Insight Report - Insurance Governance, Risk and Compliance in Asia-Pacific, New Report Launched

As the insurance markets in the countries of the European Union work towards achieving greater transparency, enhanced ability in identifying exposure to risk, greater process efficiency and control (by adopting Solvency II standards) and other governance, risk and compliance (GRC) initiatives, many countries of the Asia-Pacific region are also following suit. The Asia-Pacific region comprises diverse economies with significantly varying GRC frameworks governing the respective insurance industries. The region consists of economies with highly developed and complex regulatory environments, and those with only basic regulatory standards. The pace of regulatory developments and changes has increased in the Asia-Pacific region in recent times, as insurance regulators are focusing on enhancing their GRC frameworks.

After the global financial crisis, insurance regulators in Europe and America markets are strengthening their GRC frameworks with specific focus on prudential standards and consumer protection standards. Key initiatives in this area include the implementation of Solvency II in Europe region, and the adoption of risk-based solvency frameworks and IFRS standards by many countries. These developments have influenced Asia-Pacific insurance regulators to enhance their own GRC frameworks to keep pace with international trends.

International and regional organizations, including the International Association of Insurance Supervisors (IAIS), International Monetary Fund (IMF), Financial Stability Board (FSB) and Asian Development Bank (ADB), promote the adoption of international best practices across insurance industries. Insurance regulators receive help from such organizations in developing and enhancing GRC frameworks and implementing new standards in line with the international best practices.

Most countries in the Asia-Pacific region are strengthening their solvency frameworks and consumer protection standards. Countries which have already implemented risk-based capital adequacy standards, such as Australia and Singapore, are enhancing their standards by incorporating internal models for risk assessment, enterprise risk management standards, new public disclosure requirements and additional risks for solvency margin calculation. Other countries which have a factor-based solvency margin framework, such as China, Hong Kong and Sri Lanka, are moving towards adopting risk-based capital adequacy standards.

Insurance regulators are strengthening consumer-protection standards to boost consumer confidence and promote growth in the Asia-Pacific insurance industry. Insurance regulators in the Asia-Pacific region are implementing new regulatory standards for the protection of policyholders' data collected by insurance organizations for various purposes. Most regulators are educating customers by creating awareness about various insurance products, and most countries have either established, or are in the process of establishing, policyholders’ protection funds in order to compensate policyholders in the case of insolvency of an insurer.

In an effort to standardize accounting standards across the world, the International Accounting Standard Board is continuously developing the existing ones and releasing IFRS standards. The IASB has published IFRS 9 standards which will be effective from January 1, 2015, and is expected to publish IFRS 4 Phase II standards in 2015, with an expected implementation date of January 1, 2018. Many Asia-Pacific countries have already adopted IFRS standards, or are in the process of converging their accounting standards with IFRS standards. Countries that have already adopted or are adopting IFRS standards will be required to implement these new ones.

Group-level supervision is the next level of supervisory standards, which provides full protection to the policyholders from any type of risk that may arise from the parent company, or any of its subsidiaries, in a complex group structure. This provides an immense challenge for the regulator, in terms of developing and implementing a comprehensive group level supervision, and also for the insurance group companies to comply with the new standards. Within the Asia-Pacific region, Japan, Australia and China have adopted group level supervision framework, which are in their nascent stage of development, while Singapore is in the process of implementing – and Hong Kong considering the implementation of – a group-level supervisory framework.

GRC frameworks for insurance businesses are highly complex, and require expertise with necessary skill sets and knowledge to understand and implement regulatory standards. It takes years to develop and implement complex regulatory standards specifically related to prudential matters, and implementation of new regulatory standards requires a huge amount of time and expenditure over a period of time. A lack of qualified resources is a major challenge for the development and implementation of regulatory standards. Integrating and complying with the ever-changing regulatory requirements with existing business processes is a major challenge for insurance companies. The requirement of additional investments to implement new regulatory standards puts immense capital pressure on insurance companies that are financially not sound.

The report provides insights into the governance, risk and compliance framework in the Asia-Pacific region:

• It provides an overview of the insurance regulatory framework in various Asia-Pacific countries.
• It describes key factors driving changes in the GRC framework in the Asia-Pacific region.
• It provides insights into key GRC parameters including licensing requirements, permitted foreign direct investment, minimum capital requirements, and solvency requirements.
• It outlines escribes emerging trends and developments shaping the GRC framework in the Asia-Pacific region.

Scope

• This report covers the insurance regulatory frameworks of Australia, Japan, Singapore, Taiwan, Indonesia, China, India, Hong Kong, Sri Lanka, Vietnam, Pakistan, Macau, Bangladesh and Brunei.
• The insurance regulatory frameworks of Asia-Pacific countries are analyzed on the basis of their stage of development, complexity level and effectiveness to regulate their respective insurance industries.
• The report analyzes key factors influencing reforms in the insurance regulatory framework across the Asia-Pacific region.
• The report analyzes key trends and developments in the GRC framework in the Asia-Pacific region, and their impacts on the insurance industry.

Reasons to Buy

• Gain insights into the insurance regulatory framework in the Asia-Pacific region.
• Understand factors driving reforms in the insurance regulatory framework in the Asia-Pacific region.
• Gain information about key regulatory parameters governing insurance industries in various Asia-Pacific countries.

Key Highlights

• International and regional organizations, such as the IAIS, IMF, FSB and ADB play a vital role in the evolution and development of the insurance industry's GRC framework. Continuous assessment and input from these organizations form the basis for change and development of GRC frameworks across the world.
• Asia-Pacific countries do not have specific capital requirement for specialized insurers, and specialty insurers are not distinguished from life or non-life insurers. Specialized insurers are also subject to same minimum capital requirement standards as life or non-life insurers. This acts as hindrance for operators from carrying on only one or a few classes of insurance business. Separate sets of minimum capital requirements for special lines of insurance business promote the establishment of specialized line insurers.
• In May 2013, China initiated implementation of its Second-Generation Solvency Supervision System, which is in line with the Solvency II standards, and the implementation of this new risk-based solvency margin is expected to be completed by 2017. Both Sri Lanka and Hong Kong are planning to implement the RBC regime and new RBC standards respectively by 2016, and India is also planning to implement risk-based solvency margin requirements. Australia and Singapore are also both strengthening their risk-based solvency frameworks by implementing LAGIC reforms effective from January 2013, and implementing an improved RBC 2 framework effective from January 2014 respectively.
• The IASB aims to standardize the accounting and financial reporting standards for companies across the globe, instead of having country specific standards that vary widely. In this regard, the IASB has issued IFRS 1 to IFRS 14 accounting standards to date. The IFRS 4, issued on March 31, 2004, is the first set of international guidelines for financial reporting standards for insurance contracts. Through IFRS 4 standards, the IASB intends to achieve convergence of the divergent accounting standards for insurance companies in different countries.
• The IAIS has taken initiatives towards developing standards for global group supervision, in order to enhance international supervisory cooperation and coordination. The IAIS has taken three key initiatives to achieve global standards for group supervision: setting international standards for group supervision, setting up the Supervisory Forum and setting up the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). Most Asia-Pacific countries lack a group-level supervisory framework. These international developments have influenced Asia-Pacific regulators to develop new standards and guidelines for group supervision.

Spanning over 76 pages, “Insight Report - Insurance Governance, Risk and Compliance in Asia-Pacific” report covering the Governance, Risk and Compliance in Asia-Pacific, Regional Overview of GRC Framework, Analysis of Key GRC Parameters, Emerging Trends and Developments in the GRC Framework, and their Impacts, Appendix.

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