AUTORITÉ DE CONTRÔLE DES ASSURANCES ET DES MUTUELLES DES ET ASSURANCES DES CONTRÔLE DE AUTORITÉ ANNUAL REPORT2008

AUTORITÉ DE CONTRÔLE DES ASSURANCES ET DES MUTUELLES

61, rue Taitbout - 75009 Paris Telephone: +33 (0)1 55 50 41 41 Fax: +33 (0)1 55 50 41 50 ISSN 1777-7917 Conception : Kazoar : Conception www.acam-france.fr 2008 REPORT ANNUAL ANNUAL REPORT2008

AUTORITÉ DE CONTRÔLE DES ASSURANCES ET DES MUTUELLES

1 Appendix - The French insurance market in figures. This document can be viewed and downloaded from ACAM's website: www.aca m-france.fr/rapport2008 CONTENTS or www.acam-france.fr/chiffres2008

Chairman’s message 4 Secretary General’s message 6 Part 2 ACAM’s activity in 2008

I - Highlights of 2008 50 Part 1 1. Sanctions and other significant decisions 53 About ACAM 2. Surveys and market trends 58 Profile 12 3. Specific cases 70 I - A dual structure 4. ACAM safeguards policyholders’ rights 72 84 1. The College 14 5. Debates and current issues 2. The Secretariat General 15 II - Regulatory developments at European level 92 II - ACAM’s role 1. Solvency II 92 2. Quantitative impact studies 98 1. Supervision 18 3. Accounting harmonisation 101 2. Oversight: centralising data 32 3. Cooperation 36 4. Communication and information 43 Part 3 Financial data

A. Income statement 106 B. Balance sheet 108

2 3 CHAIRMAN’S MESSAGE

maintain adequate reserves. We also advise caution in Board and, at European level, of a Systemic Risk Council – terms of minimum guaranteed rates of return offered: harmonisation of accounting standards and tighter during periods of very sharply fluctuating costs some supervision of hedge funds, off-shore centres and credit rates, at the limits of what is legally possible, may rating agencies. threaten the insurer’s future stability and/or prove misleading for th e policyholders. As in the preceding years, ACAM was obliged to issue a number of sanctions, some of which were made public. Many other measures have been taken to strengthen In o ther cases, emergency measures were taken such supervision – monitoring UCITS in unit-linked contracts, as the appointment of a provisional administrator or the Chairman’s introduction of new prudential filters, new quarterly drawing up of a recovery plan. However, ACAM’s action report on investments, reflecting ACAM’s increased should in no case be perceived as limited to these message vigilance during this time of crisis. measures, whose limited number reflects the generally responsible behaviour within the sector. ACAM’s role is I would also like to stress the work carried out in above all preventive, in constant contact with the collaboration with other supervisory bodies (AMF, supervised insurers, and educational, as witnessed by Commission Bancaire and Conseil National de la the success of its supervision conferences and Comptabilité) to clarify the conditions of application of publications: “Analyses et synthèses” published since the accounting regulation with regard to the breakdown the end of 2007 and the regular newsletter “Lettre de by asset class and the valuation method to be l’ACAM”. used in the absence of an active market. A joint recommendation was issued in September 2008, At the same time, true to its role of protecting 2008 was a year of crisis, but above all it was a year of from high interest rates on regulated savings deposit followed by a supplementary recommendation for the policyholders, ACAM continued to deal with queries from dramatic contrast. It is easy to forget that the economic accounts (notably the savings banks’ accounts) before insurance sector in December 2008. the public relating to application of their contracts. More forecasts were still optimistic at the beginning of the the recent reduction in interest rates. Overall, premiums than 3,300 queries were dealt with and ACAM, although summer even though the subprime crisis was already were down by 4.2% and savings placed in life insurance The past year also featured a major step forward it has no official mediation role, made every effort to find well underway, and that inflationary pressure was still investments stagnated at around €1,250 billion in in international discussions on financial regulation. a solution. A positive outcome was achieved in two lively. The dramatic slump in expectations, prices and terms of net book value. However, insurance companies A definitive agreement was reached on the terms of the thirds of the cases handled. production in the second half, accompanied by its remained profitable (with profit of €8 billion for the Solvency II directive which will provide the prudential cortege of recession, rising unemployment and looming sector as a whole), and complied, without much framework for insurers, provident institutions and With a view to strengthening financial regulation and deflation, threatened the situation of several major difficulty, with all the prudential requirements. mutual insurers as from 2012. supervision, 2009 is likely to see some major changes financial groups, including one of the world’s leading in financial supervision in France. The government has insurers, AIG. It should be noted, however, that it was ACAM is naturally working closely with the sector to The completion of the work carried out over the past adopted the principle of a single supervisory body not the insurance side of this huge conglomerate’s consolidate this situation. From 2007, checks were seven years is a major step forward, even though there merging ACAM and Commission Bancaire. Joint working business that failed, it was the derivatives markets carried out to measure exposure to risky investments. is still a lot to do, with the help of ACAM staff and of other groups have been set up to examine the practical activities, which, through excessive use of leverage, had In the autumn of 2008, regular monitoring of net inflows Europea n supervisory bodies, to put in place the level aspects of this merger, which under the conditions of grown to represent commitments totalling hundreds into life insurance was put in place as well as 2 and 3 application measures. These measures include, the Parliamentary delegation authorising the of billions of dollars. projections of results both at sector level and at among other things, the calibration of capital Government to legislate by decree, should be organised individual entity level. The simulations of possible risks requirements by introducing softer measures for before the end of the year. Fortunately, the French insurance market has shown in the event of a further deterioration in the situation investments in equities (the so-called dampener) and its solidity despite the turmoil. Invested mainly in – which preceded the ‘stress tests’ put in place for US the specific treatment obtained by France for 2009, which we now hope will see the beginning of an bonds, insurers had ventured little into the high-risk banks by the Federal Reserve – are updated constantly. retirement savings schemes with a life of twelve years exit from the present economic and financial crisis, will activities that are now seen as toxic. Although the stock- The relatively comfortable situation of French insurers is or more. be yet another year of reform in this area as in others. market slump wiped out the bulk of the capital gains illustrated by the fact that the rates of return paid to accumulated by French insurers in previous years, their policyholders remained high in 2008, with an average A second very important area of international fundamentals remained firm. Admittedly, the inflow of 3.90%. ACAM notes, however, that insurers need to cooperation is implementation of the G20 guidelines on of savings slowed considerably due to competition tread carefully in this area during crisis periods so as to financial supervision – creation of a Financial Stability Philippe Jurgensen

4 5 SECRETARY GENERAL’S MESSAGE

retirement institutions is being supervised by ACAM, Another major lesson to be drawn is the need, which verifies that the substitute insurance acknowledged by the G20, to add a macro-prudential commitments are adequate. ACAM also continued to side to financial supervision. Although the insurance modernise: in June 2008 it published its Supervision sector may appear to be less concerned, this would Charter and at the beginning of 2009 it launched a extend ACAM’s role to monitoring financial stability revamped website, offering more information for with a view to preventing systemic crises. In practice, insurers, intermediaries and policyholders and a new ACAM will draw up new global risk analyses for the Secretary electronic document exchange functionality, which is insurance sector. International cooperation will also be greatly appreciated by the insurers. significantly strengthened, between sectors and at General’s different geographic levels, to share and consolidate Naturally, helping French insurers to prepare for these analyses, and also to ensure better supervision message Solvency II naturally continues to be one of ACAM’s key of major international groups. ACAM sees these commitments. The strong involvement of French developments as a key factor for efficient protection of insurers was reflected in their high response to the policyholders. It therefore welcomes them warmly and fourth quantitative impact study and numerous and will not spare its efforts to ensure their success. fruitful debates on technical issues. As an extension to this survey, it has been decided to propose to all insurers that they provide ACAM with an annual statement showing the balance sheet based on Antoine Mantel Solvency II principles. In addition, a well-attended seminar on internal models highlighted the need to From being merely a factor warranting attention in 2007, to obtain a clearer forward-looking view of the entity’s start an early dialogue with supervisors to identify in the financial crisis became the top priority in our financial situation and its room for manoeuvre , in good time all the practical and technical issues relating prudential supervision in 2008. French insurers have particular its capacity to pass on the fall in the value of to developing an internal model. little or no exposure to structured credit products, but their investments through a reduction in the returns they are exposed to a fall in the value of conventional offered to their policyholders. These analyses – not There is still a long way to go and it is hoped that the right assets such as corporate bonds and equities, and there limited to a purely accounting view, which does not lessons have been learnt from the crisis in the banking was a very pronounced fall in 2008. Moreover, the adequately take into account all the risks hanging over sector. I would point to two relating to the manner of generalised loss of confidence in the financial markets the balance sheet – were introduced in mid-2008 and defining and applying the prudential regulations: in added to the systemic nature of the crisis, both through have been adjusted as the crisis unrolled. In the light of terms of quantitative rules, the principle of fair value sharp fluctuations in the value of assets and through the additional work within very tight deadlines required measurement in the absence of an active market the distrust it could generate in policyholders. by the crisis, I would like to applaud the responsiveness – structured bank products and underwriting reserves in and motivation shown, and still being shown, by ACAM’s insurance – results in a significant overestimation of This exceptional backdrop both highlighted and staff. capital when it is applied without adequate supervision; accentuated ACAM’s preventive role, namely to ensure in terms of governance and internal control, financial that the more vulnerable entities take corrective action ACAM nonetheless continued to work on several major innovations – structured credit products in banking, before the situation deteriorates and policyholders lose ongoing projects. In line with our objectives, we complex minimum guarantee life insurance contracts in confidence. Taking life insurance as an example, in strengthened supervision of compliance with anti- insurance – require particularly close surveillance, to addition to the usual stress tests carried out on money laundering requirements and of intermediaries avoid a natural tendency to let oneself be carried away insurers’ balance sheets, additional information and by putting together dedicated teams. Also, until the end by sophisticated financial models and forget the gap more specific simulations have been requested in order of 2009, the transformation of supplementary between these models and reality.

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Part 1 About ACAM

ACAM is an independent public body. It supervises all the companies, associations, groups and other entities that operate in the French insurance sector, in the interests of the policyholders. It checks that entities and groups within its remit comply with the applicable regulations, and that they are able at all times to meet their underwriting liabilities vis-a-vis their policyholders or members. The authority was created by the Financial Security Act of 1 August 2003 (Act no. 2003-706). It was initially called the Commission de Contr4le des Assurances, des Mutuelles et des Institutions de Prévoyance (CCAMIP), and was the result of the merger of two supervisory authorities, the Commission de Contr4le des Assurances (CCA) and the Commission de Contr4le des Mutuelles et des Institutions de Prévoyance (CCMIP), which were responsible for the oversight of, respectively, the insurance sector, and mutual insurers and provident institutions. It was renamed the Autorité de Contr4le des Assurances et des Mutuelles (ACAM) by virtue of law no. 2005-1564 of 15 December 2005. It is a separate legal entity in its own right.

9 CONTENTS

Part 1 About ACAM

Profile 2. Oversight: centralising data 32 Our primary mission: to protect policyholders 12 2.1 Prudential documents 32 2.2 Relations with policyholders 34 I - A dual structure 3. Cooperation 36 1. The College 14 3.1 In France 36 2. The Secretariat General 15 3.2 European cooperation 37 II - ACAM’s role 3.3 International cooperation 40 1. Supervision 18 4. Communication and information 43 1.1 Prudential supervision 19 4.1 External communication tools 43 1.2 Monitoring intermediaries 27 4.2 Actuarial research by ACAM’s supervisors 43 1.3 Anti-money laundering (AML) 29 4.3 Cross-sectoral surveys 44 4.4 External actions 44 4.5 General recommendations 44 4.6 Relations with industry organisations 45

10 11 1 ABOUT ACAM

Supervision > Its role is to supervise all entities operating in the insurance sector. Acting on behalf of the state, it closely analyses the risks and prospects of insurers. The purpose of this strategic prudential assessment is to ensure that companies are at all times able to meet their underwriting liabilities vis-à-vis their policyholders. Prevention ACAM may make recommendations, and in urgent situations it may take measures to restore > ACAM also has an important preventive role, financial stability. When necessary, it can also informing insurers about potential risks, detecting Profile impose sanctions. It is a fully independent body risks and issuing advance warnings, and encouraging with financial autonomy and broad investigative the development of partnerships and mutual support powers. solutions. In addition it facilitates interpretation of the applicable laws and regulations. These preventive actions are often sufficient in themselves to solve many of the problems faced by insurers.

Our primary mission: Information to protect policyholders > In addition, ACAM is a key source of information for policyholders. In the event of a dispute with an insurer, any interested party may consult ACAM’s Contract Law and Policyholders department at any time. Most referrals are made by individuals, although consumer associations, mediators, solicitors, insurers and insurance intermediaries also make use of this service. The underlying objective is to ensure policyholders’ rights are ACAM is one of the three regulatory pillars respected. of the French financial sector, along with the Commission bancaire, the banking regulator, Participation and the Autorité des marchés financiers (AMF), > Lastly, ACAM takes part in: the financial markets regulator. u the drafting of new regulations; u European studies and consultations on the future of financial regulation; u consultations on the future of the Paris stock exchange; u many other initiatives, including the fight against money laundering and terrorism.

12 13 1 ABOUT ACAM

The College has nine members, who are appointed for five years. Their appointment may be renewed once. Seven alternate members are appointed under the same conditions. Members and their alternates cannot be removed from office. The Chairman is appointed by Presidential decree. 2. The Secretariat Apart from the Governor of the Bank of France (Banque de France), who is automatically a General member of the College, the other members are > The Secretariat General is responsible for appointed by a joint decree issued by the Ministers monitoring and inspecting insurers. Structure of the Economy, Social Security and Mutual The Secretary General, an experienced insurance insurers. supervisor, is appointed by a joint decree issued Two government representatives are also sit by the Ministers of the Economy, Social Security members of the College: the Director of the and Mutual insurers, after consideration of the Treasury and the Director of Social Security, or their College’s opinion. representatives. They cannot take part in The inspection teams are responsible for on-site decisions but can ask the College to reconsider any inspections and off-site monitoring of supervised decision other than a sanction. entities, and operate under the authority of the The Secretariat General refers cases to the College Secretary General. Teams consist of supervisors I-A dual structure: when an insurer, mutual insurer or institution is in (commissaires-contrôleurs and contrôleurs). breach of the regulations or if its financial situation Its support functions are responsible for internal is such that it compromises its solvency or ability management and provide essential support for the a College and a Secretariat General to meet its underwriting liabilities towards its inspection teams: policyholders or members. Referrals are based on the findings of inspection reports. u administrative and financial management; u legal affairs; u international affairs; u market watch, which includes the DDCRA1; 1. The College u IT. > ACAM’s policy-making and decision-making u take emergency or protective measures, such as These departments assist and support the body is known as the ’College’. It determines placing an entity under special scrutiny, monitoring and inspection function. the internal organisation of ACAM, defines the requiring a recovery plan to be drawn up, placing control methodology and approves the budget. an entity in administration, etc; The College has important decision-making powers u impose sanctions, which may include: warnings, with regard to supervised entities. It can: official reprimands, prohibition of certain business activities, restrictions placed on u recommend suitable solutions to improve business activities, temporary suspension, the entity’s financial situation, management removal of one or more company directors, methods or governance; partial or total withdrawal of a licence (which may result in the winding-up of the entity), partial or total transfer of the portfolio, etc. Sanctions may be imposed on entities and/or on their directors. 1. Contract Law and Policyholders department

14 15 1 ABOUT ACAM

Organisation chart of the Secretariat General The 9 members of ACAM’s College

Chairman Members selected for Two government commissioners Chief Accountant Secretary General Sylvie Huet 1 - Philippe Jurgensen their expertise in the field are also members of the College Antoine Mantel Inspecteur général des Finances of insurance, mutual insurance ACAM Secretariat 10 - Fabrice Pesin Michèle Litvak and provident insurance representing the Director General Ex-officio member of the Treasury and Economic Policy 6 - Hervé Cachin Cabinet director Deputy Secretary General 2 - Jean-Paul Redouin (directeur général du Trésor et Marie-Laure Dreyfuss Cyril Roux Governor of the Bank of France, 7 - Jacques-Philippe Chanet de la politique économique) Chairman of the Commission bancaire, Communication 8 - Lucien Uzan 11 - Jean-Luc Izard Geneviève Marc represented by the first deputy governor representing the Director 9 - Jean Barroux Audit / Internal Control Senior members of the Judiciary of Social Security (directeur Dominique Laude de la Sécurité sociale) 3 - Jean-Philippe Vachia Deputy President and senior judge, Government commissioners do not have Supervision Team Administrative the right to vote, but may ask the College Market Supervision International Cour des comptes Paul Coulomb and Financial Legal department IT department to hold a second vote on any matters Management department Affairs department Didier Israël Freddy Latchimy 4 - François Lagrange other than sanctions. Michel Bord Pierre-Jean Vouette Pauline de Chatillon Supervision Team Conseiller d’État 12 - Antoine Mantel Michel Crinetz 5 - François-Régis Croze Secretary General Cour de cassation Supervision Team Human Resources department Prudential documents François Delord Denis Lhomme Catherine Hanne-Pinturier

Supervision Team Purchasing, General Services, Department of Economic Hélène Denis Accounts and Market Studies Irène Lacascade Laurent Voignac Supervision Team 7 Olivier Fliche Department of 8 3 Accounting Issues 6 10 Jean-Jacques Dussutour 11 5 1 9 Supervision Team 2 12 Patrice Marchand Contract Law and 4 Policyholders Department Supervision Team Barbara Souverain-Dez Marc Porin Investments, Taxation, Supervision Team Regulatory Documentation Didier Pouilloux Janine Gougeon

Secretary, AERAS Mediation Anti-Money Board Laundering Jean-François Viala Marie-Françoise Baras

Supervision of Insurance Intermediaries Pierre-Xavier Soulé-Susbielles

16 17 1 ABOUT ACAM

high-risk assets or illiquid assets it may not have sufficient available assets to pay claims as and when they arise. These risks are specific to the insurance sector, hence the need for a special regulatory and supervisory framework. All developed or developing countries have a body which is responsible for the prudential supervision of Acam’s their insurers, whose aim is to protect the role policyholders. The supervisory authority may be transnational, serving several countries, or it may be incorporated into a larger financial regulatory and supervisory body.

1.1. Prudential supervision II-ACAM’s role “Prudential” supervision is designed to ensure that insurers are capable of meeting their underwriting liabilities vis-a-vis their policyholders at all times. This consists of an analysis of the policies and contracts recording their commitments, verification that these are correctly reflected in the accounts, and an examination of the operating methods and the appropriateness of financial management. These extremely broad controls enable a detailed 1. Supervision assessment of the entity to be made, and updated each year. 1. Permanent and preventive controls THE NEED FOR SUPERVISION IN THE insurer sells its services before it provides them. INSURANCE SECTOR The final cost – including the amount paid out on n WHO WE SUPERVISE claims – is therefore only known several months, Insurance is a service industry. Insurance allows or indeed several years, after the signature of the The entities supervised by ACAM have a number of consumers to avoid all or part of a risk by passing contract. This is an "inverted production cycle”. different legal forms: SUPERVISED ENTITIES IN FIGURES the financial consequences to their insurer. This means the insurance business is exposed to u French insurers subject to the French Insurance Insurance is therefore the transfer of risk from one u 386 insurers subject to the French Insurance very specific risks. For instance, if the level of Code (Code des assurances); party, who wishes to reduce or eliminate the risk, Code claims is underestimated by the insurer when it u French reinsurance companies subject to the to another party, who knows how to manage it u 1,707 mutual insurers, of which 386 are fixes the premium rates, it will have to pay out by pooling it. Insurance Code; ‘substituted’ mutual insurers (Livre II) more than initially expected and may be unable to u insurers governed by the laws of countries that u 62 provident institutions There is a substantial economic difference settle all its liabilities. A similar situation could are not in the European Economic Area but that u 63 supplementary pension institutions between the insurance sector and the other arise if management costs rose unexpectedly. operate in France; industries that provide goods or services: the Moreover, if the insurer invests premiums in

18 19 1 ABOUT ACAM

u mutual insurers subject to the French Mutual OFF-SITE MONITORING Investigations and controls cover a specific time Code (Code de la mutualité); Many different but overlapping criteria need to period and usually focus on a given cut-off date. OFF-SITE MONITORING AND ON-SITE u provident institutions subject to the French Social be taken into consideration when an entity is Although the scope of enquiries will depend on SUPERVISION: TWO SIDES OF THE SAME Security Code (Code de la Sécurité sociale); monitored. The assessment of the prudential the predetermined objectives of the inspection, COIN u supplementary pension institutions subject to nature of the liabilities entails an examination of it may be extended or made more precise as the Off-site monitoring and on-site inspections are the Social Security Code. the relevance of the provisioning and management inspection progresses. The order of priority of on- interdependent and are carried out by the same methods. An appraisal of the entity’s corporate site inspections will be based on the findings of team, which has full responsibility for the entities n OBJECTIVES governance and internal control system, together off-site controls, the quality of the data received in its remit. with an examination of the applicable policies and and the entity’s financial situation. ACAM will also ACAM’s primary mission is to supervise all entities While on-site inspections are conducted after an operating in the French insurance market, contracts and the entity’s articles of association or take account of complaints from policyholders and off-site examination of documents, as a natural irrespective of their status, to ensure they are rules also form an integral part of the assessment its annual cross-sectoral inspection targets. The extension of such monitoring, they also provide capable of meeting their underwriting liabilities vis- of the entity’s financial soundness. order of priority will not be influenced by the size of essential raw material for the off-site controls. an entity, its legal form or its business sector. a-vis their policyholders. It monitors compliance An assessment, which is updated every year, is Supervisors look at: by supervised entities and groups with the made on the basis of these extremely broad u level of provisions; applicable regulations. controls. Preliminary signs of a deterioration in the INSURERS’ OBLIGATIONS u quality of the management; Insurers are governed by a large number of entity’s financial situation can be detected and any u corporate governance rules; The insurers supervised by ACAM must provide it u laws and regulations, whose main aim is risk necessary corrective action can be identified. The tools and procedures; with the following periodic reports and documents: u reinsurance; prevention. Their financial soundness is dependent assessment is also based on regular exchanges of u awareness of risks, risk management. on three essential criteria: information and discussions with the relevant u accounts and financial statements; u annual report; entity, which allow ACAM to adjust its analysis. As The in-depth, on-site inspection will focus on u a prudent assessment of their underwriting u quarterly statements; part of its permanent supervisory duties, ACAM issues identified during the off-site monitoring of liabilities; u reports on solvency and internal control. gives the French insurance licensing authority documents. Such inspections help ACAM to build u the ownership of sufficient certain, liquid, (Comité des entreprises d’assurance), and the This information, which is essentially financial and up a complete picture of a supervised entity. profitable and diversified assets to cover the Social Security authorities its opinion on licence accounting information, forms the basis of estimated liabilities; applications for new insurers, applications to the comprehensive, off-site monitoring process. extend existing licences, mergers and portfolio The information provides a continuous picture of n SCOPE u sufficient capital to form a safety net and absorb transfers, for insurers that fall within their the financial situation of the supervised entities, The assessment of an entity’s financial soundness significant unforeseen losses. and enables ACAM to verify the consistency and jurisdiction. and its ability to meet its underwriting liabilities quality of the information provided from one year n CONTROL METHODOLOGY to the next. requires an overall view of its activities and ON-SITE SUPERVISION operations combined with an assessment of In addition to off-site monitoring (the permanent potential risks. Controls consist essentially of examining control procedure) an on-site supervision may be an insurer’s financial situation and operating organised, the findings of which will be recorded in ACAM therefore examines the entity’s: a report. This usually consists of an analysis of the u technical and legal management, analysing conditions. This is a prospective assessment, entity’s financial statements and an assessment of its liabilities vis-a-vis policyholders and the as the insurer must be capable of meeting its organisation, operations and level of compliance provisions booked on the liabilities side of the with regulations. The entity has the right to reply balance sheet to cover them; its short -medium- and long-term to the report within a set time period. ACAM will commitments. usually then provide it with a final report on its u financial management, assessing whether these findings. In some cases the report will be sent to liabilities are covered by certain, liquid and ACAM’s College, which will recommend measures profitable assets. ACAM will also consider whether to restore financial stability, if necessary. non-life and life insurers’ solvency margins are sufficient in the event of any valuation errors.

20 21 1 ABOUT ACAM

n SPECIFIC SUPERVISION FOR MUTUAL INSURERS u the larger mutual insurers (Livre II, for insurance n BROAD INVESTIGATIVE POWERS activities); ACAM discovered in the course of its supervisory DECENTRALISED MONITORING BY LOCAL PRÉFECTURES activities that, contrary to the law, insurance u smaller mutual insurers that insure risks other The financial soundness of an entity The law provides for the decentralised monitoring than sickness or accidents (Livre II); services were still being qualified as social actions of the following mutual insurers by the local and had been wrongly transferred to Livre III u entities not covered by Livre II or Livre III, in other cannot be established merely by assessing mutuals in 2002 in application of the 2001 decree. préfectures: words, “technical” groups that provide services This situation is fast being remedied, but it is clear the entity itself: the supervisor also needs for their members; u mutuals and grouping unions (unions) covered that the large number of mutuals supervised by to consider the environment. ACAM is by Livre III of the Mutual Code (health and social u federations and guarantee federations. ACAM and the persistence of certain long-standing protection schemes); practices require on-going vigilance. therefore vested with extremely broad u substituted mutual insurers covered by Livre II However, ACAM also investigative powers. (registered insurers that do not bear insurance risks themselves); has authority to unilaterally decide to control any mutual RELATIONS WITH STATUTORY AUDITORS u mutual insurers and grouping unions covered by All proposed appointments or re-appointments of Livre II that are not substituted and that satisfy insurer that is usually statutory auditors must be referred to ACAM for an the following three criteria: opinion. • they only provide accident and sickness cover monitored locally. (branches 1 and 2); During their term of office, statutory auditors have • they do not enter into long-term operations an obligation to respond to any request for over several years; information received from ACAM concerning the MONITORING LIVRE III MUTUALS activities of supervised entities, and they may not • their annual premium income is less than AND GROUPING UNIONS €45 million and they pay out less than refuse to answer on the ground of professional €36 million in claims and benefits per annum The purpose of Livre III mutuals and grouping The supervision charter secrecy. They must inform the Authority (over the past three financial years). unions is to manage health, social and cultural automatically if the continued operation of the services, or organise social actions. Services may explains that the purpose of business is at risk, or if there is a possibility that it The regional Social Security authorities (Directions be provided by private hospitals, health centres, supervision is to anticipate will not be possible to certify the accounts. Régionales des affaires sanitaires et sociales – dental practices, pharmacies, opticians, retirement DRASS) are usually responsible for monitoring homes or crèches. potential problems and that Lastly, the Authority may appoint an additional statutory auditor if it considers this necessary, at these entities, through off-site monitoring of Such mutuals are supervised by ACAM because, ACAM’s role is not merely the entity’s expense. documents and on-site supervisions. However, if prior to the 2001 decree overhauling the Mutual 2 any serious problem is detected the matter will be Code, any single entity could engage in this to sanction . SUPERVISION OF ACTIVITIES RELATED TO THE TRANSFER referred to ACAM, which has sole authority to activity and also have an insurance activity. This OF RISKS introduce measures to restore financial stability or was confirmed by the Financial Security Act of ACAM supervises all the operations performed by 2003, particularly as the separation between impose sanctions. supervised entities, and it can request any type of insurance activities and “social” activities – and MONITORING BY ACAM therefore between Livre II mutual insurance information it considers necessary. ACAM directly monitors at a national level those companies and Livre III mutuals – had not entered The Financial Security Act of 1 August 2003 mutual insurers that are not eligible for into effect for all entities at that time. authorised ACAM to examine contractual and decentralised monitoring. This is the case for: advertising documents, require them to be revised, and order the withdrawal of any that are contrary to the applicable laws and regulations.

2. See below - Part II- 5- Debates and current issues - 5.4 The continuing work of the Haut comité de place

22 23 1 ABOUT ACAM

ACAM may also extend its supervision of an entity u any amendment to the articles of association; b) Emergency and protective measures compromised. In this case the entity has one to any related entities or any other entity with u the dissolution of the association; month in which to submit a plan to restore which it has entered into a group insurance u the cessation of its activity as a GERP; financial stability. ACAM will then assess the agreement (see below), management agreement, u signature of a new PERP savings plan; ACAM may impose merits of the plan. reinsurance agreement or any other contract that u closure of a GERP. emergency and protective This solution presupposes that ACAM considers may affect its autonomy in terms of its operations ACAM also monitors licences granted to adjusters that the entity’s directors are capable of leading or decision-making. This means ACAM may decide measures when the financial and appraisers. Appraisers who attest to the value the entity to recovery. to supervise: of real property held by supervised entities must situation of the supervised ACAM can also freeze assets or temporarily u any intermediation operations; be approved by ACAM. entity, or its operating suspend certain activities. u any individual or legal entity authorised by an conditions, are such that the insurer to offer or manage insurance policies, 2. Outcome of monitoring APPOINTMENT OF A PROVISIONAL ADMINISTRATOR who/that has taken out a group insurance policy and supervision interests of the policyholders ACAM may request the appointment of a provisional or who/that engages in any insurance or a) Monitoring implementation of and beneficiaries are or administrator (administrateur provisoire) in three reinsurance intermediation activity in any situations: respect whatsoever. recommended action may be compromised. The u if this is requested by the entity’s directors, As part of its off-site monitoring, ACAM expresses purpose of such measures MONITORING THE INSURANCE ENVIRONMENT an opinion on insurers’ governance, management because they consider they can no pr operly ACAM is responsible for monitoring compliance and provisions. It monitors implementation of is to prevent the entity’s perform their duties; with the laws and regulations on the fight against u recommended action, in accordance with a jointly- when the entity can no longer be managed in money laundering and the financing of terrorism insolvency. agreed calendar and procedure. normal conditions; (see below). u when one or more of the company directors If the entity fails to act on recommendations, the It keeps a record of all associations formed SPECIAL SCRUTINY is/are temporarily prohibited from engaging in Secretariat General will refer the matter to the as Groupements d’Epargne Retraite Populaire When ACAM decides that emergency or protective insurance business. College which will decide on appropriate action. (GERP), which set up PERP individual retirement measures are necessary, it may place an entity ACAM can issue further recommendations, take savings plans (Plans d’Epargne Retraite under special scrutiny to be promptly informed of emergency or protective measures (see below) if Populaire) with insurers. Each GERP is required any major decisions made by the entity. the entity’s situation jeopardises the policyholders to provide ACAM with: Surveillance may be ordered in isolation or in and, lastly, impose sanctions. conjunction with other recovery measures, which The requirement to improve the solvency u a copy of the notice published in the Official The Financial Security Act of 1 August 2003 can thus be monitored more closely. margin was introduced as a result of the Journal (Journal Officiel) announcing the replaced the previous injunction system by a creation of the association; RECOVERY PLAN transposition into French law of the system of recommended corrective action. While u a copy of the GERP’s articles of association; ACAM must require an entity to submit a recovery the previous procedure was implemented only European directive known as the Solvency I u if applicable, a copy of its internal rules and plan if its solvency margin is insufficient. A short- when a problem was identified, recommendations regulations and/or code of practice. term financing plan must be put in place as soon directive. This directive also introduced can be issued merely in light of the perceived need as the margin falls below the minimum level, ACAM has two months in which to issue a to “take all appropriate measures to restore or the right for the supervisory authority known as the “guarantee fund”. The plan is drawn registration number, which must be printed on reinforce the entity’s financial stability, improve its up by the entity and submitted to ACAM for to reduce reinsurance levels in the all contractual documents relating to savings management methods or ensure the organisation approval. The College may simultaneously impose plans taken out by the association. The number is appropriate in light of the entity’s activities or calculation of the solvency margin. sanctions against the entity for the same reasons. will consist of the association’s business development objectives”. registration (Siren) number and a serial number. ACAM may require a recovery plan when the The association must inform ACAM within thirty entity’s financial situation is such that the days of: interests of its policyholders and beneficiaries are

24 25 1 ABOUT ACAM

DISCIPLINARY HEARING 1.2 Monitoring intermediaries SEVEN EMERGENCY OR PROTECTIVE A disciplinary hearing is held at least three weeks SIX DISCIPLINARY MEASURES MEASURES after notice of the causes of complaint has been Six sanctions may be imposed: sent. The hearing is held in private, unless one of Insurance intermediaries are Seven measures are available, some of which can u warning; be combined: the accused parties requests otherwise. The u official reprimand; individuals or legal entities who u special scrutiny; Chairman conducts the proceedings and can call u prohibition on carrying out certain operations or propose or arrange insurance u obligation to submit a recovery plan or short- any person as a witness. The accused person or other limitations on the business; term financing plan; entity may be assisted by a specialist and may u temporary suspension of one or more company or reinsurance policies, for a fee. u obligation to draw up a recovery calendar; also call witnesses. The supervisor in charge of the directors (or removal of one or more directors); u obligation to improve the solvency margin case presents his report, after which the accused u total or partial withdrawal of licence; When an entity’s business activities u freeze of assets; person or entity or his/its legal representative can u mandatory transfer of all or part of the portfolio are limited to the management, u of policies. temporary prohibition on conducting certain address the hearing. types of business; In addition, the following sanctions may be assessment and settlement of u appointment of a provisional administrator. After the hearing the College will retire to deliberate imposed on intermediaries: claims the entity is not deemed in private, with only the secretary of the meeting allowed to attend. In accordance with the principle u removal from the ORIAS register; to be an intermediary. of proportionality, the sanctions imposed must u prohibition on engaging in the intermediation business. reflect the gravity of the case. The College may a) A new regulatory framework defer its decision. Eight separate laws have been enacted since NOTIFICATION OF THE DECISION December 2002 to transpose Directive 2002/92/EC The sanctioned person or entity will receive notice of 9 December 2002 into national law. More of the decision. ACAM may publish its decision The disciplinary proceedings specifically, the Law of 15 December 2005 in any medium of its choice, at the expense of introducing various provisions adapting EU law to the sanctioned entity or person. Publication of must comply with the c) Disciplinary action the insurance sector, known as the DDAC Law (Loi the notice constitutes a sanction in itself. The quorum requirements portant Diverses Dispositions d'Adaptation au droit REFERRAL TO ACAM sanctioned person or entity may contest the laid down by law and must Communautaire dans le secteur de l'assurance) ACAM considers imposing sanctions on the basis decision by filing an appeal with the Conseil d’Etat requires intermediaries to be registered. of inspection reports prepared by the Secretariat [highest administrative court], within two months also comply with three New laws and regulations came into effect on General. In order to ensure that the proceedings of notification of the decision. appear to be impartial, it is made clear in the letter major principles: collegiality, 1 May 2007. Intermediaries now need to be setting out the reasons why sanctions are being impartiality and the right registered with the Registry of Insurance considered that sanctions are merely a possibility. Intermediaries (Organisme pour le Registre des of defence. Intermédiaires d’Assurance - ORIAS), which is The entity also receives a copy of the supervision a key tool in the supervision of insurance report so that it can reply. The entity can consult intermediaries. Registration is mandatory, and and copy any other documents in ACAM’s files and a registration fee is charged. be assisted or represented by anyone of its choice. It has fifteen days in which to submit a written In the event an intermediary no longer meets the response. requisite conditions it will be removed from the ORIAS register. Following this, all business with insurers must be brought to an end, as insurers have a legal obligation to ensure that their intermediaries are validly registered with ORIAS.

26 27 1 ABOUT ACAM

Removal from the register therefore means that b) Compliance checks u the customer must receive written information the intermediary must cease all business activities about the intermediary and its level of INTERMEDIARIES OPERATING IN THIRD and may not offer insurance policies. independence vis-a-vis insurance companies; COUNTRIES Intermediaries are This new regulatory framework has resulted in a u documents must describe the proposed Intermediaries registered in their home country can large number of requests for further information monitored to ensure that insurance operation: the intermediary must now also operate in third countries, provided they from intermediaries and also from the general they are registered in the make written enquiries to ensure the product is inform the registrar in the country where their public. ACAM therefore organises regular meetings appropriate. registered office is located. with the relevant industry associations and ORIAS register, they satisfy Moreover, Article R. 511-12 of the Insurance Code They can either open a branch or operate under attends fairs and conferences addressing this the requisite conditions for requires “supplier” insurance companies to ensure the free provision of services system. topic. Relations between ORIAS and ACAM are CEIOPS (Committee of European Insurance and that their intermediaries are registered with ORIAS governed by Article L514-4 of the Insurance Code. acting as an intermediary Occupational Pension Supervisors) has proposed (or in the relevant national register when they use and that they comply with the following definition of free provision of services foreign intermediaries with an establishment in to the European Commission: “An Insurance the applicable laws and France or working under the free provision of Intermediary (“IIM”) is operating under FOS if it ORIAS services system). ACAM’s monitoring of the intends to supply a policyholder, who is established regulations. insurers themselves establishes whether they in a Member State (“MS”) different from the one The purpose of this new regulatory framework is comply with this requirement. where the IIM is established, with an insurance to ensure policyholders know whether their contract relating to a risk situated in a MS different insurance intermediary is registered or not. The Intermediaries operating in France are monitored Similar checks have to be made when brokers act from the MS where the IIM is established.” ORIAS register is the cornerstone of the new by ACAM. As they are not exposed to specific risks, as “wholesale brokers” as, by virtue of Article system. It can be consulted at the ORIAS website, ACAM does not operate a permanent control R. 511-2 of the Insurance Code, they can only pass www.orias.fr. system and instead monitors intermediaries on a commissions on to registered individuals or 1.3. Anti-money laundering (AML) Intermediaries must satisfy criteria relating to case-by-case basis, as and when it considers this entities. integrity and professional ability when they appropriate. a) ACAM register. They must subsequently submit documentary proof that they have third party ORIAS has a duty to provide ACAM with any ACAM monitors the implementation of measures liability insurance cover and sufficient financial information it may consider necessary for intended to prevent money laundering and the guarantees on an annual basis. supervision purposes. ACAM decides to monitor a ACAM pays particular financing of terrorism by the entities it supervises. particular intermediary at its own discretion, or on Registration is not tantamount to a professional attention to assessing It may also verify compliance by intermediaries. licence, however. Nor should it be considered as a the basis of information set out in complaints sign of the approval of the public authorities, and received from policyholders or if it is aware that the level of training n SUPERVISION PROCEDURE policies are being offered that do not comply with as such is not comparable to the licences that ACAM has considerably reinforced its anti-money the law. An intermediary may also be monitored and qualifications must be held by insurers in order to insure risks. laundering unit which now employs eight people, within the framework of anti-money laundering of insurance As at 31 December 2008, 40,758 insurance reflecting the importance of this issue. The procedures. intermediaries were registered, with a total of intermediaries. specialised unit works in close collaboration with 47,758 entries3 (because some intermediaries are Monitoring may take different forms. It tends to the inspection teams, organising specific on-site registered in more than one category). focus on the information the intermediary gives to checks and ensuring that entities implement and customers, but also covers relations between the improve their anti-money laundering procedures. intermediary and its supplier, to ensure Anti-money laundering controls are carried out by information and premiums are passed on to the the inspection teams and the members of the anti- insurer. The intermediary has an obligation to money laundering unit, who have been specifically inform its customer at every stage o f the authorised by the College. relationship:

3. A registered intermediary may be registered in one or more of the four categories defined by Article R-511-2, point I of the Insurance Code: insurance broker, general agent, insurance representative, insurance intermediary.

28 29 1 ABOUT ACAM

Findings are reported in a specific section of the ON-SITE INSPECTIONS: ACAM’s preventive action also consists of c) Cooperating with other bodies in the fight general inspection reports or in special AML (Anti- On-site anti-money laundering inspections are developing good relations with the market against money laundering Money Laundering) reports. conducted by insurance supervisors or those authorities and TRACFIN4 correspondents, and n INTERNATIONAL COOPERATION members of the anti-money laundering unit working on the application of the new principles When drawing up its inspection schedule, ACAM authorised by the Secretariat General. Findings are laid down in the 3rd European Directive (Anti- ACAM contributes to the work of the Financial focuses first and foremost on the most vulnerable reported in a specific section of the general Money Laundering Directive of 26 October 2005). Action Task Force on money laundering (FATF). The entities, in terms of the type of policies they offer inspection reports or in special AML reports. FATF is an intergovernmental body created at the or their production networks, as well as any b) Relations between insurers 1989 G-7 Summit in Paris to develop and promote entities that seem less well-equipped because of To increase awareness within the industry and and their brokers international anti-money laundering policies. potential weaknesses in their internal organisation. highlight the need for genuine and effective procedures to fight money laundering, the unit Relations between brokers and insurance The FATF has published 40 Recommendations, OFF-SITE MONITORING: has also organised a number of information companies are of primary importance, given the describing the measures national governments The unit conducts surveys designed to measure and training initiatives, including meetings with way insurance products are distributed and the need to take to effectively combat money the level of compliance and assess the scope of industry players, attending conferences and international importance of the “Know your laundering. Together with the nine Special application of anti-money laundering regulations developing training tools. customer” (KYC) rule. This is an area of particular Recommendations to combat terrorism, these in the most exposed entities. For instance ACAM concern to ACAM. constitute a strong, broad and coherent framework surveyed life insurance companies in 2007, n SANCTIONS In addition to the applicable laws and regulations, to combat money laundering and the financing of followed by mutual insurers and provident ACAM has the authority to impose sanctions such relations are governed by contractual terrorism. institutions in 2008. Individual, written replies on any entity that has failed to set up or follow provisions. It is therefore essential that any The FATF organises work groups that look, in were sent to all participant entities. appropriate procedures, even if a detailed relations between an insurer and an intermediary particular, at how to improve the mutual evaluation examination of its portfolio subsequently are recorded in a written brokerage agreement of financial systems in terms of the fight against establishes that it has not been used to launder defining each party’s rights and obligations. Such money laundering, and examine current methods money. agreements usually specify the duration, the and trends. conditions for extending or terminating the ACAM is a member of a work group on risks in the relationship, the terms of payment of the broker insurance sector. Its findings should be made and rules for taking out insurance policies. To help insurers to comply public during 2009. with their anti-money ACAM also collaborates with the banking and laundering obligations ACAM’s financial regulators of other European countries within a work group called the AMLTF (Anti-Money College approved Laundering Task Force), along with the a handbook of good practice Commission bancaire. The objective of this sub- in March 2005. group of the Level 3 committees (3L3, see below), based in London, is to harmonise the actions of It is freely available on supervisory authorities in terms of the fight ACAM’s website against money laundering and to develop better practices in Europe. (www.acam-france.fr).

4. TRACFIN – Traitement du renseignement et action contre les circuits financiers clandestins (French government’s anti-money laundering unit)

30 31 1 ABOUT ACAM

n NATIONAL COOPERATION 2. Oversight: With respect to entities subject to the Mutual Code, the relevant directives have been transposed more Along with the other supervisory authorities, ACAM recently. This has been accompanied by a complete overhaul of the applicable chart of accounts and the has worked on the transposition of the 3rd centralising data creation of a set of standard reports to facilitate analysis of their accounts. Directive no. 2005/60/EC of 26 October 2005 on the fight against money laundering and the 2.1. Prudential documents SUBMISSION DEADLINES FOR PRUDENTIAL DOCUMENTS BY SUPERVISED INSURERS financing of terrorism, under the aegis of the 31 JANUARY 30 APRIL 31 MAY 30 JUNE 31 JULY 31 OCTOBER Directorate General for the Treasury and Financial ACAM collects and Policy*. This has lead to the enactment of decree (ordonnance) no. 2009-104 of 30 January 2009, analyses information Annual documents n-1 extending the obligations concerning the fight on the French insurance Mutuals - PI against money laundering and the financing of Quarterly reports Quarterly reports Quarterly reports Quarterly reports terrorism. The decree also modifies obligations industry as a whole. 4th quarter n-1 1st quarter n 2nd quarter n 3rd quarter n of vigilance, focusing on a risk-based approach (cf. Section V). ACAM’s main mission is to monitor all entities Q1 Q1 Q1 Q1 PI Mutual PI Mutual PI Mutual PI Mutual operating in the French insurance sector, Q2 Q2 Q2 Q2 In conjunction with TRACFIN, ACAM also seeks to Insurers Insurers Insurers Insurers irrespective of their form or status. It collects Q3 Q3 Q3 Q3 increase awareness of this issue within the French information from all the entities governed by the market. The accuracy of reports of suspicious Annual documents n-1 regulations that transpose the European directives Annual documents n-1 Supplementary pension transactions is more important than their on insurance into French law. Insurers institutions frequency. It is important that reports sent to TRACFIN are sufficiently documented and can be The information it collects can be divided into four acted on promptly. main categories: ACAM has developed a number of tests to enable Lastly, surveys of life insurers provide ACAM with u accounting information, prepared in compliance it to carry out its superv isory role. During the STATISTICS a comprehensive view of the opinions and with the rules laid down by the French year, each entity must send ACAM the following: experiences of private sector companies. Accounting Regulation Committee (Comité de la ACAM uses all the information it obtains in the réglementation comptable); u quarterly statements: course of its prudential supervision (its primary u regulatory reports to facilitate analysis of the function), its supervisory activities and its market • Q1: quarterly flows; JOINT ACTION WITH THE COMMISSION financial statements; watch. • Q2: quarterly statement on amount of BANCAIRE u general information obtained from the regulated investments; entities; Consolidation of all the individual replies received ACAM cooperates actively with the Commission • Q3: simulations covering assets and liabilities. allows it to produce series of statistics: bancaire and the AMF in the fight against money u statistics that provide an overview of the laundering and the financing of terrorism. For socioprofessional aspects of the insurance u an annual report including, in particular: u annual financial results (consolidated data per type of business); example, anti-money laundering surveys of banks industry, which are passed on to national and • general information; offering insurance products are conducted jointly u summarised tables (overview of insurance European statistics offices. • published financial statements and related with the Commission bancaire. At the same time, population: companies, operations, etc.). the joint ACAM-CB meetings provide opportunities Most of the information is received in the form of documents; for in-depth discussions, as do the regular mandatory reports and statements filed on set • reports on solvency, internal controls and its cooperation meetings organised by the bodies’ dates (see the schedule below), in compliance reinsurance policy; general secretariats. with the Insurance Code, the Social Security Code • annual statements analysing commitments and the Mutual Code. The information collected and corresponding cover, the solvency varies slightly depending on the applicable Code, margin and the liquidation of provisions. although a harmonisation process is underway.

* DGTPE : Direction générale du Trésor et de la politique économique.

32 33 1 ABOUT ACAM

ACAM is a member of the French National Council for Statistical Information (Conseil national de n HANDLING COMPLAINTS The DDCRA* acts in close collaboration with the l’information statistique - CNIS) and contributes to its survey on “Money, finance and the balance of The Department contributes to the supervision of supervision teams. It requests their opinion on payments”. ACAM also contributes data to a number of French and international organisations. the market and the protection of policyholders’ technical aspects and keeps them updated on rights. Complaints concerning insurance policies complaints referred to it. It also issues regular REQUESTS FROM EXTERNAL ORGANISATIONS RECEIVED BY ACAM may be referred to the DDCRA* by policyholders reports and statistics and carries out cross- and also by consumer associations, mediators, sectoral analyses of complaints. This valuable data JANUARY JUNE JULY NOVEMBER DECEMBER solicitors, insurance intermediaries, groups taking may be a factor when selecting which entities are out group policies and insurers themselves. to be controlled or inspected. The DDCRA* may also work alongside the inspection teams when they • “Annuaire statistique de la • “Global reinsurance • “Financial stability • Accounting data, • Company data within A complaint will be considered if there is a written look at the management of claims, the complaints France”, INSEE – National market Report”, IAIS report” – reinsurance Bank of France the EEA record of the dispute between the policyholder and process, litigation and insurance policies. Institute of Statistics and sector, CEIOPS the insurer. If the DDCRA* judges that the complaint Economic Studies is justified, it may invite the insurer to reconsider n LEGAL WATCH • “Insurance statistics – the matter and comply with its statutory, Statistical questionnaire The DDCRA* examines and verifies legal compliance regulatory or contractual obligations. However, it for the base year n-2”, OECD of the insurance policies referred to it, and also does not have the power to compel either party to advises and assists other ACAM departments. It an individual dispute to act or refrain from acting. carries out research in various areas of private law The DDCRA* does not provide policyholders with relating to insurance policies (content, marketing, 2.2 Relations with the policyholders 2. Protecting policyholders’ rights legal advice or advice on insurance products. It underwriting, performance, termination) and does not have the authority to express an opinion the management of relations with policyholders 1. Monitoring of insurance policies on the reality of the case referred to it or on any (claims, complaints, litigation). disputed findings of experts. It has no authority to The monitoring of policies is an integral part of The role of the Contract The DDCRA’s ancillary tasks include a legal consider a complaint referred to it if, at the same ACAM’s oversight activities. It looks at how policies watch, training, involvement in ACAM actions, Law and Policyholders time, an application is made to the courts are drafted, marketed and subscribed, how they communication, advising government on technical department is to examine, concerning the same subject. are implemented, the scope of the cover provided, issues, and international negotiations within the policy amendments and termination when it analyse and deal with The department operates a call center for urgent framework of CEIOPS. enquiries from individuals (+33 01 55 50 41 00). verifies that insurers meet their underwriting complaints, to monitor liabilities vis-a-vis their policyholders. insurance policies and to These checks are made during on-site inspections, and also by the Contract Law and Policyholders carry out a legal watch. department (DDCRA). The Department works in conjunction with the inspection teams to verify that insurers comply with the regulations governing insurance policies and the contractual provisions entered into with their policyholders.

*Département du Droit du Contrat et des Relations avec les Assurés – Contract Law and Policyholders Department

34 35 1 ABOUT ACAM

SPECIAL TREATMENT OF INDIVIDUALS 3. Cooperation ACAM AND COMMISSION BANCAIRE SHARE EXCHANGE OF INFORMATION BETWEEN WITH SERIOUS HEALTH PROBLEMS CLOSE LINKS ACAM AND THE BANK OF FRANCE 3.1 In France The AERAS Convention (S'Assurer et Emprunter The President of the Commission bancaire is A Memorandum of Understanding has been signed avec un Risque Aggravé de Santé – Insurance and The 2003 Financial Security Act maintained automatically a member of ACAM’s College, and by ACAM and the Bank of France to exchange Loans with an Increased Health Risk) was signed information on insurers. This arrangement enables separate regulation and supervision of the the President of the ACAM is automatically a with a view to extending access to insurance and the Bank of France to contribute to statistics on insurance sector, the banking sector (Commission member of the Commission Bancaire. The two financial loans for individuals who have or have bodies meet twice a year to discuss matters of the insurance sector for the ESCB (European bancaire) and the financial markets (Autorité des had a serious health problem. joint concern. System of Central Banks) without placing any marchés financiers). extra reporting burden on its member banks, while The ACAM acts as secretary of the AERAS A Cooperation and Information Charter is available at the same time improving its national financial convention’s Mediation Board. Parliament considered that separation was on ACAM’s website and was last updated in 2004. data. necessary because of the different types of risk to The Board examines individual claims referred to It organises the collaboration between the two ACAM provides the Bank of France with reference it by individuals seeking a loan. It verifies which the various sectors were exposed, while authorities. data and financial data on the insurance sector. In compliance with the Convention, paying particular expressing a wish for increased cooperation exchange, the Bank of France provides ACAM with attention to the following: between the three regulators, in particular in light of the increasing number of financial the statistics it produces using this information. u three-tier examination of insurance applications; b) Cooperation with the Autorité des marchés conglomerates operating in both the banking and u time taken by the insurer and the bank to financiers (AMF) insurance sectors, and the number of issues examine the application; Cooperation with the AMF is less official, due to relating to the marketing of financial products. 3.2 European cooperation u information provided by the loan applicant on the fact that there are fewer links between the two the medical reasons which resulted in an excess bodies’ activities. premium, exclusion, a deferral or refusal to a) Cooperation with the Commission bancaire HARMONISED PRUDENTIAL RULES WITHIN EUROPE insure; The ACAM and the AMF have continued to work ACAM cooperates with the banking regulator, the These prudential rules are set out in EU directives, which define in u identification and implementation of alternative Commission Bancaire, on several levels. One together on the marketing of financial products, guarantees by the bank; particular the solvency rules governing insurance companies and example of this cooperation is the mixed ACAM / CB following on from the Delmas-Marsalet report institutions for occupational retirement provision (IORP) within the u borrower’s eligibility for the pooling mechanism, teams which carry out coordinated on-site (November 2005). This involves analysing the European Economic Area. subject to resources; information and advertising materials intended u confidentiality of medical data disclosed to the inspections. for consumers of financial products, whether Compliance with these rules is verified by each Member State’s insurer; supervisory authority. The Member States have entered into Joint assignments take place regularly. They may they invest directly or through a unit-linked life u acceptance of external insurance (delegation). agreements to facilitate cooperation and organise the exchange of focus on groups that engage in both banking and insurance policy. The Board does not have authority to express an insurance activities, or on issues that affect both information, in compliance with the directives. opinion on insurance limitations or exclusions, the sectors. Knowledge and experience on topics level of the premium or any excess premium. Nor that share certain similarities are exchanged, for does it internee if a loan has already been granted. instance during joint inspections. a) ACAM’s coordinating role For more information on the AERAS convention: This mutual exchange system ensures both bodies Many insurance groups operate in several different www.aeras-infos.fr are aware of individual cases and contributes to Member States via subsidiaries, branches or under the harmonisation of control methods. the freedom to provide services system. Although each country is responsible for supervising the legal entities operating in its territory, collaboration between the various national regulators is essential.

36 37 1 ABOUT ACAM

In particular, it is important that controls and b) The role of CEIOPS (Committee of countries have Observer status. Each Member inspections within a single insurance group are European Insurance and Occupational State nominates a delegation. EUROPEAN SUPERVISORY AUTHORITIES: Important coordinated, as the solvency of a company could Pension Supervisors) A VARIETY OF STRUCTURES The European Commission, which is an Observer A supervised entity be affected and impact on the financial situation only, can refer matters to CEIOPS for a technical CEIOPS currently has 30 member countries, with operating in one of other entities within the same group. The The countries of the opinion and request proposals for Level 2 27 active Members and 3 Observers (Iceland, European country assessment of ability to meet underwriting measures under the “Lamfalussy” process. CEIOPS Norway and Liechtenstein). may open a branch liabilities vis-a-vis policyholders should therefore European Economic Area is governed by a “Managing Board”, elected for in another European be carried out at a consolidated, group level. In 25 of the 30 member countries one single cooperate, within the two years. country, provided it authority supervises both the insurance and the complies with that The French supervisor therefore meets with its pension fund sectors. In some countries the role country’s laws of framework of CEIOPS, to n ACTION European counterparts on a regular basis to of the authority is limited to these two sectors, contract. A foreign coordinate actions concerning issues affecting a develop common policies for CEIOPS advises the European Commission on while in third countries the authority also company located in group as a whole and to share information all supervisory authorities regulations covering insurance. It also organises supervises the financial markets and/or the the European obtained from group entities. For each European cooperation between the various supervisory banking sector. Economic Area can group a coordination committee is created, and supervised entities in authorities of the Member States of the European therefore offer comprising each entity’s head of prudential Europe, in preparation for Economic Area. Thus, in 14 member countries one single authority insurance policies supervision. ACAM is responsible for organising the supervises all these sectors (integrated in France. Accordingly, ACAM cooperates with the other coordination committees, coordinating monitoring the new Solvency II supervision). These are: Germany, Austria, EU/EEA supervisory authorities within the Belgium, Denmark, Estonia, Hungary, Latvia, and supervisions, and for conducting joint However, the branch directive. framework of CEIOPS, more specifically on the Malta, Czech Republic, Slovakia, Sweden, United will continue to be supervisions of groups when the parent company introduction of the future “Solvency II” measures. Kingdom, Ireland, Poland (January 2008). supervised by the is French. In such cases it acts as ‘lead supervisor’. CEIOPS acted as technical advisor to the European home country’s When a European group has French subsidiaries ACAM essentially cooperates with other Commission for the preparation of the “Level 1” France is one of the 11 countries that has a supervisory specialist authority for the supervision of the but the parent company is not French, it attends supervisory authorities within the framework of draft directive. authority. insurance sector (separate supervision). The Pursuant to the coordination committee meetings organised CEIOPS. It monitors the application of EU Directives banking and financial sectors are supervised by Article 11 of by another supervisor. The Committee was created by virtue of a decision concerning the insurance and pension sector and separate entities. This solution has also been Directive of the European Commission dated 5 November oversees the proper operation of coordination adopted by Cyprus, Finland, Greece, Luxembourg, 2002/83/EC Cooperation with the other supervisory 2003 under the “Lamfalussy” process as applied committees. In 2007 agreements were signed to Lithuania, Portugal, Slovenia, Spain, Italy and on direct life to the insurance and pension fund sector. It has improve mediation and cooperation between Romania. insurance, the supervisory authorities in the European Union takes replaced the ‘Conférence des Autorités de Contrôle supervisory authorities who are CEIOPS members authority for the form of intensive preparatory work des Assurances des États membres de l’Union and non-members. the country in européenne’ set up in 1958, for which France in view of the adoption of the forthcoming Lastly, CEIOPS is working on proposals to organise which the branch acted as secretary. training on a European level and the exchange of is located may solvency measures, known as “Solvency II”, personnel between supervisory authorities. take part in as well as contributions to opinions n ORGANISATION the supervision CEIOPS (Level 3 Committee) is composed of high- process. requested by the European Commission. level representatives of the supervisory authorities of 30 Member States of the European Union and the European Economic Area (EU/ EEA)5, and the European Commission. The supervisors of insurers and pension funds in EU Member States are voting members of CEIOPS’ decision-making body, the “Members’ Meeting”. Supervisors of other EEA

5. EEA: EU + Iceland, Norway and Lichtenstein

38 39 1 ABOUT ACAM

c) Cooperation between Level 3 Committees The new version of this MoU, which took effect on a) IAIS (International Association of Insurance Supervisors) 1 June 2008, completed the 2005 agreement. It CEIOPS and the other two Level 3 Committees factors in the entry of Romania and Bulgaria into (known as the 3L3 or 3 Level 3 Committees), the the EU and extends its scope to the insurance CESR (Committee of European Securities The main purpose of the IAIS is to promote cooperation between its sector and the stock exchanges. It also introduces Regulators) and the CEBS (Committee of European reinforced procedures for the sharing of members, which are for the most part insurance supervisors and Banking Supervisors) have held joint working information. The agreement also lays down a meetings since 2005. regulators, and also to foster collaboration with the supervisory series of high-level principles (“burdensharing”, They have five objectives: priority for market solutions, etc.) to manage authorities of other financial sectors (banks, financial markets, etc.). crises, and the appointment of a “leader” authority Such cooperation is becoming increasingly necessary given u sharing information in order to have compatible approaches; to coordinate action in the event of a cross-border the internationalisation of insurance groups and their diversification crisis and to set up contacts with the private u exchange of experiences which can facilitate into banking and asset management activities. supervisors’ ability to cooperate; sector. u producing joint reports on topics of mutual interest; The IAIS was founded in 1994 and represents to produce standards and principles that can be u reducing supervisory burdens; 3.3 International cooperation almost 190 bodies in 140 countries world-wide. Its applied by all supervisory authorities. u having similar basic functioning of the Committees. members regulate and supervise insurers. The The influence of the IAIS recommendations is mission of the IAIS is to: The 3L3 committees focus in particular on issues ACAM’s International growing. The International Monetary Fund and the relating to financial conglomerates, anti-money Department monitors and u promote the exchange of information between World Bank use the Insurance Core Principles Laundering and the similarities between the Bâle II supervisors concerning regulations, markets defined by the IAIS to assess their members’ and Solvency II directives. organises cooperation and and entities; supervisory systems. The European Union also ACAM contributes to work on the comparability of the exchange of information u define core principles on supervision and uses these principles to assess the supervisory rules governing financial products (unit-linked life produce a set of standards for general system of candidates for accession, and is careful insurance policies / direct investments in UCITS- relating to the prudential application; to ensure that the “Solvency II” project remains type funds). supervision of insurers at u help regulators in emerging countries to set up consistent with the work of the IAIS. A multilateral an appropriate regulatory framework and an cooperation and exchange of information d) Cooperation with a view to managing an international level. effective supervisory system. The IAIS is a non- mechanism has been set up and all IAIS members cross-border financial crises governmental body and does not have authority are invited to participate. Furthermore, the Given the need to strengthen cooperation in the International cooperation outside Europe is to issue mandatory rules; “Insurance Groups and Cross-Sectoral Issues” sub- event of a cross-border systemic crisis affecting organised within the framework of the IAIS u contribute to the stability of the financial committee, chaired by ACAM, has prepared a paper the European financial sector, the European Union (International Association of Insurance markets. on “Principles applicable to the supervision o f international insurers and insurance groups”. began to consider the possibility of an agreement Supervisors), the IOPS (International Organisation The IAIS is organised into various sub-committees back in 2001. Two years later, an initial of Pension Supervisors) and the OECD. and working groups, each with its own specialist The IAIS is also heavily involved in supporting Memorandum of Understanding (MoU) was signed ACAM attends plenary sessions and working area. Issues addressed include: accounting emerging countries. by the Union’s banking supervisors and central groups organised by these bodies. It may be treatment of insurance policies, reinsurance and banks. A second, similar but tripartite, document represented by its Secretary General, members of risk transfer, financial conglomerates, solvency was signed by the supervisors, the central banks the International Department, supervisors or and the fight against money laundering and the and the Member States’ Finance Ministers in the employees representing other departments, financing of terrorism. These sub-committees aim summer of 2005 replacing the initial MoU. depending on the case.

40 41 1 ABOUT ACAM

b) IOPS (International Organisation of c) OECD (Organisation for Economic d) The website (http:www.acam-france.fr) Pension Supervisors) Cooperation and Development) 4. Communication The ACAM website was completely overhauled in The OECD’s 30 member states account for and information 2008, with the aim of reaching a much wider The IAIS and IOPS are international approximately 98% of the world’s insurance public. With an attractive, user-friendly design, Thanks to its on-site inspections and the data revenues. Within this governmental body an > it is now a practical, easy to access source of organisations representing insurance it receives every year from other linked Insurance Committee meets twice a year (as does information for both the general public and players entities, the ACAM has first-hand knowledge of supervisors and occupational pension fund a private pensions working group). ACAM in the insurance sector. contributes to these bodies, along with the the challenges facing the insurance industry supervisors, respectively. They both conduct Four different entry points provide customised Ministry of the Economy, Industry and and the market. It is constantly developing tools access for four main user types: supervised research, develop international standards Employment. to heighten awareness, inform, and facilitate exchanges of information. entities, intermediaries, policyholders and the and promote cooperation. press. New functionalities have been introduced: 4.1 External communication tools6 for instance, supervised entities can view the MULTILATERAL COLLABORATION schedule for the submission of documents to IOPS is an independent organisation with governing a) The annual report ACAM and can also upload their reports and other ACAM also collaborates and cooperates with other, members, associate members and observer-status documents via the site. members from around fifty countries at various mainly French-speaking countries and countries Once a year ACAM reports on its activities in its levels of economic development. that are candidates for accession to the European annual report, which is widely distributed. Union, providing technical support. 4.2 Actuarial research by ACAM’s Its objectives are four-fold: b) The ACAM Newsletter supervisors6 For example, it collaborates with CIMA, the u to set international standards; Inter African Conference for the Insurance The Newsletter was launched in 2007. It contains Various professional publications, including the Market (Conférence interafricaine des marchés the latest information on findings from on-site Bulletin français d’Actuariat, have recently u to promote good practice in terms of the d’assurance), which has organised a single supervision of private pension funds, not inspections, new regulations or court decisions, reported on actuarial research by ACAM’s supervisory system for its 14 member countries, and ACAM’s interpretation of laws and regulations supervisors. A number of articles have been covered by the state social security systems; which are all Sub-Saharan African countries in that apply to insurers. published, covering topics such as the insurance the CFA zone. Its decision-making body in u to promote international cooperation; of options in a highly-fluctuating market, or the terms of introduction and compliance with c) Analyses et synthèses u provide a forum for the exchange of information. regulations, the Regional Insurance Supervision appropriateness of long-term equity investments. Commission, meets four times a year. Two of This is a new publication, also launched in 2007 by A paper has also been prepared on the valuation of IOPS works in close collaboration with the other ACAM’s supervisors attend meetings to provide ACAM’s Research and Market Watch department commodities derivatives. international organisations concerned by pension- expert advice. (le département Etudes et suivi du marché). Its related issues: the IAIS, the International Monetary This work is indicative of the quality of the training purpose is to present in-depth studies based on Fund and the World Bank. received by ACAM supervisors, who have a ACAM’s statistics. The first issue was devoted to comprehensive understanding of the most recent The OECD is responsible for its administrative and the French insurance market and the main lessons developments in financial modelling, and who are secretarial work. ACAM, which supervises part of to be learned from the third quantitative impact able to contribute to developments in actuarial the private pension liabilities in France (pension study (QIS3). The second issue covered the techniques. They also demonstrate ACAM’s ability products marketed by insurance companies, lessons to be learned from the fourth quantitative to rise to the Solvency II challenges, along with the occupational pension funds and supplementary impact study (QIS4) while the third looked at the market. pension institutions), is a member of IOPS’ transposition of the Reinsurance directive. technical committee.

6. A detailed account of action taken in 2008 can be found in Part II - 5/ Debates and current issues - 5.5 The continuing work of the Haut Comité de Place

42 43 1 ABOUT ACAM

4.3 Cross-sectoral surveys 4.5 General recommendations7 4.6 Relations with industry u AFA (Association Française des Assureurs) organisations8 created at the end of 2007 by the FFSA and the These are conducted by ACAM’s Secretariat General ACAM’s recommendations do not seek to impose GEMA. through theme-based controls and questionnaires a new set of standards on insurers, their purpose Before launching any cross-sectoral survey or

sent out to all market operators. is to clarify existing requirements in terms of issuing recommendations, ACAM consults industry u FFSA (Fédération Française des Sociétés good practice, where the regulations require The surveys covering topics such as the continued associations and organisations within the d’Assurance) created in 1937, it represents 289 further explanation. Recommendations issued in fall in interest rates (1998), inadequate insurance, mutual insurance and providence insurance companies of various forms (limited recent years have covered: reinsurance programmes (2000), the unsuitability industries, with a view to obtaining their opinion companies incorporated in the form of sociétés and assistance. However, as none of the three anonymes of the mortality tables used for certain life policies u the need for solvency reports to include more , mutual insurers within the FFSAM, (2001), insufficient rates and provisions for the information about future prospects (2000 and Codes within its remit requires all insurers to and branches of foreign companies). maximum cover offered to policyholders under 2004); join a single, central industry association, there is no single representative body with which the u GEMA (Groupement des Entreprises Mutuelles unit-linked life insurance policies (2002), use of u practical applications of the obligations relating d’Assurance credit risk transfer instruments (2003), and to the fight against money laundering and the ACAM can deal. ACAM has good, long-standing ) industry association created in differences in the application of accounting rules financing of terrorism for life insurance (2001 relationships with the federations that collectively 1964, it represents 17 mutual insurers operating for provisions for long-term depreciation (2004), and 2005); represent most insurers. without any intermediaries and 24 of their subsidiaries incorporated as sociétés anonymes. have enabled a number of insurers to identify and u governance of insurers and information required assess previously undetected risks. by ACAM on reinsurance treaties and finite risk u CTIP (Centre Technique des Institutions de transfer deals (2007); Relations between ACAM For the first time the cross-sectoral survey Prévoyance) created in 1986, it represents most u recommendations issued in 2008: conducted in 2006 was sent out to all the insurers and industry organisation of the provident institutions. • joint recommendation of 15 December 2008, supervised by ACAM. Its main aim was to alert issued by the National Accounting Council were strengthened in 2008 them to the danger of the poor assessment of risks u FNIM (Fédération Nationale Indépendante des (Conseil national de la comptabilité - CNC) and transferred to reinsurers in limited or finite following its undertaking to Mutuelles) created in 1989, its members include ACAM, on investments by regulated entities reinsurance treaties. the Haut Comité de Place around thirty mutual insurers and grouping during the financial crisis (accounts for the unions subject to the Mutual Code. 4.4 External actions7 year to 31 December 2008); (Paris Financial Services • joint recommendation issued by the CNC, the High-Level Committee, u FNMF (Fédération Nationale de la Mutualité Supervision conferences have a dual purpose: Française) created in 1902, its members include AMF, the Commission Bancaire and ACAM set up to increase the u to present to insurers the findings of the cross- relating to calculation of the fair value of financial almost all the 2,000 mutuals, mutual insurers sectoral surveys and the lessons to be learned; instruments when markets are inactive. The attractiveness of Paris and grouping unions subject to the Mutual Code operating in the insurance sector proper (so- u to explain the purpose of, and discuss compliance purpose was to provide clarifications on the as a marketplace. with, the new prudential requirements (new preparation of IFRS-compliant interim and annual called Livre II mutual insurers and grouping prudential reports for mutual insurers have been financial statements as at 30 September 2008 unions) or managing health and social protection gradually introduced since the 2005 financial or thereafter; schemes (so-called Livre III mutuals and year), the public consultations (CP) and quantity grouping unions). • transfers of reserves or provisions by impact studies (QIS) launched by CEIOPS as part supplementary pension institutions. of the Solvency II project.

ACAM also regularly participates in seminars organised jointly with the professional press or training organisations.

7. A detailed account of action taken in 2008 can be found in Part II - 5/ Debates and current issues - 5.5 The continuing work of the Haut Comité de Place 8. A detailed account of action taken in 2008 can be found in Part II - Part II - 5/ Debates and current issues - 5.5 The continuing work of the Haut Comité de Place

44 45 2

Part 2 ACAM’s activity in 2008

47 CONTENTS

4. ACAM safeguards policyholders’ rights 72 Part 2 4.1 Complaints handled by the DDCRA: the figures 72 ACAM’s activity in 2008 4.2 The variety of the raised issues 76 4.3 Recent legal developments 80 I - Highlights of 2008 4.4 Mediation 82 A brief look at the past year - chronological account 5. Debates and current issues 84 of the most important events 50 5.1 Regulatory developments 84 5.2 ACAM’s College recommendations 85 1. Sanctions and other significant decisions 53 5.3 Consultation launched by the European Commission 1.1 The figures 53 on the IORP Directive (IORP) 86 1.2 ACAM’s disciplinary and preventive decisions 54 5.4 International agreements 87 1.3 Validation of ACAM’s decisions: some examples 56 5.5 The continuing work of the Haut Comité de Place 88 1.4 Successful action following decisions 57 2. Surveys and market trends 58 II - Regulatory developments at European level 92 2.1 Issues shared by the market as a whole 58 2.2 Supplementary pension institutions 63 1. Solvency II 92 2.3 Mutuals governed by the Mutual Insurance Code 66 1.1 General background 92 2.4 Insurance intermediaries 68 1.2 Solvency II: update 95 3. Specific cases 70 1.3 Internal models 97 3.1 Provisioning 70 2. Quantitative impact studies 98 3.2 Other financial elements 70 2.1 QIS4: realisation, analysis and results 98 3.3 Governance 71 2.2 QIS5 is being prepared 100 3. Accounting harmonisation 101 3.1 Principle and functioning 101 3.2 Difficulties in applying accounting standards 101

48 49 2 ACAM’S ACTIVITY IN 2008

April

u Mr Cyril Roux was appointed as ACAM’s deputy Secretary General.

u ACAM published its national guidelines for QIS4.

u Supervision Conference on mutuals and on the launch of the fourth Quantitative Impact Study September (QIS4). Highlights u Seminar on internal models and Solvency II, u April to July: QIS4. of 2008 organised by ACAM for industry players. June u Death of Mr Jacques Bonnot, member of ACAM’s College and honorary member of the Conseil u ACAM published its Supervision Charter, developed in conjunction with industry d’Etat. associations, which aims to inform insurers u Appointment of Mr Michel Laparra as a member about their rights and obligations during of ACAM’s College, replacing Mr Jacques-Henri inspections. Gougenheim.

u Retirement of Mr Noël Guibert, senior supervisor July and head of ACAM’s International Department, I-Highlights of 2008 u ACAM and the Bank of France signed a who is succeeded by Ms Pauline de Chatillon. memorandum of understanding on the exchange of data relating to insurers. October

u The Government instructed the General u Joint recommendation by the French national Inspectorate of Finance (IGF) and Mr Bruno accounting council (Conseil national de la Delétré to conduct an audit with a view to the comptabilité – CNC), the financial markets merger of Commission bancaire and ACAM. regulator (Autorité des marchés financiers – AMF), the banking regulator (Commission bancaire – CB) and ACAM on the fair value A brief look at the past year, with a chronological account valuation of financial instruments. of the most important events u First vote on the draft Solvency II directive by the European Parliament (ECON Committee).

February March u The draft Solvency II directive is put to the ECOFIN Council for an informal straw poll vote. u ACAM issued recommendations concerning u ACAM sent replies to each of the life insurers its reporting requirements with regard to that had been questioned as part of the survey u CEIOPS presented the first QIS4 European results reinsurance treaties and transfers of limited or on the fight against money laundering and the to the industry. “finite” risks. financing of terrorism, launched in 2007.

u The technical specifications of the fourth Solvency II Quantitative Impact Study (QIS4) were published by the European Commission.

50 51 2 ACAM’S ACTIVITY IN 2008

November 1. Sanctions and other significant decisions u Sudden death of Mr Michel Laparra, member of ACAM’s College. 1.1. The figures u Conseil d’Etat dismisses appeals by Mutuelle Le Sacré Coeur. FIRST FEW MONTHS OF 2009 Summary of College decisions in 2008 Insurers Insurers Insurers u Conseil d’Etat dismisses an appeal by Mr Maxime January Mitondo, de facto manager of the broker Optima subject to subject to subject to Type the Insurance the Social the Mutual Conseil. u Appointment of Mr François Lagrange, honorary member of the Conseil d’Etat, as a full member of decision Code Security Code Code TOTAL u CEIOPS report on QIS4 at European level. replacing Mr Bonnot, who died in 2008, and of Sanctions Legal entity 3 published 0 2 unpublished 6 Mr Pierre Guerder, honorary member and senior 1 unpublished December judge of the Court of Cassation, as an alternate Special scrutiny Placement 2013 member replacing Mr François-Régis Crozone, Maintenance 0000 u Deadline for transformation of supplementary member of the Court of Cassation, who was pension institutions (IRS) deferred until 31 Appointment 0033 appointed member of the College to replace December 2009 instead of 31 December 2008 Termination 0022 Mr Auber following his death. (Act No. 2008-1330 of 17 December 2008 Provisional administration Placement 0044 relating to the financing of social security for u Publication of the Delétré report. Confirmation 0000 2009). Institutions are advised to submit their Extension 0000 application to ACAM before 31 March 2009. April Termination 0011

u Joint recommendation by the French national u Adoption of Solvency II directive. Mandatory transfer of part of a mutual accounting council (CNC) and ACAM on insurer ’s portfolio of policies 1001 u Organisation of the 3L3 seminar (CEIOPS-CEBS- investments by insurers, reiterating the Recovery plan request 1023 CESR) in conjunction with the AMF and the SGCB, provisions currently applicable under French Freezing of assets 4004 accounting regulations. for other European supervisory authorities (27-28 April). Withdrawal of licence 8008 u Publication of the second edition of Analyses et Winding-up (all decisions) 1001 syntheses, devoted to the results of the fourth u Publication of the third edition of Analyses et syntheses, devoted to the transposition of the Approval of transfer of provisions or reserves quantitative impact study for Solvency II, by by supplementary pension institution 0707 reinsurance directive, by ACAM’s Research and ACAM’s Research and Market Watch department. Appointment of additional auditor 0011 Market Watch department. Refusal to authorise an insurer u French insurers and reinsurers are invited to to raise a loan 0011 prepare a valuation of their prudential balance Refusal of substitution agreements 0011 sheet, in line with the principles laid down in the Dismissal of recourses 0011 Solvency II directive and send it to ACAM. Others 6006 Opinion 1001 May General recommendations 11 u ACAM launches a new cross-sectoral survey of o/w one - all sectors 1 investments by insurers. TOTAL 29 7 19 56

52 53 2 ACAM’S ACTIVITY IN 2008

FOR INFORMATION Acting in the interest of policyholders, information. Any delay is indeed an obstacle to the FMP (FÉDÉRATION MUTUALISTE INTERDÉPARTEMENTALE DE LA n REQUEST FOR SUBMISSION OF A RECOVERY PLAN RÉGION PARISIENNE) ACAM permanently SUPERVISION AND PREVENTION exercise of supervision. The deterioration in the financial situation of three monitors the FMP is a major health and provident insurance Like the banking and financial market authorities Two insurers subject to the Mutual Code also entities – one insurer and two mutual grouping solvency of insurers. provider. The decision to place it under provisional (Commission Bancaire and AMF), ACAM has a unions – led ACAM to require them to submit a Supervised insurers received unpublished warnings for failing to administration was taken after a long inspection preventive role in addition to its supervisory and recovery plan for approval, as provided in Article must submit a transmit all the information required for process, spreading over more than twelve months, disciplinary roles. 2 R. 323-1 of the Insurance Code and Article detailed file every supervisory needs . that revealed solvency and management problems. This role implies that ACAM informs insurers of R. 510-3 II of the Mutual Code. year including legal ACAM asked the company to present two recovery information, as well its views on the implementation of the laws and n INSUFFICIENCY OF SOLVENCY MARGIN plans, in June and September 2008, but they were c) Special measures as financial and regulations, and provides information on best ACAM applied the procedure for the mandatory practices to be followed in this matter. ACAM’s not sufficient to remedy the situation. accounting data. transfer of the policies portfolio of MAPE (Mutuelle n REFUSAL TO AUTHORISE AN INSURER TO RAISE This annual powers to order emergency or protective measures d’assurances des professionnels de l’étanchéité), LA MUTUELLE INTÉGRANCE A LOAN FOR DEVELOPMENT FUND submission regarding insurers in difficulty also form part of This mutual insurer was created by and for the enables ACAM to this preventive role. an insurer providing construction liability insurance The draft plan was submitted to ACAM by a mutual systematically (class 13). The reason for this decision was that the disabled and their families and provides them with grouping union pursuant to Article R. 212-5 of the analyse the financial insurer did not have sufficient equity and no longer tailored health and social cover, savings solutions Mutual Code. Various problems were identified: soundness of the held the minimum guarantee fund required by and assistance. ACAM placed it under provisional insurers. ACAM once again made use of its disciplinary and Article R. 334-7 of the Insurance Code. administration on the basis of an inspection report u intermediation would have become the main preventive powers in 2008 by issuing 56 decisions, indicating that this insurer would probably not business of the grouping’s founding mutual to be compared with the 34 decisions issued the b) Emergency measures be authorised to renew its insurance policies insurers, which is contrary to Article L. 116-1 of previous year1. Six sanctions were applied, 3 of them the Mutual Code; n PROVISIONAL ADMINISTRATION or underwrite new business with effect from being subject to publicity. 18 measures were also 1 January 2009. Delays in implementing changes On 26 November 2008, ACAM’s College decided, after u Article L. 114-4 of the Mutual Code only taken under ACAM’s emergency and protective and a very short-term management system could interviewing the companies’ directors, to place FMP authorises an insurer to reinsure another insurer powers. also jeopardise payments of benefits. (Fédération mutualiste interdépartementale de la if the insurance branches that are covered by FOR INFORMATION 1.2. ACAM’s disciplinary and région parisienne) and Mutuelle Intégrance under The current financial crisis has also lead ACAM to the reinsurance agreement are defined in the The measure by provisional administration. apply Article L. 323-1-1 of the Insurance Code on Articles of Association. The plan provided that which an insurer is preventive decisions several occasions and impose various emergency each of the founding mutual insurers would placed in provisional This emergency measure was justified in order reinsure the grouping for up to 90%, using as a) Sanctions and warnings measures. administration falls to safeguard the interests of their policyholders a basis the benefits and claims paid to its outside the scope n FAILURE TO COMPLY WITH REPORTING and beneficiaries. The insurers’ managers did not n TEMPORARY SUSPENSION OF BUSINESS ACTIVITIES own policyholders. However, the Articles of of ordinary law. REQUIREMENTS challenge the decisions. ACAM considered that the financial situation or Association of some of the mutual insurers did Although the not allow for this type of activity. provisional Two insurers were sanctioned in 2008 for failure operating conditions of two subsidiaries of a administrator is to comply with reporting requirements, in foreign group were such that the interests of the Accordingly, ACAM refused to approve the draft appointed by a public particular for not transmitting their annual files policyholders might be compromised. It therefore plan. authority, he acts within the requisite time period. The first insurer ordered the temporary suspension of all financial under his own received a warning and a fine of €15,000. The operations between these two subsidiaries and the responsibility, like second received a warning and a fine of €50,000. other group companies, subject to exceptions any other company Although the amounts of the fines may seem low, agreed by ACAM on a case-by-case basis. manager. He replaces they take into account the size of the entities, the Board of Directors which were both small. and manages the company. Applying a logic of prevention, ACAM decided to make these sanctions public, to underline the importance of a timely transmission of regulatory

1. All things being equal. According to last year’s report, 34 decisions were made in 2007, with a different number of supervised entities. 2. In this case, the insurers failed to transmit the details of their accounts relating to miscellaneous payables and receivables, together with explanations relating to changes in these accounts.

54 55 2 ACAM’S ACTIVITY IN 2008

1.3. Validation of ACAM’s decisions: to state, in decisions falling within the scope of The appellant, as the former chairman of the two The administrator sought solutions to ensure that some examples application of this Law, the legal considerations on entities created as a result of the demerger of the staff and residents would benefit from which its decision is based. It added that this OMPN, claimed that ACAM had failed to respect the conditions identical to those that applied before the None of the appeals lodged against the ACAM have obligation does not include a duty to produce statutory three-month time period when it transfer. He also provided the transferor and the succeeded to date. evidence of the factual considerations that are the announced the continuation of the provisional transferee with assurances regarding the schedule basis of the decision. administration procedure, and that accordingly its for the operation, which had seemed compromised a) Conseil d’Etat, 24 November 2008, decisions were neither valid nor lawful. on several occasions due to problems encountered With regard to the substantive issues, the Mr Mitondo, case no. 301539 when executing his mission. appellant challenged the legitimacy of ACAM’s The Conseil d’Etat ruled that although ACAM has The Conseil d’Etat, France’s highest administrative decisions, citing a decision by the Basse-Terre three months maximum in which to announce 1.4.2 La France mutualiste court which also rules on points of law, dismissed Court of Appeal of 7 May 2007 setting aside a whether provisional administration is lifted or an appeal by Mr Maxime Mitondo to set aside judgment handed down by the Pointe-à-Pitre maintained, it may reach a decision within a La France mutualiste, which provides pension ACAM’s decision of 8 November 2006 prohibiting Regional Court (Tribunal de grande instance) shorter time period provided it has given the schemes specifically for the ex-armed forces, him from operating as an intermediary for five Tribunal on 3 February 2005, ordering its was placed under special scrutiny pursuant to € entity’s managers an opportunity to be heard. The years, and fining him 30,000. liquidation. The Conseil d’Etat ruled that the Court also stated that ACAM is not under any Articles L.510-9 and R.510-3-1 of the Mutual Code, conditions laid down in the Code of Commerce The appellant maintained that the decision obligation to stipulate on the day it announces a on 4 April 2007. The main reasons for this decision (Code de commerce) that have to be met for a challenged was not admissible and was procedurally measure when such measure will be lifted, as it were the unsatisfactory nature of its corporate court to order liquidation are not the same as flawed because the meeting’s secretary was present may decide to lift the measure at some time in the governance, the lack of managers with the proper those laid down in Article L. 510-9 of the Mutual when the case was deliberated. He also claimed future in light of changes to the insurer’s situation. skills to manage the mutual, the inadequacy of its a material error due to a confusion with his brother, Code that have to be met when ACAM places a portfolio of assets in view of its commitments in and contested ACAM’s finding that he was the de mutual insurer under provisional administration. 1.4 Sucessfull action following 2005, the imprudent management of its real estate facto manager of Optima Conseil. Because the codes for m two independent sets of assets, and also a lack of adequate anti-money- decisions laundering and internal control procedures. The Conseil d’Etat dismissed all the grounds for set legislation, the ACAM may order such measures, aside raised by the appellant. provided it does not exceed its authority, without 1.4.1 The MGMR (La Mutuelle de Two years later, on 13 May 2009, ACAM’s College this affecting any decisions that may be taken Gestion des Maisons de Retraite) observed that the mutual had identified and b) Conseil d’Etat, 7 November 2008, Mutuelle within the context of insolvency proceedings. implemented a number of measures to correct Le Sacré Cœur, cases no. 308886 and The MGMR is a Livre III mutual that was placed these problems, and the special scrutiny measure c) Conseil d’Etat, 2009, Mr Glane, case 310773 under provisional administration by ACAM on was lifted. no. 297699 16 May 2007 following the resignation of the The Conseil d’Etat dismissed two appeals by The Conseil d’Etat confirmed the order handed previous provisional administrator, who had been Mutuelle Le Sacré Cœur to set aside ACAM’s down in summary proceedings in the same case appointed by the Préfet for the Ile de France region. decisions of 20 June and 12 September 2007, two years previously (CE, 27 February 2007, The MGMR managed two retirement homes, in placing and maintaining it under provisional Mr Glane, case no. 301231) and dismissed the which essential work to bring the buildings into line administration. appeal by Mr Sébastien Glane against ACAM’s with the applicable standards had not been carried Both these decisions provide valuable information decisions of 19 July 2006, maintaining l’Orphelinat out because of a lack of funds. Withdrawal of the on the extent to which the ACAM is required to mutualiste de la police nationale (OMPN) Assistance license would have led to the closure of the homes justify individual disciplinary measures and the et Prévoyance in provisional administration (CE, and the transfer of their residents. conditions for placing a mutual insurer under 18 March 2009, Mr Glane, case no. 297699). On 30 April 2009, after interviewing the provisional administration. administrator, ACAM was pleased to record that a As regards the obligation to justify its decision, the new manager had been found for both retirement Conseil d’Etat recalled that Law no. 79-587 of homes, who h ad promised to keep on all the staff 11 July 1979 requires the administrative authority and to allow all the existing residents to remain.

56 57 2 ACAM’S ACTIVITY IN 2008

1.4.3 OMPN the special scrutiny measure was maintained, for assets form part of insurers’ asset/liability the same reasons as its sister company. Since THE CRISIS HAS NOT AFFECTED management and are generally intended to be OMPN-Assistance, a Livre III mutual, was placed then, the mutual insurer has demonstrated that it INSURANCE COMPANIES AND BANKS held to maturity. When this is not the case, they in provisional administration and under special has sufficient technical and financial capacity to IN THE SAME WAY can use the reserve for long-term capital gains to scrutiny on 8 June 2006. At that time the operate normally and that special measures were Since the summer of 2007, insurance companies offset any capital losses; members of the mutual’s general assembly had no longer necessary. As a result, the special have been faced with a fall in the value of their u in terms of their possible exposure to particularly not been properly appointed and the spin-off scrutiny was lifted on 28 May 2009. assets. The prices of bond assets have fallen due toxic securities, insurers are protected by the risk from its sister company, OMPN-Prévoyance, to the widening of spreads, even though sovereign initiated in 2002, had not been fully completed. debt benefited from the fall in interest rates at the spreading rules by which they are bound; After considerable work carried out under the end of 2008. At the same time, in the equity u in the case of life insurance policies in euro, supervision of the administrator the mutual’s 2. Surveys and markets, the gains of the past few years have insurers are protected not only by the risk operations returned to normal and the provisional been wiped out. On a more temporary basis, the spreading rules but also by the possibility of markets for certain assets have sporadically administration measure was lifted on 8 November market trends setting aside a provision to cover policy holders’ revealed a limited liquidity. 2007. However, ACAM decided to maintain the share of profits. To smooth life insurance returns, special scrutiny measures as the renewal of 2.1 Issues shared by th e market However, the impact of these events is not the insurers have a period of eight years in which the mutual’s governing bodies required close as a whole same for insurance companies as for other to pay policy holders their share of profits. attention. Since that date the management team financial stakeholders. Insurers are structurally Insurance companies can therefore constitute long-term investors and their generally positive has demonstrated that it has the necessary 2.1.1 The impact of the financial crisis provisions that they can draw on during periods human, institutional and financial resources to overall business balance (premiums received – claims settled) means they are not obliged to sell of low financial returns so as to maintain an achieve the mutual’s objectives successfully. a) Insurers’ structural capacity for resistance assets prematurely. As an example, insurers came attractive annual rate of capital growth. ACAM’s College accordingly lifted the special through the 2000-2003 market fall virtually scrutiny measure on 28 May 2009. unscathed whereas the CAC 40 index lost nearly b) ACAM’ s actions and tools two thirds of its value over the same period. OMPN-Prévoyance, a Livre II mutual insurer, was The global financial system ACAM permanently supervises insurers’ compliance also placed in provisional administration and Similarly, the repercussions of the present crisis have not endangered the solvency of with the three pillars of prudential regulation: under special scrutiny on 8 June 2006. This has been experiencing severe the insurance market. company’s situation was worse than OMPN- turmoil since the summer of u prudently estimated provisions; Assistance as, in addition to similar management u certain, liquid and profitable assets; 2007. Insurers have been u problems, it had failed to book provisions for some a safety margin, known as the “solvency margin”. long-term commitments and its balance sheet was affected by the crisis, All in all, insurance companies have shown firm n REPORTING TOOLS dangerously unbalanced when these were taken not as insurers but resistance to the financial crisis for several into account. A restructuring of its guarantees, reasons: ACAM has annual and quarterly reporting tools, within the limits defined by the Evin Act, was as investors. adapted to normal conditions and designed to give u share prices, like property assets, had risen necessary in order to save the company. After an early indication of insurers’ capacity to resist significantly over the preceding years. Insurers extensive work, including accounting adjustments financial shocks. had therefore accumulated a substantial stock of over several years, the mutual insurer’s situation unrealised capital gains which cushioned the Regarding off site inspection, ACAM receives a finally merited the lifting of the provisional 2008 downturn; yearly report containing statistical data that administration and the corresponding decision enables it to assess each insurer’ situation. It also was announced on 8 November 2007. However, u an insurance company is not exposed to a fall in receives solvency and internal control reports in the bond markets except in the case of massive which each entity gives its view on the potential mismatching of assets and liabilities. Bond risks.

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These various reports enable it to measure the ACAM also kept a close eye on the consequences 2.1.2 Regulations relating to On the basis of these observations, ACAM makes impact of market shocks. Each quarter, the T3 of Lehman Brothers’ collapse and the other the minimum guaranteed rate every effort to ensure that the insurers it report enables it to recalculate assets and liabilities difficulties encountered by financial groups. supervises comply with the regulations relating to according to different economic scenarios while the To protect policyholders, the regulations contain their commitments. More recently, in October 2008, ACAM put in T2 report enables it to measure exposure to the strict criteria for the rate of return that may be place a system for monitoring life insurance different asset classes. The annual C6bis report guaranteed on a policy. The technical interest rate 2.1.3 Prevention of money laundering underwriting flows (premiums, surrenders, etc.) provides a measurement of the financial risk linked on a policy may not exceed 75% or 60% of the closely. The data requested concerns weekly flows to liabilities (surrenders of life insurance policies, average issue rate, or 3.5%, depending on the term a) Increased communication relating to euro-denominated and unit-linked for instance). over which the rate is guaranteed (see Article In 2008, ACAM’s anti money laundering unit policies. This data enables ACAM to monitor closely A.132-1). In normal conditions, ACAM therefore obtains a the evolution of the assets managed by insurers organised various communication events for forward-looking view of each insurer and can and, consequently, their capacity to maintain the However, an insurer may guarantee a higher rate professionals: confer ences, talks, training, etc. therefore react rapidly if the need arises. investments in their portfolios. Euro-denominated over a one-year period for some policies. This The drafting of the questionnaire addressed to contracts remained stable, reflecting policy- guaranteed rate is limited, with the maximum provident institutions and mutual insurers n SUPERVISORY TOOLS holders’ confidence in the solidity of the French level being set based on the average rate of return involved in life insurance activities also provided The deterioration in the financial situation since insurance market. achieved on the insurer’s assets over the two an opportunity to reinforce contacts with the 2007 has led ACAM to add to its supervisory tools. previous years (Articles A.132-2 and A.132-3). An organisations representing the industry. Two Lastly, ACAM ver ifies that the capital growth rates annually indexed rate may also be guaranteed Each crisis has specific characteristics that call for granted to life insurance policyholders are conferences were held, on 11 March and 15 April over a maximum period of eight years (A. 132-3, 2008, to present the survey and its objectives. In specific reporting tools that would be superfluous compatible with the regulated entity’s financial paragraph 2). in normal conditions. capacities. addition, the survey results were communicated However, in recent months, ACAM noted that via the industry organisations, FNMF and CTIP, Right from the beginning of the present crisis in several insurers were marketing policies offering on 26 and 27 November 2008. August 2007, ACAM began to measure exposure particularly high guaranteed rates. This situation Communication actions also concerned the – which fortunately proved to be very low – to so- warrants several observations: called “toxic” assets such as sub-prime mortgages. CONSEQUENCES OF THE PRESENT CRISIS brokerage sector. By invitation from the insurance u Article A. 132-3 sets an obligatory limit on the brokers’ union for Eastern France (Syndicat des In December 2007, given the extension of the Insurers have experienced a fall in the value of their crisis, ACAM wrote to all the insurers requesting assets that has negatively affected their regulatory guaranteed rate; courtiers d’assurance de l’Est de la France), ACAM reminded brokerage firms of their obligations in them to perform stress tests based on the solvency margin, which nonetheless remains u the regulations only permit annually revised terms of organisation, procedures and relations situation at end-December 2007 and to report to adequate. In this respect, the existing investment guaranteed rates (Article A.132-3 alinea1); ACAM on the results of these tests within two regulations, under which assets are valued at with customers. u communicating about returns for periods of less months. The aim was also to heighten senior historical cost, enable insurers to smooth the Lastly, ACAM reinforced its cooperation with impact of the fall in the financial markets. than one year is contrary to the spirit of Article management’s awareness through the obligation TRACFIN by introducing the principle of regular, A.132-3, and more generally to the philosophy of to report the test results to them. Given the joint meetings. At the beginning of 2009, ACAM life insurance, which is a long-term investment diversity of insurers’ investments in terms of type continued its efforts to heighten awareness of this product. Communicating about a high rate of investment and breakdown, ACAM left it to each issue in the French market in collaboration with guaranteed for a quarter or half-year period does insurer to determine the stress test best adapted TRACFIN. not constitute balanced information to to its specific situation. Generally speaking, the policyholders; insurers’ tests concerned the risk of loss of value of the three main asset categories: fixed-income u when these promotional guaranteed rate (interest rate curve and spread stress tests), practices concern policies with no initial charge equities and property assets. or surrender fee, the policy in reality resembles a remunerated demand account rather than a life insurance product, and therefore carries particularly high risk of surrender compared with conventional life insurance policies.

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Above and beyond the growth in the number of reports of suspicions, which is expected c) Provident institutions and mutual insurers Participation in the survey was very strong, with to continue over the coming years, 2.2. Supplementary pension 241 responses. The numerous comments sent in institutions with the questionnaires reflected great interest in the suspicions reported to the financial Provident institutions and intelligence unit must be adequately the issue of compliance with money laundering mutual insurers have regulations. 2009 will feature the disappearance of supported so that they can be used. moderate or low exposure The survey revealed that many provident Supplementary Pension Institutions institutions and mutual insurers have already to the risk of money initiated significant action in this direction with (Institutions de Retraite Supplémentaire – b) On-site inspections: 2008 target achieved laundering. These insurance the support of the industry organisations. However, IRS). However, the pension and retirement a certain number of entities are still unfamiliar with ACAM’s target for 2008 was to perform on-site entities must nonetheless, the basic provisions of these regulations. The most schemes to which they are linked will not inspections at more than half of the life insurance common deficiencies related to: companies, and it achieved its target. The number in particular in the context disappear: they may be taken over in part of on-site inspections has increased significantly of implementation of u organisation of the prevention of money or wholly by insurers, after having been over the past two years and is expected to remain the 3rd European Directive, laundering function; modified if necessary. high. As in previous years, these inspections u drafting and circulation of anti-money laundering will concern all sectors: insurance, provident adapt their prevention of procedures; institutions, mutual insurers and brokerage money laundering system u staff training; Act No.2003-775 of 21 August 2003 relating to activities. u setting in place of an internal control system; the reform of pensions schemes provided for the to take market reality u absence of any system for detecting unusual During 2009, the members of the anti-money disappearance of IRS at 31 December 2008. This transactions and fighting against the financing laundering unit will have one-to-one meetings with into account. deadline was deferred for a year by Act No. 2008- of terrorism. numerous TRACFIN correspondents to examine the 1330 of 17 December 2008 relating to the financing conditions for implementation of the provisions of There is therefore room for further progress and of social security for 2009. This postponement in the 3rd Directive at their respective entities. ACAM has continued to fulfil its role of permanent improvement in this sector. no way changes the technical conditions for the control by circulating a specific questionnaire on transformation of IRS as provided for in the 2003 Act prevention of money laundering and financing of and the associated application decrees (Decree of terrorism to provident institutions and mutual 26 December 2007 and Order of 25 July 2008). insurers. a) Supplementary pension institutions: This wide-scale survey related to: a wide variety of institutions

u the application of the regulations relating to Initially created by businesses as part of their prevention of money laundering and financing of labour relations policy, IRS were designed to terrorism; manage ‘in-house’ defined-contribution pension schemes for the employees of member companies u the preparedness of the surveyed entities to meet the new requirements in this area established as a supplement to the official mandatory and by the European Union’s 3rd money laundering complementary pension schemes. directive. The benefits paid out to around 400,000 beneficiaries were estimated at €1 billion as at 31 December 2007. The discounted amount of the associated commitments is estimated at around

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€20 billion. These figures nonetheless cover very u failing one of the above, the IRS will be officially c) Assessment of transformation projects contrasting situations: while some IRS managed dissolved and the funds it holds at that date will be APPROVAL OF TRANSFER OF PROVISIONS BY IRS As part of its duties, ACAM verifies the terms of large companies’ pension commitments to several converted into annuities in the conditions provided the collective agreement modifying the pension ACAM approved the transfer by four IRS of their provisions and reserves to thousands of employees or former employees, a for in the Decree of 25 July 2008. scheme with a view to the IRS’s transformation. insurance entities. This type of decision is likely to become more common in significant number, on the contrary, had very few In the case of transformation into an IGRS, whose 2009 as Article 116 of Act No.2003-775 of 21 August 2003 relating to pension participants. corporate purpose is strictly limited to administrative In the case of a transformation involving a transfer reform gave IRS the possibility of choosing one of the following options before of funds, ACAM ascertains that the insurance policy 31 December 2008 (deadline subsequently deferred to 31 December 2009): Neither is the IRS’s mode of operation homogenous. management of the pension scheme, any funds held is compatible with the terms of the collective u While some institutions have been allocated in the IRS must be transferred to an insurer as soon as to apply for authorisation to become a provident institution, or to merge with agreement and that the policy is correctly drawn up. a provident institution; sufficient funds to finance their commitments, ACAM has approved the changes to the scheme most do not hold sufficient assets to do so and pay decided by collective agreement. If the IRS holds no If the pension scheme cannot be totally u to change the IRS into an IGRS. In this case, the IRS must obtain ACAM’s approval of the collective agreement modifying the pensions scheme’s rules out the benefits by calling on the employer for funds, Decree No.2007-1897 of 26 December 2007 outsourced to an insurer, ACAM also verifies that with a view to transferring the provisions and reserves already constituted provides for the filing of the new IGRS’s Articles of funds. the employer’s residual commitment in the to an insurer; Association with ACAM and the ministry concerned. financing of the scheme is clearly stated. b) The IRS transformation process u failing one of the above, to dissolve the IRS. An analysis of the transformation projects At 31 December 2008, ACAM examined in 2008 revealed that a number of IRS PRESENT SITUATION were finding it difficult to comply fully with these had approved 7 transfers requirements. The main difficulty is that the IRS, Before the transformation process started, 81 IRS were listed as active, i.e. of funds held by IRS that set up by employers, have not sufficiently taken SOME FUNDAMENTAL RULES RELATING TO THE TRANSFER meeting at least one of the following criteria: directly paying benefits during into account the fact that on transformation into OF FUNDS the financial year, with commitments to retired employees or future had opted for conversion an IGRS their corporate purpose is strictly defined pensioners, or the existence of an active decision-making body. The transfer of funds is subject to specific regulations. to IGRS. Two IRS merged with by the Law and that the transfer of funds to an Of these 81 IRS, three were still open, meaning that all the employees of the insurer is subject to specific regulations. The insurance policy must clearly state the commitments towards the member companies co ntinue to acquire rights. provident institutions during beneficiaries of the schemes, in exchange for the initial transfer of funds, in accordance with Article L. 131-1 of the Insurance Code. In particular, the The other institutions were either closed to new employees (only the the 2008 financial year. insurance policy must guarantee the rights acquired by retired employees employees already in the scheme could continue to acquire rights) or in under the scheme. These rights are stipulated in the memorandum drawn up extinguishment mode, with no new rights being acquired). Many of the closed by the insurer and transmitted to scheme beneficiaries by the employer. IRS are in extinguishment mode. For its part, indexation of benefits to external indices (change in Agirc, Arrco, THE SPECIFIC CASE OF DISSOLUTION etc.), will not be the subject of a guarantee from the insurer except when limited to the amount of a profit sharing fund. The IRS can: A number of IRS have opted for dissolution. In some cases, these IRS have funds that they could These points are set forth in an information memorandum published by ACAM, u apply for authorisation to operate as a provident transfer to an insurer. which was transmitted at the end of 2008 to each IRS with funds to be institution or to merge with an authorised provident At the technical level, ACAM assesses the planned transferred to an insurer. The IRS should thus be in a position to adjust the institution; transfer terms and conditions in the same way as planned mechanism and present projects that comply with these for conversion to an IGRS. requirements during 2009. u change, without creating a new legal entity, into a supplementary pension scheme management institution (Institutions de Gestion de Retraite Supplémentaire – IGRS);

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n THE MAJOR MOVEMENTS: GROUPINGS, TRANSFERS, Following enactment of the Act for the MERGERS, SUBSTITUTION, ETC. Modernisation of the French Economy (Loi LME) In 2008, 62 entities governed by Livre II of 4 August 2008, new provisions relating to transferred their portfolios in the context of governance were drafted. The Mutual Insurance Increased competition mergers by absorption, eight transferred their Code now provides for delegates to vote by proxy. portfolios without merging and two merged The rule relating to cumulative offices has been for the mutual insurers: without transferring their portfolios. In addition, eased and directors of a mutual insurer or grouping FOR INFORMATION 31 Livre III mutual insurers were grouped. may now hold offices in conditions similar to those competition increased in 2008 provided for by the Insurance Code. When an insurance as the result of the reform entity is substituted, 100 95 Lastly, the possibility of creating a Mutual Grouping it no longer retains Union (Union mutualiste de groupe – UMG), the insurance risk, of civil servants’ supplementary 80 68 equivalent to a Mutual Insurance Group Company which is transferred 60 health insurance: each 60 56 by agreement to the 53 (Société de groupe d’assurance mutuelle – SGAM), ‘substituting’ mutual government department staged 43 enables mutual insurers to group together. The aim 2.3 Mutual insurers governed 40 insurer. an invitation to tender opening is to ensure the distribution of their products while by the Mutual Code 20 conserving their own mode of functioning and their the field to insurance companies 1 2 1 own identity. a) A decline in the number of mutual insurers 0 and provident institutions. 2006 2007 2008 2008 featured the first creation of a public limited n GENERAL TRENDS Some mutuals linked to a same Merger Dissolution Court liquidation company (société anonyme) governed by the Steady growth in the supplementary health Insurance Code within a mutual insurance group insurance market has attracted insurers’ interest ministry grouped together based on the transfer of the portfolios of two Livre II and exacerbated competition in this sector. 2 500 groupings within the larger group. in order to respond more 2 175 One consequence has been a steady fall in the 2 002 efficiently to calls for tender. 2 000 1 846 b) Ongoing off-site and on-site inspections number of insurers governed by the Mutual Code. 1 707 1 500 1 319 Moreover, the supplementary health insurance ACAM’s Secretariat General 1 212 Off-site inspection of mutual insurers, put in place 1 070 business is becoming increasingly complex and was called upon to assist with 1 000 967 in 2007, was continued and extended in 2008. requires governance and management structures In 2007 non-substituted Livre II mutual insurers that involve a minimum size. these operations. This reform 500 were for the first time under the obligation to Also, as from 1 January 2008, the minimum will also concern local 0 present to ACAM all the prudential statements 2005 2006 2007 2008 guarantee fund required for exercising an insurance government employees defined in 2005. In 2008, the quality and activity has been raised to €1.6 million for Livres I, II and III mutual insurers Livre II mutual insurers completeness of the information submitted had supplementary health insurance and €2.4 million and hospital staff. improved but there was still room for further for life insurance. Competition and more stringent Of the 967 mutual insurers governed by Livre II, progress. 386 were subst ituted. regulatory requirements have prompted numerous The supervision is primarily based on the annual entities to adapt their strategies and re-examine Thirteen applications for authorisation of new documents, which must be submitted within the the critical size required to survive over the long mutuals were received by ACAM’s Secretariat stipulated deadline. When this is not the case, term. A growing number of insurers have called on General in the framework of Mutual Insurance ACAM sends a reminder to the mutuals in the form ACAM’s Secretariat General to assist them at an Higher Council’s Licencing Commission (commission of a formal notice. early stage in carrying out their project. agrément du Conseil supérieur de la mutualité). Nine licences were granted by the administrative authority.

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2.4 Insurance intermediaries • No. 4, first quarter 2008, Subsidiarisation and registering with ORIAS. In other cases, the relocation of intermediaries (Filialisation et insurance certificate was not authentic; In 2008, the supervision of insurance délocalisation des intermediaires); intermediaries continued to integrate the new • the circulation of false or inaccurate legislation. It focused on the following areas: • No. 5, second quarter 2008, Some information information to customers; on insurance indicators (Quelques éléments • the absence of an anti-money-laundering Since January 2009, electronic data u replies to the various questions relating sur les indicateu rs d’assurance); to insurance intermediaries raised by the control mechanism; transmission channels are available • No. 6, third quarter 2008, Voluntary networks public. There were slightly fewer requests for • the payment of insurance brokerage fees to (Les réseaux bénévoles); for quarterly reporting data. information than in 2007, which had been an people not licensed to act as insurance exceptional year due to the introduction • No. 7, fourth quarter 2008, Verifying the good intermediaries. of the Registry of Insurance Intermediaries character of intermediaries on registration (Le This last point is a central focus of inspections Less than one third of the 581 mutuals (Organisme pour le registre des intermédiaires contrôle de l’honorabilité des intermédiaires currently being carried out and is the objectf o concerned transmitted their 4th quarter 2008 en assurance – ORIAS) which lists all the lors de leur immatriculation); particularly close surveillance. report electronically. This experimental phase is intermediaries authorised to operate in France. • No. 8, first quarter 2009, Remuneration and nonetheless promising. There was nonetheless a significant flow of The on-site inspection procedure is as follows: Rémunération et immatriculation questions, in particular relating to the obligation registration ( ). ACAM also performed on-site inspections at mutual u the supervisors perform the on-site inspection, to register in order to operate as a remunerated u ACAM’s various departments drew on their insurers, with a focus on mutuals operating in life completed if necessary by exchanges of insurance intermediary. expertise to assist the Department of Treasury insurance, and on urgent cases. documents, notably electronic exchanges; and economic policy of the Ministry of Economy in drafting the Ministerial Order establishing the u a preliminary report is sent to the inspected The most frequent questions diplomas required for registration with ORIAS as intermediary; MANDATORY REPORT ON INTERNAL CONTROL an insurance intermediary (“Diplomas Order”). concerned the obligation to u the intermediary responds to the preliminary report; Decree No.2008-648 of 19 May 2008 stipulates that Livre II mutuals and register with ORIAS. u As in 2007, ACAM took part in various groupings must submit to ACAM an annual report on internal control, approved professional events with the aim of informing u the supervisors draft their final conclusions in by their Boards of Directors. intermediaries of their obligations under the new the light of the responses provided. For mutual insurers supervised by ACAM, the first report was to be submitted by The ‘legal status’ (agent, for example) does not on legislation. On the basis of these documents, the Secretariat 19 November 2008 at the latest. Two thirds of the entities concerned duly its own provide an answer to this question: it is u Three on-site inspections of insurance General can transmit the case to ACAM’s College, submitted their reports but a reminder had to be sent out to the other third. necessary above all to know whether the activity intermediaries were also performed in 2008. effectively carried out by the person enters within which may decide to instigate disciplinary The majority of the reports highlight the efforts made, and those planned, to put These inspections – performed based on case- proceedings. The intermediary in question can in place an internal control system. They describe the procedures put in place or the scope of insurance intermediation as defined by-case decisions taken by ACAM – focused on present his comments to the College in writing to be put in place and the resources allocated to internal control. Some entities in Articles L. 511-1 and R. 511-1 of the Insurance the following: also provided a mapping of their risks. Code. within a given period, before being heard by the • ORIAS registration. In some cases the College. The College then deliberates on the The internal control report should be considered a steering tool for the u The very numerous queries received by ACAM inspection prompted the entity to take the sanction to be imposed, with only the College management. It will need to be adapted to take into account the different risks have been listed by theme and will be accessible members and a secretary of the meeting identified during the year, together with the action taken and provided for in the necessary steps to register with ORIAS. In other on ACAM’s website, thereby adding to the FAQ attending. This procedure, similar to that applied audit plan. cases, the inspection revealed that the entity section. In addition, the expertise acquired in the continued to operate despite being struck off to insurers, protects the rights of the intermediary The reports from Livre II mutual insurers were to be submitted by 19 May 2009 course of dealing with these questions provided the ORIAS register; in question. at the latest. the basis for the following articles published in ACAM’s newsletter (La Lettre de l’ACAM), thus • ge neral professional and financial liability responding to market concerns: insurance. In several cases, the inspection revealed the lack of insurance cover. In some case, this lack of cover was the reason for not

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c) Liquidity risk provision Consequently, under all three codes, the principal of the Insurance Code. It is therefore necessary to 3. Specific cases a true and fair view takes priority over any specific define an appropriate insurance guarantee: in Although the new regulations relating to liquidity provisions. particular, existing annuities must be consolidated. risk provisions authorise the spreading of the The simple guarantee of paying the outstanding allowance to the provision using a debit account Some insurance entities break down financial This section relating to specific cases is not pensions within the limits of available funding > on the liability side of the balance sheet, this is no income according to their own criteria. With regard to doctrinal, it is designed to inform on how would be tantamount to pay as you go. Deferred longer automatically spread over eight years but the legal or contractual separation criteria, an entity ACAM acted on the specific cases submitted to it in pension entitlements require a separate provision. over the duration of the insurer’s liability, within a can derogate from the specific provision if it does 2008, and to underline certain points of law. Under this mode of functioning, the employer can limit of eight years. so according to the rules of the General Chart of justifiably impose annual policy endorsements to Accounts; in particular the notes must indicate very 3.1. Provisioning Moreover, the amount of the deferred provisions is adapt the insurance cover. clearly the reason for such derogation, the method no t deducted from regulatory commitments nor used and its impact on the results and financial ACAM underlines that during the savings phase, the a) Pricing and provisioning based accepted to cover these commitments. on gender tables situation. In parallel, even if technical provisions rights acquired can be expressed in accumulation are covered by investments, the cost of financing units, but the margin requirement continues to be Following the transposition of Directive 2006/54/EC d) Transformation of class 26 schemes the working capital is charged to the underwriting of 4% if the benefits are payable in euro. into French law, the general prohibition of On the transformation of “class 26” schemes, the account. The same is applicable to interest on cash discrimination applicable to provident institutions Lastly, an IGRS can only carry out the obligation to distribute the assets provided for in deposits from reinsurers. and mutual insurers governed by the Mutual Article R. 441-28 means sharing out the entire administrative management of the scheme Insurance Code has become explicit. special technical provision and reserving the c) Insurance securitisation vehicles (issuance and receipt of subscriptions, calculation and payment of benefits). It would not be The regulations require that, when a single table is unrealised capital gains to the scheme’s An insurance securitisation vehicle must directly appropriate to give it a role normally reserved to used for pricing, it must be the most prudent table. beneficiaries. hold the totality of the funds required to cover employees’ representatives. In this case, all the policies must be provisioned 3.2. Other financial elements the guarantee [Article L.310-1-2 of the Insurance using, at the least, the same table as used for Code, transposing EC Directive 2005/68/EC]. In 3.3 Governance pricing. However, for annuities in course, Article a) Adding unrealised capital gains to particular, the possible hedging techniques applied A.331-1-2 requires the use of the latest annuitants’ the available solvency margin to the vehicle, in particular to cover interest rate a) Internal control: a major issue tables. risk and currency risk, give rise to a counterparty Internal control involves a general control on the The regulations provide for unrealised capital gains risk. They cannot therefore be taken into account b) Provision for future claims insurer’s operations. It is an issue that relates to all of to be taken into account in the calculation of as an element of financing unless they are (construction risk insurance) an insurer’s operations. Internal control is therefore the solvency margin with the consent of the themselves collateralised. The condition laid down not a specific function within an entity but a general The specific provision for future claims applying in supervisory authority. The capital gains thus taken in Article D. 214-111 (5) of the French Monetary concern: that of ensuring safe management. decennial construction insurance (provision pour into account correspond to the net global capital and Financial Code should therefore be considered sinistres non encore manifestés – PSNEM) is gains on all investments, unless these are of an necessary, although not necessarily sufficient. Accordingly, internal control relies above all on the calculated in accordance with a regulatory method. exceptional nature. managers of each department rather than on a This method reflects the economic basis of the d) Transformation of an IRS specialised unit. Internal control is adequate when b) Segregation and breakdown of financial the different departments within an insurer conduct PSNEM and captures the specific effects that the income between underwriting and The transformation of an IRS may require a change provision is designed to cover. It is based on the non-underwriting accounts in the terms and conditions of coverage of their activities and/or exercise their responsibilities official construction work starting date (date the liabilities arising from employer/worker in a controlled manner. The specialised internal The Insurance Code (R. 341-2) and the Social Security réglementaire d’ouverture du chantier – DROC). agreements, which may not necessarily be control units’ role is to ascertain that this is the case. Code (R. 931-11-2) stipulate that the applicable chart insurable. When a differential guarantee is granted Consequently, any derogatory methods based on of accounts is the General Chart of Accounts (Plan b) Powers of the General Meeting by an employer, for instance when a guarantee is the financial year in which the claim is incurred are Comptable Général – PCG) unless provided for modified following an increase in the ARRCO or It should be remembered that the appropriation of not appropriate. Only methods using DROC-based otherwise. The mutual insurance sector’s chart of AGIRC Social Security pensions, this guarantee income is decided by the General Meeting and not approaches will be approved by ACAM. accounts (L. 114-46) directly integrates the general does not present the characteristics required by by the Board of Directors. provisions of the General Chart of Accounts.

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4. ACAM safeguards 310 files were incorrectly sent to ACAM instead of As in previous years, most complaints were • Personal insurance categories in 2008 the insurer, and were returned to the senders. referred to ACAM by the policyholders themselves. 8% 48% policyholders’ rights Number of calls to the call centre Number of complaints per category in 2008 12%

• Number of calls to the call centre per month in 2008 • Insurance category in 2008 Life / death / funerals This chapter analyses the complaints received Health > 600 by ACAM and the underlying issues. Only Total 2008 : 3,945 2%2% Provident / disability / personal 3% injury - accident 508 3% disputes between policyholders and their insurers 500 Loans are covered. The number of such disputes is low 3% 3% 30% considering the overall number of policies in France. 400 357 364 369 32% 338 334 5% This information will be of interest to policyholders, 297 314 281 while insurers will be able to identify areas for 300 336 7% Life insurance still gives rise to more complaints

improvement. Although each case is different, 249 than any other class (30% of all complaints and 48% 200 7% patterns can be identified. Nevertheless they do not 198 of all personal insurance complaints). The actual necessarily apply to the whole market. 100 number of complaints remained stable as compared 15% 20% Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec to 2007. Although the financial crisis has not 4.1. Complaints handled by the DDCRA: resulted in any significant increase in the number Life / death / funeral Others The number of calls increased significantly in (pet / assistance / credit card / suretyship of complaints, there has been an increase in the the figures Health and guarantees / tenants / maritime / December 2008 and continued to rise in January sundry property / travel / school and number of enquiries from policyholders seeking Motor insurance student) (686) and February 2009 (738), because of an information on the financial position of their Number of cases Provident / disability / personal Legal expenses increased awareness of the existence of the call injury - accident Mobile phone insurers. centre. Household insurance Construction 3,360 In 2008, the number of complaints relating to health 3,500 3,227 Loan (consumer credit / mortgages and (10-year liability / structural damages to property loans) the building) 3,000 Origin of complaints insurance remained low given the number of Unknown Professional liability / 2,415 2,500 comprehensive business policies, and essentially concerned premium • Origin of complaints in 2008 increases. 2,000 11% 1,500 There has also been a slight increase in the number 1,000 89% As in 2007, most of the complaints received by of complaints about provident insurance, while Complainants 500 (policyholders / victims) ACAM concerned personal insurance (64%). the number of complaints about loan insurance has fallen. 0 • All insurance categories in 2008 2006 2007 2008 Representatives • Property insuran ce in 2008 (Consumer associations / lawyers / family or friends / 36% 64% intermediaries) 5% Number of cases in 2008 7% 43% Motor insurance Total 3,227 Household insurance Personal insurance 7% Sundry

Property insurance Legal expenses In 2007, 15% of the cases concerned requests for 9% Construction (10-year liability / information about a specific event (an insurer structural damages to the building) Mobile phones being placed under special supervision by ACAM). 10% Professional liability / If we eliminate these cases, the number of comprehensive business complaints referred to ACAM increased by 19% in 19% 2008.

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Yet again, the breakdown of property insurance • Personal insurance – subject of complaints in 2008 designed to facilitate the termination of complaints tends to mirror the relative importance HEALTH INSURANCE automatically renewable policies. Interestingly 5% Contract management: costs / of each category for the insurance market. 2% claims / performance / modifications / enough, the number of complaints on the periodic information / annual statements In 2008 several cases concerned the termination 21% 10% Lapse / surrender / transfer / of health insurance policies. In some instances, underwriting process continued to increase in 2008 Naturally, motor insurance accounts for the largest payment on expiry insurers refused to terminate a policy at the (9%). Once again, distance selling of policies number of complaints (43%), followed by Information: adjusters / mediators / role of ACAM and the DDCRA / legal or policyholder’s request, either on anniversary date resulted in some disputes, particularly in householder’s comprehensive insurance (19%). 14% general information / company enquiries or not. Requests for termination were sometimes connection with motor insurance. However, complaints concerning legal expenses Termination of contract due to a sharp increase in premiums or • Outcome following DDCRA’s action and mobile phone insurance, which increased in Refusal to pay on claims sometimes because the policyholder was required 2008, are disproportionate to the economic Underwriting / premiums to take out a group insurance policy offered by 14% Information obligation / importance of these categories. A final point of 18% duty to advise their employer. Other complaints concerned 4% interest is that complaints relating to householder’s Contractual clauses 16% refusals to cancel the contract when the comprehensive insurance fell slightly as compared policyholder considered he had not received 31% to 2007. Life insurance policy disputes referred to ACAM by sufficient advice at the time of the initial purchase of the policy. policyholders concerned returns on the policies, and Subject of complaints delays in the execution of arbitrage transactions, Lastly, some complaints concerned medical costs • Personal and property insurance – subject of complaints surrenders values or the payment of death benefits. the insurer had refused to refund, because of In 2007 in 2008 Also note that some claims concerned mergers of delays by the insurer managing the contract, or insurance entities and subsequent problems with because of a disagreement over application of the contractual clauses (exclusions, ma ximum cover, Refusal to pay on claims the management of policies (irregularities in the 3% refund on a real cost basis or as a percentage of 65% 1% Contract management: costs / payment of annuities, delayed benefit payments). 10% 22% claims / performance / modifications / the amount refunded by the social security periodic information / annual statements Insurer modified its position, in line with the DDCRA’s In providence insurance, 2008 was marked by an authority, etc). recommendation Information: adjusters / mediators / 3% role of ACAM and the DDCRA / legal or Insurer rightly maintained its position 12% general information / company enquiries increase in complaints concerning provident Termination of contract institutions’ obligations to inform and advise. Insurer wrongly maintained its position, despite 29% the DDCRA’s recommendation Lapse / surrender / transfer / Holders of multi-cover insurance packages • Property insurance – subject of complaints in 2008 benefit on expiry Underwriting / premiums complained that they had been poorly advised at 2% Refusal to pay on claims 16% Information obligation / duty to the outset and had since realised that certain 1% advise Information: adjusters / mediators / 12% 35% In 2008 18% Contractual clauses cover that they believed formed part of the role of ACAM and the DDCRA / legal or 18% package was not, in fact, included. general information / company enquiries Termination of contract 13% Again with respect to provident institutions, Contract management: costs / claims / performance / modifications / In 2008 the breakdown of complaints according to interestingly enough the number of cases where periodic information / annual statements 68% subject matter remained almost identical to the two the policyholder questioned a discrepancy Underwriting / premiums previous years (other than the large number of between the disability ratings applied by the Contractual clauses Information obligation / 17% requests for information received in 2007 when insurer and by other social security bodies fell duty to advise ACAM placed an insurer under special scrutiny). as compared to 2007. 20% ARBITRATION AND LEGAL EXPENSES INSURANCE ACAM reminds insurers offering legal expenses insurance that, in the event of The bulk of complaints concerned the performance a dispute with a policyholder and if the parties cannot agree on the measures phase of the policy (payment on claims + to be taken to settle the dispute, the insurer has a legal obligation to inform management = 48%). A significant number of cases the policyholder of the possibility of going to arbitration. concerned termination of policies, either termination for non-payment or by virtue of the ‘Chatel Act’,

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4.2. The variety of the raised issues In all the cases referred to ACAM the problem was It is probable that a policy taken out as a result of resolved and the insurers promptly improved their CANVASSING: BEWARE! unfair business practice will be voided by a court, FOR INFORMATION a) Issues relating to the marketing of procedures to avoid similar problems in the future. When a product is sold as a result of canvassing, on the indirect basis of the rule of civil law that insurance policies Article L.122-15 of However, the nature of the complaints shows the the advice given to the customer may be the validity of a contract may be challenged the Consumer Code need for constant vigilance when setting up inadequate or inappropriate. because of lack of consent (error, fraudulent expressly provides THE MARKETING OF INSURANCE distance selling systems, especially when the sale Several policyholders have complained that as a misrepresentation) or simply because the contract that if a contract is POLICIES: A RECURRING PROBLEM function is delegated. result of canvassing they agreed to take out a new does not comply with a mandatory legal provision signed as the result Policy marketing, though it is only one phase in the health insurance policy but that no checks were and is contrary to public policy (Article 6 of the of an “aggressive” n CANVASSING life of an insurance policy, attracted considerable made to establish whether they could terminate Civil Code). It may also be voided on the ground of selling technique, attention in 2008: Act 2008-3 of 3 January 2008 introduced specific their existing policy. They were subsequently the Consumer Code, whose provisions may be the contract will be provisions concerning the canvassing of non-life requested to pay the premiums of two insurance applied automatically by the court7. null and void. u there was a great deal of legislative activity contracts that covered the same risk. throughout year 2008 and at the beginning of insurance products, to be included in the Insurers and intermediaries are therefore advised 2009; Insurance Code. These new provisions came into Several other complaints revealed that canvassers to pay careful attention to this legislation when force on 1 July 2008, and provide that: deliberately created confusion as to the actual selling their insurance policies. u it has remained a constant and significant identity of the insurer for which they were acting. cause of the disputes referred to ACAM. Many u canvassing only concerns insurers subject to the Lastly, some elderly or vulnerable policyholders n OBLIGATION TO PROVIDE APPROPRIATE ADVICE policyholders complain that they did not really Insurance Code. Unlike distance selling, which is disputed the validity of their agreement to want to take out the policy sold by the insurer, or covered by both the Insurance Code and the purchase insurance. that they were badly informed or advised when Mutual Code, there is no equivalent provision to The conduct criticised in these complaints equates they took out, or sought information on, this new Article L. 112-9 of the Insurance Code in Decree (ordonnance) the policy. to unfair business practice. The existence of the Mutual Code. Considering the decision of criminal sanctions clearly increases the legal 2009-106 of 30 January 2009 the Court of Cassation’s criminal division dated risks to which insurers are exposed in connection 2 October 2007, insurers subject to the Mutual with the marketing of policies. strengthened insurers’ and Code are advised to apply the rules set out in the intermediaries’ obligations to n DISTANCE SELLING Consumer Code (Code de la consommation) advise when marketing certain when canvassing non-life insurance products; n UNFAIR BUSINESS PRACTICE life insurance policies. There has been a sharp increase u Article L. 112-9 of the Insurance Code has in distance selling, and this has reproduced part of the criminal sanctions set out The Consumer Code lays down a general principle in the Consumer Code. According to this article, that unfair business practice is prohibited3 (Act Decree 2009-106 of 30 January 2009 added to resulted in a significant number the insurer may face a €15,000 fine if it fails to 2008-3 of 3 January 2008, Act 2008-776 of intermediaries’ duty to advise, laid down in Article of complaints. refund the policyholder the part of the premium 4 August 2008). L. 520-1 of the Insurance Code, by introducing a corresponding to the period when the risks were Such practice may take the form of misleading new Article L. 132-27-1 in the same Code and a not covered, within 30 days of the policyholder’s information or over-forceful sales techniques and specific paragraph in Article L.520-1. An equivalent The main problem concerns the existence of a provision exists for mutual insurers and groupings decision to withdraw from the contract. In may give rise to serious penalties4. These may be document proving that the policyholder agreed to addition to the possibility that the insurance subject to Livre II of the Mutual Code8. take out the policy. In many cases the insurer, imposed on legal entities when they carry out such policy may be found null and void, this type of 5 having delegated the sale phase to a third party, offenses directly , or when the offenses are carried criminal sanction increases the legal risks and out on their behalf6. was unable to produce written proof that the risk of damage to the reputation of any individual potential client had accepted the offer. or legal entity who/that fails to comply with the legal requirements.

3. Transposing Directive 2005/29/EC of 11 May 2005. 6. Article L. 121-5 of the Consumer Code. 4. Cf. articles L. 121-6, L. 122-12 of the Consumer Code. 7. New Article L. 141-4 of the Consumer Code. 5. Cf. articles L. 121-6 and L.122-14 of the Consumer Code. 8. New Article L. 223-25-3 of the Mutual Code.

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From 1 July 2010 on, an insurer9 or intermediary b) Issues relating to life insurance n FORMULA-BASED FUNDS To avoid such disappointment, it is essential that marketing an individual life insurance policy which policyholders carefully read the documents they may be partially surrendered, a capitalisation n UNIT VALUE DATES APPLIED TO SURRENDERS, receive concerning the investment products in policy or a policy covered by Article L. 132-5-3 or ARBITRAGE TRANSACTIONS AND TRANSFERS WHAT IS A FORMULA-BASED FUND which their unit-linked life insurance policy Article L. 441-1 should, before the policy is Sharp fluctuations on the financial markets have Formula-based funds (fonds à formule) are invests; these documents also need to be clear purchased, make a record of the requirements and led to substantial variations in value between the complex investment funds (UCITS) subscribed in and easy to understand. needs of the policyholder10, and of the reasons date of a surrender, arbitrage or transfer request; connection with life insurance policies, that why it is advising this particular type of policy. The and the date of its execution. As a result, ACAM is combine a guaranteed performance with a FOR INFORMATION article also provides that the explanations must be seeing a new type of complaint. guarantee that the investor will recover the initial It is important that when investing In unit-linked life adapted in view of the complexity of the insurance capital. The fund’s performance will depend on the Policyholders who had not read the explanations automatic application of a predefined calculation in complex, formula-based funds, insurance policies, policy or capitalisation contract. investment and regarding investments and divestments were formula over a given investment period. policyholders carefully read the divestment unpleasantly surprised to find, after execution of Management of such funds is generally “active”. transactions are not the transaction, that they had less savings than This enables the management company to invest simplified prospectus approved by executed on the date THE INSURANCE CODE TIGHTENS UP REGULATIONS GOVERNING THE expected. They had based their calculations on the funds on equity markets when the economic the AMF or the fund’s particulars, of the request, but net asset value on the date of their request, but climate is favourable, and to switch to money rather on a later “net ADVERTISING OF LIFE INSURANCE in order to fully understand what POLICIES this net asset value had subsequently fallen. market instruments and bonds when the outlook asset value” date. is more gloomy, so as to ensure it will be able to they are investing in. There is therefore The decree of 30 January 2009, creating Articles Furthermore, some clauses lack clarity, referring pay out the guaranteed capital. a time-lag between L. 132-27 of the Insurance Code and L. 223-25-2 of to the “submission of a request” or its “receipt” the triggering of the Mutual Code, is designed to ensure that life without specifying whether this means receipt by the transaction insurance policies are properly marketed. the intermediary or by the insurer, thereby adding n COMPLIANCE WITH DEADLINES FOR EXPIRED POLICIES and its execution. Both articles, which will come into force on 1 July to the confusion. ACAM received some complaints concerning formula-based funds in 2008. Investors in some Act no. 2007-1775 of 17 December 2007 requires 2010, provide that all information relating to life In cases where the delay in executing an order insurance policies11 that may be partially funds that reached maturity in 2007 and 2008 insurers to pay the capital or annuities to the seemed negligent, ACAM issued a warning that the surrendered, capitalisation policies or group life only recovered the capital they had initially beneficiary of a life insurance policy after the death insurer could be held liable for any resulting losses. insurance policies that may be partially invested, less management costs. Although the of the policyholder or expiry of the policy within surrendered or transferred must be accurate, clear In some cases where the value differed investors did not lose their capital they were one month of receipt of the necessary documents. and not misleading. Advertising and promotional substantially the insurer agreed, as a commercial unhappy as they had hoped for a much better Although it is clear that this new provision has materials must be clearly identified as such. gesture, to use the date on which the order was return on their long-term investment. In addition, improved the situation of beneficiaries of expired life This new legislation is essential. In previous years received by the intermediary as the date of several policyholders did not have a proper insurance policies, the fact that the legal time period ACAM observed that some promotional documents registration of the order, thus accepting the understanding of how the fund operated and were runs from the date of receipt of the “necessary were not sufficiently accurate or clear. For example, consequences of any lack of diligence on the part not aware that it used an “active” management documents” by the insurer remains a potential stated interest rates did not always correspond to of the intermediary. approach and that there was a risk that they would actual interest rates, net of costs. Some promotional source of dispute. only recover their initial capital. documents might also be confused with contractual In other cases, the insurer insisted that their In the cases referred to ACAM, delays in payments documents. general terms and conditions should apply to the were due to the fact that the insurer had not been letter. The new legislation will accordingly provide a better able to obtain the ne cessary documents in time. protection for policyholders. However, ACAM also noted that some insurers were slow to request documents.

9. Or mutual insurer, under the Mutual Code, for the individual or group transactions referred to in Articles L. 223-1 or L. 222-1. 10. In light of his financial situation and objectives. 11. Or relating to the individual or group transactions referred to in Articles L. 223-1 or L. 222-1 for mutual insurers subject to the Mutual Code.

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Policyholders who joined a group policy or The Lyons Court of Appeal ruled that the The second, new insurer provides cover under the PAYMENT OF CAPITAL ON EXPIRED purchased an individual policy after 1 May 2006 company’s group policy should allow former second policy for “unknown past events” when POLICIES have complained to ACAM that they received employees to request the maintenance of cover on claims are made during the term of the policy, Certain insurers rely on contractual clauses that incorrect information about the surrender values exactly the same terms as when they were irrespective of the date of the proximate cause. The require beneficiaries to produce the original of the of their policies at the end of the first eight years. employees, subject to a premium surcharge of 50% initial insurer must pay out for any part of the loss maximum, without any trial period, medical or injury not covered by the new insurer. This rules FOR INFORMATION policy’s special terms before making the payment. Those policies showed that some insurers did not In many cases the beneficiaries never had this examination or medical questionnaire. applies to all claims made after 1 January 2003 Clauses that make disclose surrender values, as required by the new document in their possession. In this case, the under policies taken out after this date and still payment of capital legislation, and did not systematically provide The Court of Appeal ruled that “premiums may only insurer asks the beneficiary to produce a valid at the time of the claim. conditional upon certificate of loss or issue an order to stop policyholders with clear information, which is also be increased by 50% maximum, in accordance production of the payment in application of Articles L. 160-1 and contrary to the law. The wording of the surrender with the regulations”, irrespective of the impact original policy are R. 160-4 of the Insurance Code. This procedure, values table is not always explicit or sufficiently this may have on the technical equilibrium of the contrary to the new which may block all payments on the policy for detailed. policy. FOCUS ON ARTICLE 5 OF THE ABOUT ACT Article L.122-11-1 of two years, is not appropriate for beneficiaries who the Consumer Code. have never had the original policy in their ACAM has also noted that the surrender value b) Application of successive medical liability Article 5, paragraph 1 of the About Act provides that The Code qualifies as possession. tables do not always show the total amount of insurance policies Article L.251-2 of the Insurance Code applies to ‘aggressive’ the premiums paid and that a warning that the value policies taken out or renewed on or after the date of requirement that Such clauses may have been justified before the of the units may fall is not always given, as In two rulings dated 2 October 2008 and 8 January its publication. Article L.251-2 basically provides coming into force of the Act of 17 December 2007, a consumer must required by Article A.132-5 of the Insurance Code. 2009 the Court of Cassation ruled on the issue of that a policyholder is covered by the policy in effect which prohibits “policies to order” (Article 10). produce documents Information on calculation of the euro equivalent the applicability of successive policies in light of at the time of the first claim, irrespective of the date that are not deemed However, according to the new Article L.132-8 of Article 5 of the “About12 Act” on medical liability of of the proximate cause. relevant or necessary the Insurance Code, the insurer must always be of surrender values is also missing in some cases. 30 December 2002 (Act no. 2002-1577), which The second paragraph provides that claims will be to establish informed of the beneficiary of one of its policies, Although the law leaves insurers some freedom as came into force on 1 January 2003. covered by the insurer under a policy that was taken the validity of except when this person is designated in a will. to how they provide this information, ACAM advises The designation or replacement of a beneficiary is out before the Act came into force and was still in the request. insurers to publish tables that are clear and easy to Given the existence of successive policies governed always recorded in an endorsement to the policy effect when the Act came into force, provided the understand. by the About Act, the Court of Cassation ruled on proximate cause occurred when the policy was in or an instrument recorded in the manner provided which policy should apply when the proximate in Article 1690 of the Civil Code. effect and that the first claim was made no later 4.3. Recent legal developments cause predates the date on which the Act came into than five years after the end of the policy. force but was not known at the time, and when a a) Maintenance of insurance cover: claim was made after such date. Article 4 of the “Evin Act” n DISCLOSURE OF POLICY SURRENDER VALUES AT THE END OF THE FIRST 8 YEARS OF UNIT-LINKED LIFE c) Loan insurance On 13 January 2009 the Lyons Court of Appeal INSURANCE POLICIES, SINCE THE DDAC ACT gave a ruling on a case that had been referred back to it by the Court of Cassation on 7 February 2008. LOAN INSURANCE – A DEFINITION FOCUS ON THE “DDAC” ACT BRINGING ASPECTS OF FRENCH The Court of Appeal found that an insurer failed to The economic crisis at the end of the 1970s heralded a turning point in the LAW INTO LINE WITH EC LAW IN THE INSURANCE SECTOR comply with Article 4 of the Evin Act when it offered history of loan insurance. Traditionally limited to cases of death, disability or temporary disability, it was extended to also cover loss of employment. Act 2005-1564 of 15 December 2005, called the “DDAC Act” (loi portant private medical insurance that was similar but not diverses dispositions d’adaptation au droit communautaire dans le identical to cover provided under a mandatory group This type of insurance experienced a boom in the following years because of the secteur de l’assurance) amended existing provisions concerning policy. It then clarified the position taken by the Court significant expansion of the credit sector and the increase in consumer over- disclosure of surrender values at the end of the first 8 years. It provides of Cassation, which had for the first time advised a indebtedness. that the table of surrender values must show the total amount of strict interpretation of the concept of “maintenance Over 40 years later, the emphasis is now on the need to improve the disclosure premiums paid (Article L. 132-5-2) and that explanations must be provided of cover” in the case of private medical insurance, to of policies and increase competition, in the interest of consumers. as to the content and form of the information (Article A. 132-4-1). the benefit of an employee leaving a company (due to retirement, unemployment or disability).

12. “About” is the name of the Member of Parliament who first drafted the bill (before it became an act).

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Loan insurance is taken out as a security for the 4.4. Mediation n MEMBERS OF THE FFSA The CTIP and the FNMF are currently considering loan, and the two contracts are therefore closely A mediation charter, adopted in 1993, sets out the introducing a mediation system. linked. All the more so as in most cases the credit dispute resolution rules. The mediator is either In the event a mediator issues an opinion in favour institution itself takes out the policy, is the Although this is not one of appointed by the insurance entity or group (as is of an insurer, or if the insurer fails to act on beneficiary under the policy and also acts as the the DDCRA’s primary roles, the case for the larger insurers such as AXA, CNP, any opinion in favour of the policyholder, the intermediary. This situation may result in credit Groupama, Generali and MMA), or is appointed by policyholder may take the case to court. institutions putting their own interests before it can help policyholders and the FFSA (whose mediator is Mr Françis Frizon). those of their clients, by imposing a policy that supervised entities to find themselves have negotiated. A policyholder or his or her representative may an amicable solution to refer a dispute with an FFSA member, provided the Most complaints about this type of insurance a dispute. There is a range of policyholder is a natural person. Cases may also concern the lack of transparency and inadequate be referred by the insurer, if the policyholder CONTACT DETAILS advice when the policy was offered to the borrower. mediation possibilities that agrees. Département du droit du Policyholders have also said they would like to contrat et des relations have the opportunity to take out a policy of their can be used to settle The mediator will issue a reasoned opinion, based avec les assures (DDCRA) own choice with another insurer. disputes without going on law and equity, within three months of referral 61 rue Taitbout of the case. The opinion will not be legally binding 75436 PARIS CEDEX 09 For several years now industry players and public to court. and the parties undertake not to raise it in any Tel: +33 (0) 1 55 50 41 00 authorities have striven to improve disclosure on Fax: +33 (0) 1 55 50 41 42 possible court action. Email: [email protected] these policies, and to extend access to them. MEDIATION AND INSURANCE BROKERS a) Mediation – a definition FFSA The Mediator Non-mandatory measures were introduced prior to n MUTUAL INSURERS AND GROUPINGS THAT ARE The union of insurance brokers, the CSCA (la MEMBERS OF THE GEMA BP 290 200713. However, these proved to be insufficient Unlike in the banking and financial market sectors, Chambre syndicale des courtiers d’assurances), 75425 PARIS CEDEX 09 and, following the coming into force of Article mediation in the insurance sector is not imposed by In 1989 GEMA members adopted a mediation adopted a Mediation Charter at the end of 2007. Tel: +33 (0) 1 45 23 40 71 Fax: +33 (0) 1 45 23 27 15 14 law. Instead, mediation systems were introduced by It appointed Mr Patrice Dedeyan as its mediator. L. 312-8.4.bis of the Consumer Code in 2008 protocol. Email: francis.frizon which confirmed policyholders’ freedom of choice, insurers over twenty years ago. Cases involving a dispute between a broker and a Only policyholders that are natural persons, or @mediationassurance.org FOR INFORMATION the Directorate General for the Treasury and client may be referred to him by the client or the Website: www.ffsa.fr When all the internal recourses available within their representatives, can refer cases relating to Along with Financial Policy and the Bank of France conducted broker. The mediator will issue a reasoned opinion the insurance entity have been explored without specific risks to GEMA’s mediator, Mr Georges GEMA The Mediator conciliation and two surveys on the improvement of information within three months of completion of the success the policyholder or beneficiary (or the Durry. The mediator will issue a reasoned opinion examination phase, but this will not be binding on 9 rue Saint-Pétersbourg arbitration, mediation and advice and the comparability of offers. 75008 PARIS insurer itself) may refer a case to the insurer’s within six months of referral. The opinion will be the parties. is an alternative Following this, a reform of loan insurance was Tel: +33 (0) 1 53 04 16 37 dispute resolution mediator. based on law or equity and will only be binding on Email: [email protected] announced to increase disclosure and improve system that the mutual insurer involved in the dispute. The Website: www.gema.fr competition in the interest of consumers. b) How mediation works introduces an mutual insurer must undertake not to raise any CSCA The Mediator independent third Two mediation systems are available to insurers opinion in its favour in any court action. 91 rue Saint Lazare person with the task subject to the Insurance Code: 75009 PARIS of issuing an opinion Tel: +33 (0) 1 48 74 19 12 Fax : +33 (0) 1 42 82 91 10 and helping the u one is for members of the FFSA (Fédération Email: [email protected] parties to come to française des sociétés d'assurance); Website: www.csca.fr an agreement. u the other is for mutual insurers and groupings that are members of GEMA (Groupement des entreprises mutuelles d'assurance).

13. See p. 64 of the 2007 Business Report and p. 34 of the 2005 report. Recommendation n°.90-01 by the Commission des clauses abusives (an authority set up to examine unfair contract terms) (BOCCRF of 28/08/90), Belorgey convention (6/07/06) and AERAS convention (6/01/07), commitment by the FFSA (24/06/03), Opinion of the CCSF (6/04/06). 13 - 14. Act of 3 January 2008. This article offers property loan applicants the right to take out insurance cover with any insurer of their choice, except in the case specified in Article L. 312-9 of the same Code.

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n MEDIATION REMAINS LARGELY IGNORED b) 2009 Social Security Financing Act which provided useful clarifications on the Despite the existence of these procedures, most THE NEW MEASURES CONTAINED IN THE (Loi de financement de la sécurité sociale valuation at fair value of financial assets whose ORDER OF 30 JANUARY 2009 policyholders still know little or nothing about them. pour 2009 -1157). markets are inactive. Unfortunately, insurers rarely inform policyholders Order 2009-104 relating to the prevention of use of Following a parliamentary amendment of Article The four above-mentioned authorities also took of the existence of such dispute resolution system, the financial system for money laundering and L.862-7 of the Social Security Code, ACAM and note of the declarations of the International and the name of the relevant insurance mediator is terrorist financing introduces new rules: the CMU fund (fund for universal health cover) are Accounting Standards Board (IASB) on 2 and rarely provided. u it extends the application scope, previously required to supply annual statistics on the 14 October 2008, indicating that the clarifications In addition, mutual insurers, provident institutions, limited to five types of offence, to all offences supplementary health insurance data contained in issued by the SEC and FASB comply with punishable by deprivation of liberty of more entities and intermediaries that are not members the financial statements of insurers, provident IAS 39 Financial Instruments: recognition and than one year; of the abovementioned industry organisations institutions and mutual insurers in order to enable measurement. the Ministry concerned to prepare a report for either have very inadequate dispute resolution u it reinforces the system of vigilance by The clarifications provided in these various establishing three levels according to the submission to the Parliament before 15 September systems or do not provide access to any mediation circulars apply under IAS 39 in situations where system at all. It is to be hoped that a mediation degree of risk: simplified due diligence, standard each year. due diligence and enhanced due diligence; the market for the financial instrument is inactive system along the lines of those described above and relate notably to: will soon become available to all these entities. u it obliges insurers to inform themselves, prior to 5.2. ACAM’s College writing a contract, as to the identity of the recommendations u use of assumptions developed by the company policyholder, their professional activity, their in the absence of relevant market data; revenues and assets. Any inconsistency a) Recommendation of 15 October 2008 u the role of brokers’ price listings in the between this information and the transactions 5. Debates and on the valuation of certain financial assessment of available data; carried out may give rise to suspicion; instruments at fair value current issues u the role of forced sales in determining the fair u it defines the concept of introduction by a third The French national accounting council (Conseil party, which concerns insurance intermediaries. value; National de la Comptabilité – CNC), the financial 5.1. Regulatory developments This defines the broker’s role and enables the u the role of trading prices observed in an inactive insurer to rely on the broker to perform some of markets regulator (Autorité des Marchés market. a) Transposition of the Third European the diligences; Financiers – AMF), the banking regulator Anti-Money-Launder ing Directive (Commission Bancaire – CB) and ACAM issued a Lastly, the four bodies took note of the IASB’s u it confirms the possibility of exchanging joint recommendation relating to the accounting information between companies belonging to a revision of IAS 39 on 13 October 2008 to enable the Act 2008-776 of 4 August 2008 authorised the treatment of certain financial instruments whose French government to legislate by virtue of an same group, or between companies that do not reclassification of certain financial instruments. belong to the same group but which are acting market price could no longer be considered reliable order to transpose the Third European Anti-Money due to turbulent market conditions. b) Recommendation of 15 December 2008 Laundering Directive of 26 October 2005 into for the same client or are involved in the same transaction; on investments by insurers French law. This recommendation provides necessary u it requires the putting in place of money clarifications for preparing interim or annual Order 2009-104 relating to prevention of use of the laundering and terrorist financing risk financial statements as from 30 September 2008. In view of the present financial crisis, financial system for money laundering and assessment and management systems It applies to the consolidated financial statements, terrorist financing was adopted at the end of (risk mapping). prepared in accordance with IFRS as adopted by the CNC and ACAM have issued a joint January 2009. It profoundly reforms the existing the European Union, of entities holding financial recommendation reiterating the system and introduces several new concepts. assets valued at fair value whose markets are inactive. provisions currently applicable under The four bodies built on the joint communication French accounting regulations. issued by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) on 30 September 2008, and on the 10 October 2008 FASB communication,

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This recommendation provides numerous This public consultation took place between 5.4. International agreements b) Accession to the IAIS MMoU: conditions clarifications for the preparation of insurers’ 9 September and 28 November 2008. It was in and procedure financial statements as at 31 December 2008, particular addressed to repre sentatives of the a) Cooperation developed by the IAIS An IAIS member wishing to accede to the MMoU in particular relating to: insurance industry in the occupational pensions The IAIS seeks to promote, generalise and must submit an application form proving that it: sector, to regulators and to governments of u the methods of recording impairment on formalise cooperation between insurance Member States. u is an insurance supervisor; investments in the company and consolidated supervisors. To this end, in February 2007 it drew FOR INFORMATION u has the necessary legal authority to obtain or combined financial statements prepared While it prepared its response to the European up a Multilateral Memorandum of Understanding The IAIS according to French GAAP; Commission, ACAM invited the professional bodies (MMoU) on cooperation and information information from insurers and share it with (International and government departments concerned to exchange. foreign insurance supervisors; Association of u the information to be provided on the realisable discuss the subject of the consultation. Insurance value in the notes to the company and The MMoU covers all issues related to the u can provide an adequate guarantee of Supervisors) was consolidated financial statements prepared This initiative was a great success, resulting in supervision of insurers: licensing, ongoing confidentiality. created in 1994. supervision and winding-up processes, where according to French GAAP. numerous constructive discussions, in particular Applications are examined by validation teams It drafts international relating to the scope of the consultation and necessary (Article 3.3). The main objective is to In the said recommendation, the term ‘insurers’ established by the Signatories Working Group. standards for potential distortion of competition. cooperate and exchange information on the is understood to mean the insurance entities Any objections raised are notified to the applicant supervision of financial security of insurers. The information governed by the Insurance Code, the Mutual in writing. If the issues raised cannot be resolved insurers and exchanged is therefore, a priori, ‘sensitive’ and Insurance Code and the Social Security Code. The IORPS: SOME GENERAL PRINCIPLES immediately, the applicant may ask that the reinsurers – and ‘confidential’. accessorily for references in the text are to the Insurance Code, application be suspended for up to six months, The consultation was an opportunity for ACAM to insurance As a principle, participation in the MMoU makes it which can be extended on request. which should be transposed by analogy to the underline some basic principles of IORP: intermediaries – in Mutual Insurance Code and the Social Security mandatory for a signatory authority to deliver the At the date of this report, 49 supervisory the interests of u as beneficiaries’ rights are protected only up to Code. information legitimately requested by another the policyholders the amount of the obligation borne by the IORP, authorities had indicated their intention to adhere signatory (Article 4.2 and Article 5.4). and beneficiaries. it is essential that the role of each party, IORP and 15, including ACAM, had filed an application. The 28 Insurance 5.3. Consultation launched by and the employer, be clearly stated and properly Core Principles (ICP) the European Commission on explained to the beneficiaries; This MMoU, created in 2007, JOINING THE MMoU IS OPTIONAL constitute the the IORP Directive (IORP) u the solvency rules must enable the IORP to meet foundation for these its liabilities; is not yet operational. Although the IAIS recommends that its members standards and in The European Commission held a public sign the MMoU, accession nonetheless remains principle cover all u differing solvency rules result in regulatory At the level of the European consultation on the harmonisation of solvency optional. areas of insurance rules applicable to Institutions for Occupational arbitrages. All IORPs assuming the same risks Economic Area, cooperation MMoU’s main aim is to improve the prudential supervision. Retirement Provision (IORPs) covered by Article 17 must therefore be subject to the same solvency rules; between regulators is supervision of insurers; it is not to fight financial of the IORP directive (Part A of the consultation) delinquency. As a consequence, not joining the and IORPs operating on a cross-border basis (Part u harmonisation of solvency rules at EU level is currently organised by the MMoU does not mean that the member is B of the consultation). therefore desirable in order to provide a sufficiently so-called Sienna and Helsinki uncooperative with regard to financial delinquency, solid framework that will ensure that liabilities are but rather that it does not believe (as yet) that The purpose of this consultation was to collect the met, avoid competitive distortions, and provide Protocols. These last have joining the MMoU will add to the protection of views of all the parties concerned as to the a high level of protection to the beneficiaries. policyholders. desirability of a further harmonisation of the Transitory rules could be envisaged to ensure a prudential purpose and solvency regime for IORPs underwriting specific the convergence of pension schemes during the not that of prevention commitments (covered by Article 17 and transition from one solvency regime to another consequently by Article 4 of the IORP Directive) more secure regime. of financial offences. and IORPs operating on a cross-border basis.

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5.5. The continuing work of the Haut ACAM has undertaken to continue this approach on At this seminar, the Comité de Place other issues of interest to the industry and to generalise consultation before final adoption of a supervised entities were The various supervisors each presented the recommendation. strongly encouraged to committee with a “best regulation” plan, designed to guarantee the drafting and efficient implementation c) Enhanced external communication contact their supervisors of regulations in the best interest of professionals, ACAM regularly enriches its external communication and involve the ACAM from investors and savers. through numerous tools and communication media. as early a stage as possible ACAM proposed five work areas: The ACAM quarterly newsletter (La Lettre de l’Acam) in designing an internal u the Supervision Charter; provides the industry with information, discussions, official commentaries and explanations of model. ACAM stresses that u ‘soft regulation’ through recommendations; FOR INFORMATION methodology. an internal model must be u enhanced external communication; Created in 2007 “Analyses et syntheses”, a publication launched at fully integrated into an and chaired by the u electronic transmission of annual reporting the end of 2007, examines current technical issues Minister of Economy documents; in greater detail. overall risk management and Finance, the Haut system; in no circumstances Comité de Place u quarterly meetings with industry representatives. Since the beginning of 2009, ACAM has a new (Paris Financial websitewith new functionalities. The new website is should it be considered a) The Supervision Charter The quality of the actuarial works Services High-Level more modern, interactive and informative. The goal simply as a “mechanism for Committee) is Published in June 2008, this Charter forms part of is to inform a broader public about ACAM and provide published by ACAM supervisors composed of the ACAM’s role to inform and prevent. targeted responses to the needs of large categories calculating Solvency Capital highlights the top-level qualifications representatives of of users: insurers, intermediaries, policyholders and It is above all addressed to the supervised entities Requirements (SCR)”. financial and the press. of many of these supervisors, who are insurance with the aim of informing them of their rights and professions, Paris obligations during inspections and explaining the The Supervision Conferencesprovide other excellent at the cutting edge in the area of municipal and supervisory context: issues, methodology and forums for exchange with industry players. Lastly, several actuarial research reports financial modelling and contribute to Île-de-France possible outcome. It explains that the purpose of During 2008, ACAM also developed smaller working published by ACAM supervisors received acclaim. the progress of actuarial techniques. regional authorities supervision is to anticipate potential problems and and the supervisory seminars designed to develop work methods with Flor Gabriel and Philippe Sourlas, winners of that ACAM’s role is not merely to sanction. It also highlights ACAM’s capacity to authorities. Its regulated entities based on practical cases. In the the SCOR award the previous year, published an purpose is to draw up The Charter was drawn up in conjunction with the context of preparing the French market for Solvency II, article on hedging options in a turbulent market respond, alongside the market, an action plan industry associations representing the supervised the seminar of 23 September 2008 was dedicated to in the last issue of the French actuarial bulletin to the challenges of Solvency II. designed to enhance entities. internal models. Bulletin Français d’Actuariat. In the same bulletin, the attractiveness of André Bernay published an article on investing the Paris financial b) Soft regulation via recommendations in shares with a long-term horizon. Lastly, on market. 4 December 2008, Louis Margueritte received The aim is to issue recommendations or good the SCOR award for the report published with practice guidelines after in-depth discussion with Jean-Baptiste Nessi on the valuation of commodity professional bodies, as had already been done in derivatives. 2005 with regard to the content of solvency reports and prevention of money laundering, in November 2007 with regard to governance, and in February 2008 with regard to ‘finite’ reinsu rance.

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d) Electronic transmission of annual THE SUPERVISION CONFERENCE reporting packages OF 15 APRIL 2008 The project to develop the electronic transmission This conference focused on two main subjects: of documents to be submitted to ACAM was initiated FOR INFORMATION changes in the mutual insurance sector, and the by the Haut Comité de Place. As a consequence, at launch of the Fourth Quantitative Impact Study CONFERENCE OF 6 OCTOBER 2008 the beginning of 2008 ACAM launched a project to Electronic (QIS4) by the Committee of European Insurance and transmission offers Occupational Pensions Supervisors (CEIOPS). This conference was dedicated to the results of modernise data exchange with insurers by putting QIS4. in place electronic data transmission channels. numerous benefits: At this conference, ACAM drew attention to the trend fewer paper towards concentration in the sector – which is With 1,412 participating entities (of which 234 The project was developed in conjunction with Regular discussion have been organised with documents sent, expected to continue – to changes in the legislative French entities), this fourth quantitative impact professional bodies and the active involvement of industry associations with the aim of further faster transmission and regulatory environment and to the improvement study was representative of the French as well as a selection of companies that was representative improving this service. The goal is to use electronic of documents to in the quality of the annual reporting packages the European insurance sectors. The participation of the diversity of individual situations. transmission for quarterly reports, annual reporting ACAM through a received. of groups (111 including 28 French groups) was packages, questionnaires and surveys. single transmission also satisfactory. Simplification and clarification Electronic transmission is available through a channel, and reduced ACAM also drew attention to certain procedures of technical specifications resulted in an increase secure site protected by passwords which were One of the next steps will be to integrate an storage of paper (appointment of independent auditors, revaluation in the participation of small entities – up by 58% sent to all legal representatives of each entity electronic signature for the annual reporting at ACAM. of property assets, etc.) and ACAM’s College compared with QIS3. at the beginning of January 2009. It is very easy packages. Only this legally recognised certification recommendations relating to governance. ACAM described some of the pitfalls, drawing on the The results showed that the majority of to use: the user only needs to connect to system can completely replac e signed paper observations formulated after on-site inspections. participants considered the structure of the https://teletransmission.acam-france.fr,y identif documents. standard formula tested in QIS4 to be appropriate, himself using the password provided, and then Emphasis was also placed on the general framework despite the criticism relating to the calibration or select the type of document to be transmitted. e) Quarterly meetings with industry players and the various technical aspects of the fourth formulation of some modules. However, the efforts An electronic transmission user procedure is Quantitative Impact Study (QIS4) of the French to simplify must be continued. market. With regard to this study, the key issue is to available from: Once a quarter, ACAM hosts a working improve representativeness, in particular by Also, for the first time, the questionnaire on htpp://www.acam-france.fr/dossierannuel encouraging small and medium sized entities to internal models gathered information on insurers’ group that comprises several members participate in it. choice of models, as some insurers are planning to develop risk management models and then of its College, the Secretariat General, submit them to ACAM for approval of these models the professional bodies (FFSA, GEMA, for determining capital requirements. CETIP, FNMF and FNIM) and Lastly, barring a few exceptions that need to be analysed in detail, this fourth study showed that, representatives of the Treasury based on the 2007 financial statements, the sector would not need refunding in the event of and Economic Policy Directorate application of the draft directive. and the Social Security Department.

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a) A reform of the organisation The impact of the financial crisis has prompted of financial supervision Member States and the European Commission to examine the need to reform the general organisation of financial supervision in Europe. WHAT IS THE LAMFALUSSY PROCESS? With this in mind, in October 2008 the President of The Lamfalussy process makes a distinction the European Commission, José Manuel Barroso, between four levels of legislation. Levels 1 and 2 put in place a senior financial supervision working 15 FOR INFORMATION are directives or regulations . More precisely, group. This working group, composed of eight Level 1 consists of directives adopted by the people and chaired by the former governor of the European regulations Regulatory European Council and Parliament that establish Bank of France, Jacques de Larosière, presented seek to create a the principles that will be detailed in the Level 2 genuine internal developments measures adopted by the European Commission, its report on the organisation of supervision in Europe on 25 February 2009. market in the area under the supervision of the European Council and of finance by Parliament. Level 3 consists of recommendations. The report found that the internal market remained harmonising national For the insurance sector, the Level 3 committee highly fragmented. It recommended moving in legislations. Since is the Committee of European Insurance and three phases towards a system of supervision with 2003 regulation has Occupational Pensions Supervisors (CEIOPS), three sector supervisory authorities. In the longer been developed using of which ACAM is an active member. CEIOPS term, it envisages two European supervisory the Lamfalussy process approach. advises the European Commission on the technical authorities: one for the banking and insurance aspects of Levels 1 and 2 legislation. CEIOPS sector and the other for markets conduct. It also drafts level 3 recommendations16 designed to recommends that macro-prudential supervision of II-Regulatory developments hasten the convergence of prudential practices and encourage cooperation between supervisory the entire European financial system be entrusted authorities. to a European Systemic Risk Council (ESRC), at European level attached to the European Central Bank (ECB). This To ensure a coherent whole, Level 4 relates to the Council would be directed by the ECB with the European Commission’s oversight of compliance participation of the presidents of the Committee of and enforcement. This point is often ignored. European Banking Supervisors (CEBS), CEIOPS and The aim of the Lamfalussy process is to ensure the Committee of European Securities Regulators permanent and transparent dialogue between (CESR). It would be responsible for gathering and legislators and industry players, notably through analysing all the relevant information concerning public consultation at each stage of the procedure. 1. Solvency II financial stability. The European Commission is not bound by the proposals formulated in this report; however, it took up most of the de Larosière report proposals in its 4 March and 27 May 2009 1.1. General background recommendations. The Solvency II Directive agreed upon by the Commission, drawing in particular on advice European Parliament and European Council received from CEIOPS, and for the adoption of said b) Revision of bank capital adequacy requirements codifies 14 EC directives relating to insurance and measures 12 months before the directive comes reinsurance activities and sets the basis for the into force on 31 October 2012. The financial crisis has led the European new solvency rules (known as ‘Solvency II’). The Quantitative Impact Studies (QIS) are designed Commission to propose the revision of bank capital Adopted according to the Lamfalussy process, to identify the impact the new system will have on adequacy requirements (amendments to capital the directive provides for the drafting of Level 2 market players. adequacy directives 2006/48/EC and 2006/49/EC). implementing measures by the European

15. Note that while Directives need to be transposed into national law for application, regulations are directly applicable in national law. 16. These recommendations are not legally binding unless integrated into national law. Such integration is decided by the individual Member State.

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At the same time the Commission announced that The Financial Services 1.2. Solvency II: update support provisions three years after the directive it would shortly carry out an in-depth review, with comes into force. the assistance of the Basel committee. In parallel Action Plan adopted by the The Council’s version introduced an explicit link it proposes to introduce regulations for European Commission in The Solvency II directive was between the cap ital requirement for equities and independent rating agencies, raise the minimum the duration of liabilities, which the Parliament had bank deposits guarantee and review the 1999 was designed to adopted by the European not wanted. regulations relating to investment funds. It also construct an integrated Parliament (approved on wishes to modify certain accounting regulations, The compromise reached was to accept duration- together with the rules relating to financial single market in banking, 22 April 2009) and European based equity risk but within a very strict conglomerates, and take new initiatives relating to insurance and securities. Council under a co-decision framework (Article 305b): only occupational the remuneration of senior management and to In this context, the draft retirement products and tax-advantaged products derivative products. procedure, within have access to this regime, under very restrictive Solvency II directive will conditions (in particular ring-fencing of the The European Commission had already adopted on the framework of the corresponding assets and liabilities and an 23 January 2009 three decisions that replace the radically change the Lamfalussy process. average duration of the liabilities of more than decisions of 5 November 2003 creating the three prudential rules applicable 12 years). level 3 committees (CEIOPS, CESR and CEBS). to insurers. The Commission is also proposing the Solvency II was the subject of intense discussion in b) CEIOPS’ technical advice establishment of a Community programme, the European Parliament and European Council. Without waiting for adoption of the Level 1 providing direct funding (€36 million from a) The debate focused on two main issues: framework directive, the European Commission 1 January 2010 to 31 December 2013) from the CEIOPS ROLE IS SET TO CHANGE requested CEIOPS to issue technical Community budget for the three EU Committees u group support; recommendations for the future implementing of Supervisors (CESR, CEBS and CEIOPS) and The European Commission’s decisions of 23 January measures (Level 2 measures). u the linking of capital requirements for equities to for key international and European bodies 2009 mean a change in the role of CEIOPS. In the duration of liabilities. involved in the standard-setting process for particular it proposes to: In response to this request, CEIOPS set up four working groups: financial reporting and audit (IASCF, International u reinforce its action in the area of macro- With a view to reaching an agreement within the Accounting Standards Committee Foundation ; economic surveillance and the detection of Council, the Member States agreed to abandon the u the Financial Requirements Expert Group (FREG) EFRAG, European Financial Reporting Advisory weaknesses that could represent a threat to provisions relating to group support contained in focuses on aspects related to Pillar 1 (financial Group ; PIOB, Public Interest Oversight Body). financial stability; the European Commission’s original draft directive. requirements) and is chaired by Pauline de u introduce the possibility of voting by a qualified The group support regime consists in a legally The European Commission is now focusing on Chatillon (FR, ACAM). The group’s work focuses majority, although its decisions would continued binding undertaking from the parent company to a review of the prudential rules applicable to in particular on: to have no legal force; transfer funds to a subsidiary if the need arises. insurance. The last of the 42 measures of the • pillar 1, which covers the assessment of u transform the joint CEIOPS and CEBS interim This declaration of support would enable the Financial Services Action Plan (FSAP) has yet to technical reserves, the definition and committee for the surveillance of financial subsidiary to cover all or part of the gap between be adopted17. calibration of standard formulas (SCR and conglomerates into a permanent mixed the minimum capital requirement (MCR) and MCR) and equity requirements; committee for financial conglomerates; the solvency capital requirement (SCR). The u establish a non-exhaustive list of tasks to be Parliament, on the other hand, was strongly in • achieving a balance between a company’s real performed with a view to achieving the favour of the group support regime. The text agreed risk profile and a standardised approach convergence of prudential practices. upon by the Parliament and the Council does not without unnecessary complexity. include the provisions relating to group support • paying particular attention to the treatment of but contains a review clause (Article 246, point 2) health risk and the recognition of future providing for the possible introduction of the group premiums;

17. This plan sets out all the action required to make the most of the euro and ensure the stability and competitiveness of the EU’s financial markets.

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u Internal Model Expert Group (IMEG) is dedicated 1.3. Internal models Models shall be assessed based on numerous to internal models and is chaired by Mr Paul criteria: Sharma (UK, FSA). It focuses in particular on the a) Assessing and validating an internal model u accuracy of the mathematical tools; conditions for approval of internal models by u data quality; supervisory authorities; Unlike a standard formula, u documentation; u Internal Governance, Supervisory Review and which will always give an u governance; Reporting Expert Group (IGSRR) deal with issues u internal control. relating to Pillars II and III (governance, imperfect picture of an One of the difficulties of modelling is to prudential control, regulatory and public entity’s risk profile, successfully quantify and justify the calculation disclosure, assessment of the prudential FOR INFORMATION THE STAGES FOR IMPLEMENTING of losses that could arise in very unfavourable balance sheet). It is chaired by Gabriel an internal model can be The introduction SOLVENCY II situations, despite the limited experience data for Bernardino (PT, ISP). This group, which published of the concept of developed that is adapted this type of event. several issues papers in 2008 on ORSA (Own When the Markets in Financial Instruments a “partial internal 18 Risk and Solvency Assessment), supervisors’ Directive (MiFID) was adopted, the Member to the entity’s In this respect, 2008 demonstrated the model” enables inspection procedures and the principles of States considered it difficult to transpose a Level weaknesses of certain assumptions that were a specialised entity 1 framework directive containing solely principles. organisation and the to take into account good governance, focuses on additional capital considered valid in normal conditions. One The European Commission therefore undertook, specific characteristics of response to these sources of uncertainty could be its risk management requirements (capital add-on) that could be with respect to Solvency II, to publish the Level 2 system in its area to develop and take into account sensitivity tests requested by the supervisor if the entity’s real measures at least 18 months before the directive its business. of expertise. It can risk profile is too far removed from the comes into force. and checks of the assumptions used in order to concern entities assumptions used to calculate capital measure the possible impact of modelling errors. that wish to obtain With regard to t he points not defined in the Level The Solvency II framework directive introduces the approval for the requirements. It is also drafting an EU format 1 and 2 measures, the Commission has also possibility for insurers to assess their Solvency b) Guaranteeing an efficient validation modelling of for prudential reporting; asked CEIOPS to issue recommendations (Level 3) Capital Requirements (SCR) using an internal process by ACAM certain risks, while for implementation of Solvency II. u Insurance Groups Supervision Committee (IGSC) model. It sets forth the conditions in which the The entities must fully understand modelling as continuing to set up focuses on the supervision of insurance groups For the Commission to have the time it needs supervisory authorities can approve the models they must validate their internal model before a full internal model. and is chaired by Petra Faber-Graw (DE, BaFin). to adopt the Level 2 measures, CEIOPS must issue used. presenting it for validation by ACAM. This group notably examines the treatment its opinion before the end of 2009. Level 2 and Internal models are not supposed to be simply of shareholdings in financial institutions, the Level 3 measures, essential to implementation The development of a model that must be validated mathematical models: they must be integrated functioning of Colleges of Supervisors, the of Solvency II, should be adopted in 2011 and by ACAM is a significant and potentially expensive into the entity’s risk management system. calculation of capital requirements at group level come into force on 31 October 2012. enterprise. It is up to insurers to analyse the costs Actuarial models are steering tools and decision and the treatment of entities in other countries. and the benefits provided by the model. aids for management. Recent events have CEIOPS has also scheduled impact studies of the highlighted the importance of risk management In particular, using an internal model can result in proposed measures, including in particular a QIS5 systems. lower capital requirements. This is only the case, in 2010. however, when the risk exposure is lower than that According to the framework directive, an internal which would have been indicated by the standard model may be used for regulatory purposes only formula, and when it reflects more efficient risk if the entity can prove that it uses it extensively for management. other purposes, at strategic level and at the level of services, and that the various quality standards are complied with.

18. Directive dite MiFID en anglais, pour Markets in Financial Instruments Directive.

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In the context of the obligation to have a risk a) The objectives of QIS4 for future premiums, deferred tax, etc.), which management system, ACAM’s departments have The directive also reinforces the supervision of continues to limit the comparability of results. QIS4 was a comprehensive test with the aim of: already begun discussions on internal models with groups, while at the same time emphasising that supervision should be proportionate to the nature The problems of reliability and quality of results insurers. The discussion process intensifies as each u providing detailed information on the impact of and complexity of the risks borne. encountered at solo level were amplified at group entity progresses in modelling, and is now an Solvency II on insurers’ balance sheets; level. The impact of group diversification masks essential phase for ensuring an efficient validation Solvency II should be implemented as from 2012. u checking the consistency of the technical significant differences depending on each group’s process as soon as Solvency II comes into force. specifications developed by CEIOPS with the risk profile. The questions relating to the principles and objectives of the framework consolidation scope, the treatment of intra-group Insurers that obtain regulatory validation To measure the impact directive; shareholdings, the fungibility of capital and the transferability of assets call for more in-depth of their internal models are likely to be those of the new regulations on u gathering quantitative and qualitative data on the different options that will be examined in the examination. that benefit the most in terms of enhancing the prudential assessment impact assessment of future implementation Fifty-four participants (out of 1,412) measured their risk management system. of balance sheet items measures. their capital requirements using an internal model. and the calculation of In addition, QIS are also a means of measuring the Given the low level of response to the quantitative degree to which the process is understood by the questionnaire and the variety of the models used, capital requirements, insurers. It encourages the industry to prepare for the comparability of the results obtained with the European Commission Solvency II and identifies the areas and internal internal models and those obtained with standard 2. Quantitative impact procedures that could be improved. formulas is very limited. requested CEIOPS to carry In France, on the bas is of the 2007 financial studies out quantitative impact b) The main result of QIS4 for the French and statements, QIS4 did not reveal any need for EU/EEA markets19 studies (QIS). recapitalisation, with the exception of some 2.1. QIS4: realisation, analysis With 1,412 participants, of which 234 entities (17% participants who had raised the question of proper and results of the total) were French, QIS4 more than achieved allocation of equity between group entities. its target in terms of representativeness of the Each successive QIS has covered an increasingly French and European markets. Simplification and NEW EUROPEAN UNION PRUDENTIAL wide field. While QIS1 was limited to the the numerous explanations provided for the RULES assessment of technical provisions, QIS2 included technical specifications encouraged a larger The Solvency II regime will reform the prudential a first approach method for determining capital number of companies, and more particularly small regulations applicable to European insurers. requirements and analysing the items eligible companies, to participate. for covering these requirements. QIS3 included a The Solvency II directive, in particular, provides for European groups (111), including 28 French first approach of the issues relating to insurance adapting capital requirements to the levels of risk groups, also participated. The French market’s groups. borne by the insurer, and aims to improve risk active participation was, however, tempered by measurement and management. the low number of responses relating to internal models (10). The supplementary national guidelines published by ACAM have reduced the variety of methods used, in particular for the treatment of future profit sharing and the assessment of technical provisions in life insurance. However, not all the difficulties have been smoothed out (accounting

19. www.acam-france.fr/QIS. EEA : European Economic Area.

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French insurers, in order to gain a full 2.2. QIS5 is being prepared 3. Accounting 3.2. Difficulties in applying accounting standards understanding of the process, must as from The timetable for adoption and implementation harmonisation of the Solvency II directive provides for the In the area of accounting standards, the year was now study the impact on the various balance development of Level 2 application measures. The dominated by the financial crisis and by difficulties sheet items, using the valuation methods CEIOPS is scheduled to present its formal report 3.1. Principle and functioning in applying some of these standards. to European Commission by December 2009. Since 1 January 2005, publicly traded European In effect, under IFRS, when the number of provided for by the directive. They must also Before then, various draft recommendations will companies are obliged to prepare their transactions in a financial instrument is too small to be published for public consultation. prepare to meet the quantitative and consolidated financial statements according to provide a reliable price, the assets should be valued qualitative requirements (governance, internal Unless the European Commission modifies the IFRS (International Financial Reporting Standards). based on valuation models. This rule encounters general timetable, European insurers and reinsurers The Solvency II directive is expected to draw several application difficulties linked to: control, compliance, etc.). will be invited to participate in QIS5 in the spring of strongly on the principles underlying these u the capacity to determine whether market 2010 to test the latest progress in drafting Level 2 standards for determining the new European transactions are representative or not; measures. prudential regulations. u the capacity to measure, using a model, the This next impact assessment will be particularly IFRS undergo frequent amendments and each market value of these financial assets. THE NEW QIS4 FORMULA: ROOM FOR important, as it will provide all players with: amendment gives rise to a public consultation. As IMPROVEMENT a member of several working groups (CEIOPS and Given these difficulties, ACAM, CNC, CB and AMF u another opportunity to measure their familiarity issued a joint recommendation relating to the Although largely inspired by the standard formula with the process as a whole; IAIS), ACAM is involved in reviewing these changes. used for QIS3, QIS4 introduces some major changes. fair value measurement of certain financial In 2008, the measurement of employee benefit In particular it authorises participants to test the u an assessment of the quantitative impact of instruments. liabilities, simpler information on financial modulation of the equity load factor using a Solvency II on insurers’ balance sheets, and At the European Union level, several papers have ‘dampener’. However, many EU supervisors are instruments, and the frontier between debt and in particular of the impact of the future Level been published, in particular: opposed to this possibility. 2 measures; equity were discussed. The working groups are very attentively following the creation of a new u Some modules are felt to be excessively complex or CEIOPS report on issues regarding the valuation u information on how to make the final ill-adapted, particularly counterparty default risk IFRS for insurance contracts (IFRS 4 phase 2). of structured credit products; adjustments in terms of calibrating the ‘standard and non-life underwriting risk modules. formula’. u Joint statement from CESR, CEBS and CEIOPS For the Minimum Capital Requirement (MCR), a regarding the latest developments in accounting combined formula (calculating capital requirements addressed to insurance, banking and financial on technical provisions and/or premiums with a market regulators. floor, capped according to a percentage of the SCR) tested for QIS4 has received the support of most EU supervisors. However, the scale of the reduction in capital requirements resulting from risk mitigation mechanisms in life insurance has resulted in a large number of entities obtaining an MCR with little connection to their risk profiles.

* Cf. lexique

100 101 3

Part 3 Financial data

103 3 FINANCIAL DATA

1. Legal framework for the preparation of ACAM’s financial statements

t The legal framework governing the preparation t The financial statements are prepared by the of ACAM’s financial statements is set forth in Chief Accountant and submitted to the College by Articles R.310-12-4 and R.310-12-5 of the French the Secretary General. They are approved by the Insurance Code. College and transmitted to the Cour des Comptes (French Audit Office) by the Secretary General. Financial t ACAM’s financial statements are prepared in statements accordance with the rules laid down in the French The accounts are kept in compliance with General Chart of Accounts. the general principles of prudence, continuity, sincerity and true and faithful image of ACAM’s financial situation.

2. Presentation of the Presentation of the 2008 financial statements + 15% > ACAM was created in 2004 by the merger of two independent financial statements of ACAM (Autorité de administrative bodies, CCA and CCMIP, which had no assets Number of mandates and did not draw up a budget. contrôle des assurances et des mutuelles) issued The 2008 financial statements prepared by ACAM’s Chief Accountant were approved by the College at its meeting on 8 April 2009.

3. 2008 financial year > The 2008 financial statements reflect ACAM’s ongoing development in line with its objectives. Staff recruitment continued in 2008, bringing the total number of staff to 204 people at 31 December 2008 compared with 193 at the end of 2007. The number of mandates issued increased by 15% to 2,745 compared with 2,391 in 2007.

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A. Income statement n Operating expenses INCOME (IN EURO) Total operating expenses for the period came to HEADING 2008 2007 n Operating income €27,359 thousand, up by 3% compared with INCOME FROM CONTRIBUTIONS 27,262,179.48 27,231,059.33 Operating income came to €28,540 thousand in €26,492 thousand at 31 December 2007. of which: € Insurers 23,920,480.48 24,164,509.33 2008 compared with 28,868 thousand in 2007. Expenses essentially concerned ordinary operating Mutual insurers, Provident institutions 3,341,699.00 3,066,550.00 It was composed of ordinary income (generated and management costs. by contributions to supervision expenses and by INVESTMENT INCOME 1,199,929.66 1,073,224.50 GENERAL OPERATING EXPENSES (€9,957 THOUSAND) cash placements made) amounting to €28,463 NON-RECURRENT INCOME 77,665.75 563,316.54 These expenses consist of property management thousand and of non-recurrent income amounting expenses amounting to €6,723 thousand, IT from: to €77.6 thousand. Management transactions 77,665.40 52,115.53 expenses amounting to €778 thousand, Reversals of provisions 507,000.00 a) Contributions income assignment expenses amounting to €526 thousand and other expenses amounting to Sales of assets and other income 0.35 4,201.01 Income from contributions amounted to €27,262 €1,930 thousand, relating to miscellaneous TOTAL 28,539,774.89 28,867,600.37 thousand and broke down as follows: services, fees, communication expenses and u €23,920 thousand in contributions from supplies. insurance entities versus €24,164 thousand EXPENSE (IN EURO) PERSONNEL COSTS (€16,202 THOUSAND) in 2007, corresponding to a drop of 1%. Personnel costs increased by 5% in 2008 to HEADING 2008 2007 u €3,342 thousand in revenues from mutual €16,203 thousand compared with €15,411 EXTERNAL EXPENSES 9,725,210.51 9,051,278.22 insurers and provident institutions received by thousand at 31 December 2007. of which: ACOSS, up by 9% in 2008 compared with €3,066 Rent 5,523,380.67 5,315,482.58 As at 31 December 2008 ACAM employed 204 thousand in 2007. people compared with 193 at the end of 2007. Rental expenses 782,228.48 686,214.56 Maintenance and repairs 299,126.57 248,398.38 b) Income from cash placements Recruitment continued in 2008 and the inspection Documentation, studies and research 292,015.24 277,043.80 Investment income generated by cash placements teams were significantly strengthened with the in variable capital investment companies (SICAV) appointments of ten new supervisors as well as Advertising, information, publications 138,142.22 186,619.80 the hiring of temporary supervisors. increased by 12% to €1,200 thousand versus Fees and compensation paid to intermediaries 285,398.87 291,324.33 € 1,073 thousand in 2007. ALLOWANCE FOR AMORTISATION, DEPRECIATION AND Temporary staff 259,242.02 188,759.79 PROVISIONS (€1,200 THOUSAND ) Travel, representation and entertainment 660,145.08 622,321.24 c) Non-recurrent income This allowance relates to purchases of software, Transport 22,223.65 12,226.84 Non-recurrent income amounted to €77.6 thousand office equipment and computer hardware. Insurance premiums and bank charges 12,355.45 8,969.32 and corresponded mainly to the adjustment of expenses. n Net income Other external expenses 1,450,952.26 1,213,917.58 Net income came to €1,181 thousand in 2008 TAXES AND OTHER DUTIES 1,699,161.59 1,639,287.23 versus €2,376 thousand in 2007. PERSONNEL COSTS 14,266,559.82 13,723,714.89 In accordance with Article R. 310-12-2 of the DEPRECIATION AND PROVISIONS 1,199,519.82 1,121,625.15 French Insurance Code, ACAM’s College, meeting OTHER EXPENSES 408,872.48 295,131.81 on 8 April 2009, approved the financial statements NON-RECURRENT EXPENSES 59,454.03 660,495.00 and decided to take the surplus for the year of €1,181 thousand to reserves and to authorise INCOME FOR THE YEAR 1,180,996.64 2,376,068.07 the allocation of the net income of €1,181 TOTAL 28,539,774.89 28,867,600.37 thousand for the year to retained earnings.

106 107 3 FINANCIAL DATA

B. Balance sheet n Assets n Liabilities

a) Non-current assets (€5,408 thousand) b) Investment securities (€32,739 thousand) a) Capital and reserves (€36,727 thousand) b) Operating liabilities (€1,510 thousand) The net value of non-current assets came to ACAM’s surplus cash is carefully managed. It is ACAM continued to strengthen its equity and Operating liabilities relate mainly to amounts due to €5,408 thousand at end 2008 compared with invested in short-term securities and was up by 4% ensure its financial solidity. The weight of equity in suppliers for €1,309 thousand and to tax and social €6,109 thousand at the end of 2007. relative to the end of 2007 (€31,465 thousand). the balance sheet total improved relative to 2007 security liabilities for €188 thousand. at 96%. Information technology investments accounted for €358 thousand and other investments came to Reserves amounted to €11,377 thousand at 31 €143 thousand, including non-current financial December 2008 and retained earnings came to assets amounting to €63 thousand. €24,169 thousand for net income for the year of €1,181 thousand. At 31 December 2008 the non-current financial assets, corresponding to the guarantee paid to the lessor of the new premises amounted to €1,309 thousand. LIABILITIES (in euro) 2008 2007

Reserves 11,377,505.31 9,001,437.24 HEADING 2008 2007 Retained earnings 24,168,924.40 24,168,924.40 ASSETS (in euro) GROSS DEPRECIATION AND NET NET Income for the year 1,180,996.64 2,376,068.07 PROVISIONS TOTAL EQUITY 36,727,426.35 35,546,429.71 Intangible non-current assets (Patents, licences and software) 1,031,959.12 398,763.12 633,196.00 596,036.59 PROVISIONS FOR RISKS AND CHARGES Property, plant and equipment Due to suppliers 1,309,640.18 374,098.91 (Furnishings, computer hardware, etc.) 5,868,166.20 2,401,839.19 3,466,327.01 4,266,989.10 Tax and social security liabilities 188,547.01 1,637,665.63 Long-term financial assets Other operating liabilities (Loans and guarantees) 1,308,969.08 1,308,969.08 1,246,350.07 (Staff compensation and expenses due) 11,937.78 144,756.00 TOTAL NON-CURRENT ASSETS 8,209,094.40 2,800,602.31 5,408,492.09 6,109,375.76 TOTAL OPERATING LIABILITIES 1,510,124.97 2,156,520.54 Operating receivables 12 ,895.00 Cash liabilities Other receivables 9,472.24 9,472.24 34,727.98 TOTAL LIABILITIES 38,237,551.32 37,702,950.25 Investment securities 32,738,670.72 32,738,670.72 31,465,309.59 Cash 16,618.13 16,618.13 4,732.23

TOTAL CURRENT ASSETS 32,764,761.09 32,764,761.09 31,517,664.80 PREPAID EXPENSES 64,298.14 64,298.14 75,909.69 TOTAL ASSETS 41,038,153.63 2,800,602.31 38,237,551.32 37,702,950.25

108 109 3 FINANCIAL DATA

GLOSSARY

n NOTES TO THE FINANCIAL STATEMENTS • Technical installations: 8 years; • Office equipment and vehicles: 5 years; Note 1 • Office furniture and fittings: 8 years; The financial year starts on 1 January and ends • Office buildings: 50 years. on 31 December of each year. Note 2 The allowance for amortisation and depreciation € Non-current assets are amortised using the came to 2,800,602.31. straight line method as follows: Note 3 u IT equipment: Investment securities are valued at their market • Minor equipment: 3 years; value as at 31 December 2008. • Network workstations and mini-servers: 3 years; • Large systems: 5 years. • Patents, licenses and software: 5 years;

110 GLOSSARY

3L3 CESR EFRAG European Community 3L3 refers to the three Level 3 Committees, consisting of Committee of European Securities Regulators. The European Financial Reporting Advisory Group (EFRAG) The European Economic Community (EEC) was established in CEIOPS (Committee of European Insurance and Occupational was set up to assist the European Commission in the 1957 by the Treaty of Rome with the objective of creating a Pension Supervisors), CESR (Committee of European CfA (Call for advice) endorsement of International Financial Reporting Standards single market with no internal borders. The establishment of Securities Regulators), and CEBS (Committee of European The Call for Advice or CfA procedure is the procedure used by for application in Europe. the European Union in 1992 did not result in the Banking Supervisors), which have been engaged in cross- the European Commission to request technical advice from disappearance of the European Economic Community which sector co-operation since 2005. CEIOPS. EIOPC continues to be a component of European Union under the The European Insurance and Occupational Pensions name of the European Community. The EC’s task is to promote Actuary CIMA Committee (EIOPC) was established to replace the former The Inter-African Conference for the Insurance. Markets throughout the Community: 1) a harmonious and balanced A specialist in the analysis and processing of the financial Insurance Committee by decision 2004/9/EC of 5 November development of economic activities; 2) a high level of impact of risk. Actuaries use statistics to set premium rates (Conférence Interafricaine des Marchés d’Assurance - CIMA), 2003 for its advisory functions and by Directive 2005/1/EC introducing a single supervisory system for its 14 member employment and of social protection; 3) sustainable non- (in motor insurance, for example, based on statistics of the of 9 March 2005 for its regulatory functions. It is chaired by inflationary growth t; 4) a high degree of competitiveness and cost and frequency of accidents, the place of residence of the countries, which are all Sub-Saharan African countries in the the European Commission, which also acts as Secretary. Its CFA zone. convergence of economic performance; 5) a high level of Glossary policyholder and his or her age and gender) and to draw up members comprise the insurance supervisory and regulatory environmental protection and the raising of the standard of Glossary mortality tables. The maximum age in the mortality tables is CMU fund authorities of the 27 Member States (France is represented living and quality of life, and economic and social cohesion currently 120 years. The fund that finances France’s universal healthcare cover by the Treasury and Economic Policy Directorate), and solidarity among Member States. To this end, the scheme’s supplementary healthcare cover. representatives of the three EEA member States and the European Community draws up common policies, in particular AERAS agreement Chairman of CEIOPS. This committee was created as part of The AERAS (s'Assurer et emprunter avec un risque aggravé de CNC dealing with transport, competition, fishing and agriculture, the Lamfalussy process as applied to the insurance sector. political asylum and immigration, energy and the santé) agreement is designed to facilitate access to insurance Conseil National de la Comptabilité (CNC) is the French EIOPC is a Level 2 committee and advises the European environment. These policies are put in place according to the and credit for people who have or have had serious health accounting standards setting board. Commission, on request, on policy issues relating to problems. decision procedures provided for in the founding treaty, in DDAC act insurance, reinsurance and occupational pensions and issues particular the co-decision procedure. Capita lisation reserve proposals in this area. Act 2005-811 of 20/07/2005, bringing aspects of French European Economic Area The capitalisation reserve is a reserve constituted solely of financial legislation into line with European Community law, Equalisation reserve The European Economic Area was established by an the gains realised on the sale of bonds and drawn upon solely in particular in the area of insuran ce. The equalisation reserve is constituted to cover changes in in the case of unrealised losses on this type of asset. This agreement signed in 1992 between the EU Member States and the loss experience. It is used in the case of catastrophe risk Iceland, Norway, and Liechtenstein. It extends the smoothes the gains or losses generated on bonds sold before DGTPE and death benefits. term, in the event of interest rate movements. Insurance France’s Treasury and Economic Policy Directorate. fundamental pillars of the internal market, the four freedoms, entities are therefore not tempted to sell high-yield bonds (in Equity i.e. freedom of movement of goods, persons, services and the case of interest rate movements) to generate short-term Directive An insurer’s equity is the difference between the carrying capital to these three countries, which in return adopt EU profits and replace these with other bonds generating lower A legislative act of the European Union establishing the amount of its assets and the carrying amount of its liabilities. policies. yields. This specific reserve, considered a reserve covering regulations the Member States must transpose into their national legislations. Equity dampener European Union commitments, is taken into account for calculating the The European Union, created by the 1992 Maastricht Treaty, solvency margin. Diversification reserve (Life insurance) An alternative approach (known as the dampener approach) enabling entities to modulate the capital charge in respect of comprises 27 Member States and has the powers that the This is an underwriting reserve designed to smooth CEBS equities according to the position in the stock-market cycle Member States have chosen to confer with a view to Committee of European Banking Supervisors. fluctuations in the value of the assets of ‘diversified’ contracts. and the duration of the holdings. maintaining peace, seeking political unity and taking joint action to promote economic and social progress. The European CEIOPS (Committee of European Insurance and DRASS (Directions régionales des affaires sanitaires ESRC Union has a flag (12 stars against a blue background), an Occupational Pension Supervisors). et sociales). European systemic risk council. anthem (Beethoven’s Ode to Joy), a motto (united in For many years collaboration between EU insurance French Regional social security authorities diversity) and a currency (the euro, adopted in 13 Member superv isory bodies was structured within the Conference of DROC (Date réglementaire d’ouverture du chantier) States). Insurance Supervisors of the Member States of the European Official construction work starting date. FASB Union. By European Commission decision 2004/6/EC of 5 November 2003 this became the Committee of European Duration Financial Accounting Standards Board, the US accounting standards setter. Insurance and Occupational Pension Supervisors. CEIOPS is Duration can be taken to mean the average length of time over the Level 3 Committee for the insurance and occupational which a product will produce cash flows weighted by its FATF pensions sectors under the so-called Lamfalussy process. present value. The Financial Action Task Force (FATF) is an inter-governmental ACAM represents France on the committee. The authorities of body set up at the Paris G-7 Summit in 1989 to develop three European Economic Area Member States (Norway, coordinated action against money laundering at international Iceland and Liechtenstein) and the European Commission level. participate in CEIOPS' activities as observers. The Committee is very active in the preparation of Solvency II and is in particular responsible for replying to calls for advice from the European Commission. CEIOPS’ Secretariat is located in Frankfurt, Ger many.

112 113 GLOSSARY

Financial risk provision (life insurance) ICP Mathematical reserves (life insurance) Provision for liquidity risk This provision is designed to compensate for any decrease in Insurance Core Principles. Insurers enter into commitments vis-a-vis their policyholders In general terms, this provision must be recognised when the the return on assets representing the insurer’s liabilities under in exchange for payment of a premium. In the case of life unrealised value of all the assets except bonds fall below their policies other than unit-linked contracts. IFRS insurance the mathematical reserve covers the difference acquisition price (bond assets are not taken into account in International Financial Reporting Standards. between the present value of the commitment contracted by the calculation as, barring counterparty default, there should Insurers whose portfolios contain contracts with high the insurer and the residual commitment contracted by the be no capital loss on these assets if they are held to term). guaranteed rates of returns may generate a return on the IGRS (Institutions de Gestion de Retraite policyholder. It is therefore close to the insurer’s ‘net’ Since 2003, the insurers that fulfil all the other prudential portfolio that only just covers or falls below the returns Supplémentaire) commitment to the policyholder. requirements (solvency margin, regulated underwriting guaranteed to their policyholders. The difference would be Supplementary occupational pensions management reserves) can constitute a provision for liquidity risk over a inadequate, no longer covering the insurer’s ordinary institutions. MMoU period of three to eight years depending on the duration of the operating expenses. Insurers therefore set aside reserves to IGSC Multilateral Memorandum of Understanding on Cooperation liability. The provision for liquidity risk is recorded net of cover the differences between commitments discounted and Information Exchange. provisions for impairment, which are calculated on a line by using a prudent interest rate, the revenues generated by their Insurance Groups Supervision Committee. line basis and which correspond to the part of the unrealised assets and the commitments calculated above. MCR Glossary IGSRR Glossary The Minimum Capital Requirement under the EU Solvency II losses that the insurer considers likely to be lasting. FoE and FoS Internal governance, supervisory review and reporting expert regulations. MCR is the minimum amount of capital required, Provision for unexpired risk (Life insurance) The Freedom of Establishment (FoE) is the possibility for an group. below which an entity’s licence to operate is withdrawn. The This provision is designed to cover future expenses not operator established in a Member State of the European IMEG method of calculating MCR is simpler and less tenuous than covered elsewhere. The amount is calculated based on Economic Area to set up a permanent establishment in Internal model expert group. that used for the Solvency Capital Requirement (SCR) and it projections of costs and income on a homogeneous group of another Member State, via a branch or an agency for example. may not be below a set amount in euro. contracts according to the rules set forth in Article A.331-1-1 Freedom of Services (FoS) is the possibility for an operator Intermediary of the French Insurance Code. For each homogeneous group of established in one Member States to offer its services directly Insurance intermediaries are natural persons or legal entities Minimum guaranteed rate contracts, the amount of the provision is equal to the present in another Member States without the need to have any that, in exchange for a fee, advise or assist clients to take out Minimum rate of return on mathematical reserves guaranteed value of the future costs minus the present value of future establishment there. insurance or reinsurance contracts. Activities that consist by the insurer. exclusively of handling, estimating or settling claims are not cash flows generated by these contracts. FREG OECD considered intermediation activities. PSNEM (Provision pour sinistres non encore Financial requirements expert group. Organisation for Economic Co-operation and Development. IOPS manifestés) ORIAS FSAP (Financial Services Action Plan) The International Organisation of Pension Supervisors (IOPS) A specific loss reserve required by French insurance Organisme pour le Registre des Intermédiaires en Assurance, The Financial Services Action Plan is a long-term programme is an independent international body composed of regulations. established by the European Commission to modernise and the French Register of Insurance Intermediaries, is the basic representatives from around fifty countries at every level of QIS (Quantitative Impact Studies) liberalise financial services. Adopted in 1999, it comprises 42 tool for supervision of the insurance intermediation sector. economic development. Its aim is to set international CEIOPS has been requested by the European Commission to measures designed to harmonise the regulations governing standards, promote good practice in the area of private Participation in profits (life insurance) securities, banking, insurance, mortgage lending and other carry out quantitative impact studies in the framework of pension supervision (non-state pension schemes), encourage The law, contractual clauses and competitive pressure may Solvency II. These studies are designed to test the financial services throughout the European Union. Initially international cooperation and constitute a forum for exchange oblige insurers to distribute to policyholders a share of the drawn up to cover the period from 1999 to 2005, it was assumptions envisaged for putting together the new of information. IOPS works closely with other international underwriting and financial profits made during the year. This prudential framework. subsequently assessed by the European Commission. bodies involved in pension issues: IAIS, IMF and the World system is known as participation in profits and is mandatory Following the actions taken under the FSAP, the European Bank. The OECD provides the secretariat. in many branches of insurance. The distribution to the Regulation Commission drafted a white paper for the European Union’s Legislative Act drawn up by European Union regulators and IRP (Institutions de Retraite Professionnelle) policyholders of this share of profits is at the insurers’ financial services policy for the period from 2005 to 2010. discretion, as the policyholders have no individual entitlement. directly applicable in each Member State. Occupational Pension Institutions. IAIS However, contractual obligations may supplement the Reinsurance obligation established by law. The main purpose of the International Association of Insurance Joint Forum Reinsurance can be defined as a technique under which an Supervisors (IAIS) is to promote cooperation between its The Joint Forum was established by the IAIS and its banking PCG (Plan Comptable Général) insurer transfers to another business all or part of the risk it and stock-market equivalents, the Basel Committee on member s, which are for the most part insurance supervisors The French General Chart of Accounts. has underwritten. Directive 2005/68/EC (Article 2.1) defines and regulators, and also to foster collaboration with the Banking Supervision (BCBS) and the International reinsurance as an activity consisting in accepting risks ceded supervisory authorities of other financial sectors (banks, Organization of Securities Commissions (IOSCO) in 1996, to Provisional administration by an insurance undertaking or another reinsurance financial markets, etc.). Such cooperation is becoming deal with issues common to the banking, securities and Placing an entity in provisional administration is a procedure undertaking. From an economic point of view, insurers can increasingly necessary given the internationalisation of insurance sectors, including the regulation of financial that falls outside the scope of ordinary law. Although the draw on reinsurance to insure larger risks than allowed by insurance groups and their diversification into banking and conglomerates. provisional administrator is appointed by a public authority, their level of capital. In legal terms, this insurance cover takes asset management activities. Lamfalussy Process he acts under his own responsibility, like any other company the form of a contract, known as a reinsurance treaty. A manager. He replaces the board of directors and manages the IASB The Lamfalussy process applies to European legislation for reinsurer known as the accepting reinsurer undertakes in company. return for remuneration to reimburse the ceding insurer, in The International Accounting Standards Board (IASB) drafts the financial sector. It makes a distinction between four levels pre-determined conditions, all or part of the sums due or paid the international accounting standards (adopted by the of legislation. Levels 1 and 2 are directives or regulations. Provision for deferred acquisition costs by the insurer to its policyholders in respect of claims. European Union) applicable to the consolidated financial More precisely, Level 1 consists of directives adopted by the (Life insurance) However, even when reinsured against the risk it has statements. European Council and Parliament that establish the principles The provision for deferred acquisition costs corresponds to an underwritten, the insurer remains solely liable to the that will be detailed in the Level 2 measures adopted by the amount more or less equal to the difference between the IASCF policyholder (Article L.111-3 of the French insurance code). European Commission, under the supervision of the European amount of the mathematical reserves recorded on the balance International Accounting Standards Committee Foundation. Council and Parliament. Level 3 consists of non-mandatory sheet and the amount of the mathematical reserves that recommendations. Level 4 relates to the European would be necessary if the acquisition costs were not covered Commission’s oversight of compliance and enforcement. by the premiums paid by policyholders.

114 115 GLOSSARY

Reinsurance captive Solvency margin A reinsurance captive is a reinsurance company that is wholly An insurer’s assets must exceed its commitments, the owned by a company not involved in the insurance sector, and difference between the two constitutes a safety margin which which provides cover for the risks of the group to which it must be adequate and must exceed a minimum requirement. belongs. Reinsurance captives are usually used to pool the insurance programmes of major commercial or industrial Solvency margin requirements groups with a view to obtaining better cover and better prices Under the existing regulations, the solvency margin on the international insurance market. requirement is the minimum capital an insurance company must have. In life insurance it is based on the mathematical Reserve for participation in profits (Life insurance) reserves covering euro-based and unit-linked contracts and Life insurers have the possibility of not distributing capital at risk. In non-life insurance it is based on premiums immediately to policyholders the share of profits provided for and claims. Reinsurance may also be taken into account. Note by the law. They have a period of eight years in which to do so. that the introduction of Solvency II has resulted in terminology

Glossary Instead of distributing them immediately, the insurer can changes and the terms now used are capital adequacy therefore allocate them to a reserve for participation in profits. requirements or capital requirements. SEC Solvency II - Pillars Securities and Exchange Commission, the US financial The three pillars of Solvency II are: Pillar 1: Quantitative markets regulator. requirements relating in particular to capital and technical provisions; Pillar 2: Supervision and qualitative requirement; SGAM Pillar 3: Disclosure and reporting requirements. The Société de Groupe d’Assurance Mutuelle (SGAM) are associations of mutual insurers designed to generate Technical interest rate synergies and ensure financial solidarity between its The minimum interest rate guaranteed to the policyholder members. each year by the insurer. This rate is used to calculate the premium and the amount of mathematical reserves. For Solvency II prudential reasons it is regulated and cannot exceed a series Initiated by the European Commission in 2002, this project of ceilings set on a declining scale according to the term over aims to provide a new prudential framework for insurers based which the interest rate is guaranteed. on three pillars: Pillar 1: Quantitative requirements relating in particular to capital and technical reserves; Pillar 2: TME Supervision and qualitative requirements; Pillar 3: Disclosure TME stands for Taux Moyen des emprunts d’État, which is the and reporting requirements. In July 2007, the European average government borrowing rate in France. Commission presented a draft directive to the European Parliament and Council, with a view to its application in 2012. TRACFIN The Solvency II Directive was adopted by co-decision of the Traitement du Renseignement et Action contre les Circuits Parliament and Council under the Lamfalussy process on 22 FINanciers (TRACFIN) is the anti-money laundering body set April 2009. up by the French Ministry of the Economy.

Design: Kazoar 01 53 03 32 22 Photos: Getty Images, Fololia, Jupiter Images. © ACAM 2009

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