According to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment, the insurance sector in Greece is inefficient and small. Greece remains relatively underinsured, and market penetration is low in comparison to the European Union (EU) average. According to the IMF's 2006 report, in which insurance supervisory practices were benchmarked against the revised Insurance Core Principles (ICPs) and Methodology issued by the International Association of Insurance Supervisors in October 2003, Greece's compliance with ICPs is mixed, although the legislative and supervisory initiatives that are being pursued could potentially improve the level of observance in the coming years. In some areas, including on-site inspections, off-site analysis of financial information, valuation of liabilities, and solvency, the basic legal requirements are in place but need implementation guidance. In other areas such as corporate governance, risk management, and internal controls, there is a need to develop more complete and explicit legal requirements. At the time of the IMF's 2006 assessment, the supervisor for the insurance sector was the Directorate of Insurance Enterprises and Actuaries, which was found to have limited resources to supervise the insurance sector. Pursuant to Law on Supervision of Private Insurance No. 3229 of 2004, supervisory responsibility was transferred to an independent supervisory authority, the Private Insurance Supervisory Committee (PISC), which became operational in January 2008, as reported in the IMF's subsequent 2007 Article IV Consultation. The IMF's 2007 report notes that the PISC has adopted a risk-based approach to insurance supervision, which occurs within a legal framework incorporating the relevant EU Directives. No further information on the implementation of the recommendations made by the IMF in 2006 is publicly available.

General Overview

At the time of the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment, the supervisor for the insurance sector was the Directorate of Insurance Enterprises and Actuaries, under the Ministry of Development (MoDV). The Directorate was found to have limited resources to supervise the insurance sector, and overall supervision was weak. However, pursuant to Law on Supervision of Private Insurance No. 3229 of 2004, supervisory responsibility was transferred to an independent supervisory authority, the Private Insurance Supervisory Committee (PISC), which was created in December 2004. The PISC will report to the Ministry of Economy and Finance (MEF) rather than the MoDV. The IMF recognizes that the appointment of the PISC is expected to significantly improve the regulatory framework, as well as supervisory arrangements. As reported in the IMF's subsequent 2007 Article IV Consultation, published in 2008, the PISC became operational in January 2008, adopting a risk-based approach to insurance supervision.

According to the IMF's 2006 report, in which insurance supervisory practices were benchmarked against Insurance Core Principles (ICPs) and Methodology revised by the International Association of Insurance Supervisors (IAIS) in October 2003, Greece's compliance with ICPs is mixed. The legislative and supervisory initiatives that are being pursued could potentially improve the level of observance in the coming years. In the areas of on-site inspections, off-site analysis of financial information, valuation of liabilities, and solvency, the basic legal requirements are in place but need implementation guidance. In other areas such as corporate governance, risk management, and internal controls, there is a need to develop more complete and explicit legal requirements. In the European context, the legal framework for insurance supervision in Greece incorporates the relevant European Union (EU) Directives. The EU Directive on Insurance Mediation No. 2002/92/EC was transposed into Greek law by Presidential Decree No. 190 of 2006, which establishes requirements for the granting of a license to insurance intermediaries.

According to the 2006 IMF assessment, the insurance sector in Greece is relatively inefficient and small, accounting for less than 4 percent of total assets in the financial sector. Greece remains relatively underinsured, despite strong growth (i.e. 12 percent) in insurance premiums in both 2003 and 2004. In addition, market penetration is low in comparison to the EU average, and strong competition and inadequate supervision have led to poor and volatile industry profitability. The total assets of insurance undertakings amounted to 4.54 percent of GDP in 2003. In 2006, according to the 2007 study by the KGDI law firm, there were ninety insurance entities in Greece, including 17 licensed life insurance companies, 60 licensed nonlife insurance companies and 13 companies licensed for both life and nonlife insurance. The IMF report notes that while the bancassurance sector—composed of banking groups conducting both banking and insurance activities—only generates a small amount of insurance premiums, it is profitable and is experiencing rapid growth.

The Principles

ICP 1 Conditions for effective insurance supervision

CP

The IMF's 2006 report states that "Greece largely meets the conditions necessary for effective insurance supervision" (p. 41). Greek authorities are encouraged to harmonize Greek Generally Accepted Accounting Principles (GAAP) requirements with the International Financial Reporting Standards (IFRSs), according to the IMF's 2006 report. In addition, it is recommended that an alternative dispute resolution mechanism be established.

ICP 2 Supervisory objectives

II

It is recommended by the IMF’s 2006 report that the principal objectives of insurance supervision be "more explicitly defined in connection with the establishment of the PISC" (p. 42-43). The IMF recognizes that the legislative and supervisory initiatives that are being pursued could potentially improve the level of observance in this area. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 3 Supervisory authority

II

At the time of the IMF's 2006 assessment, the supervisor for the insurance sector was the Directorate of Insurance Enterprises and Actuaries, under the MoDV. The Directorate was found to have limited resources to supervise the insurance sector. Pursuant to Law on Supervision of Private Insurance No. 3229 of 2004, supervisory responsibility was transferred to an independent supervisory authority, the PISC, which was created in December 2004. The PISC will report to the MEF rather than the MoDV. The IMF report recommends providing the new agency with adequate staffing and resources, as well as establishing a more flexible funding mechanism. It is further recommended by the IMF that supervisory staff "be protected against lawsuits for actions taken in good faith while discharging their duties" (p. 43). Responsibilities between the PISC and the MEF should also be clearly delineated. The IMF is however concerned that the new supervisory authority will not be independent from political and industry pressure due to its current composition. As reported in the IMF's subsequent 2007 Article IV Consultation, published in 2008, the PISC became operational in January 2008, adopting a risk-based approach to insurance supervision. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 4 Supervisory process

II

As a means of increasing transparency, it is recommended that the supervisory authority document in writing and publish its supervisory policies and procedures, according to the IMF's 2006 report. The supervisory consultation process should also be documented and published. In addition, the supervisor should adopt "a risk-focused approach" (p. 43). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 5 Supervisory cooperation and information sharing

II

The IMF’s 2006 report recommends clearly delineating the responsibilities of the PISC and those of the MoDV and the MEF. Regular communication mechanisms between relevant actors in the insurance supervisory process should also be established. In addition, the PISC is encouraged to maintain "active and open communication" (p. 43) with the Directorate of Insurance Enterprises and Actuaries during the transition, the IMF report continues. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 6 Licensing

II

It is recommended by the IMF’s 2006 report that Greek authorities "enact legislation to align the stated deadline for a licensing decision with current practice" (p. 43). In the case of a breach in the deadline, it should be explicitly stated that the license will not be granted automatically. To speed up the licensing process, the supervisory authority should also "consider alternatives to awaiting the receipt of a solvency certificate when assessing the financial condition of a license applicant" (p. 43), as stated by the IMF report. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 7 Suitability of persons

II

It is recommended by the IMF’s 2006 report that the fit and proper requirements "be defined and applied broadly enough to consider an individual's competence and soundness of judgment for fulfilling the responsibilities of the particular position" (p. 44). The IMF further encourages Greek authorities to "enact legislation to provide the supervisory authority the power to assess the fitness and propriety of auditors and actuaries, and establish specific criteria for their assessment" (p. 44). The supervisory authority should rely upon the Institute of Certified Public Accountants of Greece and the Hellenic Actuarial Society with regard to these issues, as stated in the IMF's report. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 8 Changes in control and portfolio transfers

II

It is recommended by the IMF’s 2006 report that the supervisory authority "document and publish the specific criteria that it will apply in assessing proposed changes in control and portfolio transfers" (p. 44). The IMF report further encourages that an independent actuary prepare a report "regarding the risks that a proposed change in control or portfolio transfer may pose to the interests of the policyholders of both the transferee and transferor" (p. 44). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 9 Corporate governance

II

The IMF’s 2006 report recommends establishing "more explicit legislation and guidance on corporate governance and internal control" (p. 42) to improve the level of observance. In particular, explicit guidance should be provided to insurers regarding their governance practices and documentation of important policies, procedures and responsibilities. The supervisory authority is further advised to perform both on-site supervision and off-site inspections "to evaluate compliance with corporate governance requirements, as well as the effectiveness of their implementation by each insurer" (p. 45), the IMF report continues. These evaluation processes could be strengthened through regular contact between supervisory staff and senior management of insurance companies, as well as their boards. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 10 Internal control

II

The IMF’s 2006 report recommends establishing "more explicit legislation and guidance on corporate governance and internal control" (p. 42) to improve the level of observance. An ongoing program of on-site and off-site inspections should also be maintained to evaluate the effectiveness of internal controls. Legislation should further be enacted to ensure that all insurers set up "an on-going internal audit function appropriate to the nature and scope of their business" (p. 45), the IMF report goes on. The actuary profession should also perform a whistle-blowing function, while being legally protected from liability. In order to assess the effectiveness of internal controls, the supervisory authority should meet regularly with the head of the internal audit function, the responsible actuary, and external auditors. Finally, the supervisory authority should review reports prepared by internal auditors on an on-going basis. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 11 Market analysis

II

The IMF's 2006 report states that "the development of a risk-focused methodology would facilitate more proactive and effective supervision" (p. 42). In addition, active market analysis would contribute to the monitoring process. According to the IMF report, the responsibility of gathering market information from internal and external sources should be assigned to an individual, which in turn should communicate his/her findings with other staff members. Gathering of information should also include "regular meetings with the other Greek financial sector supervisors and representatives of the various industry and professional associations" (p. 45), the IMF report adds. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 12 Reporting to supervisors and off-site monitoring

II

The IMF's 2006 report states that "the development of a risk-focused methodology would facilitate more proactive and effective supervision" (p. 42). It should further be required that all insurers file basic supervisory returns on a quarterly basis. The IMF report recommends strengthening "the off-site monitoring of the financial condition and performance of insurers" (p. 45). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 13 On-site inspection

II

The IMF's 2006 report states that "the development of a risk-focused methodology would facilitate more proactive and effective supervision" (p. 42). In this regard, the effective implementation of a risk-based supervision methodology, including regular on-site inspections, requires sufficient staff resources. It is recommended by the IMF that the supervisory authority "develop and implement a program of regular on-site inspection, which includes both full scale and focused inspections" (p. 46). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 14 Preventive and corrective measures

II

The IMF's 2006 report encourages the supervisory authority to "develop guidance regarding measures that might be taken by insurers to prevent breaches of the legislation, such as the establishment of a compliance officer" (p. 46). Greek authorities are further advised to promptly issue a formal ministerial directive "in the case of noncompliance with a written supervisory request regarding a material concern by the stated deadline" (p. 46), the IMF report continues. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 15 Enforcement or sanctions

II

The IMF's 2006 report encourages the supervisory authority to develop and publish "information about the manner in which it would assess the risk profiles of insurers and the nature of supervisory actions—including the sanctions that might be imposed—" (p. 46). Legislation should further be enacted to broaden the powers of the supervisory authority to impose sanctions when the interests of policyholders are "at significant risk" (p. 46), the IMF report continues. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 16 Winding-up & exit from the market

II

There is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 17 Group-wide supervision

II

With regards to the implementation of the EU Financial Conglomerates Directive No. 2002/87/EC, Greek authorities are encouraged to enact legislation "to strengthen the legal powers to restrict the ownership or activities of subsidiaries, and to protect insurers from financial difficulties of other companies in a group" (p. 46), as stated in the IMF's 2006 report. In the context of cross-sector operations of insurance companies, it is recommended by the IMF that the insurance supervisory authority "exchange information regularly with its Greek counterparts responsible for supervision of the banking and securities sectors" (p. 46). The IMF report notes that while the bancassurance sector—composed of banking groups conducting both banking and insurance activities—only generates a small amount of insurance premiums, it is profitable and is experiencing rapid growth. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 18 Risk assessment and management

II

The IMF's 2006 report states that "more explicit legislation and guidance on risk management issues would improve observance" (p. 42). In this context, Greek authorities are encouraged to enact legislation "to require insurers to have risk management policies and systems appropriate to the nature and scope of their activities" (p. 46), the IMF report adds. The supervisory authority is further advised to perform both on-site supervision and off-site inspections to assess the quality of insurers' risk management systems. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 19 Insurance activity

II

It is recommended by the IMF’s 2006 report that the supervisory authority "require insurers to have in place strategic underwriting, pricing, and reinsurance policies and verify that such policies are approved and reviewed regularly by the board of directors" (p. 47). In this context, Greek authorities are encouraged to enact legislation "to require insurers to have reinsurance appropriate to the nature of their risks and develop and publish supervisory guidance regarding reinsurance" (p. 47), according to the IMF report. The supervisory authority should also have legal powers "to require insurers to set adequate premiums for all classes of business" (p. 47), and take actions where deemed necessary. The supervisory authority is further advised to perform both on-site supervision and off-site inspections to assess the adequacy of insurers' reinsurance. The European Commission has decided to formally request Greece, among other countries, to implement the EU Directive on Reinsurance No. 2005/68/EC. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 20 Liabilities

II

The IMF's 2006 report states that the supervisory authority should "regularly review the adequacy of the technical provisions established by insurers and require prompt correction of any deficiencies that may be identified" (p. 47). It is further recommended by the IMF that insurers "be required to calculate their technical provisions on a basis more closely related to a realistic evaluation of the liabilities, but with margins for adverse deviation" (p. 47). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 21 Investments

II

It is recommended that the supervisory authority "publish guidance on the essential elements of an investment policy, as well as the nature of investment risk management and controls that it expects of insurers, including specific guidance on the matching of assets and liabilities" (p. 48), according to the IMF's 2006 report. The supervisory authority is further advised to perform both on-site supervision and offsite inspections to assess the adequacy of insurers' investment policies. The IMF's 2006 report also states that "the ability of the supervisor and others to assess the financial condition of insurers could be improved by requiring more consistent and realistic valuation approaches" (p. 42). At the time of the IMF assessment, international standards for the valuation of insurance contracts were being developed by both the International Actuarial Association and the International Accounting Standards Board. Insurance companies should consider adopting these standards. Insurers should also be required to have in place investment contingency plans. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 22 Derivatives and similar commitments

II

It is recommended that the supervisory authority "publish guidance on the use and control of derivatives and similar commitments" (p. 48), as stated in the IMF's 2006 report. The supervisory authority is further advised to perform both on-site supervision and off-site inspections to assess "the adequacy of insurer's policies, risk management and controls with respect to the use of derivatives and similar commitments" (p. 48), the IMF report continues. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 23 Capital adequacy and solvency

II

The IMF's 2006 report recommends strengthening solvency requirements. In this context, Greek authorities are encouraged to enact legislation "to require that each insurer's responsible actuary prepare stress tests of assets, liabilities and solvency annually" (p. 48). Results of the stress tests should be communicated to the supervisory authority, as well as insurers' board of directors. The supervisory authority is further encouraged to "establish and communicate a solvency control level in excess of the minimum solvency margin" (p. 48), the IMF report states. In the European context, the Solvency II Project addresses the overall financial position of insurance undertakings, while taking into account current developments in insurance, risk management, finance techniques, international financial reporting and prudential standards. The European Commission adopted the Solvency II Proposal in July 2007, and the text is currently being discussed in Council and Parliament. The IMF report notes that the finalized text should be incorporated into Greek legislation. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 24 Intermediaries

II

The IMF's 2006 report states that insurance agents in Greece are "neither licensed nor supervised" (p. 61). In this context, Greek authorities are encouraged to enact legislation "to require that all insurance intermediaries operating in Greece be subject to licensing, registration and supervision" (p. 48) the IMF report adds. Laws should also explicitly provide that insurers and intermediaries act with due diligence, care and skills. Per the same report, the supervisory authority is advised to perform random on-site inspections of intermediaries "to ensure the prompt remittal of premium payments, and collect and analyze the financial statements of entities that are licensed intermediaries" (p. 49) according to the IMF report. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 25 Consumer protection

II

The IMF's 2006 report recommends strengthening certain aspects of consumer protection. In this context, Greek authorities are encouraged to enact legislation "to require insurers to deal with claims and complaints effectively, fairly and promptly" (p. 49) the IMF report states. In addition, the license of an insurer could be revoked on grounds of unreasonable delays or unfair settlements. Per the same report, the supervisory authority is advised "to conduct on-site inspections of market conduct, particularly with respect to claims handling practices, and impose corrective measures and sanctions where appropriate" (p. 49). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 26 Information, disclosure & transparency towards the market

II

Greek authorities are encouraged to harmonize Greek GAAP requirements with IFRSs, according to the IMF's 2006 report. While moving towards IFRSs is expected to improve disclosure practices, additional guidance is needed. In this context, Greek authorities are encouraged to enact legislation, empowering the supervisory authority to require all insurers "to disclose information on their financial situation and the risks to which they are subject" (p. 49) as stated by the IMF report. Information provided by insurers to the supervisory authority should also be published more frequently in the returns. Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

ICP 27 Fraud

II

The IMF's 2006 report states that "the supervisory authority should require that insurers and intermediaries implement procedures and controls against fraud and assess their effectiveness periodically" (p. 49). The detection of fraud could be improved through the exchange of personal information between insurers, namely through the use of databases. Per the same report, insurers are encouraged, or should possibly be required "to report significant occurrences of fraud to the appropriate law enforcement authority" (p. 50). Nonetheless, there is insufficient information publicly available addressing Greece’s compliance with this principle as revised in 2003 by the IAIS.

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

ID

The IMF's 2006 report states that the financial sector in Greece is characterized by an absence of anti-money laundering (AML) and combating the financing of terrorism (CFT) supervision in the insurance sector. In addition, insurance intermediaries are not subject to AML legislation. In this regard, the insurance supervisor is encouraged to conduct on-site inspections of insurers' controls in the area of AML and CFT activities. The IMF's 2006 report states that "closer collaboration with the [Bank of Greece; BoG] and insurance regulators will also be required for consolidated AML/CFT risk supervision of financial groups" (p. 61). At the time of the IMF assessment, legislation was being developed to bring the AML/CFT requirements in line with international best practices. As reported in the IMF's subsequent 2007 Article IV Consultation, measures have been taken to address deficiencies in the legal and supervisory framework that were identified by the Financial Action Task Force's (FATF) 2007 Third Mutual Evaluation Report. The FATF namely highlighted that the requirement to conduct customer due diligence did not extend to insurance brokers and agents. In addition, insurance agents and brokers were not covered by the requirement to file suspicious transaction reports. In this regard, the IMF's 2007 report recommends that Greek authorities "intensify efforts to achieve prompt compliance with the FATF standards" (p. 12).