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10/6 W01/March 2018 Award in General Insurance

B4 Requirements on soundness of judgment
In respect of soundness of judgment, the individual’s previous conduct and decision-making should
show an adequate degree of balance, rationality and maturity.
In addition, there should not be evidence of dishonest 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 individual subject to fit and proper requirements should possess sufficient knowledge and
experience to enable sound and prudent management and decision making; this knowledge 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.
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

C1 Risk management framework
The essence of insurance is the pooling and spreading of risk to mitigate the risk of adverse financial
consequences for 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.
Risk management involves the assessment of all reasonably foreseeable material risks that an insurer
faces. This way, decisions regarding risk management and capital allocation can be coordinated for
maximum financial efficiency and, from a supervisory viewpoint, the adequate protection of
policyholders. A fundamental aspect of risk management for an insurer is a primary focus on how it
manages its risks on an ongoing basis to ensure that they are the ones 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.
practice
Risk management processes developed today increasingly use internal models and sophisticated risk
metrics to translate risk identification into management actions and capital needs. This typically adopts
10 a total balance sheet approach which fully considers the economic impact of all material risks. A total
balance sheet approach reflects the interdependence between assets, liabilities, capital requirements
Chapter 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.

Risk management provides a link between the ongoing operational management of risk and longer-term
business goals and strategies. Appropriate risk management policies should be set by each insurer
according to the nature, scale and complexity of its business.