Basic Principles of Insurance Supervision Duties and Operation of a Supervisory Authority under Coor

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Basic Principles of Insurance SupervisionDuties
and Operation of a Supervisory Authorityunder
Coordinated European Legislation
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1. Principles and Objectives of Supervision

• 1.1 Reasons in favour of insurance supervision
• the social importance of insurance to both the
  private and commercial policyholders
• the special features of the insurance product
• the confidence requirement of the insurance
  industry

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1. Principles and Objectives of Supervision

• 1.2 Main objectives of supervision in accordance
  with EC legislation
• "to ensure that the undertaking's business
  continues to comply with the laws, regulations
  and administrative provisions with which the
  undertaking must comply... and to prevent or
  remedy any irregularities prejudicial to the
  interests of the assured persons
• (article 23 (3) (b) of the first life directive
  as amended by article 10 of the third life
  directive and article 19 (3) (b) of the first
  non-life directive as amended by article 11 of
  the third non-life directive)

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1. Principles and Objectives of Supervision

• 1.3 Explaining its main objectives
• adequate premiums and sufficient provisions
• sufficient free assets to cover unexpected
  losses
• Reinsurance cover
• balance sheets and profit and loss accounts are
  established on the basis of uniform
  principles and correctly reflect the financial
  standing of the undertaking
• detailed information about the object and
  conditions of the contract in order to judge the
  product offered

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1. Principles and Objectives of Supervision

• Insurance supervision extends to
• the insurance undertakings
• the products offered

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2. Extent of supervision - drawing the line

• principle of home country control
• cooperation regarding control and observance of
  the national rules of the host country
• no harmonised reinsurance supervision rules in
  the EU,
• But!!!
• proposal for a directive on reinsurance by EU-COM
• establishing supervision of reinsurers in home
  country
• compulsory social security systems are not
  subject to supervision

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3. Stages of Supervision

• Two stages
• authorization of an insurance undertaking
• on-going supervision of its operations

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3. Stages of Supervision

• 3.1 Authorization and authorization requirements
• certain legal form
• It may only carry on insurance business and
  business directly related
• Specialization
• adequate own capital funds
• Submission of an operating plan
• -the type of risks to be covered
• -the principles of reinsurance policy
• -composition of the minimum guarantee funds

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3. Stages of Supervision

• anticipated set-up costs and costs for
  establishing a sales organization
• the volume of business to be expected in the
  first three years
• how the solvency margin and the other liabilities
  are to be covered

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3. Stages of Supervision

• proof of a reliable (honorable) management
• natural or legal persons with qualifying holdings
  
• licence must be granted when the legal
  requirements are met no economics needs test !!
• licence is valid in all EU member states and
  countries of the European Economic Area

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3. Stages of Supervision

• 3.2 On-going supervision
• collecting and evaluating information
• Verification of business documents
• intervention and restoration of orderly
  conditions in case of irregularities

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3. Stages of Supervision

• Means available to detect irregularities
• extension of business to other classes of
  insurance
• request of business records
• Periodic reporting about their investments
• internal accounting
• adequate administrative and accounting procedures
  and internal control mechanisms
• On-site inspections
• policyholder complaints

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3. Stages of Supervision

• instruments for taking action
• all adequate measures necessary to avoid or do
  away with abuses which endanger the interests of
  the insured
• special powers which differ from one state to
  the other
• authorized representative (Sonderbeauftragter)
• Withdrawal of authorization

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3. Stages of Supervision

• 3.3 Liquidation
• implementation of the Winding-up Directive
• mutual recognition of reorganisation measures
• winding-up proceedings in the EU member states
• guarantee assets (Sicherungsvermögen)
• list of assets
• Recognition of insolvency proceedings
• commencement, conduct and closure of winding-up
  proceedings -home country
• Germany only the supervisory authority is
  entitled to institute bankruptcy proceedings

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4. Organization of the Insurance Supervisory
Authority

• 4.1 Organization of supervisory activities
• organized differently in the individual EU member
  states
• Single authority
• Integrated supervisor (UK, Sweden, Denmark,
  Norway, Austria, Ireland and Germany)
• department inside a ministry performing all
  supervisory functions
• department inside a ministry responsible for the
  authorization of insurance undertakings
• subordinate authority in charge of on-going
  supervision

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4. Organization of the Insurance Supervisory
Authority

• 4.2 Operation of supervisory authorities
• Cooperation with other competent bodies (auditors
  for example)
• qualified jurists, graduates of economic sciences
  and mathematicians (actuaries)

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5. Financing Supervision

• costs of supervision are borne either wholly or
  almost wholly by the insurance industry
• no uniform rules

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• Thank you for your attention!
• Peter Baier
• Federal Financial Supervisory Authority (BaFin)
• Graurheindorfer Strasse 108
• 53117 Bonn / Germany
• Tel [phone]
• Fax [phone]
• Email Peter.Baier_at_bafin.de