## 1. Insurance Premiums Collected

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### Executive summary and key findings
- Assessment conducted in early 2012 with on-site mission from January 10 to January 27, 2012.
- Assessment benchmark:
  - Initial FSAP (2004) benchmarked against ICPs issued in 2003.
  - Current FSAP benchmarked against revised ICPs issued in October 2011.
  - The 2011 ICPs contain 26 core principles, include more extensive requirements relating to risk management in insurers (including a new specific ICP on enterprise risk management for solvency purposes) and a new specific ICP covering macroprudential issues.
- Observance ratings used: Observed; Largely Observed; Partly Observed; Not Observed.
- Assessment basis: laws, regulations, and supervisory requirements and practices in place at the time of the assessment (early 2012); France had not yet taken concrete intermediate steps toward implementing Solvency II–like requirements at the time of the assessment.

### Institutional structure of supervision (ACP)
- ACP (Autorité de contrôle prudentiel):
  - Independent administrative authority attached to the Banque de France.
  - Formed on March 9, 2010, from merger of licensing and supervisory authorities.
  - Responsible for supervision of banking and insurance; statutory objectives: maintain financial stability and provide protection for banks’ customers and insurance policyholders and beneficiaries.
  - Corporate and some cross-sectoral functions operate across ACP; banking and insurance supervision conducted in distinctively separate departments.
  - Coordination mechanism between ACP and AMF for joint supervision of marketing of financial products and product provider obligations.

### Market overview and size — selected statistics
- Market characterisation: France described as “one of the most developed insurance markets in the world.”
- Insurance Premiums Collected (in millions of U.S. dollars; Source: Swiss Re Sigma reports. Figures for France supplied by ACP):
  - Life Premiums (Germany / France / United Kingdom / Spain / Italy / Netherlands):
    - Germany: 110,148 111,916 114,868
    - France: 206,765 221,250 220,383
    - United Kingdom: 286,112 216,719 213,831
    - Spain: 39,133 39,186 34,674
    - Italy: 82,623 115,290 122,063
    - Netherlands: 38,811 33,758 25,102
  - Nonlife Premiums:
    - Germany: 130,213 127,945 124,949
    - France: 151,618 146,990 148,337
    - United Kingdom: 109,515 95,446 96,191
    - Spain: 46,645 43,589 41,408
    - Italy: 58,066 54,070 52,285
    - Netherlands: 75,706 74,385 71,954
- Insurance penetration (total premium as a percentage of GDP):
  - Life Insurance: 2008 7.3% 2009 8.4% 2010 8.6%
  - Nonlife Insurance: 2008 5.3% 2009 5.6% 2010 6.2%
- Insurance density (total premium per capita, U.S. dollars):
  - Life Insurance: 2008 3,233 2009 3,441 2010 3,409
  - Nonlife Insurance: 2008 2,371 2009 2,286 2010 2,444
- Total number of companies (counts as of year-ends):
  - Life insurers and composite insurers: At 12/31/2009 103; At 12/31/2010 102
  - Nonlife insurers: At 12/31/2009 244; At 12/31/2010 235
  - Reinsurers: At 12/31/2009 21; At 12/31/2010 20
  - Total Insurance Code: At 12/31/2009 368; At 12/31/2010 357
  - Provident institutions - Social Security Code: At 12/31/2009 56; At 12/31/2010 53
  - Mutual Insurers Book II – Mutual insurance code: At 12/31/2009 844; At 12/31/2010 719
  - Total authorized entities and entities not requiring authorization: At 12/31/2009 1,268; At 12/31/2010 1,129

### Product mix, market shares, and concentration
- Nonlife product mix (premium shares in percent):
  - Motor insurance: 2008 34.2 2009 34.0 2010 33.1
  - Property insurance: 2008 25.6 2009 26.3 2010 25.7
  - General liability insurance: 2008 5.8 2009 5.9 2010 5.4
  - Natural disaster insurance: 2008 2.5 2009 2.4 2010 2.3
  - Other insurance: 2008 6.3 2009 6.6 2010 6.6
  - Transport insurance: 2008 1.9 2009 1.8 2010 1.7
  - Construction insurance: 2008 4.7 2009 4.4 2010 4.1
  - Credit insurance and surety bonding: 2008 1.7 2009 1.5 2010 1.7
  - Corporal damages: 2008 17.2 2009 16.9 2010 19.4
- Life product mix (percent of life premiums; dates 12/31/2008, 12/31/2009, 12/31/2010):
  - Long-term savings: 73.0 76.8 77.9
  - Investment-linked: 16.5 12.9 13.2
  - Pensions: 1.5 1.3 1.3
  - Term Life Insurance: 9.0 9.0 7.6
- Market concentration and shares:
  - Life: Top 12 life insurance companies account for 69 percent of total life premiums; largest company accounts for 14 percent; twelfth company for 2 percent.
  - Nonlife: Top 12 companies account for 52 percent of total nonlife premium; largest accounts for 9 percent; twelfth accounts for 2 percent.
  - Market shares of the largest companies (in percent):
    - First: Life 14 / Nonlife 9
    - Second: Life 13 / Nonlife 8
    - Third: Life 8 / Nonlife 5
    - Fourth: Life 7 / Nonlife 4
    - Fifth: Life 6 / Nonlife 4
- Niche markets:
  - Medical general liability market: less than 1 percent of premiums, about 15 players; first ones account for 40–60 percent of the niche market.

### Profitability and efficiency indicators
- Nonlife companies (percent unless noted):
  - Premium retention ratio (All activities; Net premium written / gross premium written): 84.0
  - Claims Ratio (Activity in France; Incurred claims / net premiums earned): 74.6
  - Expense Ratio (Activity in France; Overhead expenses / net premiums earned): 34.1
  - Combined Ratio (Activity in France; (Claims + expenses) / net premiums earned): 99.8
  - Premium leverage ratio (All activities; Net premiums written /(capital + surplus)): 126.0
  - Note: Figures are “gross” of reinsurance—this ratio is estimated based on net premiums.
- Life companies:
  - Premium retention ratio (All activities; Net premium written / gross premium written): 94
  - Premium leverage ratio (All activities; Net premiums written / (capital + surplus)): 276
  - Investment income (All activities; Net rate using formula 2I / (A+B-I) ...): 5.0
  - Leverage (All activities; Total equity / total liabilities): 3.6
  - Voluntary terminations (Activity in France; Surrender values paid / net premiums written): 32

### ACP Annual Report — Profitability and asset portfolios (2010)
- Profitability and results (2010):
  - Sector turnover growth: "In 2010, the turnover of the sector grew by nearly 8 percent."
  - Life operations growth: "5 percent."
  - Nonlife operations growth: "13 percent."
  - Technical results:
    - Life operations technical result: "€5.1 billion", "an increase of 11 percent compared to 2009."
    - Nonlife operations technical result: "€3.6 billion", "an increase of 14 percent."
  - Net gain for the sector: "€9.4 billion" for 2010 against "€8.2 billion" in 2009.
- Asset portfolios (ACP and Bank of France year-end 2010 study):
  - Geographic concentration: mutual companies: "40.5 percent" investments in France; "34.7 percent" in euro area.
  - Investment composition:
    - Investments in shares: "11.6 percent"
    - Bonds or fixed-return securities: "68.3 percent"
  - Composition of asset portfolios — Life insurance (Table 8; in percent):
    - Total (without unit linked) 2008 100.0 2009 100.0 2010 100.0
    - Real estate: 2008 2,9 2009 2,8 2010 2,8
    - Shares: 2008 6,3 2009 5,6 2010 6.2
    - Funds (OPCVM): 2008 14,4 2009 14,5 2010 11,8
    - Bonds: 2008 75,4 2009 75,6 2010 78,3
    - Others: 2008 0,9 2009 0,5 2010 0,9
  - Composition — Five Largest Life Companies (in percent):
    - Real estate: 2008 3 2009 3 2010 (format in source)
    - Shares: 2008 7 2009 8 2010 6
    - Funds (OPCVM): 2008 13 2009 14 2010 11
    - Bonds: 2008 74 2009 73 2010 77
  - Composition — Nonlife companies (in percent):
    - Total (without unit linked) 2008 100 2010 100
    - Real estate: 2008 6 2010 5
    - Shares: 2008 23 2010 21
    - Funds (OPCVM): 2008 18 2010 14
    - Bonds: 2008 53 2010 61
    - Others: 2008 - 2010 (blank)
- As of end-2010, accumulated unrealized gains: "€55 billion."

### Bancassurance, connectedness, and systemic links
- Interconnections: "The French financial sector is concentrated and connected through cross-shareholdings and lending."
- In 2010, "17 percent of French insurers’ assets were related to financial institutions."
- Examples of bank–insurer ownership: BNP Paribas (Cardif), Groupe BPCE, Groupe Crédit Agricole (Pacifica, Predica), Groupe Crédit Mutuel, HSBC France, Banque Postale, Société Générale (Sogecap, Sogessur).
- Bancassurance market metrics:
  - Bancassurers' liabilities represent approximately "40 percent" of total life insurers’ technical provisions.
  - Insurance companies’ deposits with banks: "€10.5 billion" as of end-2010 (representing "0.5 percent" of total assets of the insurance sector).
  - Bancassurer share of gross premiums in life insurance: "about a 60 percent share."
  - Bancassurer penetration in nonlife: "share of gross premiums now above 10 percent."
- Competitive/regulatory pressures:
  - Competition from bank deposit products and "Basel III liquidity requirements is favoring bank balance sheet growth over life insurer balance sheet growth."
  - "Basel III capital rules may require banks to deduct some of their equity in insurance companies from their bank regulatory capital."

### Current market issues and business-model pressures
- Life insurance:
  - "Around 85 percent of life insurance premiums relate to such guaranteed products."
  - Tax advantage: concessions after "eight years."
  - Regulatory constraints limit promotional guaranteed rates and multi-year guaranteed earnings rates.
  - Net collections in late 2011 reduced significantly and became negative for some insurers.
  - Risk: sharp rise in medium- to long-term interest rates could trigger higher early redemptions and forced asset sales.
  - Unit-linked product growth limited by "complexity," "potential for misselling," and "volatile equity markets."
- Nonlife insurance:
  - "Very mature, highly competitive, relatively saturated for individual policies," driven by mandatory motor and household insurance.
  - Mutuals: "about 25 percent of the property market and 30 percent of the motor market."
  - Underwriting: recovering due to price increases and benign claims environment, but lower investment returns will weigh on profitability.
  - Natural catastrophe mitigation: mandatory inclusion of some natural disasters within contracts and unlimited state-guaranteed reinsurance through the Caisse Centrale de Réassurances (CCR).

### Solvency II: overview, implementation status, and ACP preparations
- Solvency II features:
  - Directive adopted in November 2009.
  - Solvency Capital Requirement (SCR): to ensure with probability "99.5 percent" that obligations are met over the following 12 months.
  - Minimum Capital Requirement (MCR) and Own-Risk and Solvency Assessment (ORSA) requirements described.
- Implementation status and timeline:
  - EIOPA working toward commencement date "January 1, 2014."
  - "Technical standards ... are needed, but are yet to be finalized."
  - Delays in finalizing technical standards hamper national implementation.
- ACP position and recommended actions:
  - ACP’s Solvency II preparations are well developed, but France awaited finalization of EU technical standards before moving to implement Solvency II-type requirements.
  - Practical step: introduce new—or improved—qualitative requirements for insurer ORSA processes and practices before finalization of EU technical standards.
  - Recommendation: early introduction of specific Board requirements in areas of:
    - "risk-appetite statements,"
    - "risk management within the appetites,"
    - "delineation of responsibilities between the Board and key persons in control functions,"
    - "remuneration policy," and
    - "a duty to act in the interests of policyholders."

### ICP assessment — summary observance and grading
- Table 12 — France: Summary Observance of the Insurance Core Principles (ICP / rating):
  - ICP1 - Objectives, Powers, and Responsibilities of the Supervisor: O
  - ICP2 - Supervisor: LO
  - ICP3 - Information Exchange and Confidentiality Requirements: LO
  - ICP4 - Licensing: LO
  - ICP5 - Suitability of Persons: PO
  - ICP6 - Changes in Control and Portfolio Transfers: LO
  - ICP7 - Corporate Governance: PO
  - ICP8 - Risk Management and Internal Controls: LO
  - ICP9 - Supervisory Review and Reporting: LO
  - ICP10 - Preventive and Corrective Measures: O
  - ICP11 - Enforcement: O
  - ICP12 - Winding-up and Exit from the Market: O
  - ICP13 - Reinsurance and Other Forms of Risk Transfer: O
  - ICP14 - Valuation: LO
  - ICP15 - Investment: O
  - ICP16 - Enterprise Risk Management for Solvency Purposes: PO
  - ICP17 - Capital Adequacy: LO
  - ICP18 - Intermediaries: O
  - ICP19 - Conduct of Business: O
  - ICP20 - Public Disclosure: PO
  - ICP21 - Countering Fraud in Insurance: O
  - ICP22 - Anti-Money Laundering and Combating the Financing of Terrorism: O
  - ICP23 - Group-wide Supervision: O
  - ICP24 - Macroprudential Surveillance and Insurance Supervision: LO
  - ICP25 - Supervisory Cooperation and Coordination: O
  - ICP26 - Cross-border Cooperation and Coordination on Crisis Management: O
- Table 13 — Summary of Grading:
  - Observed (O): 13
  - Largely observed (LO): 9
  - Partly observed (PO): 4
  - Not Observed (NO): -
  - Total: 26

### Main supervisory recommendations and action plan (selected)
- ICP2:
  - Consider removing the DGT and DSS representatives from ACP meetings to improve perception of ACP independence, while establishing separate coordination arrangements between the ACP and the DGT and DSS.
  - Consider establishing a more transparent mechanism for adjustments to the industry contributions to the funding of ACP.
- ICP3:
  - Consider allowing the ACP to exchange information with authorities outside the EU/EEA, even if there is no formal agreement in place.
- ICP5:
  - Extend ACP power to require removal of unsuitable persons to all insurers’ Board members and to all key persons in control functions (expected via Solvency II transposition).
  - ACP should consider being more proactive in advising other authorities about unsuitable persons.
- ICP7:
  - Introduce enforceable requirements for insurer Boards to:
    - Determine and document their actual risk appetite and strategy for keeping risks within it;
    - Clearly define roles and responsibilities between the Board, senior management, and key persons in control functions;
    - Ensure an appropriate number and mix of individuals for adequate knowledge, skills, and expertise;
    - Act in the interests of policyholders;
    - Adopt an effective remuneration policy that does not induce excessive or inappropriate risk taking.
- ICP8:
  - Introduce requirements for insurers to have internal audit and actuarial functions.
  - Require insurers to retain responsibility for any material outsourced function and produce ACP guidelines on outsourcing agreements.
- ICP9:
  - Significant retraining of supervisory staff in economic valuation approaches, revised Solvency II reporting, and ORSA requirements.
  - Consider establishing within the ACP a quality-control function to achieve greater consistency of supervisory assessments and a clear policy aligning supervisory response to seriousness of findings.
- ICP14:
  - Develop tools so valuation of assets and liabilities conforms to Solvency II expectations (e.g., replace original pricing assumptions with current estimates plus a margin over current estimates (MOCE) for life liabilities).
- ICP16:
  - Develop expertise in enterprise risk management (ERM) to set standards and provide guidance on ERM techniques for solvency measurement.
- ICP17:
  - Provide training for staff on new capital assessment measures and develop a framework of solvency control levels triggering different degrees of intervention.
- ICP20:
  - Take a more active approach to obliging insurers to disclose relevant, comprehensive, and timely information; consider providing public access to specific company data on a website.
- ICP24:
  - Continue to develop macroprudential surveillance approaches from a multi-disciplinary and cross-sectoral perspective.

### Assessments of suitability, public disclosure, and corporate governance gaps
- Suitability of persons:
  - Current fit-and-proper assessments do not cover all Board members or key control function persons; recommended extension to all such roles.
  - ACP removal powers exist but have been used cautiously due to high burden of proof.
- Public disclosure:
  - Current requirements cover financial statements and major methodologies; Solvency II will require disclosure of valuation of technical provisions, risk types, exposures and concentrations, risk-management policies, corporate governance, and stress-test sensitivity results.
  - Public does not have access to internal control report and solvency report under current regime.
- Corporate governance gaps:
  - No specific enforceable requirements for Boards to determine/document risk appetite; delineate responsibilities; ensure appropriate board composition; act in policyholders’ interests; or adopt remuneration policies to avoid excessive risk-taking.

### Supervisory review, reporting, quality control, and enforcement
- Supervisory review and reporting:
  - Supervision organized into Brigades with insurer portfolios; annual filings analyzed with emphasis on solvency and technical provision adequacy.
  - Market analyses produced twice a year; on-site inspections generally give about two weeks' notice and can be extensive.
  - Current supervisory assessment model will change "dramatically" with Solvency II.
- Quality control weaknesses:
  - "There is no structured quality control undertaken of supervisor assessments or on-site inspection conclusions aimed at achieving greater consistency across supervisors."
  - No clear ACP-wide system of classifying the seriousness of supervisory matters; recommendation to establish a quality-control function and a Ladder of Intervention or Supervisory Guide.
- Enforcement and corrective measures:
  - Wide range of administrative and protective measures available and used in practice.
  - Sanctions Committee can impose fines up to "€100 million" ("€1 million" for mutuals) and other disciplinary measures; criminal penalties exist for misreporting.
  - ACP has authority to remove Board or appoint a temporary administrator in emergencies.

### Valuation, capital adequacy, and solvency regime implications
- Valuation (Solvency I vs Solvency II):
  - Under current law assets valued on amortized cost; liabilities valued using pricing assumptions; CDA prescribes discount rates and mortality tables.
  - Solvency II will change asset valuation to market values and liabilities to “best estimate” with a margin, increasing accounting volatility.
- Capital adequacy and supervisory triggers:
  - Current regime uses coverage tests, technical provision coverage, and required solvency margin (RSM); no formal solvency control ladder presently in place.
  - ACP can impose higher required solvency margin (HRSM) up to two times the basic RSM based on recovery plans.
  - Internal models are not presently part of the supervisory system in France.
  - Recommendation: prepare staff and supervisory framework for Solvency II’s solvency control levels and new capital assessment methods.

### Macroprudential surveillance, group supervision, and cross-border crisis cooperation
- Macroprudential surveillance:
  - ACP collects quarterly and annual data, produces twice-yearly market analyses, and collects ad hoc data (e.g., weekly life cash flows).
  - ACP participated in EIOPA 2011 stress test and contributes to EIOPA financial stability work.
- Group-wide supervision and colleges:
  - ACP has authority for group supervision, adjusted solvency margin at group level, and chairs/participates in supervisory colleges (France is lead supervisor in 16 colleges).
- Crisis cooperation:
  - EEA directives and EIOPA guidelines require colleges to have emergency plans; EIOPA tested college emergency plans in September 2011.
  - Lead supervisor coordinates public communication and college responses in evolving crisis situations.

### Authorities’ response and differences of view
- Authorities welcome the IMF review and broadly agree with the assessment; note ICPs dated October 2011 made observation more demanding and some partly observed items would likely be observed once Solvency II in force.
- Differences of view:
  - On ACP independence (ICP2): Authorities assert ACP is fully independent and the presence of Treasury representatives provides transparency; IMF raised perception concerns and recommended removing these representatives or creating separate coordination arrangements.
  - On corporate governance (ICP7): IMF and authorities share most views but authorities emphasize existing provisions defining board roles.

*Source: IMF staff assessment based on ACP materials and on-site mission (January 10–January 27, 2012) as presented in _cr13181.*

### 1.   Insurance Premiums Collected ......................................................................................

### _cr13181 - 1.   Insurance Premiums Collected

### Executive summary and key findings
- Assessment conducted in early 2012 with on-site mission from January 10 to January 27, 2012.
- Assessment benchmark:
  - Initial FSAP (2004) benchmarked against ICPs issued in 2003.
  - Current FSAP benchmarked against revised ICPs issued in October 2011.
  - The 2011 ICPs contain 26 core principles, include more extensive requirements relating to risk management in insurers (including a new specific ICP on enterprise risk management for solvency purposes) and a new specific ICP covering macroprudential issues.
- Observance ratings used: Observed; Largely Observed; Partly Observed; Not Observed (definitions provided in the assessment).
- Assessment basis: laws, regulations, and supervisory requirements and practices in place at the time of the assessment (early 2012); France had not yet taken concrete intermediate steps toward implementing Solvency II–like requirements at the time of the assessment.

### Information, methodology, and sources used
- Major sources:
  - ACP’s comprehensive self-assessment against the ICPs.
  - ACP responses to an extensive questionnaire.
  - ACP website (www.acp-banque-france.fr) containing laws, regulations, guidelines, official notifications, and comprehensive industry statistics.
  - Extensive meetings with ACP officers, trade associations, insurers, intermediaries, ratings agencies, accounting standard setter, actuarial profession, and auditors.
- Preconditions for effective insurance supervision noted as present in France: sound macroeconomic and financial policies; well-developed public infrastructure; effective market discipline; mechanisms for public protection; efficient financial markets.
- Assessment process: all standards within each ICP were considered and rated according to the four-level observance scale.

### Institutional structure of supervision
- ACP (Autorité de contrôle prudentiel):
  - Independent administrative authority attached to the Banque de France.
  - Formed on March 9, 2010, from merger of licensing and supervisory authorities (including ACAM and the Commission Bancaire).
  - Responsible for supervision of banking and insurance; statutory objectives: maintain financial stability and provide protection for banks’ customers and insurance policyholders and beneficiaries (including consumer protection and prudential supervision).
  - Corporate and some cross-sectoral functions operate across ACP; banking and insurance supervision conducted in distinctively separate departments.
  - Coordination mechanism between ACP and AMF for joint supervision of marketing of financial products and product provider obligations.

### Market overview and size (selected statistics)
- France described as “one of the most developed insurance markets in the world.”
- Table: Insurance Premiums Collected (in millions of U.S. dollars)
  - Life Premiums:
    - Germany: 110,148 111,916 114,868
    - France: 206,765 221,250 220,383
    - United Kingdom: 286,112 216,719 213,831
    - Spain: 39,133 39,186 34,674
    - Italy: 82,623 115,290 122,063
    - Netherlands: 38,811 33,758 25,102
  - Nonlife Premiums:
    - Germany: 130,213 127,945 124,949
    - France: 151,618 146,990 148,337
    - United Kingdom: 109,515 95,446 96,191
    - Spain: 46,645 43,589 41,408
    - Italy: 58,066 54,070 52,285
    - Netherlands: 75,706 74,385 71,954
  - Source: Swiss Re Sigma reports. Figures for France supplied by ACP.
- Insurance penetration and density (Table 2)
  - Insurance penetration (total premium as a percentage of GDP):
    - Life Insurance: 2008 7.3% 2009 8.4% 2010 8.6%
    - Nonlife Insurance: 2008 5.3% 2009 5.6% 2010 6.2%
  - Insurance density (total premium per capita, U.S. dollars, using each year’s exchange rate):
    - Life Insurance: 2008 3,233 2009 3,441 2010 3,409
    - Nonlife Insurance: 2008 2,371 2009 2,286 2010 2,444
  - Source: ACP.
- Total number of companies in the market (Table 3; counts as of year-ends)
  - Number of insurance entities:
    - Life insurers and composite insurers: At 12/31/2009 103; At 12/31/2010 102
    - Nonlife insurers: At 12/31/2009 244; At 12/31/2010 235
    - Reinsurers: At 12/31/2009 21; At 12/31/2010 20
    - Total Insurance Code: At 12/31/2009 368; At 12/31/2010 357
    - Provident institutions - Social Security Code: At 12/31/2009 56; At 12/31/2010 53
    - Mutual Insurers Book II – Mutual insurance code: At 12/31/2009 844; At 12/31/2010 719
    - Total authorized entities and entities not requiring authorization: At 12/31/2009 1,268; At 12/31/2010 1,129
  - Source: ACP.

### Product mix, market shares, and concentration
- Nonlife insurance product mix (premium shares in percent; Table 4)
  - Motor insurance: 2008 34.2 2009 34.0 2010 33.1
  - Property insurance: 2008 25.6 2009 26.3 2010 25.7
  - General liability insurance: 2008 5.8 2009 5.9 2010 5.4
  - Natural disaster insurance: 2008 2.5 2009 2.4 2010 2.3
  - Other insurance: 2008 6.3 2009 6.6 2010 6.6
  - Transport insurance: 2008 1.9 2009 1.8 2010 1.7
  - Construction insurance: 2008 4.7 2009 4.4 2010 4.1
  - Credit insurance and surety bonding: 2008 1.7 2009 1.5 2010 1.7
  - Corporal damages: 2008 17.2 2009 16.9 2010 19.4
  - Source: ACP.
- Life insurance product mix (percent of life premiums; Table 5; dates shown as 12/31/2008, 12/31/2009, 12/31/2010)
  - Long-term savings: 73.0 76.8 77.9
  - Investment-linked: 16.5 12.9 13.2
  - Pensions: 1.5 1.3 1.3
  - Term Life Insurance: 9.0 9.0 7.6
  - Source: ACP.
- Market concentration and shares:
  - Life: Top 12 life insurance companies account for 69 percent of total life premiums; largest company accounts for 14 percent of total life premium; twelfth company for 2 percent.
  - Nonlife: Top 12 companies account for 52 percent of total nonlife premium; largest accounts for 9 percent of total nonlife premium; twelfth accounts for 2 percent.
  - Table 6: Market shares of the largest companies (in percent of market shares)
    - Life / Nonlife
      - First: 14 / 9
      - Second: 13 / 8
      - Third: 8 / 5
      - Fourth: 7 / 4
      - Fifth: 6 / 4
    - Source: ACP.
- Niche markets:
  - Medical general liability market described as a “niche” (less than 1 percent of premiums), attracting about 15 players; the first ones account for 40–60 percent of the niche market (characterized as oligopolistic).

### Profitability and efficiency indicators
- Nonlife companies (Table 7a; all figures in percent unless otherwise noted)
  - Premium retention ratio (All activities; Net premium written / gross premium written): 84.0
  - Claims Ratio (Activity in France; Incurred claims / net premiums earned): 74.6
  - Expense Ratio (Activity in France; Overhead expenses / net premiums earned): 34.1
  - Combined Ratio (Activity in France; (Claims + expenses) / net premiums earned): 99.8
  - Premium leverage ratio (All activities; Net premiums written /(capital + surplus)): 126.0
  - Note: Figures are “gross” of reinsurance—this ratio is estimated based on net premiums. Data scope notes: activity in France except for premium retention ratio and premium leverage ratio, which are global.
- Life companies (Table 7b)
  - Premium retention ratio (All activities; Net premium written / gross premium written): 94
  - Premium leverage ratio (All activities; Net premiums written / (capital + surplus)): 276
  - Mortality experience (Actual / expected rate of mortality): Not available
  - Investment income (All activities; Net rate using formula 2I / (A+B-I) in which: I = [ ]; A = [ ]; and B = [ ]): 5.0
  - Leverage (All activities; Total equity / total liabilities): 3.6
  - Voluntary terminations (Activity in France; Surrender values paid / net premiums written): 32
  - Source: ACP. Life insurance entities operating under the Insurance Code (activity in France for voluntary terminations).

### Observations on market dynamics and regulatory pressures
- Market stability: Market picture advised by ACP to have been stable for some time.
- Regulatory environment:
  - Regulations becoming more burdensome.
  - Imminent arrival of Solvency II expected to impose greater requirements on local companies (obligation for scenario testing and new formulas for measuring solvency).
  - Possible adoption of latest International Financial Reporting Standards (IFRS) recommendations for insurance company accounting may accompany Solvency II implementation.
- Industry consolidation:
  - One recent objective of ACP has been to reduce the number of players to make the industry more efficient.
  - Companies have been encouraged to consider portfolio transfers or outright mergers.

### Conclusions and policy implications (from source text)
- France has the external preconditions for effective insurance supervision (developed economy, systems and infrastructure).
- The transition to the 2011 ICPs constitutes a new assessment given additional risk-management and macroprudential requirements.
- Key supervisory and market challenges include:
  - Preparing and implementing Solvency II–type requirements, including scenario testing and new solvency measurement formulas.
  - Addressing increased regulatory burden and potential consolidation in response to higher compliance costs.
  - Managing accounting standard changes, including adoption of IFRS recommendations for insurance company accounting.
- Recent ACP supervisory priorities include encouraging consolidation (portfolio transfers or mergers) to improve industry efficiency.

*Source: IMF staff assessment based on ACP materials and on-site mission (January 10–January 27, 2012).*

### 15.      The ACP Annual Report provided the following summary of the profitability of

### 15. The ACP Annual Report provided the following summary of the profitability of insurance operations for the year 2010

### Profitability and results (2010)
- Turnover:
  - "In 2010, the turnover of the sector grew by nearly 8 percent."
  - Life operations growth: "5 percent."
  - Nonlife operations growth: "13 percent."
- Technical results:
  - Life operations technical result: "€5.1 billion", "an increase of 11 percent compared to 2009."
  - Nonlife operations technical result: "€3.6 billion", "an increase of 14 percent."
- Investment revenue and claims:
  - "The increase in revenue from investments for nonlife business (+11 percent) helped offset the significant increase in claim payments for the year, caused in part by exceptional climatic events (Xynthia storm; flooding; and difficult weather conditions during the winter)."
  - Life assurance: "benefit payments and investment revenue collected in life insurance reached levels above those recorded in 2008, but were slightly down compared to those observed in 2009."
- Net gain for the sector:
  - "For the whole sector—after taking into account the investment revenue attributed to “own” funds, exceptional items, and taxes—the net gain for the year amounted to €9.4 billion against €8.2 billion in 2009."

### Asset portfolios (ACP and Bank of France year-end 2010 study)
- Geographic concentration:
  - "Investments by insurance entities are mainly confined to France or the euro area."
  - Mutual companies: "40.5 percent of investments are securities issued by entities located in France and 34.7 percent are issued by entities located in the euro area."
  - Regulatory constraint: "requirement to invest in assets denominated in the same currency as liabilities, with a tolerance of 20 percent (R332-1 Insurance Code)."
- Regulatory constraints on instruments:
  - "According to regulation R332-2 Insurance Code, insurance corporations must invest in bonds and bills negotiated on recognized markets."
  - "Such investments represent 7 percent of securities issued by resident entities."
  - Investments composition: "Investments in shares are limited (11.6 percent) compared to investments in bonds or fixed-return securities (68.3 percent)."
- Composition of asset portfolios — Life insurance (Table 8; in percent):
  - 2008 / 2009 / 2010: Total (without unit linked) "100.0 100.0 100.0"
  - Real estate: "2,9 2,8 2,8"
  - Shares: "6,3 5,6 6.2"
  - Funds (OPCVM): "14,4 14,5 11,8"
  - Bonds: "75,4 75,6 78,3"
  - Others: "0,9 0,5 0,9"
- Composition — Five Largest Life Companies (Table 9; in percent):
  - 2008 / 2009 / 2010: Total (without unit linked) "100 100 100"
  - Real estate: "3 3" (format in source)
  - Shares: "7 8 6"
  - Funds (OPCVM): "13 14 11"
  - Bonds: "74 73 77"
- Composition — Nonlife companies (Table 10; in percent):
  - 2008 / 2010: Total (without unit linked) "100 100"
  - Real estate: "6 5"
  - Shares: "23 21"
  - Funds (OPCVM): "18 14"
  - Bonds: "53 61"
  - Others: "-" (2010 column blank in source)

### Connectedness and bancassurance
- Interconnections:
  - "The French financial sector is concentrated and connected through cross-shareholdings and lending."
  - "In 2010, 17 percent of French insurers’ assets were related to financial institutions."
- Bank–insurer ownership and examples:
  - BNP Paribas with Cardif for life and Avanssur (an AXA subsidiary) for nonlife.
  - Groupe Banque populaire Caisse d’Epargne (BPCE) with Assurance Banque Populaire vie, prévoyance et non-vie.
  - Groupe Crédit Agricole with Pacifica (nonlife) and Predica (life).
  - Groupe Crédit Mutuel: life and nonlife.
  - HSBC France with HSBC Assurances.
  - Banque Postale with Banque Postale Prévoyance (life).
  - Société Générale with Sogecap (life) and Sogessur (nonlife).
- Bancassurance market position and effects:
  - Bancassurers' liabilities: "policy-holders’ liabilities of bancassurers represent approximately 40 percent of total life insurers’ technical provisions."
  - Insurance companies’ deposits with banks: "€10.5 billion as of end-2010 (representing 0.5 percent of the total assets of the insurance sector)."
  - Bancassurers' share of gross premiums in life insurance: "about a 60 percent share of gross premiums written."
  - Bancassurer penetration in nonlife: "share of gross premiums now above 10 percent."
- Competitive and regulatory pressures:
  - Competition from bank deposit products and "Basel III liquidity requirements is favoring bank balance sheet growth over life insurer balance sheet growth."
  - "Basel III capital rules may require banks to deduct some of their equity in insurance companies from their bank regulatory capital."

### Financial soundness indicators (Table 11) — selected figures (in percent)
- Capital adequacy:
  - Capital/total assets: "21.4"
  - Capital/technical reserves: "276"
  - Net premium/capital + surplus: "126" (table layout in source)
- Asset quality:
  - Debtors / (Gross premium + reinsurance recoveries): "13.9"
  - Equities / total assets: "0.8"
  - Nonperforming loans to total gross loans: "6.8" (composite and life/nonlife columns vary in table)
- Reinsurance and actuarial:
  - Risk retention ratio (net premium / gross premium): "84"
  - Net technical reserves / average of net claims paid in last three years: "260"
  - Net technical reserves / average of net premium received in last three years: "260"
- Claims and management metrics:
  - Claims outstanding/ Total claims paid: "6.3"
  - Gross premium / number of employees (life only for life and composite company): "0.9" and "1.7" in table columns
- Liquidity:
  - Liquid assets / Current liabilities: "20.6" and "29.9" in table columns
- Market solvency margin ratio:
  - Surplus capital / required solvency I capital: "401.8" and "576.7" (table shows multiple columns)
  - Balance sheet margin coverage ratio, without and with unrealized gains (Equity adjusted for unrealized gains (losses)/ regulatory margin requirement): "125.6" and "178,9"
- Other:
  - "As of end- 2010, there are accumulated unrealized gains of €55 billion."
  - "Group Exposures    Group debtors / total assets 1 n.a." (as presented in table)

### Current market issues and business-model pressures
- Life insurance challenges:
  - "Around 85 percent of life insurance premiums relate to such guaranteed products" (medium- to long-term savings with guaranteed return of premiums plus annually declared earnings rates).
  - Tax advantage: "Benefit payouts from such products are taxed at concessional rates, as long as they are taken after eight years."
  - Regulatory constraints: "Since the 1990s, regulations have prohibited life insurers from offering multi-year guaranteed earnings rates, and, in recent years, further regulations have limited insurers’ ability to offer promotional rates to attract new business."
  - Declining earnings and reserves: "actual earnings have been falling over time, with interest rates and profit-sharing reserves have been reduced."
  - Net collections pressure: "In late 2011, net collections for such products ... reduced significantly and became negative for some insurers."
  - Risk of early redemptions and forced asset sales: "A sharp increase in medium- to long-term interest rates could lead to significantly higher early redemptions and substantial forced sales of insurers’ assets in a depressed market."
  - Unit-linked product growth limited by "complexity," "potential for misselling," and "volatile equity markets."
- Nonlife insurance market characteristics:
  - "Very mature, highly competitive, relatively saturated for individual policies, and heavily driven by government-mandated motor and household insurance, with low growth prospects, but overall stable."
  - Mutuals market shares: "about 25 percent of the property market and 30 percent of the motor market."
  - Cyclical pricing and profitability: underwriting performance "has been recovering due to price increases and a benign claims environment," but "lower investment returns will weigh on profitability."
  - Natural catastrophe mitigation: "mandatory inclusion of some natural disasters within insurance contracts, the unlimited state-guaranteed reinsurance coverage through the Caisse Centrale de Réassurances (CCR), and the CCR-managed national natural disaster compensation scheme."

### Solvency II: overview and ACP preparations
- Solvency II objectives and features:
  - Directive adoption: "In November 2009, the Council of the European Union and the parliament adopted the Solvency II Directive."
  - Solvency Capital Requirement (SCR): to ensure with probability "99.5 percent" that obligations are met over the following 12 months.
  - Minimum Capital Requirement (MCR) and Own-Risk and Solvency Assessment (ORSA) requirements described.
- Implementation status and timeline:
  - EIOPA working toward commencement date "January 1, 2014."
  - "Technical standards ... are needed, but are yet to be finalized."
  - Delays in finalizing technical standards "are hampering the ability of national regulatory and supervisory authorities to implement modern, risk-based insurance regulatory requirements."
- ACP position and recommended actions:
  - "The ACP’s Solvency II preparations are well developed, but France has been awaiting finalization of the EU technical standards before moving to implement Solvency II-type requirements."
  - Practical step: "possible and practical to introduce new—or improved—qualitative requirements for insurer ORSA processes and practices before the finalization of the EU technical standards."
  - Recommendation: early introduction of specific requirements for insurers’ Boards in the areas of:
    - "risk-appetite statements,"
    - "risk management within the appetites,"
    - "delineation of responsibilities between the Board and key persons in control functions,"
    - "remuneration policy," and
    - "a duty to act in the interests of policyholders."

### Main findings and supervisory recommendations
- Resilience under Solvency I:
  - "Insurance regulation and supervision are still predominantly carried out using a Solvency I approach, and the insurance sector remained resilient through the recent global financial crisis."
  - "Individual French insurance companies have not needed any government or industry support."
- ACP independence and governance concerns:
  - Potential perception issue: "The independence of the ACP, or at least the perception of independence, may be compromised by the involvement of the Direction Générale du Trésor (DGT) and Direction de la Sécurité Sociale (DSS) representatives in ACP College and Sanctions Committee meetings, and the mechanisms for determining industry contributions to ACP funding."
  - Recommendation: "consideration be given to removing the DGT and DSS representatives from ACP meetings" and to establish "separate coordination arrangements between the ACP on the one hand, and the DGT and DSS on the other hand."
  - Additional recommendation: "consideration could also be given to establishing a more transparent mechanism for adjustments to the industry contributions to the funding of the ACP."
- Supervisory readiness for Solvency II:
  - "Regulatory requirements and supervisory assessment of insurer’s financial soundness, and governance and risk management, will need to change dramatically with the implementation of Solvency II."
  - ACP Solvency II project structure: "a steering committee chaired by the secretary general" and "eight streams of work managed by task forces covering: international issues; internal models; balance sheet impact; information technology (IT) systems and reporting; transposition to French law; supervisory approach; and industry market preparation."
  - Recommendation: "early introduction of specific requirements for insurers’ Boards" (see list above) to improve supervisory outcomes ahead of quantitative Solvency II standards.

*Source: ACP Annual Report summary and related ACP/Bank of France study excerpts as provided in the source content.*

### 32.      The assessment of the suitability of persons involved in insurance operations is

### _cr13181 - 32.      The assessment of the suitability of persons involved in insurance operations is

### Assessment of suitability of persons involved in insurance operations
- The assessment of the suitability of persons involved in insurance operations is not sufficiently extensive and does not cover enough roles in insurers.
- Fit-and-proper assessments at licensing, change of control, mergers and acquisitions, and when people move away, do not cover all Board members or persons controlling key functions.
- The EU Solvency II Directive requires that all persons that perform key functions are fit and proper, so changes will need to be made with the implementation of Solvency II.
- It is recommended that the ACP power to remove unsuitable persons be extended to cover all such roles.
- There has been some reluctance for the ACP to use removal powers due to the high burden of proof needed to determine unsuitability.
- The ACP should be more prepared to use these powers or find other ways of dealing with the issue (e.g., placing onerous requirements on the insurers to assess and regularly certify suitability).

### Public disclosure and Solvency II implications
- Public disclosure requirements on insurers need improvement, but are awaiting Solvency II implementation.
- Current disclosure requirements cover the financial statements, including major methodologies and assumptions used.
- Full implementation of Solvency II will require disclosure of further detail and wider information.
- Further details that should be required include:
  - valuation of technical provisions, including assumptions used and the level of uncertainty associated with the amount of the provisions;
  - risk types;
  - risk exposures and concentrations;
  - risk-management policies, systems, and procedures;
  - corporate governance framework;
  - sensitivity results from forms of stress testing.

### Table 12 — France: Summary Observance of the Insurance Core Principles
- ICP1 -   Objectives, Powers, and Responsibilities of the Supervisor: O
- ICP2 -   Supervisor: LO
- ICP3 -   Information Exchange and Confidentiality Requirements: LO
- ICP4 -   Licensing: LO
- ICP5 -   Suitability of Persons: PO
- ICP6 -   Changes in Control and Portfolio Transfers: LO
- ICP7 -   Corporate Governance: PO
- ICP8 -   Risk Management and Internal Controls: LO
- ICP9 -   Supervisory Review and Reporting: LO
- ICP10 - Preventive and Corrective Measures: O
- ICP11 - Enforcement: O
- ICP12 - Winding-up and Exit from the Market: O
- ICP13 - Reinsurance and Other Forms of Risk Transfer: O
- ICP14 - Valuation: LO
- ICP15 - Investment: O
- ICP16 - Enterprise Risk Management for Solvency Purposes: PO
- ICP17 - Capital Adequacy: LO
- ICP18 - Intermediaries: O
- ICP19 - Conduct of Business: O
- ICP20 - Public Disclosure: PO
- ICP21 - Countering Fraud in Insurance: O
- ICP22 - Anti-Money Laundering and Combating the Financing of Terrorism: O
- ICP23 - Group-wide Supervision: O
- ICP24 - Macroprudential Surveillance and Insurance Supervision: LO
- ICP25 - Supervisory Cooperation and Coordination: O
- ICP26 - Cross-border Cooperation and Coordination on Crisis Management: O
- Aggregate Level: Observed (O); largely observed (LO); partly observed (PO); not observed (NO); not applicable (N/A).

### Table 13 — France: Summary of Grading
- Observed (O): 13
- Largely observed (LO): 9
- Partly observed (PO): 4
- Not Observed (NO): -
- Total: 26

### Recommended Action Plan — Key recommendations (extracted from Table 14)
- ICP2:
  - Consider removing the DGT and DSS representatives from ACP meetings to improve perception of ACP independence, while establishing separate coordination arrangements between the ACP and the DGT and DSS.
  - Consider establishing a more transparent mechanism for adjustments to the industry contributions to the funding of ACP.
- ICP3:
  - Consider allowing the ACP to exchange information with authorities outside the EU/European Economic Area (EEA), even if there is no formal agreement in place.
- ICP5:
  - It is recommended that the ACP power to require removal of unsuitable persons be extended to all insurers’ Board members and to all key persons in control functions, noting this is expected to occur via transposition of final Solvency II requirements into French law.
  - The ACP should also consider being more proactive in advising other authorities about unsuitable persons.
- ICP7:
  - Introduce enforceable requirements for insurer Boards to:
    - Determine and document their actual risk appetite, and their strategy for keeping their risks within this stated appetite;
    - Clearly define the roles and responsibilities allocated to the Board, senior management, and key persons in control functions;
    - Have an appropriate number and mix of individuals to ensure adequate knowledge, skills, and expertise;
    - Act in the interests of policyholders; and
    - Adopt an effective remuneration policy that does not induce excessive or inappropriate risk taking.
  - Note: Many of these are likely to be required via the implementation of Solvency II requirements.
- ICP8:
  - Introduce requirements for insurers to have internal audit and actuarial functions (noted as required via the Solvency II directive).
  - Consider specifically requiring insurers to retain responsibility for any material function that is outsourced and produce ACP guidelines included in outsourcing agreements.
- ICP9:
  - Significant retraining of supervisory staff in economic valuation approaches underlying Solvency II, revised Solvency II reporting requirements, and Solvency II ORSA requirements.
  - Consider establishing within the ACP a quality-control function aimed at achieving greater consistency of supervisory assessments, and establish a clear ACP policy or approach aimed at achieving greater consistency in aligning the supervisory response to the seriousness of the supervisory assessment.
- ICP14:
  - Develop necessary tools so valuation of assets and liabilities conforms to Solvency II expectations (e.g., for life insurance, replace computing policy liabilities using original pricing assumptions with an approach that fixes assumptions based on current estimates, plus a margin over current estimates (MOCE)).
- ICP16:
  - Develop expertise in enterprise risk management (ERM) to set standards and provide guidance to insurance companies in the application of ERM techniques to the measurement of solvency.
- ICP17:
  - In preparing for Solvency II, provide training to staff to cope with new measures for assessing adequacy of capital.
  - Develop a framework of regulatory responses that will involve solvency control levels, which trigger different degrees of intervention by the supervisor.
- ICP20:
  - Take a more active approach to obliging insurance companies to disclose relevant, comprehensive, and adequate information on a timely basis to give policyholders and market participants a clear view of their business activities; consider providing public access to specific company data on a website.
- ICP24:
  - Continue to develop macroprudential surveillance approaches from a multi-disciplinary and cross-sectoral perspective to identify trends and developments in all sectors of the economy that might impact the risk profile of insurers negatively.

### Authorities’ response to the assessment
- Paragraph 35:
  - The French authorities welcome the IMF review of the French regulatory and supervisory insurance framework.
  - The FSAP has been a useful exercise and has further enhanced the “peer review culture” in ACP’s departments.
  - ACP expresses appreciation and thanks the IMF and its assessors for the dedication, time and resources committed to the assessment.
- Paragraph 36:
  - The French authorities broadly agree with the IMF assessment.
  - The assessment was made on the basis of the newly revised ICP (dated October 2011) which made the exercise of observation more demanding.
  - These ICP partly echo Solvency II requirements and approach, still to enter into force.
  - By construction, some ICP currently regarded as “partly observed” or “largely observed” would probably have been deemed “observed” if Solvency II was already in place.

*Source: _cr13181 - 32.      The assessment of the suitability of persons involved in insurance operations is*

### 37.      Besides, there are a few differences of views between IMF and the French authorities.

### _cr13181 - 37.      Besides, there are a few differences of views between IMF and the French authorities.

### Differences of views between IMF and French authorities (overview)
- On ACP independence (ICP 2):
  - IMF: raises concerns about independence despite authorities' stated intention to create an independent supervisory authority.
  - Authorities: believe the ACP is fully independent and the assessment found no evidence of problems.
  - Specifics cited by authorities:
    - Involvement of the Ministry of Finance (through the Directeur général du Trésor or his representative) within ACP Board is governed by law that "gives no membership status in the Board and Enforcement Committee."
    - The representative’s only legally attributed right is to ask for a second deliberation in the Board for matters other than sanctions; this request "has no effect on the eventual content of the decision" but allows a brief opportunity to review decisions.
    - Authorities view this as providing transparency, effective and timely cooperation, and robust guarantees for regulator independence compared to international examples.
- On ICP 7 (corporate governance):
  - IMF and authorities share most views.
  - Authorities emphasize that provisions already exist which define roles and responsibilities of the insurer’s governing bodies.
- On corrective steps:
  - French authorities state that many shortfalls detected by IMF "will be addressed through the transposition and implementation of the Solvency II regime in French regulation."

### ICP 1 — Objectives, Powers, and Responsibilities of the Supervisor (Observed)
- Legal basis and functions:
  - Article L612 of the Code Monétaire et Financier (CMF) establishes the ACP as the independent authority responsible for financial system stability and prudential supervision of banking and insurance.
  - ACP statutory objectives: maintain financial stability and provide protection for banks’ customers and for insurance policyholders and beneficiaries.
- Establishment and structure:
  - ACP established by Order No. 2010–76 of January 21, 2010, assumed functions on March 2010.
  - Product of a merger of two licensing authorities and two supervisory authorities for banking and insurance.
  - ACP is attached to the Banque de France but has its own organizational and operating structure.
- Powers:
  - CMF grants powers of supervision, administrative policing measures, and powers to issue sanctions.
  - ACP responsible for consumer protection supervision in insurance.
- Interaction with legislation and regulation:
  - ACP proposes corrections or improvements to the Ministry of the Economy, Finance, and Industry (MEFI).
  - Representative of the DGT attends ACP College meetings as an observer.
  - ACP is member of the Consultative Committee for Financial Regulation (CCLRF).

### ICP 2 — Independence, Accountability, Transparency, Resources, Standards (Largely Observed)
- Legal and governance features:
  - ACP is an independent administrative authority with financial autonomy but "does not have legal personality."
  - Governance: Board called the College, chaired by the Governor of the Banque de France; Vice Chairman with insurance expertise; 19 members in total.
  - Appointment terms: College members with banking and insurance expertise appointed by the Minister for Economy Finance and Industry for a five-year term, with up to one reappointment subject to not being over 70 years of age.
  - Dismissal: members can be dismissed only for violations of duties or incompetence; dismissal requires agreement of the majority of the ACP College.
- Sub-bodies and committees:
  - Banking Sub-College, Insurance Sub-College, restricted College, Plenary College.
  - Sanctions Committee is separate from the College (to meet European Convention on Human Rights requirements).
  - Audit Committee and consultative committees: Prudential Affairs Committee (14 members), Anti-Money Laundering Committee (17 members), Business Practices Committee (16 members), Scientific Consultative Committee (10 members).
- Senior management appointments:
  - Secretary General appointed by the Minister for the Economy Finance and Industry following proposal from the ACP Chair.
  - First Deputy Secretary General appointed by the ACP Chair following consultation.
- Government officials in meetings:
  - Two government officials attend College and non-deliberative part of Sanction Committee meetings; they have no vote but can request a second deliberation (except on sanctions); these are:
    - a representative of the DGT – attends all College meetings;
    - a representative of the DSS – attends College meetings involving CDM or CSS issues.
  - Note: the request for a second deliberation "has never been utilized."
- Resources and staffing:
  - There are 13 departments within the ACP (three banking supervision departments; three insurance supervision departments; two corporate function departments; five cross-sectoral departments).
  - ACP staff are legally employees of the Banque de France and assigned to the ACP.
  - ACP financed by contributions from supervised institutions specified in law and collected by the Banque de France; Parliament sets the range of rates and a total limit on ACP headcount.
  - ACP increased staff to "almost 1,000 employees."
  - New-recruit internal training lasts two years and involves "about 20 percent of the staff’s time" over that period.
- Transparency and information publication (examples):
  - Chart of Supervision; lists of regulated institutions; ACP position papers; guidelines (e.g., AML); instructions (e.g., reporting forms); warnings and decisions; ACP principles for implementation of new requirements.
- Comment and IMF recommendation:
  - Comment: "There is no explicit requirement that the reasons for dismissing members of the College must be publicly disclosed."
  - Recommended considerations:
    - Remove the DGT and DSS representatives from ACP meetings to remove potential governmental influence and improve perception of independence; alternatively, establish separate coordination arrangements between ACP and DGT/DSS.
    - Establish a more transparent mechanism for adjustments to industry contributions to ACP funding to handle future funding constraints transparently.

### ICP 3 — Information Exchange and Confidentiality Requirements (Largely Observed)
- Legal powers:
  - ACP authority to obtain information from supervised insurance undertakings (CMF Article L612-24).
  - Authority to exchange supervisory information with:
    - French authorities (CMF Article L631-1),
    - European authorities or authorities belong to the EEA (CMF Article L632-1),
    - Relevant authorities outside the EEA (CMF Article L632-7) — requires an agreement/understanding before exchange.
- International arrangements:
  - ACP is party to the IAIS Multilateral Memorandum of Understanding (MMOU).
  - ACP operates according to the Sienna Protocol for EU/EEA collaboration.
  - Participates in or chairs supervisory colleges in accordance with the Helsinki Protocol and EIOPA Insurance Groups Supervision Committee guidelines.
- Confidentiality practice:
  - EU/EEA addressees bound by confidentiality requirements from EU Insurance Directives.
  - Before bilateral MOUs the ACP assesses counterpart confidentiality.
  - CMF stipulates confidential information can only be further disclosed with agreement of the originating authority and only for agreed purposes.
  - Judicial exceptions: ACP may be compelled to provide confidential information to criminal courts (not civil courts); ACP informs judicial authorities that information was obtained in confidence before complying.
- Comment and recommendation:
  - Comment: "The EU/EEA framework for information exchange and confidentiality requirements is extensive and detailed. The ACP is subject to this and complies with it."
  - Recommendation: consider allowing ACP to exchange information with authorities outside the EU/EEA even if no formal agreement is in place.

### ICP 4 — Licensing (Largely Observed)
- Licensing requirements and statutes:
  - ACP issues insurance authorities under:
    - CDA (Article L321-1) to stock companies or mutual insurance companies;
    - CDM (Article L211-7) to mutual societies;
    - CSS (Article L931-4) to provident funds.
  - CDA specifies insurers conduct only the insurance classes for which authorized.
  - Reinsurance: specific license required for firms headquartered in France specializing in reinsurance.
- EEA/EEA and non-EEA entities:
  - Insurance and reinsurance entities regularly authorized by an EEA supervisory authority and headquartered in the EEA are authorized to conduct insurance business in France directly or via branches.
  - Non-EEA entities opening a branch must be specifically authorized by the ACP.
- Application documentation:
  - Required documents specified in relevant laws (CDA Articles A 321-1 and A 321-7 to A 321-9; CDM Article A 211-1; CSS Article A 931-2-1) and include five-year business and financial plans; draft insurance contracts; organization, governance, management details; senior personnel.
- Fit and proper and resourcing:
  - Authorizations only granted if entity has sufficient human and financial resources and senior personnel are fit and proper.
  - Fit and proper requirements applied only to the chair of the Board and some of the first layer of senior management.
- Process and timelines:
  - Specialized insurance licensing unit within ACP manages licensing; applications assessed by licensing unit and relevant Brigade staff; Insurance Sub-College decides.
  - Six-month maximum period for ACP to consider authorization applications (CDA R 321-4 and CDM R 211-9); in practice process may be longer due to pre-application discussions.
- Restrictions, lapsing, and appeals:
  - ACP can place restrictions on authorized types of business; authorization for a class lapses if not undertaken within a reasonable time.
  - If ACP proposes to refuse authority, applicant has 15 days to respond before final decision.
  - Appeals to the administrative supreme court (CMF L 612-16).
- Comment:
  - Suitability of all persons responsible for all key functions are not assessed.
  - Home supervisors of applicants from outside the EEA are not automatically consulted.

### ICP 5 — Suitability of Persons (Partially Observed)
- Assessment practice:
  - Suitability assessed at time of authorization; ACP has no direct authority to object to changes in senior personnel except for specified roles.
  - Individuals usually assessed: chairman of the Board (single-tier) or chairman of management Board (two-tier), CEO, deputy CEO, or anyone exercising equivalent positions.
  - For mutual insurers under CDA, the whole management body is assessed; for mutuals under CDM management suitability is not assessed.
  - No suitability assessment for key persons in control functions or Board members other than the chair.
- Legal disqualifications and requirements:
  - Law lists criminal offences that prevent suitability; law also requires sufficient experience and professional ability.
- Notifications and ACP powers:
  - Insurer must notify ACP for changes only in identified positions.
  - For changes in control or significant ownership, ACP generally assesses suitability of new significant owners and their ability to contribute financial resources.
  - ACP has powers to require removal of unsuitable persons but only for those positions it can assess.
- Comment and recommendation:
  - The range of positions for which suitability is assessed does not extend to all Board members and key control function persons.
  - Recommended extension of requirements (expected via Solvency II transposition).
  - ACP should consider being more proactive in advising other authorities about unsuitable persons.

### ICP 6 — Changes in Control and Portfolio Transfers (Largely Observed)
- Definition of control (CDC):
  - Control exists if a party:
    - has direct or indirect holding of the majority of voting rights; or
    - has, during two consecutive business years, appointed the majority of the members of administrative, management, and supervisory structures (presumed if a party holds—directly or indirectly—more than 40 percent of the voting rights, and no other party holds a greater proportion); or
    - has the right to exercise a dominant influence due to a contract or provision of law.
- Notification thresholds and process:
  - ACP must be notified when changes affect 10, 20, 33, or 50percent of voting rights, or when an undertaking becomes or ceases to be a subsidiary.
  - Notification must be prior to change; ACP must authorize increases in shareholdings.
  - ACP must assess any notification within 60 days and may refuse approval on grounds including reputation and financial soundness, and suspicions concerning money laundering or financing of terrorism.
- Information requirements:
  - Acquirer must provide information on financial soundness and a three-year business plan when applying for approval to acquire shares; less extensive than new license information.
- Cross-border cooperation:
  - ACP exchanges information with EU/EEA authorities; exchanges with authorities outside EU/EEA only when a formal MOU exists.
- Portfolio transfers:
  - Prior ACP approval needed for transfer of portfolio (CDA Article L324, CDM Articles L212, CSS Article L931).
  - Notification by publication in Journal Officiel; policyholders and creditors can object within two months following publication (CDA R 324-1 and CDM L 212-11).
  - ACP assesses protection of policyholders’ interests and several technical criteria (portfolio delineation; contractual rights; technical provisions; assets; solvency margin coverage).
  - Rarely requires an independent actuary’s report.
  - Policyholders can immediately cancel contracts even if ACP approves transfer.
  - For life business transfers, transferee must post transferred assets into separate accounts to ensure fair profit sharing to transferred policyholders.
  - ACP approval for reinsurance portfolio transfers is for regulatory purposes only; cedants can still oppose transfer.
- Comment:
  - Supervisory authorities outside the EEA only consulted when a formal MOU exists.
  - Review of significant new owners should include measures to prevent beneficial ownership structures that hinder supervision or expose insurer to undue risk.

### ICP 7 — Corporate Governance (Partially Observed)
- Legal and board-level requirements:
  - CDC contains high-level Board responsibility provisions; CDC (Article L823-19) requires companies to have an audit committee.
  - CMF (Article L511-46) requires most insurers to have a risk committee (may be separate or function of audit committee).
  - CDA, CDM, CSS include provisions on internal controls, solvency management, investments, and reinsurance.
- Required reporting to ACP:
  - Insurers must produce a Board-approved internal control report annually covering objectives, internal control organization, business procedures, investment control, risk identification and control, claims monitoring, financial reporting and audit, AML/CFT controls.
  - Insurers must produce an annual Board-approved solvency report covering technical provisions, policyholder participations (life only), investments breakdown and sensitivities, reinsurance program and exposures, solvency margin and ratios and sensitivities.
  - Insurers must produce a Board-approved reinsurance policy statement (high-level).
- Supervisory practice and findings:
  - Examples of reports reviewed show variation in quality; some need much improvement.
  - ACP College focused on corporate governance in 2011; on-site inspections reviewed Board packs and minutes.
- Gaps identified:
  - No specific requirement to determine and document actual risk appetite and strategy to keep risks within it.
  - No requirement for Boards to clearly define roles and responsibilities between Board, senior management, and key control persons.
  - Boards not required to have an appropriate number and mix of individuals to ensure adequate knowledge, skills, expertise.
  - ACP does not assess suitability of all Board members nor has authority to require changes to remedy knowledge/skill shortages.
  - No specific legal requirement that Board members act in the interests of policyholders.
  - No specific requirement that Boards adopt an effective remuneration policy that will not induce excessive or inappropriate risk taking.
  - Boards required to ensure adequate systems for reliable financial reporting and effective communication with supervisor.
- Comment and recommendation:
  - No specific enforceable requirements for Boards to:
    - determine and document risk appetite and strategy;
    - clearly define roles and responsibilities between Board, senior management, and key control functions;
    - ensure an appropriate board composition for knowledge and skills;
    - act in policyholders’ interests;
    - adopt an effective remuneration policy that does not induce excessive risk taking.
  - Recommendation: introduce enforceable requirements for insurer Boards to perform these tasks (many expected to be required via Solvency II).

### ICP 8 — Risk Management and Internal Controls (Largely Observed)
- Requirements and practice:
  - CMF requires most insurers to have a risk management committee.
  - CDA, CDM, CSS require internal control function and annual internal control report approved by the Board and lodged with the ACP.
  - Internal control reports reviewed cover underwriting; claims management; technical provisioning; product pricing; investments; asset and liability management; operational risks including legal/regulatory compliance, AML/CFT, outsourcing.
- Internal audit and actuarial functions:
  - Many large insurers have internal audit areas; no specific legal requirement for a dedicated internal audit function (Solvency II will require this).
  - Actuarial staff or consultants often used; no specific current legal requirement for an effective actuarial function (Solvency II will require this).
- Outsourcing:
  - CMF gives ACP power to examine and supervise service providers carrying out outsourced functions.
  - ACP inspection of service providers legally possible only in countries where an agreement allows it; often addressed by contractual inspection clauses.
- Comment and recommendation:
  - Overlap between this ICP and ICP 16 noted.
  - Emphasis on internal control reporting is considerable but requirements for internal audit and actuarial functions are inadequate; recommended to introduce such requirements (Solvency II expected to require them).
  - Consider requiring insurers to retain responsibility for any material outsourced function and produce ACP guidelines on outsourcing agreement provisions.

### ICP 9 — Supervisory Review and Reporting (Largely Observed)
- Supervisory structure and process:
  - Supervision for financial soundness conducted within one of the two insurance supervision directorates; organized into Brigades with insurer portfolios.
  - Annual filings are analyzed by responsible Brigade staff with emphasis on solvency, technical provision adequacy, assets, and life insurance participation to policyholders.
  - Analysis and recent on-site inspection information produce a short supervisory summary note with ACP internal ratings for:
    - robustness of the insurer’s technical provisions;
    - actual level of the insurer’s solvency;
    - the quality of information received from the insurer;
    - the prospective financial condition of the insurer.
  - These assessments determine surveillance depth, on-site inspection scope, and need for supervisory action.
- Market analysis and inspections:
  - Market analyses produced twice a year covering business growth, profitability, technical provisioning, asset mix, counterparty exposure, reinsurance usage, and participations to life policyholders; presented to ACP College with suggested concerns.
  - On-site inspections generally give about two weeks' notice; can be extensive and involve multiple supervisors over months.
  - Inspection reports sent to insurers for response before finalization.
- Anticipated change:
  - Current solvency assessment approach will change "dramatically" with introduction of Solvency II, with "monumental impact" on supervisory assessment of insurer financial strength.

*Source: IMF staff report excerpt in _cr13181 - 37.      Besides, there are a few differences of views between IMF and the French authorities.*

### conclusions and send the final version to the insurer, with a copy to the insurer’s auditors.

### _cr13181 - conclusions and send the final version to the insurer, with a copy to the insurer’s auditors.

### Key findings
- "conclusions and send the final version to the insurer, with a copy to the insurer’s auditors."
- "The ACP requests the insurer provide a copy of its final report to the insurer’s Board."
- "However, there is no structured quality control undertaken of supervisor assessments or on-site inspection conclusions aimed at achieving greater consistency across supervisors."
- "There is also no clear ACP-wide system of classifying the seriousness of supervisory"

### Implications
- Lack of structured quality control may hinder consistency across supervisors.
- Absence of an ACP-wide classification system for supervisory seriousness limits standardized assessment and follow-up.

### Suggested focus areas (implied by findings)
- Establishment of structured quality control of supervisor assessments and on-site inspection conclusions to achieve greater consistency across supervisors.
- Development of a clear ACP-wide system for classifying the seriousness of supervisory matters.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13181.pdf*

### conclusions, which would then determine how the conclusions are communicated to the

### _cr13181 - conclusions, which would then determine how the conclusions are communicated to the

### Supervisory reporting, data collection, and audit interaction
- Supervisory reports include a conclusions section generally 1– pages long and, when needed, annexes for minor issues.
- A meeting of the supervisory team with the insurer normally takes place before the report is sent (per the “Charte du contrôle de l’ACP”).
- ACP authority under the CMF sets statutory reporting details; detailed requirements exist for both annual and quarterly reporting covering:
  - financial statements;
  - solvency reports;
  - internal control reports;
  - reinsurance policy statements;
  - asset exposures;
  - detailed list of assets; and
  - quarterly sensitivity analysis.
- ACP sometimes institutes special reporting across all insurers or major market sectors (example: weekly reporting on life insurer customer-related cash flows).
- Supervisory staff in Brigades maintain regular contact with insurers when aware of public or other-source issues; ACP staff have adequate powers to obtain any information about insurer operations.
- ACP participates with ANC, CNCC, and the DGT in determining accounting and consolidation standards; insurers’ Boards must approve financial statements, internal control, and solvency reports lodged with ACP.
- Audit requirements:
  - Annual financial statements must be audited; most companies in France require a joint audit involving two audit firms with signing partners from each firm both responsible for the whole audit.
  - Auditors are required to advise ACP if they become aware of a breach that could detrimentally affect the insurer’s financial condition or solvency.
  - Professional secrecy provisions apply to auditors, but they can freely exchange information with ACP staff.
- During on-site inspections, supervisory staff regularly verify the validity of information provided by insurers in financial and statistical reports.
- Comment: Data collections are comprehensive and will change as Solvency II details are finalized; significant retraining and possible recruitment for economic valuation skills will be required.

### Quality control and consistency of supervisory assessments (recommendations)
- Consider establishing within ACP a quality control function to achieve greater consistency of supervisory assessments.
- Consider establishing a clear ACP policy or approach to align supervisory response to seriousness of findings—e.g., a matrix such as a Ladder of Intervention or a Supervisory Guide.

### ICP 10 — Preventive and Corrective Measures (Observed)
- Conducting insurance activities without a license is a criminal offence; court-sanctionable penalties include imprisonment and a fine amounting to €75,000.
- ACP has a wide range of measures (from the CMF) in categories:
  - warnings;
  - remedial actions (requirement to improve practice or financial condition);
  - protective measures (limit inappropriate insurer activities).
- ACP may release to the public any information it deems necessary to accomplish its missions (example: October 2010, required MUT’EST to cease selling PréVIEsion life insurance product and published this online).
- Supervisory process emphasizes adequacy of technical provisions and coverage by admissible assets; when inadequate, ACP requests increases in technical provisions and can take administrative action if insurer disagrees.
- Supervisory staff notify parties of possible grounds for action and allow written comments or summoning before the College.
- Administrative remedial actions can include:
  - increase technical provisions;
  - restructure reinsurance arrangements;
  - obtain expert reports (independent valuations/advice);
  - restructure or stop certain sales practices.
- Protective measures can include:
  - restricting types of insurance business undertaken;
  - requiring sale of specific assets or restructuring investment mix;
  - requiring suspension of surrender payments or policy loans;
  - requiring transfer of some/all of insurer’s portfolio;
  - limiting distribution of dividends to shareholders.
- Comment: Wide range of measures available and appear used.

### ICP 11 — Enforcement (Observed)
- ACP designates a particular “controller” responsible for checking that remedial actions and special reporting are implemented according to plan and deadlines.
- Disciplinary proceedings toward sanctions are initiated by ACP College; the ACP Sanctions Committee (separate from Colleges) can impose:
  - public warnings;
  - reprimand;
  - prohibition on conducting certain transactions for up to 10 years;
  - temporary suspension of managers for up to 10 years;
  - compulsory dismissal of managers;
  - partial or total withdrawal of license;
  - striking from the list of licensed persons.
- Financial penalties: fines up to €100 million (€1 million for mutuals) may be imposed on organizations in addition to or instead of other penalties.
- Sanctions Committee usually publishes decisions; appeals are to the administrative supreme court (by sanctioned entity or the ACP Chair).
- Article L612 CMF grants ACP authority to remove all or part of the Board and some senior management, and to appoint a temporary administrator in emergency situations without prior hearing; powers have not yet been used in practice.
- Criminal sanctions: deliberately misreporting or failing to provide information timely can lead to up to one year’s imprisonment and a penalty of €15,000 per day (CDA Article L310, CDM Article L510, CSS Article L951).
- For failure to transmit required data, ACP can issue injunction and impose a daily penalty up to €15.000 until required data are received.
- Example enforcement: February 2011 — ACP Sanctions Committee reprimanded one individual and fined another €10,000, banning the latter from operating as an insurance intermediary for 10 years.
- Comment: Supervisor has adequate powers to enforce corrective actions and impose sanctions; powers are used in practice.

### ICP 12 — Winding-up and Exit from the Market (Observed)
- License withdrawal by ACP (no court approval needed) triggers automatic winding-up; withdrawal decisions taken by ACP Sanctions Committee after ACP College proposal.
- Reasons for withdrawal include failure to meet statutory requirements, not fulfilling license conditions, not meeting solvency requirements, or not undertaking authorized business.
- For winding-up, two liquidators are appointed: one by the court and one (usually an insurance specialist) by ACP; ACP advises court and works with liquidators.
- Creditor priority: policyholder obligations rank behind certain key creditors (liquidator fees, taxes, employee obligations) but ahead of other creditors (CDA Article L326, CDM Article L212, CSS Article L931).
- Nonlife contracts terminated after 40 days; liquidator advises policyholders to arrange substitute cover; remaining claims handled by liquidator.
- Life insurer liquidations: contracts remain in force while liquidators prepare a plan to transfer frozen life liabilities and assets to another insurer; plan is submitted to court and auctioned after approval.
- Life insurance warranty fund:
  - established after a late 1990’s small life insurer failure;
  - levy of 0.005 percent of life technical provisions was established, with only half the levy collected;
  - no compensation paid as assets proved adequate to arrange transfers; collected monies remain invested by an investment manager.
- Nonlife warranty fund:
  - exists only for compulsory classes of nonlife business;
  - cap of €700 million on total payouts;
  - fund currently has assets of about €250 million and has paid some compensation for a few small insurer failures.
- Comment: Appropriate winding-up and exit provisions exist, and limited policyholder compensation arrangements exist; few cases have required use.

### ICP 13 — Reinsurance and ART (Observed)
- CDA specifies required documentation for reinsurance business; on-site inspections verify appropriate documentation executed timely.
- CDA permits alternate risk transfer (ART) to capital markets under specific circumstances requiring a special purpose vehicle (SPV) with subordinated repayment rights; SPVs are not common in France.
- Comment: None.

### ICP 14 — Valuation (Largely Observed)
- As of the mission date, France had not yet amended legislation to require Solvency II implementation; CDA contains detailed prescriptions meeting Solvency I requirements.
- For solo reporting, no differences between general purpose financial reports and the balance sheet required for solvency reporting.
- Listed conglomerates prepare group statements following IFRS with different valuation rules.
- Expectation: French law to be amended before end of 2012, with full implementation expected by 2014.
- Accounting principles in France:
  - assets valued on amortized cost basis;
  - liabilities valued using pricing assumptions;
  - CDA restricts choice of mortality tables and discount rates;
  - realized gains/losses flow into income; unrealized gains/losses not booked (write-downs flow to income);
  - exception: unit-linked contracts — assets at market price; liabilities determined by asset value.
- Discount rates for technical provisions are prescribed by regulator and do not take insurer credit standing into account.
- CDA requires asset-liability management tests and inclusion of results in annual solvency report.
- Under Solvency I, financial soundness measured in two steps: coverage of technical provisions by admissible assets and computation of solvency margin.
- CDA permits creation of special provision or recalculation of reserves using more conservative mortality assumptions if supervisor deems original assumptions inappropriate.
- Life TPs use pricing assumptions and include an implicit risk margin; devices to restore implicit margin include Provision pour Aléas Financiers or recalculation using more conservative mortality tables (Art. A.331-1-2 c.ass.).
- Nonlife TPs are not discounted and include an implicit MOCE; discounting of nonlife TPs is not allowed (except certain long-term nonlife annuities with limits tied to asset yields).
- ACP developed rules covering valuation of guarantees and options; stochastic methods may be required, primarily for unit-linked contracts with guarantees.
- CDA does not require appointment of an actuary nor acturial certification of adequacy of TPs; if a company selects non-approved mortality tables, an independent actuary opinion is required; most companies employ their own actuaries.
- Comment: Solvency II will change asset valuation to market values and liability discounting to “best estimate” with safety margins, increasing accounting volatility.

### ICP 15 — Investment (Observed)
- Investment activities subject to qualitative and quantitative limitations; CDA lists eligible assets and quantitative limits and aims at policyholder/beneficiary best interests.
- Examples of limits:
  - Shares issued by noninsurance corporations: 10 percent
  - Real estate in OECD countries: 40 percent
- Current company holdings are far below these limits in practice.
- Governance requirements:
  - Board must produce Internal Control Report and Solvency Report annually; Solvency Report describes investment policy and ALM program.
- Stress-testing requirements:
  - Companies must run stress-tests simulating interest rate and equity price shocks; results included in annual solvency report and submitted quarterly (or monthly as required).
- On-site reviews focus on security, liquidity, diversification; companies must maintain detailed investment lists available to supervisors.
- Under stressed market conditions, supervisor can require additional asset information (e.g., investments in specific counterparties, provisions for asset devaluation).
- ACP and industry have conducted stress tests employing new Solvency II rules.
- Complex and less transparent assets receive special scrutiny; derivatives allowed for hedging only, not speculation.
- Comment: Many jurisdictions move away from defining specific asset types while retaining portfolio composition percentage rules.

### ICP 16 — Enterprise Risk Management (Partly Observed)
- CMF requires most insurers to have a risk management committee.
- CDA requires Internal Control Report to identify procedures for identification, quantification, and control of risk management; ACP reviews this annually and may inspect on-site.
- CDA does not require insurers to describe relationship between tolerance limits, regulatory capital requirements, and processes for monitoring risks (contrary to criterion 16.4).
- CDA requires reporting of ALM and stress testing via templates (T3, C6 bis) and that management Board establish risk tolerance levels for market, counterparty, and liquidity risks.
- No mandatory obligation for an ERM framework responsive to changes in risk profile; Board may change tolerance limits at least annually and must inform national supervisor if modified.
- ORSA concept not specifically prescribed in France, but Solvency Report provisions cover similar forward-looking topics expected in ORSA.
- ICP 16 expectations (list of ERM elements) are not fully covered under current French requirements; expected to be extended via Solvency II implementation.
- Comment: Solvency II implementation will substantially change insurer ERM and supervisory assessment; ACP should prepare for these changes.

### ICP 17 — Capital Adequacy (Largely Observed)
- CDA requires Board to issue Solvency Report submitted to ACP and external auditor; Solvency Report must show sufficiency of technical provisions, describe investment policy, and analyze mid- and long-run commitments.
- Insurers must assess financial risks by stress-testing impact of interest rate and stock price changes; methodology determined by ACP and results submitted quarterly.
- Coverage test: ACP rules impose coverage test requiring technical provisions be supported by portfolio of specific quality and nature; rules include currency matching, authorized asset categories and ceilings, diversification limits, and protections against default of non-equivalent reinsurer supervision.
- Templates:
  - T3 (end of 2000) stress tests asset-liability matching.
  - C6 bis (2004) presents liquidity test results evaluating capacity to meet obligations in deteriorated markets.
- Solvency Margin:
  - Requirements based mainly on underwriting risks and reinsurance protection.
  - ACP takes effective risk transfer into account, especially for financial reinsurance and securitization.
  - ACP can order unrealized losses be deducted from available solvency margin (ASM) and can oblige insurers to increase required solvency margin (RSM) or revalue admissible ASM elements downward.
- Supervisory intervention:
  - No formal solvency capital requirements with control levels triggering degrees of intervention (no “ladder of compliance”); supervision summarized via tools focused on TPs and the Coverage Test.
  - Two levels of capital requirements where shortage can trigger intervention: RSM and Guarantee Funds (GF).
  - After RSM infringement ACP would require financial recovery plan (program de rétablissement).
  - After GF infringement ACP would require a short-term finance scheme (plan de financement à court terme).
- ACP powers when insurer at risk of failing commitments include warnings, injunctions, program de rétablissement, prohibiting asset disposal, prohibiting surrendering life policies, prohibiting dividend payments, removing management, transferring portfolios, appointing administrative receiver, or withdrawing license.
- Group-level rules:
  - CDA details supplementary supervision of insurance groups, adjusted solvency margin at group level, non-transferability of some solo own funds for group calculations, and monitoring of intra-group transactions.
  - For groups with head in France ACP can require measures to bring adjusted solvency margin into compliance and can sanction holding companies; for groups with head outside France ACP can request adjusted solvency calculation and sanction the organism under its supervision.
  - Group solvency control level has not yet been brought into compliance with ICP 17 expectations.
- Dealing with categories of risk:
  - Underwriting risk addressed in RSM and TPs with mandatory technical parameters (maximum discount rate, minimum mortality/longevity tables).
  - Market and concentration risks addressed by coverage obligation and specific technical liabilities: capitalization reserve; price contingencies reserve; global expense reserve; liquidity risk reserve.
  - Counterparty risk addressed via provision for permanent impairment and coverage obligation (collateral required for reinsurers not recognized as equivalent).
  - Operational risk indirectly addressed in RSM.
- Variations in regulatory capital requirement:
  - ACP may impose higher required solvency margin (HRSM) up to two times the basic RSM based on financial recovery plan.
  - ACP can deduct provision for liquidity risk from ASM if liquidity test results show a solvency risk.
- Quality and suitability of capital resources:
  - Going concern vs wind-up basis: paid-up share capital and reserves fully admitted; subordinated loans admitted up to 50 percent of the lesser of ASM and RSM.
  - Availability: paid up share capital fully admitted; half of unpaid share capital admitted up to 50 percent of lesser of ASM and RSM; only fully paid subordinated loans taken into account.
  - Permanence: subordinated loans without maturity admitted up to 50 percent of lesser of ASM and RSM; subordinated loans with fixed maturity at least five years admitted up to 25 percent of lesser of ASM and RSM; total admitted subordinated loans capped at 50 percent.
  - Repayment of subordinated loans before maturity permitted only with prior consent of ACP; repayments subject to five year’s notice or prior consent for no-maturity loans.
  - Internal models are not presently part of the supervisory system in France.
- Comment: Solvency II will introduce important changes including solvency control levels triggering different degrees of intervention; recommended that ACP provide more intensive training to staff for new capital assessment methods.

### ICP 18 — Intermediaries (Observed)
- Insurance intermediaries in France must register with Organization for the Register of Insurance Intermediaries (ORIAS); registration renewed yearly and ORIAS verifies ongoing compliance.
- ACP conducts on-site inspections of any legal entity acting as an intermediary and has a unit dedicated to intermediary inspections.
- ACP can order ORIAS to cancel registration and can impose sanctions from warnings to withdrawal of registration and fines.
- Registration requirements include fit-and-proper test, specified formal education level, and minimum industry experience.
- Intermediaries must disclose relationships, independence, potential conflicts of interest, and complaint procedures; must supply analysis of customer’s needs before sales.
- Intermediaries handling client-company cash flows must be bonded by bank deposit or insurance policy and hold professional indemnity insurance.
- Bancassurance:
  - No specific provisions; bancassureurs are subject to same regulations as other brokers and must register if activity falls within insurance mediation scope.
  - Bancassureurs inspected with same intensity as other intermediaries; inspections performed by ACP staff or Banque de France inspectors under delegation.
- Comment: Banque de France inspectors collaborate with ACP in bancassurance supervision.

### ICP 19 — Conduct of Business (Observed)
- ACP established a Business Practices Supervision department.
- Insurers and intermediaries must comply with general consumer protection rules and insurance-specific rules; all insurance sales in France must be accompanied by advice.
- Cooling-off periods: up to 14 days for nonlife and 30 days for life insurance.
- ACP requires an annex to the Internal Control Report with a questionnaire on compliance with consumer protection rules.
- ACP issued guidelines on consumer protection topics including marketing and advertising of unit-linked life insurance, marketing of products linked to related-entity debt securities, and marketing of funeral-payment-plan linked life policies.
- ACP has powers to require modification or withdrawal of non-compliant advertising and cooperates with AMF on financial-product advertising; monitors advertising across media including internet.
- Complaints handling:
  - Companies must provide information about complaints procedures in Internal Control Report annex.
  - ACP receives an estimated 4,000 complaints and inquiries per year (mostly insurance) and maintains a telephone enquiry service receiving an estimated 50,000 calls per year.
  - ACP encourages policyholders to resolve issues with companies first; unresolved cases may be referred to an ombudsperson whose decisions are binding on insurer; dissatisfied parties may pursue courts.
- Comment: None.

### ICP 20 — Public Disclosure (Partly Observed)
- Public disclosure requirements in CDC and CDA; annually insurers must provide a Management Report and a Financial Report describing business activity, strategies, capital management, and main risk exposures.
- Reports are deposited with a national Registrar and must be made available to the public on request (theoretically for a fee up to €0.46 though documents are often provided free and often available on insurer websites).
- CDA requires disclosure of an “état détaillé des placements” — asset portfolio detailed line by line with purchase cost, book value, and market value (and redemption value for bonds).
- Financial Report includes auditor-certified qualitative and quantitative disclosures, with paragraphs reserved for calculation and analysis of technical provisions; valuation methods, assumptions, and actuarial policies must be disclosed; technical reserves shown separately for life and nonlife; financial instruments shown by type and valuation at cost, impairments, and market values.
- Listed companies must include ERM information and remuneration policies in Management Report; other insurers discuss ALM in Solvency Report filed with supervisor.
- Comment: Public does not have access to internal control report and solvency report; public disclosure does not include entire ICP 20 package though some aspects are more comprehensive; Solvency II will expand disclosure requirements; recommended ACP take a more active approach to obliging timely comprehensive disclosures.

### ICP 21 — Countering Fraud in Insurance (Observed)
- Insurance fraud covered by Code penal: guilty parties may receive jail up to five years and/or a fine up to €375,000.
- CDA includes contract law provisions for fraud/bad faith enabling voidance of contracts or forfeiture of indemnity rights.
- Annual internal control reports must describe internal control organization and main risk management; these reports, inspections, and other information are used to assess fraud risk regularly.
- Industry-created Agence pour la Lutte contre la Fraude à l’Assurance (ALFA) tasks:
  - coordinating exchange of information between companies;
  - conducting investigations with private investigators when needed;
  - developing typologies of fraud.
- ACP exchanges confidentially with ALFA on typologies; ALFA does not publish case information.
- Article L. 612-28 CMF requires ACP President to inform public prosecutor when on-site reports mention facts that might justify criminal prosecution (after legal department analysis).
- ACP powers relevant to fraud include administrative investigations, remedial programs, protective measures, disciplinary sanctions, and financial penalties up to €100 million.
- Comment: Solvency II will introduce firm reporting on “Operational Risk,” generally presumed to include fraud risk.

### ICP 22 — AML/CFT (Observed)
- ACP designated as competent authority for AML/CFT purposes and ensures entities comply with MFC obligations set by ordinance dated January 30, 2009.
- MFC obligations (Article L561-2) apply to:
  - insurance companies listed in the Insurance Code and intermediaries (except those operating under full responsibility of an insurance company);
  - institutions/unions governed by Social Security Code;
  - mutual benefit societies and unions carrying out activities defined in Mutuality Code.
- Obligations extend beyond FATF foreseen institutions to include institutions providing nonlife insurance.
- Insurers/intermediaries must set up systems for assessing/managing ML/TF risks, due diligence, detection of unusual/suspicious transactions, reporting to FIU TRACFIN, and control procedures (periodic/permanent measures).
- ACP participation and arrangements:
  - ACP is a full member of the inter-ministerial AML/CFT Advisory Board (set up January 18, 2010).
  - ACP established a Consultative Committee on AML-CFT in May 2010 to specify expectations and examine AML-CFT documents.
  - ACP circulated an AML-CFT questionnaire to insurers in 2010; analysis communicated to ACP College in September 2011 and published in “Revue ACP.”
  - ACP organizes “Rendez-vous LAB” with TRACFIN and industry at least once a year (most recent for insurance sector in September 2011).
  - ACP established nonbinding guidelines (post-consultation) assisting insurers/intermediaries in AML-CFT implementation; TRACFIN participates in consultative committee.
- Supervisory monitoring:
  - Ongoing off-site and on-site monitoring uses annual internal control reports, AML-CFT questionnaires, interviews with compliance officers and money-laundering reporting officers, inspection reports, and other information.
  - ACP inspectors raise AML/CFT issues in post-inspection reports and remind companies of reporting obligations to TRACFIN.
  - ACP meets TRACFIN yearly to gather FIU data and set inspection schedules; ACP notifies TRACFIN when issues identified were not reported.
- Information exchange:
  - MFC requires domestic supervisory authorities to cooperate and exchange information subject to confidentiality.
  - ACP has a protocol with TRACFIN; permitted to cooperate with foreign authorities from EU/EEA states and to enter cooperation agreements with other foreign entities with confidentiality safeguards.
- Comment: A recent FATF assessment concluded France is largely compliant with FATF recommendations.

### ICP 23 — Group-wide Supervision (Observed)
- CDA Article 334 defines an insurance group broadly and applies additional supervision to all firms within a group; EU Directives on insurance groups and financial conglomerates are instituted.
- ACP has authority to supervise firms, parent companies, and intermediate holding companies within insurance groups and to obtain information/inspect nonregulated entities in groups.
- ACP can require intermediate holding companies for supervision ease; group-level requirements include:
  - consolidated financial statements at group level;
  - adjusted solvency margin requirements at group level;
  - identification of intra-group transactions.
- ACP developed group reporting templates; internal control and solvency reports required for insurance groups.
- ACP prepares group-wide analyses and summary assessments including internal ACP ratings in addition to solo assessments.
- ACP participates in or chairs supervisory colleges for cross-border groups.
- Comment: Adequate and effective legal-entity and group-wide supervision exists.

### ICP 24 — Macroprudential Surveillance (Largely Observed)
- ACP determines reporting templates, details, and frequency of collections and collects quarterly and annual data and ad hoc data across industry or subsets (e.g., large market participants).
- Market analysis and risk reporting:
  - Each half-year a market analysis is presented to ACP College; main risks reported quarterly.
  - Trends analyzed include growth, profitability, reinsurance usage, asset mixes, and declared life policy interest rates.
- ACP publishes an annual market-wide economic report covering banking and insurance issues.
- Ad hoc surveys/horizontal reviews performed on asset counterparty risk (sovereign exposures), life insurer cash flows, and intra-group liquidity transactions.
- Weekly data on life insurer cash flows are collected due to high recent outflows; continuous monitoring continues.
- Regular returns include quarterly sensitivity data giving ACP insight into resilience to financial shocks; many French insurers participated in EIOPA 2011 stress test.
- ACP contributes to and benefits from EIOPA financial stability work.
- No formal definition of “systemic” insurer by ACP or IAIS; large French insurers with significant European/global operations are monitored closely via solo and group supervision and supervisory colleges.
- Comment: ACP has made progress in macroprudential surveillance and should continue development from multi-disciplinary and cross-sector perspectives.

### ICP 25 — Supervisory Cooperation and Coordination (Observed)
- Helsinki Protocol requires formation of colleges of national supervisors for cross-border companies and conglomerates; cooperation expected among insurance and other sector authorities.
- ACP is part of IAIS MMOU for unrestricted information exchange among members and may enter bilateral agreements; authorized to participate in non-EEA colleges.
- Colleges meet regularly (usually once per year) with EEA and world colleges; supervisors from other financial sectors invited.
- France is lead supervisor in 16 colleges and a member of 11 others.
- Colleges are expected (per EIOPA 2012 college action plan) to negotiate coordination arrangements addressing regular and emergency concerns.
- Lead supervisor tasks include producing group overviews, risk analysis, and sharing bottom-up risk information; recent activities focused on group risk assessment and adjusted solvency margins to eliminate double-gearing.
- Steering committees address specific issues (e.g., internal model pre-approval); senior executives of target institutions attend college meetings.
- College meetings can involve 20–30 delegates; Solvency II will increase scrutiny on internal models.
- EIOPA has guidelines on college work.
- Comment: None.

### ICP 26 — Cross-border Crisis Cooperation and Crisis Management (Observed)
- EU/EEA directives (transposed into French law) mandate full cooperation among EEA supervisors covering information sharing and cross-sector cooperation for financial conglomerates.
- Supervisory colleges operate under Helsinki Protocol/EIOPA guidelines with information sharing and emergency planning.
- All EEA colleges established emergency plans in 2011 as required by EIOPA; plans extended to non-EEA supervisors in world colleges.
- EIOPA tested emergency plans in September 2011; precise contact lists validated and all EEA college members were contacted during the test.
- EIOPA expectations for group member supervisors to share at minimum:
  - group structure (legal, financial, operational intra-group dependencies);
  - inter-linkages between insurer and financial system in each jurisdiction; and
  - potential impediments to a coordinated solution.
- For France, collaborative website provided by ACP is used when ACP is group supervisor; other means when ACP is host supervisor.
- CMF requires insurers operating in France to provide in a timely manner all information needed by ACP for its mission, including for crisis management.
- Directive 2002/87/EC (as modified) requires entities in financial conglomerates to have arrangements to contribute to and develop recovery and resolution arrangements and plans, updated regularly; these provisions were required to be transposed by 31 December 2011.

* _cr13181 - conclusions, which would then determine how the conclusions are communicated to the insurers and what level of supervisory response should occur for given levels of serious findings._

### Chapter 3 of the EIOPA Guidelines on Preparation for and Management of a Financial

### Chapter 3 of the EIOPA Guidelines on Preparation for and Management of a Financial Crisis

### Communication in an evolving crisis
- The responsible supervisor must inform the group-wide supervisor "as soon as it becomes aware of the crisis."
- The group supervisor is responsible for coordination efforts, particularly the transmission of the information inter alia to:
  - the college members,
  - the contacts of the EIOPA crisis contact list,
  - and—after consideration by the supervisory college—other relevant authorities (Paras. 15-18 of the guidelines).
- In this framework, Chapter 4 of the Guidelines on Preparation for and Management of a Financial Crisis requires:
  - the group supervisor to analyze and assess the nature and impact of the crisis,
  - the college members to cooperate in helping to reach a common understanding of the crisis.

### Supervisory cooperation
- The EU/EEA multilateral MOU on Cooperation between the Financial Supervisory Authorities, Central Banks and Finance Ministries of the European Union on Cross-Border Financial Stability sets a general framework of requirements for coordinated action by the involved authorities and stakeholders.
- Chapter 5, sections 5.1 and 5.2 of the Guidelines on Preparation for and Management of a Financial Crisis set requirements for the supervisors to cooperate in order to assess and coordinate action to manage the situation.
  - Section 5.1, Para 28: "all supervisors should cooperate actively and closely in order to identify possible solutions to manage and resolve the crisis, either private or public, or a mix of them, and they should assess appropriateness of various options to the extent possible."
  - Section 5.2, Para.29: "in a crisis situation in an insurance group, the Lead Supervisor (group supervisor) will plan and coordinate the supervisory activities and will, in close cooperation with other authorities, coordinate the management of the situation."
  - Paras. 30 to 32: the college should analyze the need, scope, content and conditions of the actions to be taken, and asses their application.

### Lead Supervisor responsibilities and public communication
- Chapter 6 of the EIOPA Guidelines on preparation and management of financial crisis states that, as a general rule, the Lead Supervisor is in charge of coordinating the public communication at each stage of a crisis and details the process to be followed in this matter.

- Page indicator: 66

*Source: _cr13181 - Chapter 3 of the EIOPA Guidelines on Preparation for and Management of a Financial Crisis*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13181.pdf_