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Implementation of Risk-Based Supervision (Insurance) in Sri Lanka

Project Development Objective (PDO)

This project aims to strengthen the supervisory function of the Insurance Board of Sri Lanka (IBSL) through the implementation of a risk-based supervision framework and enhancement of IBSL’s supervisory capacity in the areas of reinsurance, reinsurers, loss adjusters, investments, and investment-linked products.

Background

To implement a risk-based supervision framework, risk-based supervision materials must be used to develop the skill sets of the IBSL staff. Given the broadening of its regulatory mandate to cover supervision of reinsurers and loss adjusters and to review re-insurance contracts, IBSL needs to enlarge its staff and enhance its supervisory capacity in the areas of reinsurers, reinsurance, and loss adjusters. Furthermore, IBSL requires drafting and issuance of amendments to guidelines on investment-linked products.

Activities

The project encompasses a holistic set of activities focused on risk-based capital and supervision. The expected activities include the following:

1.   Issuing the final rule on a risk-based minimum capital regime and performing a trial run 
      of the risk-based capital rule 

2.   Adopting a risk-based supervision framework 

3.   Enhancing IBSL’s supervisory capacity in the areas of reinsurers, reinsurance, and loss 
      adjusters

4.   Enhancing the regulators’ capacity to assess an insurer’s investments and guidelines on 
      investment products

Expected Outcomes

The main expected outcomes of the project are as follows:

1.    A more sound and efficient insurance sector comprising insurance companies that have 
      higher-quality capital calibrated in line with the risks

2.    A solvency system that is more sensitive to the risks incurred by insurance companies,
      thereby enabling IBSL to protect policyholders’ interests as effectively as possible and in 
      accordance with common principles

3.   Better regulation of the insurance sector through higher-skilled staff members in IBSL 
      applying the principles of risk-based supervision and carrying out more effective s
      supervision of reinsurers and loss adjusters

4.   Healthier investment portfolios of insurance companies and a more diverse offering of 
      insurance products through IBSL’s enhanced capacity to appraise and monitor the diverse 
      investments of the insurance companies and the issuance of guidelines on investment-
      linked insurance products