tiba capacity building session #2 global risk workshop ...tiba.co.tz/wp-content/downloads/tiba...

TIBA Capacity Building Session #2Global Risk WorkshopThursday 17 September2015

© 2015 KPMG East Africa, a company and a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

1

The KPMG Touch

About KPMG- What we do…

KPMG has a large client base representing

commercial, financial and government

interests in virtually every sector of the

global economy.

KPMG clients include:

• Awash International Bank

Ethiopia

• East Africa Community

Secretariat

• Allianz Insurance Company

• BRITAM Insurance

• AAR Insurance

• APA Insurance

KPMG is a global network of professional services firms whose aim is to turn

understanding of information, industries, and business trends into value.

Constantly striving to be better lies at the heart of what makes us different.

Globally connected,

locally relevant

For almost 100 years, KPMG has provided very high calibre professional services to its clients. Today, having successfully grown to be one of the largest professional

services organisations in the world, KPMG is acknowledged as a leader in all forms of audit, tax, and advisory services with a global approach to services that spans

industry sectors and national boundaries. Global capability and consistency are central to the way we work. By providing global organisations with the same quality of

service and behaviour around the world, we can work with them wherever they choose to operate. Our industry focus helps KPMG people to develop a rich

understanding of clients’ businesses and the insight, skills, and resources required to address industry-specific issues and opportunities.

KPMG in Africa

KPMG has a notable ‘African Footprint’ and is

well used to serving clients across the

continent. We have 33 practices serving 54

countries in Africa providing a full range of

audit, tax, and advisory services. With this

coverage, KPMG is able to draw from a pool

of resources with a wide range of skills and

experience enabling us to provide innovative,

high quality services to our clients. We are

also able to offer coordinated services where

the client is represented in more than one

location.

162,000 people globally

We operate in 155 countries

24.8

bn

global revenuesin 2014U

S$

KPMG facts and

figures…

More than

10%Growth in Africa

© 2015 KPMG East Africa, a company and a member firm of the KPMG network of independent member firms


2

About KPMG in East Africa

Our 450+ professionals including 17

partners/directors are specialists and the

best at what they do. We apply deep

market knowledge and expertise in audit,

tax and advisory to distinguish the

relevant and important from the complex

and the unnecessary.

Regional expansion begun in 1995 with the setting

up of offices in Dar-es-Salaam and Kampala. Within

a short period, KPMG gained recognition as a

leading provider of audit, tax and advisory services

throughout the East Africa region, namely Kenya,

Uganda, Tanzania and Rwanda.

The firm’s involvement in East Africa goes

back to 1949 when it operated as Angus,

Lawrie and Jeremy in Kenya. In 1965, the

name of the firm changed to Peat Marwick,

Mitchell and Co. The firm operated as such

until 1989, when, as a result of the

international merger between Peat Marwick

International and Klynveld Main Goerdeler,

KPMG was created.

KPMG East Africa has considerable

experience in audit, tax and advisory

services. The Nairobi office serves as the

regional office providing the required

networking to facilitate delivery of services

on a timely basis to meet and exceed our

clients’ expectations. Bringing local

solutions to local issues

Globally

Connected, Locally

Relevant

64 Years Wealth of

Experience

High

Performing

Professionals

Cutting through

complexity

© 2015 KPMG East Africa, a registered partnership and a member firm of the KPMG network of independent member firms


Ag

en

da

1

2

3

4

5

Market Trends

ERM, Attaching Risk and Stakeholders

Conduct Risk and Cyber

Risk

Team Exercises

Regulatory Risk,

Basel and

Solvency

II and

Country Hot Picks

© 2015 KPMG East Africa, a company and a member firm of the KPMG network

of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved.

Key Concepts For Today

We must think

Global to

think African

We must think

East African

to think

Tanzania



5

Health Check. Lets go around the room and you will tell the person next to you how you feel…



1

Market Trends



7

1 The African Landscape (*KPMG- Insurance in Africa Report)

Country Penetration Level % $ Premium

Income

Average Growth

2010- 2013 %

South Africa

Morocco

Namibia

Kenya

Nigeria

Angola

E/A Country No. of Insurers with

South Africa

Ownership

(Full/Partial)

Kenya

Uganda

Tanzania

Rwanda

Split into 4 teams and

rank the countries by 1

of the metrics-

say why you think that

is the case; and also

guess the number of

SA owned firms…



8

1 The African Landscape

Country Penetration Level

%

$ Premium

Income

Average Growth

2010- 2013 %

South Africa 14.1 51.6 2.04

Morocco 3.1 3.2 6.96

Namibia 7.2 1.0 2.31

Kenya 2.8 1.5 15.05

Nigeria 0.3 1.6 7.03

Angola 0.7 1.1 10.63

E/A Country No. of Insurers with

South Africa

Ownership

(Full/Partial)

Kenya 4

Uganda 3

Tanzania 3

Rwanda 1



9

1 Summary- South Africa Influence- Life

Excluding South Africa, African Premium is

$18.3

90% of Life Insurance

Premium is Generated in SA

More Awareness

Advanced Conduct Risk

Better Analytics

Developed ERM

Excluding SA- Life Insurance

Penetration is 0.27% in Africa

It Currently

Dominates



10

1

A lack of awareness and understanding

of insurance products

A distrust in financial service providers

Low income levels meaning it is not a

priority or necessity

Lack of product innovation

Lack of distribution channels

Informal or alternative insurance

A lack of skill sets e.g. risk, actuary

Developing regulatory and legal

frameworks

Prevalence of short term insurance

Fraud and corruption

Lack of statistics

Abolition of composite insurers…

Despite the low penetration there are

changing dynamics and huge opportunities

across the continent:

Insurance is rising fast in the emerging

middle classes; Large diaspora

returning or investing

Social media and mobile platforms are

increasing access and awareness

There are new distribution channels

and micro-insurance to focus on the

uninsured for financial inclusion

Takaful insurance is developing

(complaint with Sharia Law)

Refreshing of Insurance Regulations

Developing classes of business/infra-

structure

Reminder: Overview of Opportunities and Challenges in EA



11

1 Further Example- Unique Landscape

According to the

World Bank, 17%

of adults in

advanced

countries have

health insurance

vs. 3% in Sub

Sahara Africa

Large $1 a day

population- future

customers and

consumers

Insurers are

estimated to

target only the top

5% of the

population- lack of

financial inclusion



12

1 Global Risk Map



2

ERM, Attaching Riskand Stakeholders



14

Attaching Risk2

Risk is attached to many aspects of an

organisation and cannot be viewed in

isolation.

If you understand your risks and how

they interconnect you can manage

risk in the right way…

Mission

Strategy

Core Processes

Key Dependencies

This is the application of

ERM- viewing risk across

the whole portfolio of the

organization and its

interaction

Corporate

Objectives

Stakeholder

Expectations

Significant Risks



15

Categorising Risk- FIRM2

Financial:

Pricing and reserving

Fraud

Projects

Regulatory fine

Attrition rates

Investments

Captives

Reinsurance premiums

Infrastructure:

Theft

Fire

Sabotage

IT system

Loss of key personnel

Surge event

Terrorist attack

Catastrophe

Reputational:

Value for money and quality

Marketing

People

Customer service

Product design & range & vitality

Ethics

CSR

Brand and values

Longevity

Market Place:

Mergers/acquisitions

Joint ventures

Product innovation

Regional expansion

Technology

Distribution channels

Micro-insurance

FIRM

Scorecard

Strategic Risk

Long Term-

positive and

negative

Measured in

$$$

Hazard Risks

derived from

Strategy-

positive and

negative

Measured by

perception

Hazard Risk

Operational

Short Term

100% negative

Measured by

disruption

Control Risks

e.g. Projects

Medium Term

Positive

Measured by

market share



16

2 Stakeholders

Split into teams of 4

Discuss:

• What is/who are your

stakeholders

• What are their competing

interests

• What are the risks

• Is this any different to a global

picture?

You have 10 Minutes!!!…..



17

2 Stakeholders Unravelled

Stakeholder Group Expectations

Customers Low premiums

Excellent and fair service

Range of products

Secure data

Staff Good pay and conditions

Career progression and no discrimination or

barriers

Strong brand/pride in the brand

Financiers Strong pricing

Profits via investments

Low loss ratios and costs

Expansion

Suppliers Fair tenders and procurement fees

Opportunities and loyalty

Integrity in dealings

Regulator Ethical behavior

Compliance and cooperation to frameworks

Strong governance

External audits and good QA

Society CSR

Innovation and technology

Access to products

Sustainable and strong industry



3

Regulatory

Risk, Basel II,

Solvency II

and

Country

Hot Picks



19

3 Overview of Regulatory Landscape- East Africa

The Region is walking towards harmonized regulations,

increased capital requirements, risk based supervision and

greater customer care

Kenya Uganda Tanzania Rwanda Burundi Ethiopia

Regulator : IRA

Population: 44.35M

Insurance Act : ☑

Capital Requirements:

$1.6M- $5.4

Recent developments:

• Strategic Plan for

2013-2018

• Draft Insurance Bill

to update existing

Act

Regulator : IRA

Population: 40.36M

Insurance Act : ☑


$341k- $1.025M


• Preparing new

frameworks on

corporate

governance, risk

management and

solvency

• New AML proposals

Regulator : TIRA

Population: 50.83M

Insurance Act :☑


$543k- $2.715


• Micro Insurance Act

2013

• Creation of FOS

Regulator : National

Bank

Population: 12.5M

Insurance Act : ❎


$1.45M


• Corporate

Governance

Regulations

• Customer Care

frameworks

Regulator : ARCA

Population: ll10.16M

Insurance Act : ☑


$318K- $637k


• New Insurance Act

Regulator : National

Bank

Population: 101M

Insurance Act : ❎


$2.452M- $2.92M


• Increased capital

requirements

• AML Law

• Information

Exchange Scheme

on Outstanding

Premiums



20

3 Overview of Regulatory Landscape- Global

A global comparison on regulatory regimes in comparable established and

emerging markets on the continent and beyond illustrates the differences in

capital requirements and key focuses. It can be seen that Vietnam, Mexico,

Columbia and India are also developing risk based supervision; East Africa sits

within the capital bandings; South Africa has newly established Micro-

Insurance Regulations; and India is focusing on fraud risk. Therefore East

African regulatory focus is very current and sits well globally.

Understanding and adhering to regulatory risk is a critical and demanding

challenge across all territories.

South Africa Vietnam Mexico Columbia Morocco India

Regulator : Financial

Services Board (FSB)

Population: 52.98

million

Insurance Act : ☑


$0.25M – $2.5M


• Financial Services

Laws General

Amendment Act,2013

• Micro-insurance

regulation

Regulator : Insurance

Supervisory Authority

Population: 89.71

Million

Insurance Act : ☑


$0.19M – $33.3M


• Implementation of

Risk Based Capital

system

• Socio-economic

development strategy

Regulator : Comisión

Nacional de Seguros y

Fianzas (CNSF)

Population: 122.3

million

Insurance Act : ☑


$0.6M – $9.5M


• Risk based approach

capital management

• Regulation on

catastrophic risk and

pension


Council of British

Columbia

Population: 48.32

million

Insurance Act : ☑


$0.4M - $0.6M


• New mortality tables

• Insolvency and

liquidation

procedures

• Risk based capital

provision

Regulator : Direction

des assurances et de la

prévoyance sociale

(DAPS).

Population: 33 million

Insurance Act : ☑


$5.9M


• New regulator;

Autorité de Contrôle

des Assurances et de

la Prévoyance

Sociale (ACAPS)

• Draft Legislation on

insurance


Regulatory and

Development Authority

(IRDA)

Population: 1.3 billion

Insurance Act : ☑


$80K - $1.6M


• Fraud management

• Capital adequacy

management

• Risk based solvency

model



21

3

Basel II and Solvency II

• What Are They?

• Which 1 is specific to

Insurance?



22

3

Basel II

Shortcomings of 1988 Basel Accord

• Crude estimates of credit risk

• Lack of recognition of effective risk mitigation

• Incompleteness of the risk

• Absence of requirement for supervisors to

evaluate the actual risk profile

• Absence of requirement for supervisory

cooperation

• Absence of proper market disclosures

• Lack of flexibility in the regulatory framework

Objectives of Basel II

• Comprehensive approach

• Focus on own assessment

• Safety and soundness

• Competitive quality

• Focus on internationally active banks

• Maintenance of capital

Was the global credit

crunch a failure of

risk management?



23

3

Basel II



24

3

Solvency II

Idea of Solvency II

Sharma Report: Reasons for Failures and

Near Failures of Global Insurers

Ineffective Chairman

Dominant role of CEO

Lack of independent

critical analysis

Lack of limits of authority

Lack of integrity around

internal processes and systems

Lack of understanding

of technical provisions

Lack of capital

No strategic plan

8 Reasons

. . . qualitative business issues are mostly to blame



25

3

Solvency II- Principles Beat Rules

Better risk evaluation by taking individual properties into account

Appeal for risk-oriented management

Lower risk of playing the system with respect to regulation gaps

Better comparability between different financial sectors

Low interpretation risk

Equal treatment of all insurance companies

Simple determination of regulatory triggers

. . . regulation is becoming increasingly business oriented

Based on principles

Based on rules



26

3

Solvency II- 3 Pillars Concept

New area of influence for supervisory authorities

Capital market requirements are

rising

Product ratings: risk management

becomes product component

Lower solvency requirements

through internal model

Capital requirements

Minimum capital

Standard model

Internal model

Risk management, supervision

process

Internal control & risk management

Market discipline

Support of risk-based supervision through market mechanisms

Disclosure

Pillar 1 Pillar 2 Pillar 3

. . . new architecture for modern risk based supervision



27

3Solvency II- Quantitative and

Qualitative Requirements

Risk Management

. . . clear risk strategies are required for effective risk management

Insurance undertakings must have strategies for risks

Strategies for solvency capital

Strategies for all important risks

incl.

─ Underwriting risks

─ Credit risks

─ Market risks

─ Liquidity risks

─ Operational risks

Investment strategy and asset

liability management (ALM)

There should be “emergency

plans” taking account of

different conditions in the

analysis

Regular checking through the

board of directors

Insurance undertakings are required to establish a separate risk

management function (I)



28

3Solvency II- Quantitative and

Qualitative Requirements

Risk Management

. . . long-term projections are necessary to avoid mismanagement

Responsibility of the Board of

Directors

To be revised yearly and to be

monitored permanently

Basis: the company‘s overall

risk tolerance

Dedicated reinsurance strategy

Part of this requirement is the establishment

of early warning indicators

Quantitative and qualitative measurement of

the identified risks must be possible

Insurance companies must regularly conduct

prospective quantitative assessments (e.g.

stress tests)

Active influence on the risk profile as a result

of the processes of risk identification, risk

quantification and risk management

Information about current and future risks

Insurance undertakings are required to establish a separate risk

management function (II)



29

Kenya and Ethiopia3

Customer Reputation Technology Development/Regulation

Ken

ya

Eth

iop

ia

65.8% of premium in

Kenya is short-term

business

Digital and Technological

hot bed but concerns

over corruption

Regional Hub and

Main EA Players Operate

Mpesa/Airtel… an

innovator/leader and a

vibrant private sector

Risk Based Supervision

but a weak public sector

LAPSSET

100M Population

Large diaspora

Emerging Economic

Market but closed and hard

to do business in

Banks own majority of

insurers

Addis Mono-Rail

Developing mobile money

Very strong public sector

but a weak/restricted

private sector

Standard Gauge

Railway/Hydra-Damn



30

3 Country Examples

Argentina-

Increased Motor Premiums as Motor Market Grows (New and Second

Hand Vehicles)

Creation of Local Re-insurance Market

Malawi-

Risk Based Supervision

New Tighter Claims Management Requirements to Promote Trust and

Best Practice

South Korea-

Tighter Reporting Around Fraud and Solvency

New Cancer Products in Medical Underwriting



4

Conduct Risk and Cyber Risk



32

5 Conduct Risk Framework

High Level Objective

High Level Approach

Conduct Risk Focus

Areas

Key Pressure Points

To ensure an appropriate degree of protection for customers each and

every time

Definition- “The risk of treating customers unfairly and delivering

inappropriate customer outcomes”

Example Risk Appetite- “We ensure that the treatment of all our

customers and our internal behaviours are designed to provide a fair

outcome each and every time”

Strategy-

understand

impact of

mission and

strategy on

customer

Products-

design, life

spans,

accessibility

Post Sales-

claims,

investigation

, declinature

Sales-

incentives,

targets,

scripts,

training

Governance

Culture-

how

compliance

is achieved

and

monitored

Business

CycleProduct

Development

Governance

Processes

Sales and

Service

Processes

Claims

Handling,

Complaints,

Product

Reviews



33

4 Example- Fraud

Conduct Risk

Keep promises and

keep the customer updated

Do not keep a case open when it can be closed

Do not make allegations of fraud without

cogent evidence

Do not make it personal

Pay the claim if no

evidence

Return a case once validated

Be open and honest

Keep accurate

notes

Examples….



34

4 Cyber-The Changing Dynamic

TechnologyTechnology has changed the way we transact business and

how we interact e.g. social media/mobile platforms

People

Demand for new products has grown and so has

motivation to commit cyber crime

The media is driving a new agenda and governments and

the private sector have to react

The Balance

Risk management is the reality check between user

demand and organizational protection



35

4 The Scope of Cyber Risk- It’s Scaling Upwards

It is Diverse

It is a group of risks, which differ in technology, attack

vectors, & means, etc.

Yet share similar characteristics:

a) they all have a potential great impact and risk velocity

b) they were all once considered improbable

It Is DynamicIt may be accidental, it may be a technical error or it may

be unauthorized and deliberate



36

4 Residual Risk

Perception“We are on a cloud so we are safe”

“It will not happen to me”

Reality

According to 2013 Global Cost of Data Breach Survey the

average cost of such a breach to an organistaion was

$1.1M in India and $5.4M in USA

The European Union Commission estimated 1 million

people a day are victims of cyber crime

Ashley Madison….Life’s too short. Have an affair…



37

4 Split Into Teams and…

Identify 3 Motives of

Cyber Crime

What are they

Identify 1-2 Controls

How do you manage the risk



38

4 Insurance- Example of Risk Transfer

Your child throws a tantrum and smashes

something !

…You have an insurance

Mobile phone is stolen at traffic jam!


You ace a hole-in-one at a round of golf!


Your company is in litigation due to

Cybercrime

… Do you have an insurance ????????



5

Team Exercises



40

5 Split Into Teams of 4… You have 10 Minutes!

Discuss your topic

and present

back on it

Each Team will be given a different topic

What are the

impacts of it

• Globally

• Africa

• East Africa

• Tanzania



41

5 Topics- Bridge the Gap

Group 1- Driverless car

Group 2- Future Collapse of EU

Group 3- El Nino

Group 4- Obesity Crisis

© 2015 KPMG East Africa, a company and a member firm of the KPMG network

of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved.

Take-outs

We will go around the room

What 1 thing have you

learned

What 1 thing will you do

differently

Drive Your Own Future

ASANTE SANA!

• James Norman,

• Associate Director- Insurance, KPMG East

Africa

• [email protected]

• +254 716909078

tiba capacity building session #2 global risk workshop ...tiba.co.tz/wp-content/downloads/tiba...

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