Financial Sector Assessment Financial Sector Assessment Program - InsuranceProgram - Insurance

Inter-American Development Bank.Inter-American Development Bank.

Washington, D.C.Washington, D.C.

November 7, 2005.November 7, 2005.

Nigel Davies.Nigel Davies.

International Monetary Fund.International Monetary Fund.

ndavies@imf.orgndavies@imf.org

FSAP - InsuranceFSAP - Insurance

IMF / WB MandateIMF / WB Mandate FSAP Assessment MethodologyFSAP Assessment Methodology Insurance ResultsInsurance Results Issues ArisingIssues Arising

FSAP – InsuranceFSAP – InsuranceGeneral BackgroundGeneral Background

InterestsInterestsEconomic and Financial StabilityEconomic and Financial Stability

ActivitiesActivitiesFinancial Sector Assessment ProgramFinancial Sector Assessment Program

Technical AssistanceTechnical Assistance

Article IV ConsultationsArticle IV Consultations

ResearchResearch

FSAP – InsuranceFSAP – InsuranceWhat is assessed?What is assessed?

Conditions for effective insurance supervisionConditions for effective insurance supervisionICP 1 Conditions for effective insurance supervisionICP 1 Conditions for effective insurance supervision

The supervisory systemThe supervisory systemICP 2 Supervisory objectives ICP 2 Supervisory objectives ICP 3 Supervisory authorityICP 3 Supervisory authorityICP 4 Supervisory processICP 4 Supervisory processICP 5 Supervisory cooperation and information sharing ICP 5 Supervisory cooperation and information sharing

The supervised entityThe supervised entityICP 6 Licensing ICP 6 Licensing ICP 7 Suitability of persons ICP 7 Suitability of persons ICP 8 Changes in control and portfolio transfersICP 8 Changes in control and portfolio transfersICP 9 Corporate governance ICP 9 Corporate governance ICP 10 Internal controlICP 10 Internal control

On-going supervisionOn-going supervisionICP 11 Market analysisICP 11 Market analysisICP 12 Reporting to supervisors and off-site monitoringICP 12 Reporting to supervisors and off-site monitoringICP 13 On-site inspectionICP 13 On-site inspectionICP 14 Preventive and corrective measuresICP 14 Preventive and corrective measuresICP 15 Enforcement or sanctionsICP 15 Enforcement or sanctionsICP 16 Winding-up and exit from the marketICP 16 Winding-up and exit from the marketICP 17 Group-wide supervision ICP 17 Group-wide supervision

Prudential requirementsPrudential requirementsICP 18 Risk assessment and managementICP 18 Risk assessment and managementICP 19 Insurance activityICP 19 Insurance activityICP 20 Liabilities ICP 20 Liabilities ICP 21 InvestmentsICP 21 InvestmentsICP 22 Derivatives and similar commitmentsICP 22 Derivatives and similar commitmentsICP 23 Capital adequacy and solvency ICP 23 Capital adequacy and solvency

Markets and consumersMarkets and consumersICP 24 IntermediariesICP 24 IntermediariesICP 25 Consumer protection ICP 25 Consumer protection ICP 26 Information, disclosure & transparency towards the ICP 26 Information, disclosure & transparency towards the

marketmarketICP 27 FraudICP 27 Fraud

Anti-money laundering, combating the financing of Anti-money laundering, combating the financing of terrorismterrorism

ICP 28 Anti-money laundering, combating the financing of ICP 28 Anti-money laundering, combating the financing of terrorism (AML/CFT) terrorism (AML/CFT)

Non-Core Principle Related:Non-Core Principle Related:Technical Notes on relevant major issues.Technical Notes on relevant major issues.

FSAP – FSAP – InsuranceInsuranceFSAP RESULTS SUMMARY FSAP RESULTS SUMMARY

Higher Degree of ComplianceHigher Degree of Compliance

Confidentiality / Info. Confidentiality / Info. sharingsharing

Changes in ControlChanges in Control Financial ReportingFinancial Reporting Capital AdequacyCapital Adequacy LiabilitiesLiabilities

Lower Degree of ComplianceLower Degree of Compliance

Corporate Governance /Corporate Governance /

Internal ControlsInternal Controls Assets / InvestmentsAssets / Investments Organization of SupervisorOrganization of Supervisor Market ConductMarket Conduct

FSAP – FSAP – InsuranceInsurance FSAP RESULTS - InterpretationFSAP RESULTS - Interpretation

Change in Insurance Core PrinciplesChange in Insurance Core Principles Trends in compliance over timeTrends in compliance over time Specificity and risk-sensitivity of CPsSpecificity and risk-sensitivity of CPs Technical Assistance & Article IV are not Technical Assistance & Article IV are not

systematically analyzed. systematically analyzed.

FSAP – InsuranceFSAP – Insurance FSAP RESULTS – Higher Degree of ComplianceFSAP RESULTS – Higher Degree of Compliance

ConfidentialityConfidentiality(Impediments to supervisory co-operation?)(Impediments to supervisory co-operation?)

Capital Adequacy / LiabilitiesCapital Adequacy / Liabilities(Variances in prudential strength?)(Variances in prudential strength?)

(Procyclicality?)(Procyclicality?)

FSAP – InsuranceFSAP – Insurance FSAP RESULTS – Lower Degree of ComplianceFSAP RESULTS – Lower Degree of Compliance

Upward trendUpward trend Corporate GovernanceCorporate Governance Assets / InvestmentsAssets / Investments

No discernable upward trendNo discernable upward trend Organization of SupervisorOrganization of Supervisor Market ConductMarket Conduct

FSAP – InsuranceFSAP – Insurance ISSUES RAISEDISSUES RAISED

Direct IssuesDirect Issues Diversity of national regulationsDiversity of national regulations Areas of supervisory co-operationAreas of supervisory co-operation Comparative prudential strength of institutionsComparative prudential strength of institutions

Indirect IssuesIndirect Issues Factors affecting market developmentFactors affecting market development Unitary regulatory authoritiesUnitary regulatory authorities Principles-based vs. Rules-based regulation Principles-based vs. Rules-based regulation

FSAP – InsuranceFSAP – Insurance CONCLUSIONSCONCLUSIONS

IssueIssue

Developmental Developmental >>

IssuesIssues

Prudential Strength Prudential Strength >>

Diverse Regulatory Diverse Regulatory >> RegimesRegimes

ConclusionConclusion

Improve Market ConductImprove Market Conduct

Introduce Quantitative Introduce Quantitative BenchmarksBenchmarks

Greater Co-operation, Greater Co-operation, Convergence, lessConvergence, less

“ “Confidentiality”Confidentiality”