Insurance Supervisory Approach January 2018 09 February 2018 1 - PowerPoint PPT Presentation

Insurance Supervisory Approach January 2018 09 February 2018 1

Welcome and Introduction • Evolution of our supervisory approach under Solvency II • Providing clarity on our key areas of focus • Setting expectations for the next 18-24 months • International recognition of high standards of supervision post BREXIT • Collaboration 09 February 2018 2

Agenda Insurance Regulatory Approach for the next 18-24 months Q&A on Insurance Regulatory Approach Insurance Distribution Directive Q&A on Insurance Distribution Directive 09 February 2018 3

Insurance Regulatory Approach – GFSC Functions Authorisations Insurance Regulatory and Supervisory Supervision (Prudential and Conduct) Plan Enforcement 09 February 2018 4

Insurance Supervisory Approach Overview Resolvability & Performance Quality Recovery plans of Auditors Assurance Underwriting Capital/SCR Systems and data Group Governance Contagion Reserving Reinsurance Investments Performance Reporting Conduct of Actuaries 09 February 2018 5

Root causes of problems Corporate Governance Business model 1. Significant root cause of failures. 1. Overarches key risk areas. 2. Will be assessed as follows: 2. Symptoms are as follows: - Board composition - Consistent losses - Independent NEDs (including interviews) - Groups where profits are elsewhere - Fitness and propriety - Lack of liquidity - Quality of ongoing reporting - Level of group debts - Behaviour - Insufficient capital - Inappropriate systems and controls 09 February 2018 6

Authorisations • Access to •F&P additional funding assessments in stressed situations •Interviews • Capital •Head office management Access to assessments Governance policies Capital Rationale Adequacy for setting of business • Does it make •How does the firm up in sense for the model make revenue Gibraltar entity to set up in •Can it sustain Gibraltar? stressed situations • What markets do •Key Processes they want to (UW, claims, etc.) access? 09 February 2018 7

Risk based supervision Meetings Exchange of information with BAU Team other regulators Letters Prudential Team Regulatory Intervention IST Team Super REAL’s with other NCAs Enforcement 09 February 2018 8

Prudential supervision overview Technical leads will focus on risk areas BAU QRTs Focus areas Financial will intersect Statements with BAU ORSA work Reserve reports 09 February 2018 9

Conduct of Business Supervision Focus areas for 2018-2019 IDD Delegated Implement Authorities -ation Policyholder Protection Product Claims Oversight Handling and Governance Complaints Outsourcing 09 February 2018 10

Reserving Expectations: Cover all lines – live and discontinued (unless actuarially justified • and documented, and with express consent of the Board) Independent Reserving Reports Actuaries have relevant business and jurisdictional experience • Ordinarily expect reserving at least independent best estimate • Clear reconciliation to financial statements and Solvency II figures • Actuarial reconciliations Notifiable event if reserving below independent best estimate • Report covering all the tasks of the SII actuarial function? • Limitations identified? Clear recommendations. • Actuarial Function Holder Reports Ownership by AFH of: i. outsourcing to independent actuaries, ii. • mitigating limitations AFH important, but Board has ultimate ownership • Board / Committee minutes Evidence of internal reserving process • 09 February 2018 11

Underwriting Prioritise prudential resource towards firms: Risk selection • Material improvements in forecast loss ratio Pricing • • Underwriting High growth rates • Policy coverage • framework Low solvency coverage • Aggregation management • Risk appetite statements • Identification supported by peer comparisons, market benchmarks, collaboration with other regulators Forecast loss ratios (SCR Timely reactions to market Forward looking • • Monitoring assumptions, ORSA) vs events (e.g. Ogden rate) plans prior year loss ratios Ongoing appropriateness of • Actuarial justification for underwriting framework • any improvements Strategic impacts due to • Actual vs Expected analysis competitors, distributors, • service providers 09 February 2018 12

Capital / SCR Appropriateness Risk profile analysis, • Standard formula appropriateness assessment, • Own Risk and Solvency Assessment (ORSA) SCR result supported by robust stress testing, • Reviews Clear SCR coverage appetites (minimum and target), • Clear statements on economic capital • Discussions of potential capital add-on proceedings where standard formula is not appropriate Solvency II Approvals and ongoing appropriateness reviews for: Internal Models • Internal Model Change • Undertaking Specific Parameters (USPs) • Volatility Adjustment (VA) • Ancillary Own Funds (AOF) • 09 February 2018 13

Group contagion Risk and areas of focus Key risks identified to date: Strip out Going Lack of Outsourcing RPTs Governance profits concern visibility controls How GFSC will approach: Peer group Review of Prudent Person analysis controls Principle Impairment Business model Quarterly reviews analysis reporting 09 February 2018 14

Recovery and resolution Recovery and resolution plans • Firms need to be ready to respond to challenges What are indicators of a stress scenario • Minimum expectation is inclusion of recovery options and risks to resolution within ORSA. • Should cover potential stress scenarios What are procedures for informing Board • Should consider key suppliers and activities • Should assess potential costs of plan • RRPs will be escalated where concerns towards What contingency resolvability. plans are in place 09 February 2018 15

Systems and data Financial Statements Expectations Auditor’s Management Letters Data is complete, accurate, and appropriate • Sufficient quality and timeliness of data for • purposes: Reserving reports – Uncertainty comments Underwriting • Risk Reserving indicators • Actuarial Function Holder Reports from…. Capital modelling Assessment of Data Quality • Reporting • Oversight of data from delegated authorities • Internal Audit Reports Can systems manage and validate multiple • data sources Regulatory reporting quality Are systems appropriate for number of • distributors and COB 09 February 2018 16

Investments Liquidity and concentration Risk and areas of focus concerns from: Key risk identified to date: Group debtors - Lack of liquidity by some licensees Group investments SII Prudent Person Principle Property investments 1. Currently being raised with firms 2. Data analytics to be used for industry wide review 09 February 2018 17

Reinsurance / Co-insurance Review ORSAs and underlying contracts: Excess of Loss (XoL) Additional risk from capitalisation clauses (PPOs) and • minimum and deposit premiums Quota share Commissions structures (incl. sliding scales) and contractual • limits on contracts Co-insurance Extent of risk transfer following loss corridors and ADC/LPT Covers • commutation clauses, and appropriateness of SCR modelling Focus on insurers where: Reinsurance use is high Reinsurance may just be a very expensive • SCR coverage is low form of capital • There are large reinsurance concentrations - Is it always loss absorbing in times of stress? • Asset liquidity is low (reinsurance will impact liquidity) • 09 February 2018 18

Quantitative and Qualitative Reporting Identify risks and issues Data analytics developed • • QRT analysis Ensure ORSA feedback incorporated Identify risks and issues • • Assess business plans Raise questions and concerns • • Assess OAEC Timelines set for review • • Timelines set for review • Financial Ongoing work ORSAs Statements Identify risks and issues • Timelines set for review • Check standards applied • Identify risks and issues • Check limitations Reserving • Follow up with firms and auditors • Check data reconciles Reports • Deeper dive by actuarial resource • 09 February 2018 19

Professional service providers Auditors Work performed is critical in supporting regulatory oversight Expect firms to follow ISAs and industry best practice Should appropriately consider work of experts Will be considered in our QA visits Actuaries Work performed is critical in supporting regulatory oversight We will consider quality of reports to licensees We will coordinate with governing bodies We will consider application of standards 09 February 2018 20

What we expect from you/what you can expect from us Collaborative approach • No surprises • Early engagement • Regular dialogue • Maintain accessibility - transparent, open and pragmatic approach to issues 09 February 2018 21

Questions Comments 09 February 2018 22

Insurance Distribution Directive January 2018 23