Aviva 2009 Annual Report Download - page 127

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Performance review
Aviva plc Additional information for Shareholders continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
strengthening among others governance, mediation and
disclosure requirements
On Poland’s accession to the EU in 2003 the introduction of
a number of Acts continued the liberalisation of insurance law
started by the Insurance Act of 1990. The 2003 Acts introduced
EU law on insurance activities covering areas including licensing,
supervision, reserving and technical provisions, financial
reporting, selling activities, pension fund supervision and the
role of an insurance ombudsman. The 2006 Act on Financial
Market Supervision created a single regulator the Polish
Financial Supervision Authority (KNF). The process was
completed on 1 January 2008 when the KNF assumed
responsibility for bank regulation from the National Bank
of Poland.
The European Commission has adopted draft legislation
that will create a European Systemic Risk Board (ESRB) and set
up a European System of Financial Supervision (ESFS). The ESFS
will be composed of national supervisors and three new
European Supervisory Authorities (ESAs) for banking, insurance
and securities. The ESAs will have powers to develop technical
standards and guidelines and direct national supervisors to take
action or refrain from action in cases where national supervisors
cannot reach agreement between them and where the
Commission has decided that an emergency situation exists.
The Commission is now looking to the Council and Parliament
for rapid adoption so that the new structures can begin
functioning in 2010.
United States
We write life and annuity business in the United States through
Aviva USA, a wholly owned subsidiary formed by the merger of
Aviva Life Insurance Company of America with AmerUS which
it acquired in July 2006. Aviva USA is domiciled in Iowa and
licensed to conduct business in all 50 states. In New York it
operates a wholly owned subsidiary Aviva Life Insurance
Company of New York.
There is no federal system of regulation for the insurance
businesses. Rather, individual states have authority to pass
statutes, adopt regulation or issue directives to regulate
insurance activities within their jurisdiction.
Consequently, life insurance companies are subject to
regulation both in the state in which they are domiciled as well
as in each of the individual states in which they operate. State
regulation can vary in detail from state to state. All have laws
and regulations covering the financial aspects of the insurance
business including standards of solvency, reserves reinsurance
and capital adequacy. In addition, most states have specific
regulation governing licensing and conduct of selling agents as
well as the approval of products and associated product forms
and literature.
Federal initiatives
While the National Association of Insurance Commissioners
(NAIC) has no statutory powers, its members are the insurance
commissioners in each state and it acts as a forum to develop
and propose model laws and regulations. Each state then
decides whether to adopt the NAIC model laws or regulations
and each state may make changes to the adoption process.
However, the models are generally widely adopted. An
example is the ‘Suitability in Annuity Transactions Model Act’
which has been widely adopted by states for a broad range
of transactions.
NAIC has a commitment to modernising the state based system
of insurance regulation and is pushing forward an action plan
aimed at achieving consistency of approach between states on
a number of issues including consumer protection, licensing,
solvency and changes in insurance company control. The
American Council of Life Insurers (ACLI) is proposing an optional
federal charter (OFC) under which life insurers could choose
to be federally regulated instead of state regulated. It is
envisaged that the OFC would operate within the NAIC
modernisation plan.
In addition to the OFC there have been legislative proposals
for federal reform in the US. The legislation that is currently
pending would impose stricter prudential standards on
systemically significant financial companies, higher risk financial
activities and introduce new mechanisms for resolving failures of
significant financial companies. The legislative proposals require
additional stress testing and reporting on a regular basis. In
addition, a federal insurance office (FIO) will be established with
a remit to monitor the insurance industry, co-ordinate federal
efforts and develop federal policy on international insurance
matters. While the FIO will have no regulatory authority over the
business of insurance it will be required to conduct a study of
how to improve and modernise insurance regulation and report
to Congress no later than one year after the proposed
legislations comes into force.
Additionally, there is active discussion within the NAIC of
moving to a principles-based valuation system for the setting
of reserves and capital for life insurance companies. This could
change our statutory reserve and capital requirements
significantly and it is not possible to estimate the impact on our
financial condition and results of operation at this time.
On 17 December 2008 the SEC voted in favour of adopting
a new rule 151A under the Securities Act of 1933, as amended.
The effect of the rule change is to bring indexed annuity
products within SEC regulation on a similar basis as the so called
‘variable’ products which are regulated as securities. The rule
was set to become effective on 12 January 2011 and apply to
equity indexed annuities issued on or after that date. However,
after a legal challenge by several life insurers in the US Court
of Appeals for the D.C. Circuit, the court remanded rule 151A
back to the SEC on 21 July 2009, requesting further technical
analysis. One of the life insurers involved requested the Court
to delay the effective date of the rule change to two years after
SEC completes their analysis. The SEC has now consented to
the delay but the court is now considering whether it should
set aside the rule entirely. Aviva believes indexed annuities
represent an important product within the US savings and
retirement market and that we will be able to meet the
requirements of the new rule 151A under the Securities Act
of 1933.
Shareholder information