Insurance sector regulation in France is incorporated in the French Insurance Code (Code des Assurances) and also relies heavily on European Union (EU) directives on insurance supervision. The Minister in charge of the economy is charged with insurance regulation, while the Insurance Supervisory Authority (CCAMIP) and the Comité des Entreprises d'Assurance are responsible for insurance sector supervision. The CCAMIP was created in 2003 as a result of the merger of the Commission de Contrôle des Assurances and the Commission de Contrôle des Mutuelles et des Institutions de Prévoyance, and was renamed l'Autorité de Controle des Assurances et des Mutuelles in 2006. According to the 2005 detailed assessment by the International Monetary Fund (IMF) on insurance sector supervision in France, the country is fully compliant with 21 of the 28 Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (as revised in October 2003). Further, ICPs 9, 10, 17, and 18 are "largely observed," and ICPs 3, 24, and 28 are "partly observed." Per the IMF report, there is room for improvement in supervisory authority, suitability of persons, corporate governance, internal control, group-wide supervision, risk management, intermediaries, and anti-money laundering. In two areas, group-wide supervision and intermediaries, France will be fully compliant once it implements the EU Financial Conglomerates Directive and the Insurance Mediation Directive, respectively.

General Overview

According to the 2005 detailed assessment by the IMF on insurance sector supervision in France, "the legal, regulatory and supervisory framework observes a large majority of the essential criteria of the IAIS [International Association of Insurance Supervisors] Principles Methodology" (p. 60). The assessment indicates that France is fully compliant with 21 of the 28 Insurance Core Principles (ICPs) promulgated by the IAIS (as revised in October 2003). Further, ICPs 9, 10, 17, and 18 are "largely observed", and ICPs 3, 24, and 28 are "partly observed." The IMF made several recommendations to improve ICPs compliance. For instance, it suggested that France improve the supervisory authority of the Insurance Supervisory Authority (Commission de Contrôle des Assurances, Mutuelles et Institutions de Prévoyance, or CCAMIP) by bestowing on its regulatory powers, increasing its staff resources, eliminating industry participation in supervisory decision-making, merging the Comité des Entreprises d'Assurance (CEA) and the CCAMIP, and monitoring the efficiency of the supervisory organization with four distinct functions and possibly reviewing the structure. The IMF also suggested that France require insurance companies to inform the CCAMIP when the suitability of their owners, board, or senior management is in doubt. France should also empower the CCAMIP to issue and enforce a comprehensive Code of Conduct of Corporate Governance that includes requirements for internal controls in all supervised insurance companies. In addition, France should transpose European Union (EU) Financial Conglomerates Directive and the EU Insurance Mediation Directive into French law. All insurance companies should be required to establish comprehensive risk management systems, and anti-money laundering/combating the financing of terrorism (AML/CFT) supervision in the insurance sector should be strengthened. The CCAMIP and the Ministry of Economy, Industry and Employment (Ministère de l'Économie, de l'Industrie et de l'Emploi, or MINEFE) are listed as members on the IAIS website.

The 2005 IMF report finds that EU Directives play a large part in the insurance regulatory framework in France, as do French insurance and company laws, ordinances, codes, and circulars. The Minister in charge of the economy is charged with insurance regulation, while the CCAMIP and the CEA are responsible for insurance sector supervision. The 2003 Financial Security Law (Loi de Sécurité Financière, or LSF) created the CCAMIP as a result of the merger of the Commission de Contrôle des Assurances (CCA) and the Commission de Contrôle des Mutuelles et des Institutions de Prévoyance (CCMIP). The CCAMIP was renamed in 2006 and is now called the Autorité de Contrôle des Assurances et des Mutuelles (ACAM). The LSF granted financial independence to the CCAMIP, enhanced its powers to obtain information from supervised entities and auditors, and strengthened supervisory coordination with the bank supervisors. Insurance sector regulation is incorporated into the French Insurance Code (Code des Assurances). The regulatory framework in France relies on solvency, investment, and liabilities. The CCAMIP promoted industry-wide, sound asset-liability management and required companies to achieve prescribed solvency levels. The legal system is effective, with well developed and internationally aligned auditing, accounting and actuarial professions.

The 2005 IMF report finds the French insurance sector "large and of systemic importance" (p. 57). The Organization for Economic Cooperation Development (OECD) ranked it the fifth largest in the world and the third largest in Europe in its 2003 publication, as cited in the 2005 IMF report. The insurance industry, per the 2005 IMF report, is dominated by the life, health, and accident insurance sectors. The insurance industry is competitive, even though the life sector is highly concentrated. The industry also has a predominance of bancassurance (insurance companies that are subsidiaries of banks) and a broad distribution network. The sector has proven to be resilient to shocks, and systemic vulnerabilities are well-contained. However, it faces challenges from a rapidly aging demographic trend, the implementation of international accounting standards in 2005, and a potential increase in interest rates that could lead to rapid repurchases. The IMF report nevertheless finds that French authorities are cognizant of the challenges and are taking pertinent steps to meet them. The 2008 IMF Article IV consultation report mentions that, as of 2006, there were 407 insurance companies, of which 115 were life insurance and retirement companies, 263 non-life, and 29 were reinsurance companies. They had combined assets of €1453.9 billion.

The Principles

ICP 1 Conditions for effective insurance supervision

FC

According to the IMF's 2005 assessment, ICP 1, Conditions for effective insurance supervision, is "observed" (p. 84). The report added that the environment in which the French insurance supervisory authority operates "is conducive to effective supervision and the achievement of its objectives" (p. 61). The codes that form the legal and institutional framework are also "comprehensive, carefully drafted, and publicly disclosed" (p. 61). Laws and regulations are regularly updated to keep up with changes in national and international best practices and to continue strengthening the efficiency of supervision. The financial market infrastructure comprises the legal and court systems; the accounting, actuarial and auditing standards; and professional and statistical associations to protect companies and their customers. This infrastructure is reliable, consistent, transparent and accountable.

ICP 2 Supervisory objectives

FC

According to the IMF's 2005 assessment, ICP 2, Supervisory objectives, is "observed" (p. 84). The report adds that the Insurance Code clearly defines supervisory objectives.

ICP 3 Supervisory authority

NC

According to the IMF's 2005 assessment, ICP 3 Supervisory authority, is "partly observed" (p. 84). The report observes that the MINEFE, not the CCAMIP, is empowered to issue rules by administrative means, and finds that this goes against the requirement of ICP 3. Also, although the supervisory staff at the CCAMIP is highly competent, their number is not adequate. Further, the supervisory organization has four distinct agencies for regulation and supervision (the MINEFE, the CEA, the CCAMIP, and the General Secretariat), which may lead to delays in taking prompt action and thereby jeopardize effective supervision. In addition, involving the insurance industry in the supervisory decisions of the CEA could lead to conflict of interest. Finally, the IMF recommends that the CEA and the CCAMIP be merged to streamline supervisory processes and enhance operational efficiency.

ICP 4 Supervisory process

FC

According to the IMF's 2005 assessment, ICP 4, Supervisory process, is "observed" (p. 84). The report had no further comments or recommendations. The Insurance Code and associated regulations establish clearly the supervisory process, and are updated regularly after consultations with the industry. The role, objectives and activities of the supervisory authorities are publicly available.

ICP 5 Supervisory cooperation and information sharing

FC

According to the IMF's 2005 assessment, ICP 5, Supervisory cooperation and information sharing, is "observed" (p. 84). The report noted that the CCAMIP can exchange information with other French financial supervisors "without any restrictions" (p. 66).

ICP 6 Licensing

FC

According to the IMF's 2005 assessment, ICP 6, Licensing, is "observed" (p. 84). The report noted that the licensing requirements follow the relevant EU Directives, and fulfill the essential criteria of ICP 6. The CEA licenses entities, and is advised by the CCAMIP in the process. The withdrawal of licenses is the authority of the CCAMIP.

ICP 7 Suitability of persons

FC

According to the IMF's 2005 assessment, ICP 7, Suitability of persons, is "observed" (p. 84). The fit and proper criteria for board members laid down in the Insurance Code comply with EU standards and fulfill the criteria for ICP 7. The IMF assessment, however, recommends that France introduce regulations mandating insurance companies to inform the supervisory authority when the fitness and propriety of their owners, senior management, or other key officials is in doubt.

ICP 8 Changes in control and portfolio transfers

FC

According to the IMF's 2005 assessment, ICP 8, Changes in control and portfolio transfers, is "observed" (p. 84). The report observes that the process of changes in control has been transposed into French law from relevant EU Directives, and the latter fully comply with ICP 8. Further, portfolio transfers, both partial and total, need prior approval of the CEA.

ICP 9 Corporate governance

CP

According to the IMF's 2005 assessment, ICP 9, Corporate Governance, is "largely observed" (p. 70). The report notes that the corporate governance regulations, principally the Code de Commerce for joint stock companies and the Code des Assurance for mutual companies, do not cover many of the requirements of the essential criteria laid down in ICP 9. The report therefore recommends that France give the CCAMIP the authority to issue a comprehensive Code of Conduct of Corporate Governance that applies to all insurance companies supervised by it, and that includes a requirement for effective internal controls in all supervised insurance companies.

ICP 10 Internal control

CP

According to the IMF's 2005 assessment, ICP 9 10, Internal Control, is "largely observed" (p. 71). Further, the legal framework "is rather poor" (p. 71) and focuses mainly on the investment policy of companies and the submission of limited reports. The report recommends that France give the CCAMIP the authority to issue a comprehensive Code of Conduct of Corporate Governance that applies to all insurance companies supervised by it, and that includes a requirement for effective internal controls.

ICP 11 Market analysis

FC

According to the IMF's 2005 assessment, ICP 11, Market analysis, is "observed" (p. 84). The report adds that the market analysis methodology of the CCAMIP is comprehensive, wherein the CCAMIP analyzes market conditions and forecasts trends and future scenarios that could adversely impact the industry. Analysis makes use of mandatory as well as voluntary submission of information by the companies, perceptions of the CCAMIP and culled from external sources, public and confidential information, as well as national and international developments.

ICP 12 Reporting to supervisors and off-site monitoring

FC

According to the IMF's 2005 assessment, ICP 12, Reporting to supervisors and off-site monitoring, is "observed" (p. 84). The report notes that the Code de Assurances requires the insurance companies to submit to the CCAMIP various reports detailing the company business, profile, staff details, balance sheets, profit and loss accounts, management reports, investment data, and solvency details. The CCAMIP analyzes these annual and quarterly reports and can also seek more information through special requests, on-site inspections and information exchange with auditors.

ICP 13 On-site inspection

FC

According to the IMF's 2005 assessment, ICP 13, On-site inspection, is "observed" (p. 84). Per the report, the Insurance Code grants the CCAMIP wide ranging powers to conduct on-site inspections and gather all pertinent information necessary for its supervisory responsibilities.

ICP 14 Preventive and corrective measures

FC

According to the IMF's 2005 assessment, ICP 14, Preventive and corrective measures, is "observed" (p. 84). The report finds that the CCAMIP is armed with wide ranging and progressively escalating preventive and corrective powers. Its warning and injunction powers also extend to non-compliant French reinsurance companies and insurance holdings companies.

ICP 15 Enforcement or sanctions

FC

According to the IMF's 2005 assessment, ICP 15, Enforcement or sanctions, is "observed" (p. 84). The report adds that the Commissioners of the CCAMIP have the powers of sanction within the bounds of definite legal rules. Per the Code des Assurances, these include, a warning, reprimand, prohibition to carry out certain aspects of the business, suspension of pertinent managerial staff, pecuniary sanction, withdrawal of license, and/or compulsory transfer of all or some portfolio of contracts.

ICP 16 Winding-up & exit from the market

FC

According to the IMF's 2005 assessment, ICP 16, Winding-up & exit from the market, is "observed" (p. 84). The report adds that the winding up procedure is defined explicitly in the Code des Assurances.

ICP 17 Group-wide supervision

CP

According to the IMF's 2005 assessment, ICP 17, Group-Wide Supervision is, "largely observed" (p. 76), since the "regulation on financial conglomerates is incomplete" (p. 76), and the CCAMIP does not have the power to intervene if the situation demands. However, the report hopes that the transposition of the EU directive on Financial Conglomerates will make France compliant with this principle.

ICP 18 Risk assessment and management

CP

According to the IMF's 2005 assessment, ICP 18, Risk assessment and management, is "largely observed" (p. 76). This is because the CCAMIP does not have comprehensive powers to take timely preventive action against insurers for failing to act in a prudent manner. The IMF therefore recommends explicit regulations requiring insurance companies to establish risk management systems covering all material risks, and adequate powers to the supervisor to monitor compliance.

ICP 19 Insurance activity

FC

According to the IMF's 2005 assessment, ICP 19, Insurance activity, is "observed" (p. 84). The report adds that the insurance activities of insurers are adequately controlled and monitored by the Insurance Code and the CCAMIP. This also includes the reinsurance strategy of the company and the reinsurer's security.

ICP 20 Liabilities

FC

According to the IMF's 2005 assessment, ICP 20, Liabilities, is "observed" (p. 84). The report adds that the Insurance Code has adequate requirements for technical provisions, and the CCAMIP has the power to enforce and increase those requirements.

ICP 21 Investments

FC

According to the IMF's 2005 assessment, ICP 21, Investments, is "observed" (p. 84). The report adds that the Insurance Code follows EU insurance Directives in laying down the technical provisions and quality of assets covering them. The CCAMIP monitors the insurers' compliance with these stipulations and reviews it during on-site inspections.

ICP 22 Derivatives and similar commitments

FC

According to the IMF's 2005 assessment, ICP 22, Derivatives and similar commitments, is "observed" (p. 84). The report adds that new rules added in the Insurance Code in 2002 specifically address the restrictions in the use of derivative products as financial assets, and make the Board of the insurance company liable for ascertaining and controlling through their investment risk management systems the risks emanating from derivative activities.

ICP 23 Capital adequacy and solvency

FC

According to the IMF's 2005 assessment, ICP 23, Capital adequacy and solvency, is "observed" (p. 84). The report adds that the Insurance Code transposes EU directives in setting the capital adequacy and solvency requirements for insurers, and the CCAMIP supervises compliance.

ICP 24 Intermediaries

ID

According to the IMF's 2005 assessment, ICP 24, Intermediaries, was "partly observed" (p. 81). The report finds that the CCAMIP does not have the power to supervise insurance intermediaries. Brokers are not obliged to register in the register of commerce and societies, and the independent agents are not registered. The CCAMIP rarely conducts ongoing supervision and hence cannot monitor compliance with their legal obligations. The report, however, hopes that the application of the EU intermediary directive into French legal framework will "most likely conduct to full compliance of ICP 24" (p. 81).

ICP 25 Consumer protection

FC

According to the IMF's 2005 assessment, ICP 25, Consumer protection, is "observed" (p. 84). The report adds that insurance supervision aims to protect the policy holder in a broad sense. The Insurance Code has requirements for professional competence of the management as well as the intermediaries; and the CCAMIP monitors compliance. Further, there are specific institutions established by the CCAMIP and the insurers' associations to handle consumer claims and complaints.

ICP 26 Information, disclosure & transparency towards the market

FC

According to the IMF's 2005 assessment, ICP 26. Information, disclosure & transparency towards the market, is "observed" (p. 84). The report adds that the Insurance Code requires insurance companies and other commercial entities to publish audited financial statements detailing their financial position and the risks undertaken, and make them available to their shareholders. The CCAMIP monitors compliance of disclosure.

ICP 27 Fraud

FC

According to the IMF's 2005 assessment, ICP 27, Fraud, is "observed" (p. 84). The report adds that the Penal Code regulates insurance fraud, and the MINEFE issues regulations on fraud. The CCAMIP monitors through onsite inspections of entities' measures to combat fraud and makes recommendations. The supervisory authorities also have the power to cooperate internationally to combat fraud. The industry itself has also taken measures to fight fraud.

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

NC

According to the IMF's 2005 assessment, ICP 28, Anti-money laundering/ Combating the Financing of Terrorism (AML/CFT), was "partly observed" (p. 83). The principal reason is the gap identified by the IMF in the insurance sector regulation and supervision with respect to AML/CFT. The gaps include: (1) the insurers' AML/CFT internal controls are not taken into account when granting authorization; (2) the supervisory resources to enable more frequent on-site inspections of insurance companies and intermediaries are inadequate; (3) there are doubts on effective supervision and appropriate sanctioning powers of the supervisor; and (4) AML/CFT guidelines are not enforceable and do not cover intermediaries. Further, enhanced due diligence requirements under the revised FATF Recommendations are not in place.