IA of Hong Kong Publishes Stress Testing Scenarios in Relation to ORSA
IA of Hong Kong published the prescribed scenarios for stress and scenario testing to be used by the authorized insurers conducting general insurance business. The prescribed scenarios are in line with GL21, which is the guideline on enterprise risk management. The guideline was published on July 05, 2019 and takes effect from January 01, 2020. The prescribed scenarios shall be adopted for the first Own Risk and Solvency Assessment (ORSA) report, which is required for the financial year ending on or after December 31, 2020 and for future ORSA reports until IA prescribes new scenarios. The three prescribed scenarios are the market risk scenario, the self-defined insurance loss scenario, and the largest loss scenario with largest market risk scenario.
The prescribed scenarios are designed so that a general business insurer considers the following in its ORSA report:
- Its capital adequacy in relation to risks that are not adequately reflected in its regulatory capital requirements; for example, Accident and Health accumulation risk, Hull accumulation risk, and Liability accumulation risk
- The risk, to its capital position, of two severe events or stresses happening at the same time
- The management actions it would need to take in such extreme events or stresses
Section 9 of GL21 sets out the minimum requirements for ORSA report that each authorized insurer subject to GL21 is required to prepare. Paragraph 9.5 (k)(ii) of GL21 stipulates that authorized insurers and reinsurers conducting the general insurance business, to which GL21 applies (general business insurers), should use the scenarios prescribed by the IA (Prescribed Scenarios) in their scenario and stress testing and include the results, with details of management actions and their impact and justification, in their ORSA reports.
Related Links
Keywords: Asia Pacific, Hong Kong, Insurance, Stress Testing, GL21, Enterprise Risk Management, ORSA, Capital Adequacy, Market Risk, Reporting, Scenarios, IA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Previous Article
FED Publishes FAQs on Tailoring Rules for BanksRelated Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.
