Changing Risk Environments: Governance vs. Management

Transcription

1 Changing Risk Environments: Governance vs. Management 24th ICMIF/Americas Annual Conference Panelists The Co-operators Group Limited Canada John Harvie, Chairman of the Board Paul Hanna, Executive Vice President, Member Relations & Corporate Services Equidad Compañía de Seguros, Tegucigalpa Honduras Oscar Coello, Chairman of the Board Mariela Silva, General Manager Sociedad de Seguros del Magisterio Nacional & Seguros del Magisterio Costa Rica Luis Paulino Rodriguez Mena, Chairman of the Board Georgina Dias, General Manager 1

2 Enterprise Risk Management Establishing a risk-aware culture Identify Risk Measure Risk Manage Risk Risk correlations is an increasingly important component of an insurer s risk management framework. Risks and Insurance 2

3 Risks without Insurance A.M. Best Perspective Evaluation of the financial strength of insurance companies. Enterprise Risk Management (ERM) has been a component of the analytical process. New methodology provides more transparent explanation of how ERM is integrated. 3

4 ERM in the Rating Process Country Risk Balance Sheet Strength Baseline (e.g., bbb+) Operating Performance (+2/ 3) Business Profile (+/ 2) Enterprise Risk Management (+1/ 4) Comprehensive Adjustment (+/ 1) Rating Enhancement Published Issuer Credit Rating Based on New BCRM Effective 2017 Enterprise Risk Management The foundation is the compilation of traditional risk management practices and controls that help companies monitor and manage their exposure to the five key categories of risk Credit Market Underwriting Operational Strategic 4

5 Enterprise Risk Management Strong risk management: Company demonstrates it has incorporated strong risk management practices into its core operating processes while effectively executing its business plan. Company integrates risk metrics into corporate, business line and functional area objectives, and meld risk-return measures into financial planning and budgeting, strategic planning, performance measurement and incentive compensation. Own Risk & Solvency Assessment 2015 United States: 2012 Model Act ORSA Summary Report submitted to regulators Filed by companies >$500 million in DWP or groups with >$1 billion in GWP ORSA represents the first significant action by US regulators to engage in a formal dialog with insurers regarding their risk and capital management processes. A.M. Best surveyed companies regarding their compliance. 5

6 Own Risk & Solvency Assessment Have you completed an ORSA? NO YES Health 33.3% 66.7% Life / Annuity 51.4% 48.6% Property / Casualty 56.9% 43.1% Own Risk & Solvency Assessment If you were not obligated to complete an ORSA, will you voluntarily complete one as part of your corporate governance? NO YES Health 20.0% 80.8% Life / Annuity 63.6% 36.4% Property / Casualty 48.2% 51.8% 6

7 Own Risk & Solvency Assessment What is your company s opinion of ORSA? Negative burden outweighs the benefit Neutral Positive benefit to company Health 33.3% 22.2% 44.4% Life / Annuity 20.0% 37.1% 42.9% Property / Casualty 27.4% 41.1% 31.5% ERM in the Rating Process Country Risk Balance Sheet Strength Baseline (e.g., bbb+) Operating Performance (+2/ 3) Business Profile (+/ 2) Enterprise Risk Management (+1/ 4) Comprehensive Adjustment (+/ 1) Rating Enhancement Published Issuer Credit Rating Based on New BCRM Effective

8 ERM Assessment ERM Assessment Adjustment (Notches) Key Characteristics of ERM Very Strong +1 Adequate 0 Weak 1/2 Very Weak 3/4 Risk management capabilities are excellent and more than adequate for the risk profile of the company. Risk management capabilities are good and adequate for the risk profile of the company. Risk management capabilities are insufficient given the risk profile of the company. Risk management capabilities contain severe deficiencies relative to the risk profile of the company. The key characteristics described for each assessment category are ideal scenarios and are not intended to be prescriptive. Based on New BCRM Effective 2017 Risk Impact Worksheet The Risk Impact Worksheet is the primary tool that rating analysts use in the ERM assessment process. The worksheet contains ten broad categories of risk and allows the rating analyst to assess the risk profile of each category relative to the insurer s management capabilities. For each risk category, the risk management capabilities of the insurer are measured to see if they meet or exceed the risk profile. 8

9 Sample Risk Impact Worksheet Product & Underwriting Reserving Concentration Reinsurance Financial Flexibility Sample Risk Impact Worksheet Investments Legislative/Regulatory/Judicial/Economic Management Operational Risk Appetite/Stress Testing Summary

10 Recent RIW Findings Reviewed the RIWs of over 1100 rating units that were evaluated between April 4 th and December 15 th Population included approximately 800 P/C insurers, 250 L/A insurers and 70 Health insurers Represented regions included the U.S. (70%), the EU (7%), Bermuda (5%), MENA (3%) and other. 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% 1.6% 1.4% 87.7% P/C RIW Category: Summary 76.7% 10.7% 21.9% 10

11 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% 3.6% 3.6% 90.9% Life and Annuity RIW Category: Summary 83.4% 5.5% 13.0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% 7.4% 4.4% 82.4% Health RIW Category: Summary 89.7% 10.3% 5.9% 11

12 Property Casualty Companies 25% 20% 15% 5% 15% 19% 22% 5% 16% 9% 15% 13% 14% 18% 13% Percent of companies with risk > capability 0% Product / Underwriting Reserving Concentration Reinsurance Financial Flexibility Investments Legislative / Regulatory / Judicial / Economic Management Operational Risk Appetite / Stress Testing Summary Life & Annuity Companies 40% 35% 30% 25% 20% 15% 5% 0% 19% 36% 9% 14% 14% 26% 14% 16% 17% 18% Percent of companies with risk > capability Product / Underwriting Reserving Concentration Reinsurance Financial Flexibility Investments Legislative / Regulatory / Judicial / Economic Management Operational Risk Appetite / Stress Testing Summary 12

13 Health Companies 60% 50% 54% 40% 30% 20% 34% 13% 30% 6% 18% 20% 25% 25% 24% Percent of companies with risk > capability 0% Product / Underwriting Reserving Concentration Reinsurance Financial Flexibility Investments Legislative / Regulatory / Judicial / Economic Management Operational Risk Appetite / Stress Testing Summary AM Best Company, Inc. (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLEORINPART,INANYFORMORMANNERORBYANYMEANSWHATSOEVER,BYANYPERSON WITHOUT AMB s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. AMB does not audit or otherwise independently verify the accuracy or reliability of information received or otherwise used and therefore all information contained herein is provided AS IS without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. AMB is not an investment advisor and does not offer consulting or advisory services, nor does the company or its rating analysts offer any form of structuring or financial advice. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling. 13

14 Thank you 14