Austria's supervisory authority, the Financial Market Authority (FMA), was established in 2002 to consolidate supervision for the insurance, banking, securities, and pension funds sector. Due to important linkages between the banking and insurance sectors, a formal process was needed within the FMA to coordinate banking and insurance supervision with respect to conglomerates and risk transfer. In 2004, the International Monetary Fund (IMF) conducted a Financial System Stability Assessment, in which insurance supervisory practices in Austria were benchmarked against Insurance Core Principles (ICPs) and Methodology revised by the International Association of Insurance Supervisors (IAIS) in October 2003. The IMF concluded that Austria had a high level of observance of internationally accepted standards in the insurance sector. Furthermore, it benefited from a well-defined regulatory and supervisory framework, had adequate resources, and a strong auditing, legal, and judicial system. Shortcomings remained regarding the significant reduction in the sector's safety cushion, on-site inspections, and the regulations and guidelines on internal controls and procedures. Citing the IMF's update of its original 2004 assessment, the FMA reported in a 2007 press release that the regulatory and supervisory framework in Austria was at a high level, and had continued to improve. The FMA further noted that the financial market supervision reform, which entered into force on January 1, 2008, would contribute toward effective and efficient supervision.

General Overview

In 2004, the International Monetary Fund released a Financial System Stability Assessment (FSSA), in which insurance supervisory practices in Austria were benchmarked against Insurance Core Principles (ICPs) and Methodology revised by the International Association of Insurance Supervisors (IAIS) in October 2003. According to this report, Austria had a high level of observance of internationally accepted standards in the insurance sector, and had performed well in comparison to many other European insurance companies. Furthermore, the insurance industry enjoyed a well-defined regulatory and supervisory framework, adequate resources, and a strong auditing, legal, and judicial system. However, the sector's cushion for safety had been significantly reduced. The IMF report recommended improving on-site inspections, and developing detailed regulations and guidelines on internal controls and procedures. It further advised enhancing "actuarial and auditing role in insurance companies as regards assessing the overall financial position of life insurers, and long-tail liabilities for non-life insurers" (p. 6). Due to important linkages between the banking and insurance sectors, a formal process was also needed within the supervisory authority -- the Financial Market Authority (Finanzmarktaufsicht, or FMA) -- to coordinate banking and insurance supervision with respect to conglomerates and risk transfer. Citing the IMF's update of its original 2004 assessment, the FMA reported in a 2007 press release that the regulatory and supervisory framework in Austria was at a high level, and had continued to improve.

The Austrian insurance sector is largely regulated by the Insurance Supervision Act (Versicherungsaufsichtsgesetz, or VAG), which was last amended in 2006, and the Insurance Contract Act (Versicherungsvertragsgesetz, or VersVG). Furthermore, the European Union (EU) Insurance Mediation Directive No. 2002/92/EC was transposed into Austrian law on January 15, 2005. Insurance supervision is the responsibility of the FMA, which was established in 2002 under the 2001 Financial Market Authority Act (Finanzmarktaufsichtsbehördengesetz, or FMABG) as an independent and autonomous financial supervisory authority, consolidating the supervisory agencies for insurance, banking, securities, and pension funds. An amendment to the FMABG (Finanzmarktaufsichtsänderungsgesetz, or FMAÄG) entered into force in 2005. According to a 2008 press release, the FMA noted that the financial market supervision reform, which entered into force on January 1, 2008, would contribute toward effective and efficient supervision in the insurance sector by increasing the frequency of stress tests, and enhancing on-site inspections.

Austria is a member of the International Association of Insurance Supervisors (IAIS). Insurance companies in Austria are divided into four categories: domestic insurance undertakings, small mutual associations, European Economic Area (EEA) insurers, and third-country insurers. As noted in the IMF's 2004 report, the insurance sector was well developed, and had the world's 12th highest premiums per capita. Since the mid-1990s, according to the FMA's 2006 Annual Report, the Austrian insurance market has been experiencing a continuous consolidation process, with the number of insurance entities decreasing from 129 in 1997 to 112 in 2004. At the end of 2005, according to the IMF's 2007 report on Selected Issues, total assets of Austria's insurance sector amounted to $77 billion. As of 2007, as stated in the World Services Group website, Austria has approximately 140 insurance companies, including 52 Austrian insurance companies, 59 Austrian small mutual associations, and 25 branches of EU/EEA-insurers.

The Principles

ICP 1 Conditions for effective insurance supervision

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According to the IMF's 2004 report, the insurance sector benefited from a "well-defined" (p. 19) regulatory and supervisory framework with adequate resources, as well as a strong auditing, legal, and judicial system. The IMF report recommended enhancing "actuarial and auditing role in insurance companies as regards assessing the overall financial position of life insurers, and long-tail liabilities for non-life insurers" (p. 6). It also advised further strengthening of the professional infrastructure and training process. However, there is insufficient information publicly available directly addressing Austria's compliance with the Insurance Core Principles (ICPs) promulgated by the IAIS in 2003.

ICP 2 Supervisory objectives

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The major objective of insurance supervision, according to FMA's 2006 Annual Report, is "to safeguard the interests of the insured and in particular to ensure that the insurance undertakings are able to fulfill their obligations under insurance contracts on a continual basis." However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 3 Supervisory authority

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The FMA was established in 2002, as an independent and autonomous financial supervisory authority, consolidating the supervisory agencies for banking, insurance, securities, and pension funds. According to the IMF's 2004 report, the FMA was quickly and effectively building its institutional capacity, although it still was a young organization. Furthermore, the Insurance and Pensions Supervisory Department of the FMA carried out most insurance supervisory activities, with the exception of certain legal and enforcement issues and direct supervision of intermediaries. In its 2004 assessment, the IMF recommended clarifying the legal liability of staff. Despite the above descriptive information, there is little information publicly available addressing Austria's actual compliance with this principle.

ICP 4 Supervisory process

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There is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 5 Supervisory cooperation and information sharing

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The FMA, according to its 2006 Annual Report, collaborates and meets on a quarterly basis with the Austrian Insurance Association (Verband der Versicherungsunternehmen, or VVO). Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 6 Licensing

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According to the IMF's 2004 report, Austria satisfied most requirements related to the supervised entity. As noted on the World Services Group website, the FMA grants separate licenses for each insurance class. Per the FMA's 2006 Annual Report, three additional licenses were granted by the FMA in 2006. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 7 Suitability of persons

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As noted in the IMF's 2004 assessment, Austria satisfied most requirements related to the supervised entity. However, the IMF report suggested "fit and proper" testing requirements related to an understanding of financial market issues. Nonetheless, the IMF assessment does not directly address Austria's compliance with this principle.

ICP 8 Changes in control and portfolio transfers

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According to the IMF's 2004 report, Austria satisfied most requirements related to the supervised entity. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 9 Corporate governance

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According to the IMF's 2004 report, Austria satisfied most requirements related to the supervised entity. Furthermore, although the bicameral board structure in Austria has created some issues in applying the governance principle, the introduction of a voluntary Code of Corporate Governance has enhanced the role for the supervisory board of an insurer in monitoring risk. In its 2004 assessment, the IMF suggested requiring all major insurance companies to observe the Austrian Code of Corporate Governance. However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 10 Internal control

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Austria satisfied most requirements related to the supervised entity, as stated in the IMF's 2004 report. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 11 Market analysis

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Austria met most ongoing supervision requirements, as noted in the IMF's 2004 report. However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 12 Reporting to supervisors and off-site monitoring

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According to the IMF's 2004 report, Austria met most ongoing supervision requirements. In 2005, the FMA, as noted in its 2006 Annual Report, published "Minimum Standards for Internal Auditing of Insurance Undertakings" to clearly define the establishment and operations of internal auditing units. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 13 On-site inspection

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According to the IMF's 2004 report, Austria met most ongoing supervision requirements. In its 2004 assessment, the IMF recommended improving on-site inspections, as well as developing an inspection manual for insurance entities in addition to those planned for banks and securities companies. In its 2008 Press Release, the FMA noted that the financial market supervision reform, which entered into force on January 1, 2008, would contribute toward effective and efficient supervision in the insurance sector by increasing the frequency of stress tests, and enhancing on-site inspections. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 14 Preventive and corrective measures

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As stated in the IMF's 2004 assessment, Austria met most ongoing supervision requirements. The IMF report recommended establishing "a more explicit set of rules on the circumstances under which early intervention will occur" (p. 33). Nonetheless, the IMF assessment does not directly address Austria's compliance with this principle.

ICP 15 Enforcement or sanctions

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In its 2004 assessment, the IMF suggested increasing fines to "meaningful levels" (p. 33). Furthermore, according to the World Services Group website, the VAG provides for several penal provisions, including fines. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 16 Winding-up & exit from the market

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According to the IMF's 2004 report, Austria met most ongoing supervision requirements. However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 17 Group-wide supervision

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As noted in the IMF's 2004 report, Austria met most ongoing supervision requirements. However, due to important linkages between the banking and insurance sectors, a formal process was needed within the FMA to coordinate banking and insurance supervision with respect to conglomerates and risk transfer, according to the same report. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 18 Risk assessment and management

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According to the IMF's 2004 report, prudential requirements in Austria were slightly higher in comparison to minimum levels in other EU countries. Furthermore, stress testing for life insurers had been introduced. Per the same report, however, technical reserving methodologies and techniques were "unlikely to be adequate in an increasingly risky market involving more complex life insurance product structures and greater exposures to volatile assets" (p. 32). The IMF report recommended speeding up the process regarding FMA's move to risk-based supervision. Nevertheless, the IMF assessment does not directly address Austria's compliance with this principle.

ICP 19 Insurance activity

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In its 2004 assessment, the IMF recommended requiring the supervisory boards of insurance companies to "have an overview role with regard to underwriting policy" (p. 33). Nonetheless, the IMF assessment does not directly address Austria's compliance with this principle.

ICP 20 Liabilities

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According to the IMF's 2004 assessment, "technology needs to be strengthened for both non-life long tail technical reserves and life insurer overall prudential management" (p. 33). The IMF report further recommended establishing "a watching brief for the underwriting of risk through credit instruments, either on the liability or the asset sides of insurer balance sheets" (p. 33). However, the IMF assessment does not directly address Austria's compliance with this principle.

ICP 21 Investments

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See ICP 20.

ICP 22 Derivatives and similar commitments

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There is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 23 Capital adequacy and solvency

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According to the IMF's 2004 assessment, the life insurance industry appeared "to satisfy statutory solvency requirements at the aggregate level" (p. 32). The IMF report recommended enhancing monitoring of life insurance company solvency. The FMA, through its participation in the CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors), is involved in the Solvency II project, which will establish future risk-based capital requirements, as stated in FMA's 2006 Annual Report. The FMA is also collaborating with other supervisory authorities to this end. However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 24 Intermediaries

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According to the IMF's 2004 assessment, the FMA had formal supervisory powers in the area of intermediaries, but it only had "an indirect overview of agents and brokers, through its supervision of insurers" (p. 32). The IMF report recommended enhancing the FMA's powers in the licensing of intermediaries. The EU Insurance Mediation Directive No. 2002/92/EC was transposed into Austrian law on January 15, 2005. Nevertheless, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 25 Consumer protection

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As noted in the IMF's 2004 report, although the FMA received and attempted to solve complaints, it lacked formal powers in the area of consumer protection. The IMF report recommended establishing "a half-way house claims resolution process, sitting between the FMA and the courts" (p. 33). However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 26 Information, disclosure & transparency towards the market

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There is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 27 Fraud

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There is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

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The Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) provisions of the Banking Act (Bankwesengesetz) entered into force in 1994, and apply to financial and credit institutions, as noted in the IMF's 2004 report. Identical AML/CFT requirements apply to life insurance companies under the VAG. In April 2004, per the same report, the FMA issued a guideline for banks regarding internal controls and procedures, as well as suspicious transaction reporting requirements for AML/CFT, and similar guidelines were being developed for insurance companies. The FMA also established an internal Task Force on Money Laundering, including banking, insurance, securities, and international experts. According to the FMA's 2006 Annual Report, the Federal Ministry of Finance (Bundesministerium für Finanzen) has the authority to amend the VAG to take into account the latest international standards in the field of money laundering and terrorist financing. However, there is insufficient information publicly available directly addressing Austria's compliance with the ICPs promulgated by the IAIS in 2003.