According to the International Monetary Fund's (IMF) Financial Sector Assessment Program (FSAP) conducted in 2001 on Israel's adherence to the Insurance Core Principles (ICPs) promulgated by International Association of Insurance Supervisors (IAIS) in 2000, Israel did not observe or observed less than fully some of the principles. In November 2006, as a part of the IAIS ICPs Self-assessment Program, the Ministry of Finance (MoF) completed a self-assessment against the new, revised ICPs promulgated by the IAIS in 2003. According to the self-assessment, Israel observed 22 ICPs and largely observed 6 ICPs. Areas of less than full observance included supervisory cooperation and information sharing, suitability of persons, corporate governance, internal controls, risk management, and derivatives and similar commitments. The Commissioner was expected to finalize regulations on corporate governance which would address some of the weaknesses by the end of 2006. In a 2007 report the IMF noted that the major problems facing regulatory authorities in Israel, including the Capital Markets, Insurance and Savings Division of the MoF, were lack of independence and sufficient powers to ensure compliance with regulatory standards. The IMF stressed that achieving independence of the insurance regulator was a priority.

General Overview

According to the International Monetary Fund's (IMF) Financial Sector Assessment Program (FSAP) conducted in 2001 on Israel's adherence to the Insurance Core Principles (ICPs) promulgated by International Association of Insurance Supervisors (IAIS) in 2000 and a subsequent 2003 Update, Israel did not observe or observed less than fully some of the principles. The IMF recommended to develop on-site inspection and actuarial capacity, create a model for controlled competition in the motor bodily injured insurance (MBI) market, ensure that the board of directors is accountable for risk management, and to develop information sharing mechanisms with other regulators of the financial sector.

In November 2006, as a part of the International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICPs) Self-assessment Program, the Ministry of Finance (MoF) completed a self-assessment against the new, revised ICPs promulgated by the IAIS in 2003. According to the self-assessment, Israel observed 22 ICPs and largely observed 6 ICPs. Areas of less than full observance included supervisory cooperation and information sharing, suitability of persons, corporate governance and internal controls, risk management, and derivatives and similar commitments.

However, in a 2007 report the IMF noted that the major problems facing regulatory authorities in Israel, including the Capital Markets, Insurance and Savings Division of the MoF, were lack of independence and sufficient powers to ensure compliance with regulatory standards. The Commissioner does not have enough staff to conduct regular and comprehensive on-site inspections. The inspections are done on a five-year cycle. The IMF stressed that achieving independence of the insurance regulator is a priority. It was recommended to remove powers of insurance sector regulation from the MoF. (IMF 2007, pp. 23-28)

The Capital Markets, Insurance and Savings Division of the MoF regulates insurance, pensions and other long-term savings plans. Insurance Business Supervision Law of 1981 defines the regulations and infrastructure of the insurance industry and the authority of the Commissioner who heads the Capital Markets, Insurance and Savings Division. The Deputy Commissioner for Pensions reports to the Commissioner. According to the IMF, the Division operates mainly through regulations rather than changing laws. (IMF 2001, pp. 28, 73; MoF 2006, pp. 13-14)

According to the MoF, as of 2004, there were 25 insurance companies in Israel, of which 12 wrote both, life and non-life insurance, and 13 companies wrote non-life insurance only. There were 5 insurance groups, consisting of 10 companies, which represented approximately 95% of gross life insurance premiums and 75% of gross non-life premiums. (MoF 2004)

The MoF is a member of the International Association of Insurance Supervisor (IAIS). (IAIS website)

The Principles

ICP 1 Conditions for effective insurance supervision

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, Israel observed ICP 1. Specifically, all essential criteria were found observed with the exception of essential criterion on accounting, actuarial and auditing standards which was largely observed. However, the Commissioner of Insurance appointed a committee to review implementation of International Financial Reporting Standards (IFRSs) which includes representatives of the accounting and insurance industry.

ICP 2 Supervisory objectives

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, Israel observed ICP 2. All essential criteria were found observed. According to the 2001 IMF report (based on Insurance Core Principles promulgated in 2000), the insurance law did not specify the objectives for the insurance supervision. However, as stated in the self-assessment, the Commissioner made public a strategic plan which defines the authority of the Commissioner and specifies supervisory goals for the five year period.

ICP 3 Supervisory authority

NC

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, Israel observed most of the essential criteria of ICP 3 with the exception of criteria relating to internal governance procedures, independent financing, publication of audited financial statements on a regular basis which were found not observed.

According to the 2001 International Monetary Fund (IMF) report (based on Insurance Core Principles promulgated in 2000), the Principle on Organization was largely observed. The Capital Markets, Insurance and Savings Division of the MoF had defined powers and professional staff; however the level of remuneration of the personnel was rather low and the supervisor was overly dependent on the approval of the MoF. The 2007 IMF report also noted that Capital Markets, Insurance and Savings Division lacked independence and recommended removal of powers of insurance sector regulation from the MoF.

ICP 4 Supervisory process

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 4 were observed. The Capital Markets, Insurance and Savings Division of the MoF regularly publishes its rules, procedures and bulletins on the internet in addition to Annual reports and the financial information on insurance companies. The 2001 IMF report also commented the high quality of information provided by the Commissioner.

ICP 5 Supervisory cooperation and information sharing

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, the essential criteria of ICP 5 were largely observed. However, the proposed changes to the Section 50 of the Insurance law were expected to extend the Commissioner's authority to allow exchange of non-public information with foreign supervisory authorities. As it was noted in the 2001 IMF report, professional secrecy constrained limited the supervisor's ability to exchange information with foreign counterparts.

ICP 6 Licensing

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 6 were observed. The 2001 IMF report also noted that the principle on licensing was observed.

ICP 7 Suitability of persons

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 7 were largely observed. The Commissioner intended to complete regulations on corporate governance issues, including the suitability of persons, by the end of 2006.

ICP 8 Changes in control and portfolio transfers

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 8 were observed. The 2001 IMF report also noted that the Insurance Law satisfied all requirements of the principle on changes in control.

ICP 9 Corporate governance

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 9 were largely observed. It was noted that at the time of the assessment, the Insurance Law did not contain adequate corporate governance requirements but the Commissioner intended to complete regulations on corporate governance incorporating requirements of ICP 9 by the end of 2006. The 2001 report by the IMF also noted that the principle on corporate governance was materially not observed.

ICP 10 Internal control

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 10 were largely observed. The Commissioner intended to complete regulations on corporate governance by the end of 2006. The 2001 report by the IMF noted that the principle on internal control was materially not observed.

ICP 11 Market analysis

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 11 were observed. The Commissioners analyses market conditions and trends and makes quarterly financial data publicly available. (MoF 2006, pp. 40, 41)

ICP 12 Reporting to supervisors and off-site monitoring

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 12 were observed except for the criterion that insurers must promptly report to the supervisory authority material changes that affect the evaluation of their condition which was largely observed. The Commissioner intended to complete regulations on corporate governance which will address this deficiency by the end of 2006.

ICP 13 On-site inspection

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 13 were observed. However, in a 2007 report the IMF noted that the Commissioner does not have enough staff to conduct regular and comprehensive on-site inspections. The inspections are done on a five-year cycle.

ICP 14 Preventive and corrective measures

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 14 were observed.

ICP 15 Enforcement or sanctions

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 15 were observed. In its 2001 report (based on Insurance Core Principles promulgated in 2000), the IMF concluded that most of the criteria for monitoring, inspections and sanctions were satisfied.

ICP 16 Winding-up & exit from the market

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 16 were observed.

ICP 17 Group-wide supervision

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 17 were observed.

ICP 18 Risk assessment and management

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 18 were largely observed. However, the MoF noted that a draft law had been prepared that would require the establishment of a risk management function. Moreover, the proposed regulations on corporate governance will also address risk management system.

ICP 19 Insurance activity

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 19 were observed.

ICP 20 Liabilities

NC

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, several essential criteria of ICP 20 were not observed.

ICP 21 Investments

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 21 were observed except for the requirements on overall strategic investment policy and risk management system which were largely observed.

ICP 22 Derivatives and similar commitments

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 22 were largely observed. According to the 2001 International Monetary Fund's (IMF) assessment, the requirements on derivatives were inadequate. However, the MoF stated in the above-mentioned self-assessment that it was in the process of expanding regulations on derivatives.

ICP 23 Capital adequacy and solvency

NC

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 23 were observed except for the criterion on allowance for risk mitigation or transfer which was not observed.

ICP 24 Intermediaries

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 24 were observed except for the requirement for intermediaries to give the consumer information on their status, specifically whether they are independent or associated with particular insurance companies which was largely observed. The MoF noted however, that the proposed regulations will address this issue.

ICP 25 Consumer protection

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 25 were observed except for the requirement on e-commerce and promotion of the consumers' understanding of the insurance contracts which were largely observed. The MoF noted, however, that it was in the process of addressing these issues.

ICP 26 Information, disclosure & transparency towards the market

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 26 were observed.

ICP 27 Fraud

ID

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, most of the essential criteria of ICP 27 were observed. The MoF noted, however, that it was in the process of addressing outstanding deficiencies.

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

EN

As indicated in the self-assessment prepared by the MoF in 2006 as a part of the International Association of Insurance Supervisors Insurance Core Principles Self-assessment Program, all essential criteria of ICP 28 were observed.

As stated in the response to the FATF questionnaire prepared by the MoF in 2004, the Prohibition on Money Laundering (Requirements of Identification, Reporting and Keeping of Records by Insurer and Insurance Agent) Order, 5762-2001, requires insurance companies and agents to: (1) identify recipients of services (recording and authentication of identity particulars); (2) keep identity documentation and documents attesting to the instruction to carry out transactions that were reported to the Israel Money Laundering Prohibition Authority (IMPA), for a period of at least 7 years; (3) maintain a computerized database; (4) report to the IMPA certain transactions specified by size and type; (5) report to the IMPA activities perceived by the financial institutions as unusual.