Restricted Assessing and addressing the governance of an insurer and its insurance group Regional Seminar on Promoting Sound Insurers and Dealing with Those under Stress Panama City, Panama, May 2016 Gunilla Löfvendahl Senior Financial Sector Specialist

Restricted 2 Why focus on governance and risk management? Risk-based/principles-based regulation and supervision means moving away from detailed, prescriptive rules and relying more on broadly stated principles, which set the standards by which insurers must conduct their business. Principles often describe a desired outcome without providing the details of how this outcome can be achieved. The responsibility for achieving this outcome is instead being placed on the board and the senior management of the insurers By focusing on governance and risk management, problems can be detected earlier

Restricted 3 Relevant ICPs Focus Suitability of persons (ICP5) Corporate governance (ICP 7) Risk management and internal controls (ICP 8) Public disclosure (ICP 20) Methods Supervisory review and reporting (ICP 9) Preventive and corrective measures (ICP 10) Enforcement (ICP 11) – what is the difference?

Restricted 4 Building-blocks of sound standards and practices Clear lines of responsibility and accountability Clear structures Strategic objectives and corporate values, including risk appetite Knowledge and independence of board members Quality and duties of senior management Sound risk management in line with strategy Internal control functions: internal audit, appointed actuary, compliance etc. Proper incentives, including compensation policy Disclosure of information and market discipline

Restricted 5 To make a long story short…… Well functioning governance hierarchy, with a board and senior management that assumes their respective oversight roles Well-functioning risk management with an independent CRO and risk governance processes and procedures Appropriate internal control mechanisms; all assuming their roles according to rules and regulations, and the strategy and objectives of the company External control mechanisms through external audit and public disclosure, which also promotes the good functioning of the market Timely supervisory intervention to prevent problems from happening or worsening

Restricted 6 Exercise Read the description of the case Discuss and respond to the following questions:  what were the problems, and how could they have been spotted  what framework should be implemented to avoid similar problems in the future; and  what actions would have been advisable at the time, had the new framework already been in place Based on the timing of the events and the severity of the problems, different actions would be suitable at different points in time. Please therefore respond for each section separately (one-three). Present your results Summing up and further discussions