OSFI.SupFrm

Question 1

Briefly explain the main responsibility of OSFI relationship manager

Answer 1

Main point of contact between FRFI and OSFI

→ responsible for maintaining an up-to-date risk assessment of the FRFI

Question 2

Briefly describe 4 key principles OSFI uses in its risk assessment of insurance companies.

Answer 2

• identify material risks
• should be forward-looking & allow for early intervention
• use sound predictive judgment
• understand risk drivers
• differentiate between inherent risks & management of those risks
• dynamic adjustment
• assess whole institution by calculation a CRR (Composite Risk Rating)

Question 3

Briefly describe 3 primary concepts of OSFI’s risk assessment of insurance companies.

Answer 3

• Significant activities
• Inherent risk
• Quality of risk management
• NR (net risk)
• importance & ONR (Overall Net Risk)
• Earnings
• Capital
• Liquidity
• risk matrix & CRR (Composite Risk Rating)

Question 4

Briefly explain the 4 steps that OSFI follows in risk assessment process.

Answer 4

STEP 1: identify significant activities
STEP 2: assess inherent risks and quality of risk management
STEP 3: calculate NR (Net Risk) for each significant activity using Appendix C
STEP 4: use risk matrix to assess intervention status and CRR (Composite Risk Rating) - Appendices D & E

Question 5

Briefly describe what is meant by significant activities

Answer 5

Anything that is fundamental to to the business model (LOB, unit, process,…)

It’s the fundamental risk assessment concept within the supervisory framework

Question 6

Briefly describe what is meant by quality of risk management. (2 controls)

Answer 6

CONTROL LEVEL 1: operational (day-to-day control of significant activities)
CONTROL LEVEL 2: oversight of finance, compliance, actuarial,…

Question 7

Briefly describe NR (net risk )

Answer 7

Net Risk of significant activity = Judgment on inherent risk & quality of risk management

Can be (low, moderate, above average, high) + trend

Question 8

Briefly describe risk matrix

Answer 8

Records assessment of significant activities and risks

Question 9

What is the CRR (Composite Risk Rating)?

Answer 9

Culmination of assessment (can be low, moderate, above average, high)

Question 10

Identify the 3 core supervisory processes in risk assessment.

Answer 10

1. Planning
2. Execution (& updating risk profile)
3. Reporting & intervention