## 1. Number of Licensed Insurers and Intermediaries ## Source details **Canonical URL:** [1. Number of Licensed Insurers and Intermediaries](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11282.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11282.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11282.pdf.json) --- ### Introduction and scope - Assessment conducted by Su Hoong Chang (Insurance Supervision Advisor contracted by the International Monetary Fund (IMF)) during March 9–22, 2011. - The assessment updates regulatory and supervisory developments in Sweden since 2002 and is benchmarked against the ICPs issued by the IAIS in 2003, taking account of IAIS materials adopted in October 2010. - The assessment is based on laws, regulations and supervisory practices in place at the time of the assessment; the new Insurance Business Act (IBA) was passed and will come into effect on April 1, 2011. ### Market structure and industry performance - Insurance density (premium per capita): US$3,540. - Insurance penetration: 8.2 percent. - Europe averages for comparison: insurance density US$1,862 and insurance penetration 7.6 percent. - Around 50 percent of household financial assets are held in life insurance products. - Industry employment roughly 19,700 as at end-2009; more than 14,000 employed by nonlife insurers. - Insurance industry assets as at end-2009 totaled SEK 2,967 billion, representing 95 percent of GDP as at end-2009. - Insurers were the largest investor category in the Swedish bond market as at end-2009; insurers’ investments in bonds reached SEK 1,125 billion as at end-2009, approximately 50 percent of the total amount outstanding. ### Number and types of insurers (structural points and concentration) - Net reduction of 9 insurers over 2006–2010 driven by increase of 20 captive insurers and exit of 17 nonlife insurers and 14 livestock insurers. - Captive insurance growth driven mainly by tax advantages; of 49 licensed captives as at end-2009, 33 are pure captives and 16 write liability insurance involving third party claimants. - Notable structural points: - Most life insurers still maintain unit-linked subsidiaries despite waiver of earlier requirement to set up specialized unit-linked companies. - Friendly societies are small, policyholder-owned; some insure occupational pension funds. - Livestock insurers are small with aggregate assets of about SEK10 million as at end-2010. - Market concentration: - Number of insurance groups increased from 23 to 60 as at end-2010. - The five largest insurance groups accounted for approximately 50 percent of total assets as at end-2009. - Top five life insurers accounted for 61 percent of life sector assets. - Top five nonlife insurers had about 55 percent market share in terms of gross premiums in 2009. ### Licensed insurers and intermediaries (selected end-of-period figures) - Domestic insurers sub-total: - 2006: 442 - 2007: 430 - 2008: 432 - 2009: 415 - 2010: 433 - Total reported (including Association of Underwriters): - 2006: 443 - 2007: 431 - 2008: 433 - 2009: 416 - 2010: 434 - Insurance mediation employees: - 2006: 2,024 - 2007: 2,334 - 2008: 2,865 - 2009: 3,642 - 2010: 3,860 - Insurance mediation (intermediaries licensed): - 2006: 881 - 2007: 917 - 2008: 923 - 2009: 984 - 2010: 1,044 - Foreign branches in Sweden: - 2006: 26 - 2007: 30 - 2008: 30 - 2009: 28 - 2010: 29 - Swedish insurers' branches abroad: - 2006: 33 - 2007: 40 - 2008: 48 - 2009: 47 - 2010: 47 - Insurance groups: - 2006: 23 - 2007: 37 - 2008: 42 - 2009: 53 - 2010: 60 ### Intermediaries and distribution - Number of insurance intermediaries increased significantly since 2006 following implementation of EU Directive on Insurance Mediation (2002/92/EC) in 2005 requiring licensing and supervision. - Industry feedback: easier to obtain an insurance intermediary license to market collective investment schemes contributed to high intermediary numbers. - Bancassurance is a main distribution channel for life insurance; among four large Swedish banks, three are registered as “tied intermediary” of related insurance subsidiaries and one is licensed as an insurance intermediary. ### Premiums and product mix - Life new premiums (Table 3): - Traditional: 2006: 80,104; 2007: 80,630; 2008: 88,802; 2009: 91,781 - Traditional share: 2006: 59% ; 2007: 62% ; 2008: 63% ; 2009: 60% - Unit-linked: 2006: 55,030; 2007: 49,594; 2008: 52,357; 2009: 60,548 - Unit-linked share: 2006: 41% ; 2007: 38% ; 2008: 37% ; 2009: 40% - Total new premiums: 2006: 135,134; 2007: 130,224; 2008: 141,159; 2009: 152,329 - Nonlife premiums written in 2009 (SEK millions; Gross / Net / Retention Percent): - Motor third party (mandatory) — Gross: 8,807; Net: 8,421; Retention Percent: 96 - Motor - others — Gross: 12,838; Net: 12,403; Retention Percent: 97 - Business and houseowner — Gross: 12,821; Net: 10,433; Retention Percent: 81 - Household and homeowner — Gross: 11,671; Net: 9,978; Retention Percent: 85 - Accident & health — Gross: 5,968; Net: 5,639; Retention Percent: 94 - Foreign risks — Gross: 32,704; Net: 27,363; Retention Percent: 84 - Others* — Gross: 11,163; Net: 8,866; Retention Percent: 79 - Total — Gross: 95,972; Net: 83,104; Retention Percent: 87 - *Others include marine, credit, aviation and animal insurances. - Motor insurance accounted for 22 percent of total premiums written in 2009. - Foreign risks made up 34 percent of nonlife premiums written in 2009; bulk of foreign risks written by foreign branches of Swedish nonlife insurers. ### Assets and investments (selected figures and exposures) - Assets held by Swedish insurers (SEK millions, selected): - Life insurance: 2006: 1,749,656; 2009: 1,853,027; Change: 103,371; Percentage Share of Total: 62 - Nonlife insurance: 2006: 503,514; 2009: 541,712; Change: 38,198; Percentage Share of Total: 18 - Unit-linked policies: 2006: 346,927; 2009: 436,416; Change: 89,489; Percentage Share of Total: 15 - Reinsurance: 2006: 6,183; 2009: 8,873; Change: 2,689; Percentage Share of Total: 0 - Captive insurance: 2006: 11,322; 2009: 21,609; Change: 10,286; Percentage Share of Total: 1 - Friendly societies: 2006: 129,001; 2009: 105,567; Change: (23,434); Percentage Share of Total: 4 - Total assets: 2006: 2,746,604; 2009: 2,967,203; Change: 220,599; Percentage Share of Total: 100 - Percentage of nominal GDP: 93 - Asset composition and exposures: - Insurers’ investments concentrated in bonds and equities, representing 37 percent and 52 percent of total assets as at end-2010, respectively. - Life insurers held 56 percent of their assets in equities (mainly in respect of ULPs) as at end-2010. - Investments in equities rose by SEK 202 billion (15 percent) in 2010 to reach SEK 1,539 billion as at end-2010 (attributed partly to higher market valuation). - Life insurers heavily exposed to equity risk; significant bond portfolios expose life insurers to interest rate risks. - Foreign investments totaled SEK 933 billion (32 percent of total assets) as at end-2010. - Swedish insurers held approximately SEK 665 billions of sovereign bonds as at end-2009, of which 78 percent were issued by Swedish government, 9 percent by authorities in Germany and 7 percent by authorities in the United States. - Level of sovereign bond holdings remained largely unchanged in 2010; main exposure was to German sovereign bonds. - Asset table (selected totals, SEK mn): - Total assets (2009): 2,723,685 SEK mn; foreign 863,419 SEK mn. - Total assets (2010): 2,949,510 SEK mn; foreign 933,304 SEK mn. - Bonds (Total, 2009): 1,113,590 SEK mn; foreign 337,652 SEK mn. - Equities (Total, 2009): 1,336,504 SEK mn; foreign 500,894 SEK mn. - Life & Unit Linked (2009): - Bonds: 846,567 SEK mn (38%); foreign 269,785 SEK mn. - Equities: 1,186,032 SEK mn (53%); foreign 441,226 SEK mn. - Total life & unit linked (2009): 2,238,450 SEK mn (100%); foreign 728,849 SEK mn. - Nonlife (2009): - Total nonlife (2009): 485,235 SEK mn (100%); foreign 134,570 SEK mn. - Real estate (Total, 2009): 62,920 SEK mn (2%); foreign 7,416 SEK mn. - Note: This analysis includes investments of ULPs totaling SEK 578,386 million. ### Captive insurance specifics - Captive segment growth over last 10 years largely tax-driven; captives typically owned by large commercial groups and municipalities to insure/reinsure selected intra-group risks. - About 130 Swedish industrial groups have established captives, of which 30 are domiciled in Sweden. - Of 49 licensed captives as at end-2009: - 33 pure captives (do not write third party liability risks) - 16 write liability insurance involving third party claimants (mainly general liability and some third party motor liability) - 8 captives licensed to write direct insurance - 4 authorized to conduct reinsurance activities - The rest conduct both direct and reinsurance business. ### Observations on foreign risks reporting and analysis - Insurers are required to report foreign risks accepted to FI, but there is no analysis of foreign risk by lines of business or geographical location. - Credit insurance and surety insurance markets dominated by branches of European insurers. *Source: FI’s Swedish Data – FSAP; Swedish Insurance Federation; Swiss Re Sigma 2/10; Riksbanken, the Swedish financial market 2010.* *Source: IMF staff summary of Swedish authorities’ reports and FI data in the content unit _cr11282 — 1. Number of Licensed Insurers and Intermediaries* ### 1. Number of Licensed Insurers and Intermediaries ............................................................... 6 ### 1. Number of Licensed Insurers and Intermediaries ### Introduction and scope - Assessment conducted by Su Hoong Chang (Insurance Supervision Advisor contracted by the International Monetary Fund (IMF)) during March 9–22, 2011. - The assessment updates regulatory and supervisory developments in Sweden since 2002 and is benchmarked against the ICPs issued by the IAIS in 2003, taking account of IAIS materials adopted in October 2010. - The assessment is based on laws, regulations and supervisory practices in place at the time of the assessment; the new Insurance Business Act (IBA) was passed and will come into effect on April 1, 2011. ### Market structure and industry performance - Insurance density (premium per capita): US$3,540. - Insurance penetration: 8.2 percent. - Europe averages for comparison: insurance density US$1,862 and insurance penetration 7.6 percent. - Around 50 percent of household financial assets are held in life insurance products. - Industry employment roughly 19,700 as at end-2009; more than 14,000 employed by nonlife insurers. - Insurance industry assets as at end-2009 totaled SEK 2,967 billion, representing 95 percent of GDP as at end-2009. - Insurers were the largest investor category in the Swedish bond market as at end-2009; insurers’ investments in bonds reached SEK 1,125 billion as at end-2009, approximately 50 percent of the total amount outstanding. ### Number and types of insurers (Table 1 highlights) - Net reduction of 9 insurers over 2006–2010 driven by increase of 20 captive insurers and exit of 17 nonlife insurers and 14 livestock insurers. - Captive insurance growth driven mainly by tax advantages; of 49 licensed captives as at end-2009, 33 are pure captives and 16 write liability insurance involving third party claimants. - Notable structural points: - Most life insurers still maintain unit-linked subsidiaries despite waiver of earlier requirement to set up specialized unit-linked companies. - Friendly societies are small, policyholder-owned; some insure occupational pension funds. - Livestock insurers are small with aggregate assets of about SEK10 million as at end-2010. - Market concentration: - Number of insurance groups increased from 23 to 60 as at end-2010. - The five largest insurance groups accounted for approximately 50 percent of total assets as at end-2009. - Top five life insurers accounted for 61 percent of life sector assets. - Top five nonlife insurers had about 55 percent market share in terms of gross premiums in 2009. ### Licensed insurers and intermediaries (selected end-of-period figures from Table 1) - Domestic insurers sub-total: - 2006: 442 - 2007: 430 - 2008: 432 - 2009: 415 - 2010: 433 - Total reported (including Association of Underwriters): - 2006: 443 - 2007: 431 - 2008: 433 - 2009: 416 - 2010: 434 - Insurance mediation employees: - 2006: 2,024 - 2007: 2,334 - 2008: 2,865 - 2009: 3,642 - 2010: 3,860 - Insurance mediation (intermediaries licensed): - 2006: 881 - 2007: 917 - 2008: 923 - 2009: 984 - 2010: 1,044 - Foreign branches in Sweden (yearly): - 2006: 26 - 2007: 30 - 2008: 30 - 2009: 28 - 2010: 29 - Swedish insurers' branches abroad: - 2006: 33 - 2007: 40 - 2008: 48 - 2009: 47 - 2010: 47 - Insurance groups: - 2006: 23 - 2007: 37 - 2008: 42 - 2009: 53 - 2010: 60 ### Intermediaries and distribution - Number of insurance intermediaries increased significantly since 2006 following implementation of EU Directive on Insurance Mediation (2002/92/EC) in 2005 requiring licensing and supervision. - Industry feedback: easier to obtain an insurance intermediary license to market collective investment schemes contributed to high intermediary numbers. - Bancassurance is a main distribution channel for life insurance; among four large Swedish banks, three are registered as “tied intermediary” of related insurance subsidiaries and one is licensed as an insurance intermediary. ### Premiums and product mix - Life new premiums (Table 3): - Traditional: 2006: 80,104; 2007: 80,630; 2008: 88,802; 2009: 91,781 - Traditional share: 2006: 59% ; 2007: 62% ; 2008: 63% ; 2009: 60% - Unit-linked: 2006: 55,030; 2007: 49,594; 2008: 52,357; 2009: 60,548 - Unit-linked share: 2006: 41% ; 2007: 38% ; 2008: 37% ; 2009: 40% - Total new premiums: 2006: 135,134; 2007: 130,224; 2008: 141,159; 2009: 152,329 - Nonlife premiums written in 2009 (Table 4): - Motor third party (mandatory) — Gross: 8,807; Net: 8,421; Retention Percent: 96 - Motor - others — Gross: 12,838; Net: 12,403; Retention Percent: 97 - Business and houseowner — Gross: 12,821; Net: 10,433; Retention Percent: 81 - Household and homeowner — Gross: 11,671; Net: 9,978; Retention Percent: 85 - Accident & health — Gross: 5,968; Net: 5,639; Retention Percent: 94 - Foreign risks — Gross: 32,704; Net: 27,363; Retention Percent: 84 - Others* — Gross: 11,163; Net: 8,866; Retention Percent: 79 - Total — Gross: 95,972; Net: 83,104; Retention Percent: 87 - *Others include marine, credit, aviation and animal insurances. - Motor insurance accounted for 22 percent of total premiums written in 2009. - Foreign risks made up 34 percent of nonlife premiums written in 2009; bulk of foreign risks written by foreign branches of Swedish nonlife insurers. ### Assets and investments - Assets held by Swedish insurers (Table 2, selected figures in SEK millions): - Life insurance: 2006: 1,749,656; 2009: 1,853,027; Change: 103,371; Percentage Share of Total: 62 - Nonlife insurance: 2006: 503,514; 2009: 541,712; Change: 38,198; Percentage Share of Total: 18 - Unit-linked policies: 2006: 346,927; 2009: 436,416; Change: 89,489; Percentage Share of Total: 15 - Reinsurance: 2006: 6,183; 2009: 8,873; Change: 2,689; Percentage Share of Total: 0 - Captive insurance: 2006: 11,322; 2009: 21,609; Change: 10,286; Percentage Share of Total: 1 - Friendly societies: 2006: 129,001; 2009: 105,567; Change: (23,434); Percentage Share of Total: 4 - Total assets: 2006: 2,746,604; 2009: 2,967,203; Change: 220,599; Percentage Share of Total: 100 - Percentage of nominal GDP: 93 - Asset composition and exposures: - Insurers’ investments concentrated in bonds and equities, representing 37 percent and 52 percent of total assets as at end-2010, respectively. - Life insurers held 56 percent of their assets in equities (mainly in respect of ULPs) as at end-2010. - Investments in equities rose by SEK 202 billion (15 percent) in 2010 to reach SEK 1,539 billion as at end-2010 (attributed partly to higher market valuation). - Life insurers heavily exposed to equity risk; significant bond portfolios expose life insurers to interest rate risks. - Foreign investments totaled SEK 933 billion (32 percent of total assets) as at end-2010. - Swedish insurers held approximately SEK 665 billions of sovereign bonds as at end-2009, of which 78 percent were issued by Swedish government, 9 percent by authorities in Germany and 7 percent by authorities in the United States. - Level of sovereign bond holdings remained largely unchanged in 2010; main exposure was to German sovereign bonds. ### Captive insurance specifics - Captive segment growth over last 10 years largely tax-driven; captives typically owned by large commercial groups and municipalities to insure/reinsure selected intra-group risks. - About 130 Swedish industrial groups have established captives, of which 30 are domiciled in Sweden. - Of 49 licensed captives as at end-2009: - 33 pure captives (do not write third party liability risks) - 16 write liability insurance involving third party claimants (mainly general liability and some third party motor liability) - 8 captives licensed to write direct insurance - 4 authorized to conduct reinsurance activities - The rest conduct both direct and reinsurance business. ### Observations on foreign risks reporting and analysis - Insurers are required to report foreign risks accepted to FI, but there is no analysis of foreign risk by lines of business or geographical location. - Credit insurance and surety insurance markets dominated by branches of European insurers. *Source: FI’s Swedish Data – FSAP; Swedish Insurance Federation; Swiss Re Sigma 2/10; Riksbanken, the Swedish financial market 2010.* ### 16. Life insurers’ investments are sensitive to interest rate changes, but the ### Life insurers’ investments are sensitive to interest rate changes, but the impact is even greater on their technical provisions ### Interest-rate sensitivity and balance-sheet impact - Long-term interest rates have been declining and reached a record low in 2010. - Lower interest rates increase insurers’ technical provisions mainly due to the discounting rate used to calculate the present value of insurers’ policy commitments. - Reinvestment risk arises from scarcity of suitable long-term investments to match long-term commitments; the average maturity of life insurers’ assets is typically shorter than their liabilities, which can stretch more than 40 years. - Swedish life insurers invest more than 30 percent of their assets in debt securities, with significantly shorter maturities compared to their long-term liabilities. - FI’s 2009 calculation: a one percent decrease in interest rates for all maturities would mean: - increase in the value of life insurers’ liabilities by around SEK150 billion, - Swedish interest-bearing assets would only increase SEK 35 billion, - net effect SEK115 billion given a one percent decrease in the discount rate. ### Asset composition (selected figures from Table 5) - Total assets (2009): 2,723,685 SEK mn; foreign 863,419 SEK mn. - Total assets (2010): 2,949,510 SEK mn; foreign 933,304 SEK mn. - Bonds (Total, 2009): 1,113,590 SEK mn; foreign 337,652 SEK mn. - Equities (Total, 2009): 1,336,504 SEK mn; foreign 500,894 SEK mn. - Life & Unit Linked (2009): - Bonds: 846,567 SEK mn (38%); foreign 269,785 SEK mn. - Equities: 1,186,032 SEK mn (53%); foreign 441,226 SEK mn. - Total life & unit linked (2009): 2,238,450 SEK mn (100%); foreign 728,849 SEK mn. - Nonlife (2009): - Total nonlife (2009): 485,235 SEK mn (100%); foreign 134,570 SEK mn. - Real estate (Total, 2009): 62,920 SEK mn (2%); foreign 7,416 SEK mn. - Note: This analysis includes investments of ULPs totaling SEK 578,386 million. ### Solvency and profit/loss experience - Life insurers’ solvency was hit badly in 2008 due to falling asset prices and a sharp fall in interest rates; solvency ratios recovered somewhat in 2009. - Life insurers recorded a net loss in 2008 with a negative return-on-equity of 48 percent. - Solvency ratio* (as reported): - 2008 7.184.296.722.767.97 - 2009 13.704.689.482.636.92 - *Solvency ratio = available solvency margin/required solvency margin. - As of June 30, 2010, 68 percent of nonlife insurers had a solvency ratio of more than five; a small number reported a solvency ratio of less than two; no insurer had a solvency ratio under one. - Stress tests under the Traffic Light model showed that nonlife insurers have good margins and a relatively stable ratio of more than 3, on average. ### Systemic and market risks - More than 70 percent of insurance savings invested in life insurers and occupational pension funds (SEK1,900 billion as at end-2009) are linked to commitments based on long-term interest rate guarantees. - The average guaranteed interest rate in companies' portfolios is currently around 3.5 percent; many agreements are 15–20 years old and promise a guaranteed interest rate of 5 percent, while new policies normally have a rate of between 2 percent and 2.5 percent. - A potential adverse scenario: if insurers sell shares and purchase interest-bearing assets to manage financial risks, this could put downward pressure on both the stock market and interest rates, potentially creating a vicious circle with systemic implications. - Nonlife insurers face intense competition and exposures to catastrophic weather conditions; between 2005 and 2008 nonlife insurers experienced a real decrease in earned premiums after adjusting for inflation. - New business opportunities for insurers are mainly in products bordering the social insurance system. ### Institutional framework and supervisory arrangements - FI is the integrated supervisor for the financial sector in Sweden, supervising about 3,700 entities (banks, credit institutions, investment firms, fund managers, trading platforms, exchanges, insurers, insurance intermediaries and mutual societies). - FI is accountable to the Ministry of Finance and is governed by an eight-member Board of Directors appointed by the government; the Director-General (DG) is the head of FI. - FI supervises only private insurance business; social insurance is administered by Försäkringskassan. FI collaborates with Pensionsmyndigheten on public pension segment matters. - A Memorandum of Understanding (MoU) among the MoF, the Riksbank, FI and the Swedish National Debt Office (SNDO) established consultation and information-exchange guidelines and created a Domestic Standing Group comprising the State Secretary (MoF), an executive board member of the Riksbank, the Director General of FI, and the Director General of the SNDO. - The key legislation governing private insurance activity is the IBA and the Foreign Insurance Business Act (FIBA); the Insurance Contracts Act (ICA) entered into force on 1 January 2006. ### Key findings (selected) - The Swedish regulatory framework has a high level of observance with the ICPs; the regulatory regime is broadly in line with EU Directives. - FI has introduced the Traffic-Light model for stress testing and adopts a systematic supervisory risk assessment process. - The new IBA (came into effect on 1 April 2011) provides broader powers to FI to issue secondary regulations. - The impending implementation of Solvency II will strengthen FI’s risk-based supervision, subject to the adequacy of supervisory resources. ### Recommendations and supervisory gaps - Strengthen coverage and robustness of FI’s prudential supervision: - FI has no legal authority to establish and assess fitness and propriety of senior management of insurers during licensing and on an ongoing basis. - No regulatory requirement for insurers to report reinsurance strategies and programs, outsourcing arrangements and off-balance sheet exposures including derivatives transactions. - Supervision of insurance groups needs strengthening in reinsurance, risk concentrations and group risk management. - FI should formulate a risk-based supervision approach based on both impact and probability of failure, supported by appropriate baseline supervision. - Enhance policyholder protection: - FI has not issued regulations or guidelines on conditional bonuses, the basis for computing technical provisions, and related disclosures to policyholders. - The authorities should study the net impact of policy transfers on policyholders and review whether existing regulatory measures are adequate to ensure policyholders receive proper advice in their best interests. - Review potential government involvement in institution-specific supervisory issues: - The IBA provides for government involvement in such matters but does not specify the circumstances; authorities should review continued government involvement to safeguard FI’s independence. - Ensure FI is adequately resourced and empowered: - FI’s insurance supervisory staff are competent but resource constraints have limited baseline supervision; implementation of Solvency II and supervision of cross-border groups will have significant resource implications. - The new IBA broadening FI’s mandate to issue secondary regulations is positive; authorities should consider whether legal protection for FI and its staff meets ICP3 expectations. *Source: IMF staff summary of Swedish authorities’ reports and FI data in the content unit _cr11282 — 16. Life insurers’ investments are sensitive to interest rate changes, but the* ### 7. Suitability of persons LO ### _cr11282 - 7. Suitability of persons LO ### Key findings on suitability, powers, and supervisory practice - FI conducts due diligence checks on board members, MDs as well as qualifying holders of insurers and may remove such persons if they are no longer fit and proper. - FI has no power to remove auditors or actuaries, nor do auditors or actuaries have to be approved. - FI is not empowered to assess senior managers (who are not MD). FI may, however, take action indirectly by requiring insurers to take corrective action if it finds that such persons do not meet regulatory requirements. - FI examines insurers’ corporate governance practices during on-site inspections and has taken necessary supervisory measures where appropriate. - FI supervises and assesses insurers’ internal controls in line with the requirements under the IBA and its corporate governance guidelines and has taken supervisory measures for deficiencies in internal controls. - FI has a systematic and transparent approach to market analysis to identify, assess and mitigate risks to the insurance sector; however, due to limited resources, FI does not analyze developments outside the Swedish market on a regular basis and would perform such analysis as part of group supervision when important. - Reporting: FI has issued regulations and guidelines on scope, content and frequency of reports and may require additional reports; regulatory returns are not audited and FI reconciles returns with insurers’ audited annual reports. - On-site inspection: FI conducts full scale and focused inspections and joint inspections with foreign supervisors, but does not have adequate resources to implement baseline supervision for a large number of supervised insurers and intermediaries. - Enforcement: FI takes a proportionate approach to enforcement and sanctions but lacks powers to: a) order a compulsory transfer of insurance portfolios; b) intervene against a subsidiary of an insurer who is not under its supervision; and c) take measures to protect public and policyholder interests pending completion of police investigations. - Winding-up/exit: The IBA and FIBA provide for orderly exits; policyholders and legitimate beneficiaries have priority rights to assets covering insurers’ technical provisions in insolvency. Regulatory requirements over assets covering technical provisions could be strengthened and clear rules of distribution in insolvency should be established. - Group-wide supervision: Sweden’s frameworks are in line with current EU Directives; no specific provisions exist regarding reinsurance, risk concentrations, internal controls and risk management processes applicable to insurance groups. Impending implementation of Solvency II is expected to strengthen supervision, subject to adequacy of regulatory resources. - Risk assessment and management: FI has issued guidelines but lacks resources to monitor adequacy of insurers’ risk management systems on a regular basis. - Insurance activity: FI has guidelines on underwriting and reinsurance risks; supervisory processes on reinsurance arrangements and risk transfer instruments could be enhanced. - Liabilities: FI has principles and regulatory guidelines on computation of technical provisions and applies stress testing under the Traffic Light Model. FI can require remedy of shortfalls but there is no explicit risk margin and no regulatory policy for computing technical provisions in respect of conditional bonuses. - Investments: IBA and FI regulations set requirements for investments covering technical provisions; scope exists to update regulations to reflect international best practice. FI lacks adequate resources to examine insurers’ investment operations regularly. - Derivatives: Insurers disclose derivative activities under accounting standards, ARA and ARIUA; FI has not yet issued regulations on insurers’ derivative activities but is drafting regulations as authorized under the new IBA. - Capital adequacy and solvency: Current solvency regime is largely based on EU Solvency I; FI introduced the Traffic Light model with prescribed stress testing and reporting to better understand risk profiles and facilitate early intervention. - Intermediaries: FI administers licensing of intermediaries with established criteria and monitors compliance. - Consumer protection: Regime established under various legislations administered mainly by FI and Swedish Consumer Agency (SCA) with support of industry associations; authorities involved include National Board for Consumer Complaints and the Consumer Ombudsman. Consumer protection should be strengthened by establishing regulatory requirements for conditional bonuses and review of effectiveness of regulatory measures for transfer of policies. - Information, disclosure and transparency: ARIUA, ARA and FI regulations govern public disclosure but disclosures do not fully meet IAIS public disclosure requirements. - Fraud and AML-CFT: FI and industry are proactive on fraud with cooperation with SECA and other agencies. Recent FATF follow-up report notes Sweden has taken measures to bring 18 out of the 20 recommendations previously rated partially compliant or noncompliant to at least a level equivalent to largely compliant. More supervisory resources are needed for effective AML-CFT supervision of insurers and intermediaries. ### Summary of ICP observance (exact counts) - Observed (O): 9 - Largely observed (LO): 17 - Partly observed (PO): 2 - Not Observed (NO): 0 - Total: 28 ### Key policy recommendations (selected, verbatim from assessment) - Supervisory objectives - Consider adopting explicit supervisory objectives for the insurance sector, including FI’s role in protecting policyholders. - Supervisory authority - a) Review the adequacy of supervisory resources for effective implementation of a more robust risk-based supervision; - b) Consider a more principle-based approach in respect of the scope for FI to issue secondary regulations; - c) Review the role of the government in institution-specific supervisory issues; - d) Consider reviewing whether the legal protection available to FI and its staff members are at the level envisaged by ICP3; and - e) Require publication of the reasons for the removal of board members and the DG of FI. - Supervisory process - Consider reviewing the impact of judicial review on the ability of FI to make timely interventions to protect policyholders’ interests. - Supervisory cooperation and information sharing - Expedite Sweden’s accession to the IAIS multilateral MoU. - Licensing - a) Review the government’s role in the licensing process under the IBA; - b) Extend the fit and proper assessment to senior management of insurers; - c) Consider empowering FI to impose licensing conditions; and - d) Consider having a definition of insurance business in the IBA. - Suitability of persons - Introduce regulations including: - a) explicit provision for FI to assess the fitness and propriety of senior management of insurers as well as their auditors and actuaries; and - b) require insurers to notify FI of circumstances that may affect the fitness and propriety of its board members, MD, senior managers, auditors and actuaries. - Corporate governance - Establish clear corporate governance standards for insurers on: - a) The minimum level of independent directors and criteria for independence; - b) Establishment of relevant board committees, taking into account the nature, scale and complexity of their operations; - c) Policies and procedures to assess the effectiveness of their boards; - d) The role and accountabilities of senior managers; and - e) Providing actuaries with direct access to the board and board committee on a timely basis. - Internal controls - Consider adopting explicit provisions to ensure internal auditors have unfettered access to the board and senior management and appropriate status to ensure management acts upon recommendations. - Market analysis - Enhance capacity and resources to analyze developments outside the Swedish market on a regular basis including Swedish insurers’ exposures to foreign risks. - Reporting to supervisors - a) Formulate a more robust risk-based supervision approach based on both impact and probability of failure, supported by an appropriate baseline supervision; - b) Review the adequacy of resources for off-site monitoring; - c) Establish clear regulatory requirement for insurers to report their reinsurance strategy and program, outsourcing arrangements and off-balance sheet exposures including derivatives transactions; and - d) Require annual regulatory returns of insurers to be audited. - On-site inspection - Improve robustness of on-site inspection and ensure planned baseline onsite supervisory program is supported by adequate supervisory resources. - Enforcement or sanction - a) Empower FI to order a compulsory transfer of insurance portfolios of an insurer in distress; - b) Strengthen FI’s intervention powers against unregulated entities within an insurance group or financial conglomerate; - c) Consider how best to empower FI in taking necessary measures to protect public interests pending completion of police investigations; and - d) Review the government’s continued involvement in enforcement and sanctions at institution-specific level. - Winding-up or exit from the market - a) Ensure adequate controls over assets covering technical provisions including quarterly submission of the special register of assets; and - b) Establish clear rules on how existing assets of an insolvent insurer are to be distributed amongst policyholders. - Group-wide supervision - a) Review adequacy of supervisory resources, particularly for effective supervision of cross-border groups/conglomerates; - b) Harmonize supervisory approach for insurance groups and conglomerates, e.g., in the area of risk concentration; and - c) Formulate appropriate regulatory requirements applicable to nonregulated holding companies. - Risk assessment and management - Develop policies and processes to monitor adequacy of insurers’ risk management systems on a regular basis including requiring insurers to report on their risk management system as part of the annual returns. - Insurance activity - a) Review adequacy of reinsurance programs as part of routine off-site surveillance instead of current limited scope review; and - b) Establish policies and procedures to check that insurers properly account for all risk transfer instruments. - Liabilities - Note: The implementation of Solvency II will strengthen FI’s supervision over insurers’ technical provisions. - Investments - Enhance robustness of supervision of insurers’ investment operations and update regulations on investment management by insurers. - Derivatives and similar commitments - Expedite issuance of regulations governing insurers’ derivative activities. - Capital adequacy and solvency - The implementation of Solvency II with effect from January 2013 will facilitate FI in implementing a more robust and risk-sensitive solvency regime. - Consumer protection - a) Review the adequacy of current regulatory requirements for conditional bonus and transfer of policies; and - b) Consider articulating more clearly the roles and accountabilities of various agencies involved in consumer protection. - Information, disclosure and transparency towards markets - FI should formulate plans to implement the IAIS supervisory standards on public disclosures to facilitate market discipline. - Anti-money-laundering, combating the financing of terrorism - a) Review the adequacy of resources for AML-CFT supervision; and - b) Update legal requirements where insurers rely on intermediaries to perform customer due diligence (CDD). ### Authorities’ response (excerpt) - The Swedish authorities welcome the assessment of the regulation and supervision of the insurance sector, share the views and grading of the Insurance Core Principles, and will use the recommendations to improve regulation and supervision of the Swedish insurance sector. *Source: _cr11282 - 7. Suitability of persons LO* ### 32. Several of the issues raised will be dealt with once the new regulatory ### _cr11282 - 32. Several of the issues raised will be dealt with once the new regulatory ### Conditions for Effective Insurance Supervision (Principle 1) - Description - The Financial Supervisory Authority Instructions Ordinance (FIO) establishes FI as the integrated supervisor for the entire financial sector; FI is responsible for supervision, rule establishment, processing of license applications, and coordinating supervision under the Money Laundering and Terrorist Financing Ordinance (MLTFO) (s1 of FIO). - The IBA sets out the legal and policy framework for insurance supervision and provides FI with enforcement and sanction powers. - Swedish court structure: general courts handle criminal and civil cases; administrative courts deal with public administration matters; both operate in a three-tier system. Permanent judges are appointed by the Government; SIG cpt11, s7 addresses judicial independence and grounds for dismissal. - Accounting and auditing: ARIUA generally consistent with IFRS with local adaptation; Swedish auditing standards based on International Standards on Auditing; actuarial standards in IBA and FI guidelines (S10 of FIO). - Auditors and actuaries must meet IBA requirements; only approved auditors or chartered accountants may serve as insurers’ auditors; insurers’ estimation of technical provisions is subject to actuarial supervision (ICP 7). Relevant legal references: Cpt7, s18 of cpt 8 & s3 of cpt 10 of IBA, FFFS 2003:8, FFFS 2008:23 and FFFS 2008:26. - Auditors’ whistle-blowing obligations to notify FI of circumstances that could a) represent a significant contravention of laws; b) adversely affect ongoing operation; or c) lead to qualified opinion (Cpt10, s8c of IBA). Auditors have not made such notifications to FI; authorities engage auditors to enhance cooperation. - Professional bodies: Far (Supervisory Board of Public Accountants) currently has 5,900 members; Actuarial Society of Sweden has 435 members, of which 123 are full members; membership is not compulsory for auditors or actuaries appointed by insurers. - FI and Statistics Sweden publish insurance sector statistics. - High degree of self-regulation: Swedish Insurance Federation represents more than 90 percent of the Swedish insurance market; multiple committees provide interpretative guidelines. - Financial markets (end-2009): - 281 companies listed on a regulated market3 and 241 companies traded on Multilateral Trading Facilities (MTFs)4. - Combined market capitalization as at end-2009 of SEK3,413 billions. - Turnover of SEK3,393 billions (average daily turnover of SEK13.5 billions). - Swedish bond market total volume as at end-2009 amounted to SEK 2,265billions. - Insurers accounted for approximately 50 percent of the outstanding in the bond market as at end-2009. - Insurers have wide access to regional and international instruments aiding asset-liability management. - Sweden updates laws regularly to reflect EU Directives and international developments. - Assessment: Observed - Comments / Findings - Sound, clearly defined financial sector policy framework; Swedish accounting, auditing and actuarial standards generally consistent with international standards. - High degree of industry self-regulation and well-developed financial infrastructure supporting asset-liability management. ### Supervisory Objectives (Principle 2) - Description - FI mandate: promote a stable and well-functioning financial system with a good level of consumer protection; duty to notify Government of risks to financial stability; cooperation with Riksbank and Swedish Civil Contingencies Agency under Crisis Management and Enhanced Preparedness Ordinance (S2, s3, s6 of FIO). - Consumer protection mandate shared with SCA; involvement of National Board for Consumer Complaints (ARN) and Consumer Ombudsman. - Supervisory objectives are not explicitly stated in law/regulation but are described in public FI reports and public engagement by DG and senior staff. - FI vision components: a) prevent financial crises; b) companies and consumers access broad services with clear conditions; c) market participants view FI as a highly competent authority that offers guidance. - FI internal prioritization: annual process; 2009 priorities were a) stability and a functioning market; b) consumer protection; c) staff members – attractive employer; and d) efficiency—good insight and competition. - MoF primarily responsible for financial sector development; Financial Markets Committee promotes development and arranges Financial Markets Roundtable twice a year. - Assessment: Observed - Recommendation - Authorities are advised to consider adopting explicit supervisory objectives for the insurance sector, including FI’s role in protecting policyholders. ### Supervisory Authority (Principle 3) - Description / Findings - Governance: FI is a central administrative authority governed by an eight-member board appointed by Government; DG and board have fixed appointment terms (board members three years; DG six years); DG removable only for misconduct or disability; grounds for removing board members are unspecified. - Legislative powers: Parliament adopts laws; government may authorize FI to issue secondary regulations only when specifically authorized by primary regulations; FI’s ability to issue secondary regulations historically constrained. - New IBA (effective April 1, 2011) provides FI wider mandate to issue regulations in solvency, liquidity and risk management based on broad principles (Cpt 4 s18 of new IBA). - FI issues nonbinding general guidelines; majority of supervised entities follow them though FI cannot enforce nonbinding guidelines. - Government involvement: IBA provides for direct government involvement in institution-specific supervisory decisions (e.g., license approvals, revocation, warnings, administrative fines). - Funding and fees: - FI funded by MoF; supervised entities pay fees on a cost recovery basis. - For insurers, the lowest fee is SEK 20,000, except for some minor friendly societies. - Fees calculated on time spent; employees report time spent by institution category; nonfixed fees distributed among institutions in proportion to balance sheet size. - FI’s annual budget decided by parliament; appropriations letter may include reporting requirements and specific projects; FI controls approved budget subject to exceptions for government-granted resources. - Resourcing: - Total operating costs of FI were SEK257 million for 2008. - Supervisory resources grew from 200 employees (full time) in 2000 to around 300 in 2010. - Independent study concluded FI has relatively fewer budgetary and staffing resources than comparable agencies; expanding workload has diverted resources from front-line prudential supervision. - At time of assessment, 44 insurance supervisors covered legal matters (15), on-site inspection (12) and off-site monitoring (17) for more than 400 insurance entities and more than 1,000 insurance intermediaries.12 - Separate unit with 6 staff for internal models; intermediaries supervised by separate unit with 7 staff. - Accountability and transparency: - FI publishes annual plan and annual report; subject to Swedish National Audit Office review; DG appears before Parliamentary Finance Committee annually; supervisory measures public subject to confidentiality; decisions scrutinized by administrative courts. - Internal audit: existing arrangement uses Riksbank internal auditors part-time; internal audit report on FI expected April 2011; long-term need for adequately resourced internal audit. - Legal protection: - No explicit legal protection for FI against lawsuits for actions taken in good faith; Swedish tort law and Damages Act (1972:207) apply; high threshold for negligence in case law. - Damages Act protects staff against damages except on extraordinary grounds; FI may seek damages from employee in exceptional circumstances (Cpt 4, s1 of Damages Act) — not fully aligned with ICP3 essential criteria on protection against costs of defending actions. - Ethics and confidentiality: - FI instituted ethical standards (confidentiality, loans from supervised entities, outside activities, dealings in financial instruments); policies for ex-employees taking posts in supervised entities (S14 of FIO). - Outsourcing: FI may hire external specialists; assesses competence, monitors performance, ensures independence, and applies confidentiality/code-of-conduct requirements. - Secrecy protections: Administrative Procedure Act (1986:223) and Public Access to Information and Secrecy Act (2009:400); disclosure allowed under specified conditions; mandatory disclosure to parliament and government. - Confidential information from EEA authorities protected by general secrecy provisions. - Assessment: Partly Observed - Recommendations (authorities are advised to) - a) review the adequacy of supervisory resources for effective implementation of a more robust risk-based supervision; - b) consider a more principle-based approach in respect of the scope for FI to issue secondary regulations; - c) review the role of the government in institution-specific supervisory issues; - d) consider reviewing whether the legal protection available to FI and its staff members are at the level envisaged by ICP3; and - e) require publication of the reasons for the removal of board members and the DG of FI. ### Supervisory Process (Principle 4) - Description / Findings - FI internal memorandum: “The process for carrying out operational supervisory activities” covers planned and ad-hoc activities; objectives include prioritization, checks and balances, quality assurance and documentation. - Prioritization: supervisory activities prioritized relative to other activities, FI goals, and risk assessment. Quality assurance via “Observation Document,” structured analysis, and formal case closure by head of unit or authorized staff. Decisions to impose sanctions made by FI board. - Evaluations: supervisory activities evaluated after completion by staff team and approved by head of unit. - Risk Assessment Process: - Produces risk profile for each supervision department and aggregate FI risk profile. - Prioritizes risks by likelihood and impact; aims to create tool for prioritization, not a scale-based profile. - Risk areas include consumers, financial stability and effects on confidence/efficiency. - Supervisory departments hold two risk assessment meetings per year; CEU summarizes results for management meeting and board. - CEU responsible for macro-economic analysis; FI participates in EU macro-prudential oversight council and cooperates with Riksbank. - Traffic Light model: - Framework for stress testing insurers; measures exposure to key financial, insurance and expense risks. - First step: calculate capital buffer based on fair value of assets and liabilities; capital buffer consists of subordinated debt, untaxed reserves and shareholders’ equity. - Prescribed stress scenarios applied; insufficient buffer shows a red light. - Traffic Light model is an approximation and flags companies for deeper investigation; small local non-life insurers and company-linked pension foundations not included in reporting. - Quarterly Traffic Light reports prepared from 2010; results summarized in Insurance Barometer on FI’s website. - Public reporting: annual “The Risks in the Financial System” report and various supervisory and statistical publications. - Systemic importance: criteria developed and discussed regionally; at assessment time no insurer classified as systematically important. - Assessment: Observed - Recommendation - Consider reviewing the impact of judicial review on FI’s ability to make timely interventions to protect policyholders’ interests. ### Supervisory Cooperation and Information Sharing (Principle 5) - Description / Findings - Domestic cooperation with Riksbank informal; Riksbank has dedicated macro-prudential resources for insurance sector (S7 of FIO). - Regional and EU cooperation: FI participates in EU policy deliberations and coordinates supervision in line with EU Directives and EIOPA guidelines; considers impact on EEA financial stability (S5 of FIO). - Secrecy Act constraints: FI may disclose information where Secrecy Act does not hinder disclosure; secrecy covers business/management conditions and client economic/personal information (Cpt 8, s3 and cpt 30, s4 of Secrecy Act). - Exceptions and cooperation: - Two exceptions to Secrecy Act: a) disclosure in accordance with IBA—cooperation and exchange with foreign supervisors and European Commission as implied by EU membership; and b) if similar disclosures to Swedish authorities would be allowed and compatible with Swedish interests (Cpt 19, s1 of IBA). - FI may provide information to home supervisors within the EEA for supervision of insurers and foreign occupational pension entities; FIBA empowers cooperation with supervisors outside the EEA (Cpt 3, s2 and cpt6. s1 of FIBA). - Within EEA reciprocity protects confidentiality without formal MoU requirement; for non-EEA supervisors FI typically requires an agreement or confidentiality guarantee. - Existing agreements and practice: - FI has MoUs with a number of EU member states; Sweden is a signatory of the Helsinki protocol, the revised Siena protocol and Budapest protocol. - FI cooperated with Greek and Portuguese authorities in 2009 on a Swedish life insurer subsidiary fraudulent transfer of assets. - Notifications and cooperation obligations when Swedish insurer establishes branch/agency in another EEA country; FI should provide certificates within three months verifying sufficient funds; insurers must notify FI and host supervisors of subsequent changes. - FI prepares to sign the IAIS multilateral MoU pending government approval; FI participates in supervisory colleges within EU and is lead supervisor in two insurance groups. - Assessment: Observed - Recommendation - Authorities are advised to expedite Sweden’s accession to the IAIS multilateral MoU. ### Licensing and Supervised Entities (Principle 6) - Description / Findings - Licensing requirement: - IBA provides insurance business may only be carried on by a public company limited by shares or a mutual organization, licensed by FI. - No statutory definition of “insurance business” under IBA; civil courts have provided definitions in prosecutions for illegal insurance activities. FIBA defines foreign insurers (Cpt 1, s1 of IBA and cpt 1 s5 of FIBA). - Enforcement against unlicensed activity: - FI shall order an unlicensed operator to: a) apply for license; b) make arrangements demanded by FI; or c) cease business. Non-compliance may incur administrative fines (Cpt 19, s12 and cpt 21 s2 of IBA). - Cross-border activity: - EEA insurers may operate in Sweden from a secondary establishment or cross-border subject to notification and FI obligations to provide certificates verifying sufficient funds within three months. - Assessment: (implicit within Principle 6 description) Licensing requirements are clear, objective and public as set out in IBA; enforcement powers defined. *Source: IMF staff detailed assessment excerpt from Sweden: Detailed Assessment of Conditions for Effective Insurance Supervision and Principles 1–6.* ### Chapter 2 of the IBA sets out detailed provisions regarding the formation and incorporation of an insurance ### _cr11282 - Chapter 2 of the IBA sets out detailed provisions regarding the formation and incorporation of an insurance ### Licensing, formation and incorporation - Chapter 2 of the IBA sets out detailed provisions regarding the formation and incorporation of an insurance company limited by shares and a mutual insurer. An insurer not formed in accordance with these provisions cannot be granted a licence. - Non-EEA insurers: - May be licensed to conduct insurance business in Sweden from an agency or branch office in Sweden. They may, with FI permission, market insurance products in Sweden concerning risks located in Sweden if marketing is through a licensed insurer and both insurers belong to the same group or have cooperation agreements. (Cpt 4 s1 of FIBA). - Must, before applying for a license, place securities on deposit equivalent to 300 times the base amount, currently set at SEK 42,800. Agreements between Switzerland and the EU allow Swiss nonlife insurers to establish an agency or branch in Sweden without a deposit with a Swedish bank. (Cpt 5 s1 of FIBA). - Applications and decision-making: - Applications for a license are considered by FI; “matters of principle or particular importance are examined by the Government.” If examined by government, FI must submit a statement of opinion. The IBA is silent on whether FI decides to refer an application to government. (Cpt 2, s3 of IBA and cpt 4 s4 & s5 of FIBA). - The new IBA explicitly states that “governmental assessment takes place upon notification of FI.” The related government bill states that “FI shall decide whether an application for a license shall be referred to the government.” - A license may not be denied on the grounds that no more insurers are needed. (Cpt 2, s3 of IBA and cpt 4 s4 & s5 of FIBA). - Minimum guarantee fund and business plan: - Minimum guarantee fund: a) direct life insurer and a reinsurer is €3,000,000; and b) direct nonlife insurer is €2,000,000; or any higher sum determined by the European Commission (currently at €2,300,000 and €3,500,000, respectively). (FFFS 2008:8 and cpt 7 s26 & s27 of IBA). - An application shall include a business plan covering at least three years, including types of risks, reinsurance arrangements, composition of minimum guarantee fund, estimated administrative costs, estimates of premiums or claims, forecast balance sheet, financial means to cover obligations and estimation of available and required solvency margin. FI issues regulations on business plan content and holds a meeting with applicants. (FFFS 2008:8). - Licensing timeline and appeals: - FI policy is to issue a licensing decision within five months from the date of the application, provided the application is complete. FI must inform applicant of decision without delay and explain refusals. - If application undecided within six months, applicant may apply to administrative court for declaration of unnecessary delay. FI must make decision within six months from the declaration, otherwise application is deemed rejected. (S7 & s20 of the Administrative Procedure Act and cpt 19 s13 of IBA). - On-site review after licensing: - FI conducts an on-site investigation of a newly established insurer within one year from the grant of the license, reviewing register of assets for technical provisions, board minutes, policies and guidelines, financial forecasts and prognosis, etc. - Assessment: Largely Observed. - Key supervisory recommendations related to licensing: - review the government’s role in the licensing process under the IBA; - extend the fit and proper assessment to senior management of insurers; - consider empowering FI to impose licensing conditions; - consider having a definition of insurance business in the IBA. ### Principle 7 — Suitability of persons (fit and proper) - Scope of suitability assessments: - FI shall assess fitness and propriety of board members, MD and their deputies at licensing stage and on an ongoing basis. (Cpt 2 s3 of IBA). - A person owning a qualifying holding of shares or interests must be suitable to exercise significant influence. (Defined in Chapter 1, Section 9i of the IBA). - FI is not required to assess suitability of senior managers who are not board members or MD; FI may order an insurer to take necessary measures if a senior manager is deemed unfit. (Cpt 19 s11h of IBA). - Auditors and actuaries: - IBA prescribes qualification requirements for external auditors and actuaries appointed by insurers. (ICP 7). - An insurer may only appoint an approved auditor or chartered accountant as its external auditor. (ICP 1; Cpt 10 s3 of IBA). - An actuary must meet criteria in FFFS 2007:21, including meeting education requirements set by the Actuarial Society of Sweden or the International Association of Actuaries and having at least three years practical experience; actuary qualified outside Sweden must have sufficient Swedish to understand applicable laws and regulations. (Cpt 8 s18 of IBA). - FI has no power to remove auditors or actuaries nor are they required to be approved, but FI may intervene if deemed unfit or improper. - Supervisory cooperation and information: - Home supervisor certificate required for foreign insurers includes classes of insurance entitled and details on available solvency margin, required solvency margin and composition of minimum guarantee fund or equivalent. (FFFS 2008:9 and FFFS 2009:3). - FI collaborates with Swedish National Police Board, Companies Registration Office, National Tax Board, Enforcement Authority and credit assessment firms as part of ownership assessment. (FFFS 2009:3). - Pursuant to the Revised Siena Protocol, EEA supervisory authorities exchange relevant information on board members, MD and shareholders during licensing and on-going supervision; FI may request information from nonEEA supervisors. - Enforcement powers: - If a person is deemed unfit to hold office as board member or MD, FI shall order removal; noncompliance within three months may lead to license revocation. FI may remove person and appoint alternate until qualified appointment. (Cpt 19 s11c of IBA). - FI may decide that a qualifying holder may exercise voting right of no more than 10 percent of the shares held, and may order reduction of interest below qualifying holding threshold. (Cpt 3 s2d and cpt19 s3 of IBA). - Assessment: Largely Observed. - Recommendations: - introduce regulations for FI to explicitly assess fitness and propriety of senior management as well as auditors and actuaries; - require insurers to notify FI of circumstances that may affect fitness and propriety of board members, MD, senior managers, auditors and actuaries. ### Principle 8 — Changes in control and portfolio transfers - Definitions and thresholds: - “Control” defined under the ARA: holding, directly or indirectly, more than half of votes/shares or right to appoint/dismiss majority of board. (Cpt 1 s4 of ARA). - Qualifying holding: directly or indirectly holds 10 percent or more of shares or votes or exercises significant influence. (Cpt 1 s9i of IBA). - Notification and approval requirements: - Persons intending to acquire a qualifying holding must obtain prior approval from FI. Crossings of 20, 30 or 50 percent thresholds require approval; disposals must be notified. - Insurers must annually report names and sizes of qualifying holdings to FI and immediately notify FI of transfers requiring approval or if target for acquisition or has close links with another entity. (Cpt3 s2, s2a & s2b of IBA). - FI consults relevant home supervisors; if no response within three months, FI assumes no objection. - Assessment criteria: - Assessment of acquisitions based on same financial and nonfinancial criteria as licensing. - FI shall not approve acquisition if it results in group structure hindering effective supervision; FI may order disposal. Corporate qualifying holder must notify FI of management changes. (Cpt3 s2, s2f & s2c of IBA). - FI rejects ownership structures prejudicial to policyholders’ interests and assesses beneficial owners and persons exercising significant influence. - Portfolio transfers: - Swedish insurer and non-EEA foreign insurer may, with prior FI approval, transfer all or part of insurance portfolio to another insurer (Swedish or authorized foreign insurer or foreign insurer established within EEA). (Cpt15 s1 of IBA and cpt9 s4 to s8 of FIBA). - FI shall approve a portfolio transfer if rights of policyholders not adversely affected; transferee has adequate available solvency margin after transaction; and competent supervisor where risks located or commitments discharged has consented or not objected. (Cpt15 s3 & s4 of IBA). - For insurers domiciled within the EEA, home supervisor consults FI and FI consents if policyholders’ rights are not adversely affected and transferee has adequate solvency after transaction. (Cpt9 s2 & s3 of FIBA). - Practical example: - In 2009 FI disallowed conversion of a mutual insurer into a corporate entity pending clarification of conversion regulations to increase policyholder influence; FI critically evaluates assumptions about long-term sustainability of new entity. - Assessment: Observed. - Comment: Regulatory requirements for acquisitions and portfolio transfers are clearly set out; FI will not approve transfer unless policyholders’ rights are protected. ### Principle 9 — Corporate governance - Board structure and responsibilities: - Sweden adopts unitary board system. IBA requires at least half of board members of insurers be nonexecutive directors. No definition or requirement for independent directors exists. - MD cannot be chairman; board shall adopt strategies and objectives including guidelines on technical provisions, investment policy and handling conflicts of interest. Board ensures guidelines are complied with and kept up-to-date. (Cpt8 s7, s8 & s10 of IBA and cpt2 s1& s3 of FFFS 2005:1). - MD shall ensure board receives objective, comprehensive and relevant information to make well-informed decisions and keep board informed on pertinent developments. (Cpt 2 s4 of FFFS 2005). - Governance functions and committees: - FI guidelines provide high-level principles on corporate governance, internal controls, risk management, compliance, internal audit and outsourcing. (Cpt8 of IBA and FFFS2005:1). - No specific statutory provision on establishment of board committees except listed insurers are expected to establish independent audit committees; none of licensed insurers are listed. - FI remuneration guidelines expect establishment of independent remuneration committee or a nonexecutive director responsible for preparing significant remuneration decisions. (Cpt2 s3 of FFFS_2009:6). - Remuneration rules: - Board decides remuneration. FI guidelines: remuneration policy should promote effective risk management and not encourage excessive risk-taking; for employees with material impact on risk exposure, at least 60 percent of variable remuneration should be deferred for at least three years with possibility of claw back. (Cpt8 s1, s3, s9 of IBA, FFFs2009:6 and FFFS2009:7). - Conflicts of interest and codes of conduct: - FI issued guidelines on ethical conduct requiring insurers adopt code of conduct on accepted business standards and ethical behavior; board required to adopt policies addressing conflicts of interest and fair treatment of customers. (FFFS 1998:22, cpt 7s30 and cpt8, s8 s12 & s15 of IBA). - Fit and residency: - Board members, MD and qualifying holders must meet fit and proper criteria. MD and at least half the board members shall be residents of the EEA unless approved by FI. A former auditor of a listed company or lead auditor may not be board member, MD or senior executive within two years of withdrawal from audit assignment. (Cpt8, s4a of IBA). - Access and supervisory powers: - FI may, when necessary, convene a board meeting and may attend; board and MD must make assets, accounting records and other documents available for inspection by FI. (Cpt19 s8 & s9 of IBA). - Gaps and recommendations: - No statutory definition of senior management or explicit provisions on their responsibilities. - No explicit provision granting actuary direct access to board or board committees; in practice most actuaries have direct access. - Authorities advised to strengthen corporate governance regime and establish clear standards on: - minimum level and criteria for independent directors; - establishment of board committees appropriate to nature, scale and complexity; - policies and procedures to assess board effectiveness; - role and accountabilities of senior managers; - providing actuaries with direct access to board and board committees on timely basis. - Assessment: Largely Observed. ### Principle 10 — Internal controls - Board accountability and internal control framework: - Board remains ultimately responsible for organization and management of insurer. FI guidelines set expectations for sound internal controls. (Cpt8 s7 of IBA and cpt 2 s1 and cpt 3 of FFFs2005:1). - Internal control framework should include delegation of authority, segregation of duties and suitable prudential oversight. (Cpt 3 s4 and cpt 4 s3 of FFFs2005:1). - Risk management, internal audit and compliance: - Board expected to establish an independent risk management function and independent internal audit function with sufficient resources and trained staff. Head of internal audit should attend board meetings where internal audit reports are considered. (ICP 18; Cpt6 s1 of FFFs2005:1). - No express provision that internal audit shall have unfettered access to all functions or specific status to ensure senior management acts upon recommendations. - Compliance function required; external auditor audits annual accounts and assesses internal controls. (Cpt5 s3 of FFFs2005:1 and cpt 10 s8 of IBA). - Outsourcing: - Insurers may outsource but board and MD remain responsible. Insurer must notify FI if outsourcing a material part of business or any internal control function. Internal rules on outsourcing must address: managing outsourcing risks; protection of confidential information; performance assessment; supervision by FI; and terms/termination. (Cpt 7 s1, s2 & s4 of FFFS 2005:1). - FI supervisory practice: - FI assesses adequacy of internal controls, reviews policies and procedures, board minutes, interviews board members and control functions, and may request internal audit reports. FI may require justification for departures from guidelines and recommend measures; may take further action if insurer fails to remedy deficiencies. (Cpt19 s11 of IBA). - Assessment: Observed. - Recommendation to strengthen internal audit role: - Consider adopting explicit provisions to ensure internal auditors have unfettered access to board and senior management and appropriate status to ensure senior management acts on recommendations. *Source: Chapter 2 and related sections of the IBA and FIBA as provided in the supplied content.* ### conclusions and takes action as appropriate. ### _cr11282 - conclusions and takes action as appropriate. ### Market analysis and risk assessment - FI conducts a Risk Assessment Process to identify and grade key risks in the financial markets; results are used to prioritize supervisory activities. (ICP4) - FI analyzes insurer reports supplemented by the Traffic Light model for early detection of vulnerabilities. - FI holds four “analysis meetings” each year to analyze the financial condition of each insurer and the relation of the economy and market trends to each insurer. - FI performs thematic ad-hoc analyses (example: capacity of traditional life insurers to cope with a reduction of the discount rate used for estimating technical provisions). - FI participates in CEIOPS analysis on market risk exposures for insurers within the EEA. - FI publishes “the Insurance Barometer” twice a year summarizing Traffic Light results and solvency development; FI’s “The Risk in the Financial System” for 2010 highlighted sensitivity of life insurers to an extended period of low interest rates. - External statistics: The Swedish Insurance Federation publishes quarterly insurance statistics; Statistics Sweden also publishes insurance data. - FI does not analyze developments outside the Swedish market on a regular basis and does not analyze foreign risks accepted by nonlife insurers by line or geography regularly; ad hoc analyses of political risks, tax environment, market trends are conducted when relevant. - Assessment: Largely Observed. - Comment/advice: It is important that FI enhance capacity and resources to analyze developments outside the Swedish market on a regular basis including Swedish insurers’ exposures to foreign risks. ### Off-site reporting and monitoring (Principle 12) - Required regulatory reports (scope, content, frequency set by FI regulations/guidelines) include: - Solvency of foreign insurers in respect of the business in Sweden - Available/required solvency margin of insurers which are part of a group - Material business matters and agreements within an insurance group - Governance and control - Reporting by financial conglomerates - Quarterly statements by Swedish nonlife insurers - Quarterly statements by Swedish life insurers - Foreign insurers’ operations in Sweden - Annual accounts of Swedish nonlife insurers, Swedish minor nonlife insurers, Swedish life insurers - Quarterly results of the Traffic Light model (except minor insurers) - FI may require additional information (e.g., credit ratings of reinsurers); selection based on premium retention level. Due to resource constraints, FI did not examine reinsurers’ arrangements beyond credit ratings in the last 2 years. - No requirement that regulatory reports be audited; the MD and the actuary must certify truth and accuracy; annual reports (audited) are filed with the Swedish Companies Registration Office and publicly available. - FI abolished the appointed auditor requirement in 2008 and is working to improve collaboration with auditors. - Insurers submit solo information; groups submit consolidated accounts annually; financial conglomerates report annually on available solvency and required solvency margin. (Cpt 7 s6 of IBA, FFFS2006:6) - Off-balance sheet exposures are not required routinely though work is in progress; such items typically appear in annual reports. - Outsourcing of a material part of business is a supervisory expectation under nonbinding FI guidelines; no definition of “material” or “key functions” and reporting is not mandatory. (Cpt 7 s4 of FFFS2005:1) - Enforcement for reporting: MD and actuary certification; administrative fines for late/inaccurate reports; inaccurate/misleading information punishable by fine or imprisonment not exceeding one year. (Cpt 19 s11 & s11f and cpt 21 s1 of IBA) - Solvency reports and Traffic Light results are reviewed by a “Fast Track” approach; quarterly internal reports identify insurers with potential regulatory concerns (internal, not public). - Assessment: Largely Observed. - Comments: Reporting requirements exist but returns are not audited; FI must reconcile with audited annual reports. Insurers are not required to report outsourcing, derivatives, off-balance sheet transactions regularly. FI lacks adequate resources to conduct adequate off-site monitoring for all licensed insurers. - FI is advised to: - a) formulate a more robust risk-based supervision approach based on both the impact and probability of failure, supported by appropriate baseline supervision; - b) review the adequacy of resources for off-site monitoring; - c) establish clear regulatory requirement for insurers to report their reinsurance strategy and program, outsourcing arrangements and off-balance sheet exposures including derivatives transactions; - d) require annual regulatory returns of insurers to be audited. ### On-site inspection (Principle 13) - FI has unfettered on-site inspection powers; board and MD must make funds, assets, accounting records and documents available. Scope may extend to affiliated undertakings, claims adjusters, and similar bodies. (Cpt 19, s9 & s10 of IBA) - Inspections may be full-scale or focused. - Due to inadequate resources, FI historically lacked a general inspection plan and concentrated on the top 12 to 13 insurers. - Typical inspection reviews: operational and legal structure, board minutes, senior management performance, reporting lines, delegation of authority, operations manuals, conflict of interest policies, risk management and control, insurance activities, internal and external audit reports; FI may meet internal/external auditors. Post-inspection, FI issues a findings letter and insurer is expected to respond. (S17 of the Administrative Procedure Act) - Inspections often involved fact-finding visits after document review; routine inspections did not typically assess effective implementation of policies, procedures and controls. - FI started a 5-year inspection cycle in 2011 and completed 12 full-scale inspections of smaller insurers in the first quarter. - FI monitors remedial actions and conducts follow-up investigations where corrective action requires more time. FI ensures outsourcing arrangements provide for FI inspection rights; may act if outsourcing without provision for FI supervision. - EU home supervisors may inspect secondary establishments in Sweden after notifying FI; FI entitled to participate. FI supervises Swedish insurers’ branches in the EEA within available resources. (Cpt 3, s5 of FIBA) - Assessment: Largely Observed. - Comment/advice: FI should improve robustness of on-site inspections beyond checklist approaches and ensure baseline onsite program is supported by adequate resources. ### Preventive and corrective measures (Principle 14) - FI can take a range of preventive and corrective actions, from discussions and reports to enforcement under IBA/FIBA. (ICP 15) - Progressive escalation measures available for Swedish insurers include: - Calling/attending board meetings or extraordinary general meetings. (Cpt 19 s8 & s9 of IBA) - Intervention against a qualifying holder (limit voting to less than 10 percent of shares; request court to appoint representative; order disposal below qualifying threshold). (Cpt 3 s2, s2e of IBA) - Ordering action against unfit officers. (Cpt 19 s11h of IBA and Cpt s2 of SSFCA) - Replacement of board members or the MD. (Cpt 19 s11c & s11h of IBA and Cpt 2 s2 of SSFCA) - Imposing a fine not exceeding SEK 100,000 for late filing. (Cpt 19 s11f of IBA and cpt7 s4 of SSFCA) - Issue a reprimand, subject to government review. (Cpt 19 s11 of IBA) - Measures for foreign insurers within the EEA: - Order remedy of breach; limit right of disposal of assets if home supervisor adopts similar measures. (Cpt 3 s6 & s7 of FIBA) - Measures for foreign insurers outside the EEA: - Reprimand; order remedial action; prohibit disposing assets in Sweden. (Cpt 7 s8; Cpt 6 s8; Cpt 6 s9 & s11 of FIBA) - FI requires financial recovery plans or restoration plans where policyholders or solvency are at risk. (Cpt19 s11 of IBA; cpt6 s9 of FIBA; Cpt5 s12 to s14) - FI acts on information from other institutions, employees, media, public authorities, foreign supervisors, or the public as preventive measures. - Assessment: Observed. - Comment: FI is empowered to escalate preventive measures. ### Enforcement and sanctions (Principle 15) - FI’s enforcement powers include: - Ordering insurers to adopt or refrain from specific measures. (Cpt 21, s2 of IBA) - Revocation of license; matters of principle or special importance examined by Government. (Cpt 6 s13 of FIBA and cpt 19, s11 of IBA) - Imposing administrative fines up to SEK 50 millions; fine may not exceed 10 percent of insurer’s turnover. Government may decide on warning then refer to FI for fine decision. (Cpt 19, s11d of IBA, cpt10 s5 of FIBA and cpt7 s9 of SSFCA) - Fine or imprisonment not exceeding one year for deliberate/negligent acts like providing inaccurate information. (Cpt 21 s1 & s1a of IBA and cpt 10 s6 of FIBA) - Limiting/prohibiting free disposal of assets in Sweden and deciding how business shall be conducted. - Prohibiting foreign insurers from marketing or entering new insurance agreements. - FI established sanctions procedure for reprimands, warnings, and withdrawal of licenses; no dedicated enforcement section; supervisors handle investigations leading to referrals. - FI may refrain from imposing sanctions when infringement is trivial/excusable, remedied, or another authority’s action deemed sufficient. (Cpt 19 s10b of IBA) - Sanction decisions are normally announced publicly on FI’s website and in FI's newsletter and Board minutes. - FI cannot order compulsory transfer of insurance portfolios but may indirectly provide assistance during compulsory liquidation; if license of a foreign life insurer outside EEA is revoked, FI administers business and may transfer portfolio to approved insurers with FI approval. (Cpt 7 s4 & s5 of FIBA) - FI can require capital injections and may restrict/suspend dividends; listed insurers allowed to purchase own shares, other insurers prohibited except in specified situations. (Cpt 19 s11 of IBA; Cpt 6 s3 & s4 of IBA) - FI may intervene where insurer jeopardizes group financial situation but cannot intervene against subsidiaries not under its supervision. - FI can adopt “soft ring-fencing” orders (e.g., require prior notice before dividends/loans/transfers). Example: 48 hours’ notice during 2008–2009 crisis. (Cpt 19 s3 of IBA) - FI keeps a list of imposed sanctions with reasons and fine amounts; publishes all sanctions on website. - FI can enforce against persons conducting insurance business without a license and maintain a warning list published on FI’s website. - In 2010, FI was unable to suspend business of an intermediary under police investigation until investigation completion, posing risk to policyholders. - Assessment: Largely Observed. - Comments and authorities’ advice: - FI lacks power to a) order compulsory transfer of portfolios; b) intervene against a subsidiary not under its supervision; c) take measures to protect public/policyholders pending police investigations. - Authorities are advised to: - a) Empower FI to order a compulsory transfer of insurance portfolios of an insurer in distress; - b) Strengthen FI’s intervention powers against unregulated entities within an insurance group or financial conglomerate; - c) Consider how best to empower FI in taking necessary measures to protect the interests of the public pending completion of police investigations; - d) Review the government’s continued involvement in enforcement and sanctions at institution-specific level. ### Winding-up and exit (Principle 16) - FI may revoke a license if licensing requirements no longer met, failure to follow restoration plan, serious law infringements, or insolvency. (Cpt 19 s11 of IBA and cpt6 s9 of FIBA) - Insurer must enter compulsory liquidation if: per articles of association; all insurance business transferred; license expired/revoked; failed to register required board/MD. (Cpt 14 s3 of IBA) - If declared insolvent, the court appoints an administrator; FI may appoint a counsel to participate and shall do so for insolvent life insurers to protect policyholders. Liquidators of life insurers shall transfer the portfolio to a Swedish or EEA-licensed insurer with FI approval. (Cpt 2 s4 of Bankruptcy Act, Cpt 14 s21, s24 & s26 of IBA) - Sweden implemented the EU Directive on Reorganization and Winding Up of Insurance Undertakings (2001/17/EC); policyholders (including ceding insurers) have priority rights to assets covering technical provisions; claims for refunds of premiums have priority over reinsurance claims. (Cpt 7 s11 of IBA) - Priority rights apply to assets noted on a special register; claims not covered by those assets are unsecured. - No policyholders’ protection fund in Sweden. - Previously insurers had to forward the special register annually to FI; requirement waived to reduce reporting burden. Given a recent fraud incident involving assets covering technical provisions, authorities are advised to reconsider waiver and require quarterly submission of the special register. (S4a of RPA, cpt 7s11, cpt19s3 of IBA, cpt 5 s11 of FIBA and cpt8 s5 of FFFS2008:7) - Insurers shall not pledge assets covering technical provisions. (Cpt7s10 of IBA) - RPA, IBA and FIBA do not set concrete principles for how FI should divide existing assets among policyholders in insolvency; administrator/counsel decides distribution according to RPA priority. - Assessment: Largely Observed. - Authorities are advised to strengthen protection of policyholders by: - a) ensuring adequate controls over assets covering technical provisions including quarterly submission of the special register of assets; - b) establishing clear rules on how existing assets of an insolvent insurer are to be distributed amongst policyholders. ### Group-wide supervision (Principle 17) - IBA and SSFCA define insurance group and conglomerate scope and supervision. (Cpt7a s1 & s2 of IBA and cpt2 s1 of SSFCA) - Supervisors within the EEA cooperate under the Helsinki Protocol; CEIOPS guidelines exist for coordination committees; FI cooperates with foreign supervisors and contributes to coordination. - Regulatory requirements for groups include: - Notifications of qualifying holdings. (Cpt 3 s2 of IBA) - Capital adequacy—consolidated own funds and solvency margin (aggregation and deduction methods); consolidation method must be justified to avoid multiple gearing. (Cpt 7a s4 & s5 of IBA and FFFS 2002:4) - Control over related party transactions; annual reporting of material transactions/agreements to FI. (Cpt 7a s3 of IBA and FFFS 2002:10) - Consolidated reporting. (Cpt 7a s6 of IBA) - Fitness and suitability of senior management of an insurance holding company. (Cpt 7a s9a of IBA) - At assessment time, no specific provisions regarding reinsurance and risk concentrations for groups or internal controls and risk management processes applicable to groups; new IBA effective April 1, 2011 will address this. - FI regulations address group reporting on reinsurance, off-balance sheet guarantees, items included in own funds, investments, loans and agreements for shared expenses. (FFFS 2002:10) - Conglomerates within EEA subject to supplementary supervision; coordinator responsible for supplementary supervision and must notify parent, home supervisors and European Commission. (Cpt 4 s1, cpt 5 and cpt 6 of SSFCA) - Supplementary supervision includes regular meetings, assessment of capital reports, risk concentrations, internal transactions, structure, organization, risk management, internal controls, and fitness/propriety of key personnel. - Traffic Light system requires parent companies to include risks from subsidiaries (real estate, equities, participating rights, securities) in proportion to shareholding. - FI may reject license or revoke if group structure hinders effective supervision. - Sweden is lead supervisor of five insurance groups with supervisory colleges pursuant to Helsinki Protocol: Handels Liv Försäkringsaktiebolag, IKANO, Nordea Life Holding AB, SEB Life and the former Skandia Group. - Large cross-border groups submit risk management reports to FI when Sweden is lead supervisor; FI performed group concentration risk assessments and coordinated annual risk assessment reports with other supervisors. - Assessment: Largely Observed. - Comments and advice: - No specific provisions for reinsurance, risk concentrations, internal controls and risk management at group level at assessment time; Solvency II implementation expected to strengthen group supervision subject to resources. - Authorities are advised to: - a) review adequacy of supervisory resources, particularly for cross-border groups/conglomerates; - b) harmonize supervisory approach for groups and conglomerates (e.g., risk concentration); - c) formulate regulatory requirements applicable to nonregulated holding companies. ### Prudential requirements: Risk management and insurance activity (Principles 18–19) - FI issued governance and control guidelines; insurers deviating must justify to FI. (FFFS 2005:1) - FI has not developed a regular method to monitor adequacy of insurers’ risk management systems; annual risk management report not mandatory. - License applicants are not required to submit risk management policies/procedures; no duty to inform FI of departures from FI guidelines. - On-site inspections assess risk management systems and may trigger interventions. - Traffic Light quarterly reports exclude certain risks (e.g., operational risks) and do not incorporate insurers’ internal models. - FI requires remedial action if a “red light” results from specific risks (e.g., speculative investments); systemic market risk is addressed at industry level. - Larger insurers typically have risk management functions and committees. - Assessment: Largely Observed. - FI is advised to develop policies and processes to monitor adequacy of insurers’ risk management systems regularly and require insurers to report on risk management as part of annual returns. - Underwriting and reinsurance: - FI guidelines require boards to adopt underwriting and reinsurance policies covering spreading of risks, composition of portfolios, reinsurance program content, retention limits, reinsurer choice, and ceding within group. (FFFS 2000:5) - FI checks underwriting principles, premium adequacy, expense control, claims handling during on-site inspections. - FI has no power to direct premium calculation methods but may review methodology and intervene if technical provisions deemed too low. - FI reviews ceded reinsurance for insurers with low retention ratios annually and may assess reinsurer ratings. - FI may refuse reinsurance deductions in solvency if reinsurance security insufficient or involves financial reinsurance without risk transfer; no established criteria for risk transfer determination. - FI has not implemented procedures to verify risk transfer instruments accounting; relies on auditors and on-site checks. - Assessment: Largely Observed. - FI is advised to: - a) review reinsurance programs as part of routine off-site surveillance rather than limited scope review; - b) establish policies and procedures to check that insurers properly account for all risk transfer instruments. ### Technical provisions and liabilities (Principle 20) - Technical provisions must correspond to sums required to meet reasonably expected commitments; IBA sets principles and methodology. (Cpt 7 s1 to s4 of IBA and cpt 4 s9 of ARIUA) - FI issued guidelines on technical provisions, actuarial calculation basis, and interest rate choices for technical provisions. (FFFS 2003:8 and FFFS2008:23) - FI proposes a “calculated long-term interest-smoothing rate” under Solvency II to address volatility/procyclicality of market rates; example study: 4.2 percent in Sweden based on 2 percent inflation assumption and a real interest rate of 2.2 percent in QIS5 exercise. - Assessment and calculation of provisions supervised by an actuary; insurers must adopt technical provisions guidelines covering premiums, calculations, surrender/loans, surplus allocation, reinsurance, and solvency. (Cpt 8 s18, cpt7 s3 of IBA) - FI issued claims reserving policy guidelines; systems for recording claims must ensure accuracy and completeness. (FFFS 2000:4) - No regulatory requirement on computation of technical provisions for conditional bonus; no requirement for explicit risk margin. - Direct life insurers must submit analysis of business results and assumptions set out by actuary. (FFFS 2008:22) - FI reviews technical provisions via off-site monitoring and on-site inspection and can order increases if provisions insufficient. (Cpt 19, s11 of IBA) - FI may limit/prohibit disposal of assets if rules on technical provisions/assets are not met. - Traffic Light model subjects insurers to stress testing across adverse scenarios to assess capital and provisions adequacy. - Assessment: Largely Observed. - Comment: No explicit risk margin and no regulatory policy for conditional bonuses; Solvency II implementation will strengthen supervision. ### Investments (Principle 21) - IBA and FI regulations set requirements for investments covering technical provisions, reinsurance deposits, and equalization reserves. (Cpt7 of IBA and FFFS 2008:7) - Investment requirements include: - Composition and diversification by type. (Cpt7 s10 of IBA) - Prudent diversification of risks. (Cpt7 s9 of IBA) - Limits, restrictions and admissibility of investments. (Cpt7 s10, 10b &10c of IBA) - Safekeeping: assets covering technical provisions kept within EEA if risk situated in EEA; otherwise located in Sweden unless safekeeping outside EEA would not jeopardize policyholder priority rights. (Cpt7 s10d of IBA) - Matching of assets/liabilities and liquidity. (Cpt7 s9a of IBA) - Management of exchange rate and hedging risks. (Cpt7 s10e of IBA and cpt 6 r2 of FFFS 2008:7) - Above requirements do not apply to assets for conditional bonus and commitments for ULPs except prudent investment relative to the commitment nature. - Valuation: generally fair values; debts incurred for asset purchase deducted from asset value. (Cpt7 s1, s2, s9 of IBA; cpt 2 r2 of FFFS2008:7; cpt 4 of ARIUA; Cpt 4 r6 to r13 of FFFS 2008:26) - Boards must adopt and review investment policies and manage credit, market, liquidity, operational and matching risks; Traffic Light model stress tests investment operations. (Cpt7 s10g and cpt 8 s8 of IBA; Cpt4 s1& s2 of FFFS 2005:1) - FI lacks resources to examine adequacy of internal controls or asset management on a regular basis; these may be covered during on-site inspection. - Board and MD accountable for outsourced investment operations. (Cpt 7 s1 of FFFS 2005:1) - Internal audit function expected; external auditors assess investment activities in annual report audits. (Cpt 6 s1 of FFFS 2005:1) - At assessment time, no explicit regulatory requirements on: - a) skills, experience and integrity of investment staff; - b) asset-liability management; - c) contingency plans for deteriorating conditions. - New IBL effective April 1, 2011 addresses these issues. - FI’s 2009 review found insurers’ registers of assets covering technical provisions unsatisfactory. (FI’s Supervisory Report for 2010) - Assessment: Largely Observed. - FI is advised to enhance supervision robustness of investment operations and update investment management regulations. ### Derivatives (Principle 22) - Insurers may use options, forwards and similar instruments for risk reduction and efficient portfolio management. (Cpt7 s17b of IBA) - Disclosure and valuation basis for derivatives set out in ARA, ARIUA and FI guidelines; insurers shall apply IFRS 7 and disclose derivatives with underlying assets; IFRS 4 disclosure if derivatives reduce insurance risk. (Cpt 5 s1 of ARIUA; cpt 5 s3 & s4a to s4c of ARA; FFFS 2008:26) - FI is drafting regulations to address currently missing elements including: - required expertise/qualifications for derivatives use; - investment policy content relevant to derivatives; - consolidated risk management covering derivatives; - internal controls over derivatives; - staff skills to vet models and price instruments; - policy on OTC derivatives; - internal audit procedures covering derivatives. - Assessment: Partly Observed. - Comment/advice: Insurers disclose derivatives per accounting standards but FI has not yet issued comprehensive regulations; authorities are advised to expedite issuance of regulations governing insurers’ derivative activities. ### Capital adequacy and solvency (Principle 23) - Current solvency regime largely based on EU Solvency I; FI introduced the Traffic Light model with prescribed stress testing and reporting to address sensitivity limitations. - Sweden participates in EU deliberations on Solvency II. - Available solvency margin components may include paid-up share capital/initial fund, other equity less dividends, untaxed reserves; FI may permit other items (e.g., subordinated loans) subject to conditions; contingency reserves excluded. (Cpt 7s22 to s27 & cpt1 s8 of IBA; FFFS 2008:22; FFFS 2008:19; FFFS 2008:21) - Available solvency margin must meet at least the minimum guarantee fund; composite insurers must calculate and report available solvency margin for life and nonlife separately. (Cpt 7s28 of IBA) - FI allows risk mitigation via reinsurance but may refuse deductions for reinsurance in solvency declarations in some circumstances. (ICP 19) - FI shall intervene if available solvency margin is less than required solvency margin and has thresholds for solvency ratio above 1.0 with intervention when the ratio falls below thresholds. *Conclusions and action recommendations are drawn directly from the source document provided.* *Source: _cr11282 - conclusions and takes action as appropriate.* ### 1.3 and 1.5 for a nonlife insurer and a life insurer, respectively, FI monitors the insurers ### _cr11282 - 1.3 and 1.5 for a nonlife insurer and a life insurer, respectively, FI monitors the insurers ### Supervisory monitoring and thresholds - FI monitors insurers closely when solvency ratios fall to 1.3 and 1.5 for a nonlife insurer and a life insurer, respectively. - FI also monitors any insurer whose solvency ratio has dropped more than 10 percent. (Cpt 19 s11 of IBA). - The solvency regime applies also to foreign insurers outside the EEA which have established a branch in Sweden. - If the solvency position falls below one or more thresholds, FI would intervene and require remedial action. - FI would, in addition to the Traffic Light model, make a forward-looking analysis by conducting additional stress tests based upon: - information received from the last report submitted by an insurer, and - market information (stock prices, interest levels, etc.). ### Role of the responsible actuary - The role of the responsible actuary under the IBA is to supervise actuarial calculations and analyses. - There is no formal requirement on: - the actuary forming an opinion of the financial status of a life insurer, and - a signed report by the appointed actuary of a nonlife insurer. - It is recommended practice, however, that the actuary sends such a report to the board and the MD. ### The Traffic Light Model — purpose and mechanics - The Traffic Light model is a supervisory tool for monitoring insurers’ financial condition (ICP 4 provides an overview). - FI prescribes “stress tests” to measure how both assets and liabilities are affected by specified risks, i.e., net effect of asset-price changes and the resulting impact on their capital buffers. - The model: - recognizes diversification effects between asset types and risk reduction/increases through financial derivatives; - captures most of the risk factors considered under Solvency II, although some risks (e.g., operational risks) are not taken into account; - requires insurers to calculate the capital requirement for each risk factor as changes in the value of own funds due to stressed scenarios or uncertainty in parameter values; - calibrates capital requirements based on value at risk of 99.5 percent for one year; - aggregates capital requirements using a square root formula based on assumed correlations. - FI provides an Excel spreadsheet to insurers to facilitate preparation of Traffic Light reports, which are signed electronically by their MDs. - The model assigns a “red light” to insurers with solvency ratio of less than 1. Where necessary, FI may require the insurers concerned to: - reduce their risks, - submit a plan to restore solvency, or - provide more frequent reporting to FI. - The Traffic Light model facilitates early intervention based on identification of any significant threats to policyholders’ interests, which is not limited to a shortfall of solvency margin. ### Recent Traffic Light results and stress scenarios - More than 70 percent of the capital requirement for life insurers under the Traffic Light model comes from financial risks, with insurance risks making up the balance. - Equity price risks dominate in terms of financial risks, accounting for 60 percent of the calculated capital requirement. - The traffic light's stress test for shares includes: - a 40 percent drop in Swedish equities, and - a 37 percent drop in global equities. - The model also captures a parallel shift of plus or minus 10 percent of Swedish 10 year government bond, amongst other market risks. ### Assessment and transition to Solvency II - Assessment: Largely Observed - Comments: - The current solvency regime in Sweden is largely based on EU Solvency I. - As the regime does not take account of all key risks of insurers, FI has introduced the Traffic Light model with prescribed stress testing and reporting requirements as a supervisory tool to better understand insurers’ risk profiles and to facilitate early intervention, where appropriate. - The implementation of Solvency II with effect from January 2013 will facilitate FI in implementing a more robust and risk-sensitive solvency regime. *Source: _cr11282 - 1.3 and 1.5 for a nonlife insurer and a life insurer, respectively, FI monitors the insurers* ### conclusion on contracts of insurance, or of concluding such contracts, or of assisting in the ### _cr11282 - conclusion on contracts of insurance, or of concluding such contracts, or of assisting in the ### Licensing, registration and authorization of intermediaries - SIMA establishes authorization requirements for intermediaries. An applicant must: - a) not have been declared bankrupt; - b) a clean police record and must act conscientiously in economical matters; - c) possess the necessary general, commercial and professional knowledge and ability; and - d) be covered by a professional indemnity insurance (or comparable guarantee) against liability arising out of professional negligence. - A person intending to carry on insurance mediation business in Sweden must apply to FI for a license. - The insurance intermediary shall, within six months from the date that FI granted the license, forward an application for registration to the Companies Registration Office and may only commence business after the license was registered. (Cpt 2 s3 of SIMA). - Only Swedish nationals or legal entities incorporated in Sweden may register as intermediaries; subject to notification procedures, EEA-registered intermediaries may conduct cross-border business or establish a branch. - Insurance or reinsurance intermediaries outside the EEA may provide insurance mediation from a Swedish branch only if licensed by FI. - Insurer liability and tied intermediaries: - An insurer shall be liable for any financial loss or damages incurred or suffered by a customer arising from the negligence or willful misconduct by its tied intermediaries. - Tied intermediaries need not take out a professional indemnity cover and they are not licensed. Insurers must register tied intermediaries with the Companies Registration Office after ensuring they meet certain requirements. - Three of the four large banks are registered tied intermediaries of their insurance subsidiaries. (Cpt 1 s10 and cpt 2 s4 of SIMA). ### Supervision, inspections and enforcement actions - FI requires intermediaries to have adequate general, commercial and professional knowledge and ability and be of good repute. (FFFS 2005:11). - FI supervises insurance intermediaries; 2008 survey of 850 insurance intermediaries revealed conflicts of interest risks and led FI to issue 30 sanctions ranging from warnings with fines, to injunctions and reprimands. - FI has sanctioned intermediaries in recent years: - A tied insurance intermediary was sanctioned in 2008 with a warning and a fine of SEK 800,000 for regulatory breaches. (Cpt 7 s3 of SIMA). - FI found an insurance intermediary had failed to act in accordance with good insurance mediation practice and imposed a fine in the sum of SEK 700,000. (footnote). - FI’s sanctioning powers: FI may order remedial action, issue an injunction or reprimand, and where infringement is serious, revoke a license or registration or issue a warning. (Cpt 8 s1 of SIMA). - Due to limited supervisory resources, there were very few inspections of banks in their role as tied intermediaries in 2009 and 2010. ### Conduct, disclosure and client asset protection - Obligations and disclosures: - Intermediaries must provide name, address and registry details, and must inform customers before execution of a contract whether they are contractually obliged to mediate products of one or more undertakings and provide the name(s). (Cpt 6 s1 & s2 of SIMA). - An intermediary shall disclose all remuneration received, regardless of when and in what form the remuneration is paid and whether the remuneration is paid by the customer or a third party. This disclosure requirement also applies when a consumer transfers a policy to another insurer. (Cpt 6 s5 of FFFS 2005:11). - Client money and segregation: - An intermediary who handles client’s money or assets must keep them separate from his or her own assets by opening a separate account designated as “clients account.” Assets held in the clients account must be properly segregated. The Client Accounts Act provides that the assets of a client would be protected from the insolvency or bankruptcy of an intermediary if the assets were kept in a separate account. (Cpt 5 s5 of SIMA). - Complaints handling: - Insurers must have complaints procedures; FI has issued guidelines on complaints handling (FFFS 2002:23). Intermediaries must ensure customers can lodge complaints and must attend to complaints as soon as possible. (Cpt 5 s6 of SIMA and FFFS 2005:11). ### Consumer protection framework and performance - Institutional responsibilities: - Consumer protection responsibility is divided between FI and the SCA, with involvement from other agencies (National Board for Consumer Complaints, Consumer Ombudsman). - FI and SCA are key drivers of the Consumers’ Banking and Finance Bureau and the Consumers’ Insurance Bureau (CIB). CIB is founded by the Swedish Insurance Federation (FF), the SCA and FI. - CIB and complaint volumes: - CIB has 10 employees and handles around 13,000 enquiries annually, 80 percent of which relate to complaints against insurers. - Legal and regulatory measures: - Insurers are required by law to act with due skill, care and diligence; intermediaries must carry on business in accordance with good insurance mediation practice and safeguard customer interests. (Cpt 5 s4 of SIMA). - Insurers must seek relevant information from consumers before giving advice or concluding a contract and must provide specified pre-contract information. (Cpt1 s1a of IBA, FFFS 2003:7, FFFS 2007:9; FFFS 2005:11 and cpt 5s4 & cpt 6 s1 to s7 of SIMA). - The 2008 Marketing Practices Act requires marketing to comply with good commercial standards and be fair and reasonable. - The ICA strengthens pre-contractual information, insurer obligations, and introduces a mandatory right for policyholders to surrender life policies. - The 2004 Financial Advice Act applies to marketing life insurance products with savings elements and requires documented written advice and sufficient competence. - The 2005 Distance Marketing Act mandates information requirements for distance agreements including cooling off periods: 14 days and 30 days for life insurance. - Identified consumer protection gaps: - Disclosures do not fully cover IAIS standards on public disclosure. - FI has not issued guidance on the exercise of discretion for conditional bonuses and related disclosures to policyholders. - Concerns about policyholders transferring policies without proper advice; transfers likely reduce benefits due to reduced assumed yield rates. - Assessment: Largely Observed. - Authorities are advised to: - a) review the adequacy of current regulatory requirements for conditional bonus and transfer of policies; and - b) consider articulating more clearly the roles and accountabilities of various agencies involved in consumer protection to improve efficiency and promote better understanding by consumers. ### Information, disclosure and transparency (market) - Insurers’ public disclosure requirements are set out in ARIUA, ARA and FI regulations/guidelines. - Required disclosures in the directors’ report include: - technical results for the last five financial years and a key figure referencing capital strength at the end of the last five financial years. (Cpt 6 s2 of ARIUA); - technical provisions; the proportion of reinsurer’s part of technical provisions; and income, costs and the result of the business operations. (Cpt 6 s3 of ARIUA); - information regarding the use of financial instruments including objectives and principles applied for financial risk management; the principles for hedging for which hedge accounting is used; and exposure for price risks, credit risks, liquidity risks and cash flow risks. (Cpt 6 s1 of ARIUA); - Management and corporate governance. (Cpt 6 s1 of ARIUA). - Annual reports and auditors’ reports must be filed at the Companies Registration Office within one month following approval and are publicly available. (Cpt 8 s5 of ARA). - Assessment: Largely Observed. - Comment: FI should formulate plans to implement IAIS supervisory standards on public disclosures. ### Fraud prevention and counter-fraud activities - FI does not have formal authority to establish and enforce regulations to combat fraud; SECA is responsible for coordination measures against economic crime. - Fraud is addressed under the Criminal Code; claims fraud is a punishable offence. - FI does not have a legal obligation to require insurers to report fraud to appropriate authorities but has issued nonbinding regulations and expects reporting of events that may jeopardize stability or policyholders’ assets. - Industry initiatives: - The Swedish Insurance Federation has organized counter-fraud activities and a common claims database. - FI’s inspections regularly review counter-fraud measures; FI cooperated on the Aspis Liv Försäkringsaktiebolag case with Greece, Portugal and U.K. - Assessment: Observed. ### Anti-money laundering and combating financing of terrorism (AML/CFT) - Background: - Sweden was evaluated by FATF in 2006 and placed into regular follow-up; FATF noted Sweden brought 18 out of 20 recommendations previously rated partially compliant or noncompliant to at least a level equivalent to largely compliant and agreed to take Sweden out of the regular follow-up process. - New legislation: - In 2009 Sweden adopted the Act on Measures against Money Laundering and Terrorist Financing (SFS 2009:62) (AML/CFT Act) implementing EU Directive 2005/60/EC and Commission Directive 2006/70/EC. - The AML/CFT Act and FFFS 2009:1 apply to life insurance businesses and insurance mediation. - FI responsibilities and resources: - FI mandated to set up a coordinating body for AML/CFT supervisory authorities and to supervise life insurers’ and insurance intermediaries’ compliance. - FI established a special unit in its Markets Supervision department with 8 staff members to support AML/CFT issues and conduct thematic/specialized inspections. - A special coordinating body within FI includes representatives of multiple supervisory and professional bodies to promote collaboration with the National Police Board. - FI’s current resources are inadequate for supervising AML/CFT compliance of more than 3,700 licensed entities; as a consequence there was no active AML-CFT supervision of insurers and intermediaries in 2009 and 2010. - AML/CFT requirements (AML-CFT Act and FFFS 2009:1): - designate a Money Laundering Reporting Officer; - establish risk based internal procedures and policies to prevent money laundering and terrorist financing including policies and procedures for CDD (normal CDD, simplified CDD and enhanced CDD), record retention, detection of unusual and suspicious transactions and reporting, staff training, and protection against threats towards staff; - develop internal programs (including training), procedures, controls and audit functions to combat money laundering and terrorist financing; - ensure foreign branches and subsidiaries observe appropriate AML/CFT measures consistent with home jurisdiction requirements. - Implementation status and data: - Inspections of intermediaries included AML/CFT compliance review and one intermediary was sanctioned in 2010 for non-compliance. - FI planned an AML/CFT survey in 2011 to assess AML/CFT risk and adopt a risk-based approach. - FI must notify the National Police Board without delay if it suspects money laundering or terrorist financing. (Cpt 3, s6 of AML/CFT Act). - Suspicious transaction reports (STRs) filed by insurers/intermediaries: one in 2008, seven in 2009 and 12 in 2010. - FI lacks resources to analyze STRs and identify new typologies. - Insurers may rely on third parties to conduct CDD under specified conditions, but FI regulations are silent on whether insurers are required to obtain CDD information immediately if relying on third parties. - Assessment: Largely Observed. - Authorities are advised to: - a) review the adequacy of resources for AML-CFT supervision; and - b) update the legal requirements where insurers rely on intermediaries to perform CDD. ### Appendix I — Key recommendations of the 2002 FSAP and reported action (selected) - Strengthen staff resources in order to fulfill FI’s legal tasks: While staff resources have increased since 2002, more may be needed in certain areas. - Introduce reporting requirements on outsourcing arrangements and guidelines to auditor: Not implemented. FI reviews insurers outsourcing, especially in major insurers/groups. - Enhance licensing requirements including clarifying and extending fit and proper test to senior management/key persons of insurers: Not implemented. Requirements apply only board members and the CEO. - Require mandatory annual reports on risk management report by insurers: Submission is not mandatory. FI reviews such information in supervising major groups and undertakings. - Establish disclosure requirements for derivatives and off-balance sheet items: Not implemented. Work is in progress. - Implement supervisory procedures to ensure compliance with market conduct requirements: Compliance is part of FI’s supervisory focus. Insurers have to appoint compliance officers. - Set up a legal basis for issuing a formal criticism: FI is empowered to do so. - Enhance reporting by actuaries: Not implemented. The role of the responsible actuary is limited by the IBA. - Supervise branches of Swedish insurers in the EEA: Swedish branches in the EEA are supervised, subject to resources available. - Safeguard confidentiality of information shared by other supervisors: Confidentiality is observed on a level acceptable to all parties involved. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11282.pdf* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11282.pdf_