Early-warning Indicators, Supervisory Intervention

Transcript:Early-warning Indicators, Supervisory Intervention:
Early-warning Indicators, Supervisory Intervention and Cross-border Resolution of Insurance Groups Regional Seminar on Supervision of Insurance Groups Santiago, Chile, 19-21 November 2013 Gunilla Löfvendahl Senior Financial Sector Specialist 2 Agenda On a legal entity and group-wide level Learn from past crises - typical problems and possible solutions Identifying problems early, responding with adequate supervisory tools Supervisory ladder of intervention, cooperation and resolution, and orderly exit from the market 3 HIH failure (2001) - Findings New supervisory methods and structure, with loss of corporate memory and industry expertise Assumption that most large and complex groups were well managed and controlled, with concentration on exceptions Mismanagement of HIH Under-pricing and provisioning Creative reinsurance arrangements Bad corporate culture Blind faith in an ill-equipped leadership consisting of dominant personalities Risk not properly identified and unpleasant information hidden or sanitised Lack of independence and critical analysis Aggressive accounting practices and lack of audit independence Fraud, extravagance and questionable transactions 4 Palmer Report recommendations (2002) Powers and quality of the supervisor High degree of supervisory independence and ability to act quickly and decisively Strengthen intervention powers, using them vigorously, also informally Reasonable degree of senior management and board involvement in important decisions Broader mix of expertise, including from the outside Capacity to review sufficiency of reinsurance arrangements and adequacy of liabilities, such as outstanding claims Planning for future contingencies (creation of business cases, training etc) 5 Palmer report continued Supervisory process Strengthen supervisory risk-rating process and more frequent meetings to review institutions Amend methodology to acknowledge that apparently well-managed groups can experience financial problems – early detection Regular meetings with boards and relevant board committees of supervised entities (discuss expectations and findings) Regular meetings with approved actuaries and auditors Review relationship with foreign regulators and, where necessary, establish MoUs Focus Group-wide supervision, looking at the legal entities, including non-regulated Monitor intra-group transactions Move from high-level on-site inspections (discussions) to more detailed reviews of evidence 6 Royal Commission recommendations (2003) Corporate governance Look at remuneration policy and disclose benefits Clear definition of duties and functions of board and senior management Capital adequacy Minimum solvency requirements on entity as well as group level Require approved actuary reports of financial condition Greater disclosure of information about financial positions, and risk- and reinsurance management strategies Supervisory capacity, methodology and focus Build supervisory competency and review competitiveness in the labour market (salaries etc) More sceptical questioning and aggressive approach to prudential