In order for an insurance firm to be able to fulfil its obligations to its customers, the firm needs to have sufficient capital to manage its risk, good internal governance and good control of its risks. Ensuring that these requirements are met is the focus of FI’s supervision of insurance firms.
FI's review of how insurance firms are handling the current market conditions shows that they have the ability to withstand an extended period of low interest rates. However, for every day that the conditions remain the same, the risks associated with low interest rates rise. In particular, as the current conditions persist, insurance firms become more vulnerable to other risks. An extended period of low interest rates also presents firms with incentives to invest in alternative assets. FI is continuing to follow how the market conditions are affecting the firms' investment strategies and risk management.
How insurance firms apply the regulations governing corporate gov-ernance continues to be a central focus in FI's supervision. FI has noted that the firms in several respects are facing challenges that they need to manage. In smaller firms, where a single person may hold several roles, the requirement on independent central functions means that the firms need to document how independence is achieved and how conflicts of interest are identified and handled. In firms that outsource parts of their operations, the boards of directors and executive management need to assess and document whether the outsourced operations are of material significance and the demands the result of this assessment places on the firms' governance and control of these operations. To ensure that surpluses are distributed fairly between insurance policies, FI also sees a need for firms that apply the contribution principle to more clearly describe in their technical guidelineshow the surplus is managed.
Deficiencies in the insurance firms' reporting indicate that many firms need to review their reporting procedures. In order for the reporting to meet a high level of quality, it is necessary for there to be policy documents in place that describe the reporting procedures and responsibilities, and these documents also need to be applied in practice. FI would like to emphasise that it is the board of directors that holds ultimate responsibility for the quality of the reported data and the internal control of the reporting procedures.
The shift towards digitalization means that insurance firms can streamline and improve their operations. However, this can also intro-duce vulnerabilities and challenges. Insurance firms therefore need to adapt the governance and control of their IT landscape to ensure continuity and good protection. In its supervision, FI will review the protective measures the firms are taking to manage IT-related risks.
There is a debate underway about whether there is a need to supplement the existing regulations for the insurance sector with special regulations for handling crises. FI believes that crisismanagement regulations should only apply to global systemically important and national systemically important insurance firms.