Risk management is the core of (re)insurance companies’ business. And they have to adopt some sophisticated approaches both to steer their business focus and also to ensure that they meet forthcoming solvency requirements.
Our panel discussed some of the strategies they are adopting in terms of capital allocation where detailed modelling is important but a granular approach may not be easily achievable or indeed produce all the desired results. Business sense remains important. And it’s difficult to measure the performance of individual units in isolation from market trends.
Determining risk appetite – which may vary according to the sector involved – and ensuring that this is fed down through the organisation is another key issue.
The participants saw ERM as enhancing value creation, providing both a competitive edge and also some important strategic input to decision making. But a paramount consideration that emerged through the whole of this discussion was the need to tackle the cultural issues.
Sue Copeman
Editor, StrategicRISK
ERM is an imperative for all insurance businesses today.
Shareholders, policyholders, rating agencies, and regulators are increasingly requiring companies to demonstrate that they understand, and are managing, all the risks within their organisations. ERM brings consistency to the measurement of these risks and
allows a company to understand accumulations of exposure that can threaten its strategic and financial objectives. Embedding ERM in the organisation is also a pre-condition for getting credit for internal economic capital assessments from rating agencies and, under the future Solvency II regime, from regulators.
But ERM is not just about risk mitigation. It provides a foundation for identifying opportunities to leverage competitive advantage by enabling a company to proactively select the risks that fit with its risk appetite and core areas of expertise. The goal of ERM is not to avoid risk, but to maximise the reward for risk.
A successful ERM framework helps companies make better tactical decisions around reinsurance purchasing, asset-liability management, risk limit setting, capital allocation and pricing.
The winners of the future will be those companies that embrace ERM and create value through better risk-based decision making.
Jonathan Titman
P&C practice leader, Europe,
Tillinghast a business of Towers Perrin
