January 03, 2019

IA had published a second consultation on the revised guideline on enterprise risk management (ERM), with comment period ending on January 24, 2019. IA had conducted an initial consultation on the draft guideline on ERM in May 2018 and had received comments from the insurance industry and professional bodies. After studying the comments, IA has revised the draft guideline, for which it is seeking further consultation.

The revised draft guideline, proposed to be effective on January 01, 2020, has also taken into account the overarching principles of developing the risk-based capital regime that include compliance with the Insurance Core Principles published by IAIS; the market landscape and needs of insurance industry; and the financial health and resilience of insurance industry for the protection of policyholders. The key feedback from the initial consultation and proposed enhancements was related to the following:

  • Principles-based approach
  • Three-tier group-wide supervisory approach
  • Introduction of “Pillar 2 Capital amount"
  • Preparation of the Own Risk and Solvency Assessment (ORSA) report
  • ORSA of Hong Kong branches of overseas insurers
  • Prescribed scenarios in Stress and Scenario Testing in ORSA
  • Regulatory capital requirements referred to in the ORSA Report
  • Relief measures in early years of implementation of the Guideline

This second consultation is a critical step toward the expected finalization of the guideline in 2019. HKMA strongly encourages insurers to execute gap analysis, implement action plans to enhance their ERM framework, and put in place an ORSA as soon as is practical. The insurers facing practical issues with regard to the compliance with the guideline should contact their case officers and demonstrate to IA the practical difficulties encountered and formulate an action plan for phased implementation within a reasonable timeframe. 

 

Related Links

Comment Due Date: January 24, 2019

Effective Date: January 01, 2020 (Proposed)

Keywords: Asia Pacific, Hong Kong, Insurance, ERM, ORSA, Regulatory Capital, Pillar 2, Risk-based Capital Regime, ICP, IA

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