The Hong Kong Insurance Authority recently released a 43-page draft guideline on enterprise risk management (ERM) as part of Hong Kong's move towards a risk-based capital regime. Comments were sought by 6th July, 2018.
The consultation exercise aims to:
- align insurers' capital requirements with the risks to which they are exposed; and
- strengthen insurers' risk management capabilities.
The draft guideline considers the recent consultation and review of the relevant insurance core principles (ICP) by the International Association of Insurance Supervisors (the global standard for the insurance industry) with an emphasis on risk-based supervision – in particular, ICP 8 and ICP 16 (which provide that insurers should have effective risk management systems with internal controls and an ERM framework to identify, measure, report and manage risks).
The objective of the draft guideline is to nurture a strong risk culture in the Hong Kong insurance industry, which will reflect the values, attitudes and norms of business behaviour. The Hong Kong Insurance Authority has specifically stated that the boards of directors and senior managers of insurers should take ownership of shaping insurers' risk culture, including the responsibility to establish, implement and oversee the ERM framework.
The guideline adopts a principle-based approach, recognising that different risks are associated with different insurers. Consequently, the ERM framework and risk management policies should be proportionate to the nature, scale and complexity of the risks inherent to each insurer's business.
The Hong Kong Insurance Authority has proposed a three-tier approach to insurer supervision to avoid regulatory duplication with international groups which are already subject to group-wide or home supervision. The tiers are:
- insurance groups that are based in Hong Kong and under the insurance authority's supervision;
- insurance sub-group(s) within an insurance group which have significant operations in the Hong Kong insurance market; and
- other insurers which are part of a group supervised by their home supervisors.
The Hong Kong Insurance Authority plans to finalise the draft guideline by late 2018 for implementation on 1 January 2020.