1. Workshop on the Insurance Core Principles IV Conference on Insurance Regulation and Supervision in Latin America Punta Cana, May 6-9 2003 Makoto Okubo, Advisor International Association of Insurance Supervisors (IAIS)

2. Workshop on the Insurance Core Principles 2 2 May 2003 Makoto Okubo Main items I.IAIS Insurance Core Principles (ICPs) II.Revision of the ICPs III.Comparison of current and proposed ICPs IV.Questions

3. Workshop on the Insurance Core Principles 3 2 May 2003 Makoto Okubo Conduct assessment Identify weaknesses Draw up action plan Implement action plan Review implementation Assessment Standards implementation Self-assessment Cooperation with FSAP Development of tools Regional seminars Technical Assistance Database and analysis Set global standards Identify key supervisory issues Standards development Core Principles Standards (principles, standards, guidance papers and others) Programme for reinforcing insurance systems and the ICPs I. IAIS Insurance Core Principles

4. Workshop on the Insurance Core Principles 4 2 May 2003 Makoto Okubo Background –IAIS established in 1994 –Insurance Supervisory Principles in 1997 –Secretariat set-up in Basel in 1998 –FSAP (the Financial Sector Assessment Program) started in 1999 I. IAIS Insurance Core Principles

5. Workshop on the Insurance Core Principles 5 2 May 2003 Makoto Okubo Background (cont.) –The Insurance Core Principles and Insurance Core Principles Methodology in 2000 –Self-assessment programme developed in 2000 –The Joint Forum comparison of the core principles in banking, insurance and securities sectors in 2001 I. IAIS Insurance Core Principles

6. Workshop on the Insurance Core Principles 6 2 May 2003 Makoto Okubo Organisation of an insurance supervisor Licensing and changes in control Corporate governance Internal control Prudential rules Market conduct Monitoring and on-site inspection Sanctions Cross-border business operations Outline of the ICPs (adopted in October 2000) Coordination, cooperation et confidentiality I. IAIS Insurance Core Principles

7. Workshop on the Insurance Core Principles 7 2 May 2003 Makoto Okubo The Workplan –The Task Force on the Revisions to the Insurance Core Principles and Methodology in January 2002 –A new overall framework in March 2002 –Draft for consultation completed by early 2003 –A final document for adoption in Singapore in October 2003 II. Revision to the ICPs

8. Workshop on the Insurance Core Principles 8 2 May 2003 Makoto Okubo The draft ICPs take into account: –Members’ experience in completing the self- assessment programme –The experience of members and international financial institutions in undertaking the FSAP –The report of the Joint Forum’s working group comparing the core principles in the three financial sectors –Other comments provided by members and observers II. Revision to the ICPs

9. Workshop on the Insurance Core Principles 9 2 May 2003 Makoto Okubo Introduction Conditions for effective insurance supervision The supervisory system The supervised entity Ongoing supervision Prudential requirements Market and consumers Outline of the proposed ICPs Anti-money laundering II. Revision to the ICPs

10. Workshop on the Insurance Core Principles 10 2 May 2003 Makoto Okubo More principles are included: –The conversion of what were previously called “preconditions” into principles to emphasise their fundamental importance to the conduct of effective supervision. –The inclusion of new areas, for example, market analysis, consumer protection and anti-money laundering. –The reordering and further breaking down of some principles III. Comparison of current and proposed ICPs

11. Workshop on the Insurance Core Principles 11 2 May 2003 Makoto Okubo There are explanatory notes and criteria supporting each principle. –The criteria are categorised as either essential or advanced to enable assessors and those implementing the principles to make allowances for the nature of the market and state of development in a particular jurisdiction. –The criteria should be assessed using five categories: observed, largely observed, partly observed, not observed, and not applicable. III. Comparison of current and proposed ICPs

12. Workshop on the Insurance Core Principles 12 2 May 2003 Makoto Okubo ContentsCurrent ICPsProposed ICPs I. Introduction Introduction II. Conditions for effective insurance supervision - Covered as Preconditions for effective insurance supervision in Core Principles Methodology ICP 1: Conditions for effective insurance supervision III. The supervisory system ICP 2: Supervisory objectives Principle 1: Organisation of an Insurance Supervisor ICP 3: Supervisory authority - covered in Principle 1ICP 4: Supervisory process Principle 16: Coordination and Cooperation ICP 5: Supervisory cooperation and information sharing Principle 17: Confidentiality- Covered in the ICP 3 III. Comparison of current and proposed ICPs

13. Workshop on the Insurance Core Principles 13 2 May 2003 Makoto Okubo ContentsCurrent ICPsProposed ICPs IV. The supervised entity Principle 2: LicensingICP 6: Licensing -See Principle 2ICP 7: Suitability of persons Principle 3: Changes in ControlICP 8: Changes in control and portfolio transfers Principle 4: Corporate GovernanceICP 9: Corporate Governance Principle 5: Internal ControlsICP 10: Internal control III. Comparison of current and propsed ICPs

14. Workshop on the Insurance Core Principles 14 2 May 2003 Makoto Okubo ContentsCurrent ICPsProposed ICPs V. On-going supervision ICP 11: Market analysis Principle 12: Financial ReportingICP 12: Reporting to supervisors and off-site monitoring Principle 13: On-site InspectionICP 13: On-site inspection ICP 14: Intervention Principle 14: SanctionICP 15: Enforcement or sanctions ICP 16: Winding-up & exit from the market Principle 15: Cross-border Business Operations ICP 17: Group-wide supervision III. Comparison of current and proposed ICPs

15. Workshop on the Insurance Core Principles 15 2 May 2003 Makoto Okubo ContentsCurrent ICPsProposed ICPs VI. Prudential requirements ICP 18: Risk assessment and management ICP 19: Insurance activities Principle 7: LiabilitiesICP 20: Liabilities Principle 6: AssetsICP 21: Investments Principle 9: Derivatives and ‘off- balance sheet’ items ICP 22: Derivatives and similar commitments Principle 8: Capital Adequacy and Solvency ICP 23: Capital adequacy and solvency III. Comparison of current and proposed ICPs

16. Workshop on the Insurance Core Principles 16 2 May 2003 Makoto Okubo ContentsCurrent ICPsProposed ICPs VII. Markets and consumers Principle 11: Market ConductICP 24: Intermediaries ICP 25: Consumer protection ICP 26: Information, disclosure & transparency towards the market ICP 27: Fraud VIII. Anti- money laundering ICP 28: Anti-money laundering (deleted) Principle 10: Reinsurance-See ICP 19 & 20 -It is also noted that the ICPs now apply to reinsurers as well as insurers III. Comparison of current and proposed ICPs

17. Workshop on the Insurance Core Principles 17 2 May 2003 Makoto Okubo Please discuss the following questions in your group and make a brief presentation. (5 minutes for each group) 1)Any comments on proposed ICPs 2)Peer review exercises on ICP13: on-site inspection V. Questions References 1)Introduction to the Workshop on 8 May 2003 2)Comparison of current and proposed ICPs (draft – 24 April 2003) 3)Revised ICPs (draft – 31 January 2003) 4)Assessment methodology (draft – 28 February 2003) 5)Peer review exercises