Chapter 5: Mandatory RFW

Question 1

Merits of a loose governance regime REKFS EPPICS CADAC SMOCAR not executed

Answer 1

Rapid response to change 
Easy cooperation 
Knowledge of industry
Flexibility 
Structure of business considered 

Entry barriers - playing field not levelled
Public confidence low 
Poor governance adopted 
Inaccurate communication
Controls over executives will be poor
Salaries poorly controlled

Question 2

Merits of Statutory regulation PENI MUCIT:

Answer 2

Public confidence
Economies of scale
No abuse (less prone to abuse)
Independent from rest of the industry (Allows more public confidence)

Moral hazard of industry (companies may try to find loopholes in the regulation)
Unnecessary rules (not relevant to target market)
Costly (Would be passed on to consumers)
Inflexible (Rules imposed by regulator may be less flexible than self regulation)
Too far from the market to understand market specific needs

Question 3

Senior insurers management regime (SIMR) RISK A

Answer 3

• Roles and responsibilities of members in the regime
• Individuals in the SIMR regime
• Structures of the company and corporate governance mapped out
• Key functions of the individuals in the organization
• Assessment of the fitness of the senior managers

Question 4

Critics of Basel II SCHEME DOC

Answer 4

• Systemic risk cause if assets are sold when their value drop below a certain amount
• Cursory consideration for some risks
• Herding of risk – all banks follow the same approach
• Emphasis on a single number which aggregates a wide number of risks
• Markets could undervalue assets in time of crisis
• Expensive to implement after BI
• Difficult to quantify some risks
• Overconfidence could be created by the approach
• Complex calcs required

Question 5

Elements that SII introduced CRAMPE

Answer 5

1. Classes of risk considered clearly defined
2. Risk based solvency requirements
3. Asset and liability risk considered
4. Mitigation approaches other capital is considered
5. Prospective focus
6. Economic factors considered

Question 6

Components of the Sox Act PREP LIC:

Answer 6

• Protects shareholders
• Reporting responsibilities of CEO and CFO set out
• External auditor’s roles PCAOB
• Public accounting oversight board
• Length of audit relationship limited
• Independent audit investigations
• Control report added in published accounts

Question 7

The roles of regulators and professional bodies SERVICE PROM

Answer 7

• Setting sanctions
• Enforcing regulation
• Reviewing and influence legislation
• Vetting and register firms and individuals
• Investigating breaches
• Checks to capital and operational adequacy
• Educating consumers and public
• Protect interest of its members
• Reactions to non-compliance
• Oversight of financials
• Monitoring requirements

Question 8

Causes for different capital adequacy standards for companies/parts of a company/portfolios LORIA

Answer 8

• Lifecyle stages may differ
• Overseas operations
• Regulatory requirements within a sector may differ
• Industries may differ
• Areas of similar sectors may differ

Question 9

Similarities between Basel and Solvency RIC SIP SAP

Answer 9

o Risk based approach to determine capital requirement
o Internal or external model can be used for capital calculation
o Classes of risk considered can vary
o Supervisory intervention is allowed
o Internal risk management controls considered
o Publication or risks, risk management and capital requirements done
• Systemic risk considered by Basel
• Assessment criteria differ (RWA vs. VAR)
• Prescriptive BII vs. Principle SII

Question 10

Relationship management principles for companies with external regulators PRATAS

Answer 10

Proactive engagement with the regulator
Reputation of company preserved 
Align to supervisory objectives
Transparency
Accountability  and governance
Support supervisor to formulate new policies