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.
Keywords: Asia Pacific, Hong Kong, Insurance, Stress Testing, GL21, Enterprise Risk Management, ORSA, Capital Adequacy, Market Risk, Reporting, Scenarios, IA
Previous ArticleFED Publishes FAQs on Tailoring Rules for Banks
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.
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).
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.