Singapore insurers called to “refine” risk assessment reports

Central bank paper reveals firms’ “limited” consideration of non-financial risks

Singapore insurers called to “refine” risk assessment reports

Insurance News

By Paolo Taruc

Singapore Insurers have “generally” met the requirements of their Own Risk and Solvency Assessments (ORSAs), according to a recent report by the Monetary of Singapore (MAS). But there remains room for improvement on the assessment’s effectiveness, the same study said.

ORSA is part of the central bank’s Enterprise Risk Management (ERM) MAS 126 guidelines, which took effect in 2014. ORSA requires insurers to assess the adequacy of their risk management and their current and projected future solvency positions “at least” every year.

Among other things, the central bank found that group risk was not always considered in the ORSA even when it was applicable to the insurer. It said insurers tended to focus more on financial risks, while consideration of non-financial risks – such as operational risk – was “more limited.” MAS said some insurers might not have adequately identified their material and emerging risks.

The central bank placed insurers’ use of stress tests for ERM under the spotlight, as it called for the firms to undertake a more thorough assessment of their management actions.

“Insurers that only used MAS-prescribed stress test scenarios for their continuity analyses and stress tests without clear justifications might have missed out other stress scenarios that are more relevant for their risk profiles,” it said.

Insurers stand to benefit from ORSA if they integrate it into their business planning process, the central bank said. But its reviews found it was “often unclear” from the minutes of board of directors’ meetings if they had engaged in active discussion with management on the information contained in the ORSA report.

“Where board deliberations were documented in the minutes, they mostly focused on capital adequacy, results of stress tests and compliance with MAS 126,” it outlined. “Discussions on material and emerging risk areas, plausibility of stress scenarios, integration with business strategy and key assumptions used in the ORSA report were generally lacking.”

MAS called on insurers to make “refinements to their ERM frameworks and ORSAs,” considering its observations. MAS said ORSA links an insurer’s business strategy, risk tolerance, risk management and capital management with each other.

“Specifically, it allows the insurer to better anticipate how potential business risks could crystallise into capital needs, and to make early plans to meet those needs,” it said. “It also allows an insurer to analyse how its business strategy could be adjusted in line with its risk tolerance.”

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