1. Intervening Before It’s Too Late – Introduction to the Case Study Regional Seminar on Risk-based Supervisory Practices and Regulatory Capital San José, Costa Rica, 6-8 September 2011 Gunilla Löfvendahl Senior Financial Sector Specialist

2. 2 When to intervene As early as possible: –Insurers’ continued solvency comes into question –Insurers fail to operate in a manner that is consistent with sound business practices or regulatory requirements –Insurers fail to provide information or provide information intended to mislead –Management ignores more informal requests from the supervisor to take corrective actions

3. 3 What to focus on Inadequate or failed internal processes. people or systems Inappropriate risk decisions Financial outcome Policyholder harm Incorrect evaluation of financial outcomes Underlying or trigger causes - external Underlying causes - internal Risk appetite decisions

4. 4 Introduction to the case The Guarantee Life Insurance Company (GL) was one of the largest life insurers in its country. It had around 56 thousand policyholders when it went bankrupt and the liabilities amounted to 620 million, the assets being worth only 230 million. The deficit thus amounted to 390 million or 63 % of the liabilities Questions: 1) How could the insurance company end up with such a deficit and who were to blame for this happening? Please examine the owners, senior management, auditors and supervisors/regulators, and explain what they did wrong. 2) Could the supervisor have done things differently and in that case, what could they have done and at what stage?