RISK MANAGEMENT FOR INSURERS IN ISRAEL

1. RISK MANAGEMENT FOR INSURERS IN ISRAEL A Regulatory Perspective

2. Perspective of the Insurance Commission • What we are encouraging • New Regulation – description and intent

3. Background • Life and non-life: composite companies • Pension: risks borne by plan members • Risks increasing or changing

4. Policyholder Liabilities • Traditional Balance Sheet: one outcome • Risk Management: universe of outcomes • Probability and severity of each outcome • Assets • Asset-Liability Management

5. Before 2005 • No appointed actuary system • No required risk management function

6. 2005 Legislation Chief Risk Officer for each: • Insurance company • Pension plan management company • Pension plan

7. 2005 Legislation • Chief Risk Officer: • Person not “function” • No administrative responsibility • Advisory responsibility

8. 2006 Circular • Responsibilities: chief risk officer • Support: actuaries, investment and reinsurance officers • Risks: underwriting, market price, credit • Stepping stone: enterprise risk management

9. Chief Risk Officer – Responsibilities • Identify significant risks • Evaluate monitoring and controls • Evaluate preparedness for extreme events • Quantify risk exposure • Estimate economic capital

10. Economic Capital • December 31 2009 • Correlations not required but encouraged • Better understanding of risks • Role in determining regulatory capital

11. Economic Capital • Capital relief: • Company data and research • Effective monitoring and controls

12. Economic Capital • Guidance: • A Global Framework for Insurer Solvency Assessment (IAA) • Quantitative Impact Study 2 – Technical Specifications (CEIOPS)

13. Chief Risk Officer – Responsibilities • Immediate Reports: • Inadequate monitoring and controls • Hazardous situation requiring correction • Annual (Quarterly) reports • Separately: risks for policyholders

14. Chief Risk Officer – Support • Right to receive any information • Annual (quarterly) reports: • Appointed actuaries • Chief investment officer • Reinsurance officers

15. Chief Risk Officer – Support • Internal auditor • Independence • Work plan to include risk monitoring and controls

16. 2006 Circular – Implementation • Deadlines in stages over three years • Implementation plan for each company

17. Encouraging Effective Risk Management • Circular: no reporting to Commissioner • Chief Risk Officer: • under CEO or senior manager • CEO and investment officers not eligible

18. Encouraging Effective Risk Management • Risk management culture • Prerequisite for capital relief • Executive compensation

19. Encouraging Effective Risk Management • Capital relief • New regime linked to Solvency 2 • Executive compensation • Draft regulations: Boards of Directors

20. Effective Risk Management –Board of Directors • High-level policy: • Exposure of company and policyholders to risk • Reinsurance • Data security

21. Effective Risk Management –Board of Directors • Approve risk controls • Set exposure limits: • individual risk categories • all risk categories combined • Examine capital adequacy

22. Regulatory Emphasis: Strengthen Internal Risk Controls