RISK MANAGEMENT FOR INSURERS IN ISRAEL

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RISK MANAGEMENT FOR INSURERS IN ISRAEL

• A Regulatory Perspective

2
Perspective of the Insurance Commission

• What we are encouraging
• New Regulation description and intent

3
Background

• Life and non-life composite companies
• Pension risks borne by plan members
• Risks increasing or changing

4
Policyholder Liabilities

• Traditional Balance Sheet one outcome
• Risk Management universe of outcomes
• Probability and severity of each outcome
• Assets
• Asset-Liability Management

5
Before 2005

• No appointed actuary system
• No required risk management function

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2005 Legislation

• Chief Risk Officer for each
• Insurance company
• Pension plan management company
• Pension plan

7
2005 Legislation

• Chief Risk Officer
• Person not function
• No administrative responsibility
• Advisory responsibility

8
2006 Circular

• Responsibilities chief risk officer
• Support actuaries, investment and reinsurance
  officers
• Risks underwriting, market price, credit
• Stepping stone enterprise risk management

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Chief Risk Officer Responsibilities

• Identify significant risks
• Evaluate monitoring and controls
• Evaluate preparedness for extreme events
• Quantify risk exposure
• Estimate economic capital

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Economic Capital

• December 31 2009
• Correlations not required but encouraged
• Better understanding of risks
• Role in determining regulatory capital

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Economic Capital

• Capital relief
• Company data and research
• Effective monitoring and controls

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Economic Capital

• Guidance
• A Global Framework for Insurer Solvency
  Assessment (IAA)
• Quantitative Impact Study 2 Technical
  Specifications (CEIOPS)

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Chief Risk Officer Responsibilities

• Immediate Reports
• Inadequate monitoring and controls
• Hazardous situation requiring correction
• Annual (Quarterly) reports
• Separately risks for policyholders

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Chief Risk Officer Support

• Right to receive any information
• Annual (quarterly) reports
• Appointed actuaries
• Chief investment officer
• Reinsurance officers

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Chief Risk Officer Support

• Internal auditor
• Independence
• Work plan to include risk monitoring and controls

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2006 Circular Implementation

• Deadlines in stages over three years
• Implementation plan for each company

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Encouraging Effective Risk Management

• Circular no reporting to Commissioner
• Chief Risk Officer
• under CEO or senior manager
• CEO and investment officers not eligible

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Encouraging Effective Risk Management

• Risk management culture
• Prerequisite for capital relief
• Executive compensation

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Encouraging Effective Risk Management

• Capital relief
• New regime linked to Solvency 2
• Executive compensation
• Draft regulations Boards of Directors

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Effective Risk Management Board of Directors

• High-level policy
• Exposure of company and policyholders to risk
• Reinsurance
• Data security

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Effective Risk Management Board of Directors

• Approve risk controls
• Set exposure limits
• individual risk categories
• all risk categories combined
• Examine capital adequacy

22
Regulatory Emphasis Strengthen Internal Risk
Controls