APRA Observations from Thematic Review on Recovery Plans of Insurers
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 Article
Jeremy Rudin of OSFI on Use of Data Science in Financial SupervisionRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards