Life Insurance (prudential standard) determination No. 9 of 2012 - Prudential Standard LPS 220 - Risk Management
Risk management frameworkRisk management framework
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Risk management framework
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For the purposes of this Prudential Standard, the risk management framework is the totality of systems, structures, policies, processes and people within the life company that identify, assess, mitigate and monitor all internal and external sources of risk that could have a material impact on the life company’s operations.
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A life company’s risk management framework must, at a minimum, include:
(a) an RMS;
(b) risk management policies, controls and procedures which identify, assess, monitor, report on and mitigate all material risks, financial and non-financial, likely to be faced by the life company having regard to such factors as the size, business mix and complexity of the life company’s operations;
(c) a written business plan , that is approved by the Board prior to its adoption and at any time that it is materially revised. The business plan must be reviewed by the life company at least annually;
(d) clearly defined managerial responsibilities and controls for the risk management framework; and
(e) a review process to ensure that the risk management framework remains effective.
- The material risks referred to in subparagraph 11(b) must, at a minimum, include[4]:
(a) asset risk, including asset and liability mismatch risk;
(b) asset concentration risk;
(c) operational risk[5];
(d) insurance risk, including insurance concentration risks; and
(e) strategic and tactical risks that arise out of the life company’s business plan.
- The risk management framework must consider all risks that are relevant to a life company’s individual statutory funds. The assessment of whether a risk is material must be considered at the level of the individual statutory funds as well as for the life company as a whole. A life company may also conduct business other than life insurance business external to the life company's statutory funds. The risk management framework must reflect the range of business conducted by the life company and the effects that business conducted by the life company outside of the statutory funds may have on the life insurance business.