2nd ERM Survey
Following the results of the Enterprise Risk Management (“ERM”) survey released in September 2012, the Financial Services Agency of Japan (“JFSA”) has conducted another interview with representatives from 22 insurers operating in Japan (including foreign insurers’ subsidiaries) to confirm and update the situation of their ERM, and released the 2nd result of ERM survey on September 4, 2013. The topics covered during the interview are summarized as below:1. Risk Appetite Framework
1-1 Understanding of risk profile
1-2 Determination of risk appetite and risk tolerance
2-1 Risk measurement by risk category
2-2 Solvency assessment
3-1 Application of risk adjusted indicators to evaluate profitability
3-2 Application of ERM to product development and profitability management by product types
3-3 Application of ERM to mid-term management plan
4-1 Group based ERM
4-2 Internal audit framework
6. Response to natural disaster risk
According to the interview results, based on risk profiles provided by the insurers and descriptions of their efforts to improve the identification of all risks including risks difficult to quantify (such as emerging risks), insurers have made advances in introducing enhanced processes covering risk appetite, introduction of profitable business appropriate for the risks, and enhancement of monitoring of financial health and profitability, which indicate the improving sophistication toward further development of ERM.
In addition, JFSA confirmed that some insurance groups have restructured their organization in order to apply the same risk management standards to both domestic and foreign subsidiaries, and have assigned the same executives for risk management to both parent and subsidiaries. The group based ERM has only recently been introduced by insurers indicating that they are taking further steps to secure financial soundness through their approach to risk management by a group as a whole.
In respect of internal audit, though its importance to ERM is widely recognized, in-depth audit has not been conducted for many insurers because high technical competence is required for reviewing and evaluating ERM and there are not sufficient resources available. Furthermore, although the insurers have pursued enhancement of internal models to measure risks difficult to quantify, there are still challenging issues in connection with the logical verification of reasonableness of those internal models.
JFSA will continue to encourage insurers to enhance ERM and consider the introduction of Own Risk and Solvency Assessment (“ORSA”).
Please refer to "FSA Weekly Review No.62 September 9, 2013" page for further information on the result of the survey (Japanese only).