for obtaining reinsurance of risks in the international market.

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