What does on-site supervision of pension funds and insurance companies entail?
One of the priorities of DNB's Supervisory Strategy 2014-2018 is to improve the quality and accuracy of risk analysis at institutions. Our in-depth on-site supervisory examinations are an important instrument in achieving this objective. They complement our regular supervision activities, which mainly comprise data exchange and supervisory meetings. On-site examinations are conducted at the offices of the insurers or pension funds concerned. Such in-depth examinations down to the workfloor level, which also include an institution's systems, can help us to get a better understanding of the relevant risks. On-site examinations are scheduled independently of our regular supervision activities.
Methodology and approach
We conduct on-site examinations at individual institutions or a selection of institutions, using the negative hypotheses methodology. This means that we assume – sometimes based on observations from our regular supervision – that institutions are not performing as they should with respect to the subject of our examination, paying particular attention to the relevant processes involved. If everything is in order, institutions will have no trouble refuting our initial hypothesis and the examination will be rounded off quickly. We always explicitly inform institutions of our methodology and approach prior to the start of an examination.
This is how we work.
- We formulate one or more specific negative hypotheses in order to examine a risk or issue as detailed as possible, within a pre-defined time scale.
- We inform institutions about the subject and purpose of the examination and communicate our hypotheses.
- We ask the institution to submit all relevant documentation in preparation of our on-site visit.
- We interview relevant staff and observe work processes at the institution's offices.
- We then prepare our draft report, in which we indicate whether our hypotheses have been confirmed or refuted on the basis of our observations and interviews, and list our findings and recommendations. We use colour codes to indicate the gravity of any risks that we identified.
- The institution then checks the report for factual inaccuracies.
- We finalise the report and provide it to the institution as well as the off-site supervisor. The examination concludes with our advice to the supervisory authority with respect to the migration strategy.
The implementation of any risk mitigation measures ensuing from the examination are the responsibility of regular supervision. We may also conduct an on-site examination following a risk mitigation process, to assess whether all findings have been addressed.