International Association of Insurance Supervisors

1. International Association of Insurance Supervisors Observer Panel Re- / Deregulation Steve Butterworth Chile 2002

2. IAIS Observer PanelRe- / DeregulationChile 2002 • IAIS - Outlook on model schedules and best practise statement. - Mutual recognition of domestic supervisory rules based on IAIS Standards, Principles & Guidelines.

3. IAIS Observer PanelRe- / DeregulationChile 2002 • In Particular - Why check compliance many times in different jurisdictions.

4. IAIS Observer PanelRe- / DeregulationChile 2002 Reasons for Differing Regulations • Different markets • Different economic goals

5. IAIS Observer PanelRe- / DeregulationChile 2002 History • Patchwork supervision • Legal barriers • Practical problems in assessing supervisory practices • No exchange of information

6. IAIS Observer PanelRe- / Deregulation - Chile 2002 WTO Model Schedules Market Access • Reinsurance - M.A.T. - Intermediaries - No restrictions • Life & Non-Life Reinsurance - No mandatory cessions - No right of first privileges - No discrimination re collateralization & localization - Freedom of form & contract

7. IAIS Observer PanelRe- / Deregulation - Chile 2002 WTO Model Schedules Commercial Presence • Form of establishments • Equity shares • Compulsory lines • Monopolies • Private participation in pensions & funds management

8. IAIS Observer PanelRe- / DeregulationChile 2002 WTO Model Schedules • Temporary entry of natural persons • National treatment

9. IAIS Observer PanelRe- / DeregulationChile 2002 WTO Best Practices in Insurance • Transparency • Solvency and prudential focus • Insurance monopolies • Independent regulatory authority

10. IAIS Observer PanelRe- / Deregulation - Chile 2002 Statement by Financial Leaders Working Group • FLWG - Financial Institutions and Associations in Europe, North America, Japan & Hong Kong • Fully Supportive - Greater price competition - Product diversity and innovation - Investment options - Retirements security - Local infrastructure development

11. IAIS Observer PanelRe- / DeregulationChile 2002 IAIS Core Principles of Supervision • Capable of observance in all jurisdictions where there are adequate resources. • IAIS core principles contain no barriers to prevent foreign insurers operating on the same terms as domestic insurers.

12. IAIS Observer PanelRe- / DeregulationChile 2002 Reliance on Rating Agencies • Rating agencies not regulated • Sometimes inconsistent • Commercially driven

13. IAIS Observer PanelRe- / DeregulationChile 2002 Disadvantages • Instability of markets. • Insurers / reinsurers pulling out. • Overseas supervisors little interest in your domestic market.

14. IAIS Observer PanelRe- / DeregulationChile 2002 Disadvantages • Insurer fraud in developing countries is prevalent. • Fraudsters migrate to those countries with little effective regulation.

15. IAIS Observer PanelRe- / DeregulationChile 2002 The Guernsey Situation • All insurers with a physical presence (either directly or indirectly - through agents) need a licence. • Insurance intermediaries can place only with ‘recognized’ insurers - no licence issued.

16. IAIS Observer PanelRe- / DeregulationChile 2002 The Guernsey Situation • Experienced problems with fraudulent marine insurers which the ‘recognized’ insurer system eliminated. • Model schedule proposed cross border supply without restrictions to market access for M.A.T. and insured intermediation.

17. IAIS Observer PanelRe- / DeregulationChile 2002 The Guernsey Situation • Foreign insurers are not barred from a physical presence. • With current state of market, overseas branches are closing down. • Creates problems - especially long-term contracts.

18. IAIS Observer PanelRe- / DeregulationChile 2002 Conclusion • There must be total mutual international recognition of prudential and market conduct supervisory standards. • Impossible? - Will politics and economic considerations interfere?