Industry Questions/Comments
[Sections 70 to 72 of the Insurance Act 2018 (Act)]
Please provide clear guidance on what is required for each set of policies and procedures listed hereunder, at minimum, in terms of content and approach to the various issues. This would help minimise the likelihood of them being inadequate. Furthermore, there should be some guidance on what the annual compliance reviews should cover at a minimum and who would be qualified to conduct same to ensure adequacy.
Must the information system for identifying and monitoring credit exposure be electronic/automated or can it be manual?
It may also be a good idea to specify in this section of the guidance, the minimum expectations with respect to the Internal Auditor.
Central Bank of Trinidad and Tobago
These requirements are in accordance with good governance practice for which directors are responsible. Directors must:
1. have an understanding of the risks that may affect the company and how it can be mitigated; and
2. in accordance with international best practice and good governance, ensure policies and procedures are implemented to, inter alia, achieve compliance with the limits/requirements of the Act and to monitor and identify risks.
At a minimum, each of these policies should be implemented into systems and processes in order to ensure that the insurer is able to capture information in order to prevent breaches of the Act, for example, credit exposure limits, capital, prudential or corporate governance requirements, and to identify and mitigate risks of the insurer’s business in relation to these areas. These policies should be regularly reviewed and updated to take account of any changes in the insurer’s business model or risk profile.
This exercise is often most efficient and error-free in an automated system. Nevertheless, the most important consideration is the ability of insurers to implement the policies in a way that actually works and works efficiently. Ultimately, this is the decision of the directors of the company to determine the most efficient and effective manner to fulfil their responsibilities.
Directors must exercise their own due diligence and act with honesty and good faith in accordance with section 67(1) of the Act, in order to ensure that policies and procedures address all the relevant requirements/restrictions for insurers stipulated in the Act.
Internal auditor
It is expected that the directors will require the internal auditor to operate in accordance with best practice relevant to the profession and the standards and the risk management strategies of the entity.
Reporting on Credit Exposures
We would like to seek clarification on the treatment of cash balances held at financial institutions (operating accounts/liquid cash as opposed to term deposits) in the Reporting on Credit Exposures. The definition of credit exposure includes “deposits”, however there is no definition for deposits.
Please confirm whether liquid cash held at financial institutions (i.e. operating accounts) should be excluded from the Credit Exposure reports (Form CB 105).
Reporting on Credit Exposures
Final Response from the Central Bank to clarify the queries posted.
An operating deposit placed by an insurer with a bank/other deposit taking institution is available for use by the banker until demanded (withdrawn). As such, the operating deposit account is also a debt/liability for the bank who is the counterparty (the borrower) (it can be considered similar in nature to a loan by the insurer to the bank). Therefore, a deposit in the form of an operating account is a ‘credit exposure’ within the meaning of section 4(1). As a consequence, such a deposit also constitutes a credit exposure of the insurer under the Insurance Act, 2018. The bank/deposit taking institution is a counterparty by virtue of the deposit (debt) owed to the insurer.
For further guidance, insurers are referred to the definition of “deposit” in the FIA 2008 which states:
deposit” means a sum of money paid to a person, whether or not evidenced by any entry in a record of the person receiving the
sum of money, on terms under which the sum of money will be repaid or transferred to another account, with or without interest or a premium, either on demand or at a time or in circumstances agreed to by or on behalf of the depositor and that person.
It is further noted that:
Based on all of the above, deposits, which are credit exposures, would include any liquid cash held at financial institution and such balances shall be included in the credit exposure report.
