of February 1, 2010 No. 4
About approval of the Instruction about requirements for availability of risk management systems and internal control in the insurance (reinsurance) organizations
For the purpose of enhancement of the regulatory legal acts regulating questions on forming of risk management systems and internal control in insurance (reinsurance) organizations, Board of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations (further - the Agency) DECIDES:
2. Recognize invalid the resolution of Board of the Agency of April 30, 2007 as No. 130 "About establishment of requirements to availability of risk management systems in the insurance (reinsurance) organizations" (registered in the Register of state registration of regulatory legal acts at No. 4712).
4. To department of supervision of subjects of the insurance market and other financial organizations (Karakulov D. Sh.):
1) together with Legal department (Sarsenov N. V.) to take measures to state registration in the Ministry of Justice of the Republic of Kazakhstan of this resolution;
2) in ten-day time from the date of state registration in the Ministry of Justice of the Republic of Kazakhstan to bring this resolution to the attention of the interested divisions of the Agency, Consolidation of legal entities "Association of financiers of Kazakhstan".
5. To service of the Chairman of the Agency (Kenzhe A. A.) take measures for publication of this resolution in mass media of the Republic of Kazakhstan.
6. To impose control of execution of this resolution on the vice-chairman of the Agency Aldambergen A. U.
Approved by the Resolution of Board of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations of February 1, 2010 No. 4
This Instruction is developed according to the Law of the Republic of Kazakhstan of December 18, 2000 "About insurance activity", and also according to the standards accepted in the international practice on risk management in the insurance (reinsurance) organizations.
1. The purpose of this Instruction is determination of requirements to forming in the insurance (reinsurance) organizations (further - the Organizations) the adequate risk management systems and internal control providing application of control methods of the risks providing effective determination, assessment and restriction of risks taking into account type and amount of the performed operations.
2. The board of directors and board of the Organization provide compliance of risk management systems and internal control to requirements of this Instruction and create conditions for execution by divisions and employees of the Organization of the obligations assigned to them in the field of risk management and implementation of internal control.
3. For the purposes of this Instruction the following concepts are used:
1) adzhaster - the employee of the Organization as whom consideration of the application on insurance payment and damage assessment from insured event enters;
2) underwriting - complex of procedures for acceptance on insurance or reinsurance of the declared object of insurance on the basis of risks assessment for the purpose of determination of insurance coverage, conditions of insurance, level of the franchize or covering and insurance rate in the limits set by the actuary;
3) the management reporting - the instrument of internal control and assessment of organization activity;
4) gap - 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;
5) retail insurance - insurance of physical persons;
6) the compliance controller - the worker whose exclusive competence includes control of realization of policy of management of komplayens-risk;
7) corporate insurance - insurance of legal entities;
8) the agreement of inward reinsurance - the agreement of reinsurance according to which the Organization accepts part of insurance risks of the reinsurer;
9) the counterpartner - the organization with which the Organization cooperates (or plans to cooperate), and (or) being the party according to the transaction in which the Organization participates;
10) 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 measurement (calculation) of indicator on which the limit is set;
limiting (maximum, minimum) measure value;
11) conflict of interest - contradiction between valuable and other interests of workers, structural divisions, committees as a result of which action (failure to act) of one party attracts adverse effects for other party;
12) net - award - the amount of money estimated by the actuary on the basis of actuarial methods which is subject to payment by the Organization for adoption of obligations by it only on implementation of insurance payments without covering of other expenses of the Organization;
13) insurance risk - the expected event attracting losses (expenses) on which case of approach the insurance contract is signed.
14) 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;
15) the external auditor - person performing check for the purpose of expression of independent opinion on the financial reporting and other information connected with the financial reporting of the Organization, not being on the staff of the Organization;
16) the surveyor - the employee of the Organization or the legal entity providing services to the Organization according to the services agreement as which preliminary examination and assessment of object of the insurance accepted on insurance enters;
17) risk - possibility of emergence of the circumstances causing uncertainty or impossibility of receipt of the expected results of organization activity, drawing material damage;
18) risk management system - the permanent structured process performed within all Organization for the purpose of identification, assessment, monitoring, decrease in the risks and their consequences influencing goal achievement of the Organization;
19) identification of risk - process of stay, creation of the list and description of risk elements;
20) risk measurement - determination of degree of risk probability and the extent of potential damage is performed by means of assessment of consequences 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 data;
21) the card of risk - the graphical and text description of limited number of the risks of the Organization located in the table for one "axis" to which force of impact or the importance of risk, and on another probability or frequency of its origin is specified;
22) risk limit - means of quantitative or high-quality restriction of the accepted risk;
23) group - the group of legal entities consisting of the parent organization and its affiliated organizations, and also the organizations in which the parent organization and (or) its affiliated organizations have considerable equity participation and which conforms to requirements of the legislation of the Republic of Kazakhstan;
24) the agreement of outward reinsurance - the agreement of reinsurance according to which the Organization transfers part of insurance risks to reinsurance;
25) 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 compliance to the legislation, the established internal regulations and criteria, international standards of audit;
26) internal control is the process performed by the board of directors, board and other employees of the Organization, aimed at providing goal achievement on the following categories:
efficiency of activities;
reliability, completeness and timeliness of financial and management information;
compliance with law of the Republic of Kazakhstan;
27) 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;
effective separation of responsibility;
timely and proper execution by employees of the Organization of orders of management;
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 other management information;
28) domestic policy - the established internal regulations and procedures regulating the activities connected with the organization of risk management systems and internal control;
29) authorized body - National Bank of the Republic of Kazakhstan;
30) facultative reinsurance - method of reinsurance in case of which the reinsurer and the overcautious person is given risks assessment opportunity which can be transferred to reinsurance fully or partially (in certain share).
The risks connected with implementation of insurance activity include 1):
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 implementation of insurance payments;
catastrophic risk - risk that one event of the considerable size will lead 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 (market risks, credit risk, liquidity risk) - the different types of risks arising in the course of reinsurance and investing activities of the Organization:
market risks - probability of the losses connected with adverse movements of the financial markets (owing to change of market value of financial instruments, interest rates, the foreign exchange rates, precious metals). Market risks include currency, price and percentage risks:
currency risk - risk of emergence of losses owing to adverse change of the foreign exchange rates;
price risk - risk of emergence of 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 losses (losses) owing to adverse interest rate realignment on assets, liabilities of the Organization;
credit risk - risk of emergence of losses owing to insolvency of debtors, changes of credit ratings of the bond issuing institutions who are available in investment portfolio of the Organization and other intermediaries;
liquidity risk - the risk connected with impossibility of quick sale of assets of the Organization for repayment of the obligations;
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;
risk of emergence of damages owing to non-compliance with requirements of the legislation of the Republic of Kazakhstan by the Organization, and also internal regulations and procedures of the Organization;
risk of application of limited corrective actions and sanctions of authorized body, essential loss or loss of reputation as a result of non-compliance with the legislation of the Republic of Kazakhstan by the organization regarding regulation of insurance activity;
risk of the missed profit owing to emergence of conflicts of interest or discrepancy of actions of workers to internal and external regulating documents;
5) 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 or may contain undetected 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 as a result of deterioration in financial condition of the organization of the same group which part the Organization is;
systemic risk - the risk connected with causing damage of the Organization as a result of involuntary liquidation of other insurance (reinsurance) organization;
fraud risk - the risk connected with possibility of losses as a result of fraudulent actions of workers and the third parties;
reputation risk - risk of emergence of losses owing to negative public opinion or decrease in trust to the Organization;
country risk - risk of emergence of losses owing to insolvency or unwillingness of foreign state or resident of foreign state to answer for the obligations.
5. The organization represents to authorized body semi-annual till July 15 and annual till January 15 of the year following for reporting, the reports on assessment of accomplishment of criteria of requirements of this Instruction containing:
independent assessment of conformity to requirements to risk management systems and internal control with application of copies of supporting documents (in form according to appendix 1 to this Instruction);
written explanation with appendix of the actions plan on elimination of discrepancies, responsible persons and completion dates of actions, in case of detection of discrepancies to certain criterion(a) of the requirement(s).
6. The stress testing on risks is calculated the Organization on quarterly basis according to appendix 2 to this Instruction.
Results stress testing are represented to authorized body no later than the fifteenth working day of the month following reporting quarter.
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