By LOVETH AZODO, Lagos
The National Insurance Commission has warned that having a strong capital base and recording good earnings are not substitute to effective risk management controls.
Delivering a paper on ‘Risk Based Supervision Implementation -The Commission’s Perspective’ at the Retreat for Financial Journalists organized recently by NAICOM in Uyo, Awka-Ibom state, the commission’s Director (Inspectorate), Mr. Agboola Pius urged insurance operators to identify the inherent risks of their companies and the effectiveness of its control functions.
According to Agboola, The underlying aim of modern Insurance Supervision is to identify problem early, act promptly and apply effective intervention
He maintained that one of the effective tools to achieve this objective is Risk Based Supervision.
Explaining the scope of RBS he said “Simply putting in a beginner language, Risk Based Supervision is the deployment of resources where it matter most focusing on the risks of the organisation or activities. Alternatively, it is the carrying out of supervisory/ regulatory activities with a risk focus for the purpose of efficient use of resources and achieving maximum output.”
However, he noted that an insurance company will be in double or triple jeopardy if it does not have a strong capital and /or if its earnings and control are weak.
“While we have stated that good earnings and strong capital are not substitute to effective risk management controls, but if you have weak capital and /or weak earnings and your controls are weak or need improvement, you will be in double or triple jeopardy, i wish and pray you will not be,” he said.
On the Commission’s action on RBS, he iterated that the intension and effort of the Commission to shift to Risk Based Supervision regime started about ten (10) years ago, adding that the climax of this effort was the issuance of a RBS ROAB MAP in 2016.
He noted that the commission has emphasised on creation of awareness and issuance of policies and directives which are regarded as the drivers of RBS implementations such as Enterprise Risk Management and internal control – Guideline on Risk management Framework was issued in 2012 and Good Corporate Governance – recently issued Code of Good Corporate Governance and Guideline – 2021.
He stressed that, determination of key risks of significant activities is very important because the focus of RBS is the assessment of risks associated with insurance companies.
Highlighting the key inherent risks, he said that the inherent risks are also known as buckets risks in the Commission’s framework.
“Credit risk; Market risk; Liquidity risk; Insurance risk; Operational risk; Legal, Regulatory, Compliance risks; and Reputational Risks Strategic risk. After significant activities have been identified, the level of each inherent risk in those activities is assessed as either being: Low (L), Moderate (M), Above Average (AA) or High (H).
“The output of the RBS Examination is the determination of the Composite Risk Rating.The Composite Risk Rating is the Framework’s (Regulator) “final” rating and reflects the assessment of the Safety and soundness of the institution by the supervisor,” he said.
He revealed that the commission has trained many of its staff using competent and experience expert, he added thst a Pilot run of the RBS Onsite Examinations has been done using five companies, “the reports of the PILOT onsite Examination have been communicated,” he said.
“Toronto Centre In collaboration with NAICOM conducted RBS Vertual Program For Sub-sahara Africa between 28thFeb to 4th March 2022
In his optimism, he said that NAI COM will become the leading regulator on Risk Based Supervision in Sub-Sahara Africa.
“With the presentation made, it is evidence that NAICOM has not only commenced the implementation of RBS but would be, very soon become the leading regulator on Risk Based Supervision in Sub-Sahara Africa.”
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