THERE are 26 Insurance Core Principles adopted by the International Association of Insurance Supervisors (IAIS). These principles are intended for all supervisors around the world, regardless of the level of development and sophistication of the insurance market. We present to you these principles, together with the guidance statements as prepared by the IAIS.
- Objectives, powers and responsibilities of the supervisor. The authorities responsible for insurance supervision and the objectives of insurance supervision are clearly defined;
- The supervisor. The supervisor, in the exercise of its functions and powers: is operationally independent, accountable and transparent; protects confidential information; has appropriate legal protection; has adequate resources; and meets high professional standards;
- Information exchange and confidentiality requirements. The supervisor exchanges information with other relevant supervisors and authorities subject to confidentiality, purpose and use requirements;
- Licensing. A legal entity which intends to engage in insurance activities must be licensed before it can operate within a jurisdiction. The requirements and procedures for licensing must be clear, objective and public and be consistently applied;
- Suitability of persons. The supervisor requires board members, senior management, key persons in control functions and significant owners of an insurer to be and remain suitable to fulfill their respective roles;
- Changes in control and portfolio transfers. Supervisory approval is required for proposals to acquire significant ownership or an interest in an insurer that results in that person (legal or natural), directly or indirectly, alone or with an associate, exercising control over the insurer. The same applies to portfolio transfers or mergers of insurers;
- Corporate governance. The supervisor requires insurers to establish and implement a corporate governance framework which provides for sound and prudent management and oversight of the insurer’s business and adequately recognizes and protects the interest of policyholders;
- Risk management and internal controls. The supervisor requires an insurer to have, as part of its overall corporate governance framework, effective systems of risk management and internal controls, including effective functions for risk management, compliance, actuarial matters and internal audit;
- Supervisory review and reporting. The supervisor takes a risk-based approach to supervision that uses both off-site monitoring and on-site inspections to examine the business of each insurer, evaluate its condition, risk profile and conduct, the quality and effectiveness of its corporate governance and its compliance with relevant legislation and supervisory requirements. The supervisor obtains the necessary information to conduct effective supervision of insurers and evaluate the insurance market;
- Preventive and corrective measures. The supervisor takes preventive and corrective measures that are timely, suitable and necessary to achieve the objectives of insurance supervision;
- Enforcement. The supervisor enforces corrective action, where needed, imposes sanctions based on clear and objective criteria that are publicly disclosed;
- Winding-up and exit from the market. The legislation defines a range of options for the exit of insurance legal entities from the market. It defines insolvency and established the criteria ad procedure for dealing with insolvency of insurance legal entities. In the event of winding-up proceedings of insurance legal entities, the legal framework gives priority to the protection of policyholders and aims at minimizing disruption to the timely provision of benefits to policyholders;
- Reinsurance and other forms of risk transfer. The supervisor sets standards for the use of reinsurance and other forms of risk transfer, ensuring that insurers adequately control and transparently report their risk transfer programs. The supervisor takes into account the nature of reinsurance business when supervising reinsurers based in its jurisdiction;
- Valuation. The supervisor establishes requirements for the valuation of assets and liabilities for solvency purposes;
- Investment. The supervisor establishes requirements for solvency purposes on the investment activities of insurers in order to address the risks faced by insurers.
- Enterprise risk management for solvency purposes. The supervisor establishes risk management requirements for solvency purpose that require insurers to address all relevant and material risks;
- Capital adequacy. The supervisor establishes capital adequacy requirements for solvency purposes so that insurers can absorb significant unforeseen losses and to provide for degrees of supervisory intervention;
- Intermediaries. The supervisor sets and enforces requirements for the conduct of insurance intermediaries, to ensure that they conduct business in a professional and transparent manner;
- Conduct of business. The supervisor sets requirements for the conduct of the business of insurance to ensure customers are treated fairly, both before a contract is entered into and through to the point at which all obligations under a contract have been satisfied;
- Public disclosure. The supervisor requires insurers to disclose relevant comprehensive and adequate information on a timely basis in order to give policyholders and market participants a clear view of their business activities, performance and financial position. This is expected to enhance market discipline and understanding of the risks to which an insurer is exposed and the manner in which those risks are managed.
- Countering fraud in insurance. The supervisor requires that insurers and intermediaries take effective measures to deter, prevent, detect, report and remedy fraud in insurance;
- Anti-money laundering and combating the financing of terrorism. The supervisor requires insurers and intermediaries to take effective measures to combat money laundering and the financing of terrorism. In addition, the supervisor takes effective measures to combat money laundering and the financing of terrorism;
- Group-wide supervision. The supervisor supervises insurers on a legal entity and group-wide basis;
- Macroprudential surveillance and insurance supervision. The supervisor identifies, monitors and analyses market and financial developments and other environmental factors that may impact insurers and insurance markets and uses this information in the supervision of individual insurers. Such tasks should, where appropriate, utilize information from, and insights gained by, other national authorities;
- Supervisory cooperation and coordination. The supervisor cooperates and coordinates with other relevant supervisors and authorities subject to confidentiality requirements;
- Cross-border cooperation and coordination on crisis management. The supervisor cooperates and coordinates with other relevant supervisors and authorities such that a cross-border crisis involving a specific insurer can be managed effectively.
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Atty. Dennis B. Funa is the Insurance Commission’s deputy commissioner for legal services. Send comments to dennisfuna@yahoo.com.