COMPARATIVE SURVEY
I. Organisational Structure of Insurance Regulatory and Supervisory Authority (Table 7)
All countries, with the one exception of Costa Rica, report the existence of an insurance regulatory and supervisory authority.
Several countries have reported regulatory bodies different from the insurance supervisory authority. In Colombia, the Ministry of Finance is the regulatory authority for insurance although the Banking Superintendence also has regulatory powers. In Brazil, the National Council of Private Insurance (CNSP) is an insurance regulatory authority, whose member includes the Superintendent of Private Insurance (SUSEP). In Brazil, Guatemala, Mexico and Uruguay, Ministries are also involved in certain supervisory activities such as licensing. In Guatemala, the Ministry of Economy also orders interventions and winding-up of insurance companies. Honduras, the central bank is in charge of licensing. In Panama, the Technical Council of Insurance is in charge of licensing (P).
In Costa Rica, until now there has been no insurance supervisory authority, although there is a legislative project to create the Superintendence for Insurance Entities, Bonds, Guarantees and Pension Funds. The non-existence of an insurance supervisory authority in this country is related to the fact that in this country the State monopoly has been providing all lines of insurance since 1924. There is however, insurance legislation which covers the activities of the State monopoly called the National Insurance Institute. Most of the particularities related to the insurance regulation and supervision of this country, which appears in the following sections, can be explained by the existence of the State monopoly and/or the non-existence of an insurance supervisory authority in this country.
1. Scope of Supervision
In all countries except for Costa Rica, there is a supervisory authority that specialises in insurance supervision or financial supervision including insurance. In several countries (Brazil, Chile, Dominican Republic and Panama), the authorities are affiliated with government through Ministries. In several other countries (Paraguay and Uruguay), the authorities are affiliated with central banks. The scope of supervision of those supervisory authorities could be classified as follows.
1.1. Insurance Supervision Only
In seven countries (Argentina, Brazil, Cuba, Mexico, Panama, Paraguay, Uruguay and Venezuela), there is a supervisory authority specialised in insurance supervision. In Uruguay, as stated above, the insurance supervisory authority is a part of the central bank, which also supervises banks, pension funds and securities firms. In Brazil and Panama, the authority also supervises some pension products.
1.2. Insurance and Banking
In six countries (Colombia, Ecuador, El Salvador, Guatemala, Nicaragua and Peru), a banking supervisory authority conducts insurance supervision as well. In some of those countries, those bodies also supervise pension funds (Colombia and Peru), securities firms (Nicaragua), trust companies (Colombia), foreign exchange dealers (Colombia, El Salvador and Guatemala) and warehouse companies (Guatemala and Nicaragua).
1.3. Insurance and Securities
In Bolivia, Chile and Dominican Republic, one supervisory authority is responsible for both securities and insurance supervision. In Bolivia, the authority also supervises pension funds.
1.4. Insurance and Pension
In Honduras, the insurance supervisory authority also supervises pension funds. In Brazil, the insurance supervisory authority also supervises private open pension funds, although there is a different authority which supervises pension funds.
2. Co-ordination among Supervisors
In four countries (Colombia, Guatemala, Peru and Venezuela), their insurance legislation require consolidated supervision. In Guatemala, the new law including provisions related to consolidated supervision was promulgated in April 2002.
In Colombia, Financial and Insurance Law requires a consolidated supervision of all financial institutions, including insurance companies, belonging to the same financial group. For that reason, the Banking Superintendence (SBC), which also supervises insurance companies, undertakes consolidated supervision of all its supervised institutions belonging to the same conglomerate. In the Banking section, the supervisory teams have been organized in groups responsible for the examination and analysis of affiliate institutions. The Insurance section, however, still remains as a separate group or division. However, the supervision of insurance companies belonging to a financial group that also owns a bank, pension fund or trust company must be coordinated with the other SBC’s supervisory sections. .
In Peru, in 2000, the Superintendence of Banking and Insurance (SBS) approved new regulation that requires consolidated supervision, which modifies the regulation approved in 1998. This new regulation stipulates the capital requirements as well as the methodology to calculate the effective equity of consolidated groups. The actual supervisory activities were oriented towards identification of the structures of certain conglomerates and transactions among the members of conglomerates to assess and prevent the risks derived from their financial activities, focusing on the impact of those risks on the companies that work with public funds.
In Venezuela, Law of Insurances and Reinsurance Companies as well as the General Law of Banks and other Financial Institutions requires consolidated supervision. Both laws stipulate the concepts of financial or economic conglomerates and require the supervision to take into account all the companies of the group including the companies that is not domiciled in the country. The supervisory authority in charge of the company with the largest assets in the conglomerate coordinates the supervision of the group. For example, if a member bank is greater than a member insurance company, the supervision of this banking conglomerate is carried out by the Financial Superintendence of Banks and Other Institutions, the banking supervisory authority. Also, if a banking conglomerate is intervened, the insurances company can be also intervened by the banking supervisory authority and can be liquidated by the Guarantee of Deposits and Banking Protection Fund.
In Mexico, there are discussions among the authorities concerning financial convergence and the financial conglomerates operations and the way to address those issues. There seems to be no discussion at present about the consolidated supervision in Nicaragua.
As for the co-ordination among supervisors, six countries (Chile, El Salvador, Mexico, Nicaragua, Panama and Venezuela) report the following similar structures.
In Mexico, the board of the insurance supervisory authority, Insurance and Surety National Commission (CNSF), consists of the president and vice-presidents of the CNSF and nine other members. Of those, four members are designated by the Ministry of Finance and Public Credit, a member by the Banking and Securities National Commission (CNBV), a member by the Central Bank of Mexico (BANXICO) and a member by the Pension Funds System National Commission (CONSAR). The remaining two independent members, who should not be civil servants, are designated by the Ministry of Finance. The president of the CNSF is also a board member the other supervisory authorities such as CNBV, CONSAR and the National Commission for the Protection and Defence of the Financial Services’ Users (CONDUSEF). Thus, the close co-operation and co-ordination among supervisors to cope with the financial conglomerates operation are attained through the Ministry of Finance and the boards of the supervisory agencies.
In Chile, there is a committee that consists of three supervisory authorities (banks, pension funds and insurance). In El Salvador, there is a committee called Joint Counsel that consists of the heads of three supervisory authorities (banking and insurance, securities and pension funds) and the presidents of the central bank and deposit insurance fund. In Panama, the Council for Financial Co-ordination of the Republic of Panama was created in April, 2001, which consists of Ministry of Finance, which chairs the Council, Ministry of Commerce and Industry, to which the insurance supervisory authority belongs, Superintendence of Banks and Stock Exchange Commission. Venezuela has a committee called Inter-institutional Committee that is created by the General Law of Banks and other Financial Institutions. The committee consists of three supervisory authorities (banks, insurance and securities). They sometimes carry out joint inspection. Nicaragua adopts the same structure regarding the relationship with the pension supervisor.
In Honduras, the supervisory authorities belonging to the National Commission of Banking and Insurance (CNSF) co-ordinate their supervision and inspection programmes with each other to monitor financial conglomerates. In Brazil, there is Memorandum of Understandings (MOUs) among the main supervisory authorities in the financial sector. Dominican Republic is going to start consolidating supervision from this year.
Uruguay reports that the banking supervisory authority is now conducting a study on this issue.
3. Financing Methods
The financing methods of an insurance supervisory authority can be classified into the following five categories.
a) State budget only – Argentina and Chile
b) Central Bank only – Paraguay and Uruguay
c) Supervised institutions only – Bolivia, Brazil, Dominican Republic, Ecuador, Peru and Venezuela
d) State budget and supervised institutions – Colombia, Cuba, Mexico and Panama
e) Central Bank and supervised institutions – El Salvador, Guatemala, Honduras and Nicaragua (in Honduras, 50% is financed by the Central Bank, with the remaining 50% financed by supervised institutions, and in Nicaragua, 25% is financed by the Central Bank, with the remaining 75% financed by supervised institutions)
In Colombia, Mexico, Panama and Venezuela, insurance intermediaries also have to make contributions (brokers and agents in Mexico and brokers in Colombia and Panama). In El Salvador, only banks, including the Central Bank, have to make contributions to the Superintendence of Financial System currently. However, reforms to insurance laws would require insurance companies to make contribution.
The number of staff involved in insurance supervision ranges from 6 in Nicaragua to 381 in Mexico in 2001.
II. Licensing
1. Licensing Requirements (Table 8)
1.2. Objective of Insurance Companies 1.1. Legal form will be moved before this subsection
Regarding the objective of insurance companies, Brazil, Guatemala and Uruguay report that the objective of insurance companies must be exclusive. However, in Brazil, insurance companies authorised to conduct life insurance business may also conduct private open pension fund business. In Colombia, Panama and Peru, as well as Brazil, insurance companies can manage pension funds. In El Salvador, insurance companies cannot manage pension funds, but can sell their products to pension fund administrators. In Venezuela, insurance companies can do trust operations, fund management and so on.
Regarding the scope of activities of insurance companies, four countries (Honduras, Mexico, Nicaragua and Uruguay) report that insurance companies are allowed to do activities closely related or necessary to insurance business. Mexico reports following admissible activities:
a) Carry out insurance and reinsurance operations;
b) Constitute and invest the technical provisions;
c) Administrate the amounts derived from dividends or indemnification trusted by the insured or his/her beneficiaries.
d) Administrate corresponding reserves from insurance contracts that are based on pension or survival plans related to the retirement age of individuals or to a long term illness or disability;
e) Act as fiduciary in the case of administrative trustees established under the insurance law;
f) Administrate the retained reserves of reinsurance operations to domestic and foreign institutions;
g) Cede the administration of the retained premiums’ reserves of reinsurance operations to domestic or foreign institutions;
h) Carry out investments in foreign countries for technical provisions or in fulfilment of necessary requirements corresponding to operations that take place outside the country;
i) Constitute deposits in credit institutions and foreign banks in accordance with the law;
j) Receive titles at discount or rediscount from auxiliary credit institutions and organisations, as well as from permanent funds of economic development destined in trustees by the Federal Government in credit institutions;
k) Provide loans and credits (for the purpose of their insurance business);
l) Emit subordinated obligations that are not-susceptible to being converted into shares, or of compulsory conversion into shares, as well as to emit other credit titles, in accordance to the law;
m) Operate securities in accordance to the Insurance Law and the Securities Market Law;
n) Directly provide shares distribution services to investment societies in accordance to the Investment Societies Law;
o) Operate with mercantile documents by own account, in order to fulfil their social goal;
p) Acquire, construct and administer social interest housing and urban real estate;
q) Acquire real estate and other goods that are necessary for the realisation of their social goal;
r) Invest on the capital of the administrative societies of retirement funds and also on the capital of the investment societies specialised in retirement funds;
s) To act under commission as a representation of foreign companies in those cases established under the Insurance Law;
t) To carry out the similar and related operations that the Ministry of Finance authorises.
1.3. Specialisation
1.3.1. Separation of Life and Non-life Business
Four countries (Bolivia, Chile, Colombia and Cuba) prohibit the concurrent operation of life and non-life business and there are no composite insurance companies. However, Chile and Colombia report that both life and non-life insurance companies can conduct accident and health business.
In other 14 Latin-American countries (Argentina, Brazil, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela), there are at present composite insurance companies which concurrently conduct both life and non-life business. Of these 14 countries, four countries (Argentina, Ecuador, Mexico and Venezuela) prohibit the new establishment of composite insurance companies. In Argentina and Ecuador, the new establishment of composite insurance companies has been prohibited since 1998. This has been prohibited in Venezuela and in Mexico since November 2001 and January 2002 respectively. Other 10 Latin-American countries still allow the establishment of composite insurance companies.
In Brazil, life insurance companies which operate open pension funds cannot conduct non-life business. Health insurance companies and export credit insurance companies must be specialised. However, accident insurance can be written by both life and non-life insurance companies.
In Mexico, accident and major medical expenses insurance can be operated by both life and non-life insurance companies. In addition, companies that operate health insurance must exclusively operate this kind of insurance.
Regarding the separation of life and non-life accounts within composite insurance companies, Brazil, Guatemala, Honduras?, Mexico, Nicaragua and Uruguay report that legislation does not require investments and accounts to be separated between life and non-life insurance. On the contrary, El Salvador, Peru and Venezuela report that composite insurance companies must submit separate accounting information in order to adequately identify and differentiate the operations belonging to each of them and improve the management and control of such business. It is not certain whether, in the six other countries having composite insurance companies, the separation of accounts between life and non-life is required. In this respect, however, it should be pointed out that, for a table related to investments by direct insurance companies (see Table 5), three countries (Argentina, Ecuador and Paraguay) have provided both life and non-life figures, while two countries (Costa Rica and Panama) have provided total figures only, because separate data are not available in these countries.