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Building Risk Indicators in Kenya: Information Sources and Risk Assessment

Learn about the various sources of information and how to build risk indicators in Kenya. Understand the risk factors, including inherent risk, investment risk, insurance risk, and non-financial risk. Discover effective management and control measures, trustee oversight, and independent review. Explore the importance of capital support and the role of the employer in risk assessment. Gain insights into supervisory responses and the overall risk level of schemes in Kenya.

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Building Risk Indicators in Kenya: Information Sources and Risk Assessment

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  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

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