APRA s risk assessment model. Maryanne Hinwood Head of PAIRS Australian Prudential Regulation Authority

Transcription

1 APRA s risk assessment model Maryanne Hinwood Head of PAIRS Australian Prudential Regulation Authority 1

2 Outline APRA s risk assessment model Assessment of risk management/ ERM Use of external agency information Supervision 2

3 APRA s risk assessment model - PAIRS 3

4 PAIRS overview The Probability and Impact Rating System, PAIRS, is APRA s central risk assessment model It incorporates two dimensions: The Probability that a regulated entity will fail The Impact of the potential consequences of a regulated entity failure PAIRS is designed to identify regulated entities that have a higher risk of failure or will have a large impact if they do fail and hence require more intensive supervision 4

5 PAIRS model Descriptive Probability Rating Rating Process Measurement Process Probability Index Impact Index Supervisory Attention Index Supervisory Stance Descriptive Impact Rating 5

6 PAIRS entities Distribution of Entities by Industry No of Entities Life Insurers General Insurers ADIs Superannuation Trustees Superannuation Funds 6

7 PAIRS assets Distribution of Assets by Industry Life Insurers General Insurers ADIs Superannuation Trustees 19 Superannuation Funds 54 7

8 Assessment of Risk Management/ ERM 8

9 Categories of assessment (old) Inherent Risk Counterparty Default Risk Management and Control Board Capital Support Current Coverage/ Surplus Insurance Risk Senior Management Earnings Balance Sheet & Market Risk Operational Management Access to Additional Capital Operational Risk MIS/ Financial Control Strategic Risk Compliance Legal & Regulatory Risk Independent Review Liquidity Risk Risk Management Contagion & Related Party Risk 9

10 Categories of assessment (new) PAIRS Category Inherent Risk Management and Control Net Risk Significance Weight Board Management Risk Governance Strategy and Planning Liquidity Risk Operational Risk Credit Risk Market and Investment Risk Insurance Risk Net Risk Total 100 Coverage/ Surplus Earnings Access to Additional Capital Capital Support Total 100 Overall Risk of Failure 10

11 Descriptors Rating Band Descriptor Strong This aspect of the business is regarded as very robust in key areas. While always possible, the risk of governance or control failures is considered to be negligible. Sound This aspect of the business is regarded as robust in key areas. Some improvements could be made, but these would not produce any significant strengthening of the governance and control framework. Adequate This aspect of the business meets minimum expectations of what is required to cover key areas. Improvements could be made to strengthen the governance and control framework. Vulnerable Weaknesses in this aspect of the business exist in some key areas. The current governance and control environment requires improvement. Weak Major weaknesses in this aspect of the business exist in key areas to such an extent that its reliability is highly questionable. Extremely Weak Fundamental weaknesses in this aspect of the business exist in key areas to such an extent that APRA can place no reliance on their integrity. 11

12 General Insurers 12

13 Life Insurers 13

14 What do we look for? Culture and approach Board and Mgt involvement and awareness Results of independent reviews Operational Mgt Risk Mgt Information systems, models and outsourcing Structure and functioning in key risk areas Compliance with APRA Standards Policies and procedures 14

15 External agency ratings & supervision 15

16 Inputs to PAIRS Risk specialist reviews (specific) Prudential reviews External agency data S&P, Moody s, AM Best, Fitch, KMV Monitored by supervisory staff, portfolio comparison (6 monthly) Financial analysis PAIRS Consultations and briefings External party liaison Auditors, Actuaries, etc Compliance with APRA Standards Review of other market intelligence 16

17 Supervision 17

18 Supervisory response Impact rating Extreme Normal Oversight Mandated improvement Restructure Restructure High Normal Oversight Oversight Mandated improvement Restructure Medium Normal Normal Oversight Mandated improvement Restructure Low Normal Normal Oversight Mandated improvement Restructure Low low Medium high Medium High Extreme Probability rating 18

19 Questions? 19