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Financial Sector Assessment Programme Indian Insurance Sector- Compliance with ICPs. Dr. Mamta Suri Joint Director-F & A Insurance Regulatory And Development Authority Hyderabad, India. FSAP – Framework.
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Financial Sector Assessment ProgrammeIndian Insurance Sector- Compliance with ICPs Dr. MamtaSuri Joint Director-F & A Insurance Regulatory And Development Authority Hyderabad, India
FSAP – Framework • Macro-Prudential Analysis – Stress Testing – Scenario Analysis – Financial Soundness Indicators – Macro-Financial Linkage. • Financial Sector Structure e.g. efficiency, competitiveness, concentration, liquidity, access etc. • Assessment of the observance of best international standards, codes and practices. • Country Specific Stability Issues.
Three Pillars of Assessment • Pillar I => Macro prudential Surveillance and Financial Stability Analysis • Pillar II => Legal and Institutional Infrastructure and Development Issues • Pillar III => Assessment and Status of Implementation of International Financial Standards and Codes
Pillar ISteps in Stability Assessment • Compilation of a set of key indicators of - Financial Structure - Financial Soundness (Sector-Wise, Market-based, Performance-based) - State of Development • Coverage Banks, Insurance, Capital Markets and Non-Financial Sector
Pillar IIInstitutional infrastructure • Regulatory Governance (Objectives of regulation, independence and resources, enforcement powers, and transparency of regulatory process) • Prudential framework (Risk management, risk concentration, capital requirements, corporate governance, and internal controls) • Regulatory Practices (Group-wide supervision, off-site monitoring and on-site inspection, reporting to supervisors, enforcement, and licensing & ownership) • Financial Integrity and safety net (markets (integrity and financial crime), customer protection, information, disclosure, and transparency) • Others (Licensing, Capital requirements, accountability requirements, and Risk management practices)
Pillar IIIInternational Financial Standards and Codes • Standards are widely accepted good principles, practices or guidelines in a specified area • Called codes to reflect that they have a legal status or are accepted, signed or ratified by members of concerned multilateral agencies. • To be implemented, either in their entirety or in phases, considering the country-specific circumstances. • Flexibility an essential ingredient for the success of the initiative.
IAIS – Insurance Sector Core Principles • Core Principles - Developed in year 2000 • Key Global standards for Prudential Regulation & Supervision • Act as diagnostic tools to assist in improving supervision globally. • Can act as roadmap for reform agenda.
Need for convergence • Global Nature of insurance Markets • Presence of conglomerates • Expansion of cross border transactions • Global Nature of Reinsurance Markets • Presence of active off shore centres Thus, need for convergence of regulatory practices and norms. To ensure effectiveness of regulations and level playing field. Financial crisis highlights need for convergence
ICP Assessment Methodology • Based on set of essential & advanced criteria • Intended at making a comprehensive precise and objective assessment. • Essential Criteria – components intrinsic to implementation of core principles • Advanced criteria – improve essential criteria and enhance supervisory regime
Core Principles – 28 principles Grouped into 7 categories: I Conditions for Effective Insurance Supervision II The Supervisory System III The Supervised Entity IV On-going Supervision V Prudential Requirements VI Markets and Consumers VII Anti-money Laundering, Combating Financing of Terrorism (AML/CFT)
I Conditions for Effective Insurance Supervision(Elements of environment where supervision can be most effective) • ICP 1 Condition for Effective Insurance Supervision - Broad requirements in the financial policy and financial markets infrastructure to support effective supervision.
II The Supervisory System(Mandates and responsibilities of the Supervisor) • ICP 2 Supervisory Objectives – Clarity in Law • ICP 3 Supervisory Authority – Adequate powers, resources and legal protection • ICP 4 Supervisory Process – Transparency and accountability • ICP 5 Supervisory Cooperation and Information Sharing – Within the insurance sector and across financial services (domestic and international)
The Supervisory Entity(Form and governance of insurers) • ICP 6 Licensing – requirements for licensing be clear, objective and public • ICP 7 Suitability of Persons – Ongoing assessment of fitness and proprietary • ICP 8 Changes in Control and Portfolio Transfer – Supervisory approval for changes, in mergers and in portfolio transfers • ICP 9 Corporate Governance – Management of business on basis of standards, & role of board and senior management • ICP 10 Internal Control – Systems, audit & reporting
IV. On-going Supervision(Actual practice of the supervisor) • ICP 11 Market Analysis – Macro prudential surveillance • ICP 12 Reporting to Supervisor and Off site monitoring – Comprehensive monitoring (solo & group) on an on-going basis • ICP 13 On site inspection – Powers for the insurers & outsourced companies, clarity of scope • ICP 14 Preventive & corrective measures – Adequate, timely, graduated spectrum of remedial measures • ICP 15 Enforcement – based on clear objective criteria • ICP 16 Winding up – Procedures for insolvency & priority with respect to policyholders • ICP 17 – Group wide supervision – Insurance group or conglomerate
Prudential Requirements(Financial and risk management processes) • ICP 18 Risk Assessment & Management –Systems and their reviewing by supervisor • ICP 19 Insurance Activity – Evaluation of risks • ICP 20 Liabilities – adequacy of provisioning • ICP 21 Investments – Standards on investment policy, Asset mix, valuation, risk management and ALM • ICP 22 Derivatives & other similar commitments – restriction on use and disclosures • ICP 23 Capital adequacy & Solvency – To cover claims, expenses and unexpected losses
Markets and Consumers(Distribution, consumer protection, Disclosure and fraud • ICP 24 Intermediaries – Licensing and business requirements • ICP 25 Consumer Protection – providing information before and during a contract • ICP 26 Information, Disclosure and Transparency toward the Market – adequacy of disclosure • ICP 27 Fraud – measures to prevent, detect and remedy
Anti-money Laundering, Combating the financing of Terrorism • ICP 28 Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT) – Measures to deter, detect and report in line with FATF standards
II The Supervisory System(Mandates and responsibilities of the Supervisor) ICPs involved: 2- 5
