Objections, autonomy, powers, and resources (CP 1)

2. The elements of CP 1 were found to be compliant. Although Netherlands Antilles law does not contain specific provisions protecting supervisors from lawsuits, administrative law precludes that individual civil servants can be sued for damages ensuing from actions or omissions committed in the good faith exercise of their functions. Actions and omissions by BNA staff in the exercise of their duties are considered actions of the BNA, which can be sued if the actions are wrongful. There is no explicit mention in the law of protection of the supervisory staff nor is there mention of covering the costs incurred in defending their actions while discharging their duties. Nevertheless, the BNA is going to study the possibility of including explicit legal protection for individual staff members as part of the Banking Supervision Ordinance. After introduction of the Harmonization Law currently being prepared, remaining restrictions in the confidentiality regime against the appropriate exchange of customer names will be removed.

Licensing and structure (CPs 2–5)

3. These criteria were found to be compliant. Licensing criteria are sufficiently broad. The BNA received 11 applications for bank licenses from 1999 through 2001; 9 were granted and 2 applications were withdrawn. Five of the nine licenses granted were to local banks for the establishment of new international subsidiaries within the Netherlands Antilles. No applications have been denied in the past two years. The law adequately defines “significant ownership” and “controlling interest” and there are legal requirements to obtain supervisory approval for proposed changes in ownership and control. The BNA has established adequate criteria for reviewing major acquisitions or investments by credit institutions.

Prudential regulations and requirements (CPs 6–15)

4. Prudential regulations are generally adequate in scope. CP 6, CP 7, CP 9, and CP 10 were found to be compliant and CP 11 and CP 14 were found to be largely compliant. CP 8, loan evaluation and loan loss provisioning, was found to be materially noncompliant. The BNA’s directives on risk management are sufficiently broad, but the BNA needs to enhance the effectiveness of both off-site surveillance and on-site examinations to ensure that its regulations are properly implemented, especially with regard to credit risk management. The BNA’s oversight of credit institutions’ loan evaluation and loan loss provisioning guidelines would benefit from requiring more frequent reviews by credit institutions of their performing and nonperforming loan portfolios and improved reporting of specific provisioning for loan losses. The BNA does not require credit institutions to assess and manage their interest rate risk and it does not oversee the risk for the banking system. The mission recommended that they require the credit institutions to address this risk and that they provide supervisory oversight of it. The BNA’s oversight of internal control and internal audit was found to be largely compliant. The BNA imposes fines for late submission of the COAs. CP 15 is fully compliant as no significant deficiencies were found (see separate template on anti-money laundering (AML) and combating the financing of terrorism (CFT)).

Methods of ongoing supervision (CP 16–20)

5. There are weaknesses in BNA’s off-site surveillance and on-site supervision and CP 16 was found to be materially noncompliant. CPs 17–19 were found to be largely compliant and CP 20 was found to be compliant. The oversight of credit risk management needs improvement, especially with regard to the frequency of loan portfolio reviews and loan loss provisioning and the required reporting of problem loans. The BNA needs to be more proactive in monitoring trends and assessing the condition of the banking sector as a whole. In addition, it needs to develop an action plan to assess the increased risk in credit institutions’ operations and the impact on earnings and capital in light of continuing weak economic conditions. In addition, the BNA should implement a program of credit-risk-targeted on-site examinations to allow for more frequent reviews of credit institutions’ loan portfolios. The BNA should include assessments of country risk and interest rate risk in its on-going supervision. It should complete its survey on market risk and decide the extent to which market risk needs to be monitored and managed.

Information requirements (CP 21)

6. CP 21 was found to be largely compliant. The BNA requires banks to submit annually audited financial statements, which are generally prepared in accordance with U.S. General Accepted Accounting Standards (GAAP), Dutch GAAP or International Accounting Standards (IAS). External auditors have the legal duty to report matters of material significance to the supervisor.

Formal powers of supervisors (CP 22)

7. CP 22 was found to be compliant. The BNA has adequate formal powers and the authority to take corrective measures if it determines that a bank is not complying with its directives regarding solvency, liquidity, or risk management. It has the authority to restrict a bank’s operations and to revoke its license. The BNA would benefit from having the ability to impose fines or penalties on senior management and/or directors and to remove management without having to threaten to revoke a credit institution’s license.

Cross border banking (CP 23–25)

8. CP 23 was found to be compliant and CP 24 and CP 25 were found to be largely compliant. The BNA has adequate cross-border banking arrangements which allow for reasonably effective supervision of off shore credit institutions. The risks posed by overseas operations of local institutions is limited. There is only one branch and one subsidiary of local banks, both in Aruba. The BNA has memoranda of understanding (MoUs) with Aruba, the Netherlands, and Venezuela and there is regular communication with the supervisors, both formally and informally. There are no formal arrangements with other countries and given the number of foreign bank operations, the mission recommended the BNA to continue to arrange appropriate MoU with foreign supervisory authorities whose credit institutions maintain operations in the Netherlands Antilles. The BNA should advise all home country supervisors of any material remedial action it takes regarding the operations of their offshore credit institutions.

Recommended action plan

Table 3.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

Table 3.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

Reference Principle	Recommended Action	Implementation Date
Legal Protection of Supervisors (CP 1 (5))	The BNA should study the possibility of including explicit legal protection for individual staff members as part of the Banking Supervision Ordinance.	The Antillean legal system implicitly provides protection. However, the BNA will study the possibility of including it explicitly. This will require time consuming amendments of the law.
Information Sharing (CP 1 (6))	The limitation with regard to exchanging names of individual deposit holders should be eliminated to facilitate the exchange of information for AML/CFT investigations, both domestically with the National Reporting Center as well as with foreign supervisory requests for information and/or criminal cases.	As stated in Article 40 of the Banking Supervision Ordinance, in criminal cases this information can be submitted. So no immediate need for action.
Licensing (CP 3)	The supervisor should consider specific, more intrusive monitoring of new licensees, as appropriate.	Ongoing.
Credit Policies (CP 7)	The Guidance Note states that standards should be communicated “preferably” in writing. To ensure consistency of interpretation, standards should be required to be communicated in writing.	Already adapted in guidance notes of October 2001 that are an update of the old ones.
Loan Evaluation and Loan Loss Provisioning (CP 8)	For problem credits regular reviews should be at least quarterly. Banks should be required to review all performing loans at least annually. There is a need for better reporting of problem loans by banks to the supervisory authority on the supporting schedule for Specific Provision for Losses on Loans and Leases. There is a need to develop a system for the classification and provisioning of off-balance sheet items. A rapid implementation program of credit-risk-focused, relatively small scale on-site inspections, and thorough discussions with the banks on individual risky or deteriorating credits and off-balance sheet exposures is therefore to be recommended. Amend Regulation V 4.2 to eliminate the exemption from loan loss provisioning guidelines for branches of foreign banks for which the bank has received a guarantee for all liabilities.	Introduced November 2002. Introduced March 2003. Introduced December 2002. Introduced January 2003. Introduced November 2002.
Country Risk (CP 11)	The BNA should implement its plan to put in place a system for periodic reporting of and provisioning for country risk exposures.	Introduced August 2003.
Market Risk (CP 12)	The BNA should complete its survey among credit institutions to identify and quantify their market risk levels and decide whether to make changes to reporting requirements for this risk.	Introduced December 2002.
Other Risks (CP 13)	The BNA should require banks to assess and manage their interest rate risk, and the BNA should include assessments of IRR in its supervisory off-site surveillance and on-site examinations.	Introduced January 2003.
Internal Control and Audit (CP 14)	The BNA should have the capacity to impose fines and penalties for noncompliance by banks with the requirement to prepare and submit accurate COAs.	Introduced June 2003 (it requires a law change).
On-Site and Off-Site Supervision (CP 16)	The BNA needs to enhance the effectiveness of its supervision. (see actions recommendation for CP 8 and CP 18) The BNA needs to assure that the external auditors, together with the banks, are able to reconcile audited financial information to the unaudited COAs. The BNA should use off-site surveillance to monitor trends and developments for the banking sector as a whole.	Introduced January 2003. Introduced January 2003.
Bank Management Contact (CP 17)	There is a need for more regular contact with bank management and the BNA is moving in this direction. There is a need for a requirement for official notification to the BNA by banks in case of a breach of legal and prudential requirements.	Introduced October 2003. Introduced October 2003.
Off-Site Supervision (CP 18)	Brief, written reports noting key performance indicators and trends in performance should be incorporated into the off-site surveillance process. There should be documented follow up of banks compliance with requirements to address noted shortcomings. There is a need for regular comparative analysis between banking organizations to allow banks’ performance to be evaluated relative to their peers. Statistics gathered by the supervisors should be used to assess the condition of the banking sector as a whole.	Introduced January 2003. Introduced December 2003. Introduced March 2003. Introduced March 2003.
Accounting Standards (CP 21)	The BNA should make public issuance of individual bank financial statements subject to its prior approval in order to ensure they meet minimum standards.	Introduced October 2002.
Remedial Measures (CP 22)	The BNA would benefit from having the ability to impose fines and/or penalties on senior management and/or directors. The BNA needs to have clear powers to remove credit institutions’ management without having to threaten to withdraw their license.	Introduced December 2003. Introduced December 2003.
Host Country Supervision (CP 24)	Given the number of foreign bank operations in the Netherlands Antilles, the BNA is encouraged to continue to enter into MoU’s with foreign supervisory authorities.	Introduced September 2003.

View Table

Table 3.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

Reference Principle	Recommended Action	Implementation Date
Legal Protection of Supervisors (CP 1 (5))	The BNA should study the possibility of including explicit legal protection for individual staff members as part of the Banking Supervision Ordinance.	The Antillean legal system implicitly provides protection. However, the BNA will study the possibility of including it explicitly. This will require time consuming amendments of the law.
Information Sharing (CP 1 (6))	The limitation with regard to exchanging names of individual deposit holders should be eliminated to facilitate the exchange of information for AML/CFT investigations, both domestically with the National Reporting Center as well as with foreign supervisory requests for information and/or criminal cases.	As stated in Article 40 of the Banking Supervision Ordinance, in criminal cases this information can be submitted. So no immediate need for action.
Licensing (CP 3)	The supervisor should consider specific, more intrusive monitoring of new licensees, as appropriate.	Ongoing.
Credit Policies (CP 7)	The Guidance Note states that standards should be communicated “preferably” in writing. To ensure consistency of interpretation, standards should be required to be communicated in writing.	Already adapted in guidance notes of October 2001 that are an update of the old ones.
Loan Evaluation and Loan Loss Provisioning (CP 8)	For problem credits regular reviews should be at least quarterly. Banks should be required to review all performing loans at least annually. There is a need for better reporting of problem loans by banks to the supervisory authority on the supporting schedule for Specific Provision for Losses on Loans and Leases. There is a need to develop a system for the classification and provisioning of off-balance sheet items. A rapid implementation program of credit-risk-focused, relatively small scale on-site inspections, and thorough discussions with the banks on individual risky or deteriorating credits and off-balance sheet exposures is therefore to be recommended. Amend Regulation V 4.2 to eliminate the exemption from loan loss provisioning guidelines for branches of foreign banks for which the bank has received a guarantee for all liabilities.	Introduced November 2002. Introduced March 2003. Introduced December 2002. Introduced January 2003. Introduced November 2002.
Country Risk (CP 11)	The BNA should implement its plan to put in place a system for periodic reporting of and provisioning for country risk exposures.	Introduced August 2003.
Market Risk (CP 12)	The BNA should complete its survey among credit institutions to identify and quantify their market risk levels and decide whether to make changes to reporting requirements for this risk.	Introduced December 2002.
Other Risks (CP 13)	The BNA should require banks to assess and manage their interest rate risk, and the BNA should include assessments of IRR in its supervisory off-site surveillance and on-site examinations.	Introduced January 2003.
Internal Control and Audit (CP 14)	The BNA should have the capacity to impose fines and penalties for noncompliance by banks with the requirement to prepare and submit accurate COAs.	Introduced June 2003 (it requires a law change).
On-Site and Off-Site Supervision (CP 16)	The BNA needs to enhance the effectiveness of its supervision. (see actions recommendation for CP 8 and CP 18) The BNA needs to assure that the external auditors, together with the banks, are able to reconcile audited financial information to the unaudited COAs. The BNA should use off-site surveillance to monitor trends and developments for the banking sector as a whole.	Introduced January 2003. Introduced January 2003.
Bank Management Contact (CP 17)	There is a need for more regular contact with bank management and the BNA is moving in this direction. There is a need for a requirement for official notification to the BNA by banks in case of a breach of legal and prudential requirements.	Introduced October 2003. Introduced October 2003.
Off-Site Supervision (CP 18)	Brief, written reports noting key performance indicators and trends in performance should be incorporated into the off-site surveillance process. There should be documented follow up of banks compliance with requirements to address noted shortcomings. There is a need for regular comparative analysis between banking organizations to allow banks’ performance to be evaluated relative to their peers. Statistics gathered by the supervisors should be used to assess the condition of the banking sector as a whole.	Introduced January 2003. Introduced December 2003. Introduced March 2003. Introduced March 2003.
Accounting Standards (CP 21)	The BNA should make public issuance of individual bank financial statements subject to its prior approval in order to ensure they meet minimum standards.	Introduced October 2002.
Remedial Measures (CP 22)	The BNA would benefit from having the ability to impose fines and/or penalties on senior management and/or directors. The BNA needs to have clear powers to remove credit institutions’ management without having to threaten to withdraw their license.	Introduced December 2003. Introduced December 2003.
Host Country Supervision (CP 24)	Given the number of foreign bank operations in the Netherlands Antilles, the BNA is encouraged to continue to enter into MoU’s with foreign supervisory authorities.	Introduced September 2003.

Authorities’ response to the assessment

9. The main comments of the authorities concern the assessment of the interrelated principles 8 and 16, on credit policies and on-site inspections. While recognizing that some work remained to be done with regard to asset quality monitoring and on-site work in this field, the BNA pointed out that work is underway to increase the frequency of targeted inspections. Meanwhile, it considered the suggestion that insufficient frequency of inspections will lead banks to not review their portfolio on a regular basis, and that more intrusive monitoring is necessary as too harsh. It also contests the implication that insufficient frequency of on-site work implies that inspectors are not in a position to monitor banks’ portfolios adequately. The BNA also considered that asset quality issues were relevant primarily for domestic institutions and less for international banks in the Netherlands Antilles. The domestic situation is considered to be under control. A more balanced rating than “materially noncompliant” is considered merited.

10. Also, interest rate risk was not considered a major risk, in light of the stability of interest rates, the breadth of spreads, and repricing possibilities. However, the BNA will look into this and develop a monitoring mechanism. The BNA considers that more proactive monitoring of how banks deal with problem loans would be more labor intensive than is warranted, given limited staff resources.

Organization of an insurance supervisor (Principle 1)

12. The BNA is observant of this principle. Responsibilities of the BNA are clear and objectively stated, and the BNA is operationally and financially independent from the government, although it is capitalized by the government. It is also independent from the industry. Staff is of high quality and trained on an ongoing basis. Procedures for on-site and off-site supervisory work are in place and are clear and well documented, although some of the newer ones still await completion. It is recommended that the BNA continue to evaluate the resources needed to implement the planned program of on-site examinations, and for the introduction of new rules and regulations and the associated additional supervisory workload. New staff has been hired, including an actuary, and additional staff is being interviewed. The new regulations need to be completed as soon as possible.

Licensing (Principle 2)

13. The authorities are broadly observant of this principle.

Part 1: Companies underwriting risks in the domestic market. Legal provisions are in place entrusting the BNA to regulate the insurance sector and designate it as the licensing authority. Appropriately rigorous licensing arrangements are in place. Actual refusal of a formal license application rarely takes place, as in appropriate cases the applicant is usually persuaded to withdraw the application.

Part 2: Assessment of key functionaries and business plan. The requisite legal and regulatory standards are in place. To assist the assessment of compliance with fit and proper criteria, a new Integrity Unit has been created, which is able to exchange information with the public prosecutor’s office.

Part 3: Reliance on insurance supervisors in other jurisdictions. Reliance on the information of insurance supervisors in other jurisdictions is an integral part of the licensing process and will be strengthened when more MoU’s are concluded with supervisors abroad.

14. Licensing of captives or professional reinsurers can raise specific issues when it is incorporated abroad. In such cases, licensing should wait until satisfactory arrangements have been made for cooperation and exchange of information with the foreign supervisor. Licensing of composites should be excluded.

Changes in control (Principle 3)

15. The authorities are broadly observant of this principle. The BNA monitors changes in control. These requirements need to be brought explicitly into the legislation. Prior approval for any changes should be required. These aspects are now dealt with in a Licensing Manual, of which, the legal basis is found in Article 17 of the Insurance Ordinance and Article 4 of the Special Insurance License Decree. In one recent case a six month negotiation process preceded the BNA approval of a change in control over one of the largest companies in the Netherlands Antilles. The BNA recently refused a nonlife insurance company permission to acquire shares in a newly incorporated life insurance company.

Corporate governance (Principle 4)

16. The authorities are broadly observant of this principle. Assessment of management and ownership takes place as described above. For Board members, the guidelines are laid down in “Guidance Notes,” which also need to be given the status of a binding law or regulation, and made applicable to captives and professional reinsurers. Currently, it is not mandatory for captives and professional reinsurers to have a Supervisory Board. In practice, most do and they consequently must adhere to the BNA Guidance Notes.

Internal controls (Principle 5)

17. The authorities are broadly observant of this principle. Internal controls are a standard element in the well established program of off-site analysis and on-site inspections. Guidance notes on internal controls—even if abided by—should be given a more binding legal status.

Assets (Principle 6)

18. The authorities are broadly observant of this principle. Supervisory control of assets is outlined in supervisory procedures and the new Annual Report Automated Statements (ARAS) system, but not in regulations. These procedures need to be given more binding status. Supervision over assets held abroad may pose practical difficulties, requiring good cooperation with foreign supervisors.

Liabilities (Principle 7)

19. The authorities are broadly observant of this principle. As in many other jurisdictions, financial statements and the valuation of assets takes place according to GAAP or international standards relevant to the Netherlands Antilles. Technical provisions are described extensively in ARAS and examined annually. The BNA should develop its own standards for the valuation of liabilities. A new valuation manual is expected to be issued in December 2003, taking into account IAS.

Capital adequacy and solvency (Principle 8)

20. The authorities are broadly observant of this principle. The implementation of supervision in the Netherlands Antilles goes a considerable way towards capital adequacy requirements that reflect the size complexity and risks of the insurer. IAIS have not developed standards in this area. The authorities intend to revise the solvency requirements, to reflect more of the complexity and risks of the different categories of insurers. At present, the solvency requirement for professional reinsurers seems to be on the low side. This needs review. Captives should also be subjected to more risk based capital requirements. After implementation of these rules, a higher level of compliance will be achieved.

Derivatives and “off-balance sheet” items (Principle 9)

21. The authorities are currently broadly observant of this principle. However, based on a survey conducted a few years ago it was determined that none of the insurers use these instruments. Thus, no rules are currently in place, although a regulation is in development based on the IAIS guidance paper. In the current draft asset valuation guide developed by the BNA, guidelines relative to the valuation of derivatives have been included in the “invested assets” section under the heading “other investments.” The guidance paper could be given binding status in due course, should activities in derivatives actually develop.

Reinsurance (Principle 10)

22. The authorities are observant of this principle. Prior to the hurricane season the BNA reviews all reinsurance agreements. These checks are also performed during desk and field examinations. Training in the area of reinsurance is needed for all the staff members within the department since there is currently only one reinsurance specialist in the BNA. More of the rules on reinsurance should be given binding status.

Market conduct (Principle 11)

23. The authorities are materially nonobservant of this principle. The proposed National Ordinance on the Insurance Brokerage Business has not yet been enacted, nor have the market conduct guidelines been published. The proposed Ordinance only deals with insurance brokers. Consideration could be given to supervising, either directly or indirectly (through principals or employees), all persons providing insurance advice, from within the Netherlands Antilles. The government is setting up an independent alternative dispute resolution body, which will enable complaints to be dealt effectively and affordably. Market conduct guidelines should be given more binding status. The proposed National Ordinance on the Insurance Brokerage Business also covers supervision of offshore insurance brokers. Where licensed insurers deal directly with policyholders and prospective policyholders of the general public in jurisdictions without market conduct rules, they are obliged to apply market conduct guidelines of the Netherlands Antilles. The BNA currently handles customer complaints.

Financial reporting (Principle 12)

24. The authorities are broadly observant of this Core Principle. Similar comments apply to this section as contained within Principle 7—liabilities regarding developments in insurance accounting being promulgated by International Accounting Standards Board (IASB). Action should be taken immediately to remedy the current practice of late submission of audited statements. Introduction of the new ARAS reporting system and more aggressive monitoring has led to improved reporting performance by insurance companies.

On-site inspection (Principle 13)

25. The authorities are observant of this Core Principle. BNA has a well established program of on-site inspections and has developed a comprehensive procedures manual. The manual has been finalized and it is the intention to update this periodically. The BNA keeps to the standards of the U.S. based Society of Financial Examiners and several of the staff of the bank are Certified Financial Examiners. The BNA should extend its on-site inspections to insurance brokers, paying special attention to AML, and market conduct aspects. The BNA should follow through with more structured meetings with external auditors. The BNA has field examination procedures for captives and professional reinsurers and will resume its inspection program, i.e., its field examinations of captives and professional reinsurers, not only when a captive or reinsurer fails to submit requested financial information.

Sanctions (Principle 14)

26. The authorities are observant of this principle. The legislation contains a full menu of enforcement actions, including powers to issue binding directions. The BNA should consider including within the legislation, different, specific types of directions that may be used, as well as keeping an all-encompassing power. In addition, the bank should be able to impose a range of civil money penalties (not criminal fines) against individuals and the insurer/intermediary.

Cross border business operations (Principle 15)

27. The authorities are broadly observant of this Core Principle. All insurers operating in the Netherlands Antilles, including subsidiaries and branches of overseas insurers, need to be licensed although incidental cross-border business is permitted on a direct provision of services basis. The legislation enables the minister of finance to prohibit or impose rules on specific inwards cross-border business, if the actions of the insurer are not thought to be in the interests of local policyholders. In addition, the BNA can require brokers by law to submit annual details of all insurers with whom business has been placed. The BNA has become more proactive in consulting with overseas insurance supervisors. The legislation should be changed so that a licensed insurer needs to seek specific approval in order to operate cross-border. Home supervisors of branch offices established in the Netherlands Antilles are required to officially communicate with the BNA when planning an examination of or visit to the branch. Whenever the BNA, as a home supervisor, wants to conduct an examination of a branch office in another jurisdiction, the home supervisor is contacted and a joint examination arranged. Thus far, the BNA has conducted joint examinations with the Aruban and Netherlands authorities.

Coordination and cooperation (Principle 16)

28. The authorities are broadly observant of this principle. The BNA should expedite the remaining planned MoU’s (taking into account the requirements of the IAIS Core Principle 16) with other relevant jurisdictions and implement legislative changes to ensure that reciprocity is not mandatory when providing information to other authorities.

Confidentiality (Principle 17)

29. The authorities are observant of this principle. The insurance legislation requires confidentiality and there is a gateway under which the bank can share information with other insurance supervisors. As already recommended in CP 2 and CP 16, this gateway needs to be much broader in nature and not subject to reciprocity.

Anti-money laundering

30. The IAIS does not yet have a separate core principle against ML. Currently Antillean AML legislation and regulation covers ML through life insurance companies or brokers. Training is being provided to the sector. Revised AML/CFT guidelines for all insurance companies were introduced by the BNA in June 2003. The BNA has on-site procedures in place to test whether the recommendations made in the guidelines are adopted and properly implemented by the industry. On-site visitations to verify compliance were started by the BNA in March 2003.

31. The authorities have drawn up a plan of recommended actions to address the issues raised in the paragraphs above and in the detailed assessment, as well as concerns of their own in the action plan outlined in Table 7 below.

Table 5.

Detailed Assessment of Observance of the IAIS Insurance Core Principles

Table 5.

Detailed Assessment of Observance of the IAIS Insurance Core Principles

Principle 1	Organization of an Insurance Supervisor The insurance supervisor of a jurisdiction must be organized so that it is able to accomplish its primary task, i.e., to maintain efficient, fair, safe, and stable insurance markets for the benefit and protection of policyholders. It should, at any time, be able to carry out this task efficiently in accordance with the Insurance Core Principles. In particular, the insurance supervisor should: Be operationally independent and accountable in the exercise of its functions and powers; Have adequate powers, legal protection, and financial resources to perform its functions and exercise its powers; Adopt a clear, transparent, and consistent regulatory and supervisory process; Clearly define the responsibility for decision-making; and Hire, train, and maintain sufficient staff with high professional standards who follow the appropriate standards of confidentiality
Description	The responsibilities of the insurance supervisor (the BNA) are clear and are objectively stated and the BNA is operationally independent from the government, to which it reports, although it is capitalized by the government and transmits surplus funds to the Government as dividend. The BNA is also independent from the insurance industry, as all directors and staff are not, by law, allowed to have any associations with any insurer, except to take out insurance contracts. The BNA charges insurers annual supervisory fees to defray the costs of regulation. The income of the BNA is sufficient to finance high priority supervisory activities, such as those involving international cooperation and on-site visits. Both of these types of actions were demonstrated to the mission. The bank is able to outsource to third parties supervisory functions. Those third parties are subject to confidentiality provisions and can be held responsible for the way they have exercised their duties. Insurance legislation ensures appropriate standards of confidentiality and staff must obey high professional standards as outlined in the “Professional Guidelines for Supervisors of the Bank,” issued by the bank in 1996. Staff are subject by law to conflict of interest provisions and by integrity codes and guidelines when dealing with licensees. The BNA has well documented, and updated, desk and field supervision procedures. Some of the updates are very new and will take some time to fully implement. There is no one definitive document that summarizes, for the benefit of the insurance sector, the methods and procedures of supervision. Most of these are outlined in the various pieces of legislation and guidance notes and it is recommended that an all-encompassing “Guide to Insurance Supervision” is prepared and published, including on the BNA website. The decision-making lines of the BNA and Article 31 of the insurance legislation, allow action to be taken immediately in cases of emergencies. In January 2003, the BNA prepared a tight schedule on on-site inspections including AML inspections. Per end June 2003, the BNA has conducted 18 inspections of which 4 were general scope inspections. The remainder were targeted inspections, including AML and investment portfolio inspections. The BNA is conducting interviews with candidates for new staff positions and offers were made to an actuary and an auditor. One new staff has already taken up his duties. The staff of the department consists of two actuaries, and other staff members have at least bachelor’s degrees in business administration or accounting. In addition, staff members follow national and international specialized insurance courses. Most staff members have between 10–15 years’ insurance supervision experience. The bank will, where applicable, implement the appropriate changes in its field examination process. In addition, the necessary funding will be made available for a proper and continuous training of the staff members.
Assessment	Observant
Comments	The powers of the BNA should be more comprehensively prescribed, as explained under Principle 14 (Sanctions), but in the meantime existing powers and legal protection should enable it to properly perform its functions. The mission had high regard for the aptitude and attitude of the coordinator, the experience of, and the qualifications achieved by, the insurance supervisory staff, and the implemented policy of mandatory training programs for all.
Principle 2	Licensing Companies wishing to underwrite insurance in the domestic insurance market should be licensed. Where the insurance supervisor has authority to grant a license, the insurance supervisor: In granting a license, should assess the suitability of owners, directors, and/or senior management, and the soundness of the business plan, which could include proforma financial statements, a capital plan, and projected solvency margins; and In permitting access to the domestic market, may choose to rely on the work carried out by an insurance supervisor in another jurisdiction if the prudential rules of the two jurisdictions are broadly equivalent.
Description	Legal provisions are in place entrusting the BNA to regulate the insurance sector. These provisions, and the “Licensing and Registration Procedures Manual” define what is considered insurance business, and the types of company that are insurers, and also stipulate the BNA’s tasks and licensing requirements. Part 2: Assessment of the suitability of key functionaries, and of the business plan. Legal provisions, supported by guidelines on fit and proper and corporate governance aspects, and the prescribed application forms (including comprehensive personal questionnaires) are in place to ensure that the BNA can assess the suitability of the business plan and the key functionaries, which include shareholders, directors, and senior management. The BNA may refuse to issue the license if the interests of future policyholders or beneficiaries are likely to be jeopardized. The BNA, under the National Ordinance, may only, on the basis of general reciprocity and, upon request, provide another insurance supervisor with relevant information. To assist investigations into compliance with fit and proper criteria, the BNA has developed a new Integrity Unit, which is able to exchange information with the Public Prosecutor and the Unusual Transactions Reporting Unit. The applicant is required to submit a comprehensive business plan for assessment by the BNA, but there are no minimum share capital requirements laid down in the insurance legislation, as the BNA considers the requirement for a minimum margin of solvency is sufficient. There is an old requirement of the Central Bureau of Juridical Affairs that stipulates an issued share capital of NA f. 200,000. The applicant is also required to submit product details, documents of incorporation, actuary, and auditor details. Decisions of the BNA are open to appeal before the administrative and judicial bodies. Part 3: Reliance on insurance supervisor in another jurisdiction. The reliance on insurance supervisors in other jurisdictions, by asking for certificates of good standing, is an integral part of the application process and will be strengthened when the bank completes its MoU’s with other jurisdictions (there are MoU’s with the Netherlands and Aruba) and the BNA is becoming more proactive in seeking information from overseas authorities (see recommendation above and in CP 15, CP 16, and CP 17).
Assessment	Broadly observant
Comments	To be assessed “observant,” the BNA would need to strengthen its licensing process as described in the recommendations mentioned in the action plan below.
Principle 3	Changes in Control The insurance supervisor should review changes in the control of companies that are licensed in the jurisdiction. The insurance supervisor should establish clear requirements to be met when a change in control occurs. These may be the same as, or similar to, the requirements which apply in granting a license. In particular, the insurance supervisor should: Require the purchaser or the licensed insurance company to provide notification of the change in control and/or seek approval of the proposed change; and Establish criteria to assess the appropriateness of the change, which could include the assessment of the suitability of the new owners as well as any new directors and senior managers, and the soundness of any new business plan.
Description	The BNA already monitors changes in control. Although a manual prescribes what policies to follow in these areas, the Law itself does not specifically require changes in control to be notified to the BNA, does not define such changes (including the ability to take account of substance over form), nor are there precise powers to reject the proposed changes in control. Most of these aspects are contained in a management requirements and change in control section of the Licensing Procedures Manual. The BNA has indirect powers, however, as Article 17 of the Ordinance states that identity of the policymakers of insurance companies, including shareholders should not give the BNA reason to believe that the interests of policyholders will be jeopardized. Shareholders are considered policymakers of insurance companies. As a result, if there are grounds for the bank to believe that the proposed change will not be in the interest of the policyholders the change will not be accepted, or ultimately, the license withdrawn, on grounds that the institution no longer meets the licensing requirements. The BNA has in fact used its powers in this area. One recent example is the change in control that occurred at one of the largest insurance companies on the island. After a lengthy process of negotiations (six months) about the group and organizational structure and the conditions for the takeover, in April of this year the bank approved the change in control. Another recent example is the case of a nonlife insurance company that wanted to become the shareholders of a newly incorporated life insurance company. The bank disapproved this. Special comments relating to captives and professional reinsurers: Similarly, there are no specific references to changes in control.
Assessment	Broadly observant
Comments
Principle 4	Corporate Governance It is desirable that standards be established in the jurisdictions, which deal with corporate governance. Where the insurance supervisor has responsibility for setting requirements for corporate governance, the insurance supervisor should set requirements with respect to: The roles and responsibilities of the Board of directors; Reliance on other supervisors for companies licensed in another jurisdiction; and The distinction between the standards to be met by companies incorporated in his jurisdiction and branch operations of companies incorporated in another jurisdiction.
Description	While various aspects of corporate governance are covered in the October 2001 “Guidance Notes for the Supervisory Board of Supervised Financial Institutions,” there is no specific legal backing for this document. However, in the event a company does not comply with the guidelines, the BNA can, based on Article 31 of the Ordinance, give the company a motivated instruction. In the event of noncompliance by the company the instruction can be published. These sanctions on compliance with these guidance notes have not been tested in the courts, however. So far, all institutions have complied with the different guidance notes issued by the BNA. In practice, the majority of the captives have a Supervisory Board. Consequently they have to adhere to the Corporate Guidelines issued by the BNA.
Assessment	Broadly observant
Comments	Relating to captives and professional reinsurers: There are dangers in allowing captives and professional reinsurers to be managed in the Netherlands Antilles by only one natural person.
Principle 5	Internal Controls The insurance supervisor should be able to: Review the internal controls that the Board of directors and management approve and apply, and request strengthening of the controls where necessary; and Require the Board of directors to provide suitable prudential oversight, such as setting standards for underwriting risks and setting qualitative and quantitative standards for investment and liquidity management.
Description	The BNA has a well-established and comprehensive program of field supervisory examinations (on-site visits) and a separate on-site team of staff, which specialize in this work. An integral part of the visits relate to internal control matters, and deficient matters are followed up by issuance of motivated instructions. Our recommendations mirror those in the previous Core Principle, and are that the opportunity should be taken to associate guidance notes on internal control matters with the legislation and include sanctions in cases of noncompliance.
Assessment	Broadly observant
Comments
Principle 6	Assets Standards should be established with respect to the assets of companies licensed to operate in the jurisdiction. Where insurance supervisors have the authority to establish the standards, these should apply at least to an amount of assets equal to the total of the technical provisions, and should address: Diversification by type; Any limits or restrictions on the amount that may be held in financial instruments, property, and receivables; The basis for valuing assets which are included in the financial reports; The safekeeping of assets; Appropriate matching of assets and liabilities; and Liquidity.
Description	Supervision over asset quality is outlined in the supervisory procedures manuals, and the excellent new (2000) ARAS system, but not in legislation. Also, asset valuation guidelines are being prepared. The existing legislation merely states that adequate technical provisions should be maintained and covered by assets, which currency-match the liabilities (there is the possibility of an exemption to the matching requirement if it is in the interests of policyholders). The BNA has the power to direct the insurer to change the nature and valuation of the assets. There are no legal provisions covering the mixture and diversification by type of asset, or restrictions on the amount that may be held in financial instruments, property, and receivables; the basis for valuing assets; the safekeeping of assets; appropriate matching of assets; and liquidity. Some of the above aspects are covered by guidelines; the field examination manual; supervisory procedures manual; ARAS; and other documents, and some are not.
Assessment	Broadly observant
Comments
Principle 7	Liabilities Insurance supervisors should establish standards with respect to the liabilities of companies licensed to operate in their jurisdiction. In developing the standards, the insurance supervisor should consider: What is to be included as a liability of the company; for example, claims incurred, but not paid, claims incurred, but not reported, amounts owed to others, amounts owed that are in dispute, premiums received in advance, as well as the provision for policy liabilities or technical provisions that may be set by an actuary; The standards for establishing policy liabilities or technical provisions; and The amount of credit allowed to reduce liabilities for amounts recoverable under reinsurance arrangements with a given reinsurer, making provision for the ultimate collectability.
Description	As in many other jurisdictions, financial statements for insurance companies in the Netherlands Antilles are prepared under acceptable GAAP, which lay down the relevant standards for establishing technical provisions. The technical provisions are described in detail in ARAS and are examined annually during desk and field examinations by the banks’ actuaries and examiners. The BNA have commenced to look at the valuation of liabilities. With respect to the issue of timely reporting it can be said that the effort to implement the new automated reporting system of the BNA, ARAS, impeded a timely reporting by a large number of companies in the past. Starting this year the bank initiated a program of visiting all institutions, which indicated that they had problems with ARAS; this was done in addition to workshops organized by the bank. The result is that our companies, contrary to previous years have started submitting their annual statements on time.
Assessment	Broadly observant
Comments
Principle 8	Capital Adequacy and Solvency The requirements regarding the capital to be maintained by companies, which are licensed or seeking a license, in the jurisdiction should be clearly defined and should address the minimum levels of capital or the levels of deposits that should be maintained. Capital adequacy requirements should reflect the size, complexity, and business risks of the company in the jurisdiction.
Description	Capital adequacy requirements differ for life insurance and property/casualty insurance. Decree 52/1992, based on Article 22 and Article 36 of the Ordinance requires a minimum capital margin of NA f. 400,000 (US$220,000) for life insurance companies, unless the technical reserves, actuarially calculated and augmented by 4 percent of the technical reserves as required by Article 36 of the Ordinance, should be the higher amount. In that case, the company is obliged to maintain a solvency reserve of the higher amount. The capital adequacy requirements therefore are related to the business of the individual company and its risk profile, with an absolute floor of NA f. 400,000. For property and casualty (P&C) companies the floor is NA f. 300.000 (US$165,000) unless the reserves for unearned premiums, pending claims and expected claims augmented with a 15 percent additional reserve as required by Article 36 of the Ordinance is the higher amount. In that case the higher of the two amounts should be retained for capital adequacy purposes. The BNA inspections assess the adequacy of the reserves held by P&C companies against good international practice, and impose higher reserves as needed, based on the authority provided in Article 31 of the Ordinance. Decree 52 of 1992 specifies the permissible assets that count towards the technical reserves. The IAIS has not developed standard methods or percentages for minimum solvency, so in this area the Netherlands Antilles should draw on their past experiences and also the experiences of other jurisdictions. The IAIS has an insurance laws database, the use of which would assist any research. There are currently no statutory minimum capital requirements in the Insurance Ordinance, and the BNA relies on the requirements described above. However, the solvency requirements are under review to assess whether they need to be adjusted to reflect more closely the risks, size, and complexity of the different types of insurers. The Central Legal Bureau of the Netherlands Antilles has in the meantime issued statutory minimum capital requirements for insurance companies of NA f. 200,000 (US$110,000), pending revision of the Ordinance. A higher level of observance could be achieved once revised solvency requirements are introduced.
Assessment	Broadly observant
Comments
Principle 9	Derivatives and ‘Off-Balance Sheet’ Items The insurance supervisor should be able to set requirements with respect to the use of financial instruments that may not form a part of the financial report of a company licensed in the jurisdiction. In setting these requirements, the insurance supervisor should address: Restrictions in the use of derivatives and other off-balance sheet items; Disclosure requirements for derivatives and other off-balance sheet items; and The establishment of adequate internal controls and monitoring of derivative positions.
Description	The BNA surveyed the insurers and, based on the responses received, it believes that none of the licensed insurers use these instruments. There is currently no legislation on derivatives, although one is in the course of preparation based upon the IAIS guidance paper. Anticipating the possible use of derivatives by the licensed insurers, the asset valuation guide developed by the BNA includes the valuation of these instruments.
Assessment	Broadly observant
Comments
Principle 10	Reinsurance Insurance companies use reinsurance as a means of risk containment. The insurance supervisor must be able to review reinsurance arrangements, to assess the degree of reliance placed on these arrangements and to determine the appropriateness of such reliance. Insurance companies would be expected to assess the financial positions of their reinsurers in determining an appropriate level of exposure to them. The insurance supervisor should set requirements with respect to reinsurance contracts or reinsurance companies addressing: The amount of the credit taken for reinsurance ceded. The amount of credit taken should reflect an assessment of the ultimate collectability of the reinsurance recoverable and may take into account the supervisory control over the reinsurer; and The amount of reliance placed on the insurance supervisor of the reinsurance business of a company, which is incorporated in another jurisdiction.
Description	In June, prior to the hurricane season, the bank request copies of all reinsurance agreements, from which the exposures are calculated, and related back to the financial position of each insurer. These checks are also performed during desk and field examinations. Also the ARAS and the asset valuation guide deal with reinsurance cover and the valuation thereof. There is one reinsurance specialist in the bank, and this is an area where more training is being sought for all other staff members of the department.
Assessment	Observant
Comments
Principle 11	Market Conduct Insurance supervisors should ensure that insurers and intermediaries exercise the necessary knowledge, skills, and integrity in dealing with their customers. Insurers and intermediaries should: At all times act honestly and in a straightforward manner; Act with due skill, care, and diligence in conducting their business activities; Conduct their business and organize their affairs with prudence; Pay due regard to the information needs of their customers and treat them fairly; Seek from their customers information, which might reasonably be expected before giving advice or concluding a contract; Avoid conflicts of interest; Deal with their regulators in an open and cooperative way; Support a system of complaints handling, where applicable; and Organize and control their affairs effectively.
Description	The proposed National Ordinance on the Insurance Brokerage Business has been drafted, and is in an advanced state, but has not yet been enacted, nor have the market conduct guidelines been published. The proposed Ordinance only deals with insurance brokers, and it could be considered to expand the scope to cover all persons providing insurance advice from within the Netherlands Antilles. This would level the playing field, e.g., in the qualifications required of agents, subagents, brokers, and insurance company employees that give insurance advice or in the measures against unfair practices by one or more of the above groups of advisors. This could be dealt with within the proposed Ordinance. The government is in the process of setting up an independent alternative dispute resolution body, which will enable complaints to be dealt with in an effective and affordable manner. Currently, when a policyholder or other party files a complaint with the BNA, this is entered in a complaints file. The responsible desk worker will analyze the complaint and request additional information from the parties involved if necessary. If the complaint warrants further action by the BNA toward the insurance company, this will be done by a letter. Failure of the company to comply with this may lead to the issuance of a motivated instruction by the BNA and more serious measures, ultimately including withdrawal of the license. There is no consumer compensation scheme.
Assessment	Materially nonobservant
Comments
Principle 12	Financial Reporting It is important that insurance supervisors get the information they need to properly form an opinion on the financial strength of the operations of each insurance company in their jurisdiction. The information needed to carry out this review and analysis is obtained from the financial and statistical reports that are filed on a regular basis, supported by information obtained through special information requests, on-site inspections, and communication with actuaries and external auditors. A process should be established for: Setting the scope and frequency of reports requested and received from all companies licensed in the jurisdiction, including financial reports, statistical reports, actuarial reports, and other information; Setting the accounting requirements for the preparation of financial reports in the jurisdiction; Ensuring that external audits of insurance companies operating in the jurisdiction are acceptable; and Setting the standards for the establishment of technical provisions or policy and other liabilities to be included in the financial reports in the jurisdiction. In so doing, a distinction may be made: Between the standards that apply to reports and calculations prepared for disclosure to policyholders and investors, and those prepared for the insurance supervisor; and Between the financial reports and calculations prepared for companies incorporated in the jurisdiction, and branch operations of companies incorporated in another jurisdiction.
Description	Introduction of the automated reporting system ARAS, combined with more aggressive monitoring has greatly improved reporting. Similar comments apply to this section as contained within Principle 7—liabilities regarding developments in insurance accounting being promulgated by IASB. In addition, the BNA will be amending the current legislation to include fines for late reporting. In the past, some audited financial statements were submitted over 18 months after the due date.
Assessment	Broadly observant
Comments
Principle 13	On-Site Inspection The insurance supervisor should be able to: Carry out on-site inspections to review the business and affairs of the company, including the inspection of books, records, accounts, and other documents. This may be limited to the operation of the company in the jurisdiction or, subject to the agreement of the respective supervisors, include other jurisdictions in which the company operates; and Request and receive any information from companies licensed in its jurisdiction, whether this information be specific to a company or be requested of all companies.
Description	The bank has been executing field examinations (on-site inspections) for over eight years and has developed a comprehensive procedures manual, much of which has been amended and added to since the last self-assessment report involving the Fund which was completed in 2001. The manual is finalized and will be reviewed periodically. As mentioned above there are no market conduct rules and this aspect is not included in the on-site procedures manual. In the meantime, market conduct examination procedures have been drafted, but are yet to be introduced. The bank keeps to the standards of the U.S. based Society of Financial Examiners and several of the staff of the Bank are Certified Financial Examiners.
Assessment	Observant
Comments
Principle 14	Sanctions Insurance supervisors must have the power to take remedial action where problems involving licensed companies are identified. The insurance supervisor must have a range of actions available in order to apply appropriate sanctions to problems encountered. The legislation should set out the powers available to the insurance supervisor and may include: The power to restrict the business activities of a company, for example, by withholding approval for new activities or acquisitions; The power to direct a company to stop practices that are unsafe or unsound, or to take action to remedy an unsafe or unsound business practice; and The option to invoke other sanctions on a company or its business operation in the jurisdiction, for example, by revoking the license of a company or imposing remedial measures where a company violates the insurance laws of the jurisdiction.
Description	Article 31 of the legislation, as well as permitting refusals, revocations, and penalties, contains a menu of remedial actions, including legally binding instructions and the withdrawal of the license, in case of serious noncompliance with regulatory provisions. The insurer is obliged to follow the instruction within the period stipulated by the BNA. For example, an insurance company that was conducting life and nonlife business in one and the same legal entity was instructed to transfer the life business to another legal entity. In response to a case in which an insurance intermediary falsely claimed to represent certain insurance companies and collected premiums without passing these on, the BNA instructed all insurance companies to periodically publish the names of their intermediaries in the newspapers. The intermediary in question was considered to conduct insurance business without a license. The BNA turned the case over to the Public Prosecutor, as required in Article 122 of the Ordinance. In addition, in the past years, the BNA has issued several instructions to insurance companies, and silent trustees have been appointed on different occasions (currently there is one company under silent trusteeship), licenses of companies that no longer comply with the licensing conditions have been revoked.
Assessment	Observant
Comments
Principle 15	Cross-Border Business Operations Insurance companies are becoming increasingly international in scope, establishing branches and subsidiaries outside their home jurisdiction, and sometimes conducting cross-border business on a services basis only. The insurance supervisor should ensure that: No foreign insurance establishment escapes supervision; All insurance establishments of international insurance groups and international insurers are subject to effective supervision; The creation of a cross-border insurance establishment is subject to consultation between host and home supervisors; and Foreign insurers providing insurance cover on a cross-border services basis are subject to effective supervision.
Description	All insurers operating in the Netherlands Antilles, including subsidiaries and branches of overseas insurers, need to be licensed although incidental cross-border business is permitted on a services basis. Allowing cross-border business is a balancing act. On the one hand, the bank needs to ensure the local population has the availability of cover (especially important with catastrophe insurance and hard-to-place or price sensitive risks, such as professional indemnity insurance), but on the other hand, there needs to be a level playing field with local providers, and an elimination of any areas, which may be open to abuse. The legislation addresses this by enabling the minister of finance to prohibit or impose rules, on specific inwards cross-border business, if the actions of the insurer are not thought to be in the interests of local policyholders. In addition, the bank uses a provision in the law to require brokers to submit annual details of all insurers with whom business has been placed. An alternative way of addressing this problem would be to have a register of overseas insurers who are permitted to cover local risks on a cross-border basis, specifying which classes of business they are allowed to underwrite. It would then be necessary to amend the legislation (both insurer and the proposed broker) in order to mandate that only licensed or registered insurers could underwrite local risks and brokers, who would be licensed, could only place business with those insurers. If overseas insurers have resident non broker agents in the Netherlands Antilles, it should be made clear that the insurer would need a license. Temporary licenses could be issued in certain cases. In this way, the bank should be aware of the insurers covering local risks, except for those that are contacted by the client directly. This may help negate the problems of the past, where catastrophe cover was found to be with insurers of no substance.
Assessment	Broadly observant
Comments
Principle 16	Coordination and Cooperation Increasingly, insurance supervisors liaise with each other to ensure that each is aware of the other’s concerns with respect to an insurance company that operates in more than one jurisdiction, either directly or through a separate corporate entity. In order to share relevant information with other insurance supervisors, adequate and effective communication should be developed and maintained. In developing or implementing a regulatory framework, consideration should be given to whether the insurance supervisor: Is able to enter into an agreement or understanding with any other supervisor both in other jurisdictions and in other sectors of the industry (i.e., insurance, banking, or securities) to share information or otherwise work together; Is permitted to share information, or otherwise work together, with an insurance supervisor in another jurisdiction. This may be limited to insurance supervisors who have agreed, and are legally able, to treat the information as confidential; Should be informed of findings of investigations where power to investigate fraud, ML, and other such activities rests with a body other than the insurance supervisor; and Is permitted to set out the types of information and the basis on which information obtained by the insurance supervisor may be shared.
Description	MoU’s have been concluded with Aruba, the Netherlands, and Venezuela. Rules on exchange of information on captives and reinsurers with any relevant supervisory or enforcement authority will be taken into consideration when revising the insurance laws. These laws are scheduled for revision by December 2004. Insurance companies are currently covered by the new AML/CFT guidelines issued by the BNA in June 2003. These are applicable to all categories of insurance companies with the exception of nonlife insurers for which the guidelines will become operational at a later date. Captives and professional reinsurers are also covered.
Assessment	Broadly observant
Comments
Principle 17	Confidentiality All insurance supervisors should be subject to professional secrecy constraints in respect of information obtained in the course of their activities, including during the conduct of on-site inspections. The insurance supervisor is required to hold confidential any information received from other insurance supervisors, except where constrained by law or in situations where the insurance supervisor who provided the information provides authorization for its release. Jurisdictions whose confidentiality requirements continue to constrain or prevent the sharing of information for supervisory purposes with insurance supervisors in other jurisdictions, and jurisdictions where information received from another insurance supervisor cannot be kept confidential, are urged to review their requirements.
Description	Article 78 of the Insurance Ordinance provides for confidentiality of supervisory information, but allows exchange of information on a reciprocal basis with insurance supervisors in other jurisdictions, under condition that the other jurisdictions maintains the confidentiality of the information.
Assessment	Observant
Comments

View Table

Table 5.

Detailed Assessment of Observance of the IAIS Insurance Core Principles

Principle 1	Organization of an Insurance Supervisor The insurance supervisor of a jurisdiction must be organized so that it is able to accomplish its primary task, i.e., to maintain efficient, fair, safe, and stable insurance markets for the benefit and protection of policyholders. It should, at any time, be able to carry out this task efficiently in accordance with the Insurance Core Principles. In particular, the insurance supervisor should: Be operationally independent and accountable in the exercise of its functions and powers; Have adequate powers, legal protection, and financial resources to perform its functions and exercise its powers; Adopt a clear, transparent, and consistent regulatory and supervisory process; Clearly define the responsibility for decision-making; and Hire, train, and maintain sufficient staff with high professional standards who follow the appropriate standards of confidentiality
Description	The responsibilities of the insurance supervisor (the BNA) are clear and are objectively stated and the BNA is operationally independent from the government, to which it reports, although it is capitalized by the government and transmits surplus funds to the Government as dividend. The BNA is also independent from the insurance industry, as all directors and staff are not, by law, allowed to have any associations with any insurer, except to take out insurance contracts. The BNA charges insurers annual supervisory fees to defray the costs of regulation. The income of the BNA is sufficient to finance high priority supervisory activities, such as those involving international cooperation and on-site visits. Both of these types of actions were demonstrated to the mission. The bank is able to outsource to third parties supervisory functions. Those third parties are subject to confidentiality provisions and can be held responsible for the way they have exercised their duties. Insurance legislation ensures appropriate standards of confidentiality and staff must obey high professional standards as outlined in the “Professional Guidelines for Supervisors of the Bank,” issued by the bank in 1996. Staff are subject by law to conflict of interest provisions and by integrity codes and guidelines when dealing with licensees. The BNA has well documented, and updated, desk and field supervision procedures. Some of the updates are very new and will take some time to fully implement. There is no one definitive document that summarizes, for the benefit of the insurance sector, the methods and procedures of supervision. Most of these are outlined in the various pieces of legislation and guidance notes and it is recommended that an all-encompassing “Guide to Insurance Supervision” is prepared and published, including on the BNA website. The decision-making lines of the BNA and Article 31 of the insurance legislation, allow action to be taken immediately in cases of emergencies. In January 2003, the BNA prepared a tight schedule on on-site inspections including AML inspections. Per end June 2003, the BNA has conducted 18 inspections of which 4 were general scope inspections. The remainder were targeted inspections, including AML and investment portfolio inspections. The BNA is conducting interviews with candidates for new staff positions and offers were made to an actuary and an auditor. One new staff has already taken up his duties. The staff of the department consists of two actuaries, and other staff members have at least bachelor’s degrees in business administration or accounting. In addition, staff members follow national and international specialized insurance courses. Most staff members have between 10–15 years’ insurance supervision experience. The bank will, where applicable, implement the appropriate changes in its field examination process. In addition, the necessary funding will be made available for a proper and continuous training of the staff members.
Assessment	Observant
Comments	The powers of the BNA should be more comprehensively prescribed, as explained under Principle 14 (Sanctions), but in the meantime existing powers and legal protection should enable it to properly perform its functions. The mission had high regard for the aptitude and attitude of the coordinator, the experience of, and the qualifications achieved by, the insurance supervisory staff, and the implemented policy of mandatory training programs for all.
Principle 2	Licensing Companies wishing to underwrite insurance in the domestic insurance market should be licensed. Where the insurance supervisor has authority to grant a license, the insurance supervisor: In granting a license, should assess the suitability of owners, directors, and/or senior management, and the soundness of the business plan, which could include proforma financial statements, a capital plan, and projected solvency margins; and In permitting access to the domestic market, may choose to rely on the work carried out by an insurance supervisor in another jurisdiction if the prudential rules of the two jurisdictions are broadly equivalent.
Description	Legal provisions are in place entrusting the BNA to regulate the insurance sector. These provisions, and the “Licensing and Registration Procedures Manual” define what is considered insurance business, and the types of company that are insurers, and also stipulate the BNA’s tasks and licensing requirements. Part 2: Assessment of the suitability of key functionaries, and of the business plan. Legal provisions, supported by guidelines on fit and proper and corporate governance aspects, and the prescribed application forms (including comprehensive personal questionnaires) are in place to ensure that the BNA can assess the suitability of the business plan and the key functionaries, which include shareholders, directors, and senior management. The BNA may refuse to issue the license if the interests of future policyholders or beneficiaries are likely to be jeopardized. The BNA, under the National Ordinance, may only, on the basis of general reciprocity and, upon request, provide another insurance supervisor with relevant information. To assist investigations into compliance with fit and proper criteria, the BNA has developed a new Integrity Unit, which is able to exchange information with the Public Prosecutor and the Unusual Transactions Reporting Unit. The applicant is required to submit a comprehensive business plan for assessment by the BNA, but there are no minimum share capital requirements laid down in the insurance legislation, as the BNA considers the requirement for a minimum margin of solvency is sufficient. There is an old requirement of the Central Bureau of Juridical Affairs that stipulates an issued share capital of NA f. 200,000. The applicant is also required to submit product details, documents of incorporation, actuary, and auditor details. Decisions of the BNA are open to appeal before the administrative and judicial bodies. Part 3: Reliance on insurance supervisor in another jurisdiction. The reliance on insurance supervisors in other jurisdictions, by asking for certificates of good standing, is an integral part of the application process and will be strengthened when the bank completes its MoU’s with other jurisdictions (there are MoU’s with the Netherlands and Aruba) and the BNA is becoming more proactive in seeking information from overseas authorities (see recommendation above and in CP 15, CP 16, and CP 17).
Assessment	Broadly observant
Comments	To be assessed “observant,” the BNA would need to strengthen its licensing process as described in the recommendations mentioned in the action plan below.
Principle 3	Changes in Control The insurance supervisor should review changes in the control of companies that are licensed in the jurisdiction. The insurance supervisor should establish clear requirements to be met when a change in control occurs. These may be the same as, or similar to, the requirements which apply in granting a license. In particular, the insurance supervisor should: Require the purchaser or the licensed insurance company to provide notification of the change in control and/or seek approval of the proposed change; and Establish criteria to assess the appropriateness of the change, which could include the assessment of the suitability of the new owners as well as any new directors and senior managers, and the soundness of any new business plan.
Description	The BNA already monitors changes in control. Although a manual prescribes what policies to follow in these areas, the Law itself does not specifically require changes in control to be notified to the BNA, does not define such changes (including the ability to take account of substance over form), nor are there precise powers to reject the proposed changes in control. Most of these aspects are contained in a management requirements and change in control section of the Licensing Procedures Manual. The BNA has indirect powers, however, as Article 17 of the Ordinance states that identity of the policymakers of insurance companies, including shareholders should not give the BNA reason to believe that the interests of policyholders will be jeopardized. Shareholders are considered policymakers of insurance companies. As a result, if there are grounds for the bank to believe that the proposed change will not be in the interest of the policyholders the change will not be accepted, or ultimately, the license withdrawn, on grounds that the institution no longer meets the licensing requirements. The BNA has in fact used its powers in this area. One recent example is the change in control that occurred at one of the largest insurance companies on the island. After a lengthy process of negotiations (six months) about the group and organizational structure and the conditions for the takeover, in April of this year the bank approved the change in control. Another recent example is the case of a nonlife insurance company that wanted to become the shareholders of a newly incorporated life insurance company. The bank disapproved this. Special comments relating to captives and professional reinsurers: Similarly, there are no specific references to changes in control.
Assessment	Broadly observant
Comments
Principle 4	Corporate Governance It is desirable that standards be established in the jurisdictions, which deal with corporate governance. Where the insurance supervisor has responsibility for setting requirements for corporate governance, the insurance supervisor should set requirements with respect to: The roles and responsibilities of the Board of directors; Reliance on other supervisors for companies licensed in another jurisdiction; and The distinction between the standards to be met by companies incorporated in his jurisdiction and branch operations of companies incorporated in another jurisdiction.
Description	While various aspects of corporate governance are covered in the October 2001 “Guidance Notes for the Supervisory Board of Supervised Financial Institutions,” there is no specific legal backing for this document. However, in the event a company does not comply with the guidelines, the BNA can, based on Article 31 of the Ordinance, give the company a motivated instruction. In the event of noncompliance by the company the instruction can be published. These sanctions on compliance with these guidance notes have not been tested in the courts, however. So far, all institutions have complied with the different guidance notes issued by the BNA. In practice, the majority of the captives have a Supervisory Board. Consequently they have to adhere to the Corporate Guidelines issued by the BNA.
Assessment	Broadly observant
Comments	Relating to captives and professional reinsurers: There are dangers in allowing captives and professional reinsurers to be managed in the Netherlands Antilles by only one natural person.
Principle 5	Internal Controls The insurance supervisor should be able to: Review the internal controls that the Board of directors and management approve and apply, and request strengthening of the controls where necessary; and Require the Board of directors to provide suitable prudential oversight, such as setting standards for underwriting risks and setting qualitative and quantitative standards for investment and liquidity management.
Description	The BNA has a well-established and comprehensive program of field supervisory examinations (on-site visits) and a separate on-site team of staff, which specialize in this work. An integral part of the visits relate to internal control matters, and deficient matters are followed up by issuance of motivated instructions. Our recommendations mirror those in the previous Core Principle, and are that the opportunity should be taken to associate guidance notes on internal control matters with the legislation and include sanctions in cases of noncompliance.
Assessment	Broadly observant
Comments
Principle 6	Assets Standards should be established with respect to the assets of companies licensed to operate in the jurisdiction. Where insurance supervisors have the authority to establish the standards, these should apply at least to an amount of assets equal to the total of the technical provisions, and should address: Diversification by type; Any limits or restrictions on the amount that may be held in financial instruments, property, and receivables; The basis for valuing assets which are included in the financial reports; The safekeeping of assets; Appropriate matching of assets and liabilities; and Liquidity.
Description	Supervision over asset quality is outlined in the supervisory procedures manuals, and the excellent new (2000) ARAS system, but not in legislation. Also, asset valuation guidelines are being prepared. The existing legislation merely states that adequate technical provisions should be maintained and covered by assets, which currency-match the liabilities (there is the possibility of an exemption to the matching requirement if it is in the interests of policyholders). The BNA has the power to direct the insurer to change the nature and valuation of the assets. There are no legal provisions covering the mixture and diversification by type of asset, or restrictions on the amount that may be held in financial instruments, property, and receivables; the basis for valuing assets; the safekeeping of assets; appropriate matching of assets; and liquidity. Some of the above aspects are covered by guidelines; the field examination manual; supervisory procedures manual; ARAS; and other documents, and some are not.
Assessment	Broadly observant
Comments
Principle 7	Liabilities Insurance supervisors should establish standards with respect to the liabilities of companies licensed to operate in their jurisdiction. In developing the standards, the insurance supervisor should consider: What is to be included as a liability of the company; for example, claims incurred, but not paid, claims incurred, but not reported, amounts owed to others, amounts owed that are in dispute, premiums received in advance, as well as the provision for policy liabilities or technical provisions that may be set by an actuary; The standards for establishing policy liabilities or technical provisions; and The amount of credit allowed to reduce liabilities for amounts recoverable under reinsurance arrangements with a given reinsurer, making provision for the ultimate collectability.
Description	As in many other jurisdictions, financial statements for insurance companies in the Netherlands Antilles are prepared under acceptable GAAP, which lay down the relevant standards for establishing technical provisions. The technical provisions are described in detail in ARAS and are examined annually during desk and field examinations by the banks’ actuaries and examiners. The BNA have commenced to look at the valuation of liabilities. With respect to the issue of timely reporting it can be said that the effort to implement the new automated reporting system of the BNA, ARAS, impeded a timely reporting by a large number of companies in the past. Starting this year the bank initiated a program of visiting all institutions, which indicated that they had problems with ARAS; this was done in addition to workshops organized by the bank. The result is that our companies, contrary to previous years have started submitting their annual statements on time.
Assessment	Broadly observant
Comments
Principle 8	Capital Adequacy and Solvency The requirements regarding the capital to be maintained by companies, which are licensed or seeking a license, in the jurisdiction should be clearly defined and should address the minimum levels of capital or the levels of deposits that should be maintained. Capital adequacy requirements should reflect the size, complexity, and business risks of the company in the jurisdiction.
Description	Capital adequacy requirements differ for life insurance and property/casualty insurance. Decree 52/1992, based on Article 22 and Article 36 of the Ordinance requires a minimum capital margin of NA f. 400,000 (US$220,000) for life insurance companies, unless the technical reserves, actuarially calculated and augmented by 4 percent of the technical reserves as required by Article 36 of the Ordinance, should be the higher amount. In that case, the company is obliged to maintain a solvency reserve of the higher amount. The capital adequacy requirements therefore are related to the business of the individual company and its risk profile, with an absolute floor of NA f. 400,000. For property and casualty (P&C) companies the floor is NA f. 300.000 (US$165,000) unless the reserves for unearned premiums, pending claims and expected claims augmented with a 15 percent additional reserve as required by Article 36 of the Ordinance is the higher amount. In that case the higher of the two amounts should be retained for capital adequacy purposes. The BNA inspections assess the adequacy of the reserves held by P&C companies against good international practice, and impose higher reserves as needed, based on the authority provided in Article 31 of the Ordinance. Decree 52 of 1992 specifies the permissible assets that count towards the technical reserves. The IAIS has not developed standard methods or percentages for minimum solvency, so in this area the Netherlands Antilles should draw on their past experiences and also the experiences of other jurisdictions. The IAIS has an insurance laws database, the use of which would assist any research. There are currently no statutory minimum capital requirements in the Insurance Ordinance, and the BNA relies on the requirements described above. However, the solvency requirements are under review to assess whether they need to be adjusted to reflect more closely the risks, size, and complexity of the different types of insurers. The Central Legal Bureau of the Netherlands Antilles has in the meantime issued statutory minimum capital requirements for insurance companies of NA f. 200,000 (US$110,000), pending revision of the Ordinance. A higher level of observance could be achieved once revised solvency requirements are introduced.
Assessment	Broadly observant
Comments
Principle 9	Derivatives and ‘Off-Balance Sheet’ Items The insurance supervisor should be able to set requirements with respect to the use of financial instruments that may not form a part of the financial report of a company licensed in the jurisdiction. In setting these requirements, the insurance supervisor should address: Restrictions in the use of derivatives and other off-balance sheet items; Disclosure requirements for derivatives and other off-balance sheet items; and The establishment of adequate internal controls and monitoring of derivative positions.
Description	The BNA surveyed the insurers and, based on the responses received, it believes that none of the licensed insurers use these instruments. There is currently no legislation on derivatives, although one is in the course of preparation based upon the IAIS guidance paper. Anticipating the possible use of derivatives by the licensed insurers, the asset valuation guide developed by the BNA includes the valuation of these instruments.
Assessment	Broadly observant
Comments
Principle 10	Reinsurance Insurance companies use reinsurance as a means of risk containment. The insurance supervisor must be able to review reinsurance arrangements, to assess the degree of reliance placed on these arrangements and to determine the appropriateness of such reliance. Insurance companies would be expected to assess the financial positions of their reinsurers in determining an appropriate level of exposure to them. The insurance supervisor should set requirements with respect to reinsurance contracts or reinsurance companies addressing: The amount of the credit taken for reinsurance ceded. The amount of credit taken should reflect an assessment of the ultimate collectability of the reinsurance recoverable and may take into account the supervisory control over the reinsurer; and The amount of reliance placed on the insurance supervisor of the reinsurance business of a company, which is incorporated in another jurisdiction.
Description	In June, prior to the hurricane season, the bank request copies of all reinsurance agreements, from which the exposures are calculated, and related back to the financial position of each insurer. These checks are also performed during desk and field examinations. Also the ARAS and the asset valuation guide deal with reinsurance cover and the valuation thereof. There is one reinsurance specialist in the bank, and this is an area where more training is being sought for all other staff members of the department.
Assessment	Observant
Comments
Principle 11	Market Conduct Insurance supervisors should ensure that insurers and intermediaries exercise the necessary knowledge, skills, and integrity in dealing with their customers. Insurers and intermediaries should: At all times act honestly and in a straightforward manner; Act with due skill, care, and diligence in conducting their business activities; Conduct their business and organize their affairs with prudence; Pay due regard to the information needs of their customers and treat them fairly; Seek from their customers information, which might reasonably be expected before giving advice or concluding a contract; Avoid conflicts of interest; Deal with their regulators in an open and cooperative way; Support a system of complaints handling, where applicable; and Organize and control their affairs effectively.
Description	The proposed National Ordinance on the Insurance Brokerage Business has been drafted, and is in an advanced state, but has not yet been enacted, nor have the market conduct guidelines been published. The proposed Ordinance only deals with insurance brokers, and it could be considered to expand the scope to cover all persons providing insurance advice from within the Netherlands Antilles. This would level the playing field, e.g., in the qualifications required of agents, subagents, brokers, and insurance company employees that give insurance advice or in the measures against unfair practices by one or more of the above groups of advisors. This could be dealt with within the proposed Ordinance. The government is in the process of setting up an independent alternative dispute resolution body, which will enable complaints to be dealt with in an effective and affordable manner. Currently, when a policyholder or other party files a complaint with the BNA, this is entered in a complaints file. The responsible desk worker will analyze the complaint and request additional information from the parties involved if necessary. If the complaint warrants further action by the BNA toward the insurance company, this will be done by a letter. Failure of the company to comply with this may lead to the issuance of a motivated instruction by the BNA and more serious measures, ultimately including withdrawal of the license. There is no consumer compensation scheme.
Assessment	Materially nonobservant
Comments
Principle 12	Financial Reporting It is important that insurance supervisors get the information they need to properly form an opinion on the financial strength of the operations of each insurance company in their jurisdiction. The information needed to carry out this review and analysis is obtained from the financial and statistical reports that are filed on a regular basis, supported by information obtained through special information requests, on-site inspections, and communication with actuaries and external auditors. A process should be established for: Setting the scope and frequency of reports requested and received from all companies licensed in the jurisdiction, including financial reports, statistical reports, actuarial reports, and other information; Setting the accounting requirements for the preparation of financial reports in the jurisdiction; Ensuring that external audits of insurance companies operating in the jurisdiction are acceptable; and Setting the standards for the establishment of technical provisions or policy and other liabilities to be included in the financial reports in the jurisdiction. In so doing, a distinction may be made: Between the standards that apply to reports and calculations prepared for disclosure to policyholders and investors, and those prepared for the insurance supervisor; and Between the financial reports and calculations prepared for companies incorporated in the jurisdiction, and branch operations of companies incorporated in another jurisdiction.
Description	Introduction of the automated reporting system ARAS, combined with more aggressive monitoring has greatly improved reporting. Similar comments apply to this section as contained within Principle 7—liabilities regarding developments in insurance accounting being promulgated by IASB. In addition, the BNA will be amending the current legislation to include fines for late reporting. In the past, some audited financial statements were submitted over 18 months after the due date.
Assessment	Broadly observant
Comments
Principle 13	On-Site Inspection The insurance supervisor should be able to: Carry out on-site inspections to review the business and affairs of the company, including the inspection of books, records, accounts, and other documents. This may be limited to the operation of the company in the jurisdiction or, subject to the agreement of the respective supervisors, include other jurisdictions in which the company operates; and Request and receive any information from companies licensed in its jurisdiction, whether this information be specific to a company or be requested of all companies.
Description	The bank has been executing field examinations (on-site inspections) for over eight years and has developed a comprehensive procedures manual, much of which has been amended and added to since the last self-assessment report involving the Fund which was completed in 2001. The manual is finalized and will be reviewed periodically. As mentioned above there are no market conduct rules and this aspect is not included in the on-site procedures manual. In the meantime, market conduct examination procedures have been drafted, but are yet to be introduced. The bank keeps to the standards of the U.S. based Society of Financial Examiners and several of the staff of the Bank are Certified Financial Examiners.
Assessment	Observant
Comments
Principle 14	Sanctions Insurance supervisors must have the power to take remedial action where problems involving licensed companies are identified. The insurance supervisor must have a range of actions available in order to apply appropriate sanctions to problems encountered. The legislation should set out the powers available to the insurance supervisor and may include: The power to restrict the business activities of a company, for example, by withholding approval for new activities or acquisitions; The power to direct a company to stop practices that are unsafe or unsound, or to take action to remedy an unsafe or unsound business practice; and The option to invoke other sanctions on a company or its business operation in the jurisdiction, for example, by revoking the license of a company or imposing remedial measures where a company violates the insurance laws of the jurisdiction.
Description	Article 31 of the legislation, as well as permitting refusals, revocations, and penalties, contains a menu of remedial actions, including legally binding instructions and the withdrawal of the license, in case of serious noncompliance with regulatory provisions. The insurer is obliged to follow the instruction within the period stipulated by the BNA. For example, an insurance company that was conducting life and nonlife business in one and the same legal entity was instructed to transfer the life business to another legal entity. In response to a case in which an insurance intermediary falsely claimed to represent certain insurance companies and collected premiums without passing these on, the BNA instructed all insurance companies to periodically publish the names of their intermediaries in the newspapers. The intermediary in question was considered to conduct insurance business without a license. The BNA turned the case over to the Public Prosecutor, as required in Article 122 of the Ordinance. In addition, in the past years, the BNA has issued several instructions to insurance companies, and silent trustees have been appointed on different occasions (currently there is one company under silent trusteeship), licenses of companies that no longer comply with the licensing conditions have been revoked.
Assessment	Observant
Comments
Principle 15	Cross-Border Business Operations Insurance companies are becoming increasingly international in scope, establishing branches and subsidiaries outside their home jurisdiction, and sometimes conducting cross-border business on a services basis only. The insurance supervisor should ensure that: No foreign insurance establishment escapes supervision; All insurance establishments of international insurance groups and international insurers are subject to effective supervision; The creation of a cross-border insurance establishment is subject to consultation between host and home supervisors; and Foreign insurers providing insurance cover on a cross-border services basis are subject to effective supervision.
Description	All insurers operating in the Netherlands Antilles, including subsidiaries and branches of overseas insurers, need to be licensed although incidental cross-border business is permitted on a services basis. Allowing cross-border business is a balancing act. On the one hand, the bank needs to ensure the local population has the availability of cover (especially important with catastrophe insurance and hard-to-place or price sensitive risks, such as professional indemnity insurance), but on the other hand, there needs to be a level playing field with local providers, and an elimination of any areas, which may be open to abuse. The legislation addresses this by enabling the minister of finance to prohibit or impose rules, on specific inwards cross-border business, if the actions of the insurer are not thought to be in the interests of local policyholders. In addition, the bank uses a provision in the law to require brokers to submit annual details of all insurers with whom business has been placed. An alternative way of addressing this problem would be to have a register of overseas insurers who are permitted to cover local risks on a cross-border basis, specifying which classes of business they are allowed to underwrite. It would then be necessary to amend the legislation (both insurer and the proposed broker) in order to mandate that only licensed or registered insurers could underwrite local risks and brokers, who would be licensed, could only place business with those insurers. If overseas insurers have resident non broker agents in the Netherlands Antilles, it should be made clear that the insurer would need a license. Temporary licenses could be issued in certain cases. In this way, the bank should be aware of the insurers covering local risks, except for those that are contacted by the client directly. This may help negate the problems of the past, where catastrophe cover was found to be with insurers of no substance.
Assessment	Broadly observant
Comments
Principle 16	Coordination and Cooperation Increasingly, insurance supervisors liaise with each other to ensure that each is aware of the other’s concerns with respect to an insurance company that operates in more than one jurisdiction, either directly or through a separate corporate entity. In order to share relevant information with other insurance supervisors, adequate and effective communication should be developed and maintained. In developing or implementing a regulatory framework, consideration should be given to whether the insurance supervisor: Is able to enter into an agreement or understanding with any other supervisor both in other jurisdictions and in other sectors of the industry (i.e., insurance, banking, or securities) to share information or otherwise work together; Is permitted to share information, or otherwise work together, with an insurance supervisor in another jurisdiction. This may be limited to insurance supervisors who have agreed, and are legally able, to treat the information as confidential; Should be informed of findings of investigations where power to investigate fraud, ML, and other such activities rests with a body other than the insurance supervisor; and Is permitted to set out the types of information and the basis on which information obtained by the insurance supervisor may be shared.
Description	MoU’s have been concluded with Aruba, the Netherlands, and Venezuela. Rules on exchange of information on captives and reinsurers with any relevant supervisory or enforcement authority will be taken into consideration when revising the insurance laws. These laws are scheduled for revision by December 2004. Insurance companies are currently covered by the new AML/CFT guidelines issued by the BNA in June 2003. These are applicable to all categories of insurance companies with the exception of nonlife insurers for which the guidelines will become operational at a later date. Captives and professional reinsurers are also covered.
Assessment	Broadly observant
Comments
Principle 17	Confidentiality All insurance supervisors should be subject to professional secrecy constraints in respect of information obtained in the course of their activities, including during the conduct of on-site inspections. The insurance supervisor is required to hold confidential any information received from other insurance supervisors, except where constrained by law or in situations where the insurance supervisor who provided the information provides authorization for its release. Jurisdictions whose confidentiality requirements continue to constrain or prevent the sharing of information for supervisory purposes with insurance supervisors in other jurisdictions, and jurisdictions where information received from another insurance supervisor cannot be kept confidential, are urged to review their requirements.
Description	Article 78 of the Insurance Ordinance provides for confidentiality of supervisory information, but allows exchange of information on a reciprocal basis with insurance supervisors in other jurisdictions, under condition that the other jurisdictions maintains the confidentiality of the information.
Assessment	Observant
Comments

Table 6.

Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles

Table 6.

Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles

Core Principle	Recommended Action	Implementation and Authorities’ Comments
Organization of an Insurance Supervisor (CP 1)	It is recommended that the bank reevaluates the resources required for achieving the planned field examination program, and for implementing the changes required in order to keep up to date with international regulatory developments.	Compliance: In January 2003 the BNA prepared a tight schedule for on- site inspections, including AML inspections. Per end June 2003, the BNA has conducted 18 inspections of which 4 general scope inspections, and the remainder targeted inspections, including AML and investment portfolio inspections. The BNA is conducting interviews with candidates for new staff positions and offers were made to an actuary and an auditor. One new staff has already taken up his duties. The staff of the department includes two actuaries; other staff members have at least bachelor’s degrees in business administration or accounting. In addition, staff members follow national and international specialized insurance courses. Most staff members have between 10–15 years’ insurance supervision experience.
	It is also recommended that the bank, in a thoughtful and structured way, complete their excellent desk and field examinations manuals and ensure that all examiners are fully understanding, and in agreement of the provisions.	Compliance: The bank will, where applicable, implement the appropriate changes in its field examination process. In addition, the necessary funding will be made available for a proper and continuous training of the staff members. The manuals have been completed and were distributed to the staff members; staff members are being provided with the appropriate training. Date set for completion: This is a continuous process.
Licensing (CP 2)	It is recommended that prior to licensing any such overseas incorporated captive or reinsurer, the BNA has procedures in place, and follows those procedures, which include a specific MoU with the jurisdiction of incorporation to assist in case of problems occurring. Segregation of life and nonlife business is recommended. If a captive or a professional reinsurer underwrites composite (both life and nonlife) insurance business in one entity the poor results from the nonlife insurance business can impair the ability of the insurer to meet its life insurance obligations. This is especially the case in an insolvency situation. It is in particular recommended that in future, composites are prohibited, unless the life insurance fund is statutorily protected, especially in the case of insolvency. This is important in the captives, but is even more so with professional reinsurers, where the solvency is based on premiums booked, rather than, for life reassurance, the amount of the life fund.	Compliance: Regulation requires that the business should be conducted exclusively from the Netherlands Antilles. Legislation makes it clear that the bank is the leading supervisor. Compliance: Article 9 of the Ordinance makes it clear that the exercise of life and nonlife insurance business within one and the same licensed entity is in principle prohibited. Licensing of composites is an exception. Companies need to motivate their request carefully in order to be considered for an exception. The bank has designed a new reporting system, which segregates both life and nonlife business. In addition, subsequent to the amendment of the legislation, it will be the bank’s policy not to license composite reinsurance companies. The BNA will issue a regulation to prohibit composites pending the change of the law. Date set for completion: December 2004.
	It is strongly recommended that the bank has the power to issue conditions, on licensing, or at any time thereafter, and to penalize (fines or imprisonment) breaches of the law relating to captives and professional reinsurers.	Compliance:_During the process of updating the captive decree, this recommendation will be taken into consideration. The bank will pursue a range of money penalties (fines) and will also include criminal penalties as included in the Insurance Supervision Ordinance. All licensed entities are subject to the Ordinance that provides for additional conditions, which can be imposed and that provides for a broad range of corrective action (see in particular Article 31, Article 51, Article 55, and Article 59). The Bank will pursue a range of money penalties (fines) and will also include criminal penalties. It is noted though that the bank has not decided yet whether it will eliminate the Special Insurance License Decree and make both captives and reinsurers subject to the provisions of the Insurance Ordinance. Date set for completion: December 2004.
	It is recommended that the bank extend the grounds for refusal or revocation of a license to include comprehensive fit and proper aspects (including if connected persons have been involved in unsound transactions etc.), and also to protect the reputation of the Netherlands Antilles. It is recommended that details of revocation of a license be published	Compliance: No license will be issued to an institution of which a policymaker does not comply with the fit and proper requirements of the BNA. Compliance: Currently the bank is by law required to publish revocations of licenses issued by virtue of the Insurance Supervision Ordinance. The reason for the revocation is not made public. With regard to captives and reinsurers there is no publication duty. This will be considered during the process of updating this decree. Date set for completion: December 2004
Changes in Control (CP 3)	It is recommended that the above requirements are brought into the legislation and that there should be a prior approval process. There should be appropriate sanctions in cases of noncompliance.	Compliance: A prior approval process is included in the procedures manual, which is based on Article 17 of the Insurance Ordinance. During the process of updating the Insurance Ordinance, the recommendation to create a statutory base for this rule will also be taken into consideration. Date set for completion: December 2004.
	It is recommended, to avoid doubt, that the prescribed application form/legislation are amended so that the applicant has to supply details of beneficial and ultimate beneficial ownership. The legislation should be amended, so that any changes in control (including those of substance over form), should require notification to, and prior approval by, the Bank. Failing to do so or supplying misleading or false information should be an offense.	Compliance: The bank has issued a Policy Rule on Integrity Testing (based on Article 17 of the Insurance Ordinance and 4 of the Special License Decree) which addresses the issue of supplying misleading and false information. This policy paper was sent to all institutions. In addition the bank has instituted an “Actualization and Harmonization all Bank Legislation Committee” that has the objective to come up with umbrella legislation. This legislation will address issues such as administrative fines, supervision costs, MoU’s, exchange of information and integrity tests. Date set for completion: December 2004.
Corporate Governance (CP 4)	It is recommended that this and other guidance notes are referred to in the legislation or, if legally possible, are issued to all financial institutions under the motivated instructions article of the National Ordinance. The opportunity should be taken to include within the guidelines certain aspects of the Core Principles that are not yet covered, e.g., complaints procedures, improving customer awareness. It is recommended that there are at least two locally resident senior managers who are fit and proper (honest, competent, and solvent) and there is also a supervisory Board with the necessary local control, including locally resident, fit and proper, nonexecutive directors. The bank has issued a policy memorandum on the implementation of the fit and proper tests and corporate governance requirements. This was recently replaced by the Policy Rule on Integrity Testing, which was sent to all supervised institutions. The opportunity should be taken to give these (and other relevant guidelines) the basis of law, including any necessary sanctions in cases of noncompliance.	Compliance: In the revised guidelines reference will be made to Article 31 of the Ordinance. With respect to the complaints procedures, etc., these are considered part of market conduct supervision and will be included in the Market Conduct Examination Procedures Manual. Date set for completion: December 2003. Compliance: The first part of this recommendation is partially addressed in the Insurance Supervision Ordinance (Article16(2)), although this does not require residency. As concerns the special licensees (captives and reinsurers), mandatory four-eyes management and a requirement to have a Supervisory Board will be discussed during the pending review of the Special Insurance License Decree. With respect to the second part of this recommendation, the new Policy Rule on Integrity Testing issued by the bank is based on Article 17 of the Insurance Supervision Ordinance respectively Article 4 of the Special Insurance License Decree. Finally, the “Actualization and Harmonization of Bank Legislation Committee” has been created with the objective to come up with an umbrella legislation to address issues such as administrative fines, supervision costs, MoU’s, exchange of information and integrity tests. Date set for completion: December 2004
Assets (CP 6)	It is recommended that one single set of regulations is produced covering all relevant aspects, together with rules on loans and pledges, financial derivatives, risk management of assets, and resilience testing. These regulations should have the force of law (including sanctions) and be reflected in the procedures manuals, guidelines, and ARAS. It is recommended that prior to licensing, the bank ensure (by legislation), that assets are under the control of the directors or managers resident in the Netherlands Antilles unless, due to the nature of the operation, it is felt that this requirement can, exceptionally, be waived.	Compliance: These items are being included in the “New Valuation Guide” and should be completed on or about the time of the introduction of the ARAS 2.8 systems. Date set for completion: December 2003. Compliance: This recommendation will be considered in the pending revision of the legislation. One possibility would be to request an agreement between the owners and management of the company, which delineates the responsibilities and authorities of management. Date set for completion: December 2004.
Liabilities (CP 7)	It is recommended that the BNA issue their own standards for the valuation of liabilities.	Compliance: These standards will be included in the “New Valuation Guide.” Date set for completion: December 2003.
	It is recommended that BNA improves its control over the technical provisions further by assessing long-tail casualty insurance business using triangulation techniques and by bringing out a policy on discounting of loss reserves.	Compliance: The comprehensive filings (version 2.8) that will be introduced to the industry in the latter part of 2003 will include filings to follow the loss development of nonlife insurers. These are included in the 228 series of filings and consist of triangular developments on all indemnity groups. The policy for the discounting of loss reserves will be stipulated in the New Valuation Guide. Date set for completion: December 2003.
	It is recommended that the bank consider requiring policyholders’ approval, as well as that of the bank, for transfers of rights of certain types of long-tail insurance business.	Compliance: During the process of updating the Insurance Laws this recommendation will be taken into consideration. Date set for completion: December 2004
Capital Adequacy and Solvency (CP 8)	It is recommended that the bank consider reviewing the existing minimum solvency requirements and bringing in an additional (so that there is a combination of two methods, e.g., using the greater of a premium and a claims based methods) or replacement test that deals with the Those types that could be considered include claims based methods, exposure based methods, and asset and liability risk based capital methods. The bank should also document and publish its policy regarding multiple gearing of capital within a group of companies. Special comments relating to captives and professional reinsurers. It is recommended that the bank review the appropriateness of the margins of solvency. Capital adequacy requirements should reflect the size, complexity, and business risks of the insurer or the professional reinsurer. An exclusively premium based system falls short of this requirement. It is recognized that internationally there is no ideal regulatory recommended system of addressing capital adequacy. Because of the relatively small size of many offshore insurers it is usually possible to individually assess each company from a risk aspect (technical exposures, investment risk, and credit risk-especially of the reinsurers) and use this method for the primary control whilst at the same time using the premium and claims based methods as the secondary or back-up controls. Where there is a secondary method based on net premium income rather than gross premium income it is essential that account be taken of the effectiveness of the reinsurance program and, especially, the ability of the reinsurers to meet their obligations when there are claims. As already stated, the solvency requirement for professional reinsurers would appear to be low and the bank should review this aspect. The supervision of assets is an important feature of solvency assessment and, in the past, this area has been found one of the most vulnerable for offshore insurance supervisors.	Compliance: The bank will research solvency requirements of different jurisdictions and compare these with our solvency requirements. Where necessary our requirements will be changed and taken into consideration during the revision of the Insurance Ordinance. Date set for completion: Tentative date to finalize the revision of the Insurance Ordinance is December 2004. Compliance: Will be done during revision of Insurance Law. A decision is yet to be taken relative to the captive legislation. Decree or eliminate this and make captives and reinsurers subject to the provisions of Insurance Ordinance (by explicitly excluding a few provisions). Date set for completion: December 2004.
	It is recommended that captives and, if found practical, professional reinsurers, report to the bank annually on a prescribed exposure spread sheet outlining, each and every loss and aggregate exposures, expected losses, and probable maximum losses, per line of business, reduced by reinsurance per class and aggregate (if placed). In order to assess the capital adequacy, it is recommended that the legislation is amended, so that the insurer has to report to the bank whenever there are material changes to the plan of operations (which should include the insurance and reinsurance program).	Compliance: The Captive and professional reinsurers ARAS systems provide this information in aggregate through their annual reporting to the bank. Individual losses and exposure are reviewed during the course of an on-site examination. Compliance: The bank is considering introducing quarterly reports for insurance companies. This issue will then be resolved by the frequent reportings. In the meantime this recommendation will be discussed with the Policy Making Department with the aim to issue a regulation to the industry. Furthermore, the legislation need not be changed for this purpose. The bank can by virtue of Article 31 of the Insurance Ordinance issue directives to insurance companies. In addition, once a company is licensed it must submit annual statements to the bank. These actual figures are compared with the figures in the business plan and the company is required to explain material changes and differences. Date set for completion: July 2004
Derivatives, Off- Balance Sheet Items (CP 9)	It is recommended that when the guidance paper has been prepared it should be linked into the legislation and that there are appropriate sanctions for noncompliance. As there is believed to be little or no use of derivatives an alternative treatment would be to not allow insurers to invest in such instruments without the specific permission of the bank. This permission could be reserved for legitimate uses of derivatives, such as hedge funds, for which guidance should be issued.	Compliance: The earlier version of the “Asset Valuation Guide” provided for the reporting of derivatives and the valuing of same. The “New Valuation Guide” will include more extensive guidelines relative to the reporting and valuing of derivatives. Date set for completion: December 2003.
Reinsurance (CP 10)	It is recommended that aspects of credit for reinsurance should be prescribed within the legislation or regulations thereto.	Compliance: These are currently included in the ARAS system and the asset valuation guidelines. Once the comprehensive filings are finalized, the BNA will issue instructions relative to how these filings should be completed. These instructions will be in the form of regulations and will also deal with the valuation of reinsurance credits. Date set for completion: December 2003
Market Conduct (CP 11)	It is recommended that the bank, consider amending the draft Ordinance in order to give the proposed market conduct guidelines some legal backing, including making serious breaches thereof, an offense. The market conduct guidelines should include fair treatment of customers; disclosure aspects (including, the insurer, intermediaries, product details, risks, benefits, obligations, charges, and estimated returns as appropriate); customer fact-finds prior to giving advice; dealing with conflicts of interest; and dealing with complaints. Special comments relating to captives and professional reinsurers. It is recommended that the proposed National Ordinance on the Insurance Brokerage Business take account of the supervision of offshore insurance brokers. Offshore insurance brokers are those companies that are registered in the Netherlands Antilles, owned by overseas residents and are placing risks overseas (often in a different jurisdiction to their residency). Offshore insurance brokers, because of their nature are often impossible to supervise, unless there is real control in the jurisdiction of incorporation. It is recommended that, where licensed insurers deal directly with policyholders and prospective policyholders of the general public, in other jurisdictions where there are no market conduct rules, they should abide by the market conduct guidelines of the Netherlands Antilles. Where they are dealing through overseas brokers the bank should ensure that the insurers check the bona fides of those brokers and that they are fit and proper persons to place insurance business.	Compliance: Market conduct issues will be dealt with in the proposed legislation (amendment to the Insurance Supervision Ordinance), which was sent to the Minister of Finance in February 2002. This legislation provides the legal backing for market conduct supervision and contains the necessary sanctions and penalties. The BNA has drafted Market Conduct Examination Guidelines and an examination procedural manual. Procedures are yet to be implemented. Date set for completion: December 2003. Compliance: Research will be conducted by the BNA’s Policy Making Department on this issue. The BNA’s preliminary position is not to allow offshore insurance brokers. Date set for completion: The research is planned to take place by July 2003. Compliance: Research will be conducted by the bank’s Policy Making Department on this issue. The BNA’s preliminary position is not to allow offshore insurance brokers. Since the bank is the home supervisor, these companies have to abide under any circumstances by our market conduct guidelines. In addition, the bank will always communicate with the foreign supervisor on this issue. With respect to the second part of the recommendation, it is the bank’s position to consider issuing a regulation to our licensed insurance companies in which we will address this issue. The companies will be informed that when they deal with overseas brokers, they should ensure that the backgrounds of these brokers are more or less the same as those of our local brokers. Reference will, in this respect, be made to the requirements as laid down in the draft Brokers Legislation. Date set for completion: December 2003.
Financial Reporting (CP 12)	It is recommended that, recognizing that the late submission of audited financial statements is one of the key indicators of potential problems, in these instances, action (even to the extent of a suspension of new insurance business) should be taken immediately, unless there are valid reasons, such as ARAS complications, for an extension to the period allowed for the required submission. It is recommended that the bank commence to bring out their own standards for the valuation of assets and liabilities, for regulatory purposes.	Compliance: This will be accomplished through proposed future legislation (inclusion of administrative fines). The industry has, in the meantime, become more familiar with the new ARAS and a change for the better has been noted in their reporting behavior. Date set for completion: December 2004. Compliance: Such standards are currently being drafted in the “New Valuation Guide.” Date set for completion: December 2003.
On-site inspection (CP 13)	It is recommended that the bank extend their on-site inspections to insurance brokers, paying special attention to AML, and market conduct aspects.	Compliance: The Market Conduct Guidelines will include procedures for the examination of agents and brokers. The bank is currently conducting some on-site examination of agent and brokers by making use of a provision in the Insurance Supervision Ordinance. Date set for completion: December 2003.
	It is recommended that the bank follow through with their stated policy of having more structured meetings with external auditors.	Compliance: Examination procedures provide for meetings with external auditors and the bank has included the auditors in its annual ARAS presentations. The BNA stands ready to provide assistance to any and all external auditors. In addition, the bank has started conducting meetings with the external auditors to discuss ongoing supervisory issues. Also, meetings were conducted with the external auditor to discuss issues which were discovered by the Bank during the review of financial statements audited by them.
	Special comments relating to captives and professional reinsurers.
	It is recommended that the bank formalize their field examination program involving captives and professional reinsurers and aim to complete the first program (which is two-thirds finished) within a reasonable time scale.	Compliance: The bank has resumed its field examinations of captives and professional reinsurers.
Sanctions (CP 14)	It is recommended that the bank consider, including within the legislation, different, specific types of directions that may be used, as well as keeping an all-encompassing power. This is considered to be important if current thinking on international human rights legislation reaches the Netherlands Antilles. Specifically, the bank should be able to require: changes in the composition of the Board and/or senior management; independent checks on data reported by an independent foreign establishment; limitation on payment of dividends for an undercapitalized insurer; removal/disqualification of the external auditor; and retention by the insurance supervisor of a special auditor, at the expense of the insurer/intermediary, where appropriate. In addition, the bank should be able to impose a range of civil money penalties (not criminal fines) against individuals and the insurer/intermediary, which are sufficiently large so as to discourage noncompliance with the law and regulations, and which may be applied daily. They should also be able to suspend on a temporary basis or longer (with court approval), malfeasant directors and/or officers of the insurer/intermediary. As well as the above, the bank should consider including within the legislation the possibility of imposing conditions on insurers, classes of insurers or all insurers.	Compliance: All the mentioned conditions can be imposed by virtue of Article 31 of the Insurance Supervision Ordinance. Some of these requirements are already explicitly mentioned in the law, e.g., the removal of an external auditor. With respect to the first part of the recommendation, the bank will pursue a range of money and criminal penalties (reference is made to CP 2). Once a silent trustee is appointed by the bank, policymakers of an institution cannot take any actions without the prior approval of the silent trustee. This recommendation will be discussed with the bank’s Policy Making Department and the Legal Department in order to include, where necessary, specific types of directions. Date set for completion: December 2004. Compliance: Conditions can be imposed by virtue of Article 31 of the Insurance Supervision Ordinance.
Cross Border Operations (CP 15)	It is recommended that the bank becomes more proactive (and amends their procedures accordingly) in consulting with overseas insurance supervisors whenever there are cross border issues, including licensing, and whenever necessary for ongoing supervision. This suggestion recognizes that, internationally, there is generally still poor consultation in this area.	Compliance: This recommendation will be carried out. The bank has in the meantime become more proactive: examples are recent contacts with the Trinidad & Tobago and Jamaican Insurance Supervisor relative to a change in control in one of our companies and the already frequently contacts with the Dutch and Aruban supervisors. Date set for completion: This is considered a continuous process and has already started.
	It is also recommended that the legislation be changed so that a licensed insurer needs to seek specific approval in order to operate cross border.	Compliance: During the process of updating the insurance laws, this recommendation will be taken into consideration. Date set for completion: December 2004.
	It is also recommended that there is legislation in place to accept, by a home supervisor, notified, on-site inspections of local branches of overseas insurers, as long as confidentiality provisions apply, there is a sharing of information, and the purpose of the visit is exclusively for supervisory reasons.	Compliance: This is a practice of the bank and will remain so. The bank will, however, pursue the enactment of appropriate legislation. Date set for completion: December 2004.
Coordination And Cooperation (CP 16)	It is recommended that, in addition to the above, the bank expedites the remaining planned MoU’s (taking into account the requirements of the IAIS CP 16) with other relevant jurisdictions, and that the insurance legislation is changed to ensure that reciprocity is not mandatory in individual cases of information exchange with other authorities. Special comments relating to captives and professional reinsurers. It is recommended, for avoidance of doubt, that comprehensive exchange of information (with any relevant authority) provisions, are expressly included in the legislation relating to captives and professional reinsurers, if this legislation remains separate. It is strongly recommended that AML controls for life and nonlife insurance be comprehensively extended to encompass all captives, professional reinsurers, and offshore intermediaries. This would include the requirement, just mentioned, that there are established lines of communication between management, law enforcement, investigatory authorities, and the insurance supervisor for the reporting of irregular and suspicious activities.	Compliance: This recommendation has been carried out. MoU’s with relevant jurisdictions are already in place. Date set for completion: December 2003. Compliance: During the process of updating the insurance laws, this recommendation will be taken into consideration. Date set for completion: December 2004. Compliance: Implemented through new AML/CFT guidelines for insurers, issued in June 2003. The BNA introduced its updated AML indicators for the sector; these are applicable to all categories of insurance companies (life, nonlife insurers captives, and professional reinsurers) and will become operational on a later date.
Confidentiality (CP 17)

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Table 6.

Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles

Core Principle	Recommended Action	Implementation and Authorities’ Comments
Organization of an Insurance Supervisor (CP 1)	It is recommended that the bank reevaluates the resources required for achieving the planned field examination program, and for implementing the changes required in order to keep up to date with international regulatory developments.	Compliance: In January 2003 the BNA prepared a tight schedule for on- site inspections, including AML inspections. Per end June 2003, the BNA has conducted 18 inspections of which 4 general scope inspections, and the remainder targeted inspections, including AML and investment portfolio inspections. The BNA is conducting interviews with candidates for new staff positions and offers were made to an actuary and an auditor. One new staff has already taken up his duties. The staff of the department includes two actuaries; other staff members have at least bachelor’s degrees in business administration or accounting. In addition, staff members follow national and international specialized insurance courses. Most staff members have between 10–15 years’ insurance supervision experience.
	It is also recommended that the bank, in a thoughtful and structured way, complete their excellent desk and field examinations manuals and ensure that all examiners are fully understanding, and in agreement of the provisions.	Compliance: The bank will, where applicable, implement the appropriate changes in its field examination process. In addition, the necessary funding will be made available for a proper and continuous training of the staff members. The manuals have been completed and were distributed to the staff members; staff members are being provided with the appropriate training. Date set for completion: This is a continuous process.
Licensing (CP 2)	It is recommended that prior to licensing any such overseas incorporated captive or reinsurer, the BNA has procedures in place, and follows those procedures, which include a specific MoU with the jurisdiction of incorporation to assist in case of problems occurring. Segregation of life and nonlife business is recommended. If a captive or a professional reinsurer underwrites composite (both life and nonlife) insurance business in one entity the poor results from the nonlife insurance business can impair the ability of the insurer to meet its life insurance obligations. This is especially the case in an insolvency situation. It is in particular recommended that in future, composites are prohibited, unless the life insurance fund is statutorily protected, especially in the case of insolvency. This is important in the captives, but is even more so with professional reinsurers, where the solvency is based on premiums booked, rather than, for life reassurance, the amount of the life fund.	Compliance: Regulation requires that the business should be conducted exclusively from the Netherlands Antilles. Legislation makes it clear that the bank is the leading supervisor. Compliance: Article 9 of the Ordinance makes it clear that the exercise of life and nonlife insurance business within one and the same licensed entity is in principle prohibited. Licensing of composites is an exception. Companies need to motivate their request carefully in order to be considered for an exception. The bank has designed a new reporting system, which segregates both life and nonlife business. In addition, subsequent to the amendment of the legislation, it will be the bank’s policy not to license composite reinsurance companies. The BNA will issue a regulation to prohibit composites pending the change of the law. Date set for completion: December 2004.
	It is strongly recommended that the bank has the power to issue conditions, on licensing, or at any time thereafter, and to penalize (fines or imprisonment) breaches of the law relating to captives and professional reinsurers.	Compliance:_During the process of updating the captive decree, this recommendation will be taken into consideration. The bank will pursue a range of money penalties (fines) and will also include criminal penalties as included in the Insurance Supervision Ordinance. All licensed entities are subject to the Ordinance that provides for additional conditions, which can be imposed and that provides for a broad range of corrective action (see in particular Article 31, Article 51, Article 55, and Article 59). The Bank will pursue a range of money penalties (fines) and will also include criminal penalties. It is noted though that the bank has not decided yet whether it will eliminate the Special Insurance License Decree and make both captives and reinsurers subject to the provisions of the Insurance Ordinance. Date set for completion: December 2004.
	It is recommended that the bank extend the grounds for refusal or revocation of a license to include comprehensive fit and proper aspects (including if connected persons have been involved in unsound transactions etc.), and also to protect the reputation of the Netherlands Antilles. It is recommended that details of revocation of a license be published	Compliance: No license will be issued to an institution of which a policymaker does not comply with the fit and proper requirements of the BNA. Compliance: Currently the bank is by law required to publish revocations of licenses issued by virtue of the Insurance Supervision Ordinance. The reason for the revocation is not made public. With regard to captives and reinsurers there is no publication duty. This will be considered during the process of updating this decree. Date set for completion: December 2004
Changes in Control (CP 3)	It is recommended that the above requirements are brought into the legislation and that there should be a prior approval process. There should be appropriate sanctions in cases of noncompliance.	Compliance: A prior approval process is included in the procedures manual, which is based on Article 17 of the Insurance Ordinance. During the process of updating the Insurance Ordinance, the recommendation to create a statutory base for this rule will also be taken into consideration. Date set for completion: December 2004.
	It is recommended, to avoid doubt, that the prescribed application form/legislation are amended so that the applicant has to supply details of beneficial and ultimate beneficial ownership. The legislation should be amended, so that any changes in control (including those of substance over form), should require notification to, and prior approval by, the Bank. Failing to do so or supplying misleading or false information should be an offense.	Compliance: The bank has issued a Policy Rule on Integrity Testing (based on Article 17 of the Insurance Ordinance and 4 of the Special License Decree) which addresses the issue of supplying misleading and false information. This policy paper was sent to all institutions. In addition the bank has instituted an “Actualization and Harmonization all Bank Legislation Committee” that has the objective to come up with umbrella legislation. This legislation will address issues such as administrative fines, supervision costs, MoU’s, exchange of information and integrity tests. Date set for completion: December 2004.
Corporate Governance (CP 4)	It is recommended that this and other guidance notes are referred to in the legislation or, if legally possible, are issued to all financial institutions under the motivated instructions article of the National Ordinance. The opportunity should be taken to include within the guidelines certain aspects of the Core Principles that are not yet covered, e.g., complaints procedures, improving customer awareness. It is recommended that there are at least two locally resident senior managers who are fit and proper (honest, competent, and solvent) and there is also a supervisory Board with the necessary local control, including locally resident, fit and proper, nonexecutive directors. The bank has issued a policy memorandum on the implementation of the fit and proper tests and corporate governance requirements. This was recently replaced by the Policy Rule on Integrity Testing, which was sent to all supervised institutions. The opportunity should be taken to give these (and other relevant guidelines) the basis of law, including any necessary sanctions in cases of noncompliance.	Compliance: In the revised guidelines reference will be made to Article 31 of the Ordinance. With respect to the complaints procedures, etc., these are considered part of market conduct supervision and will be included in the Market Conduct Examination Procedures Manual. Date set for completion: December 2003. Compliance: The first part of this recommendation is partially addressed in the Insurance Supervision Ordinance (Article16(2)), although this does not require residency. As concerns the special licensees (captives and reinsurers), mandatory four-eyes management and a requirement to have a Supervisory Board will be discussed during the pending review of the Special Insurance License Decree. With respect to the second part of this recommendation, the new Policy Rule on Integrity Testing issued by the bank is based on Article 17 of the Insurance Supervision Ordinance respectively Article 4 of the Special Insurance License Decree. Finally, the “Actualization and Harmonization of Bank Legislation Committee” has been created with the objective to come up with an umbrella legislation to address issues such as administrative fines, supervision costs, MoU’s, exchange of information and integrity tests. Date set for completion: December 2004
Assets (CP 6)	It is recommended that one single set of regulations is produced covering all relevant aspects, together with rules on loans and pledges, financial derivatives, risk management of assets, and resilience testing. These regulations should have the force of law (including sanctions) and be reflected in the procedures manuals, guidelines, and ARAS. It is recommended that prior to licensing, the bank ensure (by legislation), that assets are under the control of the directors or managers resident in the Netherlands Antilles unless, due to the nature of the operation, it is felt that this requirement can, exceptionally, be waived.	Compliance: These items are being included in the “New Valuation Guide” and should be completed on or about the time of the introduction of the ARAS 2.8 systems. Date set for completion: December 2003. Compliance: This recommendation will be considered in the pending revision of the legislation. One possibility would be to request an agreement between the owners and management of the company, which delineates the responsibilities and authorities of management. Date set for completion: December 2004.
Liabilities (CP 7)	It is recommended that the BNA issue their own standards for the valuation of liabilities.	Compliance: These standards will be included in the “New Valuation Guide.” Date set for completion: December 2003.
	It is recommended that BNA improves its control over the technical provisions further by assessing long-tail casualty insurance business using triangulation techniques and by bringing out a policy on discounting of loss reserves.	Compliance: The comprehensive filings (version 2.8) that will be introduced to the industry in the latter part of 2003 will include filings to follow the loss development of nonlife insurers. These are included in the 228 series of filings and consist of triangular developments on all indemnity groups. The policy for the discounting of loss reserves will be stipulated in the New Valuation Guide. Date set for completion: December 2003.
	It is recommended that the bank consider requiring policyholders’ approval, as well as that of the bank, for transfers of rights of certain types of long-tail insurance business.	Compliance: During the process of updating the Insurance Laws this recommendation will be taken into consideration. Date set for completion: December 2004
Capital Adequacy and Solvency (CP 8)	It is recommended that the bank consider reviewing the existing minimum solvency requirements and bringing in an additional (so that there is a combination of two methods, e.g., using the greater of a premium and a claims based methods) or replacement test that deals with the Those types that could be considered include claims based methods, exposure based methods, and asset and liability risk based capital methods. The bank should also document and publish its policy regarding multiple gearing of capital within a group of companies. Special comments relating to captives and professional reinsurers. It is recommended that the bank review the appropriateness of the margins of solvency. Capital adequacy requirements should reflect the size, complexity, and business risks of the insurer or the professional reinsurer. An exclusively premium based system falls short of this requirement. It is recognized that internationally there is no ideal regulatory recommended system of addressing capital adequacy. Because of the relatively small size of many offshore insurers it is usually possible to individually assess each company from a risk aspect (technical exposures, investment risk, and credit risk-especially of the reinsurers) and use this method for the primary control whilst at the same time using the premium and claims based methods as the secondary or back-up controls. Where there is a secondary method based on net premium income rather than gross premium income it is essential that account be taken of the effectiveness of the reinsurance program and, especially, the ability of the reinsurers to meet their obligations when there are claims. As already stated, the solvency requirement for professional reinsurers would appear to be low and the bank should review this aspect. The supervision of assets is an important feature of solvency assessment and, in the past, this area has been found one of the most vulnerable for offshore insurance supervisors.	Compliance: The bank will research solvency requirements of different jurisdictions and compare these with our solvency requirements. Where necessary our requirements will be changed and taken into consideration during the revision of the Insurance Ordinance. Date set for completion: Tentative date to finalize the revision of the Insurance Ordinance is December 2004. Compliance: Will be done during revision of Insurance Law. A decision is yet to be taken relative to the captive legislation. Decree or eliminate this and make captives and reinsurers subject to the provisions of Insurance Ordinance (by explicitly excluding a few provisions). Date set for completion: December 2004.
	It is recommended that captives and, if found practical, professional reinsurers, report to the bank annually on a prescribed exposure spread sheet outlining, each and every loss and aggregate exposures, expected losses, and probable maximum losses, per line of business, reduced by reinsurance per class and aggregate (if placed). In order to assess the capital adequacy, it is recommended that the legislation is amended, so that the insurer has to report to the bank whenever there are material changes to the plan of operations (which should include the insurance and reinsurance program).	Compliance: The Captive and professional reinsurers ARAS systems provide this information in aggregate through their annual reporting to the bank. Individual losses and exposure are reviewed during the course of an on-site examination. Compliance: The bank is considering introducing quarterly reports for insurance companies. This issue will then be resolved by the frequent reportings. In the meantime this recommendation will be discussed with the Policy Making Department with the aim to issue a regulation to the industry. Furthermore, the legislation need not be changed for this purpose. The bank can by virtue of Article 31 of the Insurance Ordinance issue directives to insurance companies. In addition, once a company is licensed it must submit annual statements to the bank. These actual figures are compared with the figures in the business plan and the company is required to explain material changes and differences. Date set for completion: July 2004
Derivatives, Off- Balance Sheet Items (CP 9)	It is recommended that when the guidance paper has been prepared it should be linked into the legislation and that there are appropriate sanctions for noncompliance. As there is believed to be little or no use of derivatives an alternative treatment would be to not allow insurers to invest in such instruments without the specific permission of the bank. This permission could be reserved for legitimate uses of derivatives, such as hedge funds, for which guidance should be issued.	Compliance: The earlier version of the “Asset Valuation Guide” provided for the reporting of derivatives and the valuing of same. The “New Valuation Guide” will include more extensive guidelines relative to the reporting and valuing of derivatives. Date set for completion: December 2003.
Reinsurance (CP 10)	It is recommended that aspects of credit for reinsurance should be prescribed within the legislation or regulations thereto.	Compliance: These are currently included in the ARAS system and the asset valuation guidelines. Once the comprehensive filings are finalized, the BNA will issue instructions relative to how these filings should be completed. These instructions will be in the form of regulations and will also deal with the valuation of reinsurance credits. Date set for completion: December 2003
Market Conduct (CP 11)	It is recommended that the bank, consider amending the draft Ordinance in order to give the proposed market conduct guidelines some legal backing, including making serious breaches thereof, an offense. The market conduct guidelines should include fair treatment of customers; disclosure aspects (including, the insurer, intermediaries, product details, risks, benefits, obligations, charges, and estimated returns as appropriate); customer fact-finds prior to giving advice; dealing with conflicts of interest; and dealing with complaints. Special comments relating to captives and professional reinsurers. It is recommended that the proposed National Ordinance on the Insurance Brokerage Business take account of the supervision of offshore insurance brokers. Offshore insurance brokers are those companies that are registered in the Netherlands Antilles, owned by overseas residents and are placing risks overseas (often in a different jurisdiction to their residency). Offshore insurance brokers, because of their nature are often impossible to supervise, unless there is real control in the jurisdiction of incorporation. It is recommended that, where licensed insurers deal directly with policyholders and prospective policyholders of the general public, in other jurisdictions where there are no market conduct rules, they should abide by the market conduct guidelines of the Netherlands Antilles. Where they are dealing through overseas brokers the bank should ensure that the insurers check the bona fides of those brokers and that they are fit and proper persons to place insurance business.	Compliance: Market conduct issues will be dealt with in the proposed legislation (amendment to the Insurance Supervision Ordinance), which was sent to the Minister of Finance in February 2002. This legislation provides the legal backing for market conduct supervision and contains the necessary sanctions and penalties. The BNA has drafted Market Conduct Examination Guidelines and an examination procedural manual. Procedures are yet to be implemented. Date set for completion: December 2003. Compliance: Research will be conducted by the BNA’s Policy Making Department on this issue. The BNA’s preliminary position is not to allow offshore insurance brokers. Date set for completion: The research is planned to take place by July 2003. Compliance: Research will be conducted by the bank’s Policy Making Department on this issue. The BNA’s preliminary position is not to allow offshore insurance brokers. Since the bank is the home supervisor, these companies have to abide under any circumstances by our market conduct guidelines. In addition, the bank will always communicate with the foreign supervisor on this issue. With respect to the second part of the recommendation, it is the bank’s position to consider issuing a regulation to our licensed insurance companies in which we will address this issue. The companies will be informed that when they deal with overseas brokers, they should ensure that the backgrounds of these brokers are more or less the same as those of our local brokers. Reference will, in this respect, be made to the requirements as laid down in the draft Brokers Legislation. Date set for completion: December 2003.
Financial Reporting (CP 12)	It is recommended that, recognizing that the late submission of audited financial statements is one of the key indicators of potential problems, in these instances, action (even to the extent of a suspension of new insurance business) should be taken immediately, unless there are valid reasons, such as ARAS complications, for an extension to the period allowed for the required submission. It is recommended that the bank commence to bring out their own standards for the valuation of assets and liabilities, for regulatory purposes.	Compliance: This will be accomplished through proposed future legislation (inclusion of administrative fines). The industry has, in the meantime, become more familiar with the new ARAS and a change for the better has been noted in their reporting behavior. Date set for completion: December 2004. Compliance: Such standards are currently being drafted in the “New Valuation Guide.” Date set for completion: December 2003.
On-site inspection (CP 13)	It is recommended that the bank extend their on-site inspections to insurance brokers, paying special attention to AML, and market conduct aspects.	Compliance: The Market Conduct Guidelines will include procedures for the examination of agents and brokers. The bank is currently conducting some on-site examination of agent and brokers by making use of a provision in the Insurance Supervision Ordinance. Date set for completion: December 2003.
	It is recommended that the bank follow through with their stated policy of having more structured meetings with external auditors.	Compliance: Examination procedures provide for meetings with external auditors and the bank has included the auditors in its annual ARAS presentations. The BNA stands ready to provide assistance to any and all external auditors. In addition, the bank has started conducting meetings with the external auditors to discuss ongoing supervisory issues. Also, meetings were conducted with the external auditor to discuss issues which were discovered by the Bank during the review of financial statements audited by them.
	Special comments relating to captives and professional reinsurers.
	It is recommended that the bank formalize their field examination program involving captives and professional reinsurers and aim to complete the first program (which is two-thirds finished) within a reasonable time scale.	Compliance: The bank has resumed its field examinations of captives and professional reinsurers.
Sanctions (CP 14)	It is recommended that the bank consider, including within the legislation, different, specific types of directions that may be used, as well as keeping an all-encompassing power. This is considered to be important if current thinking on international human rights legislation reaches the Netherlands Antilles. Specifically, the bank should be able to require: changes in the composition of the Board and/or senior management; independent checks on data reported by an independent foreign establishment; limitation on payment of dividends for an undercapitalized insurer; removal/disqualification of the external auditor; and retention by the insurance supervisor of a special auditor, at the expense of the insurer/intermediary, where appropriate. In addition, the bank should be able to impose a range of civil money penalties (not criminal fines) against individuals and the insurer/intermediary, which are sufficiently large so as to discourage noncompliance with the law and regulations, and which may be applied daily. They should also be able to suspend on a temporary basis or longer (with court approval), malfeasant directors and/or officers of the insurer/intermediary. As well as the above, the bank should consider including within the legislation the possibility of imposing conditions on insurers, classes of insurers or all insurers.	Compliance: All the mentioned conditions can be imposed by virtue of Article 31 of the Insurance Supervision Ordinance. Some of these requirements are already explicitly mentioned in the law, e.g., the removal of an external auditor. With respect to the first part of the recommendation, the bank will pursue a range of money and criminal penalties (reference is made to CP 2). Once a silent trustee is appointed by the bank, policymakers of an institution cannot take any actions without the prior approval of the silent trustee. This recommendation will be discussed with the bank’s Policy Making Department and the Legal Department in order to include, where necessary, specific types of directions. Date set for completion: December 2004. Compliance: Conditions can be imposed by virtue of Article 31 of the Insurance Supervision Ordinance.
Cross Border Operations (CP 15)	It is recommended that the bank becomes more proactive (and amends their procedures accordingly) in consulting with overseas insurance supervisors whenever there are cross border issues, including licensing, and whenever necessary for ongoing supervision. This suggestion recognizes that, internationally, there is generally still poor consultation in this area.	Compliance: This recommendation will be carried out. The bank has in the meantime become more proactive: examples are recent contacts with the Trinidad & Tobago and Jamaican Insurance Supervisor relative to a change in control in one of our companies and the already frequently contacts with the Dutch and Aruban supervisors. Date set for completion: This is considered a continuous process and has already started.
	It is also recommended that the legislation be changed so that a licensed insurer needs to seek specific approval in order to operate cross border.	Compliance: During the process of updating the insurance laws, this recommendation will be taken into consideration. Date set for completion: December 2004.
	It is also recommended that there is legislation in place to accept, by a home supervisor, notified, on-site inspections of local branches of overseas insurers, as long as confidentiality provisions apply, there is a sharing of information, and the purpose of the visit is exclusively for supervisory reasons.	Compliance: This is a practice of the bank and will remain so. The bank will, however, pursue the enactment of appropriate legislation. Date set for completion: December 2004.
Coordination And Cooperation (CP 16)	It is recommended that, in addition to the above, the bank expedites the remaining planned MoU’s (taking into account the requirements of the IAIS CP 16) with other relevant jurisdictions, and that the insurance legislation is changed to ensure that reciprocity is not mandatory in individual cases of information exchange with other authorities. Special comments relating to captives and professional reinsurers. It is recommended, for avoidance of doubt, that comprehensive exchange of information (with any relevant authority) provisions, are expressly included in the legislation relating to captives and professional reinsurers, if this legislation remains separate. It is strongly recommended that AML controls for life and nonlife insurance be comprehensively extended to encompass all captives, professional reinsurers, and offshore intermediaries. This would include the requirement, just mentioned, that there are established lines of communication between management, law enforcement, investigatory authorities, and the insurance supervisor for the reporting of irregular and suspicious activities.	Compliance: This recommendation has been carried out. MoU’s with relevant jurisdictions are already in place. Date set for completion: December 2003. Compliance: During the process of updating the insurance laws, this recommendation will be taken into consideration. Date set for completion: December 2004. Compliance: Implemented through new AML/CFT guidelines for insurers, issued in June 2003. The BNA introduced its updated AML indicators for the sector; these are applicable to all categories of insurance companies (life, nonlife insurers captives, and professional reinsurers) and will become operational on a later date.
Confidentiality (CP 17)