ICP 11 13 17 26 At Hyderabad December

ICP: 11 -13, 17, 26 At Hyderabad December 29, 2010 A. V. RAO, R. K. Sharma, B. Padmaja

ICP-11: Market Analysis Objective: Making use of all available sources, the supervisory authority monitors and analyses all factors that may have an impact on insurers and insurance markets. It draws conclusions and takes action as appropriate No. of Essential Criteria: 5; No. of Advance Criteria: 2

ICP-11 Contd… Crit. Contents Compliance a. Regular Analysis of Market Conditions by Supervisor b. Analysis to include Business trends studied at past developments, frequent intervals to present situation, enable timely intervention. identify trends and possible future scenarios and issues to enable action at an early stage. Performance of insurers in terms of new business analysed on a monthly basis

ICP-11 Contd… Crit. Contents Compliance c. Analysis to be Quantitative analysis - based both quantitative and on the premium figures. qualitative Qualitative analysis - based on use of both public and market conduct issues confidential sources of through public/ media, information. stakeholders, publicity material of the insurer d. Aggregated market data is published and available publicly Aggregated market data published in Annual Report of IRDA Aggregated monthly statistics published on the website of IRDA, Journal

ICP-11 Contd… Crit. Contents e. Requires market-wide systematic reporting on events of importance for the financial stability of insurance markets. f. Analysis not limited to home market g. Compliance Relevant market-wide information sought as and felt necessary (Eg. , Reports on claims settled during Tsunami, Exposure in Satyam Computers etc. , Regular macro economic and insurance scenario analysis and its impact on the home market at both national and international level Monitors trends that Forms part of mission statement may impact the financial Entire regulatory framework is stability geared to meet this requirement. Assesses macroeconomic Supervisor interacts with the other risks and vulnerabilities regulators to identify and deal with adversely impinging on factors which could have systemic prudential safeguards, implications on the sector at financial stability or national and international level consumer interests. being part of FSDC and FSB.

ICP 12: Reporting to Supervisors and Off-site Monitoring Objective: The Supervisory Authority receives necessary information to conduct effective off-site monitoring and to evaluate the condition of each insurer as well as the insurance market No. of Essential Criteria: 3; No. of Advanced Criteria: 2

ICP 12 - Contd. Crit. a b Contents Supervisor -Sets: submission of regular financial and statistical information, actuarial reports and other information -Defines the scope and frequency -Requires audit opinion annually -Requires more frequent and detailed information whenever needed. Compliance There is no distortion of the market in favour of or against any particular form of enterprise. (Private/public/local/foreign etc. ) Requirement prescribed in legislation on submission of financial/statistical and actuarial returns Various details new business submitted on monthly basis Information like agency statistics, claims settlement statistics etc. , unaudited financial statements, solvency statements on a quarterly basis. Strategic changes likely to affect policyholders interests are called at shorter intervals where found necessary No distinction made between state owned entities / private insurers Foreign entities are not permitted to do business in India.

ICP 12 - Contd. Crit. c Contents Supervisor -Requires information on financial condition and performance on both a solo and a group-wide basis. –sets out norms regarding accounting –requires to report any off-balance sheet exposures. –requires report on their outsourced functions. –requires that the appropriate level of an insurer’s senior management is responsible for the timing and accuracy of these returns. –requires that inaccurate information be corrected -impose sanctions for deliberate misreporting. –maintains a framework for on-going monitoring of the financial condition and performance of the insurers. Compliance Legislations/Regulations require submission of information on solo basis. In case of financial conglomerates information is collected on a group – wide basis. The accounting regulations require reporting of off-balance sheet items; compliance with Accounting Standards of ICAI The audited annual accounts to be signed by the chairman and two directors and by the principal officer of the company. Similar requirements prevalent in case of other returns Penalty not exceeding ` 5 lakh for each failure on the persons who falsify statements in investment returns. Various returns form the basis for off-site monitoring Guidelines on outsourcing of insurance activities is presently exposed as draft for discussions

ICP 12 - Contd. Crit. Contents Compliance Reporting formats are reviewed from time to time eg. , forms under the Investment regulations, forms of reporting of annual accounts, monthly business numbers have been modified. Supervisor reviews its reporting requirements. e. The supervisory authority Regulations impose an obligation requires insurers reporting on the insurer to report of material changes that extraordinary events impacting the affect the evaluation of investment portfolio condition.

ICP 13: On-Site Inspection Objective: The supervisory authority carries out onsite inspections to examine the business of an insurer and its compliance with legislation and supervisory requirements No. of Essential Criteria: 6

ICP 13 Contd… Crit. a. b. Contents By law supervisor has powers to conduct on site inspections and gather required information Compliance Legislation (Sec. 14(2)(h) of IRDA Act & Sec. 33 of Insurance Act) empowers IRDA to call for information and undertaking inspection and conducting enquiries/investigations of insurers and (insurance) intermediaries and other organizations connected with insurance business. Supervisor, external Legislation enables appointment of an auditors or other external (qualified) person to carry out the experts conduct on- investigation and also specifies the manner site inspections. of reporting to the Authority.

ICP 13 Contd… Crit. Contents Compliance c. On-site inspections Both types of inspections are carried out on full scale, or based on the necessity, as decided by the focused basis competent authority. d. Findings are discussed with the insurer and obtain appropriate feedback from the insurer. Inspection findings are shared with the insurer, for feedback. Feedback submitted by the insurer is examined by IRDA before finalizing the course of action to be taken up. Also, usually a show cause notice is issued before any corrective/penal action is taken.

ICP 13 Contd… Crit. Contents e. Necessary follow up carried out to bring about required action of the insurer f. Supervisor can extend onsite inspections on intermediaries; and companies that have accepted functions outsourced by the insurer. Compliance After preventive/corrective action expected from regulated entities are communicated, based on the on-site inspection, necessary follow-ups are carried to ensure compliance by obtaining written commitments/confirmation and further checks in follow-up inspections. Legislation empowers the supervisor to extend inspection of intermediaries and other organizations concerned with the insurance business.

ICP 17: Group Wide Supervision Objective: The supervisory authority supervises its insurers on a sole and a group–wide basis. No. of Essential Criteria : 7; In addition there are 6 Prudential requirements

ICP 17 Contd… Crit. a. b. Contents Constitution of insurance group and financial conglomerate, clearly defined Compliance -Group identified during registration from the details furnished. -HLCCFM has already defined Group, laid down the criteria for identification of Financial Conglomerate • Supervisor ensures – Compliance through effective and efficient financial conglomerates group-wide supervision monitoring mechanism. • Supervisor co-operates – Groups assigned to to avoid unnecessary regulators for monitoring duplication.

ICP 17 Contd… Crit. c. d. Contents Compliance Different supervisors Monitored through FC monitoring responsible for different parts mechanism of a group or conglomerate • Reporting format prescribed for Adequate policies on and Financial Conglomerates capturing supervisory oversight of: o Group Structure and cross • group structure holdings • capital adequacy o Capital Adequacy / Solvency • reinsurance and risk position concentration o Investments, Operating Profit, • intra-group transactions and Net Profit Etc. exposures, o Intra-Group Transactions & • Internal control mechanisms Exposures and risk management • Qualitative information such as processes, governance structure, auditors, penal action and group risk profile report also captured

ICP 17 Contd… Crit. Contents Compliance Host supervisor avoid Not applicable in Indian context as e. uncooperative behaviour foreign holding is restricted to 26%. with home supervisor Supervisor requires Exhaustive reporting formats filed f. insurance groups and every quarter financial conglomerates to have reporting systems to adequately meet supervisory information demands. Supervisor may deny or No specific provision currently. g. withdraw the license when the organizational (or group) structure hinders effective supervision 6 Prudential Requirements which verifies if Insurers have the ability to fulfil their obligations as they fall due

ICP 26: Information, disclosure & transparency towards the market Objective: The supervisory authority requires insurers to disclose relevant information on a timely basis in order to give stakeholders a clear view of their business activities and financial position and to facilitate the understanding of the risks to which they are exposed. No. of Essential Criteria : 4 No. of Advanced Criteria : 1

ICP 26 Contd… Crit. a. b. Contents Compliance Insurers are required to disclose information on their financial position and the risks to which they are subject. • Public Disclosures mandated in January 2010. • Disclosures made on website of the insurers on quarterly basis and published (limited review) in newspapers on half yearly basis. Information includes quantitative and qualitative information The disclosures covers financial statements, analytical ratios, solvency, return on investment and NPAs. etc

ICP 26 Contd… Crit. c. d. e Contents Compliance Insurers required to Half yearly accounts are subject to produce, at least annually, limited review and annual accounts audited financial statements are subject to audit - published in newspapers and on website Supervisor monitors information disclosed by insurers and takes the necessary actions to ensure the compliance with disclosure requirements. On-going monitoring is done by the Authority. Information includes quantitative information of relevant risk exposures. Mandated disclosures cover risks to which life and non-life insurers are exposed to

THANK YOU