Prudential requirements
A Life industry perspective
December 29, 2010
Satyan Jambunathan
ICP 18 Risk assessment and management
The supervisory authority requires
insurers to recognise the range of
risks that they face and to assess
and manage them effectively
2
ICP 18 Risk assessment and management
Recognition of individual risks
 Introduction of corporate governance guidelines
 Board and group level oversight
 Move to computing risk based capital
 Varying levels of progress in industry
 Need for industry to
 Implement enterprise risk management
 Formally articulate risk appetite
 Implement robust measurement and review
mechanisms
 Use risk based regulatory capital to drive
adoption

Current
Desired

Challenges


3
Defining distributions and shocks
Measurement of diversification benefits
Lack of data to define Op risk distributions
ICP 19 Insurance activity
Since insurance is a risk taking
activity, the supervisory authority
requires insurers to evaluate and
manage
the
risks
that
they
underwrite, in particular through
reinsurance, and to have the tools to
establish an adequate level of
premiums
4
ICP 19 Insurance activity

Product approval process of IRDA

Reinsurance review process of IRDA

Ongoing submissions to IRDA
Desired

As above
Challenges

None
Current
5
ICP 20 Liabilities
The
supervisory
authority
requires
insurers to comply with standards for
establishing
adequate
technical
provisions and other liabilities, and
making
allowance
for
reinsurance
recoverables. The supervisory authority
has both the authority and the ability to
assess the adequacy of the technical
provisions and to require that these
provisions be increased, if necessary
6
ICP 20 Liabilities
Current

Regulations on valuation of liabilities

Annual review of the ARA and AA report

Professional guidance

Requirement for resilience testing

Peer review

Desired

As above
Audit of valuation of liabilities
Challenges

None
7
ICP 21 Investments
The supervisory authority requires
insurers to comply with standards on
investment
activities.
These
standards include requirements on
investment
policy,
asset
mix,
valuation,
diversification,
assetliability
matching,
and
risk
management
8
ICP 21 Investments

Current
Regulations on

Asset class limits

Exposure limits

Process including segregation of duties

Valuation of assets

Audit and review mechanisms

ALM in varying stages of development
Desired

As above
Challenges

None
9
ICP 22 Derivatives and similar
commitments
The supervisory authority requires
insurers to comply with standards on
the use of derivatives and similar
commitments.
These
standards
address restrictions in their use and
disclosure requirements, as well as
internal controls and monitoring of
the related positions
10
ICP 23 Capital adequacy and
solvency
The supervisory authority requires
insurers to comply with the
prescribed solvency regime. This
regime includes capital adequacy
requirements and requires suitable
forms of capital that enable the
insurer
to
absorb
significant
unforeseen losses
11
ICP 23 Capital adequacy and
solvency
Current
Desired

Factor based approach

Some allowance for risk in product lines

Limited forms of capital

Scenario testing on projections - FCR

Adequately prudent levels of capital requirement

As above
Greater allowance for risks specific to entities


Challenges
12

Need for professional guidance on risk based
capital
Calibrations of stresses appropriate to Indian
conditions
Thank you
13