The Geneva Association, “the leading international insurance think tank for strategically important insurance and risk management issues,” issued a report analyzing various aspects of the current practices of group risk and capital management of internationally active insurance groups (IAIGs). The report was issued in connection with the International Association of Insurance Supervisors’ discussion on a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), emerging prudential standards which include capital requirements for global insurance firms. The report analyzed the results of surveys of 19 insurance groups designed to elicit the variety of approaches and methods utilized to manage enterprise risk and to discover varying risk and capital management tools. “Key findings” of the report include: (1) various enterprise risk management and capital management practices are applied around the globe by IAIGs, revealing both similarities in principles differences in application; (2) internal models, when used for both regulatory and economic purposes, are considered to be an integral component of business steering processes; (3) IAIGs have processes in place or are taking measures to ensure an effective link between their risk management and their capital management; (4) the large majority of IAIGs perform group capital calculations as part of their own value based management with a special focus on risk steering; (5) cost of capital allocation to specific activities or entities is broadly applied, contributing to efficient capital deployment; (6) the vast majority of the IAIGs make use of intra-group transactions, one of the most frequently used being reinsurance; (7) “ring-fencing” of assets or specific business activities is generally not thought to be beneficial, as it limits capital fungibility; and (8) chief risk officers and their teams are especially focused on current regional, national, and international legislative proposals on capital requirements. The report concluded, in relevant part, that “[a]lready existing sound practices and regulatory standards within the insurance industry could serve as a springboard for the further development of global regulatory structures and standards” that will “strengthen coordination and supervision at the global level.”
This post written by Michael Wolgin.
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