1. An Insurer should have access to sufficient liquidity to meet all cash outflow commitments to policyholders (and other creditors) as and when they fall due. The nature of insurance activities means that the timing and amount of cash outflows are uncertain. This uncertainty may affect the ability of an Insurer to meet its obligations to policyholders or may require Insurers to incur additional costs through, for example, raising additional funds at a premium on the market or through the sale of assets.
2. The risk management system for liquidity should normally include at least the following policies and procedures:
a. procedures to identify and control the level of mismatch between expected asset and liability cash flows under normal and stressed operating conditions (using realistic scenarios relevant to the circumstances of the Insurer);
b. procedures to monitor the liquidity and realisability of assets;
c. procedures to identify and monitor commitments to meet liabilities including Insurance Liabilities;
d. procedures to monitor the uncertainty of incidence, timing and magnitude of Insurance Liabilities;
e. procedures to identify and monitor the level of liquid assets held by the Insurer; and
f. procedures to identify and monitor other sources of funding including reinsurance, borrowing capacity, lines of credit and the availability of intra-group funding, and to identify the need for such sources to be made available.
3. When assessing its liquidity requirements an Insurer should also consider the currency in which the assets and liabilities are denominated, and the locations in which those assets and liabilities are situated or payable.