OIC eyes method to bolster risk management by 2019
The Office of the Insurance Commission (OIC) plans to implement an own risk and solvency assessment (ORSA) and revise the risk-based capital (RBC) rule to enhance risk management, expecting the change to come into effect by mid-2019.
The OIC invited all insurance companies to join the ORSA regulatory framework last year to prepare for implementation of this international regulation, said secretarygeneral Suthiphon Thaveechaiyagarn. ORSA is a risk management disclosure report widely adopted at the international level.
“A market survey of readiness among insurance companies for ORSA implementation shows both life and non-life companies displaying good signs of preparedness to adopt ORSA,” said Mr Suthiphon.
ORSA and enterprise risk management practices will prepare insurers for a higher-risk environment derived from natural disasters and other unpredictable risks, he said.
Insurers must manage corporate risks as a whole because separate management can induce risks to a firm’s capital adequacy ratio.
Vasumadi Vasinondha, assistant secretary-general, said tier 1 of the ORSA regulatory framework will be implemented among insurance companies in the first phase.
Tier 1 regulations will be applied to insurance companies having total asset size above 90 billion baht for life insurers and over 9 billion worth of annual gross written premiums for general insurers. They are required to conduct the ORSA report annually.
Tier 2A regulations will be applied to insurance companies with total asset size valued between 10-90 billion baht for life insurers and gross written premiums worth 1-10 billion for general insurers. They are required to conduct the ORSA report every two years. Tier 2A regulations will be adopted at a later stage and might not be implemented next year.
The OIC is also expected to implement the RBC rule for all insurance companies by mid-2019.
The OIC still requires 140% of minimum capital for insurers, but details on calculation of risk-weighted reserves will be revised. This regulation is called RBC version 1.5, which aligns with the International Financial Reporting Standards (IFRS) 9 and 17. RBC version 1.5 will be adopted following how greater clarity of IFRS 17 has yet to be announced.
Ms Vasumadi said RBC version 1.5 will take operational risks related to people, operating systems and i nvestment into account.
The insurance companies are required to set aside 1% of gross written premiums for operation-based risks. For instance, a total of 6 billion baht will have to be set aside for life insurance firms as the industry has gross written premiums of 600 billion per year. Of that 6 billion baht, reserves will be allocated depending on the ratio of gross written premiums received by each firm.