Annex 5.C IAIS Insurance Core Principles
The IAIS Insurance Core Principles comprise 28 principles that need to be in place for a regulatory and supervisory system to be effective (IAIS 2003a). The principles relate to the following:
• Conditions for effective insurance supervision help set out the elements of the
environment where supervision can be most effective.
– ICP 1 Conditions for effective insurance supervision include broad requirements in financial policy and financial market infrastructure to support effective supervision.
• The supervisory system deals with the mandates and responsibilities of the supervisor.
– ICP 2 Supervisory objectives seek clarity in law.
– ICP 3 Supervisory authority seeks adequate powers, resources, and legal protection.
– ICP 4 Supervisory process seeks transparency and accountability.
– ICP 5 Supervisory cooperation and information sharing cover cooperation within the insurance sector and across the financial services sector, as well as nationally and internationally.
• The supervised entity deals with the form and governance of insurers.
– ICP 6 Licensing calls for requirements for licensing to be clear, objective, and public.
– ICP 7 Suitability of persons requires ongoing assessment of fitness and propriety of significant owners and key functionaries.
– ICP 8 Changes in control and portfolio transfers require supervisory approval of changes in significant ownership and control, in mergers, and in portfolio transfer.
– ICP 9 Corporate governance requires prudent management of an insurer’s business on the basis of standards that stress the role of board and senior management.
– ICP 10 Internal control states the requirements for internal control systems, including internal audit and reporting, as well as compliance functions.
• Ongoing supervision outlines the actual practice of the supervisor.
– ICP 11 Market analysis requires macro-prudential surveillance of the sector.
– ICP 12 Reporting to supervisors and conducting off-site monitoring require comprehensive reporting that is done on a solo and a group basis, plus maintenance of an ongoing monitoring framework.
– ICP 13 Onsite inspection requires comprehensive inspection powers for both the insurer and outsourced companies, plus clarified scope of inspections.
– ICP 14 Preventive and corrective measures require an adequate, timely, and graduated spectrum of remedial measures.
– ICP 15 Enforcement or sanctions will require measures that are based on clear objective criteria.
– ICP 16 Winding-up and exit from the market will require criteria and procedures for insolvency and calls for priority with respect to policyholders.
– ICP 17 Groupwide supervision calls for consolidated—groupwide—supervision of the insurance group or conglomerate.
• Prudential requirements address the key financial and risk-management processes
that should be imposed on and in place within insurance companies.
– ICP 18 Risk assessment and management state the requirements for risk – management systems and their review by supervision.
– ICP 19 Insurance activity requires strategic underwriting and pricing policies, as well as limits on risk retained through reinsurance.
– ICP 20 Liabilities specify supervisory requirements to assess adequacy of technical provisions held against the policy liabilities.
– ICP 21 Investments require compliance with standards on investment policy, asset mix, valuation, risk management, and asset-liability management.
– ICP 22 Derivatives and similar commitments cover restrictions on their use and on requirements for disclosures.
– ICP 23 (capital adequacy and solvency) covers sufficiency of technical provisions to cover expected claims and expenses as well as sufficiency of capital to cover significant unexpected losses.
• Markets and consumers deal with distribution, customer protections, disclosure,
– ICP 24 Intermediaries cover licensing and business requirements for insurance intermediaries.
– ICP 25 Consumer protection covers requirements on the providing of information to consumers before and during a contract.
– ICP 26 Information, disclosure, and transparency toward the market call for adequate disclosure by insurance firms.
– ICP 27 Fraud calls for measures to prevent, detect, and remedy insurance fraud.
• Anti-money-laundering should aid in combating the financing of terrorism.
– ICP 28 Anti-money laundering and combating the financing of terrorism [AML-CFT]) requires effective measures to deter, detect, and report AML – CFT offenses in line with FATF standards.
Each principle is elaborated through criteria. It is in the criteria that the full meaning of each principle is found in considerable detail. Although those criteria are not reproduced here, they need to be carefully reviewed if one is to gain a full understanding of the meaning and intention of each core principle. The IAIS emphasizes that the criteria are intended to be implemented both in form and in practice. The criteria consist of two distinct groupings:
• Essential criteria—those components that are intrinsic to the implementation of the core principle (all of which should be met for a supervisory authority to demonstrate “observed” status for each principle)
• Advanced criteria—those components that are considered to improve on the essential criteria and thus enhance the supervisory regime (which are not used for assessing observance with a principle but are used when commenting on a jurisdiction’s supervisory framework and making recommendations)