According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles, but significant weaknesses were found in the implementation of the law. However, in 2003 the ICPs were revised, and there is no information publicly available as to Bulgaria's compliance with the new, more demanding ICPs. Further, the 2002 IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. The FSC is a specialized government body for regulation and control over the financial system which unifies the regulatory functions that were carried out by the former State Securities Commission (SSC), the State Social Security Supervision Agency (SSSSA) and the ISA.
General Overview
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The IMF in its 2002 report made the following recommendations: information systems (hardware and software) needed to be improved in order to collect appropriately the statistical data for an off-site monitoring and early warning system; the remuneration of ISA's staff needed to be closer to the private sector in order to attract qualified and experienced prospects; a continued training program had to be instituted to ensure that the staff maintained its competency; the agency had to be more independent with its budget, staffing and had a director with a specific term of office; the Law on Insurance (LI 1997) needed to be amended to provide legal provisions for the ISA to be able to seek information from foreign supervisors (home supervisors) at the time of licensing and on an ongoing basis; and the ISA needed clear criteria for the assessment of changes in control of an insurance company. (IMF 2002, p. 54)
The Financial Supervision Commission (FSC) was established under the Financial Supervision Commission Act, 2003 (FSCA 2003). It is an institution that is independent from the executive authority and reports its activity to the National Assembly of the Republic of Bulgaria. The FSC is a specialized government body for regulation and control over the financial system which unifies the regulatory functions that used to be carried out by the former State Securities Commission (SSC), the State Social Security Supervision Agency (SSSSA) and the ISA. The primary function of the FSC is to assist through legal, administrative and informational means the maintenance of stability and transparency on the investment, insurance and social insurance markets. (FSC website)
The FSC unifies regulation of financial supervision under one body. The main objectives of such an approach are to achieve impartiality with respect to the regulation of financial institutions; to ensure supervision is in conformity with the market risk level that corresponds to the respective financial institution; to improve coordination with respect to the regulation of different issues - creation of a stable market, fair market behavior, protection of customers; to strengthen control over the financial groups; and to use the full capacity of the so-called operational advantages, including achieving economy of scale, utilization of common resources and concentration of the supervisory functions. (FSC website)
The insurance sector in (i.e., insurers, reinsures, brokers and agents) is governed by the LI 1997 and associated regulations, such as the Ordinance on the Procedures and Methods of Setting-Up Insurance Reserves. The FSC has received technical assistance from the IMF to support the implementation of the insurance law adopted in December 2005. (IMF 2002, pp. 53, 54, 56; IMF 2006a, p. 80)
According to the 2006 IMF Article IV Consultation with Bulgaria, the Bulgarian government will continue to strengthen prudential and market conduct regulation and supervision of the insurance sector. By the end of 2006, the Bulgarian government was scheduled to submit to the Council of Ministers a draft amendment to the LI 1997 that will (a) tighten corporate governance practices of insurance companies by requiring separation of powers between the board and the management and by requiring independent directors, and (b) require audit of the statutory annual returns of insurance companies. (IMF 2006a, p. 80)
At the end of the third quarter of 2004, there were 32 insurance companies operating on the insurance market, 20 of which were performing non-life insurance activity and 12 - life insurance activity. Nine of these 12 life insurance companies were joint-stock companies and three - mutual insurance cooperative societies. The number of the insurance brokers has increased and by September 30, 2004 there were 152. At the same time, there were 10 joint-stock companies operating in the sector of the voluntary health insurance. (FSC 2004, p. 10)
The FSC is a member of the International Association of Insurance Supervisor (IAIS). (IAIS website)
The Principles
ICP 1 Conditions for effective insurance supervision
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF report stated that the development of the insurance industry was hampered by the same factors that hindered the development of financial intermediation in Bulgaria in general, i.e., weaknesses in corporate governance, financial disclosure, and the judicial system. The insurance sector in (i.e., insurers, reinsures, brokers and agents) is governed by the Law on Insurance (LI 1997) and associated regulations. The ISA argued that the LI 1997 was effective in dealing with issues relating to regulatory compliance, such as licensing requirements, but that it was weak in addressing 'risk' prevention. There was an overwhelming view that there were significant weaknesses in the implementation of the law. (IMF 2002, pp. 53-54)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The objectives of the FSC are to protect the interests of investors, insurers and insured persons and; provide integrity, transparency and credibility of the financial markets. The FSC unifies regulation of financial supervision under one body. The main objectives of such an approach are to achieve impartiality with respect to the regulation of financial institutions; to ensure supervision is in conformity with the market risk level that corresponds to the respective financial institution; to improve coordination with respect to the regulation of different issues - creation of a stable market, fair market behavior, protection of customers; to strengthen control over the financial groups; and to use the full capacity of the so-called operational advantages, including achieving economy of scale, utilization of common resources and concentration of the supervisory functions. (FSC website)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The FSC is a national institution that has the full power to implement in a competent and consistent way the legal provisions with respect to all participants on the non-banking financial market in the country. It is an institution that is independent from the executive authority and reports its activity to the National Assembly of the Republic of Bulgaria. The FSC's regulatory activity includes the drafting and adoption of regulations and instructions provided for in the legislation, issuance of guidelines and instructions regarding the implementation and interpretation of the Social Insurance Code, the Law on Public Offering of Securities, the Insurance Act, the Health Insurance Act as well as the secondary legislative acts concerning their implementation in relation to the carrying out of financial supervision. The regulation of the market participants' activity is in conformity with the European norms and practices. (FSC website)
In its 2005 Letter of Intent to the IMF, the Bulgarian government states that the FSC's supervisory capacity will be strengthened further. A new deputy commission chairman in charge of insurance supervision was appointed, and the FSC's statutes will be changed to allow the chairman to designate acting deputies when their positions become vacant. (IMF 2005, p. 11)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The unified financial supervision over the supervised entities' activity monitors compliance with the legal requirements, the companies' financial status and the reliability of information that they provide. The FSC's information policy is based on the principles of publicity, transparency and accessibility. It is one of the basic methods that the FSC uses to provide information concerning the market and respectively, the protection of the participants' interests. From its very establishment the FSC started the practice to prepare and distribute public information that has been generated by the institution. The FSC's work regarding the development and improvement of the regulatory framework, its decisions as well as the ones of the deputies in charge of the respective divisions, the regular reports and information about the supervised entities as well as all of its initiatives are subject to public announcement. The efficient and timely distribution of this information is one of the Commission's priorities. (FSC website)
In September 2004, with the co-operation of United States Agency for International Development (USAID) Labor Market Project an information call center for public was opened in the Commission. The purpose is by this hot line to provide better protection and services to the users of the investment, insurance and social insurance sector. The information centre provides the public from all over the country with the chance to ask and receive answers to their questions within the Commission's competence related to the capital, insurance and social insurance markets. (FSC 2004, p. 42)
ICP 5 Supervisory cooperation and information sharing
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
As it is stated on the FSC website, with respect to expanding and improving the efficiency of its controlling activity, the FSC's undertook a number of initiatives aimed at establishing closer cooperation with national bodies and institutions. In October 2003, the FSC concluded a memorandum for partnership and cooperation with the Bulgarian National Bank (BNB). Its purpose was to improve the coordination between the two institutions with regards to issues of mutual interest in the field of financial markets through coordination of certain actions related to the implementation of the supervisory powers assigned to both institutions by the law; improvement of the practice regarding the strict enforcement of legislation; cooperation for improvement of the regulatory framework that provides for the activities of their supervised entities; and mutual assistance in the implementation of their espective supervisory functions. The Consultative Council on Financial Stability was created for the purpose of ensuring security and integrity of the financial markets' development, which would exercise a positive effect on the macroeconomic development in Bulgaria. Members of this council are the heads of the FSC, the BNB and the Ministry of Finance (MoF). (FSC website)
With the progress of the European Union (EU) integration processes and the creation of conditions for foreign entities to operate in the country through their branch offices on the territory of the Republic of Bulgaria as well as of Bulgarian entities to perform activities outside of the country, necessity has emerged for cooperation with foreign institutions that regulate and supervise the financial markets. The conclusion of international agreements was needed for the purpose of improving the efficiency of supervision over those financial companies that have international operations, of prevention of market manipulations, unfair trade, money laundering and eradication of possible financial abuses. (FSC website)
Soon after FSC's establishment, the first bipartite Memorandum for cooperation was concluded with the Hungarian financial supervisory. Later the FSC launched negotiations for the signing of similar memoranda with the supervisory bodies of our neighboring countries. The Commission has either concluded or is in advanced stage of negotiations for the signing of cooperation agreements with all financial supervisory institutions of the neighboring countries (with the exception of Serbia and Montenegro, where the local legislation does not allow for this possibility), as well as with the supervisory bodies of those countries that have made the biggest investments in the Bulgarian financial sector. (FSC website)
The FSC is an active member of the International Organization for Governmental Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS). The Commission is also a founding member of the International Organization of Pension Supervisors (IOPS). Representatives of the Commission participate in the forums of these organizations as well as in the working groups, which draft the best practice principles in the field of supervision over the investment, insurance and social insurance markets. (FSC website)
During the first nine months of 2004, the FSC developed an active international activity through studying international practices in the field of financial supervision and concluding agreements for information exchange and mutual inspections with a number of foreign institutions and participations in seminars and conferences. The close cooperation with the European Community supervisions will turn into one of the most important sources of information for the purposes of the Bulgarian supervision. With a view to implementation of more efficient control over the financial companies with international activities, prevention of market manipulations, unfair trade, money laundering, prevention of financial misappropriations, it is necessary that not only domestic but also international agreements be concluded. In relation to that in April 2004 in Bucharest two Memorandums for cooperation were signed - between the Financial Supervision Commission (FSC) and the Romanian Insurance Supervision Commission and between FSC and the Romanian National Securities Commission. (FSC 2004, p. 40)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The legislative framework on licensing procedure is established by the provisions of the Law on Insurance (LI 1997), the Regulation on the Structure and Activity of the Insurance Supervision Agency, the Regulation on the Operation of the National Insurance Council (NIC), the Commercial Code and number of instructions issued by the ISA. As of 2002, the LI 1997 needed to be amended to provide legal provisions for the ISA to be able to seek information from foreign supervisors (home supervisors) at the time of licensing. The ISA needed to work on agreements with foreign supervisors to exchange information. (IMF 2002, pp. 54, 55)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that supervision on changes in control of insurance companies is considered in the Law on Insurance (LI 1997), the Regulation on the Structure and Activity of the Insurance Supervision Agency (ISA), the Commercial Code and a number of instructions. No person, natural or legal, on its own or through related persons may hold more than 5 percent of the shares of an insurance company, with the approval of the ISA. The legal framework gave sufficient powers to the ISA to take any appropriate measures. Given the important share of Bulgarian companies that are owned or controlled by foreign companies, the IMF suggested to obtain agreements for the exchange of information on an ongoing basis for the monitoring of foreign owners. (IMF 2002, p. 55)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the legislative framework had few dispositions concerning corporate governance in the Commercial Code and the Law on Insurance (LI 1997), and the ISA had no specific authorities in this area. This core principle was not addressed in the law, regulations or instructions. Market participants confirmed that the ISA did not include this aspect in its off-site or on-site supervision process. Amendments to the LI 1997, which, as of 2002, were pending, were expected to address the shortcomings in this field. According to the 2006 IMF Article IV Consultation with Bulgaria, the Bulgarian government will continue to strengthen prudential and market conduct regulation and supervision of the insurance sector. By the end of 2006, the Bulgarian government was scheduled to submit to the Council of Ministers a draft amendment to the LI 1997 that would (a) tighten corporate governance practices of insurance companies by requiring separation of powers between the board and the management and by requiring independent directors, and (b) require audit of the statutory annual returns of insurance companies. (I IMF 2002, p. 55; MF 2006a, p. 80)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the ISA had no clear authorities with regard to internal controls of insurance companies. The IMF recommended in its 2002 report that provisions on corporate governance and internal controls needed to be added to the Law on Insurance (LI 1997). (IMF 2002, p. 55)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
ICP 12 Reporting to supervisors and off-site monitoring
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that audited information on insurers' financial condition and performance was to be provided annually under the Law on Insurance (LI 1997). Instruction No 12 of January 27, 2000 specifies additional reports to be submitted annually to the ISA. Financial information is verified through on-site inspections, under the Regulation on the Structure and Activity of the ISA. Further the IMF also indicated that the ISA should have clear legal powers to force insurers to hire, at their costs, independent auditors or actuaries to audit or review the financial statements, or elements thereof. (IMF 2002, p. 56)
The FSC's supervisory activity is being carried out through off-site supervision and on-site examinations of the licensed market participants' activity. (FSC website)
As a result of the European Commission Regulation (EC) No 1606/2002, starting January 1, 2005 all European Union (EU) listed companies are required to prepare consolidated accounts following the International Financial Reporting Standards (IFRSs) endorsed by the EC. Member States may decide as well to extend this permission or this requirement to other companies as regards the preparation of their consolidated accounts and/or their annual accounts. Bulgaria became an EU Member State on January 1, 2007. Pursuant to the Accountancy Act of 2002 (AA 2002), since 2003, all listed companies in Bulgaria as well as banks, insurance companies, mutual funds, and other financial institutions, have been required to prepare their consolidated financial statements according to IFRSs. Starting in 2005, IFRSs are required in both consolidated and individual company financial statements of listed companies and financial institutions as well as all large Bulgarian limited liability entities. Small and medium size enterprises (SMEs) may choose whether to apply IFRSs or National Accounting Standards (NASs). NASs are based on the EU 4th and 7th Directive as well as on IFRSs. (Deloitte IAS Plus website; ICPAB 2006, pp. 56, 57; Regulation No 1606/2002)
According to the 2006 International Monetary Fund (IMF) Article IV Consultation with Bulgaria, the Bulgarian government will continue to strengthen prudential and market conduct regulation and supervision of the insurance sector. By the end of 2006, the Bulgarian government was scheduled to submit to the Council of Ministers a draft amendment to the Insurance Code that will (a) tighten corporate governance practices of insurance companies by requiring separation of powers between the board and the management and by requiring independent directors, and (b) require audit of the statutory annual returns of insurance companies. (IMF 2006a, p. 80)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the legislative framework consists of the Law on Insurance (1997) and the Ordinance on the Procedures and Methods of Setting-Up Insurance Reserves. According to the Regulation on the Structure and Activity of the Insurance Supervision Agency, the ISA assesses compliance with the standards during on-site supervision. According to IMF's 2002 report, standards and monitoring were in place, but the ISA should more strongly promote sound accounting and actuarial principles. (IMF 2002, p. 56)
As of 2002, audited information on insurers' financial condition and performance was to be provided annually under the LI 1997. Instruction No 12 of January 27, 2000 specified additional reports to be submitted annually to the ISA. Financial information was verified through on-site inspections, under the Regulation on the Structure and Activity of the ISA. Under the LI 1997 and the Regulation on the Structure and Activity of the ISA, the ISA had a clear legal mandate to perform on-site inspections of insurance companies. However, some insurers mentioned that they had had no full inspections in many years. Focused inspections also seemed to be sporadic, but nevertheless more frequent Further, the IMF also stated that the ISA should have more frequent (at least every two years) full-scale inspections for every insurer. When internal controls, actuary reviews and external audits became better, on-site inspection should be more risk based and should cover more processes than compliance. (IMF 2002, pp. 56-57)
The FSC is a specialized government body for regulation and control over the financial system which unifies the regulatory functions that used to be carried out by the former State Securities Commission (SSC), the State Social Security Supervision Agency (SSSSA) and the ISA. The FSC's supervisory activity is being carried out through off-site supervision and on-site examinations of the licensed market participants' activity. The on-spot inspections are made according to the standard procedures of the division. During the first nine months of 2004, 66 on-spot inspections were made, including 38 inspections of insurance companies - 30 subject and 8 planned, 20 inspections of insurance brokers (planned), 7 inspections of entities not subject to supervision by FSC but reported to have violated the Health Insurance Act and, 1 joint inspection of a bank. (FSC website; FSC 2004, p. 32)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the ISA could take remedial action under Art. 50 of the Law on Insurance (LI 1997) and Art. 38 of the Regulation on the Structure and Activity of the ISA. Representatives of the insurance industry believed that the reputation of the industry suffered because some companies were charging premiums that were too low for the risk taken. They believed that these were not supervised closely enough by the ISA. In 2002, the IMF recommended that the ISA should have clear intervention procedures that are well communicated and published. They must be able to take control over the affairs of an insurer and appoint an administrator. It should also improve and reinforce intervention methods and powers, along a graduated scale of responses. (IMF 2002, p. 57)
Upon establishment of a violation by the supervised entities, the FSC imposes coercive administrative measures. They include the issuance of recommendations with respect to the adoption of specific actions, fines or penalty payments. (FSC website)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
Upon establishment of a violation by the supervised entities, the Financial Supervision Commission (FSC) imposes coercive administrative measures. They include the issuance of recommendations with respect to the adoption of specific actions, fines or penalty payments. (FSC website)
According to the 2006 International Monetary Fund (IMF) Article IV Consultation with Bulgaria, the Bulgarian government will continue to strengthen prudential and market conduct regulation and supervision of the insurance sector. By the end of July 2006, the FSC was scheduled to develop (a) an internal procedure for enforcement and (b) a strategy to tighten supervision of underwriting practices of non-life insurance companies. (IMF 2006a, p. 80)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the ISA had established standards as to the composition of liabilities. (IMF 2002, p. 56)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
In its 2006 Article IV Consultation with Bulgaria, the IMF states that the Bulgarian government will continue to strengthen prudential and market conduct regulation and supervision of the insurance sector. By the end of 2006, the FSC was supposed to issue a regulation to exclude investments in related and affiliated companies from calculations of own funds for meeting statutory solvency requirements. (IMF 2006a, p. 80)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that Bulgaria had no requirement with respect to the use, disclosure or controls of derivatives and off-balance sheet items. Although the ISA stated that this was done in practice, there were no formal regulations and/or instructions in place to require insurers to have an investment policy, comprehensive risk management policies and risk management systems, internal controls, procedures for the accountability of boards of directors, as well as rigorous audit procedures. Derivatives were not explicitly forbidden. (IMF 2002, p. 56)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the Law on Insurance (1997) contained some provisions and restrictions on the investment of assets, related to amount of the reserves, as well as separate dispositions on the relationship between assets and capital. The ISA required that insurers maintained appropriate capital and solvency under the LI 1997 and the Ordinance for determining their own resources, solvency margin and its calculation by insurers. (IMF 2002, pp. 55-56)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that the Law on Insurance (LI 1997), regulations, policies, guidelines or procedures contained no provisions with regard to market conduct. Only Art. 10 of the Ordinance for Insurance Brokers and Insurance Agents imposed a few obligations on agents. On-site inspections included the review of complaints, but there was no specific procedure. (IMF 2002, p. 56)
According to a 2006 Letter of Intent published by the IMF, the Bulgarian Government is undertaking a number of steps to strengthen supervision of nonblank financial intermediaries and improve their operations. A new insurance law compliant with European Union (EU) regulations and facilitating supervision was approved by parliament in December 2005. An amendment to the social security code was approved by parliament in February, 2006. It eliminated the geographical limitation on pension fund investments with respect to EU and European Economic Area member countries and lifted the minimum thresholds for investment in government securities. An expansionary effect on the domestic private sector from the lifting of the minimum thresholds is not expected because of the small size and volatility of the domestic capital market. Leasing companies have been requested by the Bulgarian National Bank (BNB) under the foreign exchange law to report on their income statements and balance sheets on a quarterly basis with effect from September 30, 2005. Finally, a law on the consolidated supervision of financial conglomerates was drafted with adoption envisaged by September 5, 2006 (a benchmark). This law assigns the supervision of such conglomerates to either the BNB or the FSC depending on the dominant activity of these conglomerates. (IMF 2006b, p. 13)
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2002 IMF assessment states that there should be specific standards of market conduct and procedures to review compliance. Instructions should clearly require insurers to have procedures to deal with conflicts of interest and to deal effectively and fairly with complaints of customers. (IMF 2002, p. 56)
In September 2004, with the co-operation of United States Agency for International Development (USAID) Labor Market Project an information call center for public was opened in the Commission. The purpose is by this hot line to provide better protection and services to the users of the investment, insurance and social insurance sector. The information centre provides the public from all over the country with the chance to ask and receive answers to their questions within the Commission's competence related to the capital, insurance and social insurance markets. (FSC 2004, p. 42)
ICP 26 Information, disclosure & transparency towards the market
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
ICP 28 Anti-money laundering/ Combating the Financing of Terrorism
According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles. The ICPs were revised in 2003. Furthermore, the IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. (IMF 2002, pp. 52, 54; FSC website) There is no information as to the compliance of Bulgaria's new system of insurance supervision with the revised ICPs.
The 2005 U.S. Department of State International Narcotics Control Strategy Report states that as part of its ongoing effort to strengthen its anti-money laundering and counterterrorist financing regime, the Government of Bulgaria (GoB) has made non-bank financial institution oversight deficiencies a top priority for 2005. In April 2003, Parliament passed legislation amending the Law on Measures Against Money Laundering (LMML) and thereby strengthening anti-money laundering measures. The amendments expand the types of covered institutions and groups to a total of 29 different categories of covered institutions, all of which are subject to suspicious and currency transaction reporting requirements. Administrative money laundering provisions contained in the LMML address customer identification and record keeping requirements, suspicious transaction reporting and internal rules for financial institutions on implementation of an anti-money laundering program. Banks, securities brokers, auditors, accountants, insurance companies, investment companies and other businesses are subject to these reporting requirements. (U.S. DoS 2005)
According to the 2007 International Narcotics Control Strategy Report by the U.S. Department of State, although Bulgaria has enacted legislative changes consistent with international anti-money laundering standards, lax enforcement remains problematic. Bulgaria must take steps to improve and tighten its regulatory and reporting regime, particularly with regard to nonbank sectors. (U.S. DoS 2007)
European Commission, "Bulgaria 2005 Comprehensive Monitoring Report," October 2005. Available form Ministry of Finance website. Accessed on April 10, 2007. (EC 2005)
European Commission, "2004 Regular Report on Bulgaria's Progress Towards Accession," 2004. Available form Ministry of Finance website. Accessed on April 10, 2007. (EC 2004)
International Monetary Fund, "Bulgaria: 2006 Article IV Consultation, Third Review Under the Stand-By Arrangement, and Request for Rephasing, Waiver of Applicability and Nonobservance of Performance Criteria and Extension of the Arrangement--Staff Report; Staff Statement; and Public Information Notice and Press Release on the Executive Board Discussion," Country Report No. 06/298, Washington, D.C.: IMF, August 2006. Available from International Monetary Fund website. Accessed on January 24, 2007. (IMF 2006a)
International Monetary Fund, "Bulgaria: Letter of Intent and Memorandum of Economic and Financial Policies," March 14, 2006. Available from International Monetary Fund website. Accessed on April 10, 2007. (IMF 2006b)
International Monetary Fund, "Bulgaria: Letter of Intent and Memorandum of Economic and Financial Policies," April 26, 2005. Available from International Monetary Fund website. Accessed on April 10, 2007. (IMF 2005)
International Monetary Fund, "Bulgaria: Financial System Stability Assessment, Including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, Banking Supervision, Securities Regulation, Insurance Regulation, and Payment Systems," Country Report No. 02/188, Washington, D.C.: IMF, August 2002. Available from International Monetary Fund website. Accessed on January 24, 2007. (IMF 2002)
Regulation on the Operation of the National Insurance Council
Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on Statutory Audits of Annual Accounts and Consolidated Accounts, amending Council Directives 78/ 660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (EC 2006/43)
Financial Supervision Commission, "Annual Report 2005," 2005. Available from Financial Supervision Commission website. Accessed on April 9, 2007. (FSC 2005)
Financial Supervision Commission, "Report on the Activity of the Financial Supervision Commission for the Period January 1, 2004 through September 30, 2004," September 2004. Available from Financial Supervision Commission website. Accessed on January 24, 2007. (FSC 2004)
Institute of Certified Public Accountants of Bulgaria, "Response to the IFAC Part 2, SMO Self-Assessment Questionnaire," Self-assessment prepared as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, October 2006. Available form International Federation of Accountants website. Accessed on April 16, 2007. (ICPAB 2006)
International Monetary Fund, "Bulgaria: 2004 Article IV Consultation and Ex Post Assessment of Longer-Term Program Engagement - Staff Reports; Staff Statement; and Public Information Notice on the Executive Board Discussion," Country Report No. 04/176, Washington, D.C.: IMF, June 2004. Available from International Monetary Fund website. Accessed on January 24, 2007. (IMF 2004)
International Monetary Fund, "Bulgaria: Report on the Observance of Standards and Codes (ROSC) - Insurance Supervision," March 2000. Available from International Monetary Fund website. Accessed on January 24, 2007. (IMF 2000)
U.S. Department of State, Bureau for International Narcotics and Law Enforcement Affairs, "International Narcotics Control Strategy Report 2007," March 2007. Available from U.S. Department of State website. Accessed on April 3, 2007. (U.S. DoS 2007)
U.S. Department of State, Bureau for International Narcotics and Law Enforcement Affairs, "International Narcotics Control Strategy Report 2005," March 2005. Available from U.S. Department of State website. Accessed on January 24, 2007. (U.S. DoS 2005)
Bulgaria