Page 158 - W01TB8_2017-18_[low-res]_F2F_Neat

10/6 W01/March 2017 Award in General Insurance

B4 Requirements on soundness of judgment

In respect of soundness of judgment, the individual should show an adequate degree of balance,
rationality and maturity, demonstrated in conduct and decision-making, especially with respect to
previous business practices.
In addition, there should not be evidence of deceitful conduct in any previous business practice which
would raise concerns about the individual’s methods of conducting business.

B5 Requirements on knowledge and experience of key functionaries

The knowledge and experience of the individual subject to the ‘fit and proper’ requirements should be
sufficient for sound and prudent management and decision making and should be maintained at an
adequate level. In this assessment the qualifications and experience of other functionaries could be
taken into account as a complementary factor. Nevertheless, the knowledge and experience of the
individual should be at an adequate minimum level.
Collectively knowledge and expertise of key functionaries should at a minimum relate to:

• professional management of an organisation;
• rules and regulations applicable to the insurer;
• insurance products and markets;
• financial and actuarial aspects such as financing, investments and financial markets, actuarial
principles and reinsurance;
• administrative organisation, internal control, information technology and risk management;
• financial accounting and reporting; and
• outsourcing arrangements.

C Internal control system Reference copy for CII Face to Face Training

C1 Risk management framework

The essence of insurance is the pooling and spreading of risk to mitigate the risk of adverse financial
consequences to individuals and businesses. For this reason, a thorough understanding of risk types,
their characteristics and interdependencies, and their potential impact on the business is essential for
insurance companies.
It is vital that an insurer has a competent understanding of risk and implements sound risk management
practices. The ultimate aim of insurance is to create and protect value for policyholders while using
capital resources efficiently.
There are a number of commonly used terms to describe the process of identifying, assessing,
measuring, monitoring, controlling and mitigating risks. We will use the generic term risk management in
describing these activities.

Risk management involves the assessment of all reasonably foreseeable material risks that an insurer
faces. One result is that decisions regarding risk management and capital allocation can be co-ordinated
for maximum financial efficiency and, from a supervisory viewpoint, the adequate protection of
policyholders. A fundamental aspect of risk management is a primary focus on the actions that an
insurer takes to manage its risks on an ongoing basis to ensure that they are the risks it intends to retain
both individually and in aggregate. Risk management also involves the rigorous enforcement of risk
standards, policies and limits.
Risk management is an acknowledged practice and has become an established discipline and function
Risk management is
an acknowledged assuming a much greater role in many insurers’ everyday business practices.
10 practice Risk management processes being developed today increasingly use internal models and sophisticated
Chapter risk metrics to translate risk identification into management actions and capital needs. Such an
approach typically adopts a total balance sheet approach where the impact of total of material risks is
fully recognised on an economic basis. A total balance sheet approach reflects the interdependence
between assets, liabilities, capital requirements and capital resources, and identifies a capital
allocation, where needed, to protect the insurer and its policyholders and to optimise capital returns to
the insurer.