The major banks and insurance companies in Belgium are part of the cross-border bancassurance groups that dominate the Belgian financial system, according to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment (FSSA). However, the Belgian insurance sector remains relatively small in comparison to the Organisation for Economic Co-operation and Development (OECD) and EU-15 averages in terms of total premiums as a percentage of GDP. Belgium has adopted a system of consolidated supervision under the Banking, Finance, and Insurance Commission (CBFA), which acts as the integrated supervisory authority for the Belgian financial sector pursuant to the 2002 Law on the Supervision of the Financial Sector and on Financial Services. The CBFA is a member of the International Association of Insurance Supervisors (IAIS). According to the FSSA, in which Belgian insurance supervisory practices were benchmarked against Insurance Core Principles (ICPs) and Methodology revised by the IAIS in October 2003, Belgium had a relatively low level of compliance with the ICPs, despite its well developed insurance market. Weaknesses were identified with regard to prudential requirements, on-site inspections, suitability of persons, consumer protection, disclosure requirements, and fraud. The FSSA emphasized the need to upgrade insurance supervision, particularly with regard to solvency, and to establish an effective mechanism for consolidated supervision of the bancassurance groups in light of their growing number. At the time of the IMF's 2006 assessment, Belgian authorities were actively pursuing several supervisory initiatives to improve compliance levels. According to the IMF's 2008 Article IV Consultation report, commendable progress had been made in enhancing the effectiveness of prudential supervision of the insurance sector. The overall supervisory framework is also being continuously upgraded, in line with the 2005 IMF recommendations.

General Overview

In 2005, the International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP), in which insurance supervisory practices in Belgium were benchmarked against Insurance Core Principles (ICPs) and Methodology revised by the International Association of Insurance Supervisors (IAIS) in October 2003. The findings of the 2005 FSAP were reported in the IMF's 2006 Financial System Stability Assessment (FSSA). The FSSA concluded that Belgium had adopted a system of consolidated supervision under the Banking, Finance, and Insurance Commission (CBFA). Despite its well-developed insurance market, Belgium was found to have a relatively low level of compliance with the ICPs. Shortcomings were identified in the area of prudential requirements, on-site inspections, suitability of persons, consumer protection, disclosure requirements, and fraud. Furthermore, although supervisory guidance and professional standards were at a fairly high level, in some cases they were either nonexistent or not operational. The FSSA emphasized the need to upgrade insurance supervision, particularly with regard to solvency, and to establish an effective mechanism for consolidated supervision of bancassurance groups, which dominate the Belgian financial system. At the time of the IMF's 2006 assessment, Belgian authorities were actively pursuing a number of supervisory initiatives to improve compliance levels. These included restructuring the Insurance Supervision Department, establishing a "Prudential Committee" in charge of prudential policies for banking and insurance, strengthening insurers' asset-liability management, and reinforcing monitoring of insurance companies. According to the IMF's 2008 Article IV Consultation report, commendable progress had been made in enhancing the effectiveness of prudential supervision of the insurance sector. The overall supervisory framework was also being continuously upgraded in line with the 2005 IMF recommendations.

The legal framework for insurance supervision is mainly based on the 2002 Law on the Supervision of the Financial Sector and on Financial Services and the 1975 Law on the Control of Insurance Companies (hereafter referred to as the "Insurance Law"), last amended in July 2007. The Insurance Law also provides regulations for licensing insurance companies. Since January 1, 2004, the CBFA has been the single supervisory authority for the Belgian financial sector, created as a result of the merger of the Insurance Supervision Office with the former Banking and Finance Commission pursuant to the 2002 Law. The merger was intended to strengthen the supervision of the large financial conglomerates that dominate the Belgian financial landscape. While the CBFA has concluded Memoranda of Understanding (MoUs) with other supervisory authorities, the IMF's 2006 report noted that there is a need for improved coordination and cooperation between insurance and banking supervision. The CBFA is a member of the IAIS.

The predominance of bancassurance conglomerates in the Belgian financial system is clear from the statistics disclosed by the 2006 FSSA. In 2004, the four largest bancassurance groups accounted for 82 percent of deposits and 44 percent of total insurance premiums. However, the Belgian insurance sector remains relatively small in comparison to the averages experienced by the EU-15 and the member states of the Organization for Economic Co-operation and Development, with total assets amounting to less than 50 percent of GDP. In 2006, the four largest insurance groups in Belgium accounted for respectively 64 percent and 52 percent of life insurance and non-life insurance premiums.

The Principles

ICP 1 Conditions for effective insurance supervision

CP

According to the IMF's 2006 FSSA, "Belgium mainly meets the conditions necessary for effective insurance supervision" (p. 41). Furthermore, the CBFA has adopted a project leading to a risk-based approach to supervision. The IMF report recommended ensuring that regulations in areas such as corporate governance and solvency were in line with best practices. It further advised improving regulation with regard to the role and competence of accredited actuaries.

ICP 2 Supervisory objectives

CP

The assessment of the supervisory system indicates a broad observance of the international criteria, as noted in the IMF's 2006 FSSA. The FSSA recommended clarifying the overall objectives of the CBFA "to enable it to develop strategic and business plans" (p. 42). It further advised to either combine insurance regulations into a single document, or to harmonize regulations of Belgian financial institutions.

ICP 3 Supervisory authority

CP

The assessment of the supervisory system indicates a broad observance of the international criteria, as noted in the IMF's 2006 FSSA. Since January 1, 2004, the CBFA has been the single supervisory authority for the Belgian financial sector, created as a result of the merger of the Insurance Supervision Office with the former Banking and Finance Commission pursuant to the 2002 Law. The FSSA encouraged the CBFA to make use of both its insurance and banking expertise in order to improve the supervisory system. It further advised establishing an internal audit function for the CBFA. The FSSA also emphasized the need to streamline and harmonize various laws and regulations applicable to the mandate of the CBFA, in order to enhance supervision and allow for more transparency.

ICP 4 Supervisory process

CP

The IMF's 2006 FSSA indicates that the supervisory system is in broad observance of the international criteria, adding that "the supervisory process should be explicitly risk based" (p. 42) in order to maintain a balance between quantitative factors, including the control of assets, liabilities, asset liability management, and solvency, and qualitative factors, such as the assessment of risk management, corporate governance, and internal control. The FSSA also emphasized the need to streamline and harmonize various laws and regulations applicable to the mandate of the CBFA in order to enhance supervision and allow for more transparency.

ICP 5 Supervisory cooperation and information sharing

CP

The 2006 IMF FSSA indicates that the supervisory system is in broad observance of the international criteria. The report advised ensuring the relevance and reciprocity of information-sharing with host supervisors. While the CBFA has concluded MoUs with other supervisory authorities, the IMF report recommended establishing a more formal process within the CBFA to improve coordination and cooperation between insurance and banking supervision. In response to the FSSA, Belgian authorities indicated that they had already taken steps to develop a common approach between banking and insurance supervision. Initiatives include exchange of information, joint team meetings, common approach in individual cases, joint on-site examination and supervisory review, and integration of IT systems. The CBFA is a member of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), which includes 28 countries of the EU and the European Economic Area (EEA).

ICP 6 Licensing

II

According to the IMF's 2006 FSSA, principles related to the supervised entity needed further improvements. The FSSA recommended requiring the registration of "mutual companies and cooperative societies that limit their activities to the city where their head offices are located" (p. 42). Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 7 Suitability of persons

II

Principles related to the supervised entity needed further improvements, as noted in the IMF's 2006 FSSA, particularly regarding the suitability of persons. The IMF report recommended giving legal powers to the CBFA "to request a fit and proper test for statutory auditors and accredited actuaries" (p. 43). The IMF further advised insurers to test the fitness and propriety of senior management. Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 8 Changes in control and portfolio transfers

II

According to the IMF's 2006 FSSA, principles related to the supervised entity needed further improvements. However, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 9 Corporate governance

II

According to the IMF's 2006 FSSA, principles related to the supervised entity need further improvement, particularly in the area of corporate governance. Per the same report, an "Internal Control and Internal Audit" unit has been formed within the CBFA to address the corporate governance aspects of insurance supervision. The IMF encouraged the newly created unit to make use of the knowledge and experience in banking supervision. The IMF further advised providing legal provisions if necessary to improve the corporate governance structure. Nonetheless, there is insufficient publicly available information to assess Belgium's compliance with this principle.

ICP 10 Internal control

II

The 2006 IMF FSSA noted that principles related to the supervised entity need further improvement, particularly in the area of internal control. The IMF report encouraged the CBFA to "significantly improve supervision in cooperation with auditors, actuaries and banking colleagues" (p. 43). It further advised actuaries to directly submit reports to the Board of Directors, as well as to the CBFA. Nonetheless, there is insufficient publicly available information to assess Belgium's compliance with this principle.

ICP 11 Market analysis

CP

The 2006 IMF FSSA noted that principles related to ongoing supervision were mainly met, with the exception of on-site inspections, which required improvement both in number and in scope. The FSSA recommended ensuring more frequent and timely market analysis. It further encouraged the Financial Stability Committee to prepare macroeconomic analysis relevant for the insurance industry.

ICP 12 Reporting to supervisors and off-site monitoring

CP

The 2006 IMF FSSA noted that principles related to ongoing supervision were mainly met, with the exception of on-site inspections, which required improvement both in number and in scope. The IMF report encouraged the CBFA to "reconsider every few years all the information that it receives from insurers to ensure that it is all necessary" (p. 43). According to a regulatory and standard-setting framework assessment published by the Institute of Statutory Auditors (IRE) in 2005, the accounting standard setting in Belgium is regulated through the Belgian Accounting Law of 1975 and the Insurance Law. According to the IRE, these laws are implemented through Royal Decrees and specific regulations. The Deloitte & Touche IAS Plus website discloses that, as of September 2005, Belgian firms listed in a EU/EEA securities market, including insurance companies and banks, are required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards. While the CBFA does not have legal authority for the enforcement of accounting, reporting and auditing for general external financial reporting, the IRE report found it to be competent for prudential reporting by financial institutions. However, there are no specific rules for insurance companies regarding the review of the financial statements of listed entities.

ICP 13 On-site inspection

NC

The 2006 IMF FSSA noted that principles related to ongoing supervision were mainly met, with the exception of on-site inspections, which required improvement both in number and in scope. The IMF report recommended conducting on-site inspections in a more comprehensive manner and frequent basis. It further suggested organizing regular meetings with auditors and actuaries to enhance the effectiveness of supervision.

ICP 14 Preventive and corrective measures

CP

Principles related to ongoing supervision were mainly met, with the exception of on-site inspections, which required improvement both in number and in scope, according to the IMF's 2006 FSSA

ICP 15 Enforcement or sanctions

CP

Principles related to ongoing supervision were mainly met, with the exception of on-site inspections, which required improvement both in number and in scope, according to the IMF's 2006 FSSA

ICP 16 Winding-up & exit from the market

CP

Principles related to ongoing supervision were mainly met, with the exception of on-site inspections, which required improvement both in number and in scope, according to the IMF's 2006 FSSA

ICP 17 Group-wide supervision

CP

According to the 2006 IMF FSSA, while principles related to ongoing supervision were mainly met, with the exception of on-site inspections, there was a need for effective consolidated supervision of insurance groups in Belgium. Although the CBFA has concluded MoUs with other supervisory authorities, the IMF report recommended establishing a more formal process within the CBFA to improve coordination and cooperation between insurance and banking supervision. In response to the FSSA, Belgian authorities indicated that they had already taken steps to develop a common approach between banking and insurance supervision. Initiatives include exchange of information, joint team meetings, common approach in individual cases, joint on-site examination and supervisory review, and integration of IT systems.

ICP 18 Risk assessment and management

II

The IMF's 2006 FSSA noted that, as supervision focuses on technical provisions, profitability of products, and solvency requirements, the most important improvements were needed in the area of prudential requirements. The FSSA recommended making use of the newly created "Internal Control and Internal Audit" unit to supervise insurance companies. A better balance should also be maintained between automatically generated data from insurers and requested information. The IMF report further advised revisiting "the policy choice on which level the supervision of profitability should focus" (p. 44). Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 19 Insurance activity

II

According to the 2006 IMF FSSA, as supervision focused on technical provisions, profitability of products, and solvency requirements, the most important improvements were needed in the area of prudential requirements. The IMF report encouraged the CBFA to "require insurers to document their policies on underwriting, premium setting, and reinsurance" (p. 44). Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 20 Liabilities

II

As supervision focused on technical provisions, profitability of products, and solvency requirements, the most important improvements were needed in the area of prudential requirements, according to the IMF's 2006 FSSA. The IMF report recommended empowering the CBFA with "the determination of the maximum interest rate for setting life provisions" (p. 44). At the time of the FSSA, Belgian authorities were actively pursuing a number of supervisory initiatives to improve compliance levels, which included strengthening insurers' asset liability management. Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 21 Investments

II

As supervision focused on technical provisions, profitability of products, and solvency requirements, the most important improvements were needed in the area of prudential requirements, according to the IMF's 2006 FSSA. The FSSA encouraged the CBFA to "require insurers to document their investment policy and verify whether insurers check the application of this policy by adequate internal controls" (p. 44). Requirements should also be formulated with regard to, inter alia, personnel skills, audit procedures, and contingency plans. Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 22 Derivatives and similar commitments

II

As supervision focused on technical provisions, profitability of products, and solvency requirements, the most important improvements were needed in the area of prudential requirements, according to the IMF's 2006 FSSA. The FSSA recommended utilizing the expertise in banking supervision to assess the use of derivative instruments by insurers. Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 23 Capital adequacy and solvency

II

According to the IMF's 2006 FSSA, insurance regulation needed to be upgraded, particularly with regard to solvency. The IMF report further stated that the insurance solvency system was outdated, mainly because it did not take into account the asset-side and mismatch risks. The European Commission website disclosed that the Commission had adopted the Solvency II Proposal in July 2007 and the text is currently being discussed at the Council and Parliament. Solvency II is based on a three pillar approach that covers quantitative and qualitative requirements, as well as supervisory reporting and disclosure. Prior to the Solvency II project, the IMF report had encouraged the CBFA to enhance its solvency model. The IMF report further advised the CBFA to "structurally improve the follow-up of the resistance test, especially when insurers are identified that should strengthen solvency or adjust their asset risks" (p. 44). Nonetheless, the publicly available information does not directly address Belgium's compliance with this principle.

ICP 24 Intermediaries

CP

Although the EU Insurance Mediation Directive No. 2002/92/EC was in the process of being transposed into Belgian law at the time of the IMF's 2006 assessment, this principle was already rated as largely observed.

ICP 25 Consumer protection

NC

According to the IMF's 2006 FSSA, this principle was partly observed. Per the same report, the transposition of the EU Insurance Mediation Directive No. 2002/92/EC into Belgian law will address information requirements with regards to prospective policyholders.

ICP 26 Information, disclosure & transparency towards the market

NC

As stated in the IMF's 2006 FSSA, this principle was partly observed. The FSSA recommended improving disclosure requirements. It also advised identifying the entity responsible for the monitoring of information disclosed by insurers. Per the same report, "the requirements on public information provided by insurers should be upgraded to international standards" (p. 42).

ICP 27 Fraud

NC

According to the IMF's 2006 FSSA, this principle was partly observed. The FSSA encouraged the CBFA to "require that insurers and intermediaries allocate appropriate resources and implement effective procedures and control to deter, defect, record and, as required, promptly report fraud to appropriate authorities" (p. 44). It further advised considering additional legislation if necessary.

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

II

According to the IMF's 2006 FSSA, "Belgium has extensive anti-money laundering regulations" (p. 42). The 1993 Law on Preventing the Use of the Financial System for Purposes of Laundering Money and Terrorism Financing, which was last amended in January 2004, regulates the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime in Belgium. As noted in the IMF's 2006 Report on the Observance of Standards and Codes, which addresses the Financial Action Task Force's Recommendations for AML/CFT, life insurance companies and insurance brokers are subject to the Belgian AML/CFT regime. The report added that, prior to 2004, there had been no audits of insurance companies for compliance with the AML/CFT Law due to a lack of funding. The IMF report advised allocating sufficient resources to AML/CFT supervision in insurance. The publicly available sources, however, do not directly address Belgium's level of compliance with ICP 28.