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Recent Published Insurance ERM Related Reports by JFSA

Financial Monitoring Report, Results of field tests, Reference Casebook on Financial Inspection(July, 2015)

It is published "Financial Monitoring Report", "Results of field tests regarding the introduction of the economic value-based solvency margin Regulation on insurance companies" and "Reference Casebook on Financial Inspection" by Japan Financial Services Agency (JFSA).

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Insurance ERM related reports have been published

The Financial Monitoring Policy announced in 2014 states that the FSA (Financial Services Agency) is to proceed with introduction of the economic value-based solvency margin regulation by taken into consideration of the result of field tests and global discussion on this matter.

The FSA carried out field tests and questionnaires during the process of preparation for the new regime. The results of the second field tests for the economic value-based solvency margin regulation was published.

IAIS(International Association of Insurance Supervisors) takes a lead for discussion regarding the globally harmonized insurance supervision

As the Financial Monitoring Policy states, the discussion on the economic value-based solvency margin regulation is expected to get underway in good coordination across domestically and globally.

Financial Monitoring Report and Reference Casebook on Financial Inspection were also published.

Summary of these reports in relation with insurance matters are as follows:

Publication of “Financial Monitoring Report ” for the period of July, 2014 to June, 2015

The FSA published the “Financial Monitoring Report” which summarized the outline of one year financial monitoring based on “the FSA’s Financial Monitoring Policy (announced in 2014)” on 3 July 2015. Summary of insurance company related contents are listed as follows.

In 2014-2015, the FSA conducted horizontal review with focused on “Insurance Sales Management System by Independent Life Insurance Agents” and “Insurance Underwriting Risk Management System of the Non-life Insurance Companies”. In addition, the FSA also conducted cross-industry horizontal review that focused on Business Management, System Risk Management, etc. ,which targeted groups of four major life insurance companies and three major non-life insurance companies.

The part of “Insurance Sales Management System by Independent Life Insurance Agents” indicated problems regarding strict compliance of the sales rules established by insurance companies, management of preventing inappropriate switching, management of customer information and so on. Moreover, various issues have been raised going forward: insurance agents to maintain their system as their own duties to comply with the revised Insurance Act as well as to provide the products fitting the customer's intention; and insurance company to enhance their management/supervision guidance by grasping precisely the status of its independent agents' business.

Regarding the “Insurance Underwriting Risk Management System of the Non-life Insurance Companies”, the report pointed out the issues on the profitability management system and utilization of reinsurance of the medium-size enterprise.

Verification of customer protection management system and Insurance sales management system should be the continuous focus with regards to monitoring of insurance companies.

Considering the fact that outside directors have not received sufficient information. Thus, necessary effort is required to improve the effectiveness of the board of directors deliberation among the governance of major life and non-life insurance companies. In addition, based on this year’s monitoring principles and standards for domestic and international governance, the monitoring results on Japan’s three mega-banks and major life and non-life insurance companies, the report states to be underway to establish plans to conduct constructive discussion for enhancement of the governance by formulating viewpoints to check the functioning status of the board of directors, corporate auditors, audit committee, internal and external audit functions.

Link : Japan Financial Services Agency (Only Japanese)
 

The FSA published “Results of Field Tests of Economic Value-Based Solvency Regime”

The FSA has conducted field tests covering all insurance companies during the period of June 2014 to January 2015, with a view to introduce an economic value-based solvency regime, and has summarized the results as follows.

Summary
  • It was recognized that interests in the economic value-based solvency regime and risk management remain strong among insurance companies and that they are making progress in developing systems for such evaluation.
  • On the other hand, the questionnaire results from individual companies suggested that sufficient preparation time would be necessary for the actual introduction of the regime, and that there are many issues to be solved from the perspectives of establishing IT system and the practical lead, etc.
The economic value-based evaluation of insurance liabilities
  • The economic value-based insurance liabilities were not significantly diverted from insurance liabilities based on the current regulatory requirements in their figures, even under the current low-interest rate environment. However, there were different trends between companies due to differences in the insurance portfolio in force, etc. Therefore, it is necessary to continue to fully examine the impact of the method of discount rates setting, etc.
  • Calculation for the costs of options and guarantees was recognized that comparability would become a major issue especially when using an internal model approach, due to reasons such as the use of a stochastic method as well as the complexity of the method of generating interest rate scenarios. It is considered necessary to examine what kind of methods will be appropriate.
The risk amount
  • In the field tests, a 99.5% confidence level VaR was used. However, it is necessary to continue examining issues such as the following: the appropriateness of 99.5% confidence level VaR and comparison with other methods such as TVaR and so on.
  • Regarding the method of measuring risk, the “measurement of the amount of risk in light of actual conditions reflecting each company’s product and portfolio details and risk management methods” and “simplicity and comparability” are often in a trade-off relationship. Therefore, how to adjust a balance between the two, including the treatment of internal models, continues to be a matter for consideration.

Link : Japan Financial Services Agency (English)

The FSA published the updated “Reference Casebook on Financial Inspection”

The FSA published the updated “Reference Casebook on Financial Inspection” on June 26th, 2015 which incorporated onsite results (specific cases and problems) conducted in the previous year. Summary of insurance company related contents are listed as follows.

Governance

Inadequate cases are described concerning unfulfilled mid-term business plan, managerial authorities of the board of directors, check and balance system in an organization for representative directors, directors, and board of directors.

Inadequate cases of the board of directors on the internal audit system are described concerning verification for the effectiveness of the internal audit plan, allocation of specialists in the market risk management area, and identifying risks embedded in the business process.

Compliance

Disclosed inadequate practices about the unitary management of internal information by the compliance division.

Insurance Sales Management System

Disclosed inadequate practices to identify risk associated with cashless premium payment, lack of guidance and supervision for agents, and treatment in case of selling insurance to elderly people.

Customer Protection Management

Disclosed inadequate practices about the system of monitoring the non-claimed cases and preventing the left-off insurance payment.

Enterprise Risk Management

Disclosed inadequate cases where lack of a comprehensive discussion for countermeasures upon materialization of stress events, as well as to identify the risk existing across the organization.

Other cases were also reported regarding Insurance Underwriting Risk Management, Asset Investment Risk Management, and Operational Risk, etc.

Link : Japanese Financial Services Agency (Only Japanese)

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  • ERM framework development and enhancement (insurance industry)
  • Self-assessment support on ORSA/Solvency 
  • Risk management model framework and enhancement 
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