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ASSAL-IAIS Training Seminar Participants Only. Risk Management - ICP 8, 16 and ComFrame M2E2 -. Yasa Fujioka IAIS Secretariat ASSAL-IAIS Training Seminar, 19-22 November 2012. - PowerPoint PPT Presentation
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Yasa FujiokaIAIS Secretariat
ASSAL-IAIS Training Seminar, 19-22 November 2012
Risk Management- ICP 8, 16 and ComFrame M2E2 -
The information contained in this document is classified as Secret (ASSAL-IAIS Training Seminar Participants Only) and contains highly sensitive information. Direct access to information classified as ‘Secret’ is limited to the persons individually named by the Owner. Any recipient of information in this category may redistribute it to other persons within their organisation whose access to this information is necessary to carry out or assist in connection with the relevant business activity or operations (need-to-know principle). If distributed further, the original receiver maintains sole responsibility for ensuring the information is not distributed to unintended recipients. If you are an unintended recipient of this information please do not distribute this information further and destroy all copies of this information immediately. In addition, please notify the IAIS immediately via [email protected] or +41 61 225 7300.
ASSAL-IAIS Training Seminar Participants Only
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 2
Agenda
I. Overview
II. Real Life Example – HIH
III. ERM for Solvency Purposes
IV. ComFrame – Group ERM
Appendix: Details of ICP 8 and 16
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 3
I-1. What is risk management and why?
• Risk management– process that management takes to assess and
control the impact of past and future events that are detrimental
– Particularly important to insurers
• Triggered global financial crisis– “Result of a failure of risk manage-
ment on a colossal scale” Robert Hartwig– “AIG’s trouble was directly related to failure of
internal risk management” Hank Greenberg
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 4
I-2. Relevant international standards
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
• ICP 8: Risk management and internal controls– Importance of independent control functions
• ICP 16: Enterprise risk management for solvency purposes– Provide framework for all relevant and material
risks
• ComFrame M2E2: Group ERM– IAIG relevant issues on group ERM
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 5
II-1. What is HIH?
• Australia’s second largest non-life insurer– Workers comp., liability and indemnity
– In Australia, UK and California (USA)
– In late 1990s, assets of A$7 billion, revenue of A$4 billion and operating profit of A$60 million
• Bankrupt in 2001– Largest corporate failure in Australia
• Many causes of failure including risk management
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
*case based on the report of the HIH Royal Commission (www.hihroyalcom.gov.au)
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 6
II-2. Risk management failure (1)
*case based on the report of the HIH Royal Commission (www.hihroyalcom.gov.au)
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
• Continuous underwriting loss• Poorly managed underwriting
– Underwrite personal accident cover to Taiwanese military
– Reinsure motor vehicle insurance w/o terrorism exclusion to Israeli military (self ins.)
• Identify and quantify risk under a sufficiently wide range of outcomes - ERM Framework
• Regularly assess the adequacy of risk management and solvency - ORSA
19-22 Nov 2012San Jose
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- Risk Management, Yasa Fujioka - 7
II-3. Risk management failure (2)
*case based on the report of the HIH Royal Commission (www.hihroyalcom.gov.au)
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
• Lack of due diligence and Board / senior management decision process– Enter, exit, re-enter US market
– FAI acquisition
• Effective internal control systems and functions– Necessary authority, power and resources
• Ownership of ORSA – Board / senior management
19-22 Nov 2012San Jose
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- Risk Management, Yasa Fujioka - 8
III-1. ERM Framework
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
Governance and ERM Framework
Role of supervision
リスク管理方針 リスク許容度ステートメント
継続性分析 経済資本・ 規制資本
Own Risk and Solvency Assessment (ORSA)Own Risk and Solvency Assessment (ORSA)
Risk Management Policy
Risk Management Policy
Risk Tolerance Statement
Risk Tolerance Statement
Continuity Analysis
Continuity Analysis
Economic and Regulatory Capital
Economic and Regulatory Capital
Feed back Loop
Feed back Loop
19-22 Nov 2012San Jose
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- Risk Management, Yasa Fujioka - 9
III-2. Own Risk and Solvency Assessment
• Assess adequacy of its risk management in relation to current and future solvency
• “Owned” by Board and Senior Management
• Encompasses all reasonably foreseeable and relevant material risks
• Economic and regulatory capital
• Continuity analysis
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 10
III-3. ERM Framework
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
Governance and ERM Framework
Role of supervision
リスク管理方針 リスク許容度ステートメント
継続性分析 経済資本・ 規制資本
Own Risk and Solvency Assessment (ORSA)Own Risk and Solvency Assessment (ORSA)
Risk Management Policy
Risk Management Policy
Risk Tolerance Statement
Risk Tolerance Statement
Continuity Analysis
Continuity Analysis
Economic and Regulatory Capital
Economic and Regulatory Capital
Feed back Loop
Feed back Loop
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 11
IV. ComFrame – Group ERM
• ComFrame– Operationalisation of ICPs with regard to IAIGs– Based on ICPs, but adds and reduces options
• Example of going beyond ICPs– ERM Framework comprises group-wide
strategies– Risks from operating internationally and
operations through subs and branches– Risks arising from intra-group transactions and
place restrictions
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 12
Conclusion
• ERM Framework– Assess all foreseeable and relevant risks– Board is responsible– Nature, scale and complexity (e.g. IAIGs)
• ERM into practice– 2002 HIH had corporate governance, 2008
AIG had ERM in place– Did not go beyond guideline and policies– Integrate with business operation and culture
19-22 Nov 2012San Jose
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- Risk Management, Yasa Fujioka - 13
Thank you.
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 14
Appendix
Following pages will not be covered in the presentation.
For further information on ICPs, try our ICP online-tool!!
http://www.iaisweb.org/ICP-on-line-tool-689
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 15
A-1. ICPs on risk management
• ICP 8: Risk management and internal controls
• ICP 16: Enterprise risk management for solvency purposes
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 16
• … effective systems of risk
management and internal
controls,
• including … risk management,
compliance, actuarial matters
and internal audit
A-2. Risk Management and Internal Control (1)
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 17
A-3. Risk Management and Internal Control (2)
– Risk Management: identify, assess, monitor, manage and report its key risks in a timely way (Std 8.3)
– Compliance: meet legal and regulatory obligations … culture of compliance and integrity (Std 8.4)
– Actuarial: evaluate and provide advice … technical provisions, premium and pricing activities … (Std 8.5)
– Internal Audit: provide Board with independent assurance in respect of the insurer’s governance (Std 8.6)
• In order to function properly, the control functions need authority, independence and resources (Std 8.2)
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 18
A-4. ICPs on risk management
• ICP 8: Risk management and internal controls
• ICP 16: Enterprise risk management for solvency purposes
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 19
A-5. ERM (for solvency purposes) core principle
• ICP16: “The supervisor establishes enterprise risk management requirements for solvency purposes that require insurers to address all relevant and material risks
• Applies to insurance legal entities and any risks posed by non-insurance entities on insurance groups
• Requirement for identification and quantification of risk, including documentation
• Active enterprise risk management policy• A risk tolerance statement and other evidence of
consistency of measurement of risk• A responsive risk management framework• Own risk and solvency assessment (ORSA)• Active supervision
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 20
A-6. ICP16.1 Risk Identification and measurement
• The ERM framework must provide for:– The identification and quantification of risk
under a sufficiently wide range of outcomes– Using techniques appropriate to the nature,
scale and complexity of the risks borne by the insurer
– Adequacy for risk and capital management and for solvency purposes
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 21
A-7. ICP 16.2 and 16.3 – Evidence of the Framework in action
• Measurement of risk must be supported by accurate documentation– Detailed description of risks covered– Measurement approaches used, plus key
assumption
• Risk management policy– Outline of the management of relevant and
material categories of risk
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 22
A-8. ICP 16.4 to 16.8 – Consistency of measurement and clarity of management process
• Clear risk tolerance limits, and relationship with regulatory and economic capital, and processes and methods for monitoring risk
• Well-defined ALM policy• Explicit investment policy• Explicit underwriting policy• Clear and detailed risk tolerance
statement
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 23
A-9. ICP 16.9 and 16.10 – Risk Responsiveness
• ERM framework should be responsive to changes in the risk profile of the insurer
• A feedback loop should be incorporated in the framework– Based on appropriate and good quality
information, management processes and objective assessment
– Allows necessary action in a timely manner
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
19-22 Nov 2012San Jose
Please refer to the confidentiality notice detailed on the first page of this document
- Risk Management, Yasa Fujioka - 24
A-10. ICP 16.11 to 16.16 – Own Risk and Solvency Assessment (ORSA)
Overview
Real Life Example – HIH
ERM for Solvency Purposes
ComFrame – Group ERM
Appendix: ICPs on Risk Management
• Assess adequacy of its risk management in relation to current and future solvency
• “Owned” by Board and Senior Management
• Encompasses all reasonably foreseeable and relevant material risks
• Economic and regulatory capital
• Continuity analysis