On 8 August 2013, the Finnish Government proposed amendments to the Insurance Companies Act and certain related acts (government proposal HE 83/2013 vp). Most of the amendments relate to reforms necessitated by the Solvency II Directive. The directive has not yet entered into force in the EU, and the timetable for its implementation remains uncertain due to, among other things, next year’s European Parliament elections. This Government proposal could be characterised as Finland's ‘Solvency 1.5’, in which Finland is making use of the directive ahead of schedule. The most significant changes apply to the requirements for insurance company management systems, licences and the actuary examination board.
In addition, a new proportionality principle will be added to the act highlighting the nature and extent of business risks in the application of the Insurance Companies Act and the supervision of insurance companies. Since run-off insurance companies and portfolios are generally not exempted from the scope of insurance regulation, the proportionality principle may be helpful in arranging the operations of run-off companies provided that the regulator agrees with such proportionality on a case-by-case basis.
The most substantial proposed amendments have to do with the regulation of the management of insurance companies (Chapter 6, Insurance Companies Act), which currently deviates from the regulation of the rest of the financial sector. Insurance companies will be required to have a management system that is clear, functional and sufficient with respect to the nature of their operations. The companies themselves will have discretion with respect to the practical implementation of these systems. Ultimately, the board of directors of an insurance company is liable for the due arrangement of the management system.
Provisions on risk management, risk and solvency assessments, internal control and internal auditing will also be added to the act. Insurance companies will be expressly required to have actuary operations. On the other hand, the provision concerning investment plans would no longer be necessary, and would be replaced by new solvency and risk management provisions. As part of risk management, a new provision concerning customer identification as well as the prevention of money laundering and the financing of terrorism will be introduced into the act in order to bring it into line with the regulation of the rest of the financial sector. Provisions concerning the outsourcing of insurance company operations and the general principles for bonus schemes will also be incorporated into the act. In addition, eligibility (fit & proper) criteria similar to those applicable to board members and managing directors will be extended to cover insurance company personnel responsible for key functions.
In connection with the reform of the Insurance Companies Act, amendments will also be made to the Act on Foreign Insurance Companies, the Act on Pension Insurance Companies, the Act on the Supervision of Financial and Insurance Conglomerates as well as the Act on the Financial Supervisory Authority.
The amendments will affect insurance companies operating in Finland and are intended to enter into force for the most part on 1 January 2014.