New legislation on insurance activities
A new Act on insurance activities, No. 56/2010 (Lög um vátryggingastarfsemi), was recently enacted in Iceland to replace the earlier Act No. 60/1994. The Act covers direct insurance activities involving non-life insurance and personal insurance in addition to reinsurance of any kind; as before, supervision of insurance activities is entrusted to the Financial Supervisory Authority (FME).
While retaining certain aspects of current legislation concerning the insurance market, the 2010 Act also introduces various new provisions. Among the principal innovations is that insurance companies must now be operated as limited liability companies, as provided in Article 2 of the Act, the issuer of operating licences in the insurance market is now the Financial Supervisory Authority instead of the Ministry of Economic Affairs, as provided in Article 18, and in addition stricter requirements have been established regarding the qualifications of the directors and management of insurance companies than before, as provided in Article 54. As regards this last item, it is worth noting that according to the first paragraph of Article 54 of the Act the board of directors of an insurance company is required to establish rules, to be confirmed by the Financial Supervisory Authority, on internal control, internal audit, investment activities, lending and business with related parties.
In Article 55 of the Act a provision is made for certain conditions to be met by insurance companies before concluding severance agreements with managing directors or other key employees, or setting up incentive compensation programmes; earlier legislation contained no provisions on these items. Finally, it should be noted that under the new legislation violation of the provisions of the Act on assets set aside for insurance liabilities (the “claims reserves”) is now subject to fines or imprisonment instead of being limited to administrative penalties, as was the case earlier.
The Financial Supervisory has already begun an examination of how the regulated parties in the insurance market intend to present the new legislation to their employees.