ERM benchmark review highlights external pressures on (re)insurers

Insurers and reinsurers are under pressure to improve their risk management governance and disclosures owing to increasing external demands, according to Guy Carpenter’s Enterprise Risk Management (ERM) Benchmark Review.

Regulatory pressures, particularly the looming Solvency II Directive, are encouraging (re)insurers to incorporate risk management into their performance and incentives policies.

The report, which assessed risk management practices and policies of 67 (re)insurance companies in Europe, the US, Bermuda and Asia-Pacific also found (re)insurers are publishing more about their risk management targets than in the previous 2009 report.

Furthermore, the report reveals most (re)insurers are generally developing their own risk-based capital models that require approval from either risk committees or authorities and external independent third parties.

Guy Carpenter predicts increasing external demands will drive (re)insurers to recognise the value of metric-based ERM frameworks and capital models in evaluating risks.

Guy Carpenter senior vice-president Markus Mueller, said: “External demands such as regulatory developments, the ongoing sovereign bond crisis and global natural catastrophe events are again showing how critical it is for insurance and reinsurance companies to effectively assess their corporate risks.

“With a thorough understanding of enterprise-wide risk and the integration of this knowledge into the business decision-making process, companies will be better prepared to respond to internal and external questions relating to risk and capital.”