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Group governance and recovery planning for insurers

Group governance is now one of the biggest challenges for insurers that have been operating on a group basis. Large insurance groups operating internationally are being required to develop a recovery plan. This article outlines regulatory and supervisory developments relating to group governance and recovery planning and then discusses possible approaches to strengthening group governance and recovery planning.

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  • The Financial Services Agency of Japan (FSA) revised the ‘Comprehensive Guidelines for Supervision of Insurance Companies’ in December 2020, in which the FSA clarifies its perspectives regarding the supervision of insurers on a group basis. One of the objectives of this update is to incorporate the ‘Common Framework for the Supervision of Internationally Active Insurance Groups’ (ComFrame) finalised by the International Association of Insurance Supervisors (IAIS) in November 2019 into its Guidelines.
  • Two fundamental challenges were revealed by the financial crisis: (i) weak governance and risk management in financial institutions (i.e. challenges in group governance) and (ii) the lack of global harmonisation and cross-border cooperation in financial regulation and supervision (i.e. challenges in group supervision).

  • ComFrame provides high-level principles and standards for the supervision of insurers in terms of governance and risk management on a group basis. Insurers are expected to strengthening their group governance through, e.g. having in place four control functions, i.e. risk management, compliance, actuarial, and internal audit functions.
  • Recovery planning is closely related to group governance. A recovery plan to be developed by an insurer is expected to cover the following seven elements.

  • Corporate culture is one of the essential pieces that underpin a robust risk management framework as COSO’s ERM Framework presents. It will become increasingly important for insurers to share values and foster a risk culture within the group in order to further strengthen group governance.

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