Despite strong growth in the insurance sector in 2003 and 2004, Italy remains relatively under-insured with low market penetration in comparison to the EU average. In 2006, the International Monetary Fund (IMF) conducted a detailed assessment of Italy, in which insurance supervisory practices were benchmarked against Insurance Core Principles (ICPs) and the Methodology revised by the International Association of Insurance Supervisors (IAIS) in October 2003. Accordingly, more than two-thirds of the ICPs were assessed as being observed or largely observed. The remaining principles were assessed as partly observed. Shortcomings were identified regarding legal protection of supervisory staff, formal information sharing agreements with non-EU/EEA supervisors, on-site inspections, investment policies, disclosure requirements, and intermediaries. The IMF report noted that improvements in the level of observance in these areas would be facilitated by changes in legislation. The Supervisory Authority for Private Insurance Undertakings and Insurance Undertakings of Public Interest (ISVAP), which acts as the independent supervisory authority for the insurance sector in Italy pursuant to Law No. 576 of 1982, was also encouraged to publish entity-specific financial information on its website. The IMF's 2006 report stated that the ISVAP was moving toward a more risk-based supervisory approach to promote better risk management practices by insurers. Furthermore, a draft consolidated insurance code was expected to be adopted to improve the structure and clarity of the Insurance Law. However, there is insufficient information so far regarding the implementation of the code.

General Overview

Italy's system of insurance supervision is a component of the supervisory framework for the financial services sector that is organized around four independent authorities, namely the Supervisory Authority for Private Insurance Undertakings and Insurance Undertakings of Public Interest (ISVAP) for the insurance industry, the Supervisory Authority for Pension Funds (COVIP) for pension funds, the Bank of Italy (BoI) for the banking industry, and the National Commission for Listed Companies and the Stock Exchange (CONSOB), together with the BoI, for the securities industry. The ISVAP acts as an independent supervisory authority for the insurance sector in Italy under Law No. 576 of 1982 (hereafter referred to as "Insurance Law"), which is based on EU Directives. The ISVAP is a member of the International Association of Insurance Supervisors (IAIS).

In February 2006, the International Monetary Fund (IMF) prepared a detailed assessment of Italy's observance of the Insurance Core Principles (ICPs). The IMF report, in which insurance supervisory practices were benchmarked against ICPs and Methodology revised by the IAIS in October 2003, concluded that more than two-thirds of the ICPs were observed or largely observed. The Italian supervisory system namely observed seven ICPs, largely observed thirteen ICPs, and only partly observed eight ICPs. Weaknesses remained with regards to legal protection of staff involved in the supervisory process, formal agreements for information sharing with non-EU/EEA supervisors, on-site inspections, investment policies, disclosure requirements, and legal framework for registered intermediaries. There was also a lack of explicit requirements regarding the overall assessment and management of risk by insurers. The IMF's 2006 report stated that the ISVAP was moving toward a more risk-based supervisory approach to promote better risk management practices by insurers. Furthermore, a draft consolidated insurance code was expected to be adopted to improve the structure and clarity of the Insurance Law. However, there is insufficient information so far regarding the implementation of the code.

According to the IMF's 2006 report, while the insurance sector in Italy experienced strong growth in 2003 and 2004, with premium increases of about 12% in both years, Italy remains relatively under-insured with low market penetration in comparison to the EU average. Furthermore, the insurance industry is relatively concentrated, with the largest five and largest ten life insurance companies, respectively, accounting for 47 percent and 65 percent of the sector's total insurance premiums, which totaled 34.6 percent of GDP in 2004. At year-end 2004, licensed domestic insurance companies included 76 life insurance companies, 81 non-life insurance companies, 19 companies licensed for both life and non-life insurance, and 3 reinsurance companies. In addition, 67 branches of foreign companies were licensed to operate, primarily in the non-life sector.

The Principles

ICP 1 Conditions for effective insurance supervision

CP

This principle was largely observed, as stated in the IMF's 2006 report. Italy's system of insurance supervision is a component of the supervisory framework for the financial services sector that is organized around four independent authorities, namely the ISVAP for the insurance industry, the COVIP for pension funds, the BoI for the banking industry, and the CONSOB, together with the BoI, for the securities industry. According to the IMF's 2006 report, insurance supervision in Italy occurs within an extensive body of laws and regulations, which incorporate the relevant EU Directives. Per the same report, Italy has a well developed judicial system, financial markets, and alternative dispute resolution mechanisms available to consumers. Furthermore, accounting and auditing standards are based on the EU Directives. It was recommended that a specialized alternative dispute resolution mechanism be established to deal with complaints of insurance consumers. Steps should also be taken to improve the timeliness and consistency of the legal process. The IMF's 2006 report stated that the ISVAP was moving toward a more risk-based supervisory approach to promote better risk management practices by insurers. A draft consolidated insurance code was also expected to be adopted to improve the structure and clarity of the Insurance Law. However, there is insufficient information so far regarding the implementation of the code.

ICP 2 Supervisory objectives

CP

This principle was largely observed, as stated in the IMF's 2006 report. The IMF report noted that the supervisory objectives of the ISVAP include the promotion of sound and prudent management of insurers, and the monitoring of disclosure and fair behavior of insurers and intermediaries. The ISVAP is also responsible for the "stability and efficiency of the insurance sector, the solvency of each insurer, consumer information, and protecting the interests of policyholders and beneficiaries" (p. 9), per the IMF report. However, the ISVAP's objectives are not explicitly described in its annual reports. In this regard it is recommended that the ISVAP "explicitly communicate the principal objectives of insurance supervision and explain how its plans and activities support these objectives" (p. 9).

ICP 3 Supervisory authority

NC

According to the IMF's 2006 report, this principle was only partly observed. The ISVAP acts as an independent supervisory authority for the insurance sector in Italy under the Insurance Law, and is responsible for supervising both the solvency and market conduct of insurance companies and intermediaries. The ISVAP reports directly to Parliament on its activities, although it operates under the Minister of Production Activities (MoPA) with regards to legislative initiatives and withdrawal of licenses. There is, however, a lack of legal protection for staff involved in the supervisory process. In its 2006 report, the IMF recommends that "both the board of directors and staff of ISVAP be protected against lawsuits for actions taken in good faith while discharging their duties" (p. 11). The ISVAP should also establish and enforce a code of conduct. It was further advised to revise the cost assessment and financial reporting processes to enhance the ISVAP's independence from government, access to funding, and accountability. The IMF report noted that "improvements in the level of observance in these areas would be facilitated by changes in legislation, although ISVAP can also take steps, such as publishing entity-specific financial information on its website" (p. 5).

ICP 4 Supervisory process

CP

This principle was largely observed, as stated in the IMF's 2006 report. Detailed requirements on supervisory processes, including licensing and the review of solvency, are defined under legislation. The ISVAP also publishes some information regarding supervisory processes on its website. According to the IMF report, the ISVAP is moving toward a more risk-based supervisory approach. In this regard, it is recommended that ISVAP "develop criteria for assessing the overall risk of an insurer and define the nature of supervisory action corresponding to various levels of risk, and communicate this information to the industry" (p. 12). Consideration should also be given to establishing a specialized independent tribunal as the first level of appeal against decisions of the ISVAP.

ICP 5 Supervisory cooperation and information sharing

EN

According to the IMF's 2006 report, this principle was only partly observed. While the Insurance Law enables the ISVAP to share information with supervisors in non-EU/EEA countries, and to cooperate with them on supervisory issues (on the condition of reciprocity), the ISVAP has not established formal agreements for information sharing with non-EU/EEA supervisors. In its 2006 report, the IMF recommends that ISVAP systematically exchange quantitative and qualitative information with its Italian counterparts. The ISVAP should also regularly contact the home supervisor of any non-EU/EEA insurer operating in Italy. The ISVAP joined the Committee of European Insurance and Occupational Pensions Supervisors, which has 28 EU/EEA members.

ICP 6 Licensing

FC

This principle was observed, according to the IMF's 2006 report. Licensing of insurers is governed primarily by Legislative Decrees No. 174 of 1995 and No. 175 of 1995. Conversely, reinsurance companies must register in accordance with Presidential Decree No. 449 of 1959. The ISVAP routinely requests input from the applicant's home supervisory authority, with respect to applicants based in the EU/EEA, and assesses the risks arising from insurers that are part of a group. In its 2006 report, the IMF recommends that ISVAP exchange information with relevant supervisors outside of the EU/EEA to ensure that ISVAP is adequately informed of developments that may affect all supervised entities.

ICP 7 Suitability of persons

CP

This principle was largely observed, as stated in the IMF's 2006 report. Under Ministerial Decree No. 186 of 1997, significant owners, members of the board of director or board of statutory auditors, and the chief executive are required to meet fit and proper requirements. Furthermore, per the IMF report, "insurers must inform ISVAP about such appointments and ISVAP may object to an appointment on a timely basis" (p. 14). The ISVAP also has the authority to suspend or revoke authorizations when significant owners no longer meet suitability requirements. In its 2006 report, the IMF recommends that "the fit and proper requirements be defined and applied broadly enough" (p. 15) to take into account individuals' competence and soundness of judgment, due diligence, as well as interests of policyholders. It is further recommended that legislation be amended to require that all senior management of an insurer meet fit and proper requirements. The ISVAP is also advised to exchange information with relevant supervisors outside of the EU/EEA entities.

ICP 8 Changes in control and portfolio transfers

CP

This principle was largely observed, as stated in the IMF's 2006 report. Natural or legal persons are required to obtain the approval of the ISVAP in order to acquire a qualifying holding (i.e. direct or indirect holding of at least ten percent of the capital or of the voting rights of an insurance company) in an insurance company with its registered office in Italy. Furthermore, the ISVAP must be notified whenever qualifying holdings increase or decrease by five percent or more of the capital. The IMF report notes, however, that the ISVAP lacks "the power to object to increases or decreases in the shareholdings of a previously-approved qualifying shareholder" (p. 15). It was recommended that the ISVAP "document and publish the specific criteria that it will apply in assessing proposed changes in control and portfolio transfers" (p. 16). Consideration should also be given to requiring that "a report be prepared by an independent actuary 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. 16) the IMF report continues.

ICP 9 Corporate governance

NC

According to the IMF's 2006 report, this principle was only partly observed. The Italian corporate governance model provides for both a board of directors and a board of statutory auditors. Since 2003, as stated in the IMF report, companies have been permitted to adopt either the one-tier board or two-tier board structure. Most requirements concerning corporate governance are established by the Civil Code, although the Insurance Law establishes additional requirements in the area of internal audits and the use of derivatives. Listed companies are subject to further governance requirements. In this regard, corporate governance requirements should be strengthened for insurers that are not subject to the requirements applicable to listed companies. It is further recommended that the ISVAP strengthen its offsite and on-site assessment of both compliance with corporate governance requirements and the effectiveness of insurers' corporate governance practices. The IMF report noted that "improvements in the level of observance in these areas would be facilitated by changes in legislation, although ISVAP can also take steps, such as publishing entity-specific financial information on its website" (p. 5).

ICP 10 Internal control

CP

This principle was largely observed, as stated in the IMF's 2006 report. The ISVAP has legal powers to set rules on administrative organization and internal controls, and exercise its powers. As part of its on-site inspections, the ISVAP assesses internal controls, including reviews of internal audits, and reports prepared by the board of statutory auditors. The board of directors receives regular reports on internal controls from the board of statutory auditors, as well as from the internal auditor. While insurers are required to have an internal audit function, they are not obligated to have a compliance function. A draft circular on internal control and risk management has been issued, replacing Circular No. 366/D of 1999, which will require insurers to perform an annual self assessment of internal controls and report the results of this assessment to the ISVAP. In its 2006 report, the IMF recommends that the draft circular on internal control and risk management be implemented with high priority. It is further recommended that ISVAP strengthen its off-site assessment of internal controls by routinely reviewing internal audit plans and reports, as well as reports of the board of statutory auditors. The ISVAP should also meet regularly with the head of the internal audit function, the appointed actuary, the external auditor, the auditing actuary and the board of statutory auditors.

ICP 11 Market analysis

FC

This principle was observed, according to the IMF's 2006 report. Market and industry developments are regularly assessed by the ISVAP, with highlights published in its annual report. The ISVAP also prepares regular and special statistical surveys and qualitative analyses. However, the ISVAP lacks a formal program to monitor and analyze factors that may have an impact on insurers and the insurance market. In its 2006 report, the IMF recommends that the market analysis process include regular meetings and cooperation with other financial sector supervisors. The ISVAP should further ensure that the results of its market analysis are widely disseminated within the organization in order to better assess risks in the insurance sector, and to establish supervisory priorities.

ICP 12 Reporting to supervisors and off-site monitoring

FC

This principle was observed, according to the IMF's 2006 report. The ISVAP has legal powers to require the provision of both quantitative and qualitative information. Audited financial statements, as well as extensive supervisory returns, must be submitted annually by insurers. While less extensive information is required of branches of EU insurers, Italian insurers and branches of non-EU insurers are required to provide the same information. In its 2006 report, the IMF recommends that the deadline for the submission of annual supervisory returns be shortened.

According to an assessment on the regulatory and standard-setting framework published by the Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili (CNDCEC) in 2005, the ISVAP has the power to control the administration of accountants, and verify compliance with the legislative, regulatory, and administrative requirements. The ISVAP also has the authority to convoke the President of the board of statutory auditors, as well as auditors. According to the IMF's 2006 report, accounting and auditing standards are based on the adoption of EU Directives. The Italian Accounting Board is primarily responsible for issuing accounting and auditing standards. Since 2003, auditing standards have been harmonized with International Standards on Auditing. Starting in 2005, listed companies must prepare consolidated accounts in accordance with the International Financial Reporting Standards (IFRS). According to the IMF's 2006 report, "the implementation of IFRS should considerably improve the extent and comparability of information disclosed by listed insurers and other insurers required to apply IFRS" (p. 31). Conversely, reporting at the individual entity level will continue to be based on Italian Generally Accepted Accounting Principles, which differ significantly from IFRSs in some areas.

ICP 13 On-site inspection

EN

According to the IMF's 2006 report, this principle was only partly observed. The ISVAP has legal powers to conduct on-site inspections, and to request information necessary to perform its duties. It further has the authority to impose sanctions where violations of legal requirements are identified. Per the same report, 105 inspections were performed in Italy in 2004, covering 122 risk areas. The ability of the ISVAP to assess the risks that exist in the insurance sector could be improved by increasing the frequency and scope of on-site inspections of both insurers and intermediaries.

ICP 14 Preventive and corrective measures

FC

This principle was observed, according to the IMF's 2006 report. Legislation provides the ISVAP with a range of preventive and corrective measures to achieve its supervisory objectives. These measures include moral suasion, requiring a solvency restoration plan, issuing an administrative order, imposing fines or penalties, restricting the insurer's activities, withholding approval of new activities, appointing an administrator, and withdrawing the license through a decree of the MoPA. According to the IMF report, the ISVAP is moving toward a more risk-based supervisory approach. In this regard, it is recommended that the ISVAP "develop criteria for assessing the overall risk of an insurer and define the nature of supervisory action corresponding to various levels of risk, and communicate this information to the industry" (p. 12).

ICP 15 Enforcement or sanctions

CP

This principle was largely observed, as stated in the IMF's 2006 report. The ISVAP has legal powers to impose a wide range of sanctions, including monetary penalties, against insurers that fail to comply with certain provisions of the legislation. Furthermore, directors and managers of insurance companies, as well as insurance intermediaries and those operating without authorization can be punished by fines, or imprisoned by decision of the court. Fines are imposed by the MoPA on the recommendation of the ISVAP. According to the IMF report, monetary penalties are expected to be significantly increased with the adoption of the draft consolidated insurance code. However, the ISVAP does not have legal powers to restrict or suspend dividend payments to shareholders, when such payments jeopardize the insurer's solvency. The disqualification of individuals, which are involved in the management of an insolvent insurer, is also limited to three years. In this regard, the IMF report recommended that legislation be amended to explicitly enable the ISVAP to restrict or suspend dividends or other payments to shareholders. Legislation should also be updated to avoid that breach of fitness or propriety requirements be automatically disregarded after three years.

ICP 16 Winding-up & exit from the market

FC

This principle was observed, according to the IMF's 2006 report. The reorganization or winding-up of an insurer is supervised by the ISVAP under Legislative Decree No. 93 of 2003. Furthermore, per the IMF report, the ISVAP has the authority to withdraw a license "if an insurer breaches the guarantee fund requirement and is unable to implement a satisfactory short-term financing plan" (p. 22).

ICP 17 Group-wide supervision

CP

This principle was largely observed, as stated in the IMF's 2006 report. Legislation clearly defines when an insurer is considered to be part of a group. Moreover, insurers which are part of the same group are supervised by the same team within the ISVAP. According to the IMF report, the five largest groups accounted for 53 percent of life premiums and 67 percent of non-life premiums in 2003. While protocols between the supervisory authorities of EU/EEA countries are generally in place, the ISVAP has not established such arrangements with non-EU/EEA supervisors. Furthermore, the ISVAP does not systematically exchange information with its Italian counterparts responsible for supervision of the banking, securities and pension sectors. In its 2006 report, the IMF recommends that the ISVAP "systematically exchange quantitative and qualitative information with its Italian counterparts. The ISVAP should also regularly contact the home supervisor of any non-EU/EEA insurer operating in Italy. Legislation implementing the EU Financial Conglomerates Directive No. 2002/87/EC in Italy has recently been approved.

ICP 18 Risk assessment and management

ID

According to the IMF's 2006 report, this principle was only partly observed. While the ISVAP has established requirements for the management of specific risks, there is a lack of explicit requirements regarding the overall assessment and management of risk by insurers. Some larger insurance companies in Italy have already set up risk management functions and committees, both at the group and operating levels. A draft circular on internal control and risk management has been issued, replacing Circular No. 366/D of 1999, to require insurers to establish comprehensive risk management policies and systems, including regular reviews of the market environment, annual stress tests, and annual self-assessments of risk management. It is recommended that the draft circular on internal control and risk management be finalized and implemented with high priority. The IMF notes that the level of observance of this principle should be significantly increased through the implementation of this recommendation "along with regular assessment of the overall effectiveness of insurers' risk management by ISVAP" (p. 24).

ICP 19 Insurance activity

CP

This principle was largely observed, as stated in the IMF's 2006 report. During the licensing process, the ISVAP reviews the reinsurance activities of insurers by focusing primarily on the historical accounting and financial impact of an insurer's reinsurance program. The IMF report notes that a draft circular on reinsurance was issued with proposed requirements on "the development and implementation of a reinsurance strategy and for additional reporting to ISVAP on reinsurance matters" (p. 24). In its 2006 report, the IMF recommends that the draft circular on reinsurance be finalized and implemented with high priority. The ISVAP should also increase the comprehensiveness of its offsite and on-site assessments of reinsurance. The implementation of these recommendations will ensure that insurers have "appropriate reinsurance programs in place, commensurate with the levels of risk determined by their boards of directors and acceptable to ISVAP" (p. 24), the report adds.

ICP 20 Liabilities

FC

This principle was observed, according to the IMF's 2006 report. Legislation requires insurers to establish adequate technical provisions, and Legislative Decrees No. 174 of 1995, No. 175 of 1995 and No. 173 of 1997 set out specific requirements for the calculation of technical provisions. According to the IMF report, international standards for the valuation of insurance contracts were under development by both the International Actuarial Association and the International Accounting Standards Board. In this regard, the IMF report recommends adopting international actuarial standards once they become available. Legislation should also be amended to extend the requirement for an appointed actuary to all non-life classes of business.

ICP 21 Investments

NC

According to the IMF's 2006 report, this principle was only partly observed. The ISVAP conducts extensive off-site reviews of investments, as well as on-site inspections. The categories of assets that an insurance company may hold to cover its technical provisions are mainly defined by legislative decrees and orders, in line with EU Directives. Furthermore, requirements on asset/liability management are set out in circulars and orders. However, insurers are not required to establish an investment policy that has been approved by the board of directors. In its 2006 report, the IMF recommends that ISVAP require insurers "to have an overall strategic investment policy and that such policy be approved and reviewed annually by the board of directors" (p. 26). The ISVAP should also provide guidance on insurers' investment policies.

ICP 22 Derivatives and similar commitments

FC

This principle was observed, according to the IMF's 2006 report. The ISVAP performs on-site inspections of insurers' derivatives activities, and requires their disclosure in the firm's financial statements. Requirements on the use of derivatives by insurers are set out in orders and circulars, as well as EU Directives. As stated in the IMF report, requirements on the use of derivatives include "the adoption of a comprehensive policy on the use of derivatives by the board of directors, appropriate transactional and risk management expertise, adequate internal controls, the capability to independently verify pricing, and internal audit" (p. 27).

ICP 23 Capital adequacy and solvency

CP

This principle was largely observed, as stated in the IMF's 2006 report. The solvency regime is mainly governed by Legislative Decrees No. 173 of 1997, No. 174 of 1995 and No. 175 of 1995, and is based on the EU solvency approach and margins. The solvency of an insurer that is based in another EU/EEA country or in Switzerland and operates in Italy through a branch is supervised by the home country supervisor. Legislation requires that an insurer that is based outside the EU/EEA and operates in Italy through a branch satisfy the minimum solvency margin. While reinsurers are supervised by the ISVAP, they are not subject to the solvency margin requirements. In this regard, the IMF report recommends extending relevant prudential requirements to reinsurers, possibly through the implementation of the EU Directive No. 2005/68/EC on Reinsurance. It is further recommended that ISVAP adopt a solvency control level in excess of the minimum solvency margin, as commonly established in some other EU countries. The European Commission, according to its website, adopted the Solvency II Proposal in July 2007, and the text is currently being discussed in Council and Parliament. Solvency II is based on a three pillar approach, which covers quantitative and qualitative requirements, as well as supervisory reporting and disclosure. Italy will be required to implement the results of the Solvency II project, once they are finalized, as stated in the IMF report.

ICP 24 Intermediaries

ID

According to the IMF's 2006 report, this principle was only partly observed. The supervision of insurance agents and brokers is mainly governed by Law No. 48 of 1979, Law No. 792 of 1984, and Circular No. 533/D of 2004. The ISVAP publishes a list of registered intermediaries on its website. As stated on the IMF report, the ISVAP performs on-site inspections of insurance intermediaries, and has the authority to take corrective action, such as imposing fines and withdrawing licenses, against registered intermediaries. Furthermore, individuals or entities that are carrying on insurance intermediation activities without registration are subject to fines and imprisonment. Prior to providing insurance services in Italy, intermediaries from other EU countries are required to inform both their home supervisor and the ISVAP. In order to achieve full compliance with this principle, as stated in the IMF's 2006 report, legislation should be adopted "to require that all insurance intermediaries operating in Italy be subject to registration and direct supervision" (p. 29). Furthermore, collaboration is necessary between the ISVAP, the CONSOB and the BoI to ensure that all insurance intermediation activities are subject to periodic on-site inspections. The implementation of the EU Directive on Insurance Mediation No. 2002/92/EC, through the adoption of the draft consolidated insurance code, is expected to strengthen the legal framework for registered intermediaries.

ICP 25 Consumer protection

CP

This principle was largely observed, as stated in the IMF's 2006 report. The ISVAP provides assistance to consumers, particularly before concluding an insurance contract, and deals with complaints on insurance matters. According to the IMF report, the ISVAP publishes a list of authorized insurance entities on its website, and issues warning notices to avoid transactions with unsupervised entities. Circulars were issued in 2004 and 2005 by the ISVAP to ensure that insurers and intermediaries act with due diligence, and treat consumers in a fair manner. While requirements exist regarding the cross-border offering of insurance, effective implementation of the EU Directive on Cross-border Financial Services should further strengthen consumer protection in this area. The IMF report recommends that insurers and intermediaries assess consumers' needs with respect to all classes of insurance, before giving advice or concluding a contract. Per the IMF report, insurers and intermediaries should also be required "to disclose possible conflicts of interest to existing or potential policyholders, with respect to all classes of insurance" (p. 30).

ICP 26 Information, disclosure & transparency towards the market

NC

As stated in the IMF's 2006 report, this principle was only partly observed. Under the Italian Civil Code, insurance companies are required to prepare audited annual accounts. While larger insurance companies publish more comprehensive annual reports and provide information on their websites, Italian insurers are not required to publicly disclose their accounts. Furthermore, quantitative information on risk exposures, risk management practices, and corporate governance is often limited. In this regard, it is recommended that annual audited financial statements be made readily available to stakeholders. Disclosure requirements should also be strengthened for insurers that are not subject to the requirements applicable to listed companies. The IMF report noted that "improvements in the level of observance in these areas would be facilitated by changes in legislation, although ISVAP can also take steps, such as publishing entity-specific financial information on its website" (p. 5).

Starting in 2005, listed companies must prepare consolidated accounts in accordance with the IFRS, which contain extensive disclosure requirements. According to the IMF's 2006 report, "the implementation of IFRS should considerably improve the extent and comparability of information disclosed by listed insurers and other insurers required to apply IFRS" (p. 31).

ICP 27 Fraud

CP

This principle was largely observed, as stated in the IMF's 2006 report. The ISVAP assesses an insurer's fraud control measures in connection with on-site inspections of internal controls, and cooperates on a regular basis with law enforcement officials and other domestic or foreign supervisory authorities. According to the IMF report, insurance fraud is an offence under the Criminal Code, and the ISVAP encourages insurers to seek prosecution of suspected fraud. However, the level of insurance fraud in Italy was perceived as being relatively high by market participants. In this regard, it was recommended that ISVAP explicitly require that insurers and intermediaries implement effective procedures and controls against fraud.

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

CP

The regulatory framework for anti-money laundering (AML) and combating the financing of terrorism (CFT) in Italy includes the 1991 AML Law No. 197 (as amended by Legislative Decree No. 153 of 1997), and the 2001 Law for the Establishment of the Financial Security Committee (FSC) No 431 of 2001. The EU's Third Money Laundering Directive No. 2005/60/EC was also transposed into Italian law, and Legislative Decree No. 231 of 2007 implements parts of the EU Directive. The Italian Foreign Exchange Office (UIC) is the central AML authority, whereas the FSC, which includes representatives of various ministries, agencies and law enforcement bodies, is the lead authority in CFT.

According to the IMF's 2006 report, this principle was largely observed. The ISVAP conducts focused on-site inspections of AML/CFT controls of insurers and, recently, intermediaries. The ISVAP further requires insurers and intermediaries to have adequate procedures regarding customer due diligence, to monitor unusual transactions, and to develop internal programs, procedures and controls. However, legislation does not deal specifically with the need for foreign branches and subsidiaries to observe AML/CFT measures consistent with the requirements in Italy. In its 2006 report, the IMF recommends that ISVAP significantly increase the frequency of its on-site inspections of both insurers and intermediaries in the area of AML/CFT. Additional guidance is also needed to ensure that foreign branches and subsidiaries of Italian insurers comply with AML/CFT measures in Italy. Finally, the ISVAP should become a member of the FSC.