In 2000, the International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) of Kazakhstan, including assessment of its observance of the Insurance Core Principles (ICPs) developed by the International Association of Insurance Supervisors (IAIS). In 2004, the IMF published an update of that FSAP. Given the revision in October 2003 by the IAIS of the ICPs and Methodology, and the fact that the IMF did not rate the principles in 2004, there is insufficient information publicly available regarding Kazakhstan's compliance with the new, more stringent principles. The main recommendations of the 2000 FSAP were to adopt a new insurance legislation consistent with international best practices, upgrade supervision to meet the requirements of the new legislation, strengthen implementation and enforcement practices, and develop an actuarial profession. According to the IMF's 2004 FSAP Update, the Kazakhstani authorities have made good progress in updating insurance legislation. The new Insurance Law, which was last amended in February 2007, complies with international best practices and gives sufficient powers to regulate the insurance industry. Effective January 1, 2004, the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (FSA) became the single supervisory and regulatory authority for the insurance market, replacing the National Bank of Kazakhstan in this role. The IMF report noted that it was unclear to what extent the insurance industry and the FSA had implementational capacity to fully meet the legislative requirements, due particularly to a lack of staff and formal training in the FSA's insurance department.

General Overview

In 2000, the International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) of Kazakhstan's observance of the Insurance Core Principles (ICPs) developed by the International Association of Insurance Supervisors (IAIS). In 2004, the IMF followed up with an update of the FSAP. The 2000 FSAP concluded that principles related to licensing, capital adequacy, solvency, and confidentiality were fully observed. Kazakhstan was also broadly compliant with requirements on technical provisions, financial reporting, on-site inspections, and sanctions. On the other hand, Kazakhstan only partially observed principles on assets, liabilities, market conduct, and the organization of the insurance supervisor, and was non-compliant with regards to changes in control, corporate governance, and internal controls. At the time of the 2000 assessment, principles related to licensing, derivatives, and off-balance sheet items, as well as cross-border business operations, were not applicable, and there was insufficient information to assess compliance with the principles on reinsurance and coordination and cooperation. The main recommendations of the 2000 FSAP were to adopt a new insurance legislation consistent with international best practices, upgrade supervision to meet the requirements of the new legislation, strengthen implementation and enforcement practices, and develop an actuarial profession.

Since the 2000 assessment, the Kazakhstani authorities have made good progress in updating insurance legislation, according to the IMF's 2004 FSAP Update. The Law on Insurance Activities No. 126-II (hereafter referred to as "Insurance Law"), which was last amended in February 2007, complies with international best practices and "gives sufficient powers to regulate the activity of all insurance and reinsurance companies, insurance brokers, and other professional participants of insurance market" (p. 53). The 2003 Law on Joint Stock Companies No. 415-II and the Civil Code also contain articles on insurance. The new integrated financial supervisory authority, known as the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (FSA), was established under the 2003 Law on Government Regulation and Supervision of the Financial Market and Financial Organizations No. 474-II (hereafter referred to as "FSA Law"). Prior to the establishment of the FSA, financial sector supervision, including supervision of insurance companies and pension funds, was the responsibility of the National Bank of Kazakhstan (NBK). However, the IMF report noted that it was unclear to what extent the insurance industry and the FSA had implementational capacity to fully meet the legislative requirements, due particularly to a lack of staff and formal training in the FSA's insurance department. Given the IAIS's October 2003 revision of the ICPs and Methodology, and the fact that the IMF did not rate the principles in 2004, there is insufficient information publicly available regarding Kazakhstan's compliance with the new, more stringent principles. Further, as of May 2008, the NBK is listed as a member on the IAIS website.

As of the IMF's 2004 Update, there were 34 licensed insurance companies, and a total of 6 insurance brokers. Furthermore, the penetration of the market was below one percent.

The Principles

ICP 1 Conditions for effective insurance supervision

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According to the IMF's 2004 FSAP Update, the Insurance Law, which was last amended in February 2007, complies with international best practices and "gives sufficient powers to regulate the activity of all insurance and reinsurance companies, insurance brokers, and other professional participants of insurance market" (p. 53). Per the same report, the 2003 Law on Joint Stock Companies No. 415-II and the Civil Code both contain articles on insurance. The new integrated financial supervisory authority, the FSA, was established under the 2003 FSA Law, replacing the NBK. Despite the information provided above, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 2 Supervisory objectives

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

ICP 3 Supervisory authority

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ICP 1 on Organization of an Insurance Supervisor was found to be partially observed in 2000, according to the IMF's 2004 FSAP Update. Under the FSA Law, the FSA is given legal powers to "license, supervise, audit compliance of insurance companies and professionals, and impose penalties in instances of non-compliance" (p. 110). The IMF report further noted that the FSA was characterized by "a high degree of operational independence" (p. 34), and was subordinate to the President of Kazakhstan. While the FSA is financed from the NBK's budget, it is neither accountable to nor dependent on the NBK. The IMF report recommended ensuring the FSA's full budgetary autonomy. However, according to the IMF's 2004 FSAP Update, "the FSA's insurance department is understaffed and has no formal training program" (p. 51). Despite the information provided above, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 4 Supervisory process

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

ICP 5 Supervisory cooperation and information sharing

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ICP 16 on Coordination and cooperation was not assessed in 2000 due to lack of information, according to the IMF's 2004 FSAP Update. In 2004 there was still insufficient information to assess the extent to which the FSA cooperates with supervisors in other jurisdictions. On the other hand, as noted in the IMF's 2004 FSAP Update, ICP 17 on Confidentiality was found to be fully observed already in 2000. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 6 Licensing

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ICP 2 on Licensing was found to be fully observed in 2000, according to the IMF's 2004 FSAP Update, with the exception of reliance on other jurisdictions, which was not applicable to Kazakhstan. Since 2000, as stated in the IMF's 2004 FSAP Update, licensing provisions for insurance companies and brokers are provided under the new Insurance Law. Furthermore, a special regulation has been adopted, which contains requirements related to the documents and information required in the licensing procedure. Licenses are granted by the FSA's Qualification Committee. With regard to reliance on other jurisdictions, a special requirement has been introduced into the new legislation which states that "the founder of an insurance or reinsurance organization, who is a nonresident of the Republic of Kazakhstan, must submit a document from the appropriate insurance supervision agency of its own country" (p. 54). Despite the information provided above, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 7 Suitability of persons

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As noted in the IMF's 2004 FSAP Update "supervisors are expected to apply "fit and proper" tests to major shareholders and managers, to request a business plan, pro forma financials, and projections of solvency conditions" (p. 54). However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 8 Changes in control and portfolio transfers

II

According to the IMF's 2004 FSAP Update, ICP 3 on Changes in control was not observed in 2000. The IMF report noted that although legislation had been improved, rules regarding changes in controls were still "incomplete" (p. 55). Furthermore, requirements concerning the transfer of control are identical to those required for initial licensing of companies. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 9 Corporate governance

II

As stated in the IMF's 2004 FSAP Update, ICP 4 on Corporate Governance was not observed in 2000. Following the 2000 assessment, Kazakhstan established standards addressing the role and responsibilities of the board of directors of insurance companies. Under the 2003 Law on Joint Stock Companies (JSCs), JSCs in Kazakhstan are organized under a two-tier system, and apply the "one share/one vote" principle. In its 2006 report on Commercial Laws, the European Bank for Reconstruction and Development came to the conclusion that corporate governance legislation in Kazakhstan was rated among "high compliance" countries. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 10 Internal control

II

According to the IMF's 2004 FSAP Update, ICP 5 on Internal control was not observed in 2000. Since 2000, improvements have been made in the legislation to regulate the internal audit requirements, and Kazakhstan has established an internal audit and a system for internal control of the management. Furthermore, a special regulation related to internal audit procedures was being drafted. The IMF report noted that there was a lack of requirements for investment and liquidity management. Despite this information, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 11 Market analysis

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

ICP 12 Reporting to supervisors and off-site monitoring

II

ICP 12 on Financial Reporting was found to be broadly observed in 2000, according to the IMF's 2004 FSAP Update. Insurance companies were required to comply with the International Financial Reporting Standards (IFRSs) beginning in 2003. Evidence showed that only the larger insurance companies were able to apply IFRSs. According to the IMF's 2004 FSAP Update, there are only four actuaries available in the FSA to monitor both the insurance and pension sector. Despite the information provided above, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 13 On-site inspection

II

ICP 13 on On-site inspection was found to be broadly observed in 2000, according to the IMF's 2004 FSAP Update. Since 2000, the FSA has established internal rules and directives in order to carry out on-site inspections. Furthermore, both on-site and off-site reporting are used in the supervision of insurance companies. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 14 Preventive and corrective measures

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

ICP 15 Enforcement or sanctions

II

ICP 14 on Sanctions was found to be broadly observed in 2000, according to the IMF's 2004 FSAP Update. Under the new Insurance Law, the FSA has enhanced and adequate powers to impose sanctions by "issuing compliance orders, imposing fines, license revocation or suspension, redemption of stock, and dismissal of officers from official duties" (p. 110). Furthermore, sanctions apply to insurance companies, reinsurance companies, and brokers. However, the available sources do not directly address Kazakhstan'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 Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 17 Group-wide supervision

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

ICP 18 Risk assessment and management

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

ICP 19 Insurance activity

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ICP 10 on Reinsurance was not assessed in 2000 due to lack of information, according to the IMF's 2004 FSAP Update. Under the new regulations, "an insurance or reinsurance organization in Kazakhstan can transfer the insurance risks it has undertaken for reinsurance outside Kazakhstan with a reinsurance organization that is not a Kazakhstan resident, directly, through a resident insurance broker, or nonresident broker, provided that these reinsurance organizations and insurance brokers have a specified rating" (p. 60). However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 20 Liabilities

II

ICP 7 on Liabilities was found to be partially observed in 2000, according to the IMF's 2004 FSAP Update. While provisions for "unexpired risks" were still uncertain, technical reserves and mathematical provision were established following the 2000 assessment. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 21 Investments

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ICP 6 on Assets was found to be partially observed in 2000, according to the IMF's 2004 FSAP Update. The IMF report noted that Kazakhstan adopted "a special regulation that deals with the appropriate matching of assets and liabilities for the investment policy of insurance companies" (p. 57). However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 22 Derivatives and similar commitments

II

ICP 9 on Derivative and off-balance sheet items was not applicable at the time of the 2000 assessment, as stated in the IMF's 2004 FSAP Update. According to the new legislation, this principle is now relevant, and financial reports should contain information on derivative and off-balance sheet items. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 23 Capital adequacy and solvency

II

ICP 8 on Capital adequacy and solvency was found to be fully observed in 2000, according to the IMF's 2004 FSAP Update. Since 2000, efforts have been made by the Kazakhstani authorities to transpose European Union (EU) standards into national legislation. Furthermore, capital requirements are in line with EU directives on solvency. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 24 Intermediaries

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ICP 11 on Market Conduct was found to be partially observed in 2000, according to the IMF's 2004 FSAP Update. Since 2000, "insurance companies are required to submit for approval by the FSA, rules concerning conditions for each type of insurance they conduct" (p. 61). Furthermore, insurance companies are required to carry out their activities in strict compliance with approved rules. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 25 Consumer protection

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In its 2004 FSAP Update, the IMF noted that a special division dealing with customer service was established within the FSA, to allow customers to file a written complain about the insurance company's violation of legislation or other regulations. However, the available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS.

ICP 26 Information, disclosure & transparency towards the market

II

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

ICP 27 Fraud

II

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

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

II

The available sources do not directly address Kazakhstan's compliance with this principle as revised in 2003 by the IAIS. Due to the low penetration of the market (below 1 percent), the insurance sector was not at high risk of attracting money laundering activities in 2000, as noted in the IMF's 2004 FSAP Update. As the industry grows, however, anti-money laundering (AML) and combating the financing of terrorism (CFT) laws and regulations will be necessary to detect illegal activities in the insurance sector, according to the same report. Furthermore, these obligations should apply to insurance companies, reinsurance companies, and insurance brokers. The IMF report noted that AML/CFT legislation was in preparation.