Insurers’ Risk Management Systems – Preparing for Recovery
In light of the focus on recovery and resolution in the banking sector, the CRO Forum considers the actions that insurance entities and groups could take to enable them to respond quickly and effectively to an evolving or sudden crisis as the basis for an appropriate framework for insurers.This paper aims to complement the existing analysis and material from the insurance industry and supervisors that consider the role of insurance in the financial system and particularly how insurers are resolved in the case of failure. The analysis of insurance failure or near failure highlight:
- that crises within insurance entities develop over time, even if trigger events may be sudden, providing opportunity for mitigating actions to protect policyholders and wider continuity; and
- that prevention through effective risk management by insurers offers the most effective protection for policyholders and governments and therefore should be the focus of attention.
This paper will therefore:
Provide an overview of the nature of the insurance business model;
Provide a summary of the features of insurance risk management that can enable insurers to appropriately anticipate and respond effectively to stressed conditions, including examples of forward-looking tools/steps; and
Provide recommendations of considerations for insurers in developing their continuum analysis to facilitate effective reactions tailored to the specific stressed conditions affecting the insurer.
The paper is supplemented with annexes that cover:
- An update on the current requirements and practice around the development of recovery and resolution plans in the banking sector;
- A summary of the existing and developing insurance regulation regarding risk management and governance; and
- Examples of existing recovery and resolution mechanisms available in the insurance industry.
The Geneva Association paper ‘Insurance and resolution in light of the systemic risk debate’ February 2012, The Geneva Association paper ‘Consideration for identifying systemically important financial institutions in insurance’ April 2011 (this paper included a report ‘An Analysis of the AIG collapse: understanding systemic risk and its relation to insurance’). The IAIS report on Insurance and Financial Stability November 2011 . The report on prudential supervision of insurance undertakings (‘the Sharma report) December 2002 by the London Working Group of the Conference of Insurance Supervisors of Europe.