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RISK MANAGEMENT FOR INSURERS IN ISRAEL

This comprehensive guide explores risk management practices for insurance companies in Israel from a regulatory standpoint, outlining key responsibilities and guidelines for Chief Risk Officers and Boards of Directors. It delves into legislative changes, economic capital estimation, and the importance of effective risk controls to ensure solvency and protect policyholders.

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RISK MANAGEMENT FOR INSURERS IN ISRAEL

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  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

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