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>> SUPERVISORS MEETING
4th ASSAL/IAIS Training Seminar



From June 6 through 8, 2001, the City of Buenos Aires hosted the 4th ASSAL - IAIS Training Seminar, organized by the Insurance Superintendency of Argentina (SSN) and attended by representatives from Latin America, Spain, Germany and France. The IAIS Education Subcommittee also took this opportunity to define future policies.


In accordance with guidelines set down by the Annual Meeting of the Association of Latin American Insurance Supervisors (ASSAL) and later adhered to by the International Association of Insurance Supervisors (IAIS), training meetings provide a periodic assembly point for representatives of the institutions that supervise the Insurance Industry in Latin America. In addition to their main objective of contributing to the further training of Association members, these meetings also provide a venue for the exchange of ideas and experiences and the consolidation of ties that clearly go beyond strictly technical and professional relationships.
At the latest of these events, the main topic of the Seminar was "Appraising the Financial Sector" . This is indeed a major issue and one that has an impact on the Insurance Industry in its role as investor. Stress is placed here on tools that permit the evaluation of viable alternatives, while avoiding options that lack the transparency and solvency that insurance institutions require.
The focus adopted for this meeting began with the general development of the main theme by representatives of major international financial organizations, followed by case study analysis and a look at the experiences of a variety of countries. This approach facilitates the understanding of all participants, who also make individual contributions to group analysis discussions.
Parallel to this, meetings of the different Committees that make up ASSAL and the IAIS Training Committee coordinate the future activities of the two organizations by studying and defining the topics to which they feel efforts should be oriented.
A rundown of activities being carried out by the ASSAL was provided by the organization's President, Luis Cortavarría Checkley, while the IAIS's functions were explained by Manuel Aguilera, Chairman of that organization's Executive Committee.
Hemult Müller spoke on basic insurance principles, while Don McIsaac of the World Bank (WB) gave a talk on the Financial Sector and another lecture was presented by International Monetary Fund (IMF) representative Udaibir Das.
Manuel Aguilera of Mexico, Silvina Vatnick of Argentina and Yoshihiro Kawai of the IAIS provided insight into their experiences with the Financial Sector Appraisal Program (FSAP).
June 7 and 8 were reserved for the presentation of specific case studies. Based on analysis of the situation of a Spanish insurance company, participants were asked to present group reports. ASSAL representatives took advantage of the opportunity to convene a meeting of their Solvency and Education Committees.
In his opening address, Luis Cortavarría Checkley stated that this type of meeting permitted the periodic gathering of those who supervise insurance activities in Latin American nations, while contributing to their training and providing for an exchange of experiences and the establishment of ties "the persist beyond strictly technical and professional aspects".
The main topic of the Seminar was "Appraising the Financial Sector" , oriented toward the impact of this area of interest on the Insurance Industry in its role as investor, and "with stress being placed here on tools that permit the evaluation of viable alternatives, while avoiding options that lack the transparency and solvency that insurance institutions require".
Among other objectives brought to the table was a proposal to coordinate the future activities of the organizations and "to define the issues toward which it is considered advisable to orient efforts".
Checkley said that he felt the sessions had been positive overall, bearing in mind the exchange of knowledge and experience they fostered.
The Seminar brought the following proposals to the fore.
In the case of the working group on solvency standards, it was proposed that:
1- An IAIS standard be adopted for the supervision of derivatives.
2- The standard for supervision of asset management also be adopted.
3- A recommendation be tabled at the November meeting to make standards previously approved by the ASSAL available to the general public.
4- Standards developed for Mercosur countries be analyzed for possible incorporation into the ASSAL's standards.
The Education Working Group proposed that:
1- Studies be carried out to determine the training needs of each country and that case studies be developed in every country for use in upcoming training meetings.
2- Case study development be carried out in keeping with IAIS methodology.
3- Alternative working methodologies be analyzed for application in future meetings.
4- "Links " related to training information be designed in each country.
5- Available financing resources be analyzed.
The Information and Communications Working Group proposed that:
1- The understanding and information exchange accord be reviewed and distributed within the near future.
2- Information from the different countries that can be directly incorporated into the available Internet site be analyzed.
3- A proposal be made to the Assembly to provide free access to statistical data gathered in surveys.
4- Surveys be carried out in the different countries to determine uses for and the attributes and failings of the ASSAL Internet site.

Background

In his role as Executive Committee Chairman and Chairman of the Mexican National Insurance and Finance Committee, IAIS representative Manuel Aguilera referred to the subject of principles and standards.
According to Aguilera, the IAIS "dedicates a major part of its efforts to setting principles and standards that are likely to become benchmarks for any supervisor taking part in processes aimed at modernizing their activities".
Indeed, what insurance authorities operating within integrated and inter-dependent financial systems on a worldwide scale are seeking are standards and methods of supervision.
The IAIS was established in 1994 as a sister organization to the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO).
It groups Insurance Industry supervisory authorities from some 150 jurisdictions worldwide.
The main objective of the IAIS is to contribute to financial stability by preparing and instrumenting regulation and supervision principles and standards.

Activities * The IAIS develops and issues general principles, standards and guidelines for supervisory agencies and supervisors worldwide. These standards provide supervisors with a set of basic international application standards. While not legally binding, these standards nevertheless constitute objective benchmarks for application on a flexible basis and in keeping with the legal frameworks and particular economic circumstances of each and every country.
The work of the IAIS is built on three pillars: Development of Principles; development of Standards and General Guidelines, and development of Textbooks and Case Studies.
In the Insurance Industry, basic principles refer to the supervision of international insurers and transnational operations, as well as to market performance and on-line insurance activities. Those currently in the process of development include those governing capital and solvency requirements and information-gathering activities.
The IAIS believes that setting standards is a first step toward a healthy insurance system, as well as the only way to achieve financial stability.
Intensifying principles implies: a) improving the regulatory framework governing the Insurance Industry; b) strengthening international markets; and c) contributing to worldwide financial stability.
The organization believes that training seminars and conferences are the best way to promote the implementation of these standards on a worldwide scale.

Dámaso Sanz Montero - The Case of Spain

Dámaso Sanz Montero -State Comptroller and Chief of the Inspection Services Unit of the General Insurance Board, Madrid (Spain)- presented a practical case study for control of Technical Previsions.
The inspection was carried out in La Perfecta Aseguradora S.A. "to look into technical reserves and assets to see whether they were sufficient to guarantee the availability of the company's own capital to comply with the minimum Solvency Margin required".
The audit was carried out under the following guidelines.
a) The only line examined was motor insurance, which represents 85% of the Company's business.
b) Figures and amounts for all other lines of business were accepted as reported by the Company and their veracity thus could not be confirmed.
c) Reinsurance has not been resorted to. All amounts refer to direct insurance.
It is worthwhile noting that Spanish legislation covering insurance has been harmonized with that of the European Union. Nevertheless, as a means of establishing normalization minimums quickly and effectively, European legislation permits member countries to choose from a series of options to facilitate a less traumatic transition, due to the broad-ranging diversity of existing domestic laws [DN1].

Manuel Aguilera - The Case of Mexico

Manuel Aguilera's presentation included a look at the Financial Sector Appraisal Program (FSAP) for Mexico, from the standpoint of Insurance and Finance. In Aguilera's view, the international liberalization and deregulation process of the past decade has provided financial activities with a certain degree of compliance with international standards, support for third-party independents and cooperative government standards applied to formal supervision processes. Among the organizations establishing these standards are the BCBS, the IOSCO and the IAIS.
The general purpose behind the 17 Basic Insurance Principles hinges on the setting of parameters for effectively structured supervision; identifying areas that should be controlled in each jurisdiction and furnishing a proper framework for the development of more detailed international standards.
These basic principles also provide a general framework that can be applied to a variety of supervisory systems.
IAIS criteria seek the unification of these principles so that the appraisal and monitoring of their implementation can be genuinely effective. What is being sought is a set of principles that can be used as a means of self-evaluation, as well as for assisted review with the help of other supervisors or third-party specialists - as in the case of appraisal programs (FSAPs) developed by the IMF and World Bank.
Criteria applied to the evaluation of each principle may be differentiated as follows: * Essential Criteria: These should be applied in order to demonstrate full compliance with the principles in question.
* Additional Criteria: These are aimed at improving financial stability and providing for more effective supervision.
Manuel Aguilera made the following comments regarding analysis of compliance with the basic principles as observed in Mexico.

Regarding Supervisory Organization a) Legal protection covering the functions of personnel assigned to the supervisory agency must be strengthened.
b) A civil service to maintain levels of training and expertise within the supervisory agency must be developed.
c) The operational autonomy of the supervisory agency must be strengthened.

Regarding Authorization and Control Change Issues


d) Market access requirements must be made uniform.
e) Those who qualify must be presented for approval by institutional officials in key technical posts.
f) From this point on, authorization of mixed -Life and Non-Life- companies should be eliminated.

Regarding Corporate Management and Internal Control
g) General corporate management standards for the institutions being supervised must be established by law.
h) Within the context of the Administrative Council, responsibilities must be defined in the different fields involved.
i) The institutions under supervision should be legally bound to the establishment of internal control systems, including explicit mechanisms and a constant review of regulatory compliance.

Regarding Prudential Rules
j) A reduction in the liquidity coefficient of Life operations (especially in the case of medium and long-term accumulation contracts) should be analyzed.
k) Advances must be made regarding the liquidity of certain assets, not only on the basis of duration but also of possibilities for actual materialization.
l) Advances must also be made regarding incorporation of sufficient actuary criteria for proper appraisal of technical reserves on casualty insurance.

Regarding Market Performance
m) Compliance with CONDUSEF-backed market performance measures must be encouraged through the establishment of corporate management standards for all supervised institutions.

Regarding Supervision and Sanctions
n) Legislation must be established that provides for the instrumentation of regulatory action to be taken prior to revocation of authorization to operate - including partial or temporary suspension of activities.
o) Sanction packages should be re-designed to make them compatible with the regulatory framework.
p) Processes for suspending a company's operations, pursuant to liquidation, should be rendered more agile.

Regarding Transnational Operations
q) Transnational operations must be regulated in conformity with the laws and international treaties adhered to by the country in question.

Regarding Coordination, Cooperation and Confidentiality
r) The CNSF complies with the terms of the protocol for exchange of information developed by the International Association of Insurance Supervisors (IAIS).
s) This protocol, in turn, complies with international standards regarding confidentiality in information management.

Conclusions

* The evaluation of compliance with Basic Insurance Principles permits the identification of strengths and weaknesses in the supervisory system and provides sufficient elements to establish plans of action to render these systems more effective and stable.
* The fact that the IAIS coordinates its operations with those of other international financial institutions and organizations has permitted it to strengthen its actions, thus making a positive contribution to priority tasks aimed at international financial stability.
* These actions tend to identify financial and economic vulnerability.
* They also detect gaps in regulatory structures and practices.
* They provide major elements for the development of possible regulatory reforms.
* They provide cooperation with the authorities in appraising their own systems within the context of international parameters.
* Elements for the improvement of the level of compliance with international standards will be incorporated into a bill aimed at reforming the General Law on Institutions and Insurance Mutuals that is currently being drafted.


Translation: Dan Newland

 
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