A Regulator

1
A Regulators Perspective on ERM

• CAS / SOA ERM Symposium
• Washington, July 29, 2003
• Allan Brender

2
Background on OSFI

• Federal supervisor and regulator
• Integrated - cover insurers and deposit takers
• Protect rights of depositors and policyholders
• Organized by function, not by industry
• Cross-cultural fertilization

3
OSFIs Mandate

• Determine whether FIs are in sound financial
  condition and in compliance
• Advise management and directors if the FI is not
  in sound financial condition or in compliance
• Monitor / evaluate sectoral events that may have
  a negative impact on financial condition
• Promote the adoption by FIs of policies and
  procedures to control and manage risk

4
OSFIs Mandate

• Carry out regulation and supervision while
  recognizing that
• Boards of directors are responsible for
  management of the FI
• FIs operate in a competitive environment that
  necessitates the management of risk
• FIs can experience financial difficulties that
  can lead to their failure

5
Supervisory Framework

• Identify significant activities
• Evaluate inherent risk in each activity
• Evaluate the quality of risk management for each
  risk
• Rate net risk determine risk direction

6
Supervisory Framework

• Consider capital and quality of earnings
• Determine a composite rating
• www.osfi-bsif.gc.ca/eng/documents/practices/docs/f
  ramew_e.pdf

7
RM in Banking

• Emerged from Basel Accord
• Relationship between RM and capital
• Interaction of RM and capital requirements
• RM was accepted as something more than a
  regulatory requirement
• RM became an important part of banking culture

8
RM in Insurance

• Emerging slowly
• Insurers and actuaries are sensitive to others
  risks
• Insurers concentrate on a few specific risks of
  their own
• They miss out on many others
• Valuation models
• Product design
• Time scale is a factor
• A significant culture change is required

9
Appointed Actuary or CRO ?

• Role of the AA
• Role of the CRO
• Who has the broader horizon?
• Whistle blowing

10
Financial Condition Reporting

• DST, DCAT, DFCA, DFA,
• AA in Canada is required to prepare an annual
  financial condition report using DCAT
• Aimed at directors and senior management
• OSFI receives a copy
• DCAT as a risk management exercise

11
ERM in Practice

• Solid corporate governance
• Well-documented policies, procedures, and limits
• Appropriate monitoring and reporting
• Willingness to take necessary action

12
www.osfi-bsif.gc.ca

• Thank you!