• PINS S4 PINS S4 Insurance risk

    • PINS S4.1 What is insurance risk?

      Insurance risk is the risk that inadequate or inappropriate underwriting, product design, pricing and claims settlement will expose an insurer to financial loss and consequent inability to meet its liabilities.

      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS S4.2 What is underwriting risk?

      (1) Underwriting risk is the risk arising from the process by which an insurer determines:
      (a) whether or not to accept a risk; and
      (b) the terms and conditions to be applied, and the premium to be charged, if the risk is accepted.
      (2) Weaknesses in underwriting and in its procedures and controls can expose an insurer to the risk of operational losses that may threaten its solvency position.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS S4.3 Risk management policy — underwriting risk

      An insurer's risk management policy for underwriting risk should include:

      (a) a statement of the insurer's willingness and capacity to accept risk;
      (b) the nature of insurance business that the insurer is to underwrite including:
      (i) classes of insurance;
      (ii) the areas where it conducts business;
      (iii) the types of risks included and excluded; and
      (iv) the criteria for the use of reinsurance in the different classes of insurance;
      (c) details of the formal risk assessment process in the underwriting of insurance, including:
      (i) the criteria used for risk assessment;
      (ii) the methods for monitoring emerging experience; and
      (iii) the methods by which the emerging experience is taken into consideration in the underwriting process;
      (d) the process for setting approval authorities and the limits to those authorities (including controls surrounding delegations given to intermediaries of the insurer);
      (e) risk and aggregate concentration limits; and
      (f) methods for monitoring compliance with policies and procedures regarding underwriting, such as:
      (i) internal audit (but only if it is established that the internal audit function has the appropriate skills and experience to perform such activities);
      (ii) reviews by area heads or portfolio managers;
      (iii) peer review of policies (including details of the staff responsible for undertaking the peer review, the frequency of such reviews and the reporting arrangements for the results); and
      (iv) in the case of reinsurers — audits of ceding companies to ensure that reinsurance assumed is in accordance with contracts in place.
      Inserted by QFCRA RM/2013-1 and amended by Editorial changes (as from 1st January 2015).

    • PINS S4.4 What is product design risk?

      Product design risk, in relation to an insurance product, means the risk arising from:

      (a) the introduction of a new insurance product; or
      (b) the enhancement or variation of an existing insurance product.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS S4.5 Risk management policy — product design risk

      An insurer's risk management policy for product design risk should include:

      (a) the product classes and types of risks in which the insurer chooses to engage;
      (b) setting a business case for new or enhanced products;
      (c) market testing and analysis;
      (d) cost-benefit analysis;
      (e) requirements for limiting risk through measures such as diversification, exclusions and reinsurance (including confirmation that the existing reinsurance will provide protection or new reinsurance protection is being provided);
      (f) processes to ensure that policy documentation is adequately drafted to give legal effect to the proposed level of cover under the product;
      (g) an implementation plan for the product, including milestones;
      (h) clearly defined and appropriate levels of delegation for approval of all material aspects of product design;
      (i) post-implementation review; and
      (j) methods for monitoring compliance with product design policies and procedures.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS S4.6 What is pricing risk?

      Pricing risk, in relation to an insurance product, means the risk arising from inaccurately estimating:

      (a) the claims and other business costs arising from the product; and
      (b) the income from the investment of the premium received for the product.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS S4.7 Risk management policy — pricing risk

      (1) An insurer's risk management policy for pricing risk should include:
      (a) clearly defined and appropriate levels of delegation for approval of all material aspects of pricing;
      (b) a process for the reflection of emerging experience in price adjustments;
      (c) profit-loss analysis, including monitoring the effect of price movements;
      (d) price discounting authorities;
      (e) a process for the insurer's product pricing to respond to competitive and other external environmental pressures;
      (f) a process for monitoring, and the ability to monitor, deviations of actual price from the technical underwriting pricing;
      (g) methods for monitoring compliance with pricing policies and procedures for proposed pricing variations; and
      (h) the relationship between pricing, product development and investment management so that they are appropriately aligned.
      (2) The Regulatory Authority expects insurers to consider doing the following in relation to pricing insurance products:
      (a) incorporating ongoing actuarial review of, and actuarial involvement in, the pricing process;
      (b) undertaking independent reviews of:
      (i) pricing for schemes; and
      (ii) pricing for larger or more complex risks.
      Inserted by QFCRA RM/2013-1 and amended by Editorial changes (as from 1st January 2015).

    • PINS S4.8 What is claims settlement risk?

      (1) Claims settlement risk is the risk arising from the process by which insurers fulfil their contractual obligations to policyholders.
      (2) The claims settlement process is triggered when a loss occurs and a claims notification is made to the insurer. The process begins with verifying the contractual obligation to pay the claim under the policy, and is followed by:
      (a) an assessment of the amount of the liability (including loss adjustment expenses); and
      (b) the prompt and efficient handling of the claim within the terms of the policy.
      (3) Weaknesses in claims settlement and in its procedures and controls can expose an insurer to additional or increased losses that may threaten its solvency position.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS S4.9 Risk management policy — claims settlement risk

      An insurer's risk management policy for claims settlement risk should include:

      (a) clearly defined and appropriate levels of delegation of authority;
      (b) claims settlement procedures and controls, including loss estimation and investigation procedures;
      (c) criteria for accepting or rejecting claims;
      (d) dispute resolution procedures; and
      (e) methods for monitoring compliance with claims settlement procedures, such as:
      (i) internal audit (but only if it is established that the internal audit unit has the appropriate skills and experience to perform such activities);
      (ii) reviews by area heads or portfolio managers;
      (iii) peer review (including details of the staff responsible for undertaking the peer review, the frequency of such reviews and the reporting arrangements for the results);
      (iv) assessments of brokers' procedures and systems to ensure that the quality of information provided to the insurer is of a suitable standard; and
      (v) in the case of reinsurers — audits of ceding companies to ensure that the value of claims paid is in accordance with contracts.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).