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As part of the holistic framework for the assessment and mitigation of systemic risk in the insurance sector, the IAIS enhanced the enterprise risk management (ERM) requirements to more explicitly address liquidity risk. The Application Paper on Liquidity Risk Management provides guidance on this supervisory material related to liquidity risk management in the Insurance Core Principles (ICPs) and the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame).

The Paper does not establish standards or expectations for the implementation of a liquidity risk management framework, but instead provides additional detail on particular aspects of the Supervisory Material relating to liquidity risk to assist implementation, and also provides examples of good practice.

This Paper provides guidance and examples on:

  • considerations on applying liquidity risk management measures in a proportionate way and the ways that supervisors may tailor requirements.

  • detailed components of the four elements for “more detailed risk management processes” contained in ICP Standard 16.9:

    • liquidity stress testing;

    • maintenance of a portfolio of unencumbered highly liquid assets in appropriate locations;

    • a contingency funding plan; and

    • the submission of a liquidity risk management report to the supervisor.

  • integration of liquidity risk into insurers’ ERM frameworks as described in ICP Standard 16.8, including recommendations for governance.