THE LETTER OF THE AGENCY OF THE REPUBLIC OF KAZAKHSTAN ON REGULATION AND SUPERVISION OF THE FINANCIAL MARKET AND THE FINANCIAL ORGANIZATIONS

of July 29, 2010 No. 06-03-11/820/14608

Concerning management system and risks of internal control in the insurance (reinsurance) organizations

Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations (further - the Agency), having considered your letter No. 12-2-3/03/2121 of 21.06.2010, reports the following.

On question 1

According to Item 7 of the Instruction on requirements for availability of risk management systems and internal control in the insurance (reinsurance) organizations approved by the resolution of Board of the Agency of February 1, 2010 No. 4 (further - the Instruction), in the insurance (reinsurance) organization committees in case of the board of directors concerning internal audit, risk management, appointment and remuneration can be created, komplayens, disclosures of information, investments.

The committee is working advisory body of the insurance (reinsurance) organization to which functional duties consideration and decision making on the main activities of the insurance (reinsurance) organization or key questions according to the powers assigned by the board of directors belongs.

Committees consist of the board members and experts having necessary professional knowledge for work in specific committee. The structure of committees affirms the solution of the board of directors.

According to Item 8 of the Instruction for the purpose of forming of adequate risk management systems and internal control in the insurance (reinsurance) organization the following collegiate advisory bodies are created:

underwriting council;

council on asset-liability management.

According to the subitem 1) of Item 22 of the Instruction of the politician for risk management provides regular carrying out stress testing, scenario analyses and determines availability as a part of organizational structure of the insurance (reinsurance) organization of underwriting council, council on asset-liability management, divisions by risk management in case of the board of directors.

Thus, regulations of the Instruction provide obligatory availability as a part of organizational structure of the insurance (reinsurance) organization of division on risk management in case of the board of directors (but not committee).

The following advisory collegiate organs shall be without fail created: underwriting council and council on asset-liability management.

Provisions of the Instruction for creation of committees in case of the board of directors, including management committee of risks, have advisory nature.

On question 2

According to Item 18 of the Instruction the code of corporate governance is developed by board according to the legislation of the Republic of Kazakhstan, the principles of corporate management, and also taking into account the best international practice of corporate behavior, ethical standards, requirements and conditions of insurance activity (reinsurance) organization at the current stage of development.

According to the subitem 14) article 1 of the Law of the Republic of Kazakhstan "About joint-stock companies" (dalee-Zakon about the joint-stock company) the code of corporate governance of society - the document approved by general meeting of shareholders of society, governing the relations arising in management of society including the relations between shareholders and bodies of society, between bodies of society, society and interested persons;

Article 4-1 of the Law on the joint-stock company establishes the requirements to the public company including availability of the code of corporate governance.

Considering stated, we consider that requirements of Item 18 of the Instruction do not contradict the provisions of the law about the joint-stock company.

According to the subitem 4) of Item 1 of article 9 of the Law for the purpose of regulation and supervision of activities of the financial organizations the authorized body publishes the regulatory legal acts obligatory for execution by the financial organizations, consumers of financial services, other physical persons and legal entities in the territory of the Republic of Kazakhstan.

With respect thereto, the insurance (reinsurance) organization needs to provide fulfillment of requirements of Item 18 of the Instruction.

On question 3

Explanations on filling of forms of the reporting provided by appendix 1 to the Instruction will be provided by the Agency in written procedure in process of receipt of requests from the insurance (reinsurance) organizations.

On question 4

In compliance the subitem 1) item 4 of the Instruction risk of insurance payments - the risk connected with implementation of insurance payments.

With respect thereto, we report that risks of insurance payments include all risks arising in settlement process and implementation of insurance payments, including connected with decision making on recognition of insured event, amount and term of implementation of insurance payment.

Requirements to risk management of insurance payments, including the procedure of interaction of structural divisions of the insurance (reinsurance) organization, are stated in Chapter 7 of the Instruction.

On question 5

According to Item 34 of the Instruction in case of the conclusion of the insurance contract it is necessary to draw the attention of the insurer (insured, the beneficiary) to the following:

1) possibility of decrease to minimum of losses as a result of insured event;

2) need and possibility of the timely message on loss occurrence;

3) cooperation in assessment and investigation of insured event, including provision of the insurance (reinsurance) organization of all necessary information;

4) provision of access of the insurance (reinsurance) organization to conducting necessary check and assessment of object of insurance;

5) actions plan availability on decrease in risks.

This Item provides to notify obligation of the insurance (reinsurance) organization the insurer on need of acceptance by the insurer of the preventive measures directed to decrease in losses as a result of insured event, to the due notice of the insurer about loss occurrence, etc.

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