Chapter 9, 15 December 2010 Insurances and occupational pensions

1. Chapter 9, 15 December 2010 Insurances and occupational pensions

2. Reinsurance • 64/225/EEC • Law on Insurance Activity No. 60/1994 with later amendments • Article 3 does not apply to the EEA EFTA states • 2005/68/EC • Implemented with a new act on insurance activity No 56/2010 • A full review on the legislation was done simultaneously with the implementation • The committee that reviewed the legislation was established in 2007 • The legislation has not been translated into English yet but work is in progress • As regards Case E-5/09, the Directive has been fully transposed into Icelandic law • 2008/37/EC • No need to transpose, according to recital (6)

3. Changes to the act on insurance activity • New provisions grounded in experiences learned during the recent crisis • Stricter responsibilities placed on directors • Conditions have been tightened in respect of qualifying holdings • New provisions on risk management, internal and external audit • Restrictions on own shares • Loans and other exposures to board members, CEO’s key employess and owners of qualifying holdings • The transposition of the life insurance directive 2002/83/EC and the financial conglomorate directive 2002/87/EC was finalised in accordance with reccomendations from the EFTA Surveillance Authority

4. Non-life insurance • All directives were implemented into act on insurance activity No. 60/1994 with later amendments, now act No. 56/2010, and regulations on: • Matching assets to the technical provisions of insurance companies No. 646/1995 • Cooperation with other supervisory authorities No. 555/1997 • Calculation on solvency (change of amounts) No. 459/2003 • Some regulations have been abolished: • Regulation No. 494/1997 concerning assets included in the solvency margin (now part of act No. 56/2010) • Regulation on insurance intermediation No. 473/1994 (now act on insurance mediation No. 32/2005)

5. Non-life insurance (2) • Directive 91/371/EEC and Regulation No 2155/91 are not parts of the EEA agreement. Switzerland and Iceland are both members of the EFTA convention • Directive 92/49/EEC (third non-life insurance directive) was also implemented with an act on fire insurance No. 47/1994 and the administrative procedures act No. 37/1993 • The agreement enlarging the EEA to Bulgaria and Romania was adopted with act No. 106/2007. A member state is defined in the act on insurance activity as a state which is a member of the EEA. Therefore directive 2006/101/EC has been fully transposed • Directive 2008/36/EC has not been incorporated into the EEA agreement

6. Co-insurance 78/473/EEC • Act. No. 60/1994 on insurance activity, • Act No. 20/1954 on insurance contracts, now act No. 30/2004 • Regulations on annual accounts • Regulation No. 612/1996 on annual accounts and consolidated accounts of life insurance companies • Regulation No. 613/1996 on annual accounts and consolidated accounts of insurance companies other than life insurance companies • The implementation will be reviewed in relation to the implementation of the Solvency II Directive

7. Legal expenses 87/344/EEC • Act on insurance activity No. 60/1994 • Regulation No. 99/1998 on legal assistance insurance

8. Accounts of insurance undertakings 91/674/EEC • Act on insurance activity No. 60/1994 • Regulation No. 612/1996 on annual accounts and consolidated accounts of life insurance companies • Regulation No. 613/1996 on annual account and consolidated accounts of insurance companies other than life insurance companies • Act on annual accounts No. 144/1994, now act No. 3/2006

9. Insurance committee 91/675/EEC • No change to legislation required • Iceland has with reference to Article 101 and Protocol 37 of the EEA Agreement participated in meetings of the committee as an observer

10. Supplementary supervision 98/78/EC • Implemented with act on insurance activity No. 60/1994 with amendments No. 97/2000 • Regulation on calculation of adjusted solvency margin No. 954/2001 • Act on official supervision of financial activities No. 87/1998 • The new act on insurance activity No. 56/2010 includes powers to the FME to set new rules on adjusted solvency margin, aligning it with the rules on financial conglomerates and replacing the abovementioned regulation

11. Winding up 2001/17/EC • Act on Insurance Activity No. 60 of 11 May 1994, with amendments, last amended with Act No. 34 of 20 March 2003

12. Life assurance • The directive 2002/83/EC was implemented into act on insurance activity No. 60/1994 with later amendments, now act No. 56/2010, and regulations on: • Matching assets to the technical provisions of insurance companies No. 646/1995 • Cooperation with other supervisory authorities No. 555/1997 • Calculation on solvency (change of amounts) No. 459/2003 • Maximum interest in life insurance agreements in ISK No. 573/1995 • Act on insurance contracts No. 30/2004 • Act on official supervisions of financial operations No. 87/1998

13. Life assurance (2) • Some regulations have been abolished or become irrelevant: • Regulation No. 494/1997 concerning assets included in the solvency margin (now part of act No. 56/2010) • Regulation on insurance intermediation No. 473/1994 (now act on insurance mediation No. 32/2005) • In April 2008, EFTA Surveilance Authority (ESA) sent questions and recommodations to Iceland regarding the implementation • Some remaining issues were solved with the new act on insurance activity No. 56/2010 • The directive is now fully transposed into Icelandic law • Directive 2008/19/EC is not incorporated into the EEA agreement 13

14. Insurance mediation 2002/92/EC • Act on insurance mediation No. 32/2005 • Act on insurance contracts No. 30/2004 • Act on official supervision of financial operations No. 87/1998 • Regulation on professional indemnity insurance No. 592/2005 • Regulation on trust accounts for insurance brokers and insurance agents No. 590/2005 • Regulation on examination in insurance mediation No. 972/2006

15. Supervision • Directive 2003/41/EC implemented with Act No 78/2007 on Occupational Retirement Funds and amendments to the Pension Act, No. 129/1997 • A table of correspondence along with English translations of both acts have been submitted to the Commission • Directive 2008/25/EC has not been incorporated into the EEA agreement

16. Motor insurance 2009/103/EC • The fifth motor insurance Directive 2005/14/EC was implemented with Act No. 155/2007 on amendments to the Act on road transport, No. 50/1987, the Act on Insurance Activity, No. 60/1994 and Regulation on Compulsory Insurance in Respect of the Use of Motor Vehicles, No. 424/2008 • No issues foreseen regarding the implementation of the new motor insurance directive

17. Solvency II 2009/138/EC At what stage is Icelandic preparedness for Solvency II and its implementation?

18. General • Iceland has as an EEA country taken an active part in the preparations for Solvency II • The FME has as an observer taken part in CEIOPS working groups regarding Solvency II since their start in 2004 • The most relevant working groups have been attended • An implementation committee has been set up by the Ministry of Economic Affairs, chaired by the FME and with representatives from the FME, insurance companies and the Association of actuaries • The committee has since April 2010 been looking into the implementation of the level 1 directive • The committee expects to propose a bill to implement the Directive in end 2011 or beginning 2012

19. Likely implementation methods • Changes to the act on insurance activity No. 56/2010 • Special legislation on different aspects • Capital requirements • Groups • Regulation issued by the Ministry of Economic Affairs with direct reference to the level 2 regulation

20. QIS5 • Iceland has taken part in all the previous quantitative impact studies • In QIS5 all 11 operating insurance companies have taken part - the FME is still awaiting final submissions from some companies • Two national groups plan to participate - the FME is still awaiting submissions • Increased capital requirements for non-life companies - significant underwriting risk • Reduced capital requirements for life insurance companies • Market risk has reduced since QIS4 - however some companies have quite high concentration risk

21. Some issues in QIS5 • Segmentation in health insurance • Boundaries of life insurance contracts • Discounting short term liabilities and prediction of inflation • Choice of simplified method in calculation of the risk margin • Calculation of counterparty default risk • Non-life and health catastrophe risk

22. Other information • Status report from insurance companies end 2009 • Questionnaire on the use of internal models end 2009 • A meeting held by the Icelandic Financial Services Assosiation in May 2010 • The FME has held several presentation on Solvency II since 2005 • Status checked in on-site inspections

23. An issue that requires specific attention in the negotiations • Article 8 of Directive 2009/138/EU (Solvency II) lists institutions in four countries which pursue non-life insurance activities and are excluded from this Directive, unless their statues or the applicable law are amended as regards capacity. • In the context of the EEA, Iceland proposes to include one public national entity (Viðlagatrygging Íslands, natural catastrophe insurance provider) under Article 8 of Directive 2009/138/EU (Solvency II).