December 29, 2010

Satyan Jambunathan

Prudential requirements

A Life industry perspective

The supervisory authority requires insurers to recognise the range of risks that they face and to assess and manage them effectively

ICP 18 Risk assessment and management

2

3

Defining distributions and shocksMeasurement of diversification benefitsLack of data to define Op risk

distributions

Defining distributions and shocksMeasurement of diversification benefitsLack of data to define Op risk

distributions

Challenges

Recognition of individual risks Introduction of corporate governance

guidelines Board and group level oversight

Move to computing risk based capitalVarying levels of progress in industry

Recognition of individual risks Introduction of corporate governance

guidelines Board and group level oversight

Move to computing risk based capitalVarying levels of progress in industry

Current

Need for industry toImplement enterprise risk

managementFormally articulate risk appetiteImplement robust measurement and

review mechanismsUse risk based regulatory capital to drive

adoption

Need for industry toImplement enterprise risk

managementFormally articulate risk appetiteImplement robust measurement and

review mechanismsUse risk based regulatory capital to drive

adoption

Desired

ICP 18 Risk assessment and management

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

ICP 19 Insurance activity

4

5

NoneNoneChallenges

Product approval process of IRDA

Reinsurance review process of IRDA

Ongoing submissions to IRDA

Product approval process of IRDA

Reinsurance review process of IRDA

Ongoing submissions to IRDA

Current

As aboveAs aboveDesired

ICP 19 Insurance activity

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

ICP 20 Liabilities

6

7

NoneNoneChallenges

Regulations on valuation of liabilities

Annual review of the ARA and AA report

Professional guidance

Requirement for resilience testing

Peer review

Regulations on valuation of liabilities

Annual review of the ARA and AA report

Professional guidance

Requirement for resilience testing

Peer review

Current

As aboveAudit of valuation of liabilities

As aboveAudit of valuation of liabilitiesDesired

ICP 20 Liabilities

The supervisory authority requires insurers to comply with standards on investment activities. These standards include requirements on investment policy, asset mix, valuation, diversification, asset-liability matching, and risk management

ICP 21 Investments

8

9

NoneNoneChallenges

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

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

Current

As aboveAs aboveDesired

ICP 21 Investments

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

ICP 22 Derivatives and similar commitments

10

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

ICP 23 Capital adequacy and solvency

11

12

Need for professional guidance on risk based capital

Calibrations of stresses appropriate to Indian conditions

Need for professional guidance on risk based capital

Calibrations of stresses appropriate to Indian conditions

Challenges

Factor based approachSome allowance for risk in product linesLimited forms of capitalScenario testing on projections - FCRAdequately prudent levels of capital

requirement

Factor based approachSome allowance for risk in product linesLimited forms of capitalScenario testing on projections - FCRAdequately prudent levels of capital

requirement

Current

As aboveGreater allowance for risks specific to

entities

As aboveGreater allowance for risks specific to

entitiesDesired

ICP 23 Capital adequacy and solvency

Thank you

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