ANNUAL REPORT

AUTORITÉ DE CONTRÔLEDES ASSURANCES ET DES MUTUELLES

2008

61, rue Taitbout - 75009 ParisTelephone: +33 (0)1 55 50 41 41Fax: +33 (0)1 55 50 41 50ISSN 1777-7917www.acam-france.fr Co

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ANNUAL REPORT

AUTORITÉ DE CONTRÔLEDES ASSURANCES ET DES MUTUELLES

2008

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Chairman’s message 4

Secretary General’s message 6

Part 1About ACAM

Profile 12

I - A dual structure1. The College 14

2. The Secretariat General 15

II - ACAM’s role 1. Supervision 18

2. Oversight: centralising data 32

3. Cooperation 36

4. Communication and information 43

Part 2ACAM’s activity in 2008

I - Highlights of 2008 50

1. Sanctions and other significant decisions 53

2. Surveys and market trends 58

3. Specific cases 70

4. ACAM safeguards policyholders’ rights 72

5. Debates and current issues 84

II - Regulatory developments at European level 92

1. Solvency II 92

2. Quantitative impact studies 98

3. Accounting harmonisation 101

Part 3Financial data

A. Income statement 106

B. Balance sheet 108

C O N T E N T SAppendix - The French insurance market in figures. This document can beviewed and downloaded from ACAM's website: www.acam-france.fr/rapport2008orwww.acam-france.fr/chiffres2008

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CHAIRMAN’S MESSAGE

Chairman’smessage

2008 was a year of crisis, but above all it was a year ofdramatic contrast. It is easy to forget that the economicforecasts were still optimistic at the beginning of thesummer even though the subprime crisis was alreadywell underway, and that inflationary pressure was stilllively. The dramatic slump in expectations, prices andproduction in the second half, accompanied by itscortege of recession, rising unemployment and loomingdeflation, threatened the situation of several majorfinancial groups, including one of the world’s leadinginsurers, AIG. It should be noted, however, that it wasnot the insurance side of this huge conglomerate’sbusiness that failed, it was the derivatives marketsactivities, which, through excessive use of leverage, hadgrown to represent commitments totalling hundredsof billions of dollars.

Fortunately, the French insurance market has shownits solidity despite the turmoil. Invested mainly inbonds, insurers had ventured little into the high-riskactivities that are now seen as toxic. Although the stock-market slump wiped out the bulk of the capital gainsaccumulated by French insurers in previous years, theirfundamentals remained firm. Admittedly, the inflowof savings slowed considerably due to competition

from high interest rates on regulated savings depositaccounts (notably the savings banks’ accounts) beforethe recent reduction in interest rates. Overall, premiumswere down by 4.2% and savings placed in life insuranceinvestments stagnated at around €1,250 billion interms of net book value. However, insurance companiesremained profitable (with profit of €8 billion for thesector as a whole), and complied, without muchdifficulty, with all the prudential requirements.

ACAM is naturally working closely with the sector toconsolidate this situation. From 2007, checks werecarried out to measure exposure to risky investments.In the autumn of 2008, regular monitoring of net inflowsinto life insurance was put in place as well asprojections of results both at sector level and atindividual entity level. The simulations of possible risksin the event of a further deterioration in the situation – which preceded the ‘stress tests’ put in place for USbanks by the Federal Reserve – are updated constantly.The relatively comfortable situation of French insurers isillustrated by the fact that the rates of return paid topolicyholders remained high in 2008, with an averageof 3.90%. ACAM notes, however, that insurers need totread carefully in this area during crisis periods so as to

maintain adequate reserves. We also advise caution interms of minimum guaranteed rates of return offered:during periods of very sharply fluctuating costs somerates, at the limits of what is legally possible, maythreaten the insurer’s future stability and/or provemisleading for the policyholders.

Many other measures have been taken to strengthensupervision – monitoring UCITS in unit-linked contracts,introduction of new prudential filters, new quarterlyreport on investments, reflecting ACAM’s increasedvigilance during this time of crisis.

I would also like to stress the work carried out incollaboration with other supervisory bodies (AMF,Commission Bancaire and Conseil National de laComptabilité) to clarify the conditions of application ofthe accounting regulation with regard to the breakdownby asset class and the valuation method to beused in the absence of an active market. A jointrecommendation was issued in September 2008,followed by a supplementary recommendation for theinsurance sector in December 2008.

The past year also featured a major step forwardin international discussions on financial regulation.A definitive agreement was reached on the terms of theSolvency II directive which will provide the prudentialframework for insurers, provident institutions andmutual insurers as from 2012.

The completion of the work carried out over the pastseven years is a major step forward, even though thereis still a lot to do, with the help of ACAM staff and of otherEuropean supervisory bodies, to put in place the level2 and 3 application measures. These measures include,among other things, the calibration of capitalrequirements by introducing softer measures forinvestments in equities (the so-called dampener) andthe specific treatment obtained by France forretirement savings schemes with a life of twelve yearsor more.

A second very important area of internationalcooperation is implementation of the G20 guidelines onfinancial supervision – creation of a Financial Stability

Board and, at European level, of a Systemic Risk Council –harmonisation of accounting standards and tightersupervision of hedge funds, off-shore centres and creditrating agencies.

As in the preceding years, ACAM was obliged to issue anumber of sanctions, some of which were made public.In other cases, emergency measures were taken suchas the appointment of a provisional administrator or thedrawing up of a recovery plan. However, ACAM’s actionshould in no case be perceived as limited to thesemeasures, whose limited number reflects the generallyresponsible behaviour within the sector. ACAM’s role isabove all preventive, in constant contact with thesupervised insurers, and educational, as witnessed bythe success of its supervision conferences andpublications: “Analyses et synthèses” published sincethe end of 2007 and the regular newsletter “Lettre del’ACAM”.

At the same time, true to its role of protectingpolicyholders, ACAM continued to deal with queries fromthe public relating to application of their contracts. Morethan 3,300 queries were dealt with and ACAM, althoughit has no official mediation role, made every effort to finda solution. A positive outcome was achieved in twothirds of the cases handled.

With a view to strengthening financial regulation andsupervision, 2009 is likely to see some major changesin financial supervision in France. The government hasadopted the principle of a single supervisory bodymerging ACAM and Commission Bancaire. Joint workinggroups have been set up to examine the practicalaspects of this merger, which under the conditions ofthe Parliamentary delegation authorising theGovernment to legislate by decree, should be organisedbefore the end of the year.

2009, which we now hope will see the beginning of anexit from the present economic and financial crisis, willbe yet another year of reform in this area as in others.

Philippe Jurgensen

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SECRETARY GENERAL’S MESSAGE

Secretary General’smessage

From being merely a factor warranting attention in 2007,the financial crisis became the top priority in ourprudential supervision in 2008. French insurers havelittle or no exposure to structured credit products, butthey are exposed to a fall in the value of conventionalassets such as corporate bonds and equities, and therewas a very pronounced fall in 2008. Moreover, thegeneralised loss of confidence in the financial marketsadded to the systemic nature of the crisis, both throughsharp fluctuations in the value of assets and throughthe distrust it could generate in policyholders.

This exceptional backdrop both highlighted andaccentuated ACAM’s preventive role, namely to ensurethat the more vulnerable entities take corrective actionbefore the situation deteriorates and policyholders loseconfidence. Taking life insurance as an example, inaddition to the usual stress tests carried out oninsurers’ balance sheets, additional information andmore specific simulations have been requested in order

to obtain a clearer forward-looking view of the entity’sfinancial situation and its room for manoeuvre , inparticular its capacity to pass on the fall in the value oftheir investments through a reduction in the returnsoffered to their policyholders. These analyses – notlimited to a purely accounting view, which does notadequately take into account all the risks hanging overthe balance sheet – were introduced in mid-2008 andhave been adjusted as the crisis unrolled. In the light ofthe additional work within very tight deadlines requiredby the crisis, I would like to applaud the responsivenessand motivation shown, and still being shown, by ACAM’sstaff.

ACAM nonetheless continued to work on several majorongoing projects. In line with our objectives, westrengthened supervision of compliance with anti-money laundering requirements and of intermediariesby putting together dedicated teams. Also, until the endof 2009, the transformation of supplementary

retirement institutions is being supervised by ACAM,which verifies that the substitute insurancecommitments are adequate. ACAM also continued tomodernise: in June 2008 it published its SupervisionCharter and at the beginning of 2009 it launched arevamped website, offering more information forinsurers, intermediaries and policyholders and a newelectronic document exchange functionality, which isgreatly appreciated by the insurers.

Naturally, helping French insurers to prepare forSolvency II naturally continues to be one of ACAM’s keycommitments. The strong involvement of Frenchinsurers was reflected in their high response to thefourth quantitative impact study and numerous andfruitful debates on technical issues. As an extension tothis survey, it has been decided to propose to allinsurers that they provide ACAM with an annualstatement showing the balance sheet based onSolvency II principles. In addition, a well-attendedseminar on internal models highlighted the need tostart an early dialogue with supervisors to identify ingood time all the practical and technical issues relatingto developing an internal model.

There is still a long way to go and it is hoped that the rightlessons have been learnt from the crisis in the bankingsector. I would point to two relating to the manner ofdefining and applying the prudential regulations: interms of quantitative rules, the principle of fair valuemeasurement in the absence of an active market – structured bank products and underwriting reserves ininsurance – results in a significant overestimation ofcapital when it is applied without adequate supervision;in terms of governance and internal control, financialinnovations – structured credit products in banking,complex minimum guarantee life insurance contracts ininsurance – require particularly close surveillance, toavoid a natural tendency to let oneself be carried awayby sophisticated financial models and forget the gapbetween these models and reality.

Another major lesson to be drawn is the need,acknowledged by the G20, to add a macro-prudentialside to financial supervision. Although the insurancesector may appear to be less concerned, this wouldextend ACAM’s role to monitoring financial stabilitywith a view to preventing systemic crises. In practice,ACAM will draw up new global risk analyses for theinsurance sector. International cooperation will also besignificantly strengthened, between sectors and atdifferent geographic levels, to share and consolidatethese analyses, and also to ensure better supervisionof major international groups. ACAM sees thesedevelopments as a key factor for efficient protection ofpolicyholders. It therefore welcomes them warmly andwill not spare its efforts to ensure their success.

Antoine Mantel

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ACAM is an independent public body. It supervises all the companies,associations, groups and other entities that operate in the Frenchinsurance sector, in the interests of the policyholders. It checks thatentities and groups within its remit comply with the applicable regulations,and that they are able at all times to meet their underwriting liabilitiesvis-a-vis their policyholders or members.

The authority was created by the Financial Security Act of 1 August 2003(Act no. 2003-706). It was initially called the Commission de Contr4le desAssurances, des Mutuelles et des Institutions de Prévoyance (CCAMIP),and was the result of the merger of two supervisory authorities, theCommission de Contr4le des Assurances (CCA) and the Commission deContr4le des Mutuelles et des Institutions de Prévoyance (CCMIP), whichwere responsible for the oversight of, respectively, the insurance sector,and mutual insurers and provident institutions. It was renamed theAutorité de Contr4le des Assurances et des Mutuelles (ACAM) by virtue oflaw no. 2005-1564 of 15 December 2005. It is a separate legal entity inits own right.

Part 1About ACAM

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Part 1About ACAM

ProfileOur primary mission: to protect policyholders 12

I - A dual structure 1. The College 142. The Secretariat General 15

II - ACAM’s role

1. Supervision 181.1 Prudential supervision 19

1.2 Monitoring intermediaries 27

1.3 Anti-money laundering (AML) 29

2. Oversight: centralising data 322.1 Prudential documents 32

2.2 Relations with policyholders 34

3. Cooperation 363.1 In France 36

3.2 European cooperation 37

3.3 International cooperation 40

4. Communication and information 434.1 External communication tools 43

4.2 Actuarial research by ACAM’s supervisors 43

4.3 Cross-sectoral surveys 44

4.4 External actions 44

4.5 General recommendations 44

4.6 Relations with industry organisations 45

C O N T E N T S

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PreventionACAM also has an important preventive role,informing insurers about potential risks, detecting

risks and issuing advance warnings, and encouragingthe development of partnerships and mutual supportsolutions. In addition it facilitates interpretation of theapplicable laws and regulations. These preventive actionsare often sufficient in themselves to solve many of theproblems faced by insurers.

InformationIn addition, ACAM is a key source of information forpolicyholders. In the event of a dispute with an

insurer, any interested party may consult ACAM’s ContractLaw and Policyholders department at any time. Mostreferrals are made by individuals, although consumerassociations, mediators, solicitors, insurers and insuranceintermediaries also make use of this service. Theunderlying objective is to ensure policyholders’ rights arerespected.

ParticipationLastly, ACAM takes part in:

u the drafting of new regulations;u European studies and consultations on the future of financial regulation;u consultations on the future of the Paris stock exchange;umany other initiatives, including the fight against money laundering and terrorism.

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ABOUT ACAM

ACAM is one of the three regulatory pillars of the French financial sector, along with the Commission bancaire, the banking regulator, and the Autorité des marchés financiers (AMF), the financial markets regulator.

SupervisionIts role is to supervise all entities operatingin the insurance sector. Acting on behalf of

the state, it closely analyses the risks andprospects of insurers. The purpose of this strategicprudential assessment is to ensure thatcompanies are at all times able to meet theirunderwriting liabilities vis-à-vis their policyholders.ACAM may make recommendations, and in urgentsituations it may take measures to restorefinancial stability. When necessary, it can alsoimpose sanctions. It is a fully independent bodywith financial autonomy and broad investigativepowers.

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Profile

Our primary mission:to protect policyholders

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The College has nine members, who are appointedfor five years. Their appointment may be renewedonce. Seven alternate members are appointedunder the same conditions. Members and theiralternates cannot be removed from office. TheChairman is appointed by Presidential decree.Apart from the Governor of the Bank of France(Banque de France), who is automatically amember of the College, the other members areappointed by a joint decree issued by the Ministersof the Economy, Social Security and Mutualinsurers.

Two government representatives are also sitmembers of the College: the Director of theTreasury and the Director of Social Security, or theirrepresentatives. They cannot take part indecisions but can ask the College to reconsider anydecision other than a sanction.

The Secretariat General refers cases to the Collegewhen an insurer, mutual insurer or institution is inbreach of the regulations or if its financial situationis such that it compromises its solvency or abilityto meet its underwriting liabilities towards itspolicyholders or members. Referrals are based onthe findings of inspection reports.

2. The SecretariatGeneral The Secretariat General is responsible formonitoring and inspecting insurers.

The Secretary General, an experienced insurancesupervisor, is appointed by a joint decree issuedby the Ministers of the Economy, Social Securityand Mutual insurers, after consideration of theCollege’s opinion.

The inspection teams are responsible for on-siteinspections and off-site monitoring of supervisedentities, and operate under the authority of theSecretary General. Teams consist of supervisors(commissaires-contrôleurs and contrôleurs).

Its support functions are responsible for internalmanagement and provide essential support for theinspection teams:

u administrative and financial management;u legal affairs;u international affairs;umarket watch, which includes the DDCRA1;u IT.

These departments assist and support themonitoring and inspection function.

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ABOUT ACAM

1. The CollegeACAM’s policy-making and decision-makingbody is known as the ’College’. It determines

the internal organisation of ACAM, defines thecontrol methodology and approves the budget.

The College has important decision-making powerswith regard to supervised entities. It can:

u recommend suitable solutions to improvethe entity’s financial situation, managementmethods or governance;

u take emergency or protective measures, such asplacing an entity under special scrutiny,requiring a recovery plan to be drawn up, placingan entity in administration, etc;

u impose sanctions, which may include: warnings,official reprimands, prohibition of certainbusiness activities, restrictions placed onbusiness activities, temporary suspension,removal of one or more company directors,partial or total withdrawal of a licence (whichmay result in the winding-up of the entity),partial or total transfer of the portfolio, etc.Sanctions may be imposed on entities and/or ontheir directors.

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Structure

I -A dual structure:a College and a Secretariat General

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1. Contract Law and Policyholders department

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The 9 members of ACAM’s College

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ABOUT ACAM1

Organisation chart of the Secretariat General

Supervision TeamPaul Coulomb

Supervision TeamMichel Crinetz

Prudential documentsCatherine Hanne-Pinturier

Supervision TeamOlivier Fliche

Supervision TeamMarc Porin

Anti-MoneyLaundering

Jean-François Viala

IT departmentFreddy Latchimy

Market Supervisiondepartment

Pierre-Jean Vouette

InternationalAffairs department

Pauline de Chatillon

Secretary, AERAS MediationBoard

Marie-Françoise Baras

Department of Economicand Market StudiesLaurent Voignac

Department ofAccounting Issues

Jean-Jacques Dussutour

Contract Law andPolicyholders DepartmentBarbara Souverain-Dez

Investments, Taxation,Regulatory Documentation

Janine Gougeon

Chairman1 - Philippe Jurgensen

Inspecteur général des Finances

Ex-officio member2 - Jean-Paul Redouin

Governor of the Bank of France, Chairman of the Commission bancaire, represented by the first deputy governor

Senior members of the Judiciary3 - Jean-Philippe Vachia

Deputy President and senior judge, Cour des comptes

4 - François LagrangeConseiller d’État

5 - François-Régis CrozeCour de cassation

Members selected for their expertise in the field of insurance, mutual insurance and provident insurance6 - Hervé Cachin

7 - Jacques-Philippe Chanet

8 - Lucien Uzan

9 - Jean Barroux

Two government commissioners are also members of the College10 - Fabrice Pesin

representing the Director General of the Treasury and Economic Policy (directeur général du Trésor et de la politique économique)

11 - Jean-Luc Izard representing the Director of Social Security (directeur de la Sécurité sociale)

Government commissioners do not have the right to vote, but may ask the College to hold a second vote on any matters other than sanctions.

12 - Antoine MantelSecretary General

Supervision ofInsurance Intermediaries

Pierre-XavierSoulé-Susbielles

ACAM SecretariatMichèle Litvak

Cabinet director Marie-Laure Dreyfuss

CommunicationGeneviève Marc

Audit / Internal ControlDominique Laude

Chief AccountantSylvie Huet

Supervision TeamDidier Pouilloux

Supervision TeamPatrice Marchand

Supervision TeamHélène Denis

Supervision TeamFrançois Delord

Secretary GeneralAntoine Mantel

Legal departmentDidier Israël

Deputy Secretary GeneralCyril Roux

Purchasing, General Services,Accounts

Irène Lacascade

Human Resources departmentDenis Lhomme

Administrativeand FinancialManagementMichel Bord

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high-risk assets or illiquid assets it may not havesufficient available assets to pay claims as andwhen they arise.

These risks are specific to the insurance sector,hence the need for a special regulatory and supervisory framework. All developed ordeveloping countries have a body which isresponsible for the prudential supervision of their insurers, whose aim is to protect thepolicyholders.

The supervisory authority may be transnational,serving several countries, or it may beincorporated into a larger financial regulatory and supervisory body.

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ABOUT ACAM

1. Supervision

THE NEED FOR SUPERVISION IN THEINSURANCE SECTOR

Insurance is a service industry. Insurance allowsconsumers to avoid all or part of a risk by passingthe financial consequences to their insurer.Insurance is therefore the transfer of risk from oneparty, who wishes to reduce or eliminate the risk,to another party, who knows how to manage it by pooling it.

There is a substantial economic differencebetween the insurance sector and the otherindustries that provide goods or services: the

insurer sells its services before it provides them.The final cost – including the amount paid out onclaims – is therefore only known several months,or indeed several years, after the signature of thecontract. This is an "inverted production cycle”.

This means the insurance business is exposed tovery specific risks. For instance, if the level ofclaims is underestimated by the insurer when itfixes the premium rates, it will have to pay outmore than initially expected and may be unable tosettle all its liabilities. A similar situation couldarise if management costs rose unexpectedly.Moreover, if the insurer invests premiums in

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Acam’srole

II -ACAM’s role “Prudential” supervision is designed to ensure that insurers are capable ofmeeting their underwriting liabilities vis-a-vis their policyholders at all times.This consists of an analysis of the policies and contracts recording theircommitments, verification that these are correctly reflected in the accounts,and an examination of the operating methods and the appropriateness offinancial management. These extremely broad controls enable a detailedassessment of the entity to be made, and updated each year.

1. Permanent and preventive controls

nWHO WE SUPERVISE

The entities supervised by ACAM have a number ofdifferent legal forms:

u French insurers subject to the French InsuranceCode (Code des assurances);

u French reinsurance companies subject to theInsurance Code;

u insurers governed by the laws of countries thatare not in the European Economic Area but thatoperate in France;

SUPERVISED ENTITIES IN FIGURES

u 386 insurers subject to the French InsuranceCode

u 1,707 mutual insurers, of which 386 are‘substituted’ mutual insurers (Livre II)

u 62 provident institutions u 63 supplementary pension institutions

1.1. Prudential supervision

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umutual insurers subject to the French MutualCode (Code de la mutualité);

uprovident institutions subject to the French SocialSecurity Code (Code de la Sécurité sociale);

u supplementary pension institutions subject tothe Social Security Code.

n OBJECTIVES

ACAM’s primary mission is to supervise all entitiesoperating in the French insurance market,irrespective of their status, to ensure they arecapable of meeting their underwriting liabilities vis-a-vis their policyholders. It monitors complianceby supervised entities and groups with theapplicable regulations.

Insurers are governed by a large number oflaws and regulations, whose main aim is riskprevention. Their financial soundness is dependenton three essential criteria:

u a prudent assessment of their underwritingliabilities;

u the ownership of sufficient certain, liquid,profitable and diversified assets to cover theestimated liabilities;

u sufficient capital to form a safety net and absorbsignificant unforeseen losses.

n CONTROL METHODOLOGY

OFF-SITE MONITORINGMany different but overlapping criteria need tobe taken into consideration when an entity ismonitored. The assessment of the prudentialnature of the liabilities entails an examination ofthe relevance of the provisioning and managementmethods. An appraisal of the entity’s corporategovernance and internal control system, togetherwith an examination of the applicable policies andcontracts and the entity’s articles of association orrules also form an integral part of the assessmentof the entity’s financial soundness.

An assessment, which is updated every year, ismade on the basis of these extremely broadcontrols. Preliminary signs of a deterioration in theentity’s financial situation can be detected and anynecessary corrective action can be identified. Theassessment is also based on regular exchanges ofinformation and discussions with the relevantentity, which allow ACAM to adjust its analysis. Aspart of its permanent supervisory duties, ACAMgives the French insurance licensing authority(Comité des entreprises d’assurance), and theSocial Security authorities its opinion on licenceapplications for new insurers, applications toextend existing licences, mergers and portfoliotransfers, for insurers that fall within theirjurisdiction.

ON-SITE SUPERVISIONIn addition to off-site monitoring (the permanentcontrol procedure) an on-site supervision may beorganised, the findings of which will be recorded ina report. This usually consists of an analysis of theentity’s financial statements and an assessment ofits organisation, operations and level of compliancewith regulations. The entity has the right to replyto the report within a set time period. ACAM willusually then provide it with a final report on itsfindings. In some cases the report will be sent toACAM’s College, which will recommend measuresto restore financial stability, if necessary.

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ABOUT ACAM1

Controls consist essentially of examining an insurer’s financial situation and operatingconditions. This is a prospective assessment,as the insurer must be capable of meeting its short -medium- and long-termcommitments.

Investigations and controls cover a specific timeperiod and usually focus on a given cut-off date.Although the scope of enquiries will depend onthe predetermined objectives of the inspection,it may be extended or made more precise as theinspection progresses. The order of priority of on-site inspections will be based on the findings ofoff-site controls, the quality of the data receivedand the entity’s financial situation. ACAM will alsotake account of complaints from policyholders andits annual cross-sectoral inspection targets. Theorder of priority will not be influenced by the size ofan entity, its legal form or its business sector.

INSURERS’ OBLIGATIONS

The insurers supervised by ACAM must provide itwith the following periodic reports and documents:

u accounts and financial statements;u annual report;u quarterly statements;u reports on solvency and internal control.

This information, which is essentially financial andaccounting information, forms the basis of the comprehensive, off-site monitoring process.The information provides a continuous picture ofthe financial situation of the supervised entities,and enables ACAM to verify the consistency andquality of the information provided from one yearto the next.

OFF-SITE MONITORING AND ON-SITESUPERVISION: TWO SIDES OF THE SAMECOIN

Off-site monitoring and on-site inspections areinterdependent and are carried out by the sameteam, which has full responsibility for the entitiesin its remit.

While on-site inspections are conducted after anoff-site examination of documents, as a naturalextension of such monitoring, they also provideessential raw material for the off-site controls.Supervisors look at:

u level of provisions;u quality of the management;u corporate governance rules;u tools and procedures; u reinsurance; u awareness of risks, risk management.

The in-depth, on-site inspection will focus onissues identified during the off-site monitoring ofdocuments. Such inspections help ACAM to buildup a complete picture of a supervised entity.

n SCOPE

The assessment of an entity’s financial soundnessand its ability to meet its underwriting liabilitiesrequires an overall view of its activities andoperations combined with an assessment ofpotential risks.

ACAM therefore examines the entity’s:

u technical and legal management, analysingits liabilities vis-a-vis policyholders and theprovisions booked on the liabilities side of thebalance sheet to cover them;

u financial management, assessing whether theseliabilities are covered by certain, liquid andprofitable assets. ACAM will also consider whethernon-life and life insurers’ solvency margins aresufficient in the event of any valuation errors.

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n SPECIFIC SUPERVISION FOR MUTUAL INSURERS

DECENTRALISED MONITORING BY LOCAL PRÉFECTURES

The law provides for the decentralised monitoringof the following mutual insurers by the localpréfectures:

umutuals and grouping unions (unions) coveredby Livre III of the Mutual Code (health and socialprotection schemes);

u substituted mutual insurers covered by Livre II(registered insurers that do not bear insurancerisks themselves);

umutual insurers and grouping unions covered byLivre II that are not substituted and that satisfythe following three criteria:• they only provide accident and sickness cover(branches 1 and 2);

• they do not enter into long-term operationsover several years;

• their annual premium income is less than €45 million and they pay out less than €36 million in claims and benefits per annum(over the past three financial years).

The regional Social Security authorities (DirectionsRégionales des affaires sanitaires et sociales –DRASS) are usually responsible for monitoringthese entities, through off-site monitoring ofdocuments and on-site supervisions. However, ifany serious problem is detected the matter will bereferred to ACAM, which has sole authority tointroduce measures to restore financial stability orimpose sanctions.

MONITORING BY ACAM

ACAM directly monitors at a national level thosemutual insurers that are not eligible fordecentralised monitoring. This is the case for:

u the larger mutual insurers (Livre II, for insuranceactivities);

u smaller mutual insurers that insure risks otherthan sickness or accidents (Livre II);

u entities not covered by Livre II or Livre III, in otherwords, “technical” groups that provide servicesfor their members;

u federations and guarantee federations.

However, ACAM alsohas authority to unilaterallydecide to control any mutualinsurer that is usuallymonitored locally.

MONITORING LIVRE III MUTUALSAND GROUPING UNIONS

The purpose of Livre III mutuals and groupingunions is to manage health, social and culturalservices, or organise social actions. Services maybe provided by private hospitals, health centres,dental practices, pharmacies, opticians, retirementhomes or crèches.

Such mutuals are supervised by ACAM because,prior to the 2001 decree overhauling the MutualCode, any single entity could engage in thisactivity and also have an insurance activity. Thiswas confirmed by the Financial Security Act of2003, particularly as the separation betweeninsurance activities and “social” activities – andtherefore between Livre II mutual insurancecompanies and Livre III mutuals – had not enteredinto effect for all entities at that time.

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ABOUT ACAM1

2. See below - Part II- 5- Debates and current issues - 5.4 The continuing work of the Haut comité de place

n BROAD INVESTIGATIVE POWERS

RELATIONS WITH STATUTORY AUDITORS

All proposed appointments or re-appointments ofstatutory auditors must be referred to ACAM for anopinion.

During their term of office, statutory auditors havean obligation to respond to any request forinformation received from ACAM concerning theactivities of supervised entities, and they may notrefuse to answer on the ground of professionalsecrecy. They must inform the Authorityautomatically if the continued operation of thebusiness is at risk, or if there is a possibility that itwill not be possible to certify the accounts.

Lastly, the Authority may appoint an additionalstatutory auditor if it considers this necessary, atthe entity’s expense.

SUPERVISION OF ACTIVITIES RELATED TO THE TRANSFEROF RISKS

ACAM supervises all the operations performed bysupervised entities, and it can request any type ofinformation it considers necessary.

The Financial Security Act of 1 August 2003authorised ACAM to examine contractual andadvertising documents, require them to berevised, and order the withdrawal of any that arecontrary to the applicable laws and regulations.

ACAM discovered in the course of its supervisoryactivities that, contrary to the law, insuranceservices were still being qualified as social actionsand had been wrongly transferred to Livre IIImutuals in 2002 in application of the 2001 decree.This situation is fast being remedied, but it is clearthat the large number of mutuals supervised byACAM and the persistence of certain long-standingpractices require on-going vigilance.

The supervision charterexplains that the purpose ofsupervision is to anticipatepotential problems and thatACAM’s role is not merely to sanction2.

The financial soundness of an entity cannot be established merely by assessingthe entity itself: the supervisor also needsto consider the environment. ACAM istherefore vested with extremely broadinvestigative powers.

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ABOUT ACAM1

ACAM may also extend its supervision of an entityto any related entities or any other entity withwhich it has entered into a group insuranceagreement (see below), management agreement,reinsurance agreement or any other contract thatmay affect its autonomy in terms of its operationsor decision-making. This means ACAM may decideto supervise:

u any intermediation operations;u any individual or legal entity authorised by aninsurer to offer or manage insurance policies,who/that has taken out a group insurance policyor who/that engages in any insurance orreinsurance intermediation activity in anyrespect whatsoever.

MONITORING THE INSURANCE ENVIRONMENT

ACAM is responsible for monitoring compliancewith the laws and regulations on the fight againstmoney laundering and the financing of terrorism(see below).

It keeps a record of all associations formedas Groupements d’Epargne Retraite Populaire(GERP), which set up PERP individual retirementsavings plans (Plans d’Epargne RetraitePopulaire) with insurers. Each GERP is requiredto provide ACAM with:

u a copy of the notice published in the OfficialJournal (Journal Officiel) announcing thecreation of the association;

u a copy of the GERP’s articles of association;u if applicable, a copy of its internal rules andregulations and/or code of practice.

ACAM has two months in which to issue aregistration number, which must be printed onall contractual documents relating to savingsplans taken out by the association. The numberwill consist of the association’s businessregistration (Siren) number and a serial number.The association must inform ACAM within thirtydays of:

u any amendment to the articles of association;u the dissolution of the association;u the cessation of its activity as a GERP;u signature of a new PERP savings plan;u closure of a GERP.

ACAM also monitors licences granted to adjustersand appraisers. Appraisers who attest to the valueof real property held by supervised entities mustbe approved by ACAM.

2. Outcome of monitoringand supervision

a) Monitoring implementation ofrecommended action

As part of its off-site monitoring, ACAM expressesan opinion on insurers’ governance, managementand provisions. It monitors implementation ofrecommended action, in accordance with a jointly-agreed calendar and procedure.

If the entity fails to act on recommendations, theSecretariat General will refer the matter to theCollege which will decide on appropriate action.ACAM can issue further recommendations, takeemergency or protective measures (see below) ifthe entity’s situation jeopardises the policyholdersand, lastly, impose sanctions.

The Financial Security Act of 1 August 2003replaced the previous injunction system by asystem of recommended corrective action. Whilethe previous procedure was implemented onlywhen a problem was identified, recommendationscan be issued merely in light of the perceived needto “take all appropriate measures to restore orreinforce the entity’s financial stability, improve itsmanagement methods or ensure the organisationis appropriate in light of the entity’s activities ordevelopment objectives”.

b) Emergency and protective measures

ACAM may imposeemergency and protectivemeasures when the financialsituation of the supervisedentity, or its operatingconditions, are such that theinterests of the policyholdersand beneficiaries are or may be compromised. Thepurpose of such measures is to prevent the entity’sinsolvency.

SPECIAL SCRUTINY

When ACAM decides that emergency or protectivemeasures are necessary, it may place an entityunder special scrutiny to be promptly informed ofany major decisions made by the entity.Surveillance may be ordered in isolation or inconjunction with other recovery measures, whichcan thus be monitored more closely.

RECOVERY PLAN

ACAM must require an entity to submit a recoveryplan if its solvency margin is insufficient. A short-term financing plan must be put in place as soonas the margin falls below the minimum level,known as the “guarantee fund”. The plan is drawnup by the entity and submitted to ACAM forapproval. The College may simultaneously imposesanctions against the entity for the same reasons.

ACAM may require a recovery plan when theentity’s financial situation is such that theinterests of its policyholders and beneficiaries are

compromised. In this case the entity has onemonth in which to submit a plan to restorefinancial stability. ACAM will then assess the merits of the plan.

This solution presupposes that ACAM considersthat the entity’s directors are capable of leading the entity to recovery.

ACAM can also freeze assets or temporarilysuspend certain activities.

APPOINTMENT OF A PROVISIONAL ADMINISTRATOR

ACAM may request the appointment of a provisionaladministrator (administrateur provisoire) in threesituations:

u if this is requested by the entity’s directors,because they consider they can no properlyperform their duties;

uwhen the entity can no longer be managed innormal conditions;

uwhen one or more of the company directorsis/are temporarily prohibited from engaging ininsurance business.

The requirement to improve the solvencymargin was introduced as a result of thetransposition into French law of theEuropean directive known as the Solvency Idirective. This directive also introduced the right for the supervisory authority to reduce reinsurance levels in thecalculation of the solvency margin.

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SEVEN EMERGENCY OR PROTECTIVEMEASURES

Seven measures are available, some of which canbe combined:u special scrutiny;u obligation to submit a recovery plan or short-term financing plan;

u obligation to draw up a recovery calendar;u obligation to improve the solvency marginu freeze of assets;u temporary prohibition on conducting certaintypes of business;

u appointment of a provisional administrator.

c) Disciplinary action

REFERRAL TO ACAM

ACAM considers imposing sanctions on the basisof inspection reports prepared by the SecretariatGeneral. In order to ensure that the proceedingsappear to be impartial, it is made clear in the lettersetting out the reasons why sanctions are beingconsidered that sanctions are merely a possibility.

The entity also receives a copy of the supervisionreport so that it can reply. The entity can consultand copy any other documents in ACAM’s files andbe assisted or represented by anyone of its choice.It has fifteen days in which to submit a writtenresponse.

SIX DISCIPLINARY MEASURES Six sanctions may be imposed:

uwarning;u official reprimand;u prohibition on carrying out certain operations orother limitations on the business;

u temporary suspension of one or more companydirectors (or removal of one or more directors);

u total or partial withdrawal of licence;umandatory transfer of all or part of the portfolioof policies.

In addition, the following sanctions may beimposed on intermediaries:

u removal from the ORIAS register;u prohibition on engaging in the intermediationbusiness.

DISCIPLINARY HEARING

A disciplinary hearing is held at least three weeksafter notice of the causes of complaint has beensent. The hearing is held in private, unless one ofthe accused parties requests otherwise. TheChairman conducts the proceedings and can callany person as a witness. The accused person orentity may be assisted by a specialist and mayalso call witnesses. The supervisor in charge of thecase presents his report, after which the accusedperson or entity or his/its legal representative canaddress the hearing.

After the hearing the College will retire to deliberatein private, with only the secretary of the meetingallowed to attend. In accordance with the principleof proportionality, the sanctions imposed mustreflect the gravity of the case. The College maydefer its decision.

NOTIFICATION OF THE DECISION

The sanctioned person or entity will receive noticeof the decision. ACAM may publish its decision in any medium of its choice, at the expense of the sanctioned entity or person. Publication of the notice constitutes a sanction in itself. Thesanctioned person or entity may contest thedecision by filing an appeal with the Conseil d’Etat[highest administrative court], within two monthsof notification of the decision.

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ABOUT ACAM1

The disciplinary proceedingsmust comply with thequorum requirements laid down by law and mustalso comply with threemajor principles: collegiality,impartiality and the right of defence.

1.2 Monitoring intermediaries

a) A new regulatory framework

Eight separate laws have been enacted sinceDecember 2002 to transpose Directive 2002/92/ECof 9 December 2002 into national law. Morespecifically, the Law of 15 December 2005introducing various provisions adapting EU law tothe insurance sector, known as the DDAC Law (Loiportant Diverses Dispositions d'Adaptation au droitCommunautaire dans le secteur de l'assurance)requires intermediaries to be registered.

New laws and regulations came into effect on 1 May 2007. Intermediaries now need to beregistered with the Registry of InsuranceIntermediaries (Organisme pour le Registre desIntermédiaires d’Assurance - ORIAS), which isa key tool in the supervision of insuranceintermediaries. Registration is mandatory, anda registration fee is charged.

In the event an intermediary no longer meets therequisite conditions it will be removed from theORIAS register. Following this, all business withinsurers must be brought to an end, as insurershave a legal obligation to ensure that theirintermediaries are validly registered with ORIAS.

Insurance intermediaries areindividuals or legal entities whopropose or arrange insurance or reinsurance policies, for a fee. When an entity’s business activitiesare limited to the management,assessment and settlement of claims the entity is not deemed to be an intermediary.

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ORIAS

The purpose of this new regulatory framework isto ensure policyholders know whether theirinsurance intermediary is registered or not. TheORIAS register is the cornerstone of the newsystem. It can be consulted at the ORIAS website,www.orias.fr.

Intermediaries must satisfy criteria relating tointegrity and professional ability when theyregister. They must subsequently submitdocumentary proof that they have third partyliability insurance cover and sufficient financialguarantees on an annual basis.

Registration is not tantamount to a professionallicence, however. Nor should it be considered as asign of the approval of the public authorities, andas such is not comparable to the licences thatmust be held by insurers in order to insure risks.

As at 31 December 2008, 40,758 insuranceintermediaries were registered, with a total of47,758 entries3 (because some intermediaries areregistered in more than one category).

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ABOUT ACAM1

b) Compliance checks

Intermediaries aremonitored to ensure thatthey are registered in theORIAS register, they satisfythe requisite conditions foracting as an intermediaryand that they comply withthe applicable laws andregulations.

Intermediaries operating in France are monitoredby ACAM. As they are not exposed to specific risks,ACAM does not operate a permanent controlsystem and instead monitors intermediaries on acase-by-case basis, as and when it considers thisappropriate.

ORIAS has a duty to provide ACAM with anyinformation it may consider necessary forsupervision purposes. ACAM decides to monitor aparticular intermediary at its own discretion, or onthe basis of information set out in complaintsreceived from policyholders or if it is aware thatpolicies are being offered that do not comply withthe law. An intermediary may also be monitoredwithin the framework of anti-money launderingprocedures.

Monitoring may take different forms. It tends tofocus on the information the intermediary gives tocustomers, but also covers relations between theintermediary and its supplier, to ensureinformation and premiums are passed on to theinsurer. The intermediary has an obligation toinform its customer at every stage of therelationship:

u the customer must receive written informationabout the intermediary and its level ofindependence vis-a-vis insurance companies;

u documents must describe the proposedinsurance operation: the intermediary mustmake written enquiries to ensure the product isappropriate.

Moreover, Article R. 511-12 of the Insurance Coderequires “supplier” insurance companies to ensurethat their intermediaries are registered with ORIAS(or in the relevant national register when they useforeign intermediaries with an establishment inFrance or working under the free provision ofservices system). ACAM’s monitoring of theinsurers themselves establishes whether theycomply with this requirement.

Similar checks have to be made when brokers actas “wholesale brokers” as, by virtue of Article R. 511-2 of the Insurance Code, they can only passcommissions on to registered individuals orentities.

ACAM pays particularattention to assessing the level of training and qualifications of insuranceintermediaries.

INTERMEDIARIES OPERATING IN THIRDCOUNTRIES

Intermediaries registered in their home country cannow also operate in third countries, provided theyinform the registrar in the country where theirregistered office is located.

They can either open a branch or operate underthe free provision of services system.CEIOPS (Committee of European Insurance andOccupational Pension Supervisors) has proposedthe following definition of free provision of servicesto the European Commission: “An InsuranceIntermediary (“IIM”) is operating under FOS if itintends to supply a policyholder, who is establishedin a Member State (“MS”) different from the onewhere the IIM is established, with an insurancecontract relating to a risk situated in a MS differentfrom the MS where the IIM is established.”

1.3. Anti-money laundering (AML)

a) ACAM

ACAM monitors the implementation of measuresintended to prevent money laundering and thefinancing of terrorism by the entities it supervises.It may also verify compliance by intermediaries.

n SUPERVISION PROCEDURE

ACAM has considerably reinforced its anti-moneylaundering unit which now employs eight people,reflecting the importance of this issue. Thespecialised unit works in close collaboration withthe inspection teams, organising specific on-sitechecks and ensuring that entities implement andimprove their anti-money laundering procedures.

Anti-money laundering controls are carried out bythe inspection teams and the members of the anti-money laundering unit, who have been specificallyauthorised by the College.

Removal from the register therefore means thatthe intermediary must cease all business activitiesand may not offer insurance policies.

This new regulatory framework has resulted in alarge number of requests for further informationfrom intermediaries and also from the generalpublic. ACAM therefore organises regular meetingswith the relevant industry associations andattends fairs and conferences addressing thistopic. Relations between ORIAS and ACAM aregoverned by Article L514-4 of the Insurance Code.

3. A registered intermediary may be registered in one or more of the four categories defined by Article R-511-2, point I of the Insurance Code: insurance broker, general agent, insurance representative, insurance intermediary.

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Findings are reported in a specific section of thegeneral inspection reports or in special AML (Anti-Money Laundering) reports.

When drawing up its inspection schedule, ACAMfocuses first and foremost on the most vulnerableentities, in terms of the type of policies they offeror their production networks, as well as anyentities that seem less well-equipped because ofpotential weaknesses in their internal organisation.

OFF-SITE MONITORING:The unit conducts surveys designed to measurethe level of compliance and assess the scope ofapplication of anti-money laundering regulationsin the most exposed entities. For instance ACAMsurveyed life insurance companies in 2007,followed by mutual insurers and providentinstitutions in 2008. Individual, written replieswere sent to all participant entities.

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ON-SITE INSPECTIONS:On-site anti-money laundering inspections areconducted by insurance supervisors or thosemembers of the anti-money laundering unitauthorised by the Secretariat General. Findings arereported in a specific section of the generalinspection reports or in special AML reports.

To increase awareness within the industry andhighlight the need for genuine and effectiveprocedures to fight money laundering, the unithas also organised a number of informationand training initiatives, including meetings withindustry players, attending conferences anddeveloping training tools.

n SANCTIONS

ACAM has the authority to impose sanctionson any entity that has failed to set up or followappropriate procedures, even if a detailedexamination of its portfolio subsequentlyestablishes that it has not been used to laundermoney.

ACAM’s preventive action also consists ofdeveloping good relations with the marketauthorities and TRACFIN4 correspondents, andworking on the application of the new principleslaid down in the 3rd European Directive (Anti-Money Laundering Directive of 26 October 2005).

b) Relations between insurers and their brokers

Relations between brokers and insurancecompanies are of primary importance, given theway insurance products are distributed and theinternational importance of the “Know yourcustomer” (KYC) rule. This is an area of particularconcern to ACAM.

In addition to the applicable laws and regulations,such relations are governed by contractualprovisions. It is therefore essential that anyrelations between an insurer and an intermediaryare recorded in a written brokerage agreementdefining each party’s rights and obligations. Suchagreements usually specify the duration, theconditions for extending or terminating therelationship, the terms of payment of the brokerand rules for taking out insurance policies.

c) Cooperating with other bodies in the fightagainst money laundering

n INTERNATIONAL COOPERATION

ACAM contributes to the work of the FinancialAction Task Force on money laundering (FATF). TheFATF is an intergovernmental body created at the1989 G-7 Summit in Paris to develop and promoteinternational anti-money laundering policies.

The FATF has published 40 Recommendations,describing the measures national governmentsneed to take to effectively combat moneylaundering. Together with the nine SpecialRecommendations to combat terrorism, theseconstitute a strong, broad and coherent frameworkto combat money laundering and the financing ofterrorism.

The FATF organises work groups that look, inparticular, at how to improve the mutual evaluationof financial systems in terms of the fight againstmoney laundering, and examine current methodsand trends.

ACAM is a member of a work group on risks in theinsurance sector. Its findings should be madepublic during 2009.

ACAM also collaborates with the banking andfinancial regulators of other European countrieswithin a work group called the AMLTF (Anti-MoneyLaundering Task Force), along with theCommission bancaire. The objective of this sub-group of the Level 3 committees (3L3, see below),based in London, is to harmonise the actions ofsupervisory authorities in terms of the fightagainst money laundering and to develop betterpractices in Europe.

4. TRACFIN – Traitement du renseignement et action contre les circuits financiers clandestins (French government’s anti-money laundering unit)

To help insurers to complywith their anti-moneylaundering obligations ACAM’sCollege approved a handbook of good practicein March 2005. It is freely available onACAM’s website (www.acam-france.fr).

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n NATIONAL COOPERATION

Along with the other supervisory authorities, ACAMhas worked on the transposition of the 3rdDirective no. 2005/60/EC of 26 October 2005 onthe fight against money laundering and thefinancing of terrorism, under the aegis of theDirectorate General for the Treasury and FinancialPolicy*. This has lead to the enactment of decree(ordonnance) no. 2009-104 of 30 January 2009,extending the obligations concerning the fightagainst money laundering and the financing ofterrorism. The decree also modifies obligations of vigilance, focusing on a risk-based approach (cf. Section V).

In conjunction with TRACFIN, ACAM also seeks toincrease awareness of this issue within the Frenchmarket. The accuracy of reports of suspicioustransactions is more important than theirfrequency. It is important that reports sent toTRACFIN are sufficiently documented and can beacted on promptly.

Lastly, surveys of life insurers provide ACAM witha comprehensive view of the opinions andexperiences of private sector companies.

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31 JANUARY 30 APRIL 31 MAY 30 JUNE 31 JULY 31 OCTOBER

Annual documents n-1Mutuals - PI

Quarterly reports4th quarter n-1

Quarterly reports1st quarter n

Quarterly reports2nd quarter n

Quarterly reports3rd quarter n

Q1Q2Q3

Q1Q2Q3

Q1Q2Q3

Q1Q2Q3

Annual documents n-1Insurers

PI MutualInsurers

Annual documents n-1Supplementary pension

institutions

PI MutualInsurers

PI MutualInsurers

PI MutualInsurers

2. Oversight:centralising data

2.1. Prudential documents

ACAM collects and analyses information on the French insuranceindustry as a whole.

ACAM’s main mission is to monitor all entitiesoperating in the French insurance sector,irrespective of their form or status. It collectsinformation from all the entities governed by theregulations that transpose the European directiveson insurance into French law.

The information it collects can be divided into fourmain categories:

u accounting information, prepared in compliancewith the rules laid down by the FrenchAccounting Regulation Committee (Comité de laréglementation comptable);

u regulatory reports to facilitate analysis of thefinancial statements;

u general information obtained from the regulatedentities;

u statistics that provide an overview of thesocioprofessional aspects of the insuranceindustry, which are passed on to national andEuropean statistics offices.

Most of the information is received in the form ofmandatory reports and statements filed on setdates (see the schedule below), in compliancewith the Insurance Code, the Social Security Codeand the Mutual Code. The information collectedvaries slightly depending on the applicable Code,although a harmonisation process is underway.

With respect to entities subject to the Mutual Code, the relevant directives have been transposed morerecently. This has been accompanied by a complete overhaul of the applicable chart of accounts and thecreation of a set of standard reports to facilitate analysis of their accounts.

ACAM has developed a number of tests to enableit to carry out its supervisory role. During theyear, each entity must send ACAM the following:

u quarterly statements:

• Q1: quarterly flows;• Q2: quarterly statement on amount ofinvestments;

• Q3: simulations covering assets and liabilities.

u an annual report including, in particular:

• general information;• published financial statements and relateddocuments;

• reports on solvency, internal controls and itsreinsurance policy;

• annual statements analysing commitmentsand corresponding cover, the solvencymargin and the liquidation of provisions.

STATISTICS

ACAM uses all the information it obtains in thecourse of its prudential supervision (its primaryfunction), its supervisory activities and its marketwatch.

Consolidation of all the individual replies receivedallows it to produce series of statistics:

u annual financial results (consolidated data pertype of business);

u summarised tables (overview of insurancepopulation: companies, operations, etc.).

SUBMISSION DEADLINES FOR PRUDENTIAL DOCUMENTS BY SUPERVISED INSURERS

JOINT ACTION WITH THE COMMISSIONBANCAIRE

ACAM cooperates actively with the Commissionbancaire and the AMF in the fight against moneylaundering and the financing of terrorism. Forexample, anti-money laundering surveys of banksoffering insurance products are conducted jointlywith the Commission bancaire. At the same time,the joint ACAM-CB meetings provide opportunitiesfor in-depth discussions, as do the regularcooperation meetings organised by the bodies’general secretariats.

* DGTPE : Direction générale du Trésor et de la politique économique.

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2.2 Relations with the policyholders

1. Monitoring of insurance policies

The monitoring of policies is an integral part ofACAM’s oversight activities. It looks at how policiesare drafted, marketed and subscribed, how theyare implemented, the scope of the cover provided,policy amendments and termination when itverifies that insurers meet their underwritingliabilities vis-a-vis their policyholders.

These checks are made during on-site inspections,and also by the Contract Law and Policyholdersdepartment (DDCRA).

2. Protecting policyholders’ rights

The role of the Contract Law and Policyholdersdepartment is to examine,analyse and deal withcomplaints, to monitorinsurance policies and tocarry out a legal watch.

The Department works in conjunction with theinspection teams to verify that insurers complywith the regulations governing insurance policiesand the contractual provisions entered into withtheir policyholders.

n HANDLING COMPLAINTS

The Department contributes to the supervision ofthe market and the protection of policyholders’rights. Complaints concerning insurance policiesmay be referred to the DDCRA* by policyholdersand also by consumer associations, mediators,solicitors, insurance intermediaries, groups takingout group policies and insurers themselves.

A complaint will be considered if there is a writtenrecord of the dispute between the policyholder andthe insurer. If the DDCRA* judges that the complaintis justified, it may invite the insurer to reconsiderthe matter and comply with its statutory,regulatory or contractual obligations. However, itdoes not have the power to compel either party toan individual dispute to act or refrain from acting.

The DDCRA* does not provide policyholders withlegal advice or advice on insurance products. Itdoes not have the authority to express an opinionon the reality of the case referred to it or on anydisputed findings of experts. It has no authority toconsider a complaint referred to it if, at the sametime, an application is made to the courtsconcerning the same subject.

The department operates a call center for urgentenquiries from individuals (+33 01 55 50 41 00).

The DDCRA* acts in close collaboration with thesupervision teams. It requests their opinion ontechnical aspects and keeps them updated oncomplaints referred to it. It also issues regularreports and statistics and carries out cross-sectoral analyses of complaints. This valuable datamay be a factor when selecting which entities areto be controlled or inspected. The DDCRA* may alsowork alongside the inspection teams when theylook at the management of claims, the complaintsprocess, litigation and insurance policies.

n LEGAL WATCH

The DDCRA* examines and verifies legal complianceof the insurance policies referred to it, and alsoadvises and assists other ACAM departments. Itcarries out research in various areas of private lawrelating to insurance policies (content, marketing,underwriting, performance, termination) andthe management of relations with policyholders(claims, complaints, litigation).

The DDCRA’s ancillary tasks include a legalwatch, training, involvement in ACAM actions,communication, advising government on technicalissues, and international negotiations within theframework of CEIOPS.

JANUARY JUNE JULY NOVEMBER DECEMBER

• “Annuaire statistique de laFrance”, INSEE – NationalInstitute of Statistics andEconomic Studies

• “Insurance statistics – Statistical questionnaire for the base year n-2”, OECD

• “Global reinsurance market Report”, IAIS

• “Financial stability report” – reinsurance sector, CEIOPS

• Accounting data, Bank of France

• Company data within the EEA

ACAM is a member of the French National Council for Statistical Information (Conseil national del’information statistique - CNIS) and contributes to its survey on “Money, finance and the balance ofpayments”. ACAM also contributes data to a number of French and international organisations.

REQUESTS FROM EXTERNAL ORGANISATIONS RECEIVED BY ACAM

*Département du Droit du Contrat et des Relations avec les Assurés – Contract Law and Policyholders Department

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EXCHANGE OF INFORMATION BETWEENACAM AND THE BANK OF FRANCE

A Memorandum of Understanding has been signedby ACAM and the Bank of France to exchangeinformation on insurers. This arrangement enablesthe Bank of France to contribute to statistics onthe insurance sector for the ESCB (EuropeanSystem of Central Banks) without placing anyextra reporting burden on its member banks, whileat the same time improving its national financialdata.

ACAM provides the Bank of France with referencedata and financial data on the insurance sector. Inexchange, the Bank of France provides ACAM withthe statistics it produces using this information.

3.2 European cooperation

a) ACAM’s coordinating role

Many insurance groups operate in several differentMember States via subsidiaries, branches or underthe freedom to provide services system. Althougheach country is responsible for supervising thelegal entities operating in its territory, collaborationbetween the various national regulators isessential.

SPECIAL TREATMENT OF INDIVIDUALSWITH SERIOUS HEALTH PROBLEMS

The AERAS Convention (S'Assurer et Emprunteravec un Risque Aggravé de Santé– Insurance andLoans with an Increased Health Risk) was signedwith a view to extending access to insurance andfinancial loans for individuals who have or havehad a serious health problem.

The ACAM acts as secretary of the AERASconvention’s Mediation Board.

The Board examines individual claims referred toit by individuals seeking a loan. It verifiescompliance with the Convention, paying particularattention to the following:

u three-tier examination of insurance applications;u time taken by the insurer and the bank toexamine the application;

u information provided by the loan applicant onthe medical reasons which resulted in an excesspremium, exclusion, a deferral or refusal toinsure;

u identification and implementation of alternativeguarantees by the bank;

u borrower’s eligibility for the pooling mechanism,subject to resources;

u confidentiality of medical data disclosed to theinsurer;

u acceptance of external insurance (delegation).

The Board does not have authority to express anopinion on insurance limitations or exclusions, thelevel of the premium or any excess premium. Nordoes it internee if a loan has already been granted.

For more information on the AERAS convention:www.aeras-infos.fr

3. Cooperation 3.1 In France

The 2003 Financial Security Act maintainedseparate regulation and supervision of theinsurance sector, the banking sector (Commissionbancaire) and the financial markets (Autorité desmarchés financiers).

Parliament considered that separation wasnecessary because of the different types of risk towhich the various sectors were exposed, whileexpressing a wish for increased cooperationbetween the three regulators, in particularin light of the increasing number of financialconglomerates operating in both the banking andinsurance sectors, and the number of issuesrelating to the marketing of financial products.

a) Cooperation with the Commission bancaire

ACAM cooperates with the banking regulator, theCommission Bancaire, on several levels. Oneexample of this cooperation is the mixed ACAM / CBteams which carry out coordinated on-siteinspections.

Joint assignments take place regularly. They mayfocus on groups that engage in both banking andinsurance activities, or on issues that affect bothsectors. Knowledge and experience on topicsthat share certain similarities are exchanged, forinstance during joint inspections.

This mutual exchange system ensures both bodiesare aware of individual cases and contributes tothe harmonisation of control methods.

ACAM AND COMMISSION BANCAIRE SHARECLOSE LINKS

The President of the Commission bancaire isautomatically a member of ACAM’s College, andthe President of the ACAM is automatically amember of the Commission Bancaire. The twobodies meet twice a year to discuss matters ofjoint concern.

A Cooperation and Information Charter is availableon ACAM’s website and was last updated in 2004.It organises the collaboration between the twoauthorities.

b) Cooperation with the Autorité des marchésfinanciers (AMF)

Cooperation with the AMF is less official, due tothe fact that there are fewer links between the twobodies’ activities.

The ACAM and the AMF have continued to worktogether on the marketing of financial products,following on from the Delmas-Marsalet report(November 2005). This involves analysing theinformation and advertising materials intendedfor consumers of financial products, whetherthey invest directly or through a unit-linked lifeinsurance policy.

HARMONISED PRUDENTIAL RULES WITHIN EUROPE

These prudential rules are set out in EU directives, which define inparticular the solvency rules governing insurance companies andinstitutions for occupational retirement provision (IORP) within theEuropean Economic Area.

Compliance with these rules is verified by each Member State’ssupervisory authority. The Member States have entered intoagreements to facilitate cooperation and organise the exchange ofinformation, in compliance with the directives.

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5. EEA: EU + Iceland, Norway and Lichtenstein

countries have Observer status. Each MemberState nominates a delegation.

The European Commission, which is an Observeronly, can refer matters to CEIOPS for a technicalopinion and request proposals for Level 2measures under the “Lamfalussy” process. CEIOPSis governed by a “Managing Board”, elected fortwo years.

n ACTION

CEIOPS advises the European Commission onregulations covering insurance. It also organisescooperation between the various supervisoryauthorities of the Member States of the EuropeanEconomic Area.

Accordingly, ACAM cooperates with the otherEU/EEA supervisory authorities within theframework of CEIOPS, more specifically on theintroduction of the future “Solvency II” measures.CEIOPS acted as technical advisor to the EuropeanCommission for the preparation of the “Level 1”draft directive.

It monitors the application of EU Directivesconcerning the insurance and pension sector andoversees the proper operation of coordinationcommittees. In 2007 agreements were signed toimprove mediation and cooperation betweensupervisory authorities who are CEIOPS membersand non-members.

Lastly, CEIOPS is working on proposals to organisetraining on a European level and the exchange ofpersonnel between supervisory authorities.

EUROPEAN SUPERVISORY AUTHORITIES: A VARIETY OF STRUCTURES

CEIOPS currently has 30 member countries, with27 active Members and 3 Observers (Iceland,Norway and Liechtenstein).

In 25 of the 30 member countries one singleauthority supervises both the insurance and thepension fund sectors. In some countries the roleof the authority is limited to these two sectors,while in third countries the authority alsosupervises the financial markets and/or thebanking sector.

Thus, in 14 member countries one single authoritysupervises all these sectors (integratedsupervision). These are: Germany, Austria,Belgium, Denmark, Estonia, Hungary, Latvia,Malta, Czech Republic, Slovakia, Sweden, UnitedKingdom, Ireland, Poland (January 2008).

France is one of the 11 countries that has aspecialist authority for the supervision of theinsurance sector (separate supervision). Thebanking and financial sectors are supervised byseparate entities. This solution has also beenadopted by Cyprus, Finland, Greece, Luxembourg,Lithuania, Portugal, Slovenia, Spain, Italy andRomania.

In particular, it is important that controls andinspections within a single insurance group arecoordinated, as the solvency of a company couldbe affected and impact on the financial situationof other entities within the same group. Theassessment of ability to meet underwritingliabilities vis-a-vis policyholders should thereforebe carried out at a consolidated, group level.

The French supervisor therefore meets with itsEuropean counterparts on a regular basis tocoordinate actions concerning issues affecting agroup as a whole and to share informationobtained from group entities. For each Europeangroup a coordination committee is created,comprising each entity’s head of prudentialsupervision. ACAM is responsible for organising thecoordination committees, coordinating monitoringand supervisions, and for conducting jointsupervisions of groups when the parent companyis French. In such cases it acts as ‘lead supervisor’.

When a European group has French subsidiariesbut the parent company is not French, it attendsthe coordination committee meetings organisedby another supervisor.

b) The role of CEIOPS (Committee ofEuropean Insurance and OccupationalPension Supervisors)

The countries of theEuropean Economic Areacooperate, within theframework of CEIOPS, todevelop common policies forall supervisory authoritiesand supervised entities inEurope, in preparation forthe new Solvency IIdirective.

ACAM essentially cooperates with othersupervisory authorities within the framework ofCEIOPS.

The Committee was created by virtue of a decisionof the European Commission dated 5 November2003 under the “Lamfalussy” process as appliedto the insurance and pension fund sector. It hasreplaced the ‘Conférence des Autorités de Contrôledes Assurances des États membres de l’Unioneuropéenne’ set up in 1958, for which Franceacted as secretary.

n ORGANISATION

CEIOPS (Level 3 Committee) is composed of high-level representatives of the supervisory authoritiesof 30 Member States of the European Union andthe European Economic Area (EU/ EEA)5, and theEuropean Commission. The supervisors of insurersand pension funds in EU Member States are votingmembers of CEIOPS’ decision-making body, the“Members’ Meeting”. Supervisors of other EEA

Cooperation with the other supervisoryauthorities in the European Union takes the form of intensive preparatory work in view of the adoption of the forthcomingsolvency measures, known as “Solvency II”,as well as contributions to opinionsrequested by the European Commission.

Important

A supervised entityoperating in oneEuropean countrymay open a branchin another Europeancountry, provided itcomplies with thatcountry’s laws ofcontract. A foreigncompany located inthe EuropeanEconomic Area cantherefore offerinsurance policiesin France.

However, the branchwill continue to besupervised by thehome country’ssupervisoryauthority.Pursuant toArticle 11 ofDirective2002/83/ECon direct lifeinsurance, thesupervisoryauthority for the country in which the branch is located may take part in the supervisionprocess.

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ABOUT ACAM1

c) Cooperation between Level 3 Committees

CEIOPS and the other two Level 3 Committees(known as the 3L3 or 3 Level 3 Committees), theCESR (Committee of European SecuritiesRegulators) and the CEBS (Committee of EuropeanBanking Supervisors) have held joint workingmeetings since 2005.

They have five objectives:

u sharing information in order to have compatibleapproaches;

u exchange of experiences which can facilitatesupervisors’ ability to cooperate;

u producing joint reports on topics of mutualinterest;

u reducing supervisory burdens;u having similar basic functioning of the Committees.

The 3L3 committees focus in particular on issuesrelating to financial conglomerates, anti-moneyLaundering and the similarities between the Bâle IIand Solvency II directives.

ACAM contributes to work on the comparability ofrules governing financial products (unit-linked lifeinsurance policies / direct investments in UCITS-type funds).

d) Cooperation with a view to managingcross-border financial crises

Given the need to strengthen cooperation in theevent of a cross-border systemic crisis affectingthe European financial sector, the European Unionbegan to consider the possibility of an agreementback in 2001. Two years later, an initialMemorandum of Understanding (MoU) was signedby the Union’s banking supervisors and centralbanks. A second, similar but tripartite, documentwas signed by the supervisors, the central banksand the Member States’ Finance Ministers in thesummer of 2005 replacing the initial MoU.

The IAIS was founded in 1994 and representsalmost 190 bodies in 140 countries world-wide. Itsmembers regulate and supervise insurers. Themission of the IAIS is to:

u promote the exchange of information betweensupervisors concerning regulations, marketsand entities;

u define core principles on supervision andproduce a set of standards for generalapplication;

u help regulators in emerging countries to set upan appropriate regulatory framework and aneffective supervisory system. The IAIS is a non-governmental body and does not have authorityto issue mandatory rules;

u contribute to the stability of the financialmarkets.

The IAIS is organised into various sub-committeesand working groups, each with its own specialistarea. Issues addressed include: accountingtreatment of insurance policies, reinsurance andrisk transfer, financial conglomerates, solvencyand the fight against money laundering and thefinancing of terrorism. These sub-committees aim

to produce standards and principles that can beapplied by all supervisory authorities.

The influence of the IAIS recommendations isgrowing. The International Monetary Fund and theWorld Bank use the Insurance Core Principlesdefined by the IAIS to assess their members’supervisory systems. The European Union alsouses these principles to assess the supervisorysystem of candidates for accession, and is carefulto ensure that the “Solvency II” project remainsconsistent with the work of the IAIS. A multilateralcooperation and exchange of informationmechanism has been set up and all IAIS membersare invited to participate. Furthermore, the“Insurance Groups and Cross-Sectoral Issues” sub-committee, chaired by ACAM, has prepared a paperon “Principles applicable to the supervision ofinternational insurers and insurance groups”.

The IAIS is also heavily involved in supportingemerging countries.

The main purpose of the IAIS is to promote cooperation between itsmembers, which are for the most part insurance supervisors andregulators, and also to foster collaboration with the supervisory authorities of other financial sectors (banks, financial markets, etc.). Such cooperation is becoming increasingly necessary given the internationalisation of insurance groups and their diversification into banking and asset management activities.

a) IAIS (International Association of Insurance Supervisors)The new version of this MoU, which took effect on1 June 2008, completed the 2005 agreement. Itfactors in the entry of Romania and Bulgaria intothe EU and extends its scope to the insurancesector and the stock exchanges. It also introducesreinforced procedures for the sharing ofinformation. The agreement also lays down aseries of high-level principles (“burdensharing”,priority for market solutions, etc.) to managecrises, and the appointment of a “leader” authorityto coordinate action in the event of a cross-bordercrisis and to set up contacts with the privatesector.

3.3 International cooperation

ACAM’s InternationalDepartment monitors andorganises cooperation andthe exchange of informationrelating to the prudentialsupervision of insurers atan international level.

International cooperation outside Europe isorganised within the framework of the IAIS(International Association of InsuranceSupervisors), the IOPS (International Organisationof Pension Supervisors) and the OECD.

ACAM attends plenary sessions and workinggroups organised by these bodies. It may berepresented by its Secretary General, members ofthe International Department, supervisors oremployees representing other departments,depending on the case.

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ABOUT ACAM1

d) The website (http:www.acam-france.fr)

The ACAM website was completely overhauled in2008, with the aim of reaching a much widerpublic. With an attractive, user-friendly design,it is now a practical, easy to access source ofinformation for both the general public and playersin the insurance sector.

Four different entry points provide customisedaccess for four main user types: supervisedentities, intermediaries, policyholders and thepress. New functionalities have been introduced:for instance, supervised entities can view theschedule for the submission of documents toACAM and can also upload their reports and otherdocuments via the site.

4.2 Actuarial research by ACAM’ssupervisors6

Various professional publications, including theBulletin français d’Actuariat, have recentlyreported on actuarial research by ACAM’ssupervisors. A number of articles have beenpublished, covering topics such as the insuranceof options in a highly-fluctuating market, or theappropriateness of long-term equity investments.A paper has also been prepared on the valuation ofcommodities derivatives.

This work is indicative of the quality of the trainingreceived by ACAM supervisors, who have acomprehensive understanding of the most recentdevelopments in financial modelling, and who areable to contribute to developments in actuarialtechniques. They also demonstrate ACAM’s abilityto rise to the Solvency II challenges, along with themarket.

4. Communication and informationThanks to its on-site inspections and the datait receives every year from other linked

entities, the ACAM has first-hand knowledge ofthe challenges facing the insurance industryand the market. It is constantly developing toolsto heighten awareness, inform, and facilitateexchanges of information.

4.1 External communication tools6

a) The annual report

Once a year ACAM reports on its activities in itsannual report, which is widely distributed.

b) The ACAM Newsletter

The Newsletter was launched in 2007. It containsthe latest information on findings from on-siteinspections, new regulations or court decisions,and ACAM’s interpretation of laws and regulationsthat apply to insurers.

c) Analyses et synthèses

This is a new publication, also launched in 2007 byACAM’s Research and Market Watch department(le département Etudes et suivi du marché). Itspurpose is to present in-depth studies based onACAM’s statistics. The first issue was devoted tothe French insurance market and the main lessonsto be learned from the third quantitative impactstudy (QIS3). The second issue covered thelessons to be learned from the fourth quantitativeimpact study (QIS4) while the third looked at thetransposition of the Reinsurance directive.

>

c) OECD (Organisation for EconomicCooperation and Development)

The OECD’s 30 member states account forapproximately 98% of the world’s insurancerevenues. Within this governmental body anInsurance Committee meets twice a year (as doesa private pensions working group). ACAMcontributes to these bodies, along with theMinistry of the Economy, Industry andEmployment.

MULTILATERAL COLLABORATION

ACAM also collaborates and cooperates with other,mainly French-speaking countries and countriesthat are candidates for accession to the EuropeanUnion, providing technical support.

For example, it collaborates with CIMA, theInter African Conference for the InsuranceMarket (Conférence interafricaine des marchésd’assurance), which has organised a singlesupervisory system for its 14 member countries,which are all Sub-Saharan African countries inthe CFA zone. Its decision-making body interms of introduction and compliance withregulations, the Regional Insurance SupervisionCommission, meets four times a year. Two ofACAM’s supervisors attend meetings to provideexpert advice.

b) IOPS (International Organisation ofPension Supervisors)

IOPS is an independent organisation with governingmembers, associate members and observer-statusmembers from around fifty countries at variouslevels of economic development.

Its objectives are four-fold:

u to set international standards;

u to promote good practice in terms of thesupervision of private pension funds, notcovered by the state social security systems;

u to promote international cooperation;

u provide a forum for the exchange of information.

IOPS works in close collaboration with the otherinternational organisations concerned by pension-related issues: the IAIS, the International MonetaryFund and the World Bank.

The OECD is responsible for its administrative andsecretarial work. ACAM, which supervises part ofthe private pension liabilities in France (pensionproducts marketed by insurance companies,occupational pension funds and supplementarypension institutions), is a member of IOPS’technical committee.

6. A detailed account of action taken in 2008 can be found in Part II - 5/ Debates and current issues - 5.5 The continuing work of the Haut Comité de Place

The IAIS and IOPS are internationalorganisations representing insurancesupervisors and occupational pension fundsupervisors, respectively. They both conductresearch, develop international standardsand promote cooperation.

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ABOUT ACAM1

u AFA (Association Française des Assureurs)created at the end of 2007 by the FFSA and theGEMA.

u FFSA (Fédération Française des Sociétésd’Assurance) created in 1937, it represents 289insurance companies of various forms (limitedcompanies incorporated in the form of sociétésanonymes, mutual insurers within the FFSAM,and branches of foreign companies).

u GEMA (Groupement des Entreprises Mutuellesd’Assurance) industry association created in1964, it represents 17 mutual insurers operatingwithout any intermediaries and 24 of theirsubsidiaries incorporated as sociétés anonymes.

u CTIP (Centre Technique des Institutions dePrévoyance) created in 1986, it represents mostof the provident institutions.

u FNIM (Fédération Nationale Indépendante desMutuelles) created in 1989, its members includearound thirty mutual insurers and groupingunions subject to the Mutual Code.

u FNMF (Fédération Nationale de la MutualitéFrançaise) created in 1902, its members includealmost all the 2,000 mutuals, mutual insurersand grouping unions subject to the Mutual Codeoperating in the insurance sector proper (so-called Livre II mutual insurers and groupingunions) or managing health and social protectionschemes (so-called Livre III mutuals andgrouping unions).

4.6 Relations with industryorganisations8

Before launching any cross-sectoral survey orissuing recommendations, ACAM consults industryassociations and organisations within theinsurance, mutual insurance and providenceindustries, with a view to obtaining their opinionand assistance. However, as none of the threeCodes within its remit requires all insurers tojoin a single, central industry association, thereis no single representative body with which theACAM can deal. ACAM has good, long-standingrelationships with the federations that collectivelyrepresent most insurers.

Relations between ACAMand industry organisationwere strengthened in 2008following its undertaking tothe Haut Comité de Place(Paris Financial ServicesHigh-Level Committee,set up to increase theattractiveness of Parisas a marketplace.

4.3 Cross-sectoral surveys

These are conducted by ACAM’s Secretariat Generalthrough theme-based controls and questionnairessent out to all market operators.

The surveys covering topics such as the continuedfall in interest rates (1998), inadequatereinsurance programmes (2000), the unsuitabilityof the mortality tables used for certain life policies(2001), insufficient rates and provisions for themaximum cover offered to policyholders underunit-linked life insurance policies (2002), use ofcredit risk transfer instruments (2003), anddifferences in the application of accounting rulesfor provisions for long-term depreciation (2004),have enabled a number of insurers to identify andassess previously undetected risks.

For the first time the cross-sectoral surveyconducted in 2006 was sent out to all the insurerssupervised by ACAM. Its main aim was to alertthem to the danger of the poor assessment of riskstransferred to reinsurers in limited or finitereinsurance treaties.

4.4 External actions7

Supervision conferences have a dual purpose:

u to present to insurers the findings of the cross-sectoral surveys and the lessons to be learned;

u to explain the purpose of, and discuss compliancewith, the new prudential requirements (newprudential reports for mutual insurers have beengradually introduced since the 2005 financialyear), the public consultations (CP) and quantityimpact studies (QIS) launched by CEIOPS as partof the Solvency II project.

ACAM also regularly participates in seminarsorganised jointly with the professional pressor training organisations.

4.5 General recommendations7

ACAM’s recommendations do not seek to imposea new set of standards on insurers, their purposeis to clarify existing requirements in terms ofgood practice, where the regulations requirefurther explanation. Recommendations issued inrecent years have covered:

u the need for solvency reports to include moreinformation about future prospects (2000 and2004);

u practical applications of the obligations relatingto the fight against money laundering and thefinancing of terrorism for life insurance (2001and 2005);

u governance of insurers and information requiredby ACAM on reinsurance treaties and finite risktransfer deals (2007);

u recommendations issued in 2008: • joint recommendation of 15 December 2008,issued by the National Accounting Council(Conseil national de la comptabilité - CNC) andACAM, on investments by regulated entitiesduring the financial crisis (accounts for theyear to 31 December 2008);

• joint recommendation issued by the CNC, theAMF, the Commission Bancaire and ACAMrelating to calculation of the fair value of financialinstruments when markets are inactive. Thepurpose was to provide clarifications on thepreparation of IFRS-compliant interim and annualfinancial statements as at 30 September 2008or thereafter;

• transfers of reserves or provisions bysupplementary pension institutions.

7. A detailed account of action taken in 2008 can be found in Part II - 5/ Debates and current issues - 5.5 The continuing work of the Haut Comité de Place 8. A detailed account of action taken in 2008 can be found in Part II - Part II - 5/ Debates and current issues - 5.5 The continuing work of the Haut Comité de Place

2

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Part 2ACAM’s activity in 2008

48 49

Part 2ACAM’s activity in 2008

I - Highlights of 2008 A brief look at the past year - chronological account of the most important events 50

1. Sanctions and other significant decisions 531.1 The figures 53

1.2 ACAM’s disciplinary and preventive decisions 54

1.3 Validation of ACAM’s decisions: some examples 56

1.4 Successful action following decisions 57

2. Surveys and market trends 582.1 Issues shared by the market as a whole 58

2.2 Supplementary pension institutions 63

2.3 Mutuals governed by the Mutual Insurance Code 66

2.4 Insurance intermediaries 68

3. Specific cases 703.1 Provisioning 70

3.2 Other financial elements 70

3.3 Governance 71

4. ACAM safeguards policyholders’ rights 724.1 Complaints handled by the DDCRA: the figures 72

4.2 The variety of the raised issues 76

4.3 Recent legal developments 80

4.4 Mediation 82

5. Debates and current issues 845.1 Regulatory developments 84

5.2 ACAM’s College recommendations 85

5.3 Consultation launched by the European Commission on the IORP Directive (IORP) 86

5.4 International agreements 87

5.5 The continuing work of the Haut Comité de Place 88

II - Regulatory developments at European level 92

1. Solvency II 921.1 General background 92

1.2 Solvency II: update 95

1.3 Internal models 97

2. Quantitative impact studies 982.1 QIS4: realisation, analysis and results 98

2.2 QIS5 is being prepared 100

3. Accounting harmonisation 1013.1 Principle and functioning 101

3.2 Difficulties in applying accounting standards 101

C O N T E N T S

51

ApriluMr Cyril Roux was appointed as ACAM’s deputySecretary General.

u ACAM published its national guidelines for QIS4.

u Supervision Conference on mutuals and on thelaunch of the fourth Quantitative Impact Study(QIS4).

u April to July: QIS4.

Juneu ACAM published its Supervision Charter,developed in conjunction with industryassociations, which aims to inform insurersabout their rights and obligations duringinspections.

Julyu ACAM and the Bank of France signed amemorandum of understanding on the exchangeof data relating to insurers.

u The Government instructed the GeneralInspectorate of Finance (IGF) and Mr BrunoDelétré to conduct an audit with a view to themerger of Commission bancaire and ACAM.

Septemberu Seminar on internal models and Solvency II,organised by ACAM for industry players.

u Death of Mr Jacques Bonnot, member of ACAM’sCollege and honorary member of the Conseild’Etat.

u Appointment of Mr Michel Laparra as a memberof ACAM’s College, replacing Mr Jacques-HenriGougenheim.

u Retirement of Mr Noël Guibert, senior supervisorand head of ACAM’s International Department,who is succeeded by Ms Pauline de Chatillon.

Octoberu Joint recommendation by the French nationalaccounting council (Conseil national de lacomptabilité – CNC), the financial marketsregulator (Autorité des marchés financiers –AMF), the banking regulator (Commissionbancaire – CB) and ACAM on the fair valuevaluation of financial instruments.

u First vote on the draft Solvency II directive bythe European Parliament (ECON Committee).

u The draft Solvency II directive is put to theECOFIN Council for an informal straw poll vote.

u CEIOPS presented the first QIS4 European resultsto the industry.

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ACAM’S ACTIVITY IN 2008

A brief look at the past year, with a chronological accountof the most important events

2

Highlights of 2008

I -Highlights of 2008

Februaryu ACAM issued recommendations concerningits reporting requirements with regard toreinsurance treaties and transfers of limited or“finite” risks.

Marchu ACAM sent replies to each of the life insurersthat had been questioned as part of the surveyon the fight against money laundering and thefinancing of terrorism, launched in 2007.

u The technical specifications of the fourthSolvency II Quantitative Impact Study (QIS4)were published by the European Commission.

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ACAM’S ACTIVITY IN 20082

Novemberu Sudden death of Mr Michel Laparra, member ofACAM’s College.

u Conseil d’Etat dismisses appeals by MutuelleLe Sacré Coeur.

u Conseil d’Etat dismisses an appeal by Mr MaximeMitondo, de facto manager of the broker OptimaConseil.

u CEIOPS report on QIS4 at European level.

Decemberu Deadline for transformation of supplementarypension institutions (IRS) deferred until 31December 2009 instead of 31 December 2008(Act No. 2008-1330 of 17 December 2008relating to the financing of social security for2009). Institutions are advised to submit theirapplication to ACAM before 31 March 2009.

u Joint recommendation by the French nationalaccounting council (CNC) and ACAM oninvestments by insurers, reiterating theprovisions currently applicable under Frenchaccounting regulations.

u Publication of the second edition of Analyses etsyntheses, devoted to the results of the fourthquantitative impact study for Solvency II, byACAM’s Research and Market Watch department.

FIRST FEW MONTHS OF 2009

Januaryu Appointment of Mr François Lagrange, honorarymember of the Conseil d’Etat, as a full memberreplacing Mr Bonnot, who died in 2008, and of Mr Pierre Guerder, honorary member and seniorjudge of the Court of Cassation, as an alternatemember replacing Mr François-Régis Crozone,member of the Court of Cassation, who wasappointed member of the College to replace Mr Auber following his death.

u Publication of the Delétré report.

Aprilu Adoption of Solvency II directive.

u Organisation of the 3L3 seminar (CEIOPS-CEBS-CESR) in conjunction with the AMF and the SGCB,for other European supervisory authorities (27-28 April).

u Publication of the third edition of Analyses etsyntheses, devoted to the transposition of thereinsurance directive, by ACAM’s Research andMarket Watch department.

u French insurers and reinsurers are invited toprepare a valuation of their prudential balancesheet, in line with the principles laid down in theSolvency II directive and send it to ACAM.

Mayu ACAM launches a new cross-sectoral survey ofinvestments by insurers.

Summary of College decisions in 2008

Insurers Insurers Insurerssubject to subject to subject to

Type the Insurance the Social the Mutualof decision Code Security Code Code TOTAL

Sanctions Legal entity 3 published 0 2 unpublished 61 unpublished

Special scrutiny Placement 2 0 1 3

Maintenance 0 0 0 0

Appointment 0 0 3 3

Termination 0 0 2 2

Provisional administration Placement 0 0 4 4

Confirmation 0 0 0 0

Extension 0 0 0 0

Termination 0 0 1 1

Mandatory transfer of part of a mutual insurer ’s portfolio of policies 1 0 0 1

Recovery plan request 1 0 2 3

Freezing of assets 4 0 0 4

Withdrawal of licence 8 0 0 8

Winding-up (all decisions) 1 0 0 1

Approval of transfer of provisions or reserves by supplementary pension institution 0 7 0 7

Appointment of additional auditor 0 0 1 1

Refusal to authorise an insurer to raise a loan 0 0 1 1

Refusal of substitution agreements 0 0 1 1

Dismissal of recourses 0 0 1 1

Others 6 0 0 6

Opinion 1 0 0 1

General recommendations 1 1

o/w one - all sectors 1

TOTAL 29 7 19 56

1. Sanctions and other significant decisions 1.1. The figures

55

ACAM once again made use of its disciplinary andpreventive powers in 2008 by issuing 56 decisions,to be compared with the 34 decisions issued theprevious year1. Six sanctions were applied, 3 of thembeing subject to publicity. 18 measures were alsotaken under ACAM’s emergency and protectivepowers.

1.2. ACAM’s disciplinary andpreventive decisions

a) Sanctions and warnings

n FAILURE TO COMPLY WITH REPORTINGREQUIREMENTS

Two insurers were sanctioned in 2008 for failureto comply with reporting requirements, inparticular for not transmitting their annual fileswithin the requisite time period. The first insurerreceived a warning and a fine of €15,000. Thesecond received a warning and a fine of €50,000.Although the amounts of the fines may seem low,they take into account the size of the entities,which were both small.

Applying a logic of prevention, ACAM decided tomake these sanctions public, to underline theimportance of a timely transmission of regulatory

information. Any delay is indeed an obstacle to theexercise of supervision.

Two insurers subject to the Mutual Code alsoreceived unpublished warnings for failing totransmit all the information required forsupervisory needs2.

n INSUFFICIENCY OF SOLVENCY MARGIN

ACAM applied the procedure for the mandatorytransfer of the policies portfolio of MAPE (Mutuelled’assurances des professionnels de l’étanchéité),an insurer providing construction liability insurance(class 13). The reason for this decision was that theinsurer did not have sufficient equity and no longerheld the minimum guarantee fund required byArticle R. 334-7 of the Insurance Code.

b) Emergency measures

n PROVISIONAL ADMINISTRATION

On 26 November 2008, ACAM’s College decided, afterinterviewing the companies’ directors, to place FMP(Fédération mutualiste interdépartementale de larégion parisienne) and Mutuelle Intégrance underprovisional administration.

This emergency measure was justified in order to safeguard the interests of their policyholders and beneficiaries. The insurers’ managers did notchallenge the decisions.

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ACAM’S ACTIVITY IN 20082

SUPERVISION AND PREVENTION

Like the banking and financial market authorities(Commission Bancaire and AMF), ACAM has apreventive role in addition to its supervisory anddisciplinary roles.

This role implies that ACAM informs insurers ofits views on the implementation of the laws andregulations, and provides information on bestpractices to be followed in this matter. ACAM’spowers to order emergency or protective measuresregarding insurers in difficulty also form part ofthis preventive role.

FOR INFORMATION

Acting in the interestof policyholders,ACAM permanentlymonitors thesolvency of insurers.Supervised insurersmust submit adetailed file everyyear including legalinformation, as wellas financial andaccounting data.This annualsubmissionenables ACAM tosystematicallyanalyse the financialsoundness of theinsurers.

FOR INFORMATION

The measure bywhich an insurer isplaced in provisionaladministration fallsoutside the scopeof ordinary law.Although theprovisionaladministrator isappointed by a publicauthority, he actsunder his ownresponsibility, likeany other companymanager. He replacesthe Board of Directorsand manages thecompany.

1. All things being equal. According to last year’s report, 34 decisions were made in 2007, with a different number of supervised entities. 2. In this case, the insurers failed to transmit the details of their accounts relating to miscellaneous payables and receivables, together with explanations relating

to changes in these accounts.

FMP (FÉDÉRATION MUTUALISTE INTERDÉPARTEMENTALE DE LARÉGION PARISIENNE) FMP is a major health and provident insuranceprovider. The decision to place it under provisionaladministration was taken after a long inspectionprocess, spreading over more than twelve months,that revealed solvency and management problems.ACAM asked the company to present two recoveryplans, in June and September 2008, but they werenot sufficient to remedy the situation.

LA MUTUELLE INTÉGRANCE

This mutual insurer was created by and for thedisabled and their families and provides them withtailored health and social cover, savings solutionsand assistance. ACAM placed it under provisionaladministration on the basis of an inspection reportindicating that this insurer would probably not be authorised to renew its insurance policies or underwrite new business with effect from 1 January 2009. Delays in implementing changesand a very short-term management system couldalso jeopardise payments of benefits.

The current financial crisis has also lead ACAM toapply Article L. 323-1-1 of the Insurance Code onseveral occasions and impose various emergencymeasures.

n TEMPORARY SUSPENSION OF BUSINESS ACTIVITIES

ACAM considered that the financial situation oroperating conditions of two subsidiaries of aforeign group were such that the interests of thepolicyholders might be compromised. It thereforeordered the temporary suspension of all financialoperations between these two subsidiaries and theother group companies, subject to exceptionsagreed by ACAM on a case-by-case basis.

n REQUEST FOR SUBMISSION OF A RECOVERY PLAN

The deterioration in the financial situation of threeentities – one insurer and two mutual groupingunions – led ACAM to require them to submit arecovery plan for approval, as provided in Article R. 323-1 of the Insurance Code and Article R. 510-3 II of the Mutual Code.

c) Special measures

n REFUSAL TO AUTHORISE AN INSURER TO RAISEA LOAN FOR DEVELOPMENT FUND

The draft plan was submitted to ACAM by a mutualgrouping union pursuant to Article R. 212-5 of theMutual Code. Various problems were identified:

u intermediation would have become the mainbusiness of the grouping’s founding mutualinsurers, which is contrary to Article L. 116-1 ofthe Mutual Code;

u Article L. 114-4 of the Mutual Code onlyauthorises an insurer to reinsure another insurerif the insurance branches that are covered bythe reinsurance agreement are defined in theArticles of Association. The plan provided thateach of the founding mutual insurers wouldreinsure the grouping for up to 90%, using as a basis the benefits and claims paid to its own policyholders. However, the Articles ofAssociation of some of the mutual insurers didnot allow for this type of activity.

Accordingly, ACAM refused to approve the draftplan.

57

1.3. Validation of ACAM’s decisions:some examples

None of the appeals lodged against the ACAM havesucceeded to date.

a) Conseil d’Etat, 24 November 2008, Mr Mitondo, case no. 301539

The Conseil d’Etat, France’s highest administrativecourt which also rules on points of law, dismissedan appeal by Mr Maxime Mitondo to set asideACAM’s decision of 8 November 2006 prohibitinghim from operating as an intermediary for fiveyears, and fining him €30,000.

The appellant maintained that the decisionchallenged was not admissible and was procedurallyflawed because the meeting’s secretary was presentwhen the case was deliberated. He also claimeda material error due to a confusion with his brother,and contested ACAM’s finding that he was the defacto manager of Optima Conseil.

The Conseil d’Etat dismissed all the grounds for setaside raised by the appellant.

b) Conseil d’Etat, 7 November 2008, MutuelleLe Sacré Cœur, cases no. 308886 and310773

The Conseil d’Etat dismissed two appeals byMutuelle Le Sacré Cœur to set aside ACAM’sdecisions of 20 June and 12 September 2007,placing and maintaining it under provisionaladministration.

Both these decisions provide valuable informationon the extent to which the ACAM is required tojustify individual disciplinary measures and theconditions for placing a mutual insurer underprovisional administration.

As regards the obligation to justify its decision, theConseil d’Etat recalled that Law no. 79-587 of 11 July 1979 requires the administrative authority

to state, in decisions falling within the scope ofapplication of this Law, the legal considerations onwhich its decision is based. It added that thisobligation does not include a duty to produceevidence of the factual considerations that are thebasis of the decision.

With regard to the substantive issues, theappellant challenged the legitimacy of ACAM’sdecisions, citing a decision by the Basse-TerreCourt of Appeal of 7 May 2007 setting aside ajudgment handed down by the Pointe-à-PitreRegional Court (Tribunal de grande instance)Tribunal on 3 February 2005, ordering itsliquidation. The Conseil d’Etat ruled that theconditions laid down in the Code of Commerce(Code de commerce) that have to be met for acourt to order liquidation are not the same asthose laid down in Article L. 510-9 of the MutualCode that have to be met when ACAM places amutual insurer under provisional administration.

Because the codes form two independent sets oflegislation, the ACAM may order such measures,provided it does not exceed its authority, withoutthis affecting any decisions that may be takenwithin the context of insolvency proceedings.

c) Conseil d’Etat, 2009, Mr Glane, case no. 297699

The Conseil d’Etat confirmed the order handeddown in summary proceedings in the same casetwo years previously (CE, 27 February 2007, Mr Glane, case no. 301231) and dismissed theappeal by Mr Sébastien Glane against ACAM’sdecisions of 19 July 2006, maintaining l’Orphelinatmutualiste de la police nationale (OMPN) Assistanceet Prévoyance in provisional administration (CE,18 March 2009, Mr Glane, case no. 297699).

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ACAM’S ACTIVITY IN 20082

The appellant, as the former chairman of the twoentities created as a result of the demerger ofOMPN, claimed that ACAM had failed to respect thestatutory three-month time period when itannounced the continuation of the provisionaladministration procedure, and that accordingly itsdecisions were neither valid nor lawful.

The Conseil d’Etat ruled that although ACAM hasthree months maximum in which to announcewhether provisional administration is lifted ormaintained, it may reach a decision within ashorter time period provided it has given theentity’s managers an opportunity to be heard. TheCourt also stated that ACAM is not under anyobligation to stipulate on the day it announces ameasure when such measure will be lifted, as itmay decide to lift the measure at some time in thefuture in light of changes to the insurer’s situation.

1.4 Sucessfull action followingdecisions

1.4.1 The MGMR (La Mutuelle deGestion des Maisons de Retraite)

The MGMR is a Livre III mutual that was placedunder provisional administration by ACAM on 16 May 2007 following the resignation of theprevious provisional administrator, who had beenappointed by the Préfet for the Ile de France region.

The MGMR managed two retirement homes, inwhich essential work to bring the buildings into linewith the applicable standards had not been carriedout because of a lack of funds. Withdrawal of thelicense would have led to the closure of the homesand the transfer of their residents.

On 30 April 2009, after interviewing theadministrator, ACAM was pleased to record that anew manager had been found for both retirementhomes, who had promised to keep on all the staffand to allow all the existing residents to remain.

The administrator sought solutions to ensure thatthe staff and residents would benefit fromconditions identical to those that applied before thetransfer. He also provided the transferor and thetransferee with assurances regarding the schedulefor the operation, which had seemed compromisedon several occasions due to problems encounteredwhen executing his mission.

1.4.2 La France mutualiste

La France mutualiste, which provides pensionschemes specifically for the ex-armed forces, was placed under special scrutiny pursuant toArticles L. 510-9 and R.510-3-1 of the Mutual Code,on 4 April 2007. The main reasons for this decisionwere the unsatisfactory nature of its corporategovernance, the lack of managers with the properskills to manage the mutual, the inadequacy of itsportfolio of assets in view of its commitments in2005, the imprudent management of its real estateassets, and also a lack of adequate anti-money-laundering and internal control procedures.

Two years later, on 13 May 2009, ACAM’s Collegeobserved that the mutual had identified andimplemented a number of measures to correctthese problems, and the special scrutiny measurewas lifted.

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1.4.3 OMPN

OMPN-Assistance, a Livre III mutual, was placedin provisional administration and under specialscrutiny on 8 June 2006. At that time themembers of the mutual’s general assembly hadnot been properly appointed and the spin-offfrom its sister company, OMPN-Prévoyance,initiated in 2002, had not been fully completed.After considerable work carried out under thesupervision of the administrator the mutual’soperations returned to normal and the provisionaladministration measure was lifted on 8 November2007. However, ACAM decided to maintain thespecial scrutiny measures as the renewal ofthe mutual’s governing bodies required closeattention. Since that date the management teamhas demonstrated that it has the necessaryhuman, institutional and financial resources toachieve the mutual’s objectives successfully.ACAM’s College accordingly lifted the specialscrutiny measure on 28 May 2009.

OMPN-Prévoyance, a Livre II mutual insurer, wasalso placed in provisional administration andunder special scrutiny on 8 June 2006. Thiscompany’s situation was worse than OMPN-Assistance as, in addition to similar managementproblems, it had failed to book provisions for somelong-term commitments and its balance sheet wasdangerously unbalanced when these were takeninto account. A restructuring of its guarantees,within the limits defined by the Evin Act, wasnecessary in order to save the company. Afterextensive work, including accounting adjustmentsover several years, the mutual insurer’s situationfinally merited the lifting of the provisionaladministration and the corresponding decisionwas announced on 8 November 2007. However,

the special scrutiny measure was maintained, forthe same reasons as its sister company. Sincethen, the mutual insurer has demonstrated that ithas sufficient technical and financial capacity tooperate normally and that special measures wereno longer necessary. As a result, the specialscrutiny was lifted on 28 May 2009.

2. Surveys and

market trends2.1 Issues shared by the market

as a whole

2.1.1 The impact of the financial crisis

a) Insurers’ structural capacity for resistance

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ACAM’S ACTIVITY IN 20082

The global financial systemhas been experiencing severeturmoil since the summer of2007. Insurers have beenaffected by the crisis, not as insurers but as investors.

THE CRISIS HAS NOT AFFECTEDINSURANCE COMPANIES AND BANKS IN THE SAME WAY

Since the summer of 2007, insurance companieshave been faced with a fall in the value of theirassets. The prices of bond assets have fallen dueto the widening of spreads, even though sovereigndebt benefited from the fall in interest rates at theend of 2008. At the same time, in the equitymarkets, the gains of the past few years havebeen wiped out. On a more temporary basis, themarkets for certain assets have sporadicallyrevealed a limited liquidity.

However, the impact of these events is not thesame for insurance companies as for otherfinancial stakeholders. Insurers are structurallylong-term investors and their generally positiveoverall business balance (premiums received –claims settled) means they are not obliged to sellassets prematurely. As an example, insurers camethrough the 2000-2003 market fall virtuallyunscathed whereas the CAC 40 index lost nearlytwo thirds of its value over the same period.Similarly, the repercussions of the presentcrisis have not endangered the solvency ofthe insurance market.

All in all, insurance companies have shown firmresistance to the financial crisis for severalreasons:

u share prices, like property assets, had risensignificantly over the preceding years. Insurershad therefore accumulated a substantial stock ofunrealised capital gains which cushioned the2008 downturn;

u an insurance company is not exposed to a fall inthe bond markets except in the case of massivemismatching of assets and liabilities. Bond

assets form part of insurers’ asset/liabilitymanagement and are generally intended to beheld to maturity. When this is not the case, theycan use the reserve for long-term capital gains tooffset any capital losses;

u in terms of their possible exposure to particularlytoxic securities, insurers are protected by the riskspreading rules by which they are bound;

u in the case of life insurance policies in euro,insurers are protected not only by the riskspreading rules but also by the possibility ofsetting aside a provision to cover policy holders’share of profits. To smooth life insurance returns,insurers have a period of eight years in whichto pay policy holders their share of profits.Insurance companies can therefore constituteprovisions that they can draw on during periodsof low financial returns so as to maintain anattractive annual rate of capital growth.

b) ACAM’s actions and tools

ACAM permanently supervises insurers’ compliancewith the three pillars of prudential regulation:

u prudently estimated provisions;u certain, liquid and profitable assets;u a safety margin, known as the “solvency margin”.

n REPORTING TOOLS

ACAM has annual and quarterly reporting tools,adapted to normal conditions and designed to givean early indication of insurers’ capacity to resistfinancial shocks.

Regarding off site inspection, ACAM receives ayearly report containing statistical data thatenables it to assess each insurer’ situation. It alsoreceives solvency and internal control reports inwhich each entity gives its view on the potentialrisks.

61

These various reports enable it to measure theimpact of market shocks. Each quarter, the T3report enables it to recalculate assets and liabilitiesaccording to different economic scenarios while theT2 report enables it to measure exposure to thedifferent asset classes. The annual C6bis reportprovides a measurement of the financial risk linkedto liabilities (surrenders of life insurance policies,for instance).

In normal conditions, ACAM therefore obtains aforward-looking view of each insurer and cantherefore react rapidly if the need arises.

n SUPERVISORY TOOLS

The deterioration in the financial situation since2007 has led ACAM to add to its supervisory tools.

Each crisis has specific characteristics that call forspecific reporting tools that would be superfluousin normal conditions.

Right from the beginning of the present crisis inAugust 2007, ACAM began to measure exposure – which fortunately proved to be very low – to so-called “toxic” assets such as sub-prime mortgages.In December 2007, given the extension of thecrisis, ACAM wrote to all the insurers requestingthem to perform stress tests based on thesituation at end-December 2007 and to report toACAM on the results of these tests within twomonths. The aim was also to heighten seniormanagement’s awareness through the obligationto report the test results to them. Given thediversity of insurers’ investments in terms of typeof investment and breakdown, ACAM left it to eachinsurer to determine the stress test best adaptedto its specific situation. Generally speaking, theinsurers’ tests concerned the risk of loss of valueof the three main asset categories: fixed-income(interest rate curve and spread stress tests),equities and property assets.

ACAM also kept a close eye on the consequencesof Lehman Brothers’ collapse and the otherdifficulties encountered by financial groups.

More recently, in October 2008, ACAM put inplace a system for monitoring life insuranceunderwriting flows (premiums, surrenders, etc.)closely. The data requested concerns weekly flowsrelating to euro-denominated and unit-linkedpolicies. This data enables ACAM to monitor closelythe evolution of the assets managed by insurersand, consequently, their capacity to maintain theinvestments in their portfolios. Euro-denominatedcontracts remained stable, reflecting policy-holders’ confidence in the solidity of the Frenchinsurance market.

Lastly, ACAM verifies that the capital growth ratesgranted to life insurance policyholders arecompatible with the regulated entity’s financialcapacities.

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ACAM’S ACTIVITY IN 20082

CONSEQUENCES OF THE PRESENT CRISIS

Insurers have experienced a fall in the value of theirassets that has negatively affected their regulatorysolvency margin, which nonetheless remainsadequate. In this respect, the existing investmentregulations, under which assets are valued athistorical cost, enable insurers to smooth theimpact of the fall in the financial markets.

2.1.2 Regulations relating tothe minimum guaranteed rate

To protect policyholders, the regulations containstrict criteria for the rate of return that may beguaranteed on a policy. The technical interest rateon a policy may not exceed 75% or 60% of theaverage issue rate, or 3.5%, depending on the termover which the rate is guaranteed (see ArticleA. 132-1).

However, an insurer may guarantee a higher rateover a one-year period for some policies. Thisguaranteed rate is limited, with the maximumlevel being set based on the average rate of returnachieved on the insurer’s assets over the twoprevious years (Articles A. 132-2 and A. 132-3). Anannually indexed rate may also be guaranteedover a maximum period of eight years (A. 132-3,paragraph 2).

However, in recent months, ACAM noted thatseveral insurers were marketing policies offeringparticularly high guaranteed rates. This situationwarrants several observations:

u Article A. 132-3 sets an obligatory limit on theguaranteed rate;

u the regulations only permit annually revisedguaranteed rates (Article A. 132-3 alinea1);

u communicating about returns for periods of lessthan one year is contrary to the spirit of ArticleA.132-3, and more generally to the philosophy oflife insurance, which is a long-term investmentproduct. Communicating about a high rateguaranteed for a quarter or half-year period doesnot constitute balanced information topolicyholders;

uwhen these promotional guaranteed ratepractices concern policies with no initial chargeor surrender fee, the policy in reality resemblesa remunerated demand account rather than alife insurance product, and therefore carriesparticularly high risk of surrender compared withconventional life insurance policies.

On the basis of these observations, ACAM makesevery effort to ensure that the insurers itsupervises comply with the regulations relating totheir commitments.

2.1.3 Prevention of money laundering

a) Increased communication

In 2008, ACAM’s anti money laundering unitorganised various communication events forprofessionals: conferences, talks, training, etc.

The drafting of the questionnaire addressed toprovident institutions and mutual insurersinvolved in life insurance activities also providedan opportunity to reinforce contacts with theorganisations representing the industry. Twoconferences were held, on 11 March and 15 April2008, to present the survey and its objectives. Inaddition, the survey results were communicatedvia the industry organisations, FNMF and CTIP,on 26 and 27 November 2008.

Communication actions also concerned thebrokerage sector. By invitation from the insurancebrokers’ union for Eastern France (Syndicat descourtiers d’assurance de l’Est de la France), ACAMreminded brokerage firms of their obligations interms of organisation, procedures and relationswith customers.

Lastly, ACAM reinforced its cooperation withTRACFIN by introducing the principle of regular,joint meetings. At the beginning of 2009, ACAMcontinued its efforts to heighten awareness of thisissue in the French market in collaboration withTRACFIN.

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b) On-site inspections: 2008 target achieved

ACAM’s target for 2008 was to perform on-siteinspections at more than half of the life insurancecompanies, and it achieved its target. The numberof on-site inspections has increased significantlyover the past two years and is expected to remainhigh. As in previous years, these inspectionswill concern all sectors: insurance, providentinstitutions, mutual insurers and brokerageactivities.

During 2009, the members of the anti-moneylaundering unit will have one-to-one meetings withnumerous TRACFIN correspondents to examine theconditions for implementation of the provisions ofthe 3rd Directive at their respective entities.

c) Provident institutions and mutual insurers

ACAM has continued to fulfil its role of permanentcontrol by circulating a specific questionnaire onprevention of money laundering and financing ofterrorism to provident institutions and mutualinsurers.

This wide-scale survey related to:

u the application of the regulations relating toprevention of money laundering and financing ofterrorism;

u the preparedness of the surveyed entities to meetthe new requirements in this area establishedby the European Union’s 3rd money launderingdirective.

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ACAM’S ACTIVITY IN 20082

Above and beyond the growth in the numberof reports of suspicions, which is expected to continue over the coming years, the suspicions reported to the financialintelligence unit must be adequatelysupported so that they can be used.

Provident institutions andmutual insurers havemoderate or low exposure to the risk of moneylaundering. These insuranceentities must nonetheless,in particular in the contextof implementation of the 3rd European Directive,adapt their prevention ofmoney laundering system to take market reality into account.

Participation in the survey was very strong, with241 responses. The numerous comments sent inwith the questionnaires reflected great interest inthe issue of compliance with money launderingregulations.

The survey revealed that many providentinstitutions and mutual insurers have alreadyinitiated significant action in this direction withthe support of the industry organisations. However,a certain number of entities are still unfamiliar withthe basic provisions of these regulations. The mostcommon deficiencies related to:

u organisation of the prevention of moneylaundering function;

u drafting and circulation of anti-money launderingprocedures;

u staff training; u setting in place of an internal control system; u absence of any system for detecting unusualtransactions and fighting against the financingof terrorism.

There is therefore room for further progress andimprovement in this sector.

2.2. Supplementary pensioninstitutions

Act No.2003-775 of 21 August 2003 relating tothe reform of pensions schemes provided for thedisappearance of IRS at 31 December 2008. Thisdeadline was deferred for a year by Act No. 2008-1330 of 17 December 2008 relating to the financingof social security for 2009. This postponement inno way changes the technical conditions for thetransformation of IRS as provided for in the 2003 Actand the associated application decrees (Decree of26 December 2007 and Order of 25 July 2008).

a) Supplementary pension institutions: a wide variety of institutions

Initially created by businesses as part of theirlabour relations policy, IRS were designed tomanage ‘in-house’ defined-contribution pensionschemes for the employees of member companiesas a supplement to the official mandatory andcomplementary pension schemes.

The benefits paid out to around 400,000beneficiaries were estimated at €1 billion as at 31 December 2007. The discounted amount of theassociated commitments is estimated at around

2009 will feature the disappearance ofSupplementary Pension Institutions(Institutions de Retraite Supplémentaire –IRS). However, the pension and retirementschemes to which they are linked will notdisappear: they may be taken over in partor wholly by insurers, after having beenmodified if necessary.

65

€20 billion. These figures nonetheless cover verycontrasting situations: while some IRS managedlarge companies’ pension commitments to severalthousands of employees or former employees, asignificant number, on the contrary, had very fewparticipants.

Neither is the IRS’s mode of operation homogenous.While some institutions have been allocatedsufficient funds to finance their commitments,most do not hold sufficient assets to do so and payout the benefits by calling on the employer forfunds.

b) The IRS transformation process

The IRS can:

u apply for authorisation to operate as a providentinstitution or to merge with an authorised providentinstitution;

u change, without creating a new legal entity, into asupplementary pension scheme managementinstitution (Institutions de Gestion de RetraiteSupplémentaire – IGRS);

u failing one of the above, the IRS will be officiallydissolved and the funds it holds at that date will beconverted into annuities in the conditions providedfor in the Decree of 25 July 2008.

In the case of transformation into an IGRS, whosecorporate purpose is strictly limited to administrativemanagement of the pension scheme, any funds heldin the IRS must be transferred to an insurer as soon asACAM has approved the changes to the schemedecided by collective agreement. If the IRS holds nofunds, Decree No.2007-1897 of 26 December 2007provides for the filing of the new IGRS’s Articles ofAssociation with ACAM and the ministry concerned.

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ACAM’S ACTIVITY IN 20082

At 31 December 2008, ACAMhad approved 7 transfers of funds held by IRS that had opted for conversion to IGRS. Two IRS merged withprovident institutions duringthe 2008 financial year.

THE SPECIFIC CASE OF DISSOLUTION

A number of IRS have opted for dissolution. Insome cases, these IRS have funds that they couldtransfer to an insurer.

At the technical level, ACAM assesses the plannedtransfer terms and conditions in the same way asfor conversion to an IGRS.

SOME FUNDAMENTAL RULES RELATING TO THE TRANSFER OF FUNDS

The transfer of funds is subject to specific regulations.

The insurance policy must clearly state the commitments towards thebeneficiaries of the schemes, in exchange for the initial transfer of funds, inaccordance with Article L. 131-1 of the Insurance Code. In particular, theinsurance policy must guarantee the rights acquired by retired employeesunder the scheme. These rights are stipulated in the memorandum drawn upby the insurer and transmitted to scheme beneficiaries by the employer.

For its part, indexation of benefits to external indices (change in Agirc, Arrco,etc.), will not be the subject of a guarantee from the insurer except whenlimited to the amount of a profit sharing fund.

These points are set forth in an information memorandum published by ACAM,which was transmitted at the end of 2008 to each IRS with funds to betransferred to an insurer. The IRS should thus be in a position to adjust theplanned mechanism and present projects that comply with theserequirements during 2009.

APPROVAL OF TRANSFER OF PROVISIONS BY IRS

ACAM approved the transfer by four IRS of their provisions and reserves toinsurance entities. This type of decision is likely to become more common in2009 as Article 116 of Act No.2003-775 of 21 August 2003 relating to pensionreform gave IRS the possibility of choosing one of the following options before31 December 2008 (deadline subsequently deferred to 31 December 2009):

u to apply for authorisation to become a provident institution, or to merge witha provident institution;

u to change the IRS into an IGRS. In this case, the IRS must obtain ACAM’sapproval of the collective agreement modifying the pensions scheme’s ruleswith a view to transferring the provisions and reserves already constitutedto an insurer;

u failing one of the above, to dissolve the IRS.

PRESENT SITUATION

Before the transformation process started, 81 IRS were listed as active, i.e.meeting at least one of the following criteria: directly paying benefits duringthe financial year, with commitments to retired employees or futurepensioners, or the existence of an active decision-making body.

Of these 81 IRS, three were still open, meaning that all the employees of themember companies continue to acquire rights.

The other institutions were either closed to new employees (only theemployees already in the scheme could continue to acquire rights) or inextinguishment mode, with no new rights being acquired). Many of the closedIRS are in extinguishment mode.

c) Assessment of transformation projects

As part of its duties, ACAM verifies the terms ofthe collective agreement modifying the pensionscheme with a view to the IRS’s transformation.

In the case of a transformation involving a transferof funds, ACAM ascertains that the insurance policyis compatible with the terms of the collectiveagreement and that the policy is correctly drawn up.

If the pension scheme cannot be totallyoutsourced to an insurer, ACAM also verifies thatthe employer’s residual commitment in thefinancing of the scheme is clearly stated.

An analysis of the transformation projectsexamined in 2008 revealed that a number of IRSwere finding it difficult to comply fully with theserequirements. The main difficulty is that the IRS,set up by employers, have not sufficiently takeninto account the fact that on transformation intoan IGRS their corporate purpose is strictly definedby the Law and that the transfer of funds to aninsurer is subject to specific regulations.

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n THE MAJOR MOVEMENTS: GROUPINGS, TRANSFERS,MERGERS, SUBSTITUTION, ETC.

In 2008, 62 entities governed by Livre IItransferred their portfolios in the context ofmergers by absorption, eight transferred theirportfolios without merging and two mergedwithout transferring their portfolios. In addition,31 Livre III mutual insurers were grouped.

Of the 967 mutual insurers governed by Livre II,386 were substituted.

Thirteen applications for authorisation of newmutuals were received by ACAM’s SecretariatGeneral in the framework of Mutual InsuranceHigher Council’s Licencing Commission (commissionagrément du Conseil supérieur de la mutualité).Nine licences were granted by the administrativeauthority.

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ACAM’S ACTIVITY IN 20082

FOR INFORMATION

When an insuranceentity is substituted,it no longer retainsthe insurance risk,which is transferredby agreement to the‘substituting’ mutualinsurer.

Merger Dissolution Court liquidation

2006

56

2 175

1 319

2 002

1 212

1 846

1 070

1 707

967

53

1

6068

2

95

43

1

100

80

60

40

20

0

0

2 500

2 000

1 500

1 000

500

2005 2006 2007 2008

2007 2008

Increased competition for the mutual insurers:competition increased in 2008as the result of the reform of civil servants’ supplementaryhealth insurance: eachgovernment department stagedan invitation to tender openingthe field to insurance companiesand provident institutions. Some mutuals linked to a sameministry grouped together in order to respond moreefficiently to calls for tender.ACAM’s Secretariat General was called upon to assist withthese operations. This reform will also concern localgovernment employees and hospital staff.

2.3 Mutual insurers governed by the Mutual Code

a) A decline in the number of mutual insurers

n GENERAL TRENDS

Steady growth in the supplementary healthinsurance market has attracted insurers’ interestand exacerbated competition in this sector.

One consequence has been a steady fall in thenumber of insurers governed by the Mutual Code.Moreover, the supplementary health insurancebusiness is becoming increasingly complex andrequires governance and management structuresthat involve a minimum size.

Also, as from 1 January 2008, the minimumguarantee fund required for exercising an insuranceactivity has been raised to €1.6 million forsupplementary health insurance and €2.4 millionfor life insurance. Competition and more stringentregulatory requirements have prompted numerousentities to adapt their strategies and re-examinethe critical size required to survive over the longterm. A growing number of insurers have called onACAM’s Secretariat General to assist them at anearly stage in carrying out their project.

Following enactment of the Act for theModernisation of the French Economy (Loi LME)of 4 August 2008, new provisions relating togovernance were drafted. The Mutual InsuranceCode now provides for delegates to vote by proxy.The rule relating to cumulative offices has beeneased and directors of a mutual insurer or groupingmay now hold offices in conditions similar to thoseprovided for by the Insurance Code.

Lastly, the possibility of creating a Mutual GroupingUnion (Union mutualiste de groupe – UMG),equivalent to a Mutual Insurance Group Company(Société de groupe d’assurance mutuelle – SGAM),enables mutual insurers to group together. The aimis to ensure the distribution of their products whileconserving their own mode of functioning and theirown identity.

2008 featured the first creation of a public limitedcompany (société anonyme) governed by theInsurance Code within a mutual insurance groupbased on the transfer of the portfolios of two Livre IIgroupings within the larger group.

b) Ongoing off-site and on-site inspections

Off-site inspection of mutual insurers, put in placein 2007, was continued and extended in 2008.

In 2007 non-substituted Livre II mutual insurerswere for the first time under the obligation topresent to ACAM all the prudential statementsdefined in 2005. In 2008, the quality andcompleteness of the information submitted hadimproved but there was still room for furtherprogress.

The supervision is primarily based on the annualdocuments, which must be submitted within thestipulated deadline. When this is not the case,ACAM sends a reminder to the mutuals in the formof a formal notice.

Livres I, II and III mutual insurers Livre II mutual insurers

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2.4 Insurance intermediaries

In 2008, the supervision of insuranceintermediaries continued to integrate the newlegislation. It focused on the following areas:

u replies to the various questions relatingto insurance intermediaries raised by thepublic. There were slightly fewer requests forinformation than in 2007, which had been anexceptional year due to the introductionof the Registry of Insurance Intermediaries(Organisme pour le registre des intermédiairesen assurance – ORIAS) which lists all theintermediaries authorised to operate in France.There was nonetheless a significant flow ofquestions, in particular relating to the obligationto register in order to operate as a remuneratedinsurance intermediary.

The ‘legal status’ (agent, for example) does not onits own provide an answer to this question: it isnecessary above all to know whether the activityeffectively carried out by the person enters withinthe scope of insurance intermediation as definedin Articles L. 511-1 and R. 511-1 of the InsuranceCode.

u The very numerous queries received by ACAMhave been listed by theme and will be accessibleon ACAM’s website, thereby adding to the FAQsection. In addition, the expertise acquired in thecourse of dealing with these questions providedthe basis for the following articles published inACAM’s newsletter (La Lettre de l’ACAM), thusresponding to market concerns:

• No. 4, first quarter 2008, Subsidiarisation andrelocation of intermediaries (Filialisation etdélocalisation des intermediaires);

• No. 5, second quarter 2008, Some informationon insurance indicators (Quelques élémentssur les indicateurs d’assurance);

• No. 6, third quarter 2008, Voluntary networks(Les réseaux bénévoles);

• No. 7, fourth quarter 2008, Verifying the goodcharacter of intermediaries on registration (Lecontrôle de l’honorabilité des intermédiaireslors de leur immatriculation);

• No. 8, first quarter 2009, Remuneration andregistration (Rémunération et immatriculation).

u ACAM’s various departments drew on theirexpertise to assist the Department of Treasuryand economic policy of the Ministry of Economyin drafting the Ministerial Order establishing thediplomas required for registration with ORIAS asan insurance intermediary (“Diplomas Order”).

u As in 2007, ACAM took part in variousprofessional events with the aim of informingintermediaries of their obligations under the newlegislation.

u Three on-site inspections of insuranceintermediaries were also performed in 2008.These inspections – performed based on case-by-case decisions taken by ACAM – focused onthe following:

• ORIAS registration. In some cases theinspection prompted the entity to take thenecessary steps to register with ORIAS. In othercases, the inspection revealed that the entitycontinued to operate despite being struck offthe ORIAS register;

• general professional and financial liabilityinsurance. In several cases, the inspectionrevealed the lack of insurance cover. In somecase, this lack of cover was the reason for not

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ACAM’S ACTIVITY IN 20082

Less than one third of the 581 mutualsconcerned transmitted their 4th quarter 2008report electronically. This experimental phase isnonetheless promising.

ACAM also performed on-site inspections at mutualinsurers, with a focus on mutuals operating in lifeinsurance, and on urgent cases.

The most frequent questionsconcerned the obligation toregister with ORIAS.

MANDATORY REPORT ON INTERNAL CONTROL

Decree No.2008-648 of 19 May 2008 stipulates that Livre II mutuals andgroupings must submit to ACAM an annual report on internal control, approved by their Boards of Directors.

For mutual insurers supervised by ACAM, the first report was to be submitted by19 November 2008 at the latest. Two thirds of the entities concerned dulysubmitted their reports but a reminder had to be sent out to the other third.

The majority of the reports highlight the efforts made, and those planned, to putin place an internal control system. They describe the procedures put in place orto be put in place and the resources allocated to internal control. Some entitiesalso provided a mapping of their risks.

The internal control report should be considered a steering tool for themanagement. It will need to be adapted to take into account the different risksidentified during the year, together with the action taken and provided for in theaudit plan.

The reports from Livre II mutual insurers were to be submitted by 19 May 2009 at the latest.

Since January 2009, electronic datatransmission channels are available for quarterly reporting data.

registering with ORIAS. In other cases, theinsurance certificate was not authentic;

• the circulation of false or inaccurateinformation to customers;

• the absence of an anti-money-launderingcontrol mechanism;

• the payment of insurance brokerage fees topeople not licensed to act as insuranceintermediaries.

This last point is a central focus of inspectionscurrently being carried out and is the object ofparticularly close surveillance.

The on-site inspection procedure is as follows:

u the supervisors perform the on-site inspection,completed if necessary by exchanges ofdocuments, notably electronic exchanges;

u a preliminary report is sent to the inspectedintermediary;

u the intermediary responds to the preliminaryreport;

u the supervisors draft their final conclusions inthe light of the responses provided.

On the basis of these documents, the SecretariatGeneral can transmit the case to ACAM’s College,which may decide to instigate disciplinaryproceedings. The intermediary in question canpresent his comments to the College in writingwithin a given period, before being heard by theCollege. The College then deliberates on thesanction to be imposed, with only the Collegemembers and a secretary of the meetingattending. This procedure, similar to that appliedto insurers, protects the rights of the intermediaryin question.

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c) Liquidity risk provision

Although the new regulations relating to liquidityrisk provisions authorise the spreading of theallowance to the provision using a debit accounton the liability side of the balance sheet, this is nolonger automatically spread over eight years butover the duration of the insurer’s liability, within alimit of eight years.

Moreover, the amount of the deferred provisions isnot deducted from regulatory commitments noraccepted to cover these commitments.

d) Transformation of class 26 schemes

On the transformation of “class 26” schemes, theobligation to distribute the assets provided for inArticle R. 441-28 means sharing out the entirespecial technical provision and reserving theunrealised capital gains to the scheme’sbeneficiaries.

3.2. Other financial elements

a) Adding unrealised capital gains to the available solvency margin

The regulations provide for unrealised capital gainsto be taken into account in the calculation ofthe solvency margin with the consent of thesupervisory authority. The capital gains thus takeninto account correspond to the net global capitalgains on all investments, unless these are of anexceptional nature.

b) Segregation and breakdown of financialincome between underwriting and non-underwriting accounts

The Insurance Code (R. 341-2) and the Social SecurityCode (R. 931-11-2) stipulate that the applicable chartof accounts is the General Chart of Accounts (PlanComptable Général – PCG) unless provided forotherwise. The mutual insurance sector’s chart ofaccounts (L. 114-46) directly integrates the generalprovisions of the General Chart of Accounts.

Consequently, under all three codes, the principal ofa true and fair view takes priority over any specificprovisions.

Some insurance entities break down financialincome according to their own criteria. With regard tothe legal or contractual separation criteria, an entitycan derogate from the specific provision if it doesso according to the rules of the General Chart ofAccounts; in particular the notes must indicate veryclearly the reason for such derogation, the methodused and its impact on the results and financialsituation. In parallel, even if technical provisionsare covered by investments, the cost of financingthe working capital is charged to the underwritingaccount. The same is applicable to interest on cashdeposits from reinsurers.

c) Insurance securitisation vehicles

An insurance securitisation vehicle must directlyhold the totality of the funds required to coverthe guarantee [Article L. 310-1-2 of the InsuranceCode, transposing EC Directive 2005/68/EC]. Inparticular, the possible hedging techniques appliedto the vehicle, in particular to cover interest raterisk and currency risk, give rise to a counterpartyrisk. They cannot therefore be taken into accountas an element of financing unless they arethemselves collateralised. The condition laid downin Article D. 214-111 (5) of the French Monetaryand Financial Code should therefore be considerednecessary, although not necessarily sufficient.

d) Transformation of an IRS

The transformation of an IRS may require a changein the terms and conditions of coverage of the liabilities arising from employer/workeragreements, which may not necessarily beinsurable. When a differential guarantee is grantedby an employer, for instance when a guarantee ismodified following an increase in the ARRCO orAGIRC Social Security pensions, this guaranteedoes not present the characteristics required by

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3. Specific cases

This section relating to specific cases is notdoctrinal, it is designed to inform on how

ACAM acted on the specific cases submitted to it in2008, and to underline certain points of law.

3.1. Provisioning

a) Pricing and provisioning based on gender tables

Following the transposition of Directive 2006/54/ECinto French law, the general prohibition ofdiscrimination applicable to provident institutionsand mutual insurers governed by the MutualInsurance Code has become explicit.

The regulations require that, when a single table isused for pricing, it must be the most prudent table.In this case, all the policies must be provisionedusing, at the least, the same table as used forpricing. However, for annuities in course, Article A.331-1-2 requires the use of the latest annuitants’tables.

b) Provision for future claims (construction risk insurance)

The specific provision for future claims applying indecennial construction insurance (provision poursinistres non encore manifestés – PSNEM) iscalculated in accordance with a regulatory method.This method reflects the economic basis of thePSNEM and captures the specific effects that theprovision is designed to cover. It is based on theofficial construction work starting date (dateréglementaire d’ouverture du chantier – DROC).

Consequently, any derogatory methods based onthe financial year in which the claim is incurred arenot appropriate. Only methods using DROC-basedapproaches will be approved by ACAM.

>

the Insurance Code. It is therefore necessary todefine an appropriate insurance guarantee: inparticular, existing annuities must be consolidated.The simple guarantee of paying the outstandingpensions within the limits of available fundingwould be tantamount to pay as you go. Deferredpension entitlements require a separate provision.Under this mode of functioning, the employer canjustifiably impose annual policy endorsements toadapt the insurance cover.

ACAM underlines that during the savings phase, therights acquired can be expressed in accumulationunits, but the margin requirement continues to beof 4% if the benefits are payable in euro.

Lastly, an IGRS can only carry out theadministrative management of the scheme(issuance and receipt of subscriptions, calculationand payment of benefits). It would not beappropriate to give it a role normally reserved toemployees’ representatives.

3.3 Governance

a) Internal control: a major issue

Internal control involves a general control on theinsurer’s operations. It is an issue that relates to all ofan insurer’s operations. Internal control is thereforenot a specific function within an entity but a generalconcern: that of ensuring safe management.

Accordingly, internal control relies above all on themanagers of each department rather than on aspecialised unit. Internal control is adequate whenthe different departments within an insurer conducttheir activities and/or exercise their responsibilitiesin a controlled manner. The specialised internalcontrol units’ role is to ascertain that this is the case.

b) Powers of the General Meeting

It should be remembered that the appropriation ofincome is decided by the General Meeting and notby the Board of Directors.

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310 files were incorrectly sent to ACAM instead ofthe insurer, and were returned to the senders.

Number of calls to the call centre

• Number of calls to the call centre per month in 2008

The number of calls increased significantly inDecember 2008 and continued to rise in January(686) and February 2009 (738), because of anincreased awareness of the existence of the callcentre.

Origin of complaints

• Origin of complaints in 2008

As in previous years, most complaints werereferred to ACAM by the policyholders themselves.

Number of complaints per category in 2008

• Insurance category in 2008

As in 2007, most of the complaints received by ACAM concerned personal insurance (64%).

• All insurance categories in 2008

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4. ACAM safeguardspolicyholders’ rights

This chapter analyses the complaints receivedby ACAM and the underlying issues. Only

disputes between policyholders and their insurersare covered. The number of such disputes is lowconsidering the overall number of policies in France.This information will be of interest to policyholders,while insurers will be able to identify areas forimprovement. Although each case is different,patterns can be identified. Nevertheless they do notnecessarily apply to the whole market.

4.1. Complaints handled by the DDCRA:the figures

Number of cases

Number of cases in 2008

Total 3,227

In 2007, 15% of the cases concerned requests forinformation about a specific event (an insurerbeing placed under special supervision by ACAM).If we eliminate these cases, the number ofcomplaints referred to ACAM increased by 19% in2008.

Life / death / funeral

Health

Motor insurance

Provident / disability / personalinjury - accident

Household insurance

Loan (consumer credit / mortgages andproperty loans)

Unknown

Others (pet / assistance / credit card / suretyshipand guarantees / tenants / maritime /sundry property / travel / school andstudent)

Legal expenses

Mobile phone

Construction(10-year liability / structural damages tothe building)

Professional liability /comprehensive business

30%

20%15%

7%

7%

5%

3%

3%3%

3%2%2%

Personal insurance

Property insurance

64%36%

>

2006

3,500

2,415

3,3603,227

3,000

2,500

2,000

1,500

1,000

500

0

2007 2008

600

500

400

300

200

100Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

Total 2008 : 3,945

357 364338

297

249

334

281

198

314

369

336

508

Complainants (policyholders / victims)

Representatives (Consumer associations /lawyers / family or friends /intermediaries)

11%

89%

• Personal insurance categories in 2008

Life insurance still gives rise to more complaintsthan any other class (30% of all complaints and 48%of all personal insurance complaints). The actualnumber of complaints remained stable as comparedto 2007. Although the financial crisis has notresulted in any significant increase in the numberof complaints, there has been an increase in thenumber of enquiries from policyholders seekinginformation on the financial position of theirinsurers.

In 2008, the number of complaints relating to healthinsurance remained low given the number ofpolicies, and essentially concerned premiumincreases.

There has also been a slight increase in the numberof complaints about provident insurance, while the number of complaints about loan insurance has fallen.

• Property insurance in 2008

Motor insurance

Household insurance

Sundry

Legal expenses

Construction (10-year liability /structural damages to the building)

Mobile phones

Professional liability /comprehensive business

43%

5%

7%

7%

9%

10%

19%

Life / death / funerals

Health

Provident / disability / personalinjury - accident

Loans

48%8%

12%

32%

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• Personal insurance – subject of complaints in 2008

Life insurance policy disputes referred to ACAM bypolicyholders concerned returns on the policies, anddelays in the execution of arbitrage transactions,surrenders values or the payment of death benefits.Also note that some claims concerned mergers ofinsurance entities and subsequent problems withthe management of policies (irregularities in thepayment of annuities, delayed benefit payments).

In providence insurance, 2008 was marked by anincrease in complaints concerning providentinstitutions’ obligations to inform and advise.Holders of multi-cover insurance packagescomplained that they had been poorly advised atthe outset and had since realised that certaincover that they believed formed part of thepackage was not, in fact, included.

Again with respect to provident institutions,interestingly enough the number of cases wherethe policyholder questioned a discrepancybetween the disability ratings applied by theinsurer and by other social security bodies fellas compared to 2007.

• Property insurance – subject of complaints in 2008

The bulk of complaints concerned the performancephase of the policy (payment on claims +management = 48%). A significant number of casesconcerned termination of policies, either terminationfor non-payment or by virtue of the ‘Chatel Act’,

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ACAM’S ACTIVITY IN 20082

Yet again, the breakdown of property insurancecomplaints tends to mirror the relative importanceof each category for the insurance market.

Naturally, motor insurance accounts for the largestnumber of complaints (43%), followed byhouseholder’s comprehensive insurance (19%).However, complaints concerning legal expensesand mobile phone insurance, which increased in2008, are disproportionate to the economicimportance of these categories. A final point ofinterest is that complaints relating to householder’scomprehensive insurance fell slightly as comparedto 2007.

Subject of complaints

• Personal and property insurance – subject of complaintsin 2008

In 2008 the breakdown of complaints according tosubject matter remained almost identical to the twoprevious years (other than the large number ofrequests for information received in 2007 whenACAM placed an insurer under special scrutiny). ARBITRATION AND LEGAL EXPENSES INSURANCE

ACAM reminds insurers offering legal expenses insurance that, in the event ofa dispute with a policyholder and if the parties cannot agree on the measuresto be taken to settle the dispute, the insurer has a legal obligation to informthe policyholder of the possibility of going to arbitration.

Refusal to pay on claims

Contract management: costs /claims / performance / modifications /periodic information / annual statements

Information: adjusters / mediators /role of ACAM and the DDCRA / legal orgeneral information / company enquiries

Termination of contract

Lapse / surrender / transfer /benefit on expiry

Underwriting / premiums

Information obligation / duty toadvise

Contractual clauses

22%1%

18%

3%

10%

12%

16%

18%

Contract management: costs /claims / performance / modifications /periodic information / annual statements

Lapse / surrender / transfer /payment on expiry

Information: adjusters / mediators /role of ACAM and the DDCRA / legal orgeneral information / companyenquiries

Termination of contract

Refusal to pay on claims

Underwriting / premiums

Information obligation / duty to advise

Contractual clauses

21%

2%5%

10%

14%

14%

16%

18%

HEALTH INSURANCE

In 2008 several cases concerned the terminationof health insurance policies. In some instances,insurers refused to terminate a policy at thepolicyholder’s request, either on anniversary dateor not. Requests for termination were sometimesdue to a sharp increase in premiums orsometimes because the policyholder was requiredto take out a group insurance policy offered bytheir employer. Other complaints concernedrefusals to cancel the contract when thepolicyholder considered he had not receivedsufficient advice at the time of the initial purchaseof the policy.

Lastly, some complaints concerned medical coststhe insurer had refused to refund, because ofdelays by the insurer managing the contract, orbecause of a disagreement over application of thecontractual clauses (exclusions, maximum cover,refund on a real cost basis or as a percentage ofthe amount refunded by the social securityauthority, etc).

designed to facilitate the termination ofautomatically renewable policies. Interestinglyenough, the number of complaints on theunderwriting process continued to increase in 2008(9%). Once again, distance selling of policiesresulted in some disputes, particularly inconnection with motor insurance.

• Outcome following DDCRA’s action

Refusal to pay on claims

Information: adjusters / mediators /role of ACAM and the DDCRA / legal orgeneral information / company enquiries

Termination of contract

Contract management: costs /claims / performance / modifications /periodic information / annual statements

Underwriting / premiums

Contractual clauses

Information obligation / duty to advise

35%

20%

17%

13%

12%

2%1%

Insurer modified its position, in line with the DDCRA’srecommendation

Insurer rightly maintained its position

Insurer wrongly maintained its position, despite the DDCRA’s recommendation

In 2008

68%

3%

29%

In 2007

65%

4%

31%

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In all the cases referred to ACAM the problem wasresolved and the insurers promptly improved theirprocedures to avoid similar problems in the future.However, the nature of the complaints shows theneed for constant vigilance when setting updistance selling systems, especially when the salefunction is delegated.

n CANVASSING

Act 2008-3 of 3 January 2008 introduced specificprovisions concerning the canvassing of non-lifeinsurance products, to be included in theInsurance Code. These new provisions came intoforce on 1 July 2008, and provide that:

u canvassing only concerns insurers subject to theInsurance Code. Unlike distance selling, which iscovered by both the Insurance Code and theMutual Code, there is no equivalent provision tothis new Article L. 112-9 of the Insurance Code inthe Mutual Code. Considering the decision ofthe Court of Cassation’s criminal division dated2 October 2007, insurers subject to the MutualCode are advised to apply the rules set out in theConsumer Code (Code de la consommation)when canvassing non-life insurance products;

u Article L. 112-9 of the Insurance Code hasreproduced part of the criminal sanctions set outin the Consumer Code. According to this article,the insurer may face a €15,000 fine if it fails torefund the policyholder the part of the premiumcorresponding to the period when the risks werenot covered, within 30 days of the policyholder’sdecision to withdraw from the contract. Inaddition to the possibility that the insurancepolicy may be found null and void, this type ofcriminal sanction increases the legal risks andrisk of damage to the reputation of any individualor legal entity who/that fails to comply with thelegal requirements.

n UNFAIR BUSINESS PRACTICE

The Consumer Code lays down a general principlethat unfair business practice is prohibited3 (Act2008-3 of 3 January 2008, Act 2008-776 of 4 August 2008).

Such practice may take the form of misleadinginformation or over-forceful sales techniques andmay give rise to serious penalties4. These may beimposed on legal entities when they carry out suchoffenses directly5, or when the offenses are carriedout on their behalf6.

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4.2. The variety of the raised issues

a) Issues relating to the marketing ofinsurance policies

n DISTANCE SELLING

The main problem concerns the existence of adocument proving that the policyholder agreed totake out the policy. In many cases the insurer,having delegated the sale phase to a third party,was unable to produce written proof that thepotential client had accepted the offer.

3. Transposing Directive 2005/29/EC of 11 May 2005.4. Cf. articles L. 121-6, L. 122-12 of the Consumer Code.5. Cf. articles L. 121-6 and L.122-14 of the Consumer Code.

6. Article L. 121-5 of the Consumer Code.7. New Article L. 141-4 of the Consumer Code.8. New Article L. 223-25-3 of the Mutual Code.

THE MARKETING OF INSURANCEPOLICIES: A RECURRING PROBLEM

Policy marketing, though it is only one phase in thelife of an insurance policy, attracted considerableattention in 2008:

u there was a great deal of legislative activitythroughout year 2008 and at the beginning of2009;

u it has remained a constant and significantcause of the disputes referred to ACAM. Manypolicyholders complain that they did not reallywant to take out the policy sold by the insurer, orthat they were badly informed or advised whenthey took out, or sought information on, the policy.

There has been a sharp increase in distance selling, and this has resulted in a significant number of complaints.

CANVASSING: BEWARE!

When a product is sold as a result of canvassing,the advice given to the customer may beinadequate or inappropriate.

Several policyholders have complained that as aresult of canvassing they agreed to take out a newhealth insurance policy but that no checks weremade to establish whether they could terminatetheir existing policy. They were subsequentlyrequested to pay the premiums of two insurancecontracts that covered the same risk.

Several other complaints revealed that canvassersdeliberately created confusion as to the actualidentity of the insurer for which they were acting.Lastly, some elderly or vulnerable policyholdersdisputed the validity of their agreement topurchase insurance.

The conduct criticised in these complaints equatesto unfair business practice. The existence ofcriminal sanctions clearly increases the legalrisks to which insurers are exposed in connectionwith the marketing of policies.

It is probable that a policy taken out as a result ofunfair business practice will be voided by a court,on the indirect basis of the rule of civil law thatthe validity of a contract may be challengedbecause of lack of consent (error, fraudulentmisrepresentation) or simply because the contractdoes not comply with a mandatory legal provisionand is contrary to public policy (Article 6 of theCivil Code). It may also be voided on the ground ofthe Consumer Code, whose provisions may beapplied automatically by the court7.

Insurers and intermediaries are therefore advisedto pay careful attention to this legislation whenselling their insurance policies.

n OBLIGATION TO PROVIDE APPROPRIATE ADVICE

Decree 2009-106 of 30 January 2009 added tointermediaries’ duty to advise, laid down in ArticleL. 520-1 of the Insurance Code, by introducing anew Article L. 132-27-1 in the same Code and aspecific paragraph in Article L.520-1. An equivalentprovision exists for mutual insurers and groupingssubject to Livre II of the Mutual Code8.

FOR INFORMATION

Article L.122-15 of the Consumer Codeexpressly providesthat if a contract issigned as the resultof an “aggressive”selling technique, the contract will benull and void.

Decree (ordonnance) 2009-106 of 30 January 2009strengthened insurers’ andintermediaries’ obligations toadvise when marketing certainlife insurance policies.

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b) Issues relating to life insurance

n UNIT VALUE DATES APPLIED TO SURRENDERS,ARBITRAGE TRANSACTIONS AND TRANSFERS

Sharp fluctuations on the financial markets haveled to substantial variations in value between thedate of a surrender, arbitrage or transfer request;and the date of its execution. As a result, ACAM isseeing a new type of complaint.

Policyholders who had not read the explanationsregarding investments and divestments wereunpleasantly surprised to find, after execution ofthe transaction, that they had less savings thanexpected. They had based their calculations on thenet asset value on the date of their request, butthis net asset value had subsequently fallen.

Furthermore, some clauses lack clarity, referringto the “submission of a request” or its “receipt”without specifying whether this means receipt bythe intermediary or by the insurer, thereby addingto the confusion.

In cases where the delay in executing an orderseemed negligent, ACAM issued a warning that theinsurer could be held liable for any resulting losses.

In some cases where the value differedsubstantially the insurer agreed, as a commercialgesture, to use the date on which the order wasreceived by the intermediary as the date ofregistration of the order, thus accepting theconsequences of any lack of diligence on the partof the intermediary.

In other cases, the insurer insisted that theirgeneral terms and conditions should apply to theletter.

n FORMULA-BASED FUNDS

ACAM received some complaints concerningformula-based funds in 2008. Investors in somefunds that reached maturity in 2007 and 2008only recovered the capital they had initiallyinvested, less management costs. Although theinvestors did not lose their capital they wereunhappy as they had hoped for a much betterreturn on their long-term investment. In addition,several policyholders did not have a properunderstanding of how the fund operated and werenot aware that it used an “active” managementapproach and that there was a risk that they wouldonly recover their initial capital.

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ACAM’S ACTIVITY IN 20082

From 1 July 2010 on, an insurer9 or intermediarymarketing an individual life insurance policy whichmay be partially surrendered, a capitalisationpolicy or a policy covered by Article L. 132-5-3 orArticle L. 441-1 should, before the policy ispurchased, make a record of the requirements andneeds of the policyholder10, and of the reasonswhy it is advising this particular type of policy. Thearticle also provides that the explanations must beadapted in view of the complexity of the insurancepolicy or capitalisation contract.

WHAT IS A FORMULA-BASED FUND

Formula-based funds (fonds à formule) arecomplex investment funds (UCITS) subscribed inconnection with life insurance policies, thatcombine a guaranteed performance with aguarantee that the investor will recover the initialcapital. The fund’s performance will depend on theautomatic application of a predefined calculationformula over a given investment period.

Management of such funds is generally “active”.This enables the management company to investfunds on equity markets when the economicclimate is favourable, and to switch to moneymarket instruments and bonds when the outlookis more gloomy, so as to ensure it will be able topay out the guaranteed capital.

9. Or mutual insurer, under the Mutual Code, for the individual or group transactions referred to in Articles L. 223-1 or L. 222-1.10. In light of his financial situation and objectives.11. Or relating to the individual or group transactions referred to in Articles L. 223-1 or L. 222-1 for mutual insurers subject to the Mutual Code.

THE INSURANCE CODE TIGHTENS UPREGULATIONS GOVERNING THEADVERTISING OF LIFE INSURANCEPOLICIES

The decree of 30 January 2009, creating ArticlesL. 132-27 of the Insurance Code and L. 223-25-2 ofthe Mutual Code, is designed to ensure that lifeinsurance policies are properly marketed.

Both articles, which will come into force on 1 July2010, provide that all information relating to lifeinsurance policies11 that may be partiallysurrendered, capitalisation policies or group lifeinsurance policies that may be partiallysurrendered or transferred must be accurate, clearand not misleading. Advertising and promotionalmaterials must be clearly identified as such.

This new legislation is essential. In previous yearsACAM observed that some promotional documentswere not sufficiently accurate or clear. For example,stated interest rates did not always correspond toactual interest rates, net of costs. Some promotionaldocuments might also be confused with contractualdocuments.

The new legislation will accordingly provide a betterprotection for policyholders.

FOR INFORMATION

In unit-linked lifeinsurance policies,investment anddivestmenttransactions are notexecuted on the dateof the request, butrather on a later “netasset value” date.There is therefore a time-lag betweenthe triggering of the transaction and its execution.

To avoid such disappointment, it is essential thatpolicyholders carefully read the documents theyreceive concerning the investment products inwhich their unit-linked life insurance policyinvests; these documents also need to be clearand easy to understand.

n COMPLIANCE WITH DEADLINES FOR EXPIREDPOLICIES

Act no. 2007-1775 of 17 December 2007 requiresinsurers to pay the capital or annuities to thebeneficiary of a life insurance policy after the deathof the policyholder or expiry of the policy withinone month of receipt of the necessary documents.

Although it is clear that this new provision hasimproved the situation of beneficiaries of expired lifeinsurance policies, the fact that the legal time periodruns from the date of receipt of the “necessarydocuments” by the insurer remains a potentialsource of dispute.

In the cases referred to ACAM, delays in paymentswere due to the fact that the insurer had not beenable to obtain the necessary documents in time.However, ACAM also noted that some insurers wereslow to request documents.

It is important that when investingin complex, formula-based funds,policyholders carefully read thesimplified prospectus approved bythe AMF or the fund’s particulars,in order to fully understand whatthey are investing in.

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Policyholders who joined a group policy orpurchased an individual policy after 1 May 2006have complained to ACAM that they receivedincorrect information about the surrender valuesof their policies at the end of the first eight years.

Those policies showed that some insurers did notdisclose surrender values, as required by the newlegislation, and did not systematically providepolicyholders with clear information, which is alsocontrary to the law. The wording of the surrendervalues table is not always explicit or sufficientlydetailed.

ACAM has also noted that the surrender valuetables do not always show the total amount ofpremiums paid and that a warning that the valueof the units may fall is not always given, asrequired by Article A. 132-5 of the Insurance Code.Information on calculation of the euro equivalentof surrender values is also missing in some cases.

Although the law leaves insurers some freedom asto how they provide this information, ACAM advisesinsurers to publish tables that are clear and easy tounderstand.

4.3. Recent legal developments

a) Maintenance of insurance cover: Article 4 of the “Evin Act”

On 13 January 2009 the Lyons Court of Appealgave a ruling on a case that had been referred backto it by the Court of Cassation on 7 February 2008.

The Court of Appeal found that an insurer failed tocomply with Article 4 of the Evin Act when it offeredprivate medical insurance that was similar but notidentical to cover provided under a mandatory grouppolicy. It then clarified the position taken by the Courtof Cassation, which had for the first time advised astrict interpretation of the concept of “maintenanceof cover” in the case of private medical insurance, tothe benefit of an employee leaving a company (dueto retirement, unemployment or disability).

The Lyons Court of Appeal ruled that thecompany’s group policy should allow formeremployees to request the maintenance of cover onexactly the same terms as when they wereemployees, subject to a premium surcharge of 50%maximum, without any trial period, medicalexamination or medical questionnaire.

The Court of Appeal ruled that “premiums may onlybe increased by 50% maximum, in accordancewith the regulations”, irrespective of the impactthis may have on the technical equilibrium of thepolicy.

b) Application of successive medical liabilityinsurance policies

In two rulings dated 2 October 2008 and 8 January2009 the Court of Cassation ruled on the issue ofthe applicability of successive policies in light ofArticle 5 of the “About12 Act” on medical liability of 30 December 2002 (Act no. 2002-1577), whichcame into force on 1 January 2003.

Given the existence of successive policies governedby the About Act, the Court of Cassation ruled onwhich policy should apply when the proximatecause predates the date on which the Act came intoforce but was not known at the time, and when aclaim was made after such date.

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ACAM’S ACTIVITY IN 20082

n DISCLOSURE OF POLICY SURRENDER VALUES AT THEEND OF THE FIRST 8 YEARS OF UNIT-LINKED LIFEINSURANCE POLICIES, SINCE THE DDAC ACT

FOCUS ON ARTICLE 5 OF THE ABOUT ACT

Article 5, paragraph 1 of the About Act provides thatArticle L.251-2 of the Insurance Code applies topolicies taken out or renewed on or after the date ofits publication. Article L.251-2 basically providesthat a policyholder is covered by the policy in effectat the time of the first claim, irrespective of the dateof the proximate cause.

The second paragraph provides that claims will becovered by the insurer under a policy that was takenout before the Act came into force and was still ineffect when the Act came into force, provided theproximate cause occurred when the policy was ineffect and that the first claim was made no laterthan five years after the end of the policy.

LOAN INSURANCE – A DEFINITION

The economic crisis at the end of the 1970s heralded a turning point in thehistory of loan insurance. Traditionally limited to cases of death, disability ortemporary disability, it was extended to also cover loss of employment.

This type of insurance experienced a boom in the following years because of thesignificant expansion of the credit sector and the increase in consumer over-indebtedness.

Over 40 years later, the emphasis is now on the need to improve the disclosureof policies and increase competition, in the interest of consumers.

FOCUS ON THE “DDAC” ACT BRINGING ASPECTS OF FRENCHLAW INTO LINE WITH EC LAW IN THE INSURANCE SECTOR

Act 2005-1564 of 15 December 2005, called the “DDAC Act” (loi portantdiverses dispositions d’adaptation au droit communautaire dans lesecteur de l’assurance) amended existing provisions concerningdisclosure of surrender values at the end of the first 8 years. It providesthat the table of surrender values must show the total amount ofpremiums paid (Article L. 132-5-2) and that explanations must be providedas to the content and form of the information (Article A. 132-4-1).

PAYMENT OF CAPITAL ON EXPIREDPOLICIES

Certain insurers rely on contractual clauses thatrequire beneficiaries to produce the original of thepolicy’s special terms before making the payment.In many cases the beneficiaries never had thisdocument in their possession. In this case, theinsurer asks the beneficiary to produce acertificate of loss or issue an order to stoppayment in application of Articles L. 160-1 and R. 160-4 of the Insurance Code. This procedure,which may block all payments on the policy fortwo years, is not appropriate for beneficiaries whohave never had the original policy in theirpossession.

Such clauses may have been justified before thecoming into force of the Act of 17 December 2007,which prohibits “policies to order” (Article 10).However, according to the new Article L. 132-8 ofthe Insurance Code, the insurer must always beinformed of the beneficiary of one of its policies,except when this person is designated in a will.The designation or replacement of a beneficiary isalways recorded in an endorsement to the policyor an instrument recorded in the manner providedin Article 1690 of the Civil Code.

FOR INFORMATION

Clauses that makepayment of capitalconditional uponproduction of theoriginal policy arecontrary to the newArticle L. 122-11-1 ofthe Consumer Code.The Code qualifies as‘aggressive’ therequirement that a consumer mustproduce documentsthat are not deemedrelevant or necessaryto establish the validity of the request.

The second, new insurer provides cover under thesecond policy for “unknown past events” whenclaims are made during the term of the policy,irrespective of the date of the proximate cause. Theinitial insurer must pay out for any part of the lossor injury not covered by the new insurer. This rulesapplies to all claims made after 1 January 2003under policies taken out after this date and stillvalid at the time of the claim.

c) Loan insurance

12. “About” is the name of the Member of Parliament who first drafted the bill (before it became an act).

83

4.4. Mediation

a) Mediation – a definition

Unlike in the banking and financial market sectors,mediation in the insurance sector is not imposed bylaw. Instead, mediation systems were introduced byinsurers over twenty years ago.

When all the internal recourses available withinthe insurance entity have been explored withoutsuccess the policyholder or beneficiary (or theinsurer itself) may refer a case to the insurer’smediator.

b) How mediation works

Two mediation systems are available to insurerssubject to the Insurance Code:

u one is for members of the FFSA (Fédérationfrançaise des sociétés d'assurance);

u the other is for mutual insurers and groupingsthat are members of GEMA (Groupement desentreprises mutuelles d'assurance).

nMEMBERS OF THE FFSA

A mediation charter, adopted in 1993, sets out thedispute resolution rules. The mediator is eitherappointed by the insurance entity or group (as isthe case for the larger insurers such as AXA, CNP,Groupama, Generali and MMA), or is appointed bythe FFSA (whose mediator is Mr Françis Frizon).

A policyholder or his or her representative mayrefer a dispute with an FFSA member, provided thepolicyholder is a natural person. Cases may alsobe referred by the insurer, if the policyholderagrees.

The mediator will issue a reasoned opinion, basedon law and equity, within three months of referralof the case. The opinion will not be legally bindingand the parties undertake not to raise it in anypossible court action.

nMUTUAL INSURERS AND GROUPINGS THAT AREMEMBERS OF THE GEMA

In 1989 GEMA members adopted a mediationprotocol.

Only policyholders that are natural persons, ortheir representatives, can refer cases relating tospecific risks to GEMA’s mediator, Mr GeorgesDurry. The mediator will issue a reasoned opinionwithin six months of referral. The opinion will bebased on law or equity and will only be binding onthe mutual insurer involved in the dispute. Themutual insurer must undertake not to raise anyopinion in its favour in any court action.

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ACAM’S ACTIVITY IN 20082

Loan insurance is taken out as a security for theloan, and the two contracts are therefore closelylinked. All the more so as in most cases the creditinstitution itself takes out the policy, is thebeneficiary under the policy and also acts as theintermediary. This situation may result in creditinstitutions putting their own interests beforethose of their clients, by imposing a policy thatthemselves have negotiated.

Most complaints about this type of insuranceconcern the lack of transparency and inadequateadvice when the policy was offered to the borrower.Policyholders have also said they would like tohave the opportunity to take out a policy of theirown choice with another insurer.

For several years now industry players and publicauthorities have striven to improve disclosure onthese policies, and to extend access to them.

Non-mandatory measures were introduced prior to200713. However, these proved to be insufficientand, following the coming into force of Article L. 312-8.4.bis of the Consumer Code in 200814

which confirmed policyholders’ freedom of choice,the Directorate General for the Treasury andFinancial Policy and the Bank of France conductedtwo surveys on the improvement of informationand advice and the comparability of offers.Following this, a reform of loan insurance wasannounced to increase disclosure and improvecompetition in the interest of consumers.

MEDIATION AND INSURANCE BROKERS

The union of insurance brokers, the CSCA (laChambre syndicale des courtiers d’assurances),adopted a Mediation Charter at the end of 2007.

It appointed Mr Patrice Dedeyan as its mediator.Cases involving a dispute between a broker and aclient may be referred to him by the client or thebroker. The mediator will issue a reasoned opinionwithin three months of completion of theexamination phase, but this will not be binding onthe parties.

13. See p. 64 of the 2007 Business Report and p. 34 of the 2005 report. Recommendation n°.90-01 by the Commission des clauses abusives (an authority set upto examine unfair contract terms) (BOCCRF of 28/08/90), Belorgey convention (6/07/06) and AERAS convention (6/01/07), commitment by the FFSA (24/06/03), Opinion of the CCSF (6/04/06).

13 - 14. Act of 3 January 2008. This article offers property loan applicants the right to take out insurance cover with any insurer of their choice, except in the casespecified in Article L. 312-9 of the same Code.

Although this is not one ofthe DDCRA’s primary roles,it can help policyholders andsupervised entities to findan amicable solution toa dispute. There is a range ofmediation possibilities thatcan be used to settledisputes without going to court.

The CTIP and the FNMF are currently consideringintroducing a mediation system.

In the event a mediator issues an opinion in favourof an insurer, or if the insurer fails to act onany opinion in favour of the policyholder, thepolicyholder may take the case to court.

FOR INFORMATION

Along withconciliation andarbitration, mediationis an alternativedispute resolutionsystem thatintroduces anindependent thirdperson with the taskof issuing an opinionand helping theparties to come toan agreement.

CONTACT DETAILS

Département du droit ducontrat et des relationsavec les assures (DDCRA)61 rue Taitbout 75436 PARIS CEDEX 09Tel: +33 (0) 1 55 50 41 00Fax: +33 (0) 1 55 50 41 42Email: ddcra@acam-france.fr

FFSA The MediatorBP 29075425 PARIS CEDEX 09Tel: +33 (0) 1 45 23 40 71Fax: +33 (0) 1 45 23 27 15Email: francis.frizon@mediationassurance.orgWebsite: www.ffsa.fr

GEMA The Mediator9 rue Saint-Pétersbourg75008 PARISTel: +33 (0) 1 53 04 16 37Email: webmaster@gema.frWebsite: www.gema.fr

CSCA The Mediator91 rue Saint Lazare75009 PARISTel: +33 (0) 1 48 74 19 12Fax : +33 (0) 1 42 82 91 10Email: csca@csca.frWebsite: www.csca.fr

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b) 2009 Social Security Financing Act(Loi de financement de la sécurité socialepour 2009 -1157).

Following a parliamentary amendment of Article L. 862-7 of the Social Security Code, ACAM andthe CMU fund (fund for universal health cover) arerequired to supply annual statistics on thesupplementary health insurance data contained inthe financial statements of insurers, providentinstitutions and mutual insurers in order to enablethe Ministry concerned to prepare a report forsubmission to the Parliament before 15 Septembereach year.

5.2. ACAM’s Collegerecommendations

a) Recommendation of 15 October 2008 on the valuation of certain financialinstruments at fair value

The French national accounting council (ConseilNational de la Comptabilité – CNC), the financialmarkets regulator (Autorité des MarchésFinanciers – AMF), the banking regulator(Commission Bancaire – CB) and ACAM issued ajoint recommendation relating to the accountingtreatment of certain financial instruments whosemarket price could no longer be considered reliabledue to turbulent market conditions.

This recommendation provides necessaryclarifications for preparing interim or annualfinancial statements as from 30 September 2008.It applies to the consolidated financial statements,prepared in accordance with IFRS as adopted bythe European Union, of entities holding financialassets valued at fair value whose markets areinactive.

The four bodies built on the joint communicationissued by the Securities and ExchangeCommission (SEC) and the Financial AccountingStandards Board (FASB) on 30 September 2008,and on the 10 October 2008 FASB communication,

which provided useful clarifications on thevaluation at fair value of financial assets whosemarkets are inactive.

The four above-mentioned authorities also tooknote of the declarations of the InternationalAccounting Standards Board (IASB) on 2 and 14 October 2008, indicating that the clarificationsissued by the SEC and FASB comply with IAS 39 Financial Instruments: recognition andmeasurement.

The clarifications provided in these variouscirculars apply under IAS 39 in situations wherethe market for the financial instrument is inactiveand relate notably to:

u use of assumptions developed by the companyin the absence of relevant market data;

u the role of brokers’ price listings in theassessment of available data;

u the role of forced sales in determining the fairvalue;

u the role of trading prices observed in an inactivemarket.

Lastly, the four bodies took note of the IASB’srevision of IAS 39 on 13 October 2008 to enable thereclassification of certain financial instruments.

b) Recommendation of 15 December 2008on investments by insurers

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nMEDIATION REMAINS LARGELY IGNORED

Despite the existence of these procedures, mostpolicyholders still know little or nothing about them.Unfortunately, insurers rarely inform policyholdersof the existence of such dispute resolution system,and the name of the relevant insurance mediator israrely provided.

In addition, mutual insurers, provident institutions,entities and intermediaries that are not membersof the abovementioned industry organisationseither have very inadequate dispute resolutionsystems or do not provide access to any mediationsystem at all. It is to be hoped that a mediationsystem along the lines of those described abovewill soon become available to all these entities.

5. Debates andcurrent issues

5.1. Regulatory developments

a) Transposition of the Third European Anti-Money-Laundering Directive

Act 2008-776 of 4 August 2008 authorised theFrench government to legislate by virtue of anorder to transpose the Third European Anti-MoneyLaundering Directive of 26 October 2005 into French law.

Order 2009-104 relating to prevention of use of thefinancial system for money laundering andterrorist financing was adopted at the end ofJanuary 2009. It profoundly reforms the existingsystem and introduces several new concepts.

In view of the present financial crisis,the CNC and ACAM have issued a jointrecommendation reiterating theprovisions currently applicable underFrench accounting regulations.

THE NEW MEASURES CONTAINED IN THEORDER OF 30 JANUARY 2009

Order 2009-104 relating to the prevention of use ofthe financial system for money laundering andterrorist financing introduces new rules:

u it extends the application scope, previouslylimited to five types of offence, to all offencespunishable by deprivation of liberty of morethan one year;

u it reinforces the system of vigilance byestablishing three levels according to thedegree of risk: simplified due diligence, standarddue diligence and enhanced due diligence;

u it obliges insurers to inform themselves, prior towriting a contract, as to the identity of thepolicyholder, their professional activity, theirrevenues and assets. Any inconsistencybetween this information and the transactionscarried out may give rise to suspicion;

u it defines the concept of introduction by a thirdparty, which concerns insurance intermediaries.This defines the broker’s role and enables theinsurer to rely on the broker to perform some ofthe diligences;

u it confirms the possibility of exchanginginformation between companies belonging to asame group, or between companies that do notbelong to the same group but which are actingfor the same client or are involved in the sametransaction;

u it requires the putting in place of moneylaundering and terrorist financing riskassessment and management systems (risk mapping).

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5.4. International agreements

a) Cooperation developed by the IAIS

The IAIS seeks to promote, generalise andformalise cooperation between insurancesupervisors. To this end, in February 2007 it drewup a Multilateral Memorandum of Understanding(MMoU) on cooperation and informationexchange.

The MMoU covers all issues related to thesupervision of insurers: licensing, ongoingsupervision and winding-up processes, wherenecessary (Article 3.3). The main objective is tocooperate and exchange information on thefinancial security of insurers. The informationexchanged is therefore, a priori, ‘sensitive’ and‘confidential’.

As a principle, participation in the MMoU makes itmandatory for a signatory authority to deliver theinformation legitimately requested by anothersignatory (Article 4.2 and Article 5.4).

b) Accession to the IAIS MMoU: conditionsand procedure

An IAIS member wishing to accede to the MMoUmust submit an application form proving that it:

u is an insurance supervisor;

u has the necessary legal authority to obtaininformation from insurers and share it withforeign insurance supervisors;

u can provide an adequate guarantee ofconfidentiality.

Applications are examined by validation teamsestablished by the Signatories Working Group.Any objections raised are notified to the applicantin writing. If the issues raised cannot be resolvedimmediately, the applicant may ask that theapplication be suspended for up to six months,which can be extended on request.

At the date of this report, 49 supervisoryauthorities had indicated their intention to adhereand 15, including ACAM, had filed an application.

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This recommendation provides numerousclarifications for the preparation of insurers’financial statements as at 31 December 2008,in particular relating to:

u the methods of recording impairment oninvestments in the company and consolidatedor combined financial statements preparedaccording to French GAAP;

u the information to be provided on the realisablevalue in the notes to the company andconsolidated financial statements preparedaccording to French GAAP.

In the said recommendation, the term ‘insurers’is understood to mean the insurance entitiesgoverned by the Insurance Code, the MutualInsurance Code and the Social Security Code. Thereferences in the text are to the Insurance Code,which should be transposed by analogy to theMutual Insurance Code and the Social SecurityCode.

5.3. Consultation launched by the European Commission on the IORP Directive (IORP)

The European Commission held a publicconsultation on the harmonisation of solvencyrules applicable to Institutions for OccupationalRetirement Provision (IORPs) covered by Article 17of the IORP directive (Part A of the consultation)and IORPs operating on a cross-border basis (PartB of the consultation).

The purpose of this consultation was to collect theviews of all the parties concerned as to thedesirability of a further harmonisation of thesolvency regime for IORPs underwriting specificcommitments (covered by Article 17 andconsequently by Article 4 of the IORP Directive)and IORPs operating on a cross-border basis.

This public consultation took place between 9 September and 28 November 2008. It was inparticular addressed to representatives of theinsurance industry in the occupational pensionssector, to regulators and to governments ofMember States.

While it prepared its response to the EuropeanCommission, ACAM invited the professional bodiesand government departments concerned todiscuss the subject of the consultation.

This initiative was a great success, resulting innumerous constructive discussions, in particularrelating to the scope of the consultation andpotential distortion of competition.

JOINING THE MMoU IS OPTIONAL

Although the IAIS recommends that its memberssign the MMoU, accession nonetheless remainsoptional.

MMoU’s main aim is to improve the prudentialsupervision of insurers; it is not to fight financialdelinquency. As a consequence, not joining theMMoU does not mean that the member isuncooperative with regard to financial delinquency,but rather that it does not believe (as yet) thatjoining the MMoU will add to the protection ofpolicyholders.

This MMoU, created in 2007,is not yet operational. At the level of the EuropeanEconomic Area, cooperationbetween regulators iscurrently organised by theso-called Sienna and HelsinkiProtocols. These last havea prudential purpose and not that of prevention of financial offences.

IORPS: SOME GENERAL PRINCIPLES

The consultation was an opportunity for ACAM tounderline some basic principles of IORP:

u as beneficiaries’ rights are protected only up tothe amount of the obligation borne by the IORP,it is essential that the role of each party, IORPand the employer, be clearly stated and properlyexplained to the beneficiaries;

u the solvency rules must enable the IORP to meetits liabilities;

u differing solvency rules result in regulatoryarbitrages. All IORPs assuming the same risksmust therefore be subject to the same solvencyrules;

u harmonisation of solvency rules at EU level istherefore desirable in order to provide a sufficientlysolid framework that will ensure that liabilities aremet, avoid competitive distortions, and providea high level of protection to the beneficiaries.Transitory rules could be envisaged to ensurethe convergence of pension schemes during thetransition from one solvency regime to anothermore secure regime.

FOR INFORMATION

The IAIS(InternationalAssociation ofInsuranceSupervisors) wascreated in 1994.It drafts internationalstandards forsupervision ofinsurers andreinsurers – andaccessorily forinsuranceintermediaries – inthe interests ofthe policyholdersand beneficiaries.The 28 InsuranceCore Principles (ICP)constitute thefoundation for thesestandards and inprinciple cover allareas of insurancesupervision.

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Lastly, several actuarial research reportspublished by ACAM supervisors received acclaim.Flor Gabriel and Philippe Sourlas, winners ofthe SCOR award the previous year, published anarticle on hedging options in a turbulent marketin the last issue of the French actuarial bulletinBulletin Français d’Actuariat. In the same bulletin,André Bernay published an article on investingin shares with a long-term horizon. Lastly, on 4 December 2008, Louis Margueritte received the SCOR award for the report published with Jean-Baptiste Nessi on the valuation of commodityderivatives.

5.5. The continuing work of the HautComité de Place

The various supervisors each presented thecommittee with a “best regulation” plan, designed toguarantee the drafting and efficient implementationof regulations in the best interest of professionals,investors and savers.

ACAM proposed five work areas:

u the Supervision Charter;

u ‘soft regulation’ through recommendations;

u enhanced external communication;

u electronic transmission of annual reportingdocuments;

u quarterly meetings with industry representatives.

a) The Supervision Charter

Published in June 2008, this Charter forms part ofthe ACAM’s role to inform and prevent.

It is above all addressed to the supervised entitieswith the aim of informing them of their rights andobligations during inspections and explaining thesupervisory context: issues, methodology andpossible outcome. It explains that the purpose ofsupervision is to anticipate potential problems andthat ACAM’s role is not merely to sanction.

The Charter was drawn up in conjunction with theindustry associations representing the supervisedentities.

b) Soft regulation via recommendations

The aim is to issue recommendations or goodpractice guidelines after in-depth discussion withprofessional bodies, as had already been done in2005 with regard to the content of solvencyreports and prevention of money laundering, inNovember 2007 with regard to governance, and inFebruary 2008 with regard to ‘finite’ reinsurance.

ACAM has undertaken to continue this approach onother issues of interest to the industry and togeneralise consultation before final adoption of arecommendation.

c) Enhanced external communication

ACAM regularly enriches its external communicationthrough numerous tools and communication media.

The ACAM quarterly newsletter (La Lettre de l’Acam)provides the industry with information, discussions,official commentaries and explanations ofmethodology.

“Analyses et syntheses”, a publication launched atthe end of 2007, examines current technical issues in greater detail.

Since the beginning of 2009, ACAM has a newwebsitewith new functionalities. The new website ismore modern, interactive and informative. The goalis to inform a broader public about ACAM and providetargeted responses to the needs of large categoriesof users: insurers, intermediaries, policyholders andthe press.

The Supervision Conferencesprovide other excellentforums for exchange with industry players.

During 2008, ACAM also developed smaller workingseminars designed to develop work methods withregulated entities based on practical cases. In thecontext of preparing the French market for Solvency II,the seminar of 23 September 2008 was dedicated tointernal models.

The quality of the actuarial workspublished by ACAM supervisorshighlights the top-level qualificationsof many of these supervisors, who areat the cutting edge in the area offinancial modelling and contribute tothe progress of actuarial techniques.It also highlights ACAM’s capacity torespond, alongside the market,to the challenges of Solvency II.

FOR INFORMATION

Created in 2007and chaired by theMinister of Economyand Finance, the HautComité de Place(Paris FinancialServices High-LevelCommittee) iscomposed ofrepresentatives offinancial andinsuranceprofessions, Parismunicipal and Île-de-Franceregional authoritiesand the supervisoryauthorities. Itspurpose is to draw upan action plandesigned to enhancethe attractiveness ofthe Paris financialmarket.

At this seminar, thesupervised entities werestrongly encouraged tocontact their supervisorsand involve the ACAM fromas early a stage as possiblein designing an internalmodel. ACAM stresses thatan internal model must befully integrated into anoverall risk managementsystem; in no circumstancesshould it be consideredsimply as a “mechanism forcalculating Solvency CapitalRequirements (SCR)”.

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Regular discussion have been organised withindustry associations with the aim of furtherimproving this service. The goal is to use electronictransmission for quarterly reports, annual reportingpackages, questionnaires and surveys.

One of the next steps will be to integrate anelectronic signature for the annual reportingpackages. Only this legally recognised certificationsystem can completely replace signed paperdocuments.

e) Quarterly meetings with industry players

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d) Electronic transmission of annualreporting packages

The project to develop the electronic transmissionof documents to be submitted to ACAM was initiatedby the Haut Comité de Place. As a consequence, atthe beginning of 2008 ACAM launched a project tomodernise data exchange with insurers by puttingin place electronic data transmission channels.

The project was developed in conjunction withprofessional bodies and the active involvement ofa selection of companies that was representativeof the diversity of individual situations.

Electronic transmission is available through asecure site protected by passwords which weresent to all legal representatives of each entity at the beginning of January 2009. It is very easyto use: the user only needs to connect tohttps://teletransmission.acam-france.fr, identifyhimself using the password provided, and thenselect the type of document to be transmitted. An electronic transmission user procedure isavailable from: htpp://www.acam-france.fr/dossierannuel

Once a quarter, ACAM hosts a workinggroup that comprises several membersof its College, the Secretariat General,the professional bodies (FFSA, GEMA,CETIP, FNMF and FNIM) andrepresentatives of the Treasury and Economic Policy Directorate and the Social Security Department.

CONFERENCE OF 6 OCTOBER 2008

This conference was dedicated to the results ofQIS4.

With 1,412 participating entities (of which 234French entities), this fourth quantitative impactstudy was representative of the French as well asthe European insurance sectors. The participationof groups (111 including 28 French groups) wasalso satisfactory. Simplification and clarificationof technical specifications resulted in an increasein the participation of small entities – up by 58%compared with QIS3.

The results showed that the majority ofparticipants considered the structure of thestandard formula tested in QIS4 to be appropriate,despite the criticism relating to the calibration orformulation of some modules. However, the effortsto simplify must be continued.

Also, for the first time, the questionnaire oninternal models gathered information on insurers’choice of models, as some insurers are planningto develop risk management models and thensubmit them to ACAM for approval of these modelsfor determining capital requirements.

Lastly, barring a few exceptions that need to beanalysed in detail, this fourth study showed that,based on the 2007 financial statements, thesector would not need refunding in the event ofapplication of the draft directive.

THE SUPERVISION CONFERENCE OF 15 APRIL 2008

This conference focused on two main subjects:changes in the mutual insurance sector, and thelaunch of the Fourth Quantitative Impact Study(QIS4) by the Committee of European Insurance andOccupational Pensions Supervisors (CEIOPS).

At this conference, ACAM drew attention to the trendtowards concentration in the sector – which isexpected to continue – to changes in the legislativeand regulatory environment and to the improvementin the quality of the annual reporting packagesreceived.

ACAM also drew attention to certain procedures(appointment of independent auditors, revaluationof property assets, etc.) and ACAM’s Collegerecommendations relating to governance. ACAMdescribed some of the pitfalls, drawing on theobservations formulated after on-site inspections.

Emphasis was also placed on the general frameworkand the various technical aspects of the fourthQuantitative Impact Study (QIS4) of the Frenchmarket. With regard to this study, the key issue is toimprove representativeness, in particular byencouraging small and medium sized entities toparticipate in it.

FOR INFORMATION

Electronictransmission offersnumerous benefits:fewer paperdocuments sent,faster transmissionof documents toACAM through asingle transmissionchannel, and reducedstorage of paper at ACAM.

a) A reform of the organisation of financial supervision

The impact of the financial crisis has promptedMember States and the European Commissionto examine the need to reform the generalorganisation of financial supervision in Europe.With this in mind, in October 2008 the President ofthe European Commission, José Manuel Barroso,put in place a senior financial supervision workinggroup. This working group, composed of eightpeople and chaired by the former governor of theBank of France, Jacques de Larosière, presentedits report on the organisation of supervision inEurope on 25 February 2009.

The report found that the internal market remainedhighly fragmented. It recommended moving inthree phases towards a system of supervision withthree sector supervisory authorities. In the longerterm, it envisages two European supervisoryauthorities: one for the banking and insurancesector and the other for markets conduct. It alsorecommends that macro-prudential supervision ofthe entire European financial system be entrustedto a European Systemic Risk Council (ESRC),attached to the European Central Bank (ECB). ThisCouncil would be directed by the ECB with theparticipation of the presidents of the Committee ofEuropean Banking Supervisors (CEBS), CEIOPS andthe Committee of European Securities Regulators(CESR). It would be responsible for gathering andanalysing all the relevant information concerningfinancial stability. The European Commission is notbound by the proposals formulated in this report;however, it took up most of the de Larosière reportproposals in its 4 March and 27 May 2009recommendations.

b) Revision of bank capital adequacyrequirements

The financial crisis has led the EuropeanCommission to propose the revision of bank capitaladequacy requirements (amendments to capitaladequacy directives 2006/48/EC and 2006/49/EC).

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1.1. General background

The Solvency II Directive agreed upon by theEuropean Parliament and European Councilcodifies 14 EC directives relating to insurance andreinsurance activities and sets the basis for thenew solvency rules (known as ‘Solvency II’).Adopted according to the Lamfalussy process,the directive provides for the drafting of Level 2implementing measures by the European

Commission, drawing in particular on advicereceived from CEIOPS, and for the adoption of saidmeasures 12 months before the directive comesinto force on 31 October 2012.The Quantitative Impact Studies (QIS) are designedto identify the impact the new system will have onmarket players.

2

Regulatorydevelopments

II -Regulatory developmentsat European level

WHAT IS THE LAMFALUSSY PROCESS?

The Lamfalussy process makes a distinctionbetween four levels of legislation. Levels 1 and 2are directives or regulations15. More precisely,Level 1 consists of directives adopted by theEuropean Council and Parliament that establishthe principles that will be detailed in the Level 2measures adopted by the European Commission,under the supervision of the European Council andParliament. Level 3 consists of recommendations.

For the insurance sector, the Level 3 committeeis the Committee of European Insurance andOccupational Pensions Supervisors (CEIOPS),of which ACAM is an active member. CEIOPSadvises the European Commission on the technicalaspects of Levels 1 and 2 legislation. CEIOPSdrafts level 3 recommendations16 designed tohasten the convergence of prudential practicesand encourage cooperation between supervisoryauthorities.

To ensure a coherent whole, Level 4 relates to theEuropean Commission’s oversight of complianceand enforcement. This point is often ignored.

The aim of the Lamfalussy process is to ensurepermanent and transparent dialogue betweenlegislators and industry players, notably throughpublic consultation at each stage of the procedure.

15. Note that while Directives need to be transposed into national law for application, regulations are directly applicable in national law.16. These recommendations are not legally binding unless integrated into national law. Such integration is decided by the individual Member State.

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1. Solvency II

FOR INFORMATION

European regulationsseek to create agenuine internalmarket in the area of finance byharmonising nationallegislations. Since2003 regulation hasbeen developed usingthe Lamfalussyprocess approach.

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1.2. Solvency II: update

Solvency II was the subject of intense discussion inthe European Parliament and European Council.

a) The debate focused on two main issues:

u group support;

u the linking of capital requirements for equities tothe duration of liabilities.

With a view to reaching an agreement within theCouncil, the Member States agreed to abandon theprovisions relating to group support contained inthe European Commission’s original draft directive.The group support regime consists in a legallybinding undertaking from the parent company totransfer funds to a subsidiary if the need arises.This declaration of support would enable thesubsidiary to cover all or part of the gap betweenthe minimum capital requirement (MCR) andthe solvency capital requirement (SCR). TheParliament, on the other hand, was strongly infavour of the group support regime. The text agreedupon by the Parliament and the Council does notinclude the provisions relating to group supportbut contains a review clause (Article 246, point 2)providing for the possible introduction of the group

support provisions three years after the directivecomes into force.

The Council’s version introduced an explicit linkbetween the capital requirement for equities andthe duration of liabilities, which the Parliament hadnot wanted.

The compromise reached was to accept duration-based equity risk but within a very strictframework (Article 305b): only occupationalretirement products and tax-advantaged productshave access to this regime, under very restrictiveconditions (in particular ring-fencing of thecorresponding assets and liabilities and anaverage duration of the liabilities of more than 12 years).

b) CEIOPS’ technical advice

Without waiting for adoption of the Level 1framework directive, the European Commissionrequested CEIOPS to issue technicalrecommendations for the future implementingmeasures (Level 2 measures).

In response to this request, CEIOPS set up fourworking groups:

u the Financial Requirements Expert Group (FREG)focuses on aspects related to Pillar 1 (financialrequirements) and is chaired by Pauline deChatillon (FR, ACAM). The group’s work focusesin particular on:

• pillar 1, which covers the assessment oftechnical reserves, the definition andcalibration of standard formulas (SCR andMCR) and equity requirements;

• achieving a balance between a company’s realrisk profile and a standardised approachwithout unnecessary complexity.

• paying particular attention to the treatment ofhealth risk and the recognition of futurepremiums;

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At the same time the Commission announced thatit would shortly carry out an in-depth review, withthe assistance of the Basel committee. In parallelit proposes to introduce regulations forindependent rating agencies, raise the minimumbank deposits guarantee and review theregulations relating to investment funds. It alsowishes to modify certain accounting regulations,together with the rules relating to financialconglomerates, and take new initiatives relating tothe remuneration of senior management and toderivative products.

The European Commission had already adopted on23 January 2009 three decisions that replace thedecisions of 5 November 2003 creating the threelevel 3 committees (CEIOPS, CESR and CEBS).

The Commission is also proposing theestablishment of a Community programme,providing direct funding (€36 million from 1 January 2010 to 31 December 2013) from theCommunity budget for the three EU Committeesof Supervisors (CESR, CEBS and CEIOPS) andfor key international and European bodiesinvolved in the standard-setting process forfinancial reporting and audit (IASCF, InternationalAccounting Standards Committee Foundation ;EFRAG, European Financial Reporting AdvisoryGroup ; PIOB, Public Interest Oversight Body).

The European Commission is now focusing ona review of the prudential rules applicable toinsurance. The last of the 42 measures of theFinancial Services Action Plan (FSAP) has yet tobe adopted17.

17. This plan sets out all the action required to make the most of the euro and ensure the stability and competitiveness of the EU’s financial markets.

CEIOPS ROLE IS SET TO CHANGE

The European Commission’s decisions of 23 January2009 mean a change in the role of CEIOPS. Inparticular it proposes to:

u reinforce its action in the area of macro-economic surveillance and the detection ofweaknesses that could represent a threat tofinancial stability;

u introduce the possibility of voting by a qualifiedmajority, although its decisions would continuedto have no legal force;

u transform the joint CEIOPS and CEBS interimcommittee for the surveillance of financialconglomerates into a permanent mixedcommittee for financial conglomerates;

u establish a non-exhaustive list of tasks to beperformed with a view to achieving theconvergence of prudential practices.

The Solvency II directive wasadopted by the EuropeanParliament (approved on 22 April 2009) and EuropeanCouncil under a co-decisionprocedure, within the framework of theLamfalussy process.

The Financial ServicesAction Plan adopted by theEuropean Commission in1999 was designed toconstruct an integratedsingle market in banking,insurance and securities. In this context, the draftSolvency II directive willradically change theprudential rules applicable to insurers.

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1.3. Internal models

a) Assessing and validating an internal model

The Solvency II framework directive introduces thepossibility for insurers to assess their SolvencyCapital Requirements (SCR) using an internalmodel. It sets forth the conditions in which thesupervisory authorities can approve the modelsused.

Internal models are not supposed to be simplymathematical models: they must be integratedinto the entity’s risk management system.Actuarial models are steering tools and decisionaids for management. Recent events havehighlighted the importance of risk managementsystems.

According to the framework directive, an internalmodel may be used for regulatory purposes onlyif the entity can prove that it uses it extensively forother purposes, at strategic level and at the levelof services, and that the various quality standardsare complied with.

Models shall be assessed based on numerouscriteria:

u accuracy of the mathematical tools;u data quality; u documentation; u governance; u internal control.

One of the difficulties of modelling is tosuccessfully quantify and justify the calculationof losses that could arise in very unfavourablesituations, despite the limited experience data forthis type of event.

In this respect, 2008 demonstrated theweaknesses of certain assumptions that wereconsidered valid in normal conditions. Oneresponse to these sources of uncertainty could beto develop and take into account sensitivity testsand checks of the assumptions used in order tomeasure the possible impact of modelling errors.

b) Guaranteeing an efficient validationprocess by ACAM

The entities must fully understand modelling asthey must validate their internal model beforepresenting it for validation by ACAM.

The development of a model that must be validatedby ACAM is a significant and potentially expensiveenterprise. It is up to insurers to analyse the costsand the benefits provided by the model.

In particular, using an internal model can result inlower capital requirements. This is only the case,however, when the risk exposure is lower than thatwhich would have been indicated by the standardformula, and when it reflects more efficient riskmanagement.

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u Internal Model Expert Group (IMEG) is dedicatedto internal models and is chaired by Mr PaulSharma (UK, FSA). It focuses in particular on theconditions for approval of internal models bysupervisory authorities;

u Internal Governance, Supervisory Review andReporting Expert Group (IGSRR) deal with issuesrelating to Pillars II and III (governance,prudential control, regulatory and publicdisclosure, assessment of the prudentialbalance sheet). It is chaired by GabrielBernardino (PT, ISP). This group, which publishedseveral issues papers in 2008 on ORSA (OwnRisk and Solvency Assessment), supervisors’inspection procedures and the principles ofgood governance, focuses on additional capitalrequirements (capital add-on) that could berequested by the supervisor if the entity’s realrisk profile is too far removed from theassumptions used to calculate capitalrequirements. It is also drafting an EU formatfor prudential reporting;

u Insurance Groups Supervision Committee (IGSC)focuses on the supervision of insurance groupsand is chaired by Petra Faber-Graw (DE, BaFin).This group notably examines the treatmentof shareholdings in financial institutions, thefunctioning of Colleges of Supervisors, thecalculation of capital requirements at group leveland the treatment of entities in other countries.

CEIOPS has also scheduled impact studies of theproposed measures, including in particular a QIS5in 2010.

Unlike a standard formula,which will always give animperfect picture of anentity’s risk profile, an internal model can bedeveloped that is adaptedto the entity’sorganisation and thespecific characteristics of its business.

THE STAGES FOR IMPLEMENTINGSOLVENCY II

When the Markets in Financial InstrumentsDirective18 (MiFID) was adopted, the MemberStates considered it difficult to transpose a Level1 framework directive containing solely principles.The European Commission therefore undertook,with respect to Solvency II, to publish the Level 2measures at least 18 months before the directivecomes into force.

With regard to the points not defined in the Level1 and 2 measures, the Commission has alsoasked CEIOPS to issue recommendations (Level 3)for implementation of Solvency II.

For the Commission to have the time it needsto adopt the Level 2 measures, CEIOPS must issueits opinion before the end of 2009. Level 2 andLevel 3 measures, essential to implementationof Solvency II, should be adopted in 2011 andcome into force on 31 October 2012.

18. Directive dite MiFID en anglais, pour Markets in Financial Instruments Directive.

FOR INFORMATION

The introductionof the concept ofa “partial internalmodel” enables a specialised entity to take into account its risk managementsystem in its area of expertise. It canconcern entities that wish to obtainapproval for themodelling of certain risks, whilecontinuing to set up a full internal model.

99

a) The objectives of QIS4

QIS4 was a comprehensive test with the aim of:

u providing detailed information on the impact ofSolvency II on insurers’ balance sheets;

u checking the consistency of the technicalspecifications developed by CEIOPS with theprinciples and objectives of the frameworkdirective;

u gathering quantitative and qualitative data on thedifferent options that will be examined in theimpact assessment of future implementationmeasures.

In addition, QIS are also a means of measuring thedegree to which the process is understood by theinsurers. It encourages the industry to prepare forSolvency II and identifies the areas and internalprocedures that could be improved.

b) The main result of QIS4 for the French andEU/EEA markets19

With 1,412 participants, of which 234 entities (17%of the total) were French, QIS4 more than achievedits target in terms of representativeness of theFrench and European markets. Simplification andthe numerous explanations provided for thetechnical specifications encouraged a largernumber of companies, and more particularly smallcompanies, to participate.

European groups (111), including 28 Frenchgroups, also participated. The French market’sactive participation was, however, tempered by the low number of responses relating to internalmodels (10).

The supplementary national guidelines publishedby ACAM have reduced the variety of methodsused, in particular for the treatment of future profitsharing and the assessment of technicalprovisions in life insurance. However, not all thedifficulties have been smoothed out (accounting

for future premiums, deferred tax, etc.), whichcontinues to limit the comparability of results.

The problems of reliability and quality of resultsencountered at solo level were amplified at grouplevel. The impact of group diversification maskssignificant differences depending on each group’srisk profile. The questions relating to theconsolidation scope, the treatment of intra-groupshareholdings, the fungibility of capital and thetransferability of assets call for more in-depthexamination.

Fifty-four participants (out of 1,412) measuredtheir capital requirements using an internal model.Given the low level of response to the quantitativequestionnaire and the variety of the models used,the comparability of the results obtained withinternal models and those obtained with standardformulas is very limited.

In France, on the basis of the 2007 financialstatements, QIS4 did not reveal any need forrecapitalisation, with the exception of someparticipants who had raised the question of properallocation of equity between group entities.

98

ACAM’S ACTIVITY IN 20082

In the context of the obligation to have a riskmanagement system, ACAM’s departments havealready begun discussions on internal models withinsurers. The discussion process intensifies as eachentity progresses in modelling, and is now anessential phase for ensuring an efficient validationprocess as soon as Solvency II comes into force.

2. Quantitative impactstudies

2.1. QIS4: realisation, analysisand results

Each successive QIS has covered an increasinglywide field. While QIS1 was limited to theassessment of technical provisions, QIS2 includeda first approach method for determining capitalrequirements and analysing the items eligiblefor covering these requirements. QIS3 included afirst approach of the issues relating to insurancegroups.

19. www.acam-france.fr/QIS. EEA : European Economic Area.

To measure the impact of the new regulations onthe prudential assessmentof balance sheet itemsand the calculation ofcapital requirements, the European Commissionrequested CEIOPS to carryout quantitative impactstudies (QIS).

Insurers that obtain regulatory validationof their internal models are likely to be thosethat benefit the most in terms of enhancingtheir risk management system.

NEW EUROPEAN UNION PRUDENTIALRULES

The Solvency II regime will reform the prudentialregulations applicable to European insurers.

The Solvency II directive, in particular, provides foradapting capital requirements to the levels of riskborne by the insurer, and aims to improve riskmeasurement and management.

The directive also reinforces the supervision ofgroups, while at the same time emphasising thatsupervision should be proportionate to the natureand complexity of the risks borne.

Solvency II should be implemented as from 2012.

101100

ACAM’S ACTIVITY IN 20082

3. Accountingharmonisation

3.1. Principle and functioning

Since 1 January 2005, publicly traded Europeancompanies are obliged to prepare theirconsolidated financial statements according toIFRS (International Financial Reporting Standards).The Solvency II directive is expected to drawstrongly on the principles underlying thesestandards for determining the new Europeanprudential regulations.

IFRS undergo frequent amendments and eachamendment gives rise to a public consultation. Asa member of several working groups (CEIOPS andIAIS), ACAM is involved in reviewing these changes.

In 2008, the measurement of employee benefitliabilities, simpler information on financialinstruments, and the frontier between debt andequity were discussed. The working groups arevery attentively following the creation of a newIFRS for insurance contracts (IFRS 4 phase 2).

3.2. Difficulties in applyingaccounting standards

In the area of accounting standards, the year wasdominated by the financial crisis and by difficultiesin applying some of these standards. In effect, under IFRS, when the number oftransactions in a financial instrument is too small toprovide a reliable price, the assets should be valuedbased on valuation models. This rule encountersseveral application difficulties linked to:

u the capacity to determine whether markettransactions are representative or not;

u the capacity to measure, using a model, themarket value of these financial assets.

Given these difficulties, ACAM, CNC, CB and AMFissued a joint recommendation relating to thefair value measurement of certain financialinstruments.

At the European Union level, several papers havebeen published, in particular:

u CEIOPS report on issues regarding the valuationof structured credit products;

u Joint statement from CESR, CEBS and CEIOPSregarding the latest developments in accountingaddressed to insurance, banking and financialmarket regulators.

2.2. QIS5 is being prepared

The timetable for adoption and implementationof the Solvency II directive provides for thedevelopment of Level 2 application measures. TheCEIOPS is scheduled to present its formal reportto European Commission by December 2009.Before then, various draft recommendations willbe published for public consultation.

Unless the European Commission modifies thegeneral timetable, European insurers and reinsurerswill be invited to participate in QIS5 in the spring of2010 to test the latest progress in drafting Level 2measures.

This next impact assessment will be particularlyimportant, as it will provide all players with:

u another opportunity to measure their familiaritywith the process as a whole;

u an assessment of the quantitative impact ofSolvency II on insurers’ balance sheets, and in particular of the impact of the future Level 2 measures;

u information on how to make the finaladjustments in terms of calibrating the ‘standardformula’.

French insurers, in order to gain a fullunderstanding of the process, must as fromnow study the impact on the various balancesheet items, using the valuation methodsprovided for by the directive. They must alsoprepare to meet the quantitative andqualitative requirements (governance, internalcontrol, compliance, etc.).

THE NEW QIS4 FORMULA: ROOM FORIMPROVEMENT

Although largely inspired by the standard formulaused for QIS3, QIS4 introduces some major changes.In particular it authorises participants to test themodulation of the equity load factor using a‘dampener’. However, many EU supervisors areopposed to this possibility.

Some modules are felt to be excessively complex orill-adapted, particularly counterparty default riskand non-life underwriting risk modules.

For the Minimum Capital Requirement (MCR), acombined formula (calculating capital requirementson technical provisions and/or premiums with afloor, capped according to a percentage of the SCR)tested for QIS4 has received the support of most EUsupervisors. However, the scale of the reduction incapital requirements resulting from risk mitigationmechanisms in life insurance has resulted in alarge number of entities obtaining an MCR with littleconnection to their risk profiles.

* Cf. lexique

3

103

Part 3 Financial data

105

t The financial statements are prepared by theChief Accountant and submitted to the College bythe Secretary General. They are approved by theCollege and transmitted to the Cour des Comptes(French Audit Office) by the Secretary General.

The accounts are kept in compliance withthe general principles of prudence, continuity,sincerity and true and faithful image of ACAM’sfinancial situation.

104

FINANCIAL DATA

1. Legal framework for the preparation ofACAM’s financial statements

3

Financialstatements

Presentation of the 2008financial statements of ACAM (Autorité decontrôle des assurances et des mutuelles)

3. 2008 financial yearThe 2008 financial statements reflect ACAM’s ongoingdevelopment in line with its objectives.

Staff recruitment continued in 2008, bringing the total numberof staff to 204 people at 31 December 2008 compared with 193at the end of 2007.

The number of mandates issued increased by 15% to 2,745compared with 2,391 in 2007.

t The legal framework governing the preparationof ACAM’s financial statements is set forth inArticles R. 310-12-4 and R.310-12-5 of the FrenchInsurance Code.

t ACAM’s financial statements are prepared inaccordance with the rules laid down in the FrenchGeneral Chart of Accounts.

2. Presentation of thefinancial statements ACAM was created in 2004 by the merger of two independentadministrative bodies, CCA and CCMIP, which had no assets

and did not draw up a budget.

The 2008 financial statements prepared by ACAM’s ChiefAccountant were approved by the College at its meeting on8 April 2009.

>

>

+ 15%Number of mandatesissued

107106

FINANCIAL DATA3

EXPENSE (IN EURO)

HEADING 2008 2007

EXTERNAL EXPENSES 9,725,210.51 9,051,278.22

of which:Rent 5,523,380.67 5,315,482.58

Rental expenses 782,228.48 686,214.56

Maintenance and repairs 299,126.57 248,398.38

Documentation, studies and research 292,015.24 277,043.80

Advertising, information, publications 138,142.22 186,619.80

Fees and compensation paid to intermediaries 285,398.87 291,324.33

Temporary staff 259,242.02 188,759.79

Travel, representation and entertainment 660,145.08 622,321.24

Transport 22,223.65 12,226.84

Insurance premiums and bank charges 12,355.45 8,969.32

Other external expenses 1,450,952.26 1,213,917.58

TAXES AND OTHER DUTIES 1,699,161.59 1,639,287.23

PERSONNEL COSTS 14,266,559.82 13,723,714.89

DEPRECIATION AND PROVISIONS 1,199,519.82 1,121,625.15

OTHER EXPENSES 408,872.48 295,131.81

NON-RECURRENT EXPENSES 59,454.03 660,495.00

INCOME FOR THE YEAR 1,180,996.64 2,376,068.07

TOTAL 28,539,774.89 28,867,600.37

INCOME (IN EURO)

HEADING 2008 2007

INCOME FROM CONTRIBUTIONS 27,262,179.48 27,231,059.33

of which:Insurers 23,920,480.48 24,164,509.33

Mutual insurers, Provident institutions 3,341,699.00 3,066,550.00

INVESTMENT INCOME 1,199,929.66 1,073,224.50

NON-RECURRENT INCOME 77,665.75 563,316.54

from:Management transactions 77,665.40 52,115.53

Reversals of provisions 507,000.00

Sales of assets and other income 0.35 4,201.01

TOTAL 28,539,774.89 28,867,600.37

A. Income statementn Operating income

Operating income came to €28,540 thousand in2008 compared with €28,868 thousand in 2007.

It was composed of ordinary income (generatedby contributions to supervision expenses and bycash placements made) amounting to €28,463thousand and of non-recurrent income amountingto €77.6 thousand.

a) Contributions income

Income from contributions amounted to €27,262thousandand broke down as follows:

u €23,920 thousand in contributions frominsurance entities versus €24,164 thousandin 2007, corresponding to a drop of 1%.

u €3,342 thousand in revenues from mutualinsurers and provident institutions received byACOSS, up by 9% in 2008 compared with €3,066thousand in 2007.

b) Income from cash placements

Investment income generated by cash placementsin variable capital investment companies (SICAV)increased by 12% to €1,200 thousand versus€1,073 thousand in 2007.

c) Non-recurrent income

Non-recurrent income amounted to €77.6 thousandand corresponded mainly to the adjustment ofexpenses.

n Operating expenses

Total operating expenses for the period came to€27,359 thousand, up by 3% compared with€26,492 thousand at 31 December 2007.

Expenses essentially concerned ordinary operatingand management costs.

GENERAL OPERATING EXPENSES (€9,957 THOUSAND)

These expenses consist of property managementexpenses amounting to €6,723 thousand, ITexpenses amounting to €778 thousand,assignment expenses amounting to €526thousand and other expenses amounting to€1,930 thousand, relating to miscellaneousservices, fees, communication expenses andsupplies.

PERSONNEL COSTS (€16,202 THOUSAND)

Personnel costs increased by 5% in 2008 to€16,203 thousand compared with €15,411thousand at 31 December 2007.

As at 31 December 2008 ACAM employed 204people compared with 193 at the end of 2007.

Recruitment continued in 2008 and the inspectionteams were significantly strengthened with theappointments of ten new supervisors as well asthe hiring of temporary supervisors.

ALLOWANCE FOR AMORTISATION, DEPRECIATION ANDPROVISIONS (€1,200 THOUSAND)

This allowance relates to purchases of software,office equipment and computer hardware.

n Net income

Net income came to €1,181 thousand in 2008versus €2,376 thousand in 2007.

In accordance with Article R. 310-12-2 of theFrench Insurance Code, ACAM’s College, meetingon 8 April 2009, approved the financial statementsand decided to take the surplus for the year of€1,181 thousand to reserves and to authorisethe allocation of the net income of €1,181thousand for the year to retained earnings.

109108

FINANCIAL DATA3

LIABILITIES (in euro) 2008 2007

Reserves 11,377,505.31 9,001,437.24

Retained earnings 24,168,924.40 24,168,924.40

Income for the year 1,180,996.64 2,376,068.07

TOTAL EQUITY 36,727,426.35 35,546,429.71

PROVISIONS FOR RISKS AND CHARGES

Due to suppliers 1,309,640.18 374,098.91

Tax and social security liabilities 188,547.01 1,637,665.63

Other operating liabilities(Staff compensation and expenses due) 11,937.78 144,756.00

TOTAL OPERATING LIABILITIES 1,510,124.97 2,156,520.54

Cash liabilities

TOTAL LIABILITIES 38,237,551.32 37,702,950.25

HEADING 2008 2007

ASSETS (in euro) GROSS DEPRECIATION AND NET NETPROVISIONS

Intangible non-current assets(Patents, licences and software) 1,031,959.12 398,763.12 633,196.00 596,036.59

Property, plant and equipment(Furnishings, computer hardware, etc.) 5,868,166.20 2,401,839.19 3,466,327.01 4,266,989.10

Long-term financial assets(Loans and guarantees) 1,308,969.08 1,308,969.08 1,246,350.07

TOTAL NON-CURRENT ASSETS 8,209,094.40 2,800,602.31 5,408,492.09 6,109,375.76

Operating receivables 12 ,895.00

Other receivables 9,472.24 9,472.24 34,727.98

Investment securities 32,738,670.72 32,738,670.72 31,465,309.59

Cash 16,618.13 16,618.13 4,732.23

TOTAL CURRENT ASSETS 32,764,761.09 32,764,761.09 31,517,664.80

PREPAID EXPENSES 64,298.14 64,298.14 75,909.69

TOTAL ASSETS 41,038,153.63 2,800,602.31 38,237,551.32 37,702,950.25

B. Balance sheetn Assets

a) Non-current assets (€5,408 thousand)

The net value of non-current assets came to€5,408 thousand at end 2008 compared with€6,109 thousand at the end of 2007.

Information technology investments accounted for€358 thousand and other investments came to€143 thousand, including non-current financialassets amounting to €63 thousand.

At 31 December 2008 the non-current financialassets, corresponding to the guarantee paid to thelessor of the new premises amounted to €1,309thousand.

b) Investment securities (€32,739 thousand)

ACAM’s surplus cash is carefully managed. It isinvested in short-term securities and was up by 4%relative to the end of 2007 (€31,465 thousand).

n Liabilities

a) Capital and reserves (€36,727 thousand)

ACAM continued to strengthen its equity andensure its financial solidity. The weight of equity inthe balance sheet total improved relative to 2007at 96%.

Reserves amounted to €11,377 thousand at 31December 2008 and retained earnings came to€24,169 thousand for net income for the year of€1,181 thousand.

b) Operating liabilities (€1,510 thousand)

Operating liabilities relate mainly to amounts due tosuppliers for €1,309 thousandand to tax and socialsecurity liabilities for €188 thousand.

110

FINANCIAL DATA3

n NOTES TO THE FINANCIAL STATEMENTS

Note 1The financial year starts on 1 January and endson 31 December of each year.

Note 2 Non-current assets are amortised using thestraight line method as follows:

u IT equipment:• Minor equipment: 3 years;• Network workstations and mini-servers:3 years;

• Large systems: 5 years.• Patents, licenses and software: 5 years;

G L O S S A R Y• Technical installations: 8 years;• Office equipment and vehicles: 5 years;• Office furniture and fittings: 8 years;• Office buildings: 50 years.

The allowance for amortisation and depreciationcame to €2,800,602.31.

Note 3Investment securities are valued at their marketvalue as at 31 December 2008.

113112

GLOSSARY

EFRAGThe European Financial Reporting Advisory Group (EFRAG)was set up to assist the European Commission in theendorsement of International Financial Reporting Standardsfor application in Europe.

EIOPCThe European Insurance and Occupational PensionsCommittee (EIOPC) was established to replace the formerInsurance Committee by decision 2004/9/EC of 5 November2003 for its advisory functions and by Directive 2005/1/ECof 9 March 2005 for its regulatory functions. It is chaired bythe European Commission, which also acts as Secretary. Itsmembers comprise the insurance supervisory and regulatoryauthorities of the 27 Member States (France is representedby the Treasury and Economic Policy Directorate),representatives of the three EEA member States and theChairman of CEIOPS. This committee was created as part ofthe Lamfalussy process as applied to the insurance sector.EIOPC is a Level 2 committee and advises the EuropeanCommission, on request, on policy issues relating toinsurance, reinsurance and occupational pensions and issuesproposals in this area.

Equalisation reserveThe equalisation reserve is constituted to cover changes inthe loss experience. It is used in the case of catastrophe riskand death benefits.

EquityAn insurer’s equity is the difference between the carryingamount of its assets and the carrying amount of its liabilities.

Equity dampenerAn alternative approach (known as the dampener approach)enabling entities to modulate the capital charge in respect ofequities according to the position in the stock-market cycleand the duration of the holdings.

ESRCEuropean systemic risk council.

European CommunityThe European Economic Community (EEC) was established in1957 by the Treaty of Rome with the objective of creating asingle market with no internal borders. The establishment ofthe European Union in 1992 did not result in thedisappearance of the European Economic Community whichcontinues to be a component of European Union under thename of the European Community. The EC’s task is to promotethroughout the Community: 1) a harmonious and balanceddevelopment of economic activities; 2) a high level ofemployment and of social protection; 3) sustainable non-inflationary growth t; 4) a high degree of competitiveness andconvergence of economic performance; 5) a high level ofenvironmental protection and the raising of the standard ofliving and quality of life, and economic and social cohesionand solidarity among Member States. To this end, theEuropean Community draws up common policies, in particulardealing with transport, competition, fishing and agriculture,political asylum and immigration, energy and theenvironment. These policies are put in place according to thedecision procedures provided for in the founding treaty, inparticular the co-decision procedure.

European Economic AreaThe European Economic Area was established by anagreement signed in 1992 between the EU Member States andIceland, Norway, and Liechtenstein. It extends thefundamental pillars of the internal market, the four freedoms,i.e. freedom of movement of goods, persons, services andcapital to these three countries, which in return adopt EUpolicies.

European UnionThe European Union, created by the 1992 Maastricht Treaty,comprises 27 Member States and has the powers that theMember States have chosen to confer with a view tomaintaining peace, seeking political unity and taking jointaction to promote economic and social progress. The EuropeanUnion has a flag (12 stars against a blue background), ananthem (Beethoven’s Ode to Joy), a motto (united indiversity) and a currency (the euro, adopted in 13 MemberStates).

FASBFinancial Accounting Standards Board, the US accountingstandards setter.

FATFThe Financial Action Task Force (FATF) is an inter-governmentalbody set up at the Paris G-7 Summit in 1989 to developcoordinated action against money laundering at internationallevel.

Glossary

Glossary

3L33L3 refers to the three Level 3 Committees, consisting ofCEIOPS (Committee of European Insurance and OccupationalPension Supervisors), CESR (Committee of EuropeanSecurities Regulators), and CEBS (Committee of EuropeanBanking Supervisors), which have been engaged in cross-sector co-operation since 2005.

ActuaryA specialist in the analysis and processing of the financialimpact of risk. Actuaries use statistics to set premium rates(in motor insurance, for example, based on statistics of thecost and frequency of accidents, the place of residence of thepolicyholder and his or her age and gender) and to draw upmortality tables. The maximum age in the mortality tables iscurrently 120 years.

AERAS agreementThe AERAS (s'Assurer et emprunter avec un risque aggravé desanté) agreement is designed to facilitate access to insuranceand credit for people who have or have had serious healthproblems.

Capitalisation reserveThe capitalisation reserve is a reserve constituted solely ofthe gains realised on the sale of bonds and drawn upon solelyin the case of unrealised losses on this type of asset. Thissmoothes the gains or losses generated on bonds sold beforeterm, in the event of interest rate movements. Insuranceentities are therefore not tempted to sell high-yield bonds (inthe case of interest rate movements) to generate short-termprofits and replace these with other bonds generating loweryields. This specific reserve, considered a reserve coveringcommitments, is taken into account for calculating thesolvency margin.

CEBSCommittee of European Banking Supervisors.

CEIOPS (Committee of European Insurance andOccupational Pension Supervisors).For many years collaboration between EU insurancesupervisory bodies was structured within the Conference ofInsurance Supervisors of the Member States of the EuropeanUnion. By European Commission decision 2004/6/EC of 5 November 2003 this became the Committee of EuropeanInsurance and Occupational Pension Supervisors. CEIOPS isthe Level 3 Committee for the insurance and occupationalpensions sectors under the so-called Lamfalussy process.ACAM represents France on the committee. The authorities ofthree European Economic Area Member States (Norway,Iceland and Liechtenstein) and the European Commissionparticipate in CEIOPS' activities as observers. The Committeeis very active in the preparation of Solvency II and is inparticular responsible for replying to calls for advice from theEuropean Commission. CEIOPS’ Secretariat is located inFrankfurt, Germany.

CESRCommittee of European Securities Regulators.

CfA (Call for advice)The Call for Advice or CfA procedure is the procedure used bythe European Commission to request technical advice fromCEIOPS.

CIMAThe Inter-African Conference for the Insurance. Markets(Conférence Interafricaine des Marchés d’Assurance - CIMA),introducing a single supervisory system for its 14 membercountries, which are all Sub-Saharan African countries in theCFA zone.

CMU fundThe fund that finances France’s universal healthcare coverscheme’s supplementary healthcare cover.

CNCConseil National de la Comptabilité (CNC) is the Frenchaccounting standards setting board.

DDAC actAct 2005-811 of 20/07/2005, bringing aspects of Frenchfinancial legislation into line with European Community law,in particular in the area of insurance.

DGTPEFrance’s Treasury and Economic Policy Directorate.

DirectiveA legislative act of the European Union establishing theregulations the Member States must transpose into theirnational legislations.

Diversification reserve (Life insurance)This is an underwriting reserve designed to smoothfluctuations in the value of the assets of ‘diversified’ contracts.

DRASS (Directions régionales des affaires sanitaireset sociales).French Regional social security authorities

DROC (Date réglementaire d’ouverture du chantier)Official construction work starting date.

DurationDuration can be taken to mean the average length of time overwhich a product will produce cash flows weighted by itspresent value.

115114

GLOSSARY

Mathematical reserves (life insurance)Insurers enter into commitments vis-a-vis their policyholdersin exchange for payment of a premium. In the case of lifeinsurance the mathematical reserve covers the differencebetween the present value of the commitment contracted bythe insurer and the residual commitment contracted by thepolicyholder. It is therefore close to the insurer’s ‘net’commitment to the policyholder.

MMoUMultilateral Memorandum of Understanding on Cooperationand Information Exchange.

MCRThe Minimum Capital Requirement under the EU Solvency IIregulations. MCR is the minimum amount of capital required,below which an entity’s licence to operate is withdrawn. Themethod of calculating MCR is simpler and less tenuous thanthat used for the Solvency Capital Requirement (SCR) and itmay not be below a set amount in euro.

Minimum guaranteed rateMinimum rate of return on mathematical reserves guaranteedby the insurer.

OECDOrganisation for Economic Co-operation and Development.

ORIASOrganisme pour le Registre des Intermédiaires en Assurance,the French Register of Insurance Intermediaries, is the basictool for supervision of the insurance intermediation sector.

Participation in profits (life insurance)The law, contractual clauses and competitive pressure mayoblige insurers to distribute to policyholders a share of theunderwriting and financial profits made during the year. Thissystem is known as participation in profits and is mandatoryin many branches of insurance. The distribution to thepolicyholders of this share of profits is at the insurers’discretion, as the policyholders have no individual entitlement.However, contractual obligations may supplement theobligation established by law.

PCG (Plan Comptable Général)The French General Chart of Accounts.

Provisional administrationPlacing an entity in provisional administration is a procedurethat falls outside the scope of ordinary law. Although theprovisional administrator is appointed by a public authority,he acts under his own responsibility, like any other companymanager. He replaces the board of directors and manages thecompany.

Provision for deferred acquisition costs(Life insurance)The provision for deferred acquisition costs corresponds to anamount more or less equal to the difference between theamount of the mathematical reserves recorded on the balancesheet and the amount of the mathematical reserves thatwould be necessary if the acquisition costs were not coveredby the premiums paid by policyholders.

Provision for liquidity riskIn general terms, this provision must be recognised when theunrealised value of all the assets except bonds fall below theiracquisition price (bond assets are not taken into account inthe calculation as, barring counterparty default, there shouldbe no capital loss on these assets if they are held to term).Since 2003, the insurers that fulfil all the other prudentialrequirements (solvency margin, regulated underwritingreserves) can constitute a provision for liquidity risk over aperiod of three to eight years depending on the duration of theliability. The provision for liquidity risk is recorded net ofprovisions for impairment, which are calculated on a line byline basis and which correspond to the part of the unrealisedlosses that the insurer considers likely to be lasting.

Provision for unexpired risk (Life insurance)This provision is designed to cover future expenses notcovered elsewhere. The amount is calculated based onprojections of costs and income on a homogeneous group ofcontracts according to the rules set forth in Article A.331-1-1of the French Insurance Code. For each homogeneous group ofcontracts, the amount of the provision is equal to the presentvalue of the future costs minus the present value of futurecash flows generated by these contracts.

PSNEM (Provision pour sinistres non encoremanifestés)A specific loss reserve required by French insuranceregulations.

QIS (Quantitative Impact Studies)CEIOPS has been requested by the European Commission tocarry out quantitative impact studies in the framework ofSolvency II. These studies are designed to test theassumptions envisaged for putting together the newprudential framework.

RegulationLegislative Act drawn up by European Union regulators anddirectly applicable in each Member State.

ReinsuranceReinsurance can be defined as a technique under which aninsurer transfers to another business all or part of the risk ithas underwritten. Directive 2005/68/EC (Article 2.1) definesreinsurance as an activity consisting in accepting risks cededby an insurance undertaking or another reinsuranceundertaking. From an economic point of view, insurers candraw on reinsurance to insure larger risks than allowed bytheir level of capital. In legal terms, this insurance cover takesthe form of a contract, known as a reinsurance treaty. Areinsurer known as the accepting reinsurer undertakes inreturn for remuneration to reimburse the ceding insurer, inpre-determined conditions, all or part of the sums due or paidby the insurer to its policyholders in respect of claims.However, even when reinsured against the risk it hasunderwritten, the insurer remains solely liable to thepolicyholder (Article L.111-3 of the French insurance code).

Glossary

Financial risk provision (life insurance)This provision is designed to compensate for any decrease inthe return on assets representing the insurer’s liabilities underpolicies other than unit-linked contracts.

Insurers whose portfolios contain contracts with highguaranteed rates of returns may generate a return on theportfolio that only just covers or falls below the returnsguaranteed to their policyholders. The difference would beinadequate, no longer covering the insurer’s ordinaryoperating expenses. Insurers therefore set aside reserves tocover the differences between commitments discountedusing a prudent interest rate, the revenues generated by theirassets and the commitments calculated above.

FoE and FoSThe Freedom of Establishment (FoE) is the possibility for anoperator established in a Member State of the EuropeanEconomic Area to set up a permanent establishment inanother Member State, via a branch or an agency for example.Freedom of Services (FoS) is the possibility for an operatorestablished in one Member States to offer its services directlyin another Member States without the need to have anyestablishment there.

FREGFinancial requirements expert group.

FSAP (Financial Services Action Plan)The Financial Services Action Plan is a long-term programmeestablished by the European Commission to modernise andliberalise financial services. Adopted in 1999, it comprises 42measures designed to harmonise the regulations governingsecurities, banking, insurance, mortgage lending and otherfinancial services throughout the European Union. Initiallydrawn up to cover the period from 1999 to 2005, it wassubsequently assessed by the European Commission.Following the actions taken under the FSAP, the EuropeanCommission drafted a white paper for the European Union’sfinancial services policy for the period from 2005 to 2010.

IAISThe main purpose of the International Association of InsuranceSupervisors (IAIS) is to promote cooperation between itsmembers, which are for the most part insurance supervisorsand regulators, and also to foster collaboration with thesupervisory authorities of other financial sectors (banks,financial markets, etc.). Such cooperation is becomingincreasingly necessary given the internationalisation ofinsurance groups and their diversification into banking andasset management activities.

IASBThe International Accounting Standards Board (IASB) draftsthe international accounting standards (adopted by theEuropean Union) applicable to the consolidated financialstatements.

IASCFInternational Accounting Standards Committee Foundation.

ICPInsurance Core Principles.

IFRSInternational Financial Reporting Standards.

IGRS (Institutions de Gestion de RetraiteSupplémentaire)Supplementary occupational pensions managementinstitutions.

IGSCInsurance Groups Supervision Committee.

IGSRRInternal governance, supervisory review and reporting expertgroup.

IMEGInternal model expert group.

IntermediaryInsurance intermediaries are natural persons or legal entitiesthat, in exchange for a fee, advise or assist clients to take outinsurance or reinsurance contracts. Activities that consistexclusively of handling, estimating or settling claims are notconsidered intermediation activities.

IOPSThe International Organisation of Pension Supervisors (IOPS)is an independent international body composed ofrepresentatives from around fifty countries at every level ofeconomic development. Its aim is to set internationalstandards, promote good practice in the area of privatepension supervision (non-state pension schemes), encourageinternational cooperation and constitute a forum for exchangeof information. IOPS works closely with other internationalbodies involved in pension issues: IAIS, IMF and the WorldBank. The OECD provides the secretariat.

IRP (Institutions de Retraite Professionnelle)Occupational Pension Institutions.

Joint ForumThe Joint Forum was established by the IAIS and its bankingand stock-market equivalents, the Basel Committee onBanking Supervision (BCBS) and the InternationalOrganization of Securities Commissions (IOSCO) in 1996, todeal with issues common to the banking, securities andinsurance sectors, including the regulation of financialconglomerates.

Lamfalussy ProcessThe Lamfalussy process applies to European legislation forthe financial sector. It makes a distinction between four levelsof legislation. Levels 1 and 2 are directives or regulations.More precisely, Level 1 consists of directives adopted by theEuropean Council and Parliament that establish the principlesthat will be detailed in the Level 2 measures adopted by theEuropean Commission, under the supervision of the EuropeanCouncil and Parliament. Level 3 consists of non-mandatoryrecommendations. Level 4 relates to the EuropeanCommission’s oversight of compliance and enforcement.

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GLOSSARY

Reinsurance captiveA reinsurance captive is a reinsurance company that is whollyowned by a company not involved in the insurance sector, andwhich provides cover for the risks of the group to which itbelongs. Reinsurance captives are usually used to pool theinsurance programmes of major commercial or industrialgroups with a view to obtaining better cover and better priceson the international insurance market.

Reserve for participation in profits (Life insurance)Life insurers have the possibility of not distributingimmediately to policyholders the share of profits provided forby the law. They have a period of eight years in which to do so.Instead of distributing them immediately, the insurer cantherefore allocate them to a reserve for participation in profits.

SECSecurities and Exchange Commission, the US financialmarkets regulator.

SGAMThe Société de Groupe d’Assurance Mutuelle (SGAM) areassociations of mutual insurers designed to generatesynergies and ensure financial solidarity between itsmembers.

Solvency IIInitiated by the European Commission in 2002, this projectaims to provide a new prudential framework for insurers basedon three pillars: Pillar 1: Quantitative requirements relating inparticular to capital and technical reserves; Pillar 2:Supervision and qualitative requirements; Pillar 3: Disclosureand reporting requirements. In July 2007, the EuropeanCommission presented a draft directive to the EuropeanParliament and Council, with a view to its application in 2012.The Solvency II Directive was adopted by co-decision of theParliament and Council under the Lamfalussy process on 22April 2009.

Solvency marginAn insurer’s assets must exceed its commitments, thedifference between the two constitutes a safety margin whichmust be adequate and must exceed a minimum requirement.

Solvency margin requirementsUnder the existing regulations, the solvency marginrequirement is the minimum capital an insurance companymust have. In life insurance it is based on the mathematicalreserves covering euro-based and unit-linked contracts andcapital at risk. In non-life insurance it is based on premiumsand claims. Reinsurance may also be taken into account. Notethat the introduction of Solvency II has resulted in terminologychanges and the terms now used are capital adequacyrequirements or capital requirements.

Solvency II - PillarsThe three pillars of Solvency II are: Pillar 1: Quantitativerequirements relating in particular to capital and technicalprovisions; Pillar 2: Supervision and qualitative requirement;Pillar 3: Disclosure and reporting requirements.

Technical interest rateThe minimum interest rate guaranteed to the policyholdereach year by the insurer. This rate is used to calculate thepremium and the amount of mathematical reserves. Forprudential reasons it is regulated and cannot exceed a seriesof ceilings set on a declining scale according to the term overwhich the interest rate is guaranteed.

TMETME stands for Taux Moyen des emprunts d’État, which is theaverage government borrowing rate in France.

TRACFINTraitement du Renseignement et Action contre les CircuitsFINanciers (TRACFIN) is the anti-money laundering body setup by the French Ministry of the Economy.

Glossary

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