Managing Change The opportunity of Enterprise Risk Management

Transcription

1 AMICE Congress Mutuality Today: a natural solution for a changing society Managing Change The opportunity of Enterprise Risk Management Hans Peter Würmli Helsinki,

2 Insurance Why insurance: to manage some risks collectively We must all hang together, or assuredly we shall all hang separately (Benjamin Franklin) Insurance needs rules : the necessary trust for risk sharing is created by the rules of the game Aumann: Center for Rationality and Interactive Decision Theory Hurwicz / Maskin / Myerson: Mechanism Design Good rules: enable, facilitate and promote the development of insurance markets, value creation of all stakeholders and appropriate risk management systems within firms Slide 2

3 Goals of new solvency regulation Good Regulation enables, maintains and creates an innovative and thriving insurance market with products at adequate prices and security the necessary trust of consumers and insurers alike Regulation and supervision achieve this goal by creating and maintaining certainty of the law for all: stating clear and intelligible rules of the game enabling market participants to make their own rational judgement Slide 3 monitoring the market sanctioning misbehaviour and abuse

4 An insurer s controlled risk taking The definition of risk expresses dependence on perspective: Risk is defined as deviation from anticipated outcome Taking risk is the core activity of an insurer Identifying, assessing and managing controlled risk taking therefore needs to be a core competency Risk represents at the same time the company s opportunity to create value for its owners, and a threat to its ability to deliver on the promises made to clients and owners alike Slide 4

5 Risk management Risk management is not the avoidance of large losses and more than about how large potential claims are financed: The task of risk management is to find the right balance between the opportunity to take risk and create value for the firm and the threat risk poses to the survival of the firm. Challenges: common risk culture complete & accurate assessment of risk Slide 5

6 Controlled risk taking Pillars of risk management Quantitative risk management Risk governance Transparency Sound valuation and risk measurement Quantitative risk limit monitoring system Reliable capital adequacy framework Clearly defined roles and responsibilities Soundly established and well documented: risk management policies, guidelines and processes operating, reporting, limit monitoring, and control procedures Regulatory compliance Internal and external audits of processes and figures Transparent about risks, objectives, issues, performance, etc. Financial and risk disclosure -internal -external Company culture of disciplined and controlled risk taking Peer reviews Slide 6

7 Insurance supervision is brought to the next level by Solvency II Principles describe the what, whereas rules describe the how Slide 7 Regulatory solvency framework based on principles Financial strength measured based on realistically determined available capital and risk-sensitive capital requirement Reliance on the principles of internal integrated risk management and internal models Company chosen internal risk governance and accompanying risk management processes Clear recognition of - and credit for - diversification Economic capital relief for effective risk mitigation (eg securitisation, retrocession or financial hedges) Harmonisation (of principles) across jurisdictions Public disclosure, including financial and risk reporting, to enhance market discipline

8 True, fair and realistic Mathematics TRUE Valuation and accounting concepts and objectives should be similar among all financial services firms and should produce realistic and economically sensible figures Law FAIR Economics & Sciences REALISTIC Fra Luca Pacioli first known description of double entry bookkeeping, regarded as part of mathematics ( Summa de Arithmetica, Venice 1494) Slide 8

9 Conclusion for mutuals Mutuals like any other financial services institutions face the challenges and opportunities of competitive markets Solvency II encourages good enterprise risk management and gives freedom to develop it properly Mutuals should take the opportunity to make an advantage of their unique setup: the principles of Solvency II encourages a true, fair and realistic approach to insurance Slide 9 Solvency II has been developed as a joint effort across Europe and across institutions: cooperation is a particular strength of mutuals which can render the compliance with Solvency II a competitive advantage

10 The journey is the reward Slide 10 thank you for your attention