Office of the SuperintendentBureau du surintendant of Financial Institutions Canadades institutions financières Canada A Regulator’s Perspective on ERM CAS / SOA ERM Symposium Washington, July 29, 2003 Allan Brender

2 Background on OSFI Federal supervisor and regulator Integrated - cover insurers and deposit takers Protect rights of depositors and policyholders Organized by function, not by industry –Cross-cultural fertilization

3 OSFI’s Mandate Determine whether FI’s are in sound financial condition and in compliance Advise management and directors if the FI is not in sound financial condition or in compliance Monitor / evaluate sectoral events that may have a negative impact on financial condition Promote the adoption by FI’s of policies and procedures to control and manage risk

4 OSFI’s Mandate Carry out regulation and supervision while recognizing that Boards of directors are responsible for management of the FI FI’s operate in a competitive environment that necessitates the management of risk FI’s can experience financial difficulties that can lead to their failure

5 Supervisory Framework Identify significant activities Evaluate inherent risk in each activity Evaluate the quality of risk management for each risk Rate net risk; determine risk direction

6 Supervisory Framework Consider capital and quality of earnings Determine a composite rating

7 RM in Banking Emerged from Basel Accord –Relationship between RM and capital –Interaction of RM and capital requirements RM was accepted as something more than a regulatory requirement –RM became an important part of banking culture

8 RM in Insurance Emerging slowly Insurers and actuaries are sensitive to others’ risks Insurers concentrate on a few specific risks of their own –They miss out on many others Valuation models Product design Time scale is a factor A significant culture change is required

9 Appointed Actuary or CRO ? Role of the AA Role of the CRO Who has the broader horizon? Whistle blowing

10 Financial Condition Reporting DST, DCAT, DFCA, DFA, … AA in Canada is required to prepare an annual financial condition report using DCAT –Aimed at directors and senior management –OSFI receives a copy DCAT as a risk management exercise

11 ERM in Practice Solid corporate governance Well-documented policies, procedures, and limits Appropriate monitoring and reporting Willingness to take necessary action

Office of the SuperintendentBureau du surintendant of Financial Institutions Canadades institutions financières Canada Thank you!