The International Monetary Fund's (IMF) 2001 assessment of Finland's observance of the Insurance Supervisory Principles (later renamed Insurance Core Principles, or ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) found that Finland either fully or largely complied with the IAIS Principles. The assessment, however, found areas where improvements were needed, namely stricter separation of regulatory and supervisory powers by shifting the licensing authority from the Ministry of Social Affairs and Health to the Insurance Supervisory Authority (ISA), Finland's insurance sector supervisor; implementation of an insurance-based risk analysis model; closer targeting of the allocation of supervisory resources; expansion of the electronic documentation and audit trail system; legislation on mixed bank-insurance conglomerates; and a legal basis for early intervention mechanism for life insurance companies. The assessment did not assign levels of compliance for each principle, and there is little subsequent information publicly available as to Finland's compliance with the revised, more stringent ICPs of 2003. A 2007 IMF report, nevertheless, affirms that the Finnish financial system is sound and well-supervised, and that the insurance sector is profitable and well-capitalized. The report also talks about the envisaged merger of the Finnish Financial Supervision Authority and the ISA in 2009, in order to pool in the expertise and resources of the former supervisors and bring common supervised cross-sector entities under one umbrella, thereby making supervision more effective.

General Overview

The 2007 IMF Article IV Consultation report affirms that the Finnish financial system is "sound and well-supervised" (p. 15) and observes that most insurance companies are profitable, with high capital adequacy ratios and continuing growth in profits. Also, the financial system can withstand severe shocks. The report also talks about the planned merger of the Finnish Financial Supervision Authority (Rahoitustarkastus, FIN-FSA) and the Insurance Supervisory Authority (Vakuutusvalvonta, ISA) in 2009 that is designed to pool in the expertise and resources of the former supervisors and bring common supervised cross-sector entities under one umbrella, thereby making supervision more effective. In this context, a press release posted on the ISA website announces that the Ministry of Finance (Valtiovarainministeriö, MoF) and the Ministry of Social Affairs and Health (Sosiaali- ja terveysministeriö, MSAH) have appointed a working group to draft a proposal in cooperation with the Bank of Finland (BoF) on how to organize the new organization resulting from the merger of the FSA and the ISA. The aim is to make the new organization "as effective, efficient, impartial, and independent as possible." Per the press release, the working group will work from June 2007 until March 2008 and has also been assigned to draft legislation and other regulations pertaining to the new organization.

In 2001, the IMF carried out the assessment of Finland's observance of the Insurance Supervisory Principles (superseded by the Insurance Core Principles (ICPs) in 2000 and later revised in 2003) promulgated by the IAIS. The mission found that Finland either fully or largely complied with the IAIS Principles; however, there were areas where improvements were needed, namely: (1) stricter separation of regulatory and supervisory powers by shifting the licensing authority from the MSAH to the ISA; (2) including independent experts on the supervisory board; (3) implementing an insurance-based risk analysis model for consistent and sophisticated risk analysis of this sector; (4) more closely targeting the allocation of supervisory resources; (5) expanding the electronic documentation and audit trail system to enhance supervisory practices; (6) enacting legislation on mixed bank-insurance conglomerates; and (7) providing a legal basis for early intervention mechanism for life companies. The assessment, however, did not assign levels of compliance for each principle, and there is little subsequent information publicly available as to Finland's compliance with the revised ICPs of 2003.

According to the 2001 IMF assessment, the MSAH is the regulatory authority for both pensions and insurance, while the ISA, which was created in 1999, supervises them. Further, the ISA was created under the auspices of the MSAH, but is an autonomous entity. Its supervisory board comprises members of the MSAH, the BoF, and the Directors-General of the ISA and FSA. The ISA has "a range of legal instruments available for appropriate and proportional supervision" (p. 41), including early solvency intervention powers with regard to non-life and pension insurance companies, but not for life insurance companies, which operate on a voluntary basis. The ISA website confirms the ISA's supervisory authority and independence. According to the website, the ISA supervises insurance companies, local mutual insurance associations, employee benefit funds, company pension funds, pension institutions founded on the basis of law, the Local Government Pensions Institution, the State Pension Fund, the Church Pension Fund, insurance intermediaries, unemployment funds, the Unemployment Insurance Fund, the Educational Fund, and other corporations mentioned in the pertinent laws. The ISA supervises financial and insurance conglomerates in close cooperation with the FSA as well as relevant foreign supervisory authorities. In regard to all these supervised entities, the ISA monitors whether they (1) abide by the law; (2) follow good practices and appropriate procedures; and (3) maintain their solvency. The MSAH and the ISA are listed as members on the IAIS website.

The legal framework for insurance supervision is based on European Union (EU) directives and requirements, such as the first, second, and third life and non-life directives and the directive on supplementary supervision of insurance undertakings in an insurance group. Finland was also preparing to enact legislation by the end of 2001 to cover mixed financial conglomerates that had banking as well as insurance arms. This legislation, the Act on the Supervision of Financial and Insurance Conglomerates, came into force in January 2002, and was later amended in 2004. The 2007 Financial Action Task Force (FATF) report on Finland's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime enumerates the laws that govern the insurance sector. Accordingly, the 1979 Finnish Insurance Companies Act governs life and non-life insurance companies, and an amendment to this act is expected to come into force in 2008. The 1987 Finnish Insurance Associations Act governs non-life insurance associations. The 2005 Act on Insurance Mediation governs insurance brokers. The ISA also introduced a new register for intermediaries in 2005 covering insurance brokers and agents.

According to the ISA's 2005 Annual Report, there are plans to amend the Act on Authorized Pension Insurance Companies to reflect the Solvency II requirements, diversification of investment, and enhanced risk in the operations of this sector. Further, the ISA has plans to increase its solvency supervision resources to better meet the requirements of the Solvency II framework, which takes better account of the operational, insurance and investment risks of institutions. It also plans to use individual calculation models to assess the solvency requirements of a single institution. The ISA Annual Report goes on to say that Finland is taking steps to align itself with Solvency II, which should come into force in 2010. For example, "a non-life insurance solvency test as well as calculations for defining the supervisory limit of the extended solvency margin in life insurance have already been applied for several years" (p. 5). Finland also acknowledges the need to transition to the Solvency II framework by making "its supervisory limit system more market-based" so as to encourage the supervised insurance companies to implement a "market-driven calculation of technical provisions" (p. 6). The report also calls for increased ISA supervisory autonomy to meet the definition of an efficient supervisory system as envisaged in the IAIS and the Committee of European Insurance and Occupational Pension Supervisors' (CEIOPS) principles, viz., that the supervisory system be framed by the law; and the supervisor has adequate powers, legal protection and financial resources to discharge its authority and its responsibility independently and responsibly.

The 2005 ISA annual report provides statistics on the insurance industry in Finland. As of 2005, there were 14 life insurance companies, 25 non-life insurance companies, seven employment pension insurance companies, 238 insurance brokers, and 76 brokerage companies registered with and supervised by the ISA.

The Principles

ICP 1 Conditions for effective insurance supervision

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According to the 2001 IMF report, Finland's pension and insurance sector then met the general preconditions for effective supervision. Also, the legal infrastructure in Finland was well-developed and stable, as were the actuarial, legal, and accounting professions. The 2001 IMF assessment also found that the Finnish Constitution, coupled with the EU laws and directives, provides the legal framework for a well-functioning financial system in the country. Finland also has a codified legal system and the scope of supervisory authority is circumscribed by constitutional law and its interpretations by the Constitutional Committee of Parliament. However, little subsequent information as to Finland's compliance with the revised ICPs of 2003 (which superseded the IAIS Supervisory Principles) is publicly available.

ICP 2 Supervisory objectives

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According to the 2001 IMF assessment, the principal objective of supervision by the ISA is "to protect the direct financial interests of the policyholders and pension entitlements" (p. 41). The ISA emphasizes supervision of the adequacy of the technical provisions, solvency margin, and investment policy and procedures of supervised entities. It also carries out fit and proper testing in collaboration with the MSAH, and as pertinent, with the FSA. The ISA aims to safeguard a sound and competitive insurance sector. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 2 Supervisory objectives, issued in 2003.

ICP 3 Supervisory authority

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According to the 2001 IMF assessment, the MSAH regulates the insurance and pensions sector, while the ISA supervises it. The IMF finds that the responsibility and accountability of the ISA are "formally defined" (p. 43). The ultimate accountability of the ISA lies with the Parliament, although the latter applies very limited scrutiny. However, the composition of its supervisory board and the frequency of its meetings results in vagueness of roles and responsibilities, especially in the event of an emergency or whenever a major decision is required. The IMF, therefore, recommends "a stronger accountability and granting of wider powers" (p. 30) to the ISA. This, per the IMF, can be achieved by transferring the licensing power from the MSAH to the ISA, and by including independent experts on the ISA's Board.

The 2001 IMF assessment finds that the ISA has a range of legal instruments for adequate supervision and they are predominantly in line with EU directives and requirements. The ISA is also found by the IMF to be well managed, with clear objectives, strategies and priorities and an open internal culture. Resources and supervisory powers are also commensurate with the demands of the Finnish insurance sector. The IMF recommends Finland to strengthen the supervisory capacity of the ISA by applying "a sophisticated risk analysis model" (p. 42) of supervision. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 3 Supervisory authority, issued in 2003.

ICP 4 Supervisory process

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According to the 2001 IMF assessment, the ISA maintains "an open process for formulating and reporting of insurance and regulatory and supervisory policies" (p. 45). This is attained through active consultation with the market on legislative, regulatory and supervisory proposals, codification and public availability of policies and requirements, and regular reporting to the MSAH to ensure parliamentary scrutiny and public transparency on its supervision and insurance sector developments. The ISA disseminates information pertaining to its supervisory role and scope of its authority through the web, though it is often arcane. The ISA also publishes comprehensive and detailed statistical data on the insurance sector in Finland. The annual report and other annual publications also provide comprehensive insurance sector information. The Federation of Finnish Insurance Companies (which later merged with other bodies to form the Federation of Finnish Financial Services (Finanssialan Keskusliittory) also publishes an overview of the sector and the laws and supervisory regulations governing it. The senior officials of the ISA regularly explain the ISA's objectives and performance on public fora, though not before parliamentary committees. Legislative protection for policy holders is also in the public domain, although its scope, terms, and limits are not clearly spelled out, leading to vagueness. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 4 Supervisory process, issued in 2003.

ICP 5 Supervisory cooperation and information sharing

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There is insufficient information publicly available that directly addresses Finland's compliance with ICP 5 Supervisory cooperation and information sharing, issued in 2003. The ISA website states that, domestically, the ISA cooperates with the FSA, the Finnish Insurance Ombudsman Bureau (Vakuutusneuvonta) and the supervised institutions' cooperation bodies, in the discharge of its duties. At the international level, the ISA cooperates with the insurance supervisors in the European Economic Area, as well as the international cooperation associations of insurance supervisors. It is a member of the CEIOPS and the IAIS.

ICP 6 Licensing

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According to the 2001 IMF assessment, "the criteria with regard to licensing are observed" (p. 43), but the segregation of responsibilities are not "optimal" (p. 43). The IMF, therefore, recommends Finland to transfer licensing authority from the MSAH to the ISA, so as to enhance the credibility, autonomy and supervisory capacity of the ISA, especially to act decisively and quickly in crisis situations. The transfer also promises to lead to "a better trail of accountability and transparency" (p. 43). As of the time of the assessment, the MSAH grants licenses on the basis of the ISA's statement. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 6 Licensing, issued in 2003.

ICP 7 Suitability of persons

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The 2001 IMF assessment finds that the ISA conducts fit and proper testing in collaboration with the MSAH and, as pertinent, with the FSA. There is, however, insufficient information publicly available as to Finland's compliance with ICP 7 Suitability of persons, issued in 2003.

ICP 8 Changes in control and portfolio transfers

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There is insufficient information publicly available as to Finland's compliance with ICP 8 Changes in control and portfolio transfers, issued in 2003.

ICP 9 Corporate governance

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The 2001 IMF assessment states that "no issues were identified" (p. 43) regarding corporate governance. There is little further information publicly available as to Finland's compliance with ICP 9 Corporate governance, issued in 2003.

ICP 10 Internal control

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The 2001 IMF assessment states that "no issues were identified" (p. 43) regarding internal control. There is little further information publicly available as to Finland's compliance with ICP 10 Internal control, issued in 2003.

ICP 11 Market analysis

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There is insufficient information publicly available as to Finland's compliance with ICP 11 Market analysis, issued in 2003.

ICP 12 Reporting to supervisors and off-site monitoring

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The 2007 FATF report notes that the ISA carries out both on-site and off-site inspections of insurance companies and intermediaries. However, there is insufficient information publicly available as to Finland's compliance with ICP 12 Reporting to supervisors and off-site monitoring, issued in 2003.

ICP 13 On-site inspection

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The 2007 FATF report notes that the ISA carries out both on-site and off-site inspections of insurance companies and intermediaries. However, there is insufficient information publicly available as to Finland's compliance with ICP 13 On-site inspection, issued in 2003.

ICP 14 Preventive and corrective measures

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There is insufficient information publicly available as to Finland's compliance with ICP 14 Preventive and corrective measures, issued in 2003. According to the 2001 IMF assessment, the ISA has a range of sanctions in respect of insurance and pension companies and insurance brokers. They include the issuance of warnings, prohibition to carry on an irregular action, requests to remedy irregularities within a timeframe, and conditional fines. A statement from the ISA is also required by the MSAH in granting or revoking the license of an insurance firm. The IMF, however, recommends Finland to provide the powers to restrict or revoke the license of an insurance firm to the ISA, provide legal basis to the early intervention power of the ISA with respect to the solvency of a life insurance company, and develop a sound legal framework to arm the ISA with supervisory tools to monitor and supervise financial conglomerates and the legal entities within them.

ICP 15 Enforcement or sanctions

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According to the 2001 IMF assessment, the ISA has a range of sanctions regarding insurance and pension companies and insurance brokers. They include the issuance of warnings, prohibition to carry on an irregular action, requests to remedy irregularities within a timeframe, and conditional fines. The IMF, however, recommends that Finland provide powers to restrict or revoke the license of an insurance firm to the ISA, provide legal basis to the early intervention power of the ISA with respect to the solvency of a life insurance company, and develop a sound legal framework to arm the ISA with supervisory tools to monitor and supervise financial conglomerates and the legal entities within them. However, there is insufficient information publicly available as to Finland's compliance with ICP 15 Enforcement or sanctions, issued in 2003.

ICP 16 Winding-up & exit from the market

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There is insufficient information publicly available as to Finland's compliance with ICP 16 Winding-up & exit from the market, issued in 2003.

ICP 17 Group-wide supervision

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There is insufficient information publicly available as to Finland's compliance with ICP 17 Group-wide supervision, issued in 2003. According to the 2001 IMF assessment, the ISA has a number of legal firewalls in place "to reduce and manage contagion risk within groups" (p. 41). This is achieved by a host of legal measures, whereby insurance companies are restricted to the business of insurance; life and non-life companies are legally separated; pension insurance companies are limited to this activity; and investment departments of insurance companies are to be separate and must not manage investments for other entities. The 1999 Personal Data Act also restricts sharing client information between different legal entities within a group. The IMF assessment also finds that, although in 2001 Finland did not have specific legislation or regulations on mixed insurance-bank conglomerates, such legislation was being introduced later the same year. This legislation, the Act on the Supervision of Financial and Insurance Conglomerates, came into force in January 2002, and was later amended in 2004. The ISA, in 2001, was also entering into a cooperation agreement with the FSA when Aampo became the first Finnish mixed conglomerate. The ISA also has protocols on pan-Scandinavian groups.

ICP 18 Risk assessment and management

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The 2001 IMF assessment recommends that Finland strengthen the supervisory capacity of the ISA by applying "a sophisticated risk analysis model" (p. 42) of supervision. It finds that such a model was being developed at that time. According to the assessment, the ISA has a number of legal firewalls in place "to reduce and manage contagion risk within groups" (p. 41). This is achieved by a host of legal measures, whereby insurance companies are restricted to the business of insurance; life and non-life companies are legally separated; pension insurance companies are limited to this activity; and investment departments of insurance companies are to be separate and must not manage investments for other entities. The 1999 Personal Data Act also restricts sharing client information between different legal entities within a group. However, there is insufficient information publicly available as to Finland's compliance with ICP 18 Risk assessment and management, issued in 2003.

ICP 19 Insurance activity

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There is insufficient information publicly available as to Finland's compliance with ICP 19 Insurance activity, issued in 2003.

ICP 20 Liabilities

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There is insufficient information publicly available as to Finland's compliance with ICP 20 Liabilities, issued in 2003.

ICP 21 Investments

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There is insufficient information publicly available as to Finland's compliance with ICP 21 Investments, issued in 2003. The 2001 IMF assessment notes that the ISA recognizes the importance of "strict and well-qualified supervision on the asset side" (p. 43). As of 2001, the ISA lacked investment specialists to carry out effective supervision of the investment strategy, policies and procedures of supervised institutions. This was due to the ISA's competitive disadvantage in the market for investment specialists, and the ISA was working on this shortcoming through training and recruitment.

ICP 22 Derivatives and similar commitments

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There is insufficient information publicly available as to Finland's compliance with ICP 22 Derivatives and similar commitments, issued in 2003. The 2001 IMF assessment notes that the ISA has restricted availability of supervisory expertise to optimally supervise financial derivatives, and has therefore engaged the services of a consulting firm to "develop new regulations and supervisory guidelines for derivatives" (p. 43).

ICP 23 Capital adequacy and solvency

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The 2001 IMF assessment finds that the solvency positions of large as well as smaller insurance companies are satisfactory. The 2007 IMF report affirms that the Finnish financial system is "sound and well-supervised" (p. 15) and observes that most insurance companies are profitable with high capital adequacy ratios and continuing growth in profits. However, there is little information publicly available that directly addresses Finland's compliance with ICP 23 Capital adequacy and solvency, issued in 2003.

ICP 24 Intermediaries

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There is insufficient information publicly available as to Finland's compliance with ICP 24 Intermediaries, issued in 2003. The ISA website states that the ISA "monitors and checks the operations of insurance intermediaries," analyzes their registration requirements, and maintains a public Register of Insurance Intermediaries entitled to pursue insurance mediation in Finland. The 2007 FATF report notes that the 2005 Act on Insurance Mediation governs insurance brokers. The ISA also introduced a new register for intermediaries in 2005 covering insurance brokers and agents.

ICP 25 Consumer protection

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The 2001 IMF assessment notes that legislative protection for policyholders is in the public domain, although its scope, terms, and limits are not clearly spelled out, leading to vagueness. Nevertheless, there is little information publicly available that directly addresses Finland's compliance with ICP 25 Consumer protection, issued in 2003.

ICP 26 Information, disclosure & transparency towards the market

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There is insufficient information publicly available as to Finland's compliance with ICP 26 Information, disclosure and transparency towards the market, issued in 2003.

ICP 27 Fraud

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There is insufficient information publicly available as to Finland's compliance with ICP 27 Fraud, issued in 2003.

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

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There is insufficient information publicly available as to Finland's compliance with ICP 28 on AML/CFT. The 2007 FATF report observes that the insurance sector is generally effectively supervised and notes that the preventive system and other AML/CFT obligations, such as customer identification, due diligence, suspicious transaction reporting, and record keeping, apply to a wide range of financial institutions, including those in the insurance sector. The ISA supervises the AML/CFT compliance of all obliged parties under its supervision, viz., the life insurance companies, insurance brokers, and non-life insurance companies, in accordance with the Act on Preventing and Clearing Money Laundering. However, the report finds that supervision in this sector is not risk-based as required by the revised FATF recommendations. Licensing procedures are sound, though fit and proper tests are not clearly spelled out. Ongoing AML/CFT supervision of the supervised entities "is carried out primarily as part of prudential oversight and as part of risk management, internal control and code of conduct supervision" (FATF 2007, p. 7). The guidance and standards issued by the ISA to supervised institutions on their AML/CFT compliance obligation are limited. The FATF report finds that the ISA "has a relatively limited range of sanctions available" (p. 8) under the Act on Preventing and Clearing Money Laundering, although the entities supervised by it are subject to administrative penalties as well as criminal sanctions for AML/CFT non-compliance. The ISA has not been observed to apply sanctions very often. The FATF report advises the ISA to strengthen off-site supervision as well as conduct more active AML/CFT focused onsite supervision and inspections.