Asztalos’s “SlidesBook”

„Core Curriculum”

(ICP 1 -10;
English Version)

- With a special permission of IAIS and The World Bank (from 27.03. 2007),
- financed by EU-TACIS Project („Support for the Ukrainian Insurance”) and
- lectured at the Ukrainian Financial Supervisory Authority, in 2006-2008.


- Preface

ICP 1: Conditions for Effective Insurance Supervision
I. The Logic of Supervision
A. Why a Supervision? (Teleology)
B. Socio-Financial Framework
   a) Healthy market-economy
   b) Healthy = strong supervision
      b/1. minimum legislation
      b/2. (relatively) independent supervision
   c) Professional (international) standards
      c/1. Accounting & auditing & actuarial
      c/2. (Inter)national standards
C. Building Credibility /Trust
   a) for a National Economy/Country
   b) for Supervised Market Actors
   c) for Supervisory Authority
II. The History of Supervision

ICP 2: Supervisory Objectives
I. The Principles
   A. Objectives
      1.1. “Primary” (“Classical” + “Modern”)
      1.2. “Secondary”
      1.3. “Organisational”
   B. Main groups of objectives
      2.1. “ Consumer-protective” objectives
      2.2. “Policyholder-protective” objectives
      2.3. “Institution-protective” objectives
   C. Objective-setting
II. The History of (Changing) Objectives

ICP 3: The Supervisory Authority
A. Aim of ICP 3.
B. Essential Purpose of SUPA
C. Legal Framework & Powers
D. Independence of SUPA
E. Financial independence
F. Professional staff

ICP 4: The Supervisory Process
A. Supervisory Mandate
B. Supervisory Methodology
C. Supervisory Approaches / Philosophies
D. Supervisory Reliance (on others)
E. Accountability of SUPA
F. Transparency
G. Consistency

ICP 5: Supervisory Cooperation & Information Sharing
A. Definitions
B. Why to protect?
C. Principles of Decision (on Info-Sharing)
D. Arrangement (on effective Info-Sharing)

ICP 6: The Licensing
A. Aim of ICP 6.
B. Scope of Licensing
C. Licensing Criteria
D. Licensing Process

ICP 7: The Suitability of Persons (Fit & Proper)
A. Why is important?
B. Who is a “Subject”?
C Composition of Personals
D. How to do?
E. Summary

ICP 8: Changes in Control & Portfolio Transfers (Fit & Proper, Part. II.)
A. The importance of ChoC and PT
B. Concept of Control
C. Triggers for SUPA D. Nature of Supervisory Involvement
E. Supervision of PT

ICP 9: Corporate Governance
A. Concept of CG ( ICP 9)
B. Fundamentals/Reasons of CG
C. Understanding of CG
D. Supervision and Inspection
E. Principles of CG
F. Special Issues for SUPA

ICP 10: Internal Control


In the years of 2006-2009 I had the privilege to serve as one of the 4 Long Term Experts in the EU-TACIS 2005, Project: “Support for the Ukrainian Insurance Sector” (CONTRACT: 103552; implemented by Hulla & Human Dynamics Consortium, from Vienna). The aim of my quite 3 years involvement in the work of a team was focusing to establish a regulation and supervision of insurance designing and restructuring by the modern (European and IAIS) international standards. (Component 1.) Besides this main item I could contribute to the work of other Components as “The Consolidation of the Insurance Industry in Ukraine “( “Improve Insurance Practice” in Component 2), “System-building for Education and Training for the Ukrainian Actuaries” (“Improve Actuarial Practice in Ukraine” in Component 3) and “Establishment of an Education Centre for Insurance in Ukraine” (“Training” in Component 4.).

My basic duties -“Strengthening the Non-Banking Financial Institutions Regulator (NBFIR) “ - consisted 14 different “activities” as contribution to Mission Statement, Strategy (2007-2015), Strategic and Implementation Plan, New Insurance Law and its Revision,, Legal and Regulatory Benchmarking, Business Plan for NBFIR, Developing of a Third Party Motor Liability System, Development of MIS/IT architecture & assistance to the implementation of business plan, organisational redesign & MIS/IT architecture and training, modern human resources management policy, writing and editing an Insurance Supervisory Book, Design & organisation of 3 ‘real life’ Case Studies, regulation of on-site supervision, establishment of an Actuary Department at the NBFIR, organisation of specialised study tours, conference (e.g. Austria, Germany, Latvia, Hungary),design bilateral and multilateral Protocols for international relations, Disclosure Policy of NBFIR, support the Dialog Industry and SUPA, Consolidation Strategy, and Agenda for the Ukrainian Insurance etc.

One of my most challenging activities (Nr. 1.10.) was the regular (monthly) education and training for the Ukrainian colleagues at the NBFIR . we could not choose a more appropriate material as the “Core Curriculum” designed by the World Bank and IAIS. With a special permission of Mr. Joshi Kawai, General Secretary of IAIS I could utilise that enormous and excellent material as a strong basement for education of the worldwide acceptable “essential” and “advanced” criteria”. Of course, it was my obligation and spiritual challenge to structure, summarise this valuable learning material and amend with the experiences of my 30 years theoretical and practical activity on the field of financial regulation and supervision. The main scope and target of this “SlidesBook” has been defined as creation of a useful tool for education and training for leading personalities of supervisors and regulators in emerging markets.

Did not forget our roots, we have had a special interest attention for the problems of the emerging markets in the Central-East-European Region where I could serve as a representative of the Region – 4 times in the Executive Committee of IAIS - since its foundation. It was the reason that our EU-TACIS Project has started the translation of the first 10 ICP-Modules on Russians too. Hopefully once, in the next future we could continue this interesting and important work for a full text and its “SlidesBook” on Russian as well. This experiment of the bi-lingual education – basically Russian with amendment of the terminology on English too - was so not only particularly interesting (and tiring) but sometimes had given a good starting point for further discussions of different values, beliefs, philosophies of cultures – with one word - for a better understanding between different nations and people.

Our international team is today preparing itself as a “Standing Brigade” of “CC-Teaching” all over the world either on English, or on Russians. We think that it would be useful to combine our methodology with colleagues of French , Spanish and Arabic language.

During the 30-monthly practical contribution to the everyday practice of an emerging market supervision and the more than 1,5 year education and training activity has collected a lot of valuable information, a couple of positive and a few negative remarks – sometimes critiques – regarding the Core Curriculum. We do hope that these experiences from the “battlefield” of the teaching and education of IAIS Core Curriculum could/has to be utilised in its planed improvement and evolution as well as a written material as a basement for distance learning on the supervisory sciences – and not only on the field of insurance supervision...

The function of this “Demo-Version” of “SlidesBook” is to give a short overview about a more than a 200 pages “slides-material” in Word-format. The 10 ICP could be educated by its PowerPoint slides too and in its English or Russian variation as well. If there would be a real interest it would be a pleasure and honour to provide the full context of “SlidesBook”.

Dr. Asztalos László György
Date: 10.10.2007.
President of the Tolerance FC Ltd.&  
Vice-Chairman of BoD of H F S A &  
Member of ExCo of IAIS &  
Member of EuropeAid /UA Mission Reg.: 166/ALGY/2007

IAIS – World Bank:
Core Curriculum

ICP 1:

Effective Insurance


III. The Logic of Supervision
D. Why a Supervision? (Teleology)
E. Socio-Financial Framework
   a) Healthy market-economy
   b) Healthy = strong supervision
      b/1. minimum legislation
      b/2. (relatively) independent supervision
   c) Professional (international) standards
   Accounting & auditing & actuarial (international) standards
F. Building Credibility /Trust
   b) for a National Economy/Country
   b) for Supervised Market Actor
   c) for Supervisory Authority

IV. The History of Supervision

1. Why a Supervision? (Teleology)

Why & for what aim are you sitting here in that building?

- Money/Finance (?) =
concentrated & transferable freedom

- “Freedom” (?)=
over your physical and sociological limits

- How to reach money/saving?
Counter-service (99 % with work) = PAST

- How to save?
no consumption now = PRESENT

- Why to save?
for flat, car, children retiring = FUTURE

?: Money: past, present and future in crystallised form = a part of (your) life

- What is a Financial Transaction? =
Irrationalism = robbery?

- Why give Ms/Mr Smith to an Insurer?
Trust: “somebody” control/check
authorised, fit & proper, ethical, clever, etc.

- “Who” is in charge to protect her/his money?
Only the Financial Supervisor= Superintendant.

∑: Teleology of SUPA: saving their money=
saving their “sleep”, =
saving a “part of their lives, freedom, future =
you are a Pillar of democracy and freedom in that Country.

∑∑: Main mistake of a SUPA:
if you could not save the money of the small people...
Q.: Bankruptcy?

2. Socio-Financial Framework

a) Healthy market-economy (Democracy?):

- no(t too much) state monopole (privatisation?)
- market actors (domestic ~ foreign)
- clear rules of the game (Law & Order):
   a) British: common law (principle)
   b) Continental: Code of laws (text)
   c) “Gray-zone”: who is authorised=obliged?
- accepted ownership relations (contract-based, Company law)
- modern bookkeeping (General, IFRS, Tax)
- access to capital market and = (relatively free transfer)
- foreign companies ~ domestic
- fair competition, stable taxation
- money-laundering, anti-terrorism
- stable inflation (high or low)
- stable currency exchange rate
- IT-technology (website, e-bureau)

Q.: If they are not?

b) Healthy = strong supervision (?)=

b/1. minimum legislation:
   a) define insurance (+ what is not ins.)
   b) only licensed (illegal, micro-insurance)
   c) necessary power
      regulator ? supervisor:
      norm-setting ?norm-taking
   d) self-regulatory organisation (SBO):
      chamber or association
   e) “natural justice” = right on appeal

b/2. (relatively) independent supervision:

I. Dependant from
- Constitution
- Laws (Budget, Civil, Employee’ etc.)
- Orders of Cabmin =altogether: Legislation from ? to ?
- Min. of Finance v. SUPA: Who is the “Regulator” (Law-maker?)
- Politicians? (Who is Who?)
- Supervised?
(Confrontation versus Cooperation )
- Contract Law (Court-system)
- Public hysterical by Media (?)

II. Independent because of
- Special legal position of SUPA
(National Bank, Governmental etc.)
- Special position of employees
(Civil Service Law, Employee’)
- Own funding
(= no budget, but fee-based)
- No Order in its decision
- Authorisation for “norm-setting
law-adaptation” (Guidelines, Statements, Circulates, Hearings etc.)
- Authorisation for Internat. Relations:
cooperation, but not approval by...
- Authorisation for own PR:
cooperation, but not approval by...
- Authorisation for Settlement:
“Service-Agreement” with Supervised
- No “strange” = other function
(Tax, Social Security, Police)

Q.: Are you independent?
C. Professional Accounting & Auditing & actuarial (international) standards
- reporting
- valuation of assets & liabilities
- methods for amortisation
- outsourcing of supervision:
(independent/”appointed actuary”,
intern. or extern. auditor)
- maximum technical interest rate (1-3 %)
+ authorisation of SUPA: for overriding if risk is higher,/new/special:
- setting up additional provisions
- avoiding “double gearing”
- high “default ratio”
- prepared for “worst case scenario”
- historical changes
(demography, Berlin Wall)
- Special Asset Liability Management (ALM) in Crisis

Q: What is missing?

3. Building credibility/trust

a) for a National Economy/Country =
= high or low “country risk-premium”

- peaceful political environment (Government crisis?)
- stable and growing economy (boom)
- fix law system (2 year/1 law-change)
- reasonable and calculative taxation
- stable currency exchange rate
- digressive or stable inflation curve
- fair national statistics
- positive demographical likelihood (mortality, birth-rate, composition of population)
- “sustainable” economic and financial policy

b) for Supervised Market Actor:

- clear & fair “market-entry” (licensing ? registration, protection of name, against ille
- reasonable, strict but gracious “market-oversight” ( “owner- and manager-control”, requirements for “key-persons”, clever =comprehensive + cost-saving ”corporate governance”, fair and unambiguous “market-exit” , Guaranty Fund-Scheme)
- controlled “market conduct” (minimum of “Disclosure” to the public, regulation of “Dissemination”,
- Information ? Transparency ...
- “Transparency” = Structured Information

c) for Supervisory Authority:

- reliability: calculative for all actors
(when, what, how?)
- consequent ? rigid (mistake, default?)
- wise: cooperative, ready for compromise
- tough & brave: confrontative, brutal
= “Do not cry for ....”
- More than professional = ethical =
no rumours, “picture” > “reality”

Q.: “Who” is the most trusted in ...?

II. The History of Supervision


I. Pre-capitalism (VI. B.C – XVII. A.C) =
= sacral, religious, feudal = spiritual
(coin, Hamurabbi, Delphi, Samos, Lydia, “trapesita” in Athen, metoikosz, Demosthenes, “Coionia”, “slave-insurance”, Alexandros, Ptolemaios, in Rome: temetkezesi association of slaves, mutual of state bureaucrats, Prefektus ULPIAN
(200 A.C.): first tariff-approval, in China (VII. Cent.): “flying money”, multi-crediting= currency v. banking later, in Middle ages: cloisters, Genoa (XII. C.) = 1400 banchieri, banco rotto, Venezia (1318) “revisore”, Banco del Giro, 1348: first bank-sanction etc., Milano: first in-effectiveness, Florenz: Medici, Bardi, Peruzzi-families, Amsterdamsche Wisselbank.
In Insurance: Leo X (VII. C) “societas sacri offiicii”, mutuals for crusaders, Florenz (XV. C.) language (“assecurazio”, „praemia”, „ polizza”, „storno”), Spain , Germany: combination with gambling, mortgage etc.
- See today: the Islamic finance.

II. Publicity Supervision= „Market disclosure” =
trust in financier, in Great Britain (XVII. C)

- voluntary internal supervision,
- specialized internal controller,
- specialized and chartered, independent external accountants (revisers),
- Bank of England refinanced on qualitative analyze and
- continuous indirect control on companies,
- Lloyd’s control the „agents”, „consortiums”,
- Publication of annual report with commentators,
- City + stock company in fashion
- Focusing on (1) owner & manager-control + (2) financial stance/strength
- Internal, voluntary, with external private specialists

III. East from Elbe: “Material(ized) Supervision
(Germany, Austria, Scandinavian, S/Europe and C-E-Europe – from XVII. C.)
= non-trust in financier = trust in bureaucrats of...
= control the “material essence” of
a) each contract
b) each micro-economical decision
- „Polizeiwissenschaft”, „Kammeralism”
- Gilde, Hanse = not stock companies
- 1824: Sweden: first state banking supervision,
- 1852: Austrian Empire: first insurance supervision,
- 1858: Massachusetts, Commissioner E. Wright: „zero tolerance”
- 1908-1909: „Banque-Enquete” – decisive
- 1923: „everywhere” in the Continent.
- External, obligatory state supervisory authorities

∑: up to 1945 =Mixture or „Double”-system

internal, voluntary, associated, chartered self-control
External, obligatory, materialized state control

IV. “Financial Supervision” (1945 -) in Great-Britain, Netherlands, USA, Canada) = focusing on

- activities (not on institutions),
- financial characteristics (not on product’s ones),
- financial strengths = solvency (not on liquidity and rentability),
- on site–inspection (not on off-sight investigation),
- „trust & control” of procedures/trends (not on „audit of each events”),
- consumer-protection (not only on policyholder-protection)

∑∑: “Prudential Supervision” = II. + III. + IV. =

- measure (ex post) the (results of) activities of each actors
- by legitimate (written and/or unwritten) rules and
- stop/sanction if they are exceeding the (accepted) limits (accepted by law or by partnership)

∑∑∑: Average, „Ready-made suit” for 95 %
(S, M, L, XL, XXL or VW, Toyota)

V. Worldwide Crisis of Financial Supervision
(~ 1970 ~ 1990)

ICP 2.: “Classical” and “New”
Supervisory Objectives

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