OSFI Supervisory Model

Similar documents
Supervisory Framework JUNE 2012

Guide to Intervention

Guide to Intervention

Solvency Control Levels

Office of the Superintendent of Financial Institutions Internal Audit Report on Insurance Supervision Sector

MISSION VALUES. This Framework has been printed by:

INTERNAL CAPITAL TARGET GUIDELINE ANNEX Summary of Consultation Comments and Financial Institutions Commission (FICOM) Responses

Internal Audit Report on. Supervision of Life Insurance Non- Conglomerate Institutions. November 2017

Office of the Superintendent of Financial Institutions Canada

Office of the Superintendent of Financial Institutions

Actuarial Function Thriving on Uncertainty. By Stuart Wason, FCIA, FSA, MAAA, Hon FIA

Draft Guideline. Corporate Governance. Category: Sound Business and Financial Practices. I. Purpose and Scope of the Guideline. Date: November 2017

ICP 7 Corporate Governance. Yoshi Kawai, Secretary General ASSAL, April 2015

Guideline Impact Analysis Statement

This document contains the Canadian Case Study.

INSURANCE: Bermuda Issues Guidance Notes

INTERVENTION GUIDELINES FOR QUEBEC CHARTERED P&C INSURERS AND PACICC MEMBER COMPANIES

11 th Annual International Seminar on Policy Challenges for the Financial Sector

AN APPROACH TO RISK-BASED MARKET CONDUCT REGULATION

Corporate Governance Guideline

BERMUDA MONETARY AUTHORITY THE INSURANCE CODE OF CONDUCT FEBRUARY 2010

Management Information Systems Reporting Supervisory Expectations James Dennison Managing Director

12 th June 2012 NOTICE. subject to. respect to enhanced group s risk. or (ii) the and that the. necessary

Office of the Superintendent of Financial Institutions

Vice President and Chief Actuary CLHIA

Corporate Governance of Federally-Regulated Financial Institutions

FINANCIAL STATEMENTS

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF THE TORONTO-DOMINION BANK CHARTER

GUIDANCE NOTE ON SUPERVISORY LADDER OF INTERVENTION

Supervision of Pensions. Richard Hinz The World Bank November 16, 2010

BERMUDA MONETARY AUTHORITY INSURANCE DEPARTMENT GUIDANCE NOTE #14 INSURANCE ACTIVITY

AN APPROACH TO RISK-BASED MARKET CONDUCT REGULATION

Annex 4 referred to in Chapter 7. Financial Services. Article 1 Scope

Guideline. Own Risk and Solvency Assessment. Category: Sound Business and Financial Practices. No: E-19 Date: November 2015

Inter-Segment Notes for Life Insurance Companies. The revised Guideline is effective for fiscal years beginning on or after January 1, 2011.

BERMUDA MONETARY AUTHORITY

Life Insurance Capital Adequacy Test Public Disclosure Requirements. Date: March 2018 Effective Date: December 31, 2018

Basel II Pillar 2 Supervisory Review Process. Simon Topping Hong Kong Monetary Authority

Internal Capital Target (PD-11)

September 28, Overview of Submission

RISK COMMITTEE OF THE BOARD OF DIRECTORS OF THE TORONTO-DOMINION BANK CHARTER. ~ ~ Supervising the Management of Risk of the Bank ~ ~

Country: Bermuda. Solvency Modernization Initiative Country Comparison Analysis November 2009 (Note: Portions excerpted directly from BMA materials.

BASEL III PILLAR 3 DISCLOSURES (unaudited) March 31, 2018

Collective Allowances - Sound Credit Risk Assessment and Valuation Practices for Financial Instruments at Amortized Cost

Please contact your OSFI Relationship Manager with any questions concerning the guidelines or their implementation.

OSFI Perspectives on High Quality Implementation for Expected Credit Losses and OSFI s IFRS 9 Project Plan

BERMUDA INSURANCE (GROUP SUPERVISION) RULES 2011 BR 76 / 2011

International Insurance Regulation 101: International Association of Insurance Supervisors

PRUDENTIAL REGULATION OF MFIs

SOLVENCY AND FINANCIAL CONDITION REPORT EUROLIFE LTD

summary of directors duties under OSFI guidance

OSFI ANNUAL REPORT

viewpoint What Do Initial Assessments Show?

Office of the Superintendent of Financial Institutions Financial Highlights For the period ended September 30, 2014

Canada Credit Rating Action Plan

Corporate Governance for Insurers

Actuaries and the Regulatory Environment. Role of the Actuary in the Solvency II framework

Appointed Actuary s Report

GUIDANCE NOTE ASSET MANAGEMENT BY AUTHORIZED INSURERS

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS

Session 31PD: Life Insurance Capital Framework in Canada. Moderator: Presenters: Ritchie Hok FSA Lisa Marie Peterson FSA,FCIA

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS INSURANCE CORE PRINCIPLES SELF-ASSESSMENT QUESTIONNAIRE

Office of the Superintendent of Financial Institutions Financial Highlights For the period ended December 31, 2014

Rule Corporate Governance for Insurers

DRAFT SOUND COMMERCIAL PRACTICES GUIDELINE

International Association of Insurance Supervisors. Organisation for Economic Co-operation and Development. Issues Paper on Corporate Governance

LA PRUDENCE LEASING FINANCE CO LTD AUDIT BOARD SUB-COMMITTEE TERMS OF REFERENCE

IMPLEMENTATION NOTE. Corporate Governance Oversight at IRB Institutions

Basel Committee on Banking Supervision. Consultative Document. Pillar 2 (Supervisory Review Process)

BASEL III PILLAR 3 DISCLOSURES. June 30, 2015

BASEL III PILLAR 3 DISCLOSURES. December 31, 2016

Regulatory Disclosures. September 30, 2016

THE BERMUDA MONETARY AUTHORITY. Insurance Act Statement of Principles

ZAG BANK BASEL PILLAR 3 DISCLOSURES. December 31, 2015

ICP 14: Preventive and Corrective Measures of the Supervisor

BASEL III PILLAR 3 DISCLOSURES. September 30, 2017

Community Trust Company Basel III Pillar 3 Disclosures June 30, 2018

Gregg Clifton. CFO Aurigen Reinsurance

1. INTRODUCTION AND PURPOSE

GUIDE FOR INITIAL LICENCE APPLICATION BY AN INSURER NOT INCORPORATED IN QUÉBEC

Habib Canadian Bank Basel II Pillar 3 Supplemental Disclosures as of December ME, 2011

A MERICAN ACADEMY of ACTUARIES

Improving Solvency Supervision of Insurers in Ontario

Topical Professional Issues for Actuaries

Use of Internal Models for Determining Required Capital for Segregated Fund Risks (LICAT)

BASEL III PILLAR 3 DISCLOSURES. December 31, 2012

Community Trust Company Basel III Pillar 3 Disclosures December 31, 2017

Report to the Financial Institutions Commission. Credit Union Deposit Insurance Corporation (CUDIC) Risk-Based Assessment Methodology Working Group

the importance of managing risk OSFI ANNUAL REPORT

OECD GUIDELINES ON INSURER GOVERNANCE

Final MCT Guideline, Internal Models, Assessing the Actuarial Function, and Stress Testing 2014 and Beyond

CEA proposed amendments, April 2008

Basel III Pillar 3 Disclosures

Community Trust Company Basel III Pillar 3 Disclosures March 31, 2017

Ben S Bernanke: Modern risk management and banking supervision

Habib Canadian Bank Basel II Pillar 3 Supplemental Disclosures. As of Q2- end 2017

Consultation Paper on a Guide to the Central Bank s Ladder of Supervisory Intervention

Lessons Learned from the Financial Crisis: Recent Developments in Insurance Regulation

Policy on discharge of stewardship responsibilities

RISK MANAGEMENT MODULE

Transcription:

OSFI Supervisory Model IAIS-ASSAL Regional Seminar 2003 Unclassified

Agenda Achieving OSFI s Mission Key Supervisory Framework Principles Development of Rating Sharing of Supervisory Ratings Composite risk rating Oversight function ratings OSFI intervention activity Implications for financial institutions 2

OSFI s Mission To safeguard policyholders, depositors, and pension plan members from undue loss. This is achieved by advancing and administering a regulatory framework that contributes to public confidence in the financial services industry. At the same time, OSFI ensures the regulatory system does not preclude institutions from competing effectively 3

International Assistance International Advisory Group provides hands-on technical advice, training workshops and seminars, primarily to supervisors in the areas of bank and insurance company regulation and supervision. 4

Background 130 Deposit Taking FIs 350 Life and Non-Life insurers 1200 Pension Plans 400 Employees 5

Safeguard from Undue Loss Identify institution-specific risks and trends, and intervene in a timely manner to minimize losses to policyholders, depositors, and pension plan members 6

Some Key Framework Principles Applies to all FI s Supervise on a consolidated basis Exercise sound judgment Level of scrutiny based on risk assessment Leverage off work of major oversight functions Reliance on auditors and appointed actuary 7

OSFI Risk Management Oversight Responsibility Board Senior Management Independent Oversight Risk Management Internal Audit Compliance Financial Analysis Risk Management Processes Operational Management Significant Activities Wealth Management E- commerce Line of Business 8

Activity 1 Activity 2 Activity 3 Etc. Significant Activities Overall Rating Capital Materiality Risk Matrix Financial Institution Risk Matrix as at Inherent Risks Credit Market Liquidity Insurance Operational Legal & Regulatory Strategic Earnings Operational Management Quality of Risk Management Operational Management Financial Analysis Compliance Internal Audit Risk Management Senior Management Board Oversight Ratings Net Risk Direction of Risk Composite Rating Ratings Direction of Risk Time Frame 9

Significant Activities Examples Major lines of business corporate lending, group life, commercial liability Enterprise-wide activity asset and liability management, strategic planning, reinsurance 10

Risk Equation for a Significant Activity Inherent Risk Mitigated By Quality of Risk Management Equals Net Risk/ Direction Of Risk 11

Risk Assessment Matrix Net Risk Level of Inherent Risk for Significant Activity Aggregate Quality of Risk Management for Significant Activity Low Moderate Above Average High Strong Low Low Moderate Moderate Acceptable Low Moderate Above Average Above Average Needs Improvement Moderate Above Average High High Weak Above Average High High High 12

Significant Activities Completed Risk Matrix Financial Institution Risk Matrix as at Materiality Cr Inherent Risks Mk Quality of Risk Management Ins Op OM IA SM Bd Net Risk Direction of Risk Pers Lines 50+ 40% L L L S NI S A L Incr Investments 60% M M A NI S A M Stable Claims Admin. H M A NI S W M Incr Overall Rating NI S NI M Incr Capital W Earnings W Composite Rating AA Direction of Risk I Time Frame 1Yr 13

Assessment Criteria Composite Risk Overall Net Risk Earnings Capital Composite Risk Oversight Functions Board of Directors Sr. Management Risk Management Internal Audit Compliance Financial Analysis 14

Development of Criteria Industry Consultation Industry Associations Canadian Bankers Association Canadian Fraternal Association Canadian Life & Health Insurance Association Credit Union Centrals Insurance Bureau of Canada Trust Companies Association 15

Sharing of Ratings Began sharing Composite Risk Ratings in 2002 Full implementation over three years Ratings will be tied to coverage Confidentiality protected by Regulation Peer comparison over time 16

Confidentiality of Ratings Supervisory Information Regulations prohibit institutions from disclosing, directly or indirectly, prescribed supervisory information, including the ratings, except as specifically permitted by the regulations. Institutions are permitted to disclose the ratings to affiliates, directors, officers, employees, auditors, actuaries, securities underwriters or legal advisors, provided they ensure the continued confidentiality of the information 17

Composite Risk Significant Activities (SA) Inherent Risks by SA Quality of Risk Management by SA (Operational Management + Oversight) Net Risk by SA Earnings Performance Adequacy of/ Access to Capital Materiality by SA Overall Net Risk Capital/ Earnings Composite Risk Rating 18

Definition Composite Risk Low Composite Risk A strong, well-managed institution. The combination of its overall net risk and its capital and earnings makes the institution resilient to most adverse business and economic conditions without materially affecting its risk profile. Its performance has been consistently good, with most key indicators in excess of industry norms, allowing it ready access to additional capital. Any supervisory concerns have a minor effect on its risk profile and can be addressed in a routine manner. 19

Oversight Functions Significant Activities (SA) Inherent Risks by SA Quality of Risk Management by SA (Operational Management + Oversight) Net Risk by SA Earnings Performance Adequacy of/ Access to Capital Materiality by SA Overall Net Risk Capital/ Earnings Composite Risk Rating 20

Sharing of Ratings Oversight Functions Essential Elements Criteria Review of the Characteristics of the Function Performance Indicators Review of the Performance of the Function Overall Effectiveness of the Function Strong Acceptable Needs Improvement Weak 21

Oversight Functions Essential Elements Criteria Performance Indicators Function Characteristics Review of the Characteristics of the Function Review of the Performance of the Function Overall Effectiveness of the Function Strong Acceptable Essential Elements Needs Improvement Weak Key features of a function based on its mandate Can be objectively observed and assessed 22

Oversight Functions Examples of Essential Elements Mandate Organization Structure Resources Methodology and Practices Senior Management and Board Oversight 23

Oversight Functions Examples of Board Criteria Composition Appropriateness of the unaffiliated representation on the Board (1.6) Practices Adequacy of policies and practices to promote independent, effective, and timely decision making, including practices related to the role of unaffiliated directors (4.2) 24

Oversight Functions Effective Performance Essential Elements Criteria Review of the Characteristics of the Function Performance Indicators Review of the Performance of the Function Overall Effectiveness of the Function Strong Acceptable Needs Improvement Weak Demonstrated effectiveness of oversight in the context of the function s mandate Evaluated based on performance indicators (e.g., proactive follow-up of issues identified to ensure timely resolution) 25

Oversight Functions Overall Rating Essential Elements Criteria Review of the Characteristics of the Function Performance Indicators Review of the Performance of the Function Rating of the effectiveness of the oversight across all Significant Activities Judgment based on an evaluation of the characteristics and performance of the function in relation to the nature, scope, complexity and risk profile of the institution Overall Effectiveness of the Function Strong Acceptable Needs Improvement Weak 26

Board Oversight Weak Board Oversight The composition, role and responsibilities, and practices of the Board are not, in a material way, what is considered necessary, given the nature, scope, complexity and risk profile of the institution. Board performance has demonstrated serious instances where effectiveness needs to be improved through immediate action. Board characteristics and/or performance often do not meet generally accepted corporate governance practices. 27

CRR and Intervention While OSFI may stage an institution for reasons other than its CRR, there is a link between the Composite Risk Rating and OSFI s stages of intervention Low Moderate Above Average High 0 0 1 1 2 2 3 4 No Concerns Early Warning Risk to Solvency Risk to Solvency Viability Doubtful Insolvency Imminent 28

Fulfilling OSFI s Mission Risk-based assessments Leverage off work of oversight functions Focus on higher net risk activities Share assessments with institution Intervention commensurate with CRR 29

Implications for FRFIs The Framework and criteria are internal tools used by OSFI to assess supervised institutions. Sharing these tools will increase the transparency of OSFI s assessments and help institutions better understand the basis of the assessments and the significance of assigned ratings 30