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  • RM-4 RM-4 Market Risk

    • RM-4.1 RM-4.1 Market Risk

      • RM-4.1.1

        Section RM-4.1 applies only to insurance firms.

      • RM-4.1.2

        Insurance licensees must identify and manage their market risk across all their operations, and document their policies and procedures for achieving this in a market risk policy. This policy must be regularly reviewed.

        Amended: October 2007

      • RM-4.1.3

        Market risk relates to the exposure of the insurance licensee, to fluctuations in the market value, currency or yield of an asset.

      • RM-4.1.4

        A licensee's market risk policy must identify its appetite for market risk, systems for identifying, reporting and documenting market risk and mitigation factors in place.

      • RM-4.1.5

        Insurance firms (other than captives) must carry out stress testing to assess the resilience of their financial resources to any identified areas of material market risk under reasonably foreseeable circumstances. This stress testing may take into account the rating and geographical spread of its assets, the duration of their maturity relative to the licensee's liabilities and the fluctuation of interest and currency rates.

      • RM-4.1.6

        The insurance licensee should consider potential market risk events that may affect its solvency. These include the following:

        (a) Reduced values of equities due to stock market falls, etc;
        (b) Variation in interest rates and the effect on the market value of investments;
        (c) A lower level of investment income than planned;
        (d) Inadequate valuation of assets;
        (e) The direct impact on the portfolio of currency devaluation, as well as the effect on related markets and currencies; and
        (f) The extent of any mismatch of assets and liabilities.
        Amended: January 2007

      • RM-4.1.7

        Chapter CA-4 contains Rules and Guidance relating to the valuation of assets and counterparty limits. Chapter CA-6 contains Rules and Guidance relating to currency matching and localisation.

        Amended: January 2007

      • RM-4.1.8

        Where the insurance licensee considers that the nature of its assets and the matching of its liabilities result in no significant market risk exposure (e.g. its investments consist entirely of cash and bank deposits), it will not be expected to carry out stress testing. The CBB will expect it to document the reasons for its decision and be prepared to discuss these during an on-site visit.

        Amended: January 2007