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RISK MANAGEMENT FOR INSURERS IN ISRAEL A Regulatory Perspective
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Perspective of the Insurance Commission What we are encouraging New Regulation – description and intent
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Background Life and non-life: composite companies Pension: risks borne by plan members Risks increasing or changing
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Policyholder Liabilities Traditional Balance Sheet: one outcome Risk Management: universe of outcomes Probability and severity of each outcome Assets Asset-Liability Management
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Before 2005 No appointed actuary system No required risk management function
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2005 Legislation Chief Risk Officer for each: Insurance company Pension plan management company Pension plan
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2005 Legislation Chief Risk Officer: –Person not “function” –No administrative responsibility –Advisory responsibility
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2006 Circular Responsibilities: chief risk officer Support: actuaries, investment and reinsurance officers Risks: underwriting, market price, credit Stepping stone: enterprise risk management
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Chief Risk Officer – Responsibilities Identify significant risks Evaluate monitoring and controls Evaluate preparedness for extreme events Quantify risk exposure Estimate economic capital
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Economic Capital December 31 2009 Correlations not required but encouraged Better understanding of risks Role in determining regulatory capital
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Economic Capital Capital relief: –Company data and research –Effective monitoring and controls
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Economic Capital Guidance: –A Global Framework for Insurer Solvency Assessment (IAA) –Quantitative Impact Study 2 – Technical Specifications (CEIOPS)
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Chief Risk Officer – Responsibilities Immediate Reports: –Inadequate monitoring and controls –Hazardous situation requiring correction Annual (Quarterly) reports Separately: risks for policyholders
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Chief Risk Officer – Support Right to receive any information Annual (quarterly) reports: –Appointed actuaries –Chief investment officer –Reinsurance officers
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Chief Risk Officer – Support Internal auditor –Independence –Work plan to include risk monitoring and controls
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2006 Circular – Implementation Deadlines in stages over three years Implementation plan for each company
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Encouraging Effective Risk Management Circular: no reporting to Commissioner Chief Risk Officer: –under CEO or senior manager –CEO and investment officers not eligible
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Encouraging Effective Risk Management Risk management culture Prerequisite for capital relief Executive compensation
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Encouraging Effective Risk Management Capital relief –New regime linked to Solvency 2 Executive compensation –Draft regulations: Boards of Directors
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Effective Risk Management – Board of Directors High-level policy: –Exposure of company and policyholders to risk –Reinsurance –Data security
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Effective Risk Management – Board of Directors Approve risk controls Set exposure limits: –individual risk categories –all risk categories combined Examine capital adequacy
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Regulatory Emphasis: Strengthen Internal Risk Controls
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