Financial Crime World

Comprehensive Report on Risk Management and Supervision Practices in the Insurance Sector

Executive Summary

This report outlines the key findings of a comprehensive document outlining the risk management and supervision practices of a financial regulatory authority, specifically in the insurance sector. The report covers various stages of the risk assessment process, from planning and prioritization to follow-up.

Key Findings

1. Risk-based approach

  • Dynamic and flexible program: The Authority uses a dynamic and flexible risk-based program that allows for changing or emerging risks.
  • Adaptability: This approach enables the Authority to respond quickly to new and evolving risks, ensuring effective supervision.

2. Nine-phase process

  • Supervision process: The supervision process consists of nine phases:
    • Planning and Prioritization
    • Risk Impact Group
    • Fundamental Monitoring
    • Prudential Visits
    • Enhanced Monitoring
    • Composite Risk Rating
    • Supervisory Attention Ranking
    • Supervisory Actions
    • Follow-up

3. Prioritization factors

  • Time elapsed since last visit: The Authority considers the time elapsed since the last prudential visit when determining priorities in the plan.
  • Current risk assessment: The current risk assessment of the insurer is also taken into account.
  • Cost-benefit trade-offs: Cost-benefit trade-offs are considered to ensure effective use of resources.

4. Risk Impact Group

  • Class system indicator: Insurers are assigned to groups based on their size, nature, and complexity using a Class system as an indicator of risk impact.
  • Effective identification: This system enables the Authority to effectively identify insurers with higher levels of risk.

5. Fundamental Monitoring

  • Base level of monitoring: The Authority performs a base level of off-site monitoring of all insurers.
  • Annual reviews: Annual reviews of statutory returns are conducted as part of fundamental monitoring.
  • Ongoing assessments: Ongoing assessments of other information received are also performed.

6. Prudential Visits

  • Establish or maintain relationships: The Authority initiates visits to establish or maintain relationships with key management.
  • Key topics covered: Topics such as corporate strategic initiatives, current industry issues, and follow-up on areas of concern previously identified are covered during these visits.

7. Enhanced Monitoring

  • Off-site and on-site reviews: The Authority conducts off-site and on-site reviews, including the review of company documents and interviews with high-level personnel.
  • Regular enhancement: Enhanced monitoring processes are regularly enhanced through on-site reviews and other means.

8. Composite Risk Rating

  • Summary data: Data gathered in preceding phases is summarized to form a composite risk rating applicable to the company.
  • Risk level indicator: This rating serves as an indicator of the risk level associated with companies.

9. Supervisory Attention Ranking

  • Nature and extent of regulatory action: The nature and extent of regulatory action required are determined by the Supervisory Attention Ranking.
  • Guided by Composite Risk Rating: This ranking is guided by a combination of risk likelihood and impact, as well as the Composite Risk Rating.

10. Follow-up

  • Ensure necessary actions taken: The Authority ensures that all necessary actions have been taken to complete the risk-based review of the subject company.
  • Complete review process: This step completes the review process, ensuring effective supervision and regulation.

Recommendations

  1. Continue dynamic and flexible approach: Continue to use a dynamic and flexible risk-based approach to supervision.
  2. Regularly review prioritization factors: Regularly review and update the prioritization factors used in determining priorities in the plan.
  3. Effective Risk Impact Group system: Ensure that the Risk Impact Group system remains effective in identifying insurers with higher levels of risk.
  4. Maintain high level of fundamental monitoring: Maintain a high level of fundamental monitoring for all insurers.
  5. Regular prudential visits: Conduct regular prudential visits to maintain relationships with key management and address emerging issues.
  6. Enhance monitoring processes: Continue to enhance monitoring processes through on-site reviews and other means.
  7. Use Composite Risk Rating as indicator: Use the Composite Risk Rating as an indicator of risk level associated with companies.
  8. Supervisory actions guided by risk likelihood and impact: Ensure that supervisory actions are guided by a combination of risk likelihood and impact.

By following these recommendations, the Authority can continue to ensure effective supervision and regulation of the insurance sector.