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Business and Economics > Insurance

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Cover IMF Working Papers
Implementing Risk-Based Solvency for Insurers—Lessons from Kenya, Mexico, and South Africa
Peter Windsor
,
Suzette J Vogelsang
,
Christiaan Henning
,
Kerwin Martin
,
Elias Omondi
,
Gerardo Rubio
, and
Jooste Steynberg
International standards and best practice supports the implementation of a risk-based solvency regime in the regulation and supervision of insurers. Several emerging market and developing economies are transitioning to such a solvency regime or planning to do so. This paper discusses Kenya, Mexico, and South Africa’s journey to putting in place a risk-based solvency regime which had several common elements notwithstanding significantly different insurance sectors. The transition was a multi-year project requiring dedicated additional resources; restructuring of the regulator, including redesigning supervisory processes and tools and upgrading information technology systems; and significantly greater coordination between the regulator and the insurance industry.
Keywords:
Insurance; Risk-based Solvency; Risk-based supervision; solvency regime; Penetration rate; RBS project; solvency assessment; RBS implementation; supervision of insurer; Insurance companies; Solvency; Financial statements; Africa; Global
Cover IMF Staff Country Reports
Luxembourg: Financial Sector Assessment Program—Technical Note on Insurance Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
This technical note analyzes the key aspects of the regulatory and supervisory regime for insurance companies in Luxembourg. The analysis is part of the 2024 Financial Sector Assessment Program (FSAP) and based on the regulatory framework in place and the supervisory practices employed as of October 2023. The FSAP reviewed recent developments and the structure of the Luxembourgish insurance sector. The sector is large, well developed, and highly interconnected with other insurance markets through internationally active insurance groups and cross-border business. After having grown substantially in size, it is recommended to further strengthen the Commissariat aux Assurances’s (CAA) independence and its internal governance. The CAA’s staff has roughly doubled since the last FSAP but should be constantly reviewed with further expanding tasks. The authority’s independence could be further strengthened by safeguarding the independence of its Board members and narrowing down in the Insurance Act the reasons on which the CAA’s Directorate could be dismissed. The governance of the CAA would benefit from setting up an internal audit function, and strengthening IT governance as projects are currently conducted largely in-house.
Keywords:
solvency ASSESSMENT; International Monetary Fund Washington, d.c; solvency capital requirement; solvency coverage; G. Macroprudential supervision; Insurance; Insurance companies; Anti-money laundering and combating the financing of terrorism (AML/CFT); Solvency; Financial Sector Assessment Program; Global
Cover IMF Staff Country Reports
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Insurance and Pension Fund Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
This paper highlights a technical note on insurance and pension fund regulation and supervision in The Netherlands. The Dutch insurance sector is undergoing further consolidation, the life sector has been steadily shrinking over the last two decades, and the non-life market is relatively saturated. Investment exposures to real estate are increasing, and Dutch insurers are large providers of mortgage loans. Solvency ratios of Dutch insurers are well above the regulatory threshold, but below the EU average and furthermore distorted by the mechanics of the ‘Long-Term Guarantee Measures’ in Solvency II. The Dutch pension system—considered to be among the best according to international comparisons—rests on three pillars. Most pension schemes are defined-benefit pensions, which have come under pressure since 2008, when low interest rates resulted in declining funding ratio and led to an overall loss in confidence in the system. The Dutch system for independent state agencies, including De Nederlandsche Bank and Autoriteit Financiële Markten, carefully balances powers and accountability. Supervision of insurers and pension funds is effective in the Netherlands.
Keywords:
insurance regulation regime; pension fund regulation; solvency Assessment; International Monetary Fund Washington, D.C.; pension fund Sector; organization of Supervision; FSAP's finding; Pension spending; Insurance companies; Pensions; Insurance; Global
Cover Technical Assistance Reports
Principality of Andorra: Technical Assistance Report-Report on External Sector Statistics Mission (September 4–15, 2023)
International Monetary Fund. Statistics Dept.
A technical assistance (TA) mission on external sector statistics (ESS) was conducted for the Andorran Statistics Department (ASD) in the Principality of Andorra in September 2023. The mission focused on preparing plans to improve the frequency of producing balance of payments statistics and international investment position (IIP) from annual to quarterly and to enhance the coverage and quality of the balance of payments and IIP data. The mission assisted the ASD in establishing the framework of the quarterly enterprise survey, which will be used as one of the main source data for compiling balance of payments statistics and IIP quarterly.
Keywords:
Principality of Andorra; balance of payments; international investment position.; IMF's Statistics Department; enterprise survey; IIP quarterly; IMF executive directors; ad IIP; International investment position; Balance of payments statistics; Income; Insurance
Cover Global Financial Stability Notes
Private Equity and Life Insurers
Fabio Cortes
,
Mohamed Diaby
, and
Peter Windsor
This Global Financial Stability Note studies the growing trend of private equity (PE) investments into the life insurance industry. PE companies’ investments in life insurers are integral to their strategic growth as PE firms evolve beyond the traditional leveraged buyout transaction to acquire diverse businesses across private credit, structured credit, private real estate funds, and private infrastructure funds. This note reviews the growth in PE investments through the lens of the diverse acquisition incentives and strategies, the consequent changes to asset allocation and investment strategies of the acquired life businesses, and potential prudential and policy implications.
Keywords:
private equity; life insurance; leveraged buyout transaction; private credit; structured credit; private real estate funds; private infrastructure funds; life insurer; private equity company; life insurance insurance company; PE company; IMF Library; Global Financial stability note; Insurance companies; Insurance; Credit; Financial statements; Asset allocation; Global
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Insurance Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
The Financial Sector Assessment Program (FSAP) conducted a focused review of insurance regulation and supervision in Belgium. This technical note (TN) provides an update on the insurance sector and highlights risks and vulnerabilities. It analyzes key aspects of regulatory and supervisory oversight: supervisor; the solvency framework; supervision (micro and macro); changes in control and portfolio transfer, reinsurance; conduct of business and group supervision and supervisory co-operation and co-ordination. Belgium has adopted a twin peaks model of regulatory oversight and supervision. The National Bank of Belgium (NBB) is responsible for prudential supervision at both a micro and macro level whilst the Financial Services and Markets Authority (FSMA) is mandated with conduct of business supervision. The analysis focuses on supervision within the scope of the NBB’s and the FSMA’s mandates. The TN comments on progress in respect of the implementation of recommendations made by the previous FSAP and offers further recommendations to strengthen the regulatory and supervisory regime.
Keywords:
risk assessment framework; pre-emptive conduct supervision; conduct risk; group supervision; NBB's role; Insurance companies; Insurance; Mortgages; Financial Sector Assessment Program; Solvency; Global
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Non-Bank Financial Intermediation and Pension Insurance Companies
International Monetary Fund. Monetary and Capital Markets Department
This technical note evaluates non-bank financial institutions (NBFI) as a sector in Finland, with a special focus on the pension insurance companies (PIC). Pensions, including the PICs and fund managers, are the most significant parts of the NBFI sector, followed by insurance. Market participants value their relationship with the Finnish Financial Supervisory Authority, particularly during crisis periods, but noted that extra resources and expertise would be useful for the NBFI sector. The Financial Sector Assessment Program analysis reveals a history of procyclical and herding behavior in the PIC portfolios due to the substance and perception of the solvency regulations, which drive the behavior of market participants. Discussion on further reforms to the 2017 solvency laws should focus on enhancing the long-term purpose of the PICs to generate returns—to the benefit of all social partners and Finnish citizens. Even though liquidity risks are low, a liquidity regulation should be developed so that PICs have sufficient buffers for extreme events.
Keywords:
PIC equity investment; PIC asset allocation; Pension insurance company; pension insurance company Market; FSAP's finding; finance disclosure Regulation; investment allocation; Pension spending; Solvency; Pensions; Insurance companies; Insurance; Global; Europe
Cover IMF Staff Country Reports
Ireland: Financial Sector Assessment Program-Technical Note on Insurance Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note highlights Ireland’s Insurance Regulation and Supervision. Ireland’s insurance sector is characterized by high penetration and density in both the life and the non-life sector, which, however, stems largely from outward cross-border business. Irish insurers have proved to be resilient during the coronavirus disease 2019 pandemic, although the full effects have yet to be seen. Primary drivers of solvency ratios have been financial market and interest rate movements affecting insurers’ investment portfolios and liability valuations. The Central Bank has been expanding its analysis of climate risks and corresponding risk management practices in the financial sector. There is scope for the Central Bank to leverage its expertise and experience to promote further EU convergence on insurance oversight. The Central Bank has been very active in policy discussions at the European Insurance and Occupational Pensions Authority and is well placed to take a leading role in the efforts to achieve consistent application of EU legislation, and generally supervisory convergence, on the supervision of cross-border business; the supervision of intra-group transactions and group concentrations; and the supervision of captives.
Keywords:
solvency capital requirement; risk mitigation program; solvency ASSESSMENT; probability risk; financial condition; Insurance companies; Insurance; Solvency; Global
Cover IMF Staff Country Reports
United Kingdom: Financial Sector Assessment Program-Detailed Assessment of Observance of Insurance Core Principles Issued by the International Association of Insurance Supervisors
International Monetary Fund. Monetary and Capital Markets Department
The regulatory framework for insurance supervision in the United Kingdom is sophisticated and the authorities are leaders in supervisory techniques. Observance with the Insurance Core Principles (ICPs) is very high compared to peers with 17 ICPs observed and only 6 out of 24 ICPs determined to be largely observed and 1 partly observed.
Keywords:
solvency ASSESSMENT; ASSESSMENT of observance; ASSESSMENT of insurance core principle; staff team of the International Monetary Fund; insurance solvency coverage; solvency requirement; Insurance companies; Insurance; Solvency; Global
Cover IMF Staff Country Reports
United Kingdom: Financial Sector Assessment Program-Systemic Stress, and Climate-Related Financial Risks: Implications for Balance Sheet Resilience
International Monetary Fund. Monetary and Capital Markets Department
The FSAP started in an important macro-financial phase right after the second Covid wave and a third lockdown. The balance sheet resilience of major institutional sectors was at the center of policy considerations. Against this backdrop, the FSAP analyzed the pandemic’s potential “scarring” of banks, insurers, corporates, and households balance sheets, focusing on the interplay of macro-financial/structural conditions and financial vulnerabilities.
Keywords:
bank solvency stress test result; fair value; resolvability Assessment framework; D. solvency stress tests result; feedback effect; Macroprudential solvency stress tests; Mortgages; Insurance companies; Stress testing; Insurance; Credit; Global