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July 10 2018
The Hong Kong Insurance Authority recently released a 43-page draft guideline on enterprise risk management (ERM)(1) as part of Hong Kong's move towards a risk-based capital regime.(2) Comments were sought by 6 July 2018.
This consultation exercise aims to:
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:
The three-tier supervisory approach is set out in Annex A to the draft guideline. To further avoid duplication, Guideline 10 (on the corporate governance of authorised insurers) will also be updated in accordance with the guideline.
The draft guideline applies to all authorised insurers in Hong Kong, except:
The general requirements of the draft guideline include:
The Hong Kong Insurance Authority plans to finalise the draft guideline by late 2018 for implementation on 1 January 2020. Insurers should familiarise themselves with it and put in place advance measures in order to comply with the requirements on its implementation.
For further information on this topic please contact Kevin Bowers or Michael Withington at Howse Williams Bowers by telephone (+852 2803 3688) or email (email@example.com or firstname.lastname@example.org). The Howse Williams Bowers website can be accessed at www.hwbhk.com.
(1) Available here.
(2) Further information is available here.
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