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Hong Kong: Regulator plans to introduce ERM rules in 2020

Source: Asia Insurance Review | Aug 2018

Hong Kong Regulation Risk Management

The Hong Kong Insurance Authority (IA) recently released a draft guideline on enterprise risk management (ERM) as part of Hong Kong’s move towards a risk-based capital regime.
The IA proposes to finalise the draft guideline by late 2018 for implementation on 1 January 2020. 
The goal is to align insurers’ capital requirements with the risks to which they are exposed; and strengthen insurers’ risk management capabilities.
The ERM framework and risk-management policies should be proportionate to the nature, scale and complexity of the risks inherent to each insurer’s business.
The IA has also stated that the boards of directors and senior managers of insurers should take ownership of shaping insurers’ risk culture, including the responsibility to establish, implement and oversee the ERM framework.
The major requirements of the draft ERM guideline include: 
  1. Establishing an ERM framework with sufficient governance to ensure safe and sound operation; 
  2. Setting a risk-appetite statement that is supported by clear and well-documented risk limits structure and risk management policies and procedures; 
  3. Encompassing regular activities of risk identification, risk quantification, risk monitoring and reporting, and management review and actions. These activities would include stress and scenario testing, continuity analysis and business failure analysis, as appropriate;
  4. Review of the ERM framework regularly in tandem with a robust feedback loop mechanism to ensure continued effectiveness of the framework; and
  5. Performing an own risk and solvency assessment at an appropriate level on an annual basis to assess the risk profile, the adequacy of risk management and also the current, and likely future, solvency and liquidity positions, such that the insurer remains viable under both normal and stressed situations. A 
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