Devil in the detail

Last week I wrote about the judgment by the European Court of Justice which bans the use of gender in insurance pricing after 2012.  An interesting aspect is the areas of insurance business which may not be affected.  For example, reinsurance transactions look likely to be out of scope, and some pension-scheme risk-transfer products look to be in a similar situation.  The original text of the 2004 Directive states:

the use of sex as a factor in the calculation of premiums and benefits for the purposes of insurance and related financial services shall not result in differences in individuals' premiums and benefits.

Source: Article 5(1) of Council Directive 2004/113/EC of 13 December 2004.

The key phrase here is "individual's premiums and benefits".  An insurance company is not an individual, and individual policyholders' premiums and benefits are not affected if liabilities are reinsured.  Thus, it would appear that the entire business of reinsurance and retrocession in the European Union is out of scope of this judgement.

Similarly, a company pension scheme is not an individual, and the benefits received by individual scheme members are unaltered by any risk-transfer solutions the scheme may put in place to protect itself.  Thus, the markets for bulk annuities and longevity swaps should both be unaffected as well.

Some commentators have gone further and claimed that the Directive won't apply to other areas of business, e.g. annuities arising from group personal-pension schemes.  Article 3(4) of the Directive does indeed state that it "shall not apply to matters of employment and occupation", but is debatable that this covers annuities bought from group personal-pension funds.  These and many other matters will need to be clarified between now and the end of 2012.  Expect more court cases over the years until this is resolved.