The adoption, in 2005, of the Italian CPI has introduced a signifi- cantly new approach to the method of insurance companies’ crisis prevention and management, giving to this sector an organic set of tools deeply inspired by the banking legislation on crisis.44 The harmonization of the various financial market segments’ regulation (banks, investment companies and insurance companies) has been considered, in fact, as a valid instrument to avoid risk transfer 45 between the segments themselves.46 This is perhaps the main reason why the actual or probable failure of an insurance company is treated almost with the same measures as those provided for banks and investment companies (even though practical problems of coordi- nation have arisen). All the “segments” are supervised in order to protect a common public interest, that is, to use the words of Art.
3 CPI, in order to ensure “stability, efficiency, competitiveness and the smooth operation of the system”, together with protection of policyholders (who take the place, in the CPI, of depositors/inves- tors). Thus, the sound and prudent management and the solvency of insurance and reinsurance undertakings (and the effort to avoid their crisis) is, as well as for the other financial operators, a means to the goal of safeguarding global financial stability, which in Italy was a constitutional value,47 even before the advent of international agree- ments and EU obligations. 48
In accordance with the banking model, the discipline of insur- ance companies’ “crisis” is divided into early intervention meas- ures (“Safeguards”, Arts 221–228 CPI), going concern interventions (“Reorganization”, Arts 229–239 CPI) and gone concern procedures (Arts 242–265 CPI). Separate sections are also dedicated to the mutual recognition between Italian and EU crisis procedures (Arts 267–274 CPI) and to the reorganization and winding up of insurance groups (Arts 275–282 CPI), the regulation of which is essentially coincident with the already described corresponding sections of the CLB. 49 All the procedures are designed to be triggered, supervised and directed by IVASS, as the Supervisory Authority of the insurance sector;50 the competent government body, when required, is instead the Minister of Production Activities.51 It is worth noting that the Italian law
system, in compliance with Directive 2002/87/CE, also provides for a particular discipline for the crisis of financial conglomerates. 52 3.3.1 Safeguards (Arts 221–228 CPI)
When breaches of regulation are committed by an insurance (or reinsurance) company, IVASS has a wide range of instruments at its disposal in order to restore the sound and correct management before the situation turns into a serious instability. The choice of the measure to be adopted depends on the kind of infringement, since the CPI provides for different cases: (a) breach of regulations on technical provisions or their representative assets (Art. 221 CPI), (b) breach of the regulations on the solvency margin or the guarantee fund (Art. 222 CPI), (c) deteriorating financial position suitable to threaten external interests (Art. 223 CPI).53 All are, however, measures aimed at intervening when the solvency of the firm is not yet affected and has a well-defined preventing nature. 54
a) Under the first case, the active intervention is preceded by a sort of warning order55and, if the undertaking does not abide by the order, IVASS may prevent the undertaking from commencing new business (for a period of up to six months) or, for more serious breaches, order the freezing of the individual assets recorded in the register of assets representing technical provisions.56 Also the reorganization measure of appointing a commissioner for the fulfilment of individual acts, provided for Art. 229, is possible, in order to remove violations. 57
b) In case of insufficient solvency margin, IVASS is entitled to require the insurance company to submit a restoration plan (or a short- term finance scheme if the solvency margin falls below the guar- antee fund) within an appropriate deadline.58 Meanwhile, the free disposal of the undertaking’s assets located within the territory of the Italian Republic59 may be prohibited or strongly restricted by IVASS, in addition, the authority can order the freezing of the individual assets recorded in the register of assets representing technical provisions.
c) Where the financial position of the insurance company is dete- riorating in a manner that the rights of insured persons, of those entitled to insurance benefits or of ceding insurance undertak- ings are threatened, IVASS is assigned the duty to require the
establishment of a higher solvency margin than that of the last approved balance sheet.60 This is a real “early intervention”
measure since it is meant not to terminate a verified anti-juridical behaviour but to protect the insurance undertaking’s prospective solvency in a precautionary manner.61
3.3.2 Reorganization (Arts 229–239 CPI)
Under the section “reorganization measures”, the CPI provides for three types of procedures, all consisting of a receivership of the insur- ance company, with the purpose of recovering an already compro- mised – but anyway reversible – solvency situation: Commissioner for the fulfilment of individual acts (Acting Commissioner AC, Art. 229), Provisional Administration (PA, Art. 230), Extraordinary Administration (EA, Arts 231–239).
While the first is a peculiarity of the CPI, according to which IVASS may appoint a commissioner to perform specific acts only, 62 without interfering with the further management of the firm, the other two procedures are coincident with the bank’s TM 63 and SA64 procedures respectively, except for the competent Supervisory Authority, which is clearly IVASS instead of the Bank of Italy (and, for EA, the Minister of Production Activities instead of the Minister of Economy). However, the condition to trigger the three procedures is partly the same65 since
“serious non-compliance with the provisions of the law or with the relevant implementing measures” is required to adopt the procedure under Art. 229, whereas “serious irregularities in administration or serious violations of rules of law, administrative provisions or Articles of association” are considered suitable for the activation of PA and EA (the first being, as for banks, a shortened version of the second, when urgency occurs); exactly like TM and SA, they may also be adopted where a serious financial loss is foreseen.
3.3.3 Revocation and liquidation (Arts 242–265 CPI)
For the banking sector, the banking licence withdrawal and the dives- titure of the bank are indissolubly linked (to the point that there is no licence withdrawal without the consequent activation of a CAL procedure, and there is no CAL procedure without the previous authorization revocation66). The discipline for insurance companies expressly diversifies situations capable to determine the sole with- drawal from those which represent conditions for revocation and
administrative winding up together. The fact that the insurance company is violating rules (and not necessarily that it is insolvent67 ) always results in its expulsion from the market in order to protect global financial stability, but, in the intention of the CPI legislator, this expulsion does not always need to be followed by an orderly liquidation handled by the Supervisory Authorities.
Thus, in addition to the provisions regulating the Administrative Compulsory Winding up (ACW) procedure, which is disciplined by Arts 245–265 in the same manner and with the same peculiari- ties as the bank’s CAL procedure,68 Art. 242 CPI provides that the Minister of Production Activities, upon ISVAP’s proposal withdraws authorization when the insurance undertaking: (a) does not, when pursuing business, comply with the restrictions imposed by the authorization or envisaged in the scheme of operations; (b) no longer fulfils the conditions for taking up insurance business; (c) seriously fails to comply with the provisions of the CPI; (d) has been unable, within the time allowed, to take the measures specified in the resto- ration plan or finance scheme or has been unable, within the time allowed, to take the measures specified in the intervention plan, if it is subject to supplementary supervision; (e) has been subject to compulsory winding up or has been declared insolvent by the judi- cial authority.69
If the authorization is withdrawn for all the insurance classes pursued by the undertaking, the ACW procedure is immediately adopted (with the same measure); otherwise, a “partial withdrawal”, that is, only referred to some of the insurance classes pursued, is also possible and, in this case, the company behaves as it is requested to do in the case of lapse of authorization.70 It shall limit its business to the management of current contracts and shall not commence any new operation, but the ACW procedure is not requested.
However, the Minister of Production Activities, upon ISVAP’s proposal, may allow the undertaking to go into ordinary (voluntary) winding up, 71 within a mandatory time limit, when the withdrawal has been decided for the reasons under (a) and (b).
3.3.4 Crisis of other subjects operating in the financial sector It is worth considering, although very briefly, the peculiar category of financial operators consisting of those entities which are neither banks nor investment nor insurance companies, whose crisis situations are
likewise regulated by special provisions. Electronic money institu- tions, payment institutions, financing companies (otherwise called Arts 106’s intermediaries72 ), collective loans guarantee entities fall under this “group” of “other financial intermediaries”,73 all sharing a particular crisis treatment more or less similar to the one reserved to banks – because of their significant role in the market of payments or in the credit market – and therefore governed by the CLB, always with the intervention of the public authority (the Minister of Economy and Finance and the Bank of Italy). Such provisions have been recently made subject to considerable reforms, in order to comply with EC directives 2007/64/CE (Payment Services Directive), 2008/48/CE (Consumer Credit Directive) and 2009/110/CE (Electronic Money Directive 2). For matters not expressly disciplined, the CLB empowers the Bank of Italy to regulate many aspects of the other financial inter- mediaries’ crisis measures, by way of secondary regulation (circulars, regulations, supervisory provisions).
Procedures for crisis management of “Arts 106’s intermediaries” are provided for by Arts 113-bis and 113-ter of the CLB (deeply modi-r fied by Legislative Decrees No. 141/2010 74 and No.169/2012 75), the first supplying the temporary suspension and replacement of the managing board (a midway procedure between banks’ SA and bank’s TM), the latter establishing an orderly liquidation procedure (which can be activated under the same conditions as the banks’ CAL).
To payment institutions (PIs), a peculiar crisis regime – partly similar to banks, partly to Art. 106’s intermediaries – applies, according to Art.
114 undecies CLB76. PIs whose sole business is to provide and execute payment services (“pure” PIs) fall under application, in case of crisis, of Arts 78 and 79 CLB (extraordinary injunctions), 82 CLB (insol- vency declaration and consequent application of the CAL procedure provided for by Art. 80 CLB), 113-bis CLB (temporary management), 113-ter CLB (licence withdrawal and controlled liquidation). The SA r procedure (Art. 70 CLB) is not applicable. When a “hybrid” PI (which also conducts entrepreneurial activities other than the provision and execution of payment services) is troubled, common insolvency procedures apply, but the Bank of Italy may appoint 77 a separated liquidator for the ring-fenced assets. 78
Since electronic money institutions (EMIs) carry out businesses otherwise reserved to banks,79 they were previously subjected to their same crisis procedures (as well as PIs); after the recent reform of Title
V-bis of the CLB, operated by Legislative Decree No. 45/2012,80 on the contrary, EMIs’ crisis management is now essentially aligned with PIs and Art. 106’s intermediaries, even if “pure” EMIs (whose sole business is the issuing of electronic money) are distinguished from
“hybrid” EMIs. 81
CLB’s provisions on collective loans guarantee consortia ( Confidi82 ) have been recently reorganized83 and arranged in a binary system, separating the “fully supervised” Confidis – whose prevalent but not exclusive activity is the guarantee of collective loans and which are therefore regulated like Art. 106’s intermediaries84 – from those subjected to a “light supervision” because of their smaller size of busi- ness, exclusively concentrated on granting collective credit.85 Crisis management procedures follow this scheme, so that the same meas- ures already described for financial intermediaries apply to the major Confidis; the others fall under the simplified supervision of a special supervisory body86 (itself in turn supervised by the Supervisory Authorities, that is, the Minister and the Bank of Italy), which, in case of serious violations of law, may order a Confidi’s suspension or disqualification from the list and may prohibit the entity from under- taking new transactions or order it to reduce activities. Where serious violations of law or severe management irregularities are committed by the supervisory body itself, the Bank of Italy may submit a proposal to the minister to wind up the management and control bodies and appoint a commissioner,87 not very differently from what happens in the CAL procedure for banks.