THE RESOLUTION OF BOARD OF THE AGENCY OF THE REPUBLIC OF KAZAKHSTAN ON REGULATION AND DEVELOPMENT OF THE FINANCIAL MARKET

of December 22, 2020 No. 126

About modification and amendments in the resolution of Board of National Bank of the Republic of Kazakhstan of August 27, 2018 No. 198 "About approval of Rules of forming of risk management system and internal control for the insurance (reinsurance) organizations"

For the purpose of enhancement of regulatory legal acts of the Republic of Kazakhstan Board of the Agency of the Republic of Kazakhstan on regulation and development of the DECIDES: financial market

1. Bring in the resolution of Board of National Bank of the Republic of Kazakhstan of August 27, 2018 No. 198 "About approval of Rules of forming of risk management system and internal control for the insurance (reinsurance) organizations" (it is registered in the Register of state registration of regulatory legal acts at No. 17462, it is published on October 9, 2018 in Reference control bank of regulatory legal acts of the Republic of Kazakhstan) the following changes and amendments:

in Rules of forming of risk management system and internal control for the insurance (reinsurance) organizations approved by the specified resolution:

state Items 2 and 3 in the following edition:

"2. In Rules the following concepts are used:

1) underwriting - complex of procedures for acceptance on insurance or reinsurance of the declared object of insurance on the basis of assessment of insurance risks for the purpose of determination of insurance coverage, conditions of insurance, level of the franchize and insurance rate in the limits set by the actuary;

2) the management reporting - the instrument of internal control and assessment of organization activity;

3) gap analysis - methods of measurement of interest risk and liquidity risk on the basis of comparison of amount of the assets and liabilities of the organization subject to changes of rates of remuneration or due for settlement during certain terms;

4) limitation - establishment of high-quality, quantitative restrictions of the accepted risks, establishment of restrictions for transactions (transactions) of the organization.

In case of limitation the following parameters are determined:

indicator on which the limit is set;

method of measure calculation on which the limit is set;

limiting (maximum, minimum) measure value;

5) conflict of interest - situation in case of which there is contradiction between personal interest of officials of the organization and (or) his workers and proper execution of the ex-officio full powers by them or valuable and other interests of the organization and (or) his workers and (or) clients which can entail adverse effects for the organization and (or) his clients;

6) policy - set of the internal documents including the policy and (or) internal documents determining the necessary criteria, parameters, approaches, the principles, standards, procedures and mechanisms providing effective functioning of the organization and compliance of its activities of strategy and to admissible risk level;

7) stress testing - methods of measurement of potential influence on financial position of the organization of exclusive, but possible events which can exert impact on organization activity;

8) risk - possibility of emergence of the circumstances causing uncertainty or impossibility of receipt of the expected results of organization activity, emergence of expenses (losses);

9) system of risks assessment - set of the coefficients intended for complex financial analysis of the organization;

10) risk management system - the permanent structured process established by the board of directors and board of the organization performed within all organization for the purpose of identification, assessment, monitoring, decrease in the risks and their effects influencing goal achievement of the organization;

11) the card of risk - the graphical and text description of the risks of the organization located in the table according to which on one "axis" force of impact or the importance of risk, and on another probability or frequency of its origin is specified;

12) risk limit - means of quantitative or high-quality restriction of the accepted risk;

13) identification of risk - process of stay, creation of the list and description of risk elements;

14) risk measurement - determination of degree of risk probability and the sizes of potential expenses (losses) which are performed by means of assessment of effects and probability of approach of event in the mathematical way by means of application of probability theory and the law of large numbers on the basis of statistical information;

15) authorized body - authorized body on regulation, control and supervision of the financial market and the financial organizations;

16) internal audit - indivisible element of managerial supervision by means of which the service of internal audit estimates the financial reporting, and also other data and information which are giving in to quantitative and quality standard of organization activity for the purpose of further reflection of degree of its compliance to the legislation of the Republic of Kazakhstan on insurance and insurance activity on compulsory insurance, about joint-stock companies, about the security market, about counteraction of legalization (washing) of income gained in the criminal way and to terrorism financing, internal documents, the international professional standards of internal audit;

17) internal control is the process performed by the board of directors, collegiate organs, board, employees of the organization, aimed at providing goal achievement on the following categories:

efficiency of activities;

reliability, completeness and timeliness of the financial reporting and management reporting;

compliance with law of the Republic of Kazakhstan about insurance and insurance activity, about compulsory insurance, about joint-stock companies, about the security market, about counteraction of legalization (washing) of income gained in the criminal way and to terrorism financing;

18) internal control system - the set of control procedures, actions and techniques providing:

proper and effective conducting financial and economic organization activity;

observance of requirements of the legislation of the Republic of Kazakhstan on insurance and insurance activity, about compulsory insurance, about joint-stock companies, about the security market, about counteraction of legalization (washing) of income gained in the criminal way and to terrorism financing;

effective separation of responsibility;

timely and proper execution by employees of the organization of requirements of internal documents;

ensuring safety of property;

prevention and identification of the facts of fraud and managerial mistakes;

timeliness of preparation, reliability and completeness of the financial reporting and management reporting.

3. Risks of the organization are classified as follows:

1) the risks connected with implementation of insurance activity:

risk of underwriting - risk of the wrong (wrong) assessment accepted on risks insurance;

risk of insurance reserves - risk of forming of insufficient (inadequate) insurance reserves;

risk of insurance payments - the risk connected with the wrong, untimely implementation of insurance payments;

catastrophic risk - risk that one event of the considerable size will give to insurance payments above regular;

risk of reinsurance - risk of insufficient reinsurance covering or inability of the overcautious person to perform payment for the agreement of reinsurance;

2) investment risks - the risks arising in the course of reinsurance and investing activities.

Treat investment risks:

credit risk - risk of emergence of expenses (losses) owing to insolvency of debtors, changes of credit ratings of the bond issuing institutions who are available in investment portfolio of the organization;

liquidity risk - the risk connected with impossibility of quick sale of assets of the organization for repayment of the obligations;

market risk - probability of expenses (losses) connected with adverse movements of the financial markets owing to change of market value of financial instruments, interest rates, the foreign exchange rates, costs of precious metals.

Treat market risk:

currency risk - risk of emergence of expenses (losses) owing to adverse change of the foreign exchange rates;

price risk - risk of emergence of expenses (losses) owing to adverse change of market prices of financial instruments and derivative financial instruments under the influence of market factors;

interest risk - risk of emergence of financial expenses (losses) owing to adverse interest rate realignment on assets, liabilities of the organization;

3) operational risk - risk of emergence of losses owing to shortcomings (mistakes) during implementation of the internal processes allowed from the leading and other workers, inadequate functioning of information systems (technologies) and also owing to external events;

4) komplayens-risk - risk of emergence of expenses (losses) or application of measures of authorized body or loss of reputation and (or) conflict of interest owing to non-compliance by the organization and his workers of requirements of the legislation of the Republic of Kazakhstan on insurance and insurance activity, about compulsory insurance, about joint-stock companies, about the security market, about counteraction of legalization (washing) of income gained in the criminal way and to financing of terrorism and (or) internal documents of the organization, and (or) the legislation of foreign states exerting impact on organization activity;

5) strategic risk - risk of emergence of losses owing to incorrect management decisions, inadequate realization of the made management decisions and (or) inability of the organization to adapt to changes of business environment;

6) neighboring risks:

audit risk - the probability of recognition which is subjectively determined by the auditor following the results of audit inspection that the financial reporting may contain not revealed essential misstatements after confirmation of its reliability or contains essential misstatements when actually there are no such misstatements;

risk of group - risk of negative impact on reputation, marketing and financial condition of the organization of deterioration in financial condition of the organization of the same group which part the organization is;

systemic risk - the risk connected with drawing expenses (losses) the organization as a result of involuntary liquidation of other insurance (reinsurance) organization;

fraud risk - the risk connected with possibility of expenses (losses) as a result of fraudulent actions of workers and the third parties;

reputation risk - risk of emergence of expenses (losses) owing to negative public opinion or decrease in trust to the organization;

country risk - risk of emergence of expenses (losses) owing to insolvency or unwillingness of foreign state or resident of foreign state to answer for the obligations.";

state Item 12 in the following edition:

"12. The organization annually no later than January 15 of the year following reporting represents to authorized body of the data on assessment of risk management system and internal control in form according to appendix 2 to Rules, with application of copies of supporting documents.";

add with Items 13-1 and 13-2 of the following content:

"13-1. The organization based on annual financial and other accounts performs the analysis of coefficients of system of risks assessment of the organization.

The organization annually after approval by the board of directors, but no later than April 30 of the year following reporting represents to authorized body the analysis of coefficients of system of risks assessment (with explanations on the coefficients which are going beyond the standard range) in form according to appendix 3-1 to Rules for the organization performing activities for industry "general insurance", and appendix 3-2 to Rules for the organization performing activities for industry "life insurance" and, in case of availability of four and more variations of coefficients of system of risks assessment of the organization from the approved limits of the standard range, the actions plan approved by the board of directors on improvement of coefficients of system of risks assessment or the solution of the board of directors on lack of need of plan development of actions for improvement of coefficients of system of risks assessment.

13-2. If the organization as of reporting date performs activities less than two financial years, in case of determination of quantity of variations of coefficients of system of risks assessment of the organization from the approved limits of the standard range coefficients in which calculation data for the end of each annual accounting period of the last two financial years are used are not considered.";

state Item 15 in the following edition:

"15. For the purpose of the organization of effective risk management system the board of directors:

1) approves policy on risk management and the internal documents developed according to Rules;

2) is annually approved by the analysis of coefficients of system of risks assessment of the organization and, in case of availability of four and more variations of coefficients of system of risks assessment of the organization from the approved limits of the standard range, approves the actions plan on improvement of coefficients of system of risks assessment of the organization or makes the decision on lack of need of plan development of actions for improvement of coefficients of system of risks assessment;

3) regarding corporate management:

coordinates activities of collegiate organs, services of internal audit, board, structural divisions;

takes measures for decrease in probability of conflicts of interest in functional obligations of leading employees;

provides check of the fact of provision of preferential terms to the faces tied with the organization by the special relations;

other questions which are within the competence of the board of directors;

Considers 4) for the purpose of adjustment of strategic objectives:

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