1. Assessing the governance and risk management of an insurer and its insurance group
Regional Seminar on Reinsurance and Other Forms of Risk Transfer
Bogotá, Colombia, May 2015
Gunilla Löfvendahl Senior Financial Sector Specialist

2. Why focus on governance and risk management?
Risk-based/principles-based regulation and supervision means moving away from detailed, prescriptive rules and relying more on broadly stated principles, which set the standards by which insurers must conduct their business.
Principles often describe a desired outcome without providing the details of how this outcome can be achieved. The responsibility for achieving this outcome is instead being placed on the board and the senior management of the insurers
By focusing on governance and risk management, problems can be detected earlier

3. Relevant ICPs Focus Corporate governance (ICP 7)
Risk management and internal controls (ICP 8)
Public disclosure (ICP 20)
Methods
Supervisory review and reporting (ICP 9)
Preventive and corrective measures (ICP 10)
Enforcement (ICP 11)

4. Building-blocks of sound standards and practices
Clear lines of responsibility and accountability
Clear structures
Strategic objectives and corporate values, including risk appetite
Knowledge and independence of board members
Quality and duties of senior management
Sound risk management in line with strategy
Internal control functions: internal audit, appointed actuary, compliance etc.
Proper incentives, including compensation policy
Disclosure of information and market discipline

5. To make a long story short……
Make sure there is a proper and well functioning governance hierarchy (avoiding conflicts of interests) and that the board and the senior management assume their respective oversight roles
Ascertain that there is a well-functioning risk management function and appropriate control mechanisms within the company so that all assume their roles in accordance with rules and regulations, and the strategy and objectives of the company
Facilitate external control through disclosure in order to promote a good functioning of the market

6. Exercise Read the description of the case
Discuss and respond to the following questions:
What governance, internal control and risk management concerns would you have had as the supervisor of Providence?
What regulatory framework should you have had in place and what supervisory measures could you have taken to prevent or mitigate the problems that later occurred?
Going further, how could you incentivise the insurance industry to adopt better governance frameworks and practices and what would be on your list of improvements to make?
Present your results
Summing up and further discussions