Professional Documents
Culture Documents
Risk-Based Capital
Framework
How will RBC2 and ERM
affect insurers in Singapore?
Contents
Introduction
01
02
06
08
14
Risk-Based Capital
Past, present & future
What could change and how is
this aligned to the Insurance
Core Principles and Standards?
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
1.
Introduction
Integrating risk,
capital and performance
management can help you
and your organisation find
an appropriate balancing
point while allowing
you to meet stakeholder
demands for results. We
see greater advantages of
insurers capitalising on this
opportunity presented by the
regulatory enhancements
rather, than doing just what
is necessary for minimum
regulatory compliance.
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2.
Risk-Based Capital
Past, present & future
Formulaic
No risk weighting
Formulaic
risk-based
Integrated risk
and capital regimes
Asset/liability
risk weights/
stress tests
Many international
RBC regimes
Vietnam
Full internal
model regime
Risk modelling
and data quality
Risk organisation
Economic balance
sheet
Model governance
& validation
Malaysia
Embedding and
business use
Philippines
Hong Kong
India
Indonesia
Thailand
Model approved
to calculate real-
time capital
Singapore
South Korea
Taiwan
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Risk Governance
Liquidity risk
Credit risk
Operational risk
Organisation
Market risk
Quantitative
Measures
Models and
Validation
Risk
Assessment
(Identification
&
Qualification)
Risk
Monitoring
(Key Risk
Indicators) /
New risks
Own Risk
and Solvency
Assessment
(ORSA)
Risk
Reporting /
Management
Dashboard
Capital
Requirements
(SCR/MCR)
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
It is envisaged that there is much greater role for the CRO going forward
Chief
Financial Officer
Chief
Financial Officer
Chief Risk Officer
Chief
Financial Officer
Head of
Actuarial Function
Head of
Actuarial Function
Head of
Actuarial Function
Previously
At present
Going forward
Source: FSA, The developing role of the Risk Function (under Solvency 2) April 2011, and SYSC 21.1.2
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Q2 2012
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
3.
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Supervisory
review
process
Crisis
management
Corporate
governance
ICPs
Capital
adequacy
and valuation
Enterprise
risk
management
Consumer
issues
Group
supervision
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
4.
What are the main implications of RiskBased Capital and an ERM framework?
Will it compromise
my ability to drive and
grow my business?
Do I currently
comply with the
requirements?
Does it mean
more capital and
compliance costs to
my organisation?
Where do I need
to prioritise activities
and resources?
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Disclosure
Governance
Strategy/
Business model
Capital
Implications of RBC2
Data, info
systems and MI
Asset-liability
management
Structuring and
optimising group
supervision
Risk management
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Post RBC2
Cargo
Hull & Liability
Fire
Motor
Work injury compensation
Personal Accident
Professional Indemnity
Others
Post RBC2
10
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
In our view, a robust risk management framework should contain the following components:
What it means
Capital management
Risk governance
Risk methodology
Risk culture
Effectiveness review
Internal processes by which the Board derives assurance that the framework is effective
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
11
12
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Are you and your organisation ready for the new RBC and ERM regime?
Here are 16 questions that will help determine whether you and your organisation are ready for the new
requirements in Singapore with RBC2 and ERM. The answers you provide will tell you how prepared you are and
help you identify the areas where more preparation will be needed for compliance.
Q1
Does your organisation have procedures in place for assessing and evaluating the potential capital
requirements mandated by the new regulatory requirements?
Q2
Does your organisation have adequate actuarial capabilities to perform these assessments?
Q3
Have you established a robust risk management framework with the necessary components to meet the
requirements?
Q4
Does your organisation have a clear corporate governance framework in place to address the new regulatory
requirements?
Q5
Have you created a formal Technology Risk Management (TRM) framework that incorporates both the
business and IT perspective? Is your Board ultimately responsible and accountable for
managing and controlling technology risks in accordance with the new regulatory requirements?
Q6
If your organisation's IT function is outsourced, have you thought about how vendors will be able to meet your
requirements?
Q7
Does your organisation have a formal process in place for assessing and evaluating the types of assets to hold
or avoid?
Q8
Have you determined the most appropriate and efficient capital structure for your organisation?
Q9
Have you assembled a strategy toolkit that can help you and your managers make business decisions about
your business mix, pricing, reinsurance, etc.?
Q10
Have you considered how the new regulatory requirements can be optimised to provide your organisation
with a competitive advantage?
Q11
How prepared are you and your managers to carry on day-to-day business while making the changes that
the new regulatory requirements will require?
Q12
Does your organisation have the modeling capabilities in place to help you understand the implications of the
actions that will be taken to comply with the new regulatory requirements?
Q13
Does your organisation have sufficient time and resources to meet the new regulatory requirements?
Q14
Have you considered using external specialists to help prepare your organisation for the new regulatory
requirements?
Q15
Have you considered outsourcing to help your organisation meet the new regulatory requirements?
Q16
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
13
5.
rs
lde
ho
are
al
Sh
pit
Ca
of
st
Co
Ca
pit
al
ma
rke
Pe
rfo
t
rm
an
ce
Profit
Sustainability
Risk
Solvency
Capital
Governance
14
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Two Approaches
There are two basic strategies that
businesses can employ to help them
decide which profitable business
opportunities to pursue.
The first takes the view that greater
risk will lead to higher rewards. In this
entrepreneurial approach, businesses
compete with each other to take
risks that reap the highest return on
investment.
The second approach takes a more
prudent risk-averse path. Such a
cautious approach involves a less
aggressive pursuit of business
opportunities, but it is intended to leave
an organisation in better financial shape
than its competitors during times of
stress.
The first approach can lead to disastrous
consequences, but the second
approach can lead to insufficient returns
on investment or to lost business
opportunity. So, in practice, each
business must strive to find a unique
Treatment of
Model Limitations
Well-understood risk
and performance
indicators
Governance
and Control
Environment
Integrated governance
structure and control
environment are crucial
for the Use Test
Reporting
Strategy
Comprehensive
strategy that leads to
operational
decisions
Risk
Performance
Integrated with
Business Processes
Better fit of business
processes and
strategy
Risk Appetite
and Risk Tolerance
Better-aligned
business
decisions
Risk and
Performance
Measurement
Better-informed
management
decisions
Capital
Allocation and
Internal Competition
for Capital
More effective use
of capital
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
15
Q1
Has the organisation taken full advantage of its investment in risk management to assist the delivery of its strategy?
Q2
Is it possible for the organisation to manage its business in a way that achieves greater returns with lower risks
through embedded risk appetite statements?
Q3
Can the organisation further reduce its capital requirements while increasing capital adequacy and returns?
Q4
Does the organisation have the tools to take risk-adjusted returns into account in making strategic decisions?
Q5
Q6
Can the organisation visibly demonstrate the basis for its strategies to third parties such as regulators, rating
agencies, and business partners?
Final Thoughts
Risk-taking is an essential element
of being an insurer. Take on too
little or too much risk and it could
affect returns. Risk taking should
be controlled within appropriate
parameters by using risk appetite
statements. Integrated risk and
performance management can help
you find an appropriate balance while
allowing you to meet stakeholder
demands for results.
16
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Acknowledgements
We would like to acknowledge the contribution of our colleagues from across KPMGs Insurance
Sector in Singapore who helped develop this thought leadership paper.
Lead Editors:
Insurance Partners:
Lau Kam Yuen
Partner,
Head, Insurance
KPMG in Singapore
T: +65 6213 2550
E: kamyuenlau@kpmg.com.sg
Frank Dubois
Director, Advisory
Actuarial and Insurance Advisory
KPMG in Singapore
T: +65 6411 8187
E: fdubois@kpmg.com.sg
Steven Goh
Senior Manager, Audit
Insurance Centre of Excellence
KPMG in Singapore
T: +65 6213 3789
E: sgoh@kpmg.com.sg
Venkat Iyer
Partner, Insurance
KPMG in Singapore
T: +65 6213 2502
E: venkatiyer@kpmg.com.sg
David Waller
Partner, Insurance
KPMG in Singapore
T: +65 6213 3007
E: davidwaller@kpmg.com.sg
Paul Brenchley
Director, Advisory
Insurance & Risk Advisory
KPMG in Singapore
T: +65 6411 8402
E: paulbrenchley@kpmg.com.sg
Shirley Hu
Senior Manager, Audit
Insurance Centre of Excellence
KPMG in Singapore
T: +65 6213 2026
E: shirleyhu@kpmg.com.sg
Jeremy Hoon
Partner, Insurance
KPMG in Singapore
T: +65 6213 2608
E: jeremyhoon@kpmg.com.sg
Jeya Suppiah
Partner, Insurance
KPMG in Singapore
T: +65 6213 2413
E: jsuppiah@kpmg.com.sg
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
17
Contact us
Lau Kam Yuen
Partner,
Head, Insurance
KPMG in Singapore
T: +65 6213 2550
E: kamyuenlau@kpmg.com.sg
Frank Dubois
Director,
Actuarial and Insurance Advisory
KPMG in Singapore
T: +65 6411 8187
E: fdubois@kpmg.com.sg
Paul Brenchley
Director,
Insurance and Risk Advisory
KPMG in Singapore
T: +65 6411 8402
E: paulbrenchley@kpmg.com.sg
The information contained herein is of a general nature and is not intended to address the circumstances of any particular
individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation
2013 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the
KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss
entity. All rights reserved. Printed in Singapore.