Regulatory Discussion V2012


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Facilitation of a roundtable on Insurance industry regulatory developments. (Spring 2009)

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Regulatory Discussion V2012

  1. 1. RMA Insurance Roundtable June 5, 2009 RBC MississaugaFacilitated by : Anthony GagnonExecutive
  2. 2.  Risk management more critical than ever ERM is in, «siloed» approaches out ERM implies management across business lines and integrating all risk categories in a strategic view More regulation coming, not less, with some regulation of systematically important shadow markets Risk management emphasis :  Governance  Liquidity  Economic capital and procyclicality  Product development risk and suitability  Counterparty risk  Reputation and moral hazard 2
  3. 3.  Strong and independent risk management will be required Strengthening of resiliency of critical payment and settlement systems Capital will remain key for financial institutions, expect higher minimum requirements Macro-prudential (systemic risk) focus for supervisors 3
  4. 4.  Establish Financial  Implement new Stability Board principles on executive Extend oversight to all compensation systemically important  Improve and institutions and harmonize accounting markets standards Reform the credit  Improve quality and rating agencies quantity of capital environment Identify and respond to macro-prudential risksLearn More at : ERM Symposium April 2009, Risk and Regulation atFinancial Institutions: New Directions, Cathy Lemieux, Federal reserve of Chicago 4
  5. 5.  Systematic risk Eliminating supervisory gaps Emphasizing consumer protection (product suitability) International coordination Handout available at : 5
  6. 6.  Canada is an active player in G-20 suggested reforms Insurancy industry regulation is under discussion at the Superintendant of Financial Institutions (OSFI) In Quebec, proposed guidelines are expected to be implemented by the end of 2011 covering :  Governance  Integrated risk management  Interest rate risk mangement  Liquidity risk  Compliance  Outsourcing 6
  7. 7.  Establish and operate an ERM framework  Integrate the framework with the strategies, operations and business cullture  Leadership and oversight should be a Board and C-suite task  Proper ERM requires quantification of risks over an adequate range of potential outcomes 7
  8. 8.  Risk measurement must be built on reliable data, description of risks and their explanation Establish and perform an Own Risk and Solvency Assessment (ORSA) «An insurer should regularly perform its own risk and solvency assessment (ORSA) to provide the board and senior management with an assessment of the adequacy of its risk management and current, and likely future, solvency position. The ORSA should encompass all reasonably foreseeable and relevant material risks including, as a minimum, underwriting, credit, market, operational and liquidity risks. The assessment should identify the relationship between risk management and the level and quality of financial resources needed and available.» 8
  9. 9.  I Quantification of risks and capital II Governance and supervisory oversight III Disclosure and transparency  Risk categories: credit, underwriting, market, liquidity and operational risk  Principle of proportionality: sound and transparent framework in relation to nature, size and complexity  Board accountability for framework, including policies, and oversight 9
  10. 10.  The minimum Continuing Capital and Surplus Requirements (MCCSR) paper is capital focused. The paper nevertheless promotes :  Regulatory framework areas: financial requirements, governance and market conduct  An attention to risks that cannot necessarily be managed through financial requirements.Reference : Federal : Canadian Vision for Life Insurer Solvency Assessment, November 2007QC : Joint Committee (OSFI, AMF, Assuris) Framework for a New Standard Approach to setting CapitalRequirements, Draft for Comment, January 2008 10
  11. 11.  Senior Supervisors President’s Working Group on Financial Financial Stability ERM Symposium Chicago April 2009, handouts 11
  12. 12.  Canada : OSFI Quebec : AMF MCCSR Advisory Committee (MAC): The MAC is co-chaired by a member of the Canadian Institute of Actuaries (CIA) and a representative of the Office of the Superintendent of Financial Institutions (OSFI). Its members are senior representatives from the Canadian Life and Health Insurance Association (CLHIA), CIA, Assuris, the Autorité des marchés financiers (AMF), and OSFI, as well as representatives from large and small insurers and the reinsurance industry. Canadian vision for life insurer solvency assessment, November 2007 Solvency Advisory Committe/AMF, Framework for a New Standard Approach to setting Capital Requirements, Draft for Comment, January 2008 12
  13. 13.  Proposed enhancements to the Basel II framework Range of practices and issues in economic capital frameworks (mars 2009) Amended Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the taking-up and pursuit of the business of Insurance and Reinsurance (SOLVENCY II) Brussels February 2008 13
  14. 14.  Credit risk transfer – developments from 2005 to 2007, July 2008 Credit risk transfer, March 2005 Cross-sectoral review of group-wide identification and management of risk concentrations, Avril 2008 Customer suitability in the retail sale of financial products and services, April 2008 Financial disclosure in the banking, insurance and securities sectors: issues and analysis, May 2004The Joint Forum members are: supervisors for banks (BCBS)and insurers (IAIS);securities regulators IOSCO 14
  15. 15.  High-level principles for business continuity, August 2006 Initiatives by the BCBS, IAIS and IOSCO to combat money laundering and the financing of terrorism, June 2003 Operational risk transfer across financial sectors, August 2003 Outsourcing in Financial Services, February 2005 Regulatory and market differences: issues and observations, May 2006 The management of liquidity risk in financial groups, May 2006 Trends in risk integration and aggregation, August 2003 15
  16. 16.  Issues paper on group-wide solvency assessment and supervision (5 mars 2009) Standard on enterprise risk management for capital adequacy and solvency purposes (October 2008) Standard on the use of internal models for regulatory capital purposes (October 2008) Standards on disclosures concerning technical performance and risks for non-life insurers and reinsurers (October 2004) Glossary of Terms (February 2007) 16
  17. 17. The Canadian banking and insurance sector is dominated by a small number oflarge and relatively stable players. It grew with little government interventionuntil the collapse of Home Bank in the early 1920s. Ottawa then created theOffice of the Inspector General of Banks to regulate the sector with an entirestaff that could be counted on one hand. The Office of the Superintendant offinancial Institutions, known as OSFI, was created when OIGB merged with theinsurance regulator in 1987. It has since been steadily growing both its employee-count, now standing at approximately 500, and its oversight of the industry.OSFI continues to be more focused on the principles of sound management thanon rules. The Canadian approach is closer to the British than our southernneighbor. 17
  18. 18. There are more than 7,000 commercial banks in the United States of which 10 to20 could be considered to dominate the market. Financial institutions areoverseen by numerous federal and state regulators. They sometimes overlap,leaving holes. Depending on their type, size and location, U.S. financialinstitutions could be subject to a number of regulators, from the Federal ReserveBoard and, through it, the Federal Reserve Banks (which preside over about 900state banks and roughly 5,000 bank holding companies), to the Federal DepositInsurance Corporation (which supervises state banks that are not members of theFederal Reserve System), to the Comptroller of the Currency and the Office ofThrift Supervision , etc. A Canadian Bank Executive was recently quoted as sayingtheir U.S. operations can have as many as 17 «inspectors» at any time. 18
  19. 19. With a career spanning more than thirty years, Anthony Gagnon offers valueadded expert advice and contractual interim executive services in the areas offinance, strategy, risk management and business unit structuring. From 2003 tonow, the majority of mandates have been in policy writing and frameworkdesign and implementation of Basel II operational risk programs and initiatives:general framework, business continuity, outsourcing, trust company fiduciaryrisks, etc.Typical mandates require acting on behalf of an Executive, the project sponsor, inexecuting project requirements. Sponsoring Executives retain full ownership, areinvolved on an on-going basis and expertise is transferred to the internal team bythe agreed delivery date.Anthony also works on a sub-contract basis or as partner with reputable firms inmajor projects requiring teams and multi-disciplinary resources.Anthony is currently working with Desjardins General Insurance Group 19
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  21. 21. Desjardins GeneralInsurance Group 1.8 million policies and  4 subsidiaries: 2 individual insurance companies premium volume of (Desjardins General Insurance and Certas Direct) $1,429 million and 2 group insurance companies (under The Personal banner) Underwriting profit for the 15th year  Operates many call centres renowned as being in a row among the most efficient in North America  Client/member satisfaction: Assets: 95% policy renewal rate $3.1 billion  Expertise in risk and client segmentation and rates management Net earnings:  Some 2,000 agents, experts and client service $126 million representatives in various client call centres in (Data as at December 31, 2007) Québec and Ontario 21