APRA issued a letter to general insurers and life insurers, outlining observations from a recent thematic review on recovery planning by insurers. The attachment to the letter presents key observations of APRA, along with certain best-practice examples. APRA conducted this thematic review with a group of in-scope large and medium-size general insurers and life insurers, assessing their recovery plans against the recovery planning guidance provided to the in-scope insurers. APRA will use the outcomes of the thematic review to inform its development of a prudential framework for recovery and resolution, which will include a prudential standard and the accompanying guidance. APRA plans to consult on this framework next year.
APRA observed that the recovery planning process has assisted in-scope insurers to advance their overall approach to risk management and to build a better understanding of the importance of recovery planning. However, considerable scope for improvement remains, before in-scope insurers can be assessed to have credible plans in place that are effectively integrated with the risk management framework. APRA considers usability of the recovery plan as a key factor in assessing its credibility. APRA expects recovery planning to be a dynamic process, wherein the plans continue to be assessed, tested, and improved with ongoing board oversight. The key observations include the following:
- Governance. Robust governance arrangements are essential both for effectively developing and maintaining the recovery plan and for ensuring that appropriate monitoring and escalation processes are in place to allow for timely implementation of recovery options. This includes integration with risk management framework; monitoring, escalation, and activation processes; and operational testing.
- Trigger frameworks. The trigger framework should operate in a manner that reflects the escalating nature of stress events, to facilitate timely contingency planning and the intensifying of responses as the severity increases. The areas of better practice are related to a range of metrics and timely trigger points.
- Recovery options. The core element of a credible recovery plan is a comprehensive menu of realistic recovery options, supported by the requisite level of supporting analysis required to assess and implement the options. APRA lists areas of better practice with respect to menu of recovery options, valuations and assumptions of recovery options, and supporting analysis for recovery options.
- Scenario analysis. The use of scenario analysis provides an important mechanism to help assess the credibility of the recovery plan, in particular the calibration of the trigger framework and feasibility of recovery options. The scenarios, therefore, need to be sufficiently severe to activate the recovery plan.
Related Link: APRA Letter (PDF)
Keywords: Asia Pacific, Australia, Insurance, Recovery and Resolution, Thematic Review, Governance, Recovery Planning, APRA
Previous ArticleSEC Adopts Rules and Amendments Under Regulatory Regime for Swaps
MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.
EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).