On-Site Inspection

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On-Site Inspection

• by
• C. R. Muralidharan
• Member, IRDA

Annual Seminar on Regulatory Issues for Senior
Officers of Insurance Regulatory Agencies
(November 15, 2005)
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Insurance Core Principle-13On-Site Inspection

• The supervisory authority carries out on-site
  inspections to examine the business of an insurer
  and its compliance with legislation and
  supervisory requirements.

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Important Linkages

• Off-site monitoring process
• Supplementing analysis of the reports received
• Market information
• Statistics derived from analysis of annual report

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Off-site Monitoring (ICP 12)

• Analysis of data on ongoing basis to monitor and
  evaluate insurers and insurance market.
• Regular and systematic financial reporting
  business and actuarial.
• Helps identification of potential problems
  between on-site inspections.
• Data requirement to reflect essential supervisory
  needs at reasonable frequency to reduce
  regulatory burden and to enhance focus.
• Additional information for specific insurers
  could be called for
• Validation and integrity.

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Market Analysis (ICP 11)

• Meets the objective of supervising individual
  entity and financial stability of the insurance
  market
• Integration of markets
• Economic and other developments that have future
  risk implications

Contd...
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Market Analysis (ICP 11) contd..

• Quantitative e.g.
• Developments in financial markets
• Changes in market participant and market share
• Investment structures
• Qualitative e.g.
• Legislation changes
• Supervisory practices

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Expected Coverage Identification of Problems or
Irregularities

• Objectives of full scale inspection
• Looks into three defined categories relating to
• the financial aspects of an insurers operations
• how an insurer is governed
• how an insurer conducts its business and presents
  itself in the market.
• The approach is to see the extent of compliance
  to regulatory requirements on all the above
  issues qualitatively and quantitatively

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Financial and Related Operational Aspects

• Solvency and capital adequacy
• Forms of capital
• Valuation and adequacy of technical provisions
• Asset quality
• Accounting and actuarial practices
• Management of investments
• Financial reporting and disclosure
• Evaluation of technical provision

Contd...
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Financial and Related Operational Aspects
contd..

• Evaluation of quality of management
• Internal controls
• Quality of underwriting
• Evaluation of technical provision
• Strategic and operational direction
• Reinsurance
• Overall risk management

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Governance Issues

• Governance processes and controls including fit
  and proper testing
• Compliance with Acts and Regulations
• The effective over sight of the risks of the
  company
• Linkages with internal controls
• Supervisory Ladder (CARAMELS)
• Capital, Asset Quality, Reinsurance, Adequacy of
  Provisions, Management, Earnings Quality,
  Liquidity and Subsidiaries and Related Party
  Transactions

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Market Conduct

• Dealing with customers
• Integrity of conduct both as insurers and
  investors
• Disclosure of relevant information to
  market/policyholders

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Requirements for Robust Supervision

• Well defined policies, institutional and legal
  framework
• Efficient market with information availability
• Operational independence
• Trained and skilled staff

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Thank You