Information Sources and Building Risk Indicators

1. Information Sources and Building Risk Indicators Nzomo Mutuku, Manager, Research & Development Retirement Benefits Authority, Kenya

2. Contents • Information Sources • Building Risk Indicators • Kenya Risk Scores

3. Risk Factors In Kenya Inherent Risk Investment risk Insurance risk Non-financial risk Management and control Trustee oversight Operations and Control Independent review Capital Support The Fund The Employer

4. Sources of Information - Kenya • Periodic Scheme Returns • Registration Documents • Annual Accounts • Investment returns – six months • Contribution returns – quarterly • Investment Policy – Tri -annual • Actuarial Valuations Tri - annual for DB Schemes only • On site inspections • Third Party reports – Interim administrators • Interrogatoriesand scheme self assessment • Mandatory exception reports – whistle blowing required

5. Supervisory Organisation: Information Sources

6. Building Risk Indicators

7. RBA RISK INDICATORS

8. Step 1:Risk Assessment • Each risk indicators is assessed on a point scale: • From Zero (very low risk) • To 1 (extreme risk) • Compute Overall Risk Score(ORS) by weighting each area: • ORS = I + M +C

9. Step 2:Risk Weighting

10. Step 3: Deriving Scheme Risk Level • Overall Risk Score(ORS) taken to fourth power to obtain the risk probability index to obtain the probability of failure of a scheme • Assign the risk probability index of scheme to a risk level as per table below: Basis of calculation is that probability of failure does not increase in a linear fashion, but increases exponentially . 4th power simplification of exponential formula

11. Step 4 : Supervisory Response

12. Risk Score as at March, 2011, 647 Schemes

13. Thank You Asante www.rba.go.ke