CI-3.3.1

Principle 10 (CI-2.2.3) requires firms to have systems and controls that are appropriate for their business. Consequently, Module RM (Risk Management) contains Rules and Guidance on how, specifically, firms should monitor and manage risk. This Module applies to all licensees, and it is for firms to consider the scale and complexity of the procedures that are required, given the nature of their operations.

CI-3.3.2

The Module contains both:

In meeting these requirements for captive insurers, the CBB expects that insurance managers will put in place the systems and controls for on-going identification and monitoring of risks on behalf of the companies that they manage, and that these will be reported periodically to Boards. However, the overall responsibility for the management of risk ('the establishment and oversight of effective risk management systems'), and ensuring the adequacy of this reporting, lies with Boards.

CI-3.3.3

There are specific requirements for outsourcing. For a captive insurer, who outsources the day-to-day management (and perhaps other functions such as claims handling), it is a requirement that these should be governed by a written service agreement that meets the requirements of Chapter RM-7.

CI-3.3.4

The CBB has exempted captive insurance firms from the specific requirement to undertake stress and scenario testing to test the resilience of their financial resources to specific areas of significant risk. This does not in any way exempt the Board from its general requirement to ensure the effectiveness of its risk management systems (including, but not limited to, ensuring the appropriateness of its premium structure and carrying out any financial modelling considered necessary as part of its underwriting process). The CBB would consider it good practice, as part of this review of the Board, for the firm to carry out stress testing to evaluate the effect of the principal risks identified on the financial resources of the firm. The CBB would also expect an application for licensing to include such stress-testing of its financial projections with its application.