Understanding enterprise risk appetite - table3 | InsuranceERM

Insurer Definition of risk appetite (or tolerance) Method of expression Set by whom? Appetite level ACE Group Not provided. Not explained, but appears to have a limit-based approach: "to ensure that [underwriting] losses are contained within our risk tolerance and appetite for individual product lines, businesses, and ACE as a whole." (p10) Not specified. "With a diversified spread of business by both product and geography, a conservative approach to risk management and underwriting, and a consistent focus on execution, we outperformed the property and casualty industry as measured by operating income, book value and premium revenue growth, and ROE."(p2) Allianz "Our risk strategy clearly defines our risk appetite. It ensures that rewards are appropriate for the risks taken and that the delegated authorities are in line with our overall risk bearing capacity." (p149)

ERA is expressed in terms of the group's risk strategy and limit structure.

Local and global business and investment decisions are monitored to ensure that they remain within the appetite and tolerance limits that are set for all "foreseeable" risks.

Not specified.

"Allianz is well positioned to deal with potential future adverse events, in part due to our internal limit framework? and economic solvency ratios.

The group's management is confident that, through this risk appetite, we have achieved an appropriate balance between potential earnings, earnings volatility and solvency considerations." (p149)

Amlin "The appetite articulates the risk-bearing desire and capacity of the group." (p38)

Has created individual risk appetite statements for a range of quantifiable risk categories (e.g. catastrophe, reserving, investment and operational risk). These are supported by ?risk tolerance limits?, to ensure that risk appetites are not exceeded. Tolerance limits are allocated across operating entities.

Includes "event risk appetites" which limit the amount of net loss the group is prepared to expose itself to in relation to a range of catastrophe risk scenarios.

Has an internal risk model (target operating model) to aid the quantification of risk and the assessment of risk appetite and tolerance.

Amlin plc board.

"Our approach to investment management is directed by our investment risk appetite. This is based on, amongst other things, the perceived risk and returns of the different asset classes, the outlook for underwriting profits and the strength of our balance sheet. We do not simply target an absolute investment return. Rather, we seek to maximise returns for the level of risk that we are prepared to accept." (p48)

"For policyholders? funds our risk appetite is relatively low." (p48)

Aviva "Risk appetite is an expression of the level of risk we are willing and able to accept in pursuit of our strategic objectives and thus provides the context for our risk and capital management." (p66)

Has set broad risk appetite limits for:

• Economic capital (which must be sufficient to maintain a AA credit rating).
• Liquidity.
• Franchise value ? in terms of reputation with customers.

More detailed risk appetite levels, tolerance limits and control standards are set out in risk management policies across the group.

The Aviva board, which reviews and approves the group?s risk appetite statements. In addition, the risk committee reviews the group?s risk appetite and future risk strategy and makes recommendations on risk appetite to the board. "The Group's risk strategy is to invest its available capital to optimise the balance between return and risk whilst maintaining an appropriate level of economic (i.e. risk-based) capital and regulatory capital." (p66) "Overall capital risk appetite, which is reviewed and approved by the Aviva board, is set and managed with reference to the requirements of a range of different stakeholders including shareholders, policyholders, regulators and rating agencies." (p70) Axa No definition provided.

Common models/metrics are used to measure risk across the group. Actual exposure to risk is then compared against the group?s consolidated risk appetite limits.

Different appetite levels are set for different risk types: financial, operational, insurance and "other" exposures.

ERA is reviewed by the audit committee. Appetite is "defined and monitored" by the risk management function.

Local business units set own risk appetite within the limits of the group ERA.

No clear statements provided. Cooperative Insurance Society "Level of acceptable risks." (p25)

CIS's risk appetite requires working capital to be maintained above an internal tolerance level which is applied relative to the internal capital guidance.

In addition "key risk criteria" are used to measure whether the organisation is in "compliance with risk appetite".

Board approves a "Statement of risk appetite". The Cooperative Financial Services' risk management group oversees the development and implementation of risk appetite across the organisation. "Risk appetite is designed to ensure that CIS will hold a capital margin in excess of the regulatory requirements." (p25) Hiscox "The Group?s overall appetite for accepting and managing varying classes of risk." p62) Loss limits are set for major classes of exposure and catastrophic events (using "realistic" disaster scenarios). Different levels of appetite are set for different types and classes of risk. Set by board and cascaded down to divisions via the risk management framework.

"We have a conservative investment policy: our overriding concern is to not lose money or to put at risk the group?s capacity to underwrite. Our policy is designed to maximise returns within an overall risk appetite." (p25)

"The group?s underwriting risk appetite seeks to ensure that it should not lose more than one year?s profit plus 15% of core capital as a result of a 1-in-250 bad underwriting year." (p63)

LV= "The group?s risk appetite is a statement of the amount of risk that the group is prepared to take in pursuit of its business objectives." (p49)

Utilise a variety of quantitative and qualitative measures and limits:

• Capital adequacy.
• Adequacy of the group's liquid and readily realisable assets.
• Earnings volatility.
• Enterprise value: the appropriateness of the size of the group?s investment in future growth opportunities.
• Capability and stretch ? the appropriateness of the group's strategic change agenda given the size and capabilities of its staff.
• Regulatory relationship with the UK FSA.
• Brand and reputation ? covers behaviour that could cause unacceptable reputation damage. Includes complaint levels and customer service.

Risk appetite statements agreed by board, assisted by the risk committee.

"During 2010, we comprehensively reviewed and updated our risk appetite, strengthening governance arrangements and risk management policies." (p35)

"The group seeks to create value for its members by maintaining an appropriate balance between the capital available to support risk, and the level and type of risk it takes on in order to achieve returns for policyholders." (p83)

NFU Mutual Not provided. No detail provided. Set by board, supported by group risks and issues committee. No information provided. Old Mutual "The level of risk an organisation is willing to take in the pursuit of profit." (p394)

Economic capital model forms the basis of risk appetite framework. Heavy reliance on risk limits, though value generation is also emphasised.

Five quantitative measures are used:

• Economic capital at risk
• Financial group directive surplus capital at risk
• Earnings at risk
• Cash flow at risk
• Operational risk loses

Qualitative "risk appetite principles and statements" are also used.

Board sets overall appetite, assisted by group board risk committee.

"We view risk not only as a threat or uncertainty, but also as an opportunity to grow and develop the business, within the context of our risk appetite. So our approach to risk management is not limited to considering downside impacts or risk avoidance; it also encompasses taking risk knowingly for competitive advantage." (p89)

"The group's overall capital risk appetite is managed with reference to the requirements of the relevant stakeholders and seeks to maintain sufficient, but not excessive, financial strength to support stakeholder requirements." (p278)

RBS Group (includes Direct Line, Churchill, Privilege, Green Flag and NIG). "Risk appetite is an expression of the maximum level of risk that we are prepared to accept to deliver our business objectives." (p17)

Risk appetite is expressed in terms of quantitative and qualitative limits:

Quantitative: where group-wide risk appetite is expressed using a combination of VaR (99%), sensitivity and stress testing limits.

Qualitative: in terms of "principles, policies and procedures" also includes the management of reputational risk and the maintenance of a "strong risk culture".

Group board sets overall appetite, assisted by board risk committee. Divisions agree own appetite with group board.

"A key part of the group's risk appetite is the macro reshaping of the balance sheet through the downsizing of non-core [assets]. The group will manage down previous concentrations in line with the strategic objectives for 2013."(p119)

"The group risk appetite framework was developed significantly during 2010 and continues to be enhanced." (p255)

Royal Sun Alliance Not provided.

Different appetite limits are set for different categories of risk.

Risk appetite is set and monitored at a group, regional and business level.

Business volumes are set for certain higher risk insurance classes. In addition, loss retention limits, reinsurance protection levels, credit rating targets and solvency margins are also set.

From a qualitative perspective the group's policy statements set minimum standards for risk management which are consistent with the board's appetite for risk. Economic capital analysis is used to provide an overall indication of appetite. The aim is to maintain sufficient capital to support an "A" rating.

Defined by board. Monitored by executive management and board risk committee.

"Expanding our appetite in our core specialised segments through the development of new products." (p20)

"The group has no tolerance for liquidity risk and is committed to meeting all liabilities as they fall due." (p100)

"The maintenance of a capital position in excess of regulatory requirements is an absolute requirement for all of the group's regulated entities. There is no tolerance for breaching capital requirements for any regulated entity." (p102)

Swiss Re

"Our risk tolerance is an expression of the extent to which the board of directors have authorised the group to assume risk. It presents the maximum amount of risk that Swiss Re is willing to accept within the constraints imposed by its capital resources, its strategy, its risk appetite, and the regulatory and rating agency environment within which it operates." (p43)

"Risk appetite - the amount of risk we seek to take." (p43)

Limit-based framework ? applied across all risk categories. Individual limits are set for different risks.

VaR-based capital modelling is used to help express appetite within this limit framework. Confidence intervals are typically 99% or 99.5%.

Set by board. Monitored by the finance and risk committee.

"We maintain a conservative underwriting approach to managing the soft cycle in mature economies. At the same time, we continue to pursue attractive growth opportunities in commercial insurance in the growth economies of Latin America and China." (p16)

"We will remain prudent in our investment management approach."(p30)

Zurich Only uses the term "risk tolerance". Defined as: "agreed limits that the board regards as acceptable for Zurich to bear." (p106) Limit-based approach. Risk committee agrees risk limits with board. The group's risk-based capital models form the basis for this approach. Set by board, supported by risk committee.

"The group?s major risk management objectives are to:

• Protect the capital base by monitoring that risks are not taken beyond the group's risk tolerance.
• Enhance value creation and contribute to an optimal risk-return profile by providing the basis for an efficient capital deployment.
• Support the group's decision-making processes by providing consistent, reliable and timely risk information.
• Protect Zurich's reputation and brand by promoting a sound culture of risk awareness and disciplined and informed risk taking." (p104).

Source: http://www.insuranceerm.com/analysis/understanding-enterprise-risk-appetite/understanding-enterprise-risk-appetite-table3.html

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