International Association International Association of Insurance Supervisorsof Insurance Supervisors

Observer Panel

Re- / Deregulation

Steve Butterworth Chile 2002

IAIS Observer PanelRe- / Deregulation

Chile 2002

• IAIS - Outlook on model schedules

and best practise statement.

- Mutual recognition of domestic

supervisory rules based on IAIS

Standards, Principles & Guidelines.

IAIS Observer PanelRe- / Deregulation

Chile 2002

• In Particular - Why check compliance many times in different

jurisdictions.

IAIS Observer PanelRe- / Deregulation

Chile 2002

Reasons for Differing Regulations

• Different markets

• Different economic goals

IAIS Observer PanelRe- / Deregulation

Chile 2002

History

• Patchwork supervision

• Legal barriers

• Practical problems in assessing supervisory practices

• No exchange of information

IAIS Observer PanelRe- / Deregulation - Chile 2002

WTO Model Schedules

Market Access• Reinsurance - M.A.T. - Intermediaries

- No restrictions

• Life & Non-Life Reinsurance

- No mandatory cessions

- No right of first privileges

- No discrimination re collateralization & localization

- Freedom of form & contract

IAIS Observer PanelRe- / Deregulation - Chile 2002

WTO Model Schedules

Commercial Presence

• Form of establishments

• Equity shares

• Compulsory lines

• Monopolies

• Private participation in pensions & funds management

IAIS Observer PanelRe- / Deregulation

Chile 2002

WTO Model Schedules

• Temporary entry of natural persons

• National treatment

IAIS Observer PanelRe- / Deregulation

Chile 2002

WTO Best Practices in Insurance

• Transparency

• Solvency and prudential focus

• Insurance monopolies

• Independent regulatory authority

IAIS Observer PanelRe- / Deregulation - Chile 2002

Statement by Financial Leaders Working Group• FLWG - Financial Institutions and Associations in

Europe, North America, Japan & Hong Kong

• Fully Supportive

- Greater price competition

- Product diversity and innovation

- Investment options

- Retirements security

- Local infrastructure development

IAIS Observer PanelRe- / Deregulation

Chile 2002

IAIS Core Principles of Supervision

• Capable of observance in all jurisdictions where there are adequate resources.

• IAIS core principles contain no barriers to prevent foreign insurers operating on the same terms as domestic insurers.

IAIS Observer PanelRe- / Deregulation

Chile 2002

Reliance on Rating Agencies

• Rating agencies not regulated

• Sometimes inconsistent

• Commercially driven

IAIS Observer PanelRe- / Deregulation

Chile 2002

Disadvantages

• Instability of markets.

• Insurers / reinsurers pulling out.

• Overseas supervisors little interest in your domestic market.

IAIS Observer PanelRe- / Deregulation

Chile 2002

Disadvantages

• Insurer fraud in developing countries is prevalent.

• Fraudsters migrate to those countries with little effective regulation.

IAIS Observer PanelRe- / Deregulation

Chile 2002

The Guernsey Situation

• All insurers with a physical presence (either directly or indirectly - through agents) need a licence.

• Insurance intermediaries can place only with ‘recognized’ insurers - no licence issued.

IAIS Observer PanelRe- / Deregulation

Chile 2002

The Guernsey Situation

• Experienced problems with fraudulent marine insurers which the ‘recognized’ insurer system eliminated.

• Model schedule proposed cross border supply without restrictions to market access for M.A.T. and insured intermediation.

IAIS Observer PanelRe- / Deregulation

Chile 2002

The Guernsey Situation• Foreign insurers are not barred from a physical

presence.

• With current state of market, overseas branches are closing down.

• Creates problems - especially long-term contracts.

IAIS Observer PanelRe- / Deregulation

Chile 2002

Conclusion

• There must be total mutual international recognition of prudential and market conduct supervisory standards.

• Impossible? - Will politics and economic considerations interfere?