THE RESOLUTION OF BOARD OF THE AGENCY OF THE REPUBLIC OF KAZAKHSTAN ON REGULATION AND SUPERVISION OF THE FINANCIAL MARKET AND THE FINANCIAL ORGANIZATIONS

of February 16, 2004 No. 35

About approval of Requirements to procedure for carrying out internal audit of the insurance (reinsurance) organization, branch of the insurance (reinsurance) organization – the nonresident of the Republic of Kazakhstan

For the purpose of implementation of the Law of the Republic of Kazakhstan "About insurance activity" Board of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial DECIDES: organizations

1. Approve the enclosed Requirements to procedure for carrying out internal audit of the insurance (reinsurance) organization, branch of the insurance (reinsurance) organization – the nonresident of the Republic of Kazakhstan.

2. This resolution becomes effective after fourteen days from the date of state registration in the Ministry of Justice of the Republic of Kazakhstan.

3. To department of strategy and analysis (Edenbayev E. S.):

1) together with Legal department (Baysynov M. B.) to take measures to state registration in the Ministry of Justice of the Republic of Kazakhstan of this resolution;

2) in ten-day time from the date of state registration in the Ministry of Justice of the Republic of Kazakhstan to bring this resolution to the attention of the interested divisions of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations and insurance (reinsurance) organizations.

4. To department on ensuring activities of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations to take measures to the publication of this resolution in mass media of the Republic of Kazakhstan.

5. To impose control of execution of this resolution on the vice-chairman of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations Dosmukametov K. M.

Approved by the Resolution of Board of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations of February 16, 2004 No. 35

Requirements to procedure for carrying out internal audit of the insurance (reinsurance) organization, branch of the insurance (reinsurance) organization – the nonresident of the Republic of Kazakhstan

These Requirements to procedure for carrying out internal audit of the insurance (reinsurance) organization, branch of the insurance (reinsurance) organization – the nonresident of the Republic of Kazakhstan (further – Requirements) are developed according to the Laws of the Republic of Kazakhstan of December 18, 2000 "About insurance activity", of February 28, 2007 "About financial accounting and the financial reporting", of May 13, 2003 "About joint-stock companies" and other regulatory legal acts of the Republic of Kazakhstan and establish requirements to procedure for carrying out internal audit of the insurance (reinsurance) organization, branch of the insurance (reinsurance) organization – the nonresident of the Republic of Kazakhstan.

Chapter 1. General provisions

1. Internal audit of the insurance (reinsurance) organization, including its branches and representations, and also activities of insurance agents and branch of the insurance (reinsurance) organization – the nonresident of the Republic of Kazakhstan (further - insurance companies), is performed according to requirements of the legislation of the Republic of Kazakhstan about insurance and insurance activity, constituent and internal documents of insurance company, taking into account the features determined by these Requirements.

2. Main objective of system of internal audit in insurance company is control over the implementation by employees of insurance company of the legislation of the Republic of Kazakhstan, obligatory availability and observance of internal procedures and rules of insurance company and ensuring proper level of reliability corresponding to nature and scales of the operations performed by insurance company and risk minimization of its activities.

3. Internal audit in insurance company is booked for ensuring control for:

1) implementation of activities by insurance company according to requirements of the legislation of the Republic of Kazakhstan, and also policy of financial accounting and the established internal procedures fixed by the relevant internal documents of insurance company;

2) implementation of systems analysis and assessment of activities of insurance company regarding its financial stability and solvency;

3) check and efficiency evaluation of control measures behind execution of the made decisions;

4) efficiency evaluation of asset management system and obligations, including assessment of structure of portfolio and potential risks;

5) timeliness, correctness, completeness and accuracy of reflection of insurance activity and other activities, stipulated by the legislation about insurance and insurance activity;

6) risk management, arising during implementation of insurance and other activity and implementation of monitoring of their minimization;

7) activities of insurance agents and the risks connected with it in case of the conclusion them insurance contracts;

8) observance established by authorized body on regulation, control and supervision of the financial market and the financial organizations (further - authorized body) prudential standard rates and other regulations and limits, obligatory to observance;

9) compliance of the reporting of insurance company to standards of the international financial reporting.

4. Risks of insurance company are understood as danger (opportunity) of emergence of losses (losses) following from implementation of insurance and other activity, the stipulated by the legislation Republic of Kazakhstan about insurance activity.

In case of management and monitoring of risks of insurance company differentiate the following main types of risks:

1) credit risk - risk of emergence of expenses (losses) arising owing to inability of execution or violation by the partner of initial terms of the contract (contract) or other obligation concerning insurance company including restrictions or obstacles in payment transfer from nonresidents of the Republic of Kazakhstan;

2) legal risk - risk of emergence of expenses (losses) arising owing to violation of requirements of the legislation of the Republic of Kazakhstan by insurance company or discrepancy of practice of the insurance (reinsurance) organization to its internal documents, and in the relations with nonresidents of the Republic of Kazakhstan - to the legislation of other states;

3) operational risk - risk of emergence of expenses (losses) arising owing to violation (non-compliance) by the insurance (reinsurance) organization of requirements to the organization of internal control.

The operational risk also includes the risks connected with emergence of essential failures in operating (computer) systems;

4) risk of loss of liquidity - risk, failures to carry out or untimely accomplishment of the obligations by insurance company;

5) market risk - the current or perspective threat for the income and the capital of insurance company as result of movement of market prices. The market risk is in turn subdivided into price risk, currency risk and interest risk:

price risk - risk of emergence of expenses (losses), owing to change in value of portfolios of financial instruments, arising in case of change of conditions of the financial markets influencing market value of financial instruments;

currency risk - the risk of emergence of expenses (losses) connected with change of the foreign exchange rates when implementing of the activities by insurance company. Danger of expenses (losses) arises because of revaluation of line items of insurance company on currencies in value term;

interest risk - the risk of emergence of expenses (losses) connected with change of rates of remuneration;

6) reputation risk - risk of emergence of expenses (losses) owing to negative public opinion or decrease in trust to insurance company;

7) portfolio risk - risk of emergence of expenses (losses) of insurance company as a result of loss of liquidity, decline in yield and security price in which means of insurance company, and also deteriorations in financial position of their issuer are invested;

8) country (transfer) risk - risk of emergence of expenses (losses), owing to insolvency or unwillingness of the foreign state or resident of the foreign state to answer for obligations to insurance company for the reasons which are not connected with credit risk.

Chapter 2. Requirements to procedure for carrying out internal audit of insurance company

5. For the purpose of necessary legal regulation of internal audit the insurance company approves internal documents on questions:

1) organizations of internal audit;

2) powers, restrictions and obligations of service of internal audit;

3) domestic policy on direct insurance, regarding concerning:

carrying out the correct and exact actuarial calculations; diversifications of insurance portfolio;

carrying out qualified underwriting; developments of insurance product;

4) domestic policy on reinsurance, regarding concerning:

choice of the reinsurance organization;

questions of carrying out cross-border insurance;

analysis of agreements of reinsurance;

choice of insurance broker;

5) domestic policy on implementation of insurance payments, including transactions according to recourse requirements;

6) the organizations of activities of insurance intermediaries, including use of forms of the strict reporting by them;

7) organizations of accounting of insurance policies;

8) the organizations of activities of branches and representations, including accounting and the reporting, and creation of the financial reporting;

9) politicians of financial accounting and the financial reporting, including the reporting on the consolidated basis;

10) politicians of tax accounting of insurance company;

11) stores organizations of documents of insurance company;

12) organizations, storages, uses and write-offs of forms of the strict reporting;

13) domestic policy in the field of accounting of the capital of insurance company;

14) strategy and procedures of asset management and obligations of insurance company, including questions of liquidity, diversification, observance of the prudential standard rates and other regulations and limits, obligatory to observance, established by authorized body, responsibility and powers of persons involved in implementation of asset management and obligations;

15) domestic policy on management of limits of solvency and risk diversification;

16) domestic policy on investment of assets of insurance company, including:

on policy issues of the protection of assets including:

their acceptable purchase and sale executed on optimal conditions;

the correct loss estimate in case of risk;

protection against liquidity risk, insolvency in connection with risk of emergence of emergencies and risk of waste or illegal use of means;

concerning completeness and reliability of information, the correct accounting of the used resources;

concerning execution of requirements of investment strategy, in the part concerning:

portfolio construction and its profitability;

investment restrictions depending on asset type, and also from attraction of forces and means from the outside;

concerning asset management quality excellence;

17) domestic policy of forming of insurance reserves, their placement and accounting;

18) domestic policy on management of agent activities, including:

concerning carrying out regular certifications of agents and control of their activities and the reporting;

concerning effective control behind cash flows;

concerning task allocation between agents and the services of insurance company responsible for determination of rates and the sizes of awards;

19) procedure for storage and information security, regarding concerning:

creations of necessary conditions for observance of mystery of insurance, storage of trade and official secret;

creations of the adequate system limiting access for employees of insurance company to trade and official secret;

the conclusions of written agreements with employees of insurance company and insurance agents about nondisclosure of trade and official secret, including the mystery of insurance;

determinations of the list of documents, data and information which is trade and official secret and also procedure for its representation, exchange and storage.

6. The insurance company can develop and approve the additional internal regulations and procedures which are not provided by this Chapter.

7. For the purposes of application of requirements of Items 5 and 6 of these Requirements to branch of the insurance (reinsurance) organization - the nonresident of the Republic of Kazakhstan approval of internal documents and procedures of branch of the insurance (reinsurance) organization - the nonresident of the Republic of Kazakhstan is performed by the relevant authorized bodies of the insurance (reinsurance) nonresident organization of the Republic of Kazakhstan.

Chapter 3.

It is excluded according to the Resolution of Board of National Bank of the Republic of Kazakhstan of 28.01.2017 No. 17

 

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