Euler Hermes Singapore Branch. Risk Management Policy

Transcription

1 Euler Hermes Singapore Branch Risk Management Policy

2 DOCUMENT SUMMARY Document Name: Document Description: Euler Hermes Singapore Risk Management Policy Description of EH Singapore risk management approach File Name: Version: V1.0 Date: 22 January 2015 Author(s): Department: Contact Person: VERSION TRACKING Version Date Author(s) Reason for and Extent of Changes V1.0 AUTHORIZATION The content and layout of this document have been reviewed and approved as follows: Version Date Authorized by Department V1.0 2

3 Introduction Purpose of this Document The EH Singapore Risk Management Policy outlines the overall framework of the EH Singapore risk management approach. It defines the structure and approach of Euler Hermes Singapore Branch in addressing the risks associated with its activities. EH Singapore branch as part of EH Group needs to follow Group s risk management framework. This document demonstrates how Group s risk management framework is implemented in Singapore Branch. Framework Objectives The underlying principle of risk management is that the business exists to provide value for its stakeholders. All businesses face uncertainty, and the challenge for management is to determine how much uncertainty the business is prepared to accept as it strives to grow stakeholder value. Uncertainty presents both risk and opportunity, with the potential to erode or enhance value. EH Singapore Risk Management Policy forms the overall reference framework for management to effectively deal with uncertainty and associated risk and opportunity and thereby enhance its capacity to build value. The Risk Management Policy aims to: Clearly define and communicate the goals, objectives and processes of the organisation and the processes to manage all risk types associated with those activities Provide a mechanism that identifies significant risk areas, monitoring changes in these risks, recording and monitoring the historical loss performance and setting key risk indicators to flag new issues. Provide a process of regular self assessment review to ensure that significant risks are managed to stay within the branch s risk appetite. Risk Types The key risk types are classified as per EH Group Risk Management Policy and referenced to Monetary Authority of Singapore (MAS) risk management guidelines. They are : Credit Risk Market Risk & Liquidity risk Insurance Risk Operational Risk Group Risk Policy documentation on each risk forms a part of the EH Singapore Risk Management Policy. 3

4 Area of Application This document applies to Euler Hermes Singapore Branch Risk policy statement EH Singapore Branch is committed to managing risk in line with its stated Risk Appetite through a systematic framework which identifies, evaluates, monitors, controls and mitigates risk. Risk management is to be a central part of the Branch s strategic management. It is the process whereby the Branch s management systematically addresses the risks attaching to its activities. EH Singapore Branch has established defined processes for the identification, assessment, treatment, mitigation and monitoring of such events or combination of events so that through an informed decision making process their likelihood and consequences of occurrence are within limits considered acceptable by the management level of EH Singapore. To identify risks, EH Singapore Branch (EHSG) carries out regular Top Risk Assessment (TRA) exercise. EHSG has a proxy economic capital model to quantify risks. If a risk identified exceeds the risk tolerance level, mitigation measures will be in place to reduce it. Key Risk Indicators (KRI) about risks identified in TRA, financial limit, solvency ratio and liquidity ratio are in place to track the movement of these risks. Risk Appetite Responsibility Risk Appetite states the amount of risk that EH Singapore Branch is willing to take in order to achieve its business plan. The Risk Committee of EH Singapore Branch is responsible for monitoring the Branch s risk strategy and risk appetite agreed with EH Group. Risk appetite defines the minimum capital requirement required by the Group and the local regulator, namely Monetary Authority of Singapore (MAS). Link with business plan EH risk appetite states that all EH legal entities need to maintain at least 110% of local regulatory capital requirement. EHSG sets a risk appetite that he will hold capital that is at least 150% of Risk Based Capital (RBC) stated by MAS. The statutory minimum capital requirement for EH Singapore branch is 125% of RBC. EHSG maintains 25% of RBC as buffer. Risk appetite, in terms of underwriting and operating parameters, is set out by EH Group. Risk Underwriting Quality Standards set out credit limits by regions, industries and buyers and individual firm to ensure that aggregate risk exposure are within risk appetite. Investment limits are monitored at EH Group level via EH Group 4

5 Risk Strategy. Group Risk Strategy defines financial limits, asset allocation limits and bond ratings limits for asset management. Investment portfolios are monitored at EH Group aggregate level. The Board of Directors terms of reference include a schedule of matters for decision of the board (or a duly authorised committee), including specific levels of authority which require Board Approval. Risk appetite is reviewed by the Board of Directors and if necessary modified at least annually. Business strategy is determined by the EHSG management team in conjunction with the parent company and its implementation in terms of business volumes, capital requirements, financial performance and other appropriate measures is set out in the Business Plan. The Business Plan is prepared annually and covers a 3 year horizon. From Top Risk Assessment (TRA), EH Singapore Branch identified 10 top risks the Branch faces. As part of the risk assessment exercise, the Branch defines its target residual risk for its top 10 risks. This is reviewed quarterly by EHSG s management team. The Management team also oversee the setting of limits for market, liquidity, credit and insurance risks (see separate risk policies). In overall financial terms, the Company has a conservative and controlled risk appetite that is aligned to achieving corporate objectives and meeting regulatory and parent company requirements. In achieving corporate objectives the Group has set a risk appetite that capital available at EH Singapore branch needs to be at least 180% of Monetary Authority of Singapore s Risk Base Capital requirement (RBC) A formal action plan is required to mitigate the potential effects of any likely single event, or combination of events, whose impact would exceed this requirement. Three lines of defence First line of Defence First line of defence comprises of risk taking units. In Singapore Branch, they are Risk Underwriting, Market Management, Commercial Underwriting and Distribution. Risk Underwriting needs to follow quantitative limits set in the Risk Underwriting Quality Standards. MMCD needs to follow EH Pricing Strategy that is aligned with the business strategy, capital model framework, profitability targets and reinsurance program. Commercial Underwriting adopts a risk based approach for pricing its business activities. This ensures EH Group is adequately capitalized against the risk taken. EH Singapore branch does not have an investment management function. Only cash and government bonds are allowed and need approval from EH Group investment function for new purchase. 5

6 Second line of Defence Risk Management, Actuarial, Compliance, Credit Insurance Modelling make up the second line of defence to ensure EH Group has a robust system of governance. Risk Management provides a consistent framework for all risk activities across EH Group, protect the capital base of EH Group and support the value creation in EH Group, etc. Actuarial function coordinates calculation of technical provision, ensures the appropriateness of the methodologies and underlying models used and provides an opinion on the overall underwriting policy, etc. Compliance is to support EH Group to embed compliance with laws, regulations, business principles, rules of conduct and established good business practices. Credit Insurance Modelling is responsible for the maintenance of the core of the internal model, detecting any non-compliance with regulation. In Singapore Branch, EH Group will issue guidelines regarding risk management, actuarial and compliance. It is the responsibility of CFO of Singapore Branch to ensure these guidelines are adhered. EH Group provides actuarial services on reserving for EH Singapore Branch. An external actuary, Deloitte, is also engaged to provide independent view on reserving. Third line of Defence EH Group has an annual audit program. This program bases on risk mapping and a pragmatic approach to requirements. The audit program is the subject of a discussion, communication and validation process with operational staff, General Management and Audit Committees. Finally the program is validated via a presentation to the EH Audit Committee for approval. EH Group will carry out full and transversal audits of EH branches. For example, EH Group is doing functional audit in management & governance, accounting & controlling & reporting, payment cycle and fronting for EH Singapore Branch. Responsibility for risk management Responsibility for managing the risks of the business rests with the company s management. The following committee is responsible for the risk management process at EH Singapore Branch. The detailed list of the tasks and responsibilities of this committee is found in its respective Terms of Reference. Risk Management Committee The Risk Management Committee (RMC) is a subcommittee of Euler Hermes Singapore Branch (EHSG) Management Committee. RMC is to provide oversight on the risk management framework and policies, to cover all material risks that include market, credit, insurance and operational risks and to propose actions to the Management in case of deviation compared to the framework. 6

7 Appendix 1 Euler Hermes Singapore Branch Risk Management Policy Framework Allianz Group Risk Policy Group Framework EULER HERMES Risk Management Standards EH SG Risk Management Policy Strategic Route Map EULER HERMES Singapore Policy Framework Credit Risk Market and Liquidity Risk Insurance Risk Operational Risk Group Risk Departmental Budgets Departmental operating procedures and guidelines Business Plan Programme of Works 7

8 Appendix 2 EHSG is a branch of Euler Hermes Group and hence also part of Allianz Group. There is a list of EH Group and Allianz Group policy that EHSG needs to comply with. They are list below: Allianz Standard for P&C Underwriting -MMCD Pack CAT Risk Policy Appendix - MMCD pack Euler Hermes (EH) Group Risk Policy Allianz Group Risk Strategy including Allianz SE Risk Appetite Product Control Process - MMCD pack EH Minimum Standards for Operational Risk Management EH Minimum Standard for ORSA EH Minimum Standards for Top Risk Assessment Natural Catastrophe Risk Pricing & Underwriting Guidelines - MMCD pack EH Operating Entities Risk Committee Operation Guideline Risk and Control Self-Assessment Guidelines (RCSA/ScA) EH MS for Outsourcing 8