Page 31 - Risk Management in current scenario

2. 100% of the firms have formalized their systems of governance
around three "lines of defence" but no two firms are identical.

3. Regulatory intrusiveness and uncertainty has been and will continue
to be a "distraction" to the CRO role.

4. 76% of CRO state that Own Risk and Solvency Assessment (ORSA)
adds value to their organization but efficiency' effectiveness and
embedding remains a challenge.

5. People and skill set remain key priorities for investment.

The capital determination in banking sector is done based on risk based
capital under Basel-II/III norm in a similar way in insurance sector under
Solvency II in European countries are implemented where capital
determination is based on risk based capital.

Risk Based Capital

The historic method of capital determination for solvency purpose in
insurance companies were based on solvency-I method using formula (x%
of Reserves+ y% of sum at risk, where x and y different for different
product line). In this approach two different companies with similar
products, strategy, management, business volume would have similar
capital requirement even if one company is with very good risk
management while other with not so good risk management. This is
because the formula does not allow use of good risk management in the
calculation of solvency capital, though there could be some second order
effect due to good experience resulting from risk management efforts.

So in this approach' there is very little incentive on capital saving due to
good risk management.

Ideally, poorly risk managed companies should have more risk, more
chances of losses and therefore should have higher capital requirement
to meet extra losses. Therefore, in risk based capital, capital is calculated
based on risk profile of the Life Companies. So a better risk managed

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