ICAAP of SNS Bank. Arno van Eekelen Senior Consultant SNS Bank Global Association of Risk Professionals. June 2014

ICAAP of SNS Bank Arno van Eekelen Senior Consultant SNS Bank Global Association of Risk Professionals June 2014

Table of contents 1. SNS REAAL 2. ICAAP a) Basic elements and environment b) ICAAP stages c) Internal governance 2 2012 Global Association of Risk Professionals. All rights reserved.

SNS REAAL Balance sheet total of 125 billion Dutch state single shareholder as of February 2013 Dutch service provider in the banking and insurance sector ICAAP ORSA 3 2012 Global Association of Risk Professionals. All rights reserved.

Basic elements and environment Current balance sheet External factors Financial markets Customers Analists/investors Rating agencies Supervisor Regulation Business strategy Risk appetite ICAAP capital Economic Capital Risk assessment, Risk policy and risk limits Regulatory Capital Available capital (reverse) Stress test 4 2012 Global Association of Risk Professionals. All rights reserved.

ICAAP stages Preperationfase I Preperationfase II Executionfase Determinationfase Evaluationfase Preperationfase I and II ICAAP document, scenario s, assumptions and guidelines Executionfase Risk analysis and (reverse) stress test Determinationfase Determination of capitalisation of SNS Bank (with board & experts) Finalise ICAAP package (document and attachement) Evaluationfase Internal and external (DNB/SREP) evaluation of ICAAP 5 2012 Global Association of Risk Professionals. All rights reserved.

Internal governance Executive Board ALCO Bank Steering Committee Finance SNS Bank Regulatory projects Working group 6 2012 Global Association of Risk Professionals. All rights reserved.

ORSA of REAAL Verzekeringen Gabe Langhout Senior Risk Consultant SNS REAAL Global Association of Risk Professionals June 2014 7 2012 Global Association of Risk Professionals. All rights reserved.

Table of contents 1. ORSA process 2. ORSA stages 3. ORSA organization 4. ORSA evaluation & development 5. ORSA shifting focus in workshop discussions 6. ORSA (internal) intervention ladder 7. ORSA versus ICAAP 8 2012 Global Association of Risk Professionals. All rights reserved.

Evaluation ORSA Process Triggers Scaling Risk Appetite Business Strategy Risk Identification & measurement Appropriateness Assessment Risk Analyses Stress Testing Draft Report Workshops Management Body Final Report Supervisory Review Process See also: Good Practices ORSA, Verbond van Verzekeraars https://www.verzekeraars.nl/actueel/nieuwsberichten/documents/2012/maart/orsa%20good%20practice.pdf 9 2012 Global Association of Risk Professionals. All rights reserved.

ORSA Stages Preparation Execution Decision Evaluation ORSA Policy & Table of contents ORSA Report Business Strategy Risk Measurement & Analyses Appropriateness Assessment (Internal) Intervention Ladder Calibration of Risk Appetite Statement, Strategy, Limits Baseline projection Stress Testing Management actions to be taken Stress scenarios Draft ORSA Report Final ORSA Report Supervisory Review @ Evaluation Process (Internal) Evaluation 10 2012 Global Association of Risk Professionals. All rights reserved.

ORSA Organization Group Audit Supervisory Board Management Board Decide Advise Coordinate Participate ALCO Operational Risk & Compliancy Committee Steering Committee ORSA Project Team Risk Financial Risk Non-Financial Risk Risk Reporting Finance Control Finance Reporting Balans Sheet Management Balans Optimization Corporate Strategy 11 2012 Global Association of Risk Professionals. All rights reserved.

ORSA Evaluation & Development Subject 1 e ORSA 2 e ORSA 3 e ORSA 4 e ORSA Governance ORSA Policy Data Stress Testing Forward Looking 12 2012 Global Association of Risk Professionals. All rights reserved.

ORSA Workshops: Shifting Focus in workshop discussions From Solvency I via Theoretic Solvency Criterion (TSC) to Solvency II The Metric is still changing unfortunately From Risk to Risk/Return Without Risk no Return, there is no free lunch From Risk Appetite to Efficacy of Management Actions The Risk Appetite may be high(er) if many capital strengthening and de-risking options are available From Stress Scenarios to Recovery Options / Capacity in different types of stressed situations Slow, Fast, Idiosyncratic, System wide From Compliancy to Understanding vulnerabilities & possible mitigating actions 13 2012 Global Association of Risk Professionals. All rights reserved.

ORSA (Internal) Intervention Ladder Solvency = 150%, Is that OK? Internal Intervention Ladder based on own perception of Risk and the possibility that the SCR exceeds Own Funds Solvency = 150%, Is (forward looking) not OK in scenario! 14 2012 Global Association of Risk Professionals. All rights reserved.

ORSA (Internal) Intervention Ladder Appropriateness Assessment: Risk is underestimated in Pillar I calculation 15 2012 Global Association of Risk Professionals. All rights reserved.

ORSA (Internal) Intervention Ladder De-risking improves solvency in the short term Baseline Risk Taking improves rate of return in the long term 16 2012 Global Association of Risk Professionals. All rights reserved.

ORSA versus ICAAP: main differences Subject ICAAP ORSA Horizon Appropriateness Assessment Risk measurement Process Not prescribed (>= 1 year) Optional Final chapter of the Basel framework Forward looking (>= 3 years) Required Starting point for the Solvency Framework Focus Capital Capital & Risk Compliancy Assessment Optional Required Accounting Method Mainly: Amortized Cost Fair Value Risks covered in Pillar 1 Credit-, Market- & Operational Risk Market- (single risks), Insurance- (single risks), Counterparty Default-, Operational Risk 17 2012 Global Association of Risk Professionals. All rights reserved.

ICAAP versus ORSA Jeroen van Duren Sr. manager Financiën & GRC Centraal Menzis Global Association of Risk Professionals June 2014 18 2012 Global Association of Risk Professionals. All rights reserved.

Table of contents Introduction Menzis Risk Framework Menzis ORSA Menzis Lessons learned 19 2012 Global Association of Risk Professionals. All rights reserved.

Introduction Menzis Health Insurer (Co-op) Drivers: Price, volume and Quality > 2,1 million people insured 1704 fte medewerkers 5,5 billion GWP (incl. AnderZorg en Azivo) Samen verzekeren wij kwalitatief goede zorg om de leefkracht van ieder menz te versterken. menselijk voor elkaar daadkrachtig Three Zorgkantoren : Arnhem, Groningen, Twente 3,5 billion GWP 20 2012 Global Association of Risk Professionals. All rights reserved.

Table of contents Introduction Menzis Risk Framework Menzis ORSA Menzis Lessons learned 21 2012 Global Association of Risk Professionals. All rights reserved.

Risk and Capital ORSA: linking Risk and Capital management: What is the required level of Solvency to realise our strategic goals and to absorb future (unknown) risks over a three to five years horizon? 22 2012 Global Association of Risk Professionals. All rights reserved.

Strategie Hoeveel risico lopen we? SRA Specifieke risico s Toleranties Risicobereidheid Hoeveel risico zijn we bereid te lopen? Risicoprofiel Toleranties Management actions Wat is de impact van risico s op het kapitaal op lange termijn? Aanpasing/herijking strategie ORSA 23 2012 Global Association of Risk Professionals. All rights reserved. 23

Planning and Control cycle Missie Menzis Strategie Menzis Doelstellingen op strategisch niveau Risico s op strategisch niveau Doelstellingen op tactisch niveau Risico s op tactisch niveau Doelen stellen Verantwoording en stuurinformatie Risicoplanning Verantwoording en stuurinformatie Doelen stellen Verantwoording en stuurinformatie Risicoplanning Verantwoording en stuurinformatie 24 2012 Global Association of Risk Professionals. All rights reserved. Doelstellingen op operationeel niveau Risico s op operationeel niveau

Table of contents Introduction Menzis Risk Framework Menzis ORSA Menzis Lessons learned 25 2012 Global Association of Risk Professionals. All rights reserved.

From risks to scenarios Uitkomst SRA Meerjaren strategie 14 6 25 11 13 27 29 20 2 4 16 19 18 3 21 5 28 8 26 9 16 8 2 26 27 28 29 21 20 19 11 13 14 25 29 3 4 5 6 9 18 Prudent Scenario Beleggingen Scenario Beheerskosten Scenario AV Scenario Verzekerden Scenario Budgetresultaat Scenario AWBZ Scenario 26 2012 Global Association of Risk Professionals. All rights reserved.

From scenarios to capital Strategische Risico s Scenario s Variabelen Financiële projecties Kapitaalberekeningen Kapitaal Hoog 1 3 5 2 4 1 Scenario 1 2 7 Premie Schade Beleggingen Verzekerden Bedrijfskosten T+1 T+2 T+3 T+4 T+5 Balans T+1 T+2 T+3 T+4 T+5 Verlies en Winst T+1 T+2 T+3 T+4 T+5 Ontwikkeling van de kapitaalsvereiste Ontwikkeling van het eigen vermogen Tijd Aanzienlijk 6 7 Kapitaal Balans Ontwikkeling van T+1 T+2 T+3 T+4 T+5 T+1 T+2 T+3 T+4 T+5 Premie het eigen vermogen 7 5 Schade Verlies en Winst Ontwikkeling van de T+1 T+2 T+3 T+4 T+5 kapitaalsvereiste Scenario 2 Beleggingen Beperk 8 9 9 Verzekerden Bedrijfskosten Tijd Laag 8 5 Scenario 3 Premie Schade Beleggingen T+1 T+2 T+3 T+4 T+5 Balans T+1 T+2 T+3 T+4 T+5 Verlies en Winst T+1 T+2 T+3 T+4 T+5 Kapitaal Ontwikkeling van het eigen vermogen Ontwikkeling van de kapitaalsvereiste 10 Verzekerden Bedrijfskosten Tijd 27 2012 Global Association of Risk Professionals. All rights reserved.

Required & desired solvency Additional buffer Strategic choices Internal buffer Historic risk Worst Case strategic scenario SCR Regulatory Required Minimum Market risk Underwriting risk Counterparty risk Liquidity risk Operational risk 28 2012 Global Association of Risk Professionals. All rights reserved.

Advisory Board Financial Financial Control & Reporting Administration Accounting Actuarial dept Menzis ORSA Audit Board Health management Commerce Expertteam After sales service 29 2012 Global Association of Risk Professionals. All rights reserved. Board of Directors Business Control Corporate office Solvency II Program

Table of contents Introduction Menzis Risk Framework Menzis ORSA Menzis Lessons learned 30 2012 Global Association of Risk Professionals. All rights reserved.

Lessons Learned (summary) Integral Risk Framework (consistent, related) Control & Risk Management (integral steering) Set limits (risk tolerance) Required (external) versus eligible solvency (intern) Entire organisation involved (commitment, widespread support) Key input for main decision making (e.g. premium setting) 31 2012 Global Association of Risk Professionals. All rights reserved.

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