Chapter 18- Risk Management and Control Flashcards
Outline the requirements of Insurance Act to demonstrate sound risk management? (5)
o Good corporate governance
o Sound risk management procedures
o Adequate control functions
o Independent audit and monitoring functions
o Adequate disclosure and reporting to stakeholders
Outline the provision in the Insurance Act regarding adopting, implementing and documenting of a governance framework? (5)
• Protects the interest of the policyholders
• Proportionate to the nature, scale and complexity of the insurance business and risks
• Include an effective system of corporate governance, internal control and risk management
• The insurer also requires monitoring system to ensure compliance
• The prudential authority may require independent review at the insurers costs if not satisfied
outline the functions of a risk committee established? (8)
• Assist the board of directors in developing risk management strategy
• Assist the board of directors in evaluating the adequacy and effectiveness of a risk management system
• Identify the build-up of a concentration of risk
• Assist in identifying and monitoring any material risk
• Facilitate communication between the board of directors and senior management
• Ensure segregation between risk management and operation duties
• Introduce measure to enhance risk management
• Oversee the monitoring of risk management at an individual business unit and enterprise level
the requirements for a risk managment system is as follows? (5)
• Effective risk management is critical to honouring its promise to policyholders
• Insurer must have a board approved, enterprise wide risk management system consisting of a strategies, polices, procedures and tools for assessing, monitoring, reporting and mitigating material risks
• The risk appetite of the system must be aligned with business objectives and strategies
• An insurer must establish, maintain and operate within a system of effective internal control
• To provide appropriate governance the following control functions would be required:
o Risk management
o Compliance
o Internal audit
o Actuarial function
outline the roles and responsibilities regarding risk management? (4)
• The board of directors hold the ultimate responsibility to ensure compliance with the prudential standards
• The head of the control functions are responsible to provide an opinion on the effectiveness of risk management and internal controls
• The internal auditors will conduct a review to provide assurance to the board of directors of effective risk management
• The insurer’s external auditors will provide assurance to the PA as well as the board regarding the compliance with prudential standards
outline the duties of a risk managment function? (5)
• Assists the board of directors and senior management to develop and maintain a risk management system
• The risk management function provides reasonable assurance that there are adequate mechanisms to
o Identify individual and aggregated risks
o Assess, monitoring and manage risk identified
o Gain and maintain an aggregate view of the insurers risk profile
o Forward looking assessment of the insurers profile
• Provides written reports to the board, senior management, other control functions regarding risk profile, risk exposures and appropriate mitigation actions
• Document and report material changes to the risk management system
• Have access to the board of directors
Outlined what would be documented in a risk management strategy as a minimum? (6)
• Identify objectives of the strategy
• Describe each current material risks and emerging risks
• List the policies and procedures for dealing with risk management
• Summaries the roles and responsibilities of risk management functions, board, senior management and board committees
• Included documented process for board approval for changes or deviations
• Outline process for creating awareness of risk management system
An insurers risk appetite statment clearly include? (4)
• Overall risk that they are willing to accept in strategic objectives and business plan
• For each type of material risk that maximum levels to which they are willing to operate within
• Monitor and report compliance with limits
• Regular review appropriateness of limits
List the board approved polcies in the risk management system? (14)
• Asset-liability management
• Capital management
• Concentration
• Credit
• Fitness and proprietary
• Information technology
• Insurance fraud
• Investment
• Liquid management
• Operational
• Outsourcing
• Reinsurance and risk transfer
• Remuneration
• Underwriting
outline the requirements in the ALM policy? (4)
• Clearly specify the nature, role and extent of ALM as well as integration with product design, pricing and investment management
• Co-ordinate the management of asset and liability risk
• Recognise the interdependence between assets and liabilities (correlation between asset classes and business line)
• Take into account off-balance sheet risk and the contingency that they may revert to the insurer
outline the requirements in the capital management policy? (6)
• Internal capital planning process
• Strategy for ensuring that adequate capital is maintained
• Provide identification and measurement of risk that may result in capital shortfalls
• Establish procedures to monitor compliance with internal and regulatory capital targets
• Set out actions that will occur in the event of a capital shortfall
• Provide for appropriate management and regular review
outline the requirements in the concentration risk policy? (2)
• Identify sources of concentration risk and strategies to ensure risks remains in established limits
• Analyses possible correlation between risk of concentrated exposure
outline the requirements in the credit risk policy? (6)
• Set out approach in assessment, monitoring, managing and reporting on credit risk
• Proportional to complexity, scale of insurers operations
• Identify the full range of credit exposures including direct (credit facilities and debt instruments)and indirect (financial instruments)
• Identify range of exposure that they would want to retain
• Provide a quantification for credit risk
• Identification of risk mitigation such that credit exposure is kept within the desired limits
outline the requirements in the insurance fraud policy? (4)
• Outline appropriate strategies and procedures to deter, prevent, detect, report and remedy insurance fraud
• Outline appropriate strategies for managing fraud risk
• Consider the effectiveness of fraud risk management may be enhanced by contributing to industry wide initiatives
• Provide a prompt for reporting to regulatory bodies
outline the requirements in the investment policy? (9)
• Ensuring compliance with asset requirements prescribed under the financial soundness standards
• Set out strategy for investing including asset allocation and how they are related to ALM
• Explicit risk management to more complex and less transparent classes
• Take into account factors the will influence long-term sustainability example environment, government and social
• Investments would need to be made such that it ensures security, quality, liquidity and profitability of insurance portfolio
• Investments that do not trade on regulated financial markets are kept within prudent levels
• Ensures appropriate diversification
• Ensures that conflicts of interest are avoided or managed such that benefits are made in the best interests of the policyholders
• Ensure appropriate matching with respect to unit-linked, index-linked and guaranteed liabilities