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A Regulator’s Perspective on ERM

A Regulator’s Perspective on ERM. CAS / SOA ERM Symposium Washington, July 29, 2003 Allan Brender. Background on OSFI. Federal supervisor and regulator Integrated - cover insurers and deposit takers Protect rights of depositors and policyholders Organized by function, not by industry

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A Regulator’s Perspective on ERM

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  1. A Regulator’s Perspective on ERM CAS / SOA ERM Symposium Washington, July 29, 2003 Allan Brender

  2. Background on OSFI • Federal supervisor and regulator • Integrated - cover insurers and deposit takers • Protect rights of depositors and policyholders • Organized by function, not by industry • Cross-cultural fertilization

  3. OSFI’s Mandate • Determine whether FI’s are in sound financial condition and in compliance • Advise management and directors if the FI is not in sound financial condition or in compliance • Monitor / evaluate sectoral events that may have a negative impact on financial condition • Promote the adoption by FI’s of policies and procedures to control and manage risk

  4. OSFI’s Mandate Carry out regulation and supervision while recognizing that • Boards of directors are responsible for management of the FI • FI’s operate in a competitive environment that necessitates the management of risk • FI’s can experience financial difficulties that can lead to their failure

  5. Supervisory Framework • Identify significant activities • Evaluate inherent risk in each activity • Evaluate the quality of risk management for each risk • Rate net risk; determine risk direction

  6. Supervisory Framework • Consider capital and quality of earnings • Determine a composite rating www.osfi-bsif.gc.ca/eng/documents/practices/docs/framew_e.pdf

  7. RM in Banking • Emerged from Basel Accord • Relationship between RM and capital • Interaction of RM and capital requirements • RM was accepted as something more than a regulatory requirement • RM became an important part of banking culture

  8. RM in Insurance • Emerging slowly • Insurers and actuaries are sensitive to others’ risks • Insurers concentrate on a few specific risks of their own • They miss out on many others • Valuation models • Product design • Time scale is a factor • A significant culture change is required

  9. Appointed Actuary or CRO ? • Role of the AA • Role of the CRO • Who has the broader horizon? • Whistle blowing

  10. Financial Condition Reporting • DST, DCAT, DFCA, DFA, … • AA in Canada is required to prepare an annual financial condition report using DCAT • Aimed at directors and senior management • OSFI receives a copy • DCAT as a risk management exercise

  11. ERM in Practice • Solid corporate governance • Well-documented policies, procedures, and limits • Appropriate monitoring and reporting • Willingness to take necessary action

  12. www.osfi-bsif.gc.ca Thank you!

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