the company’s own risk and solvency assessment - … Davenport.pdfORSA – the company’s own risk and solvency assessment 30 April 2015 James Davenport Global Head of Risk and
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ORSA – the company’s own risk and solvency assessment30 April 2015James DavenportGlobal Head of Risk and Control
Group Risk Management
Zurich in a nutshellAn strong presence in Latin America and Mexico
• Zurich operates since 1984 in Mexico.
• We have more than 55 offices and agencies to serve our clients throughout Mexico.
• We work to provide our retail customers, small and medium-sized companies, as well as large corporates, a broad range of products and financial services customized to the needs of the local markets.
• We have 30 years of experience on the Mexican market.
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Regulatory focus: sets purpose of the ORSA and high-level principles and leaves the ‘how to’ to the companies.
Why an ORSA?• A tool to support decision-making – with the risk appetite framework at its
heart
What are key components of an ORSA?• A 360-degree analysis of material risks • Current and stressed conditions, as well as a forward-looking basis• Anchored in enterprise risk management and governance• Not a statutory capital requirement• Should be different in every company
The own risk and solvency assessment
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Components are strongly integrated in Zurich’s enterprise risk managementWhy an ORSA?
Defines and informs risk limits Takes a shareholder viewDifferent dimensions, e.g.:
Risk appetite
Capital-at-Risk Earnings-at-Risk
Management view of risks Proprietary tool for risk identification and assessment3-5 year time horizon
Total Risk Profiling (TRP)and risk assessments
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Prob
abilit
y
SeverityIV III II I
AB
C
D
Governs risk ownership, roles andresponsibilitiesSets limits by risk typeIs mandatory across GroupIs regularly updated and communicated
Zurich Risk Policy (ZRP)
More quantitative More qualitative Risk Governance
Operational Risk & ControlFocus on operational riskmanagementIntegrated Risk & Control framework and methodology
Sets target capitalization atAA levelTakes a policyholder viewStress testing/forward looking
Z-Economic capital model
AFRZ-ECMcapital required/RBC
AA
Risk reporting
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Why an ORSA?They are embedded in the Group’s risk governance
Risk taking
Boa
rd o
f D
irect
ors
leve
lG
EC
leve
lR
egio
n, S
egm
ent,
Bus
ines
s U
nit l
evel
CEO and Group executive committee
Finance committee Risk committee
Businessmanagement
Audit, risk and control committees
Risk management network(including regional/segment/
Chief Risk Officers & Local Risk Officers)
Risk control
Group Chief Risk Officer
Gro
up A
udit
Board of Directors
Audit committeeRisk committee
Independentassurance
1st
2nd
3rd
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What are key components of an ORSA?The reports to management and regulators capture the various insights from our Enterprise Risk Management tools and processes
Risk categories
Insurance risk
Market/ALM risk
Operational risk
Credit risk
Strategic risk
Reputation risk
Target riskbudget
Allocated risk budget and defintion of capital target
What is our riskbudget and target, do we deploy ourcapital on most
profitable business?
Allocation
Statutory andliquidity
constraintsIs the entity
financially sound? Can it support ist development, andweather stressed
conditions?
LimitsInvestment
LimitsInsurance
LimitsReinsurance …
Limit system
Risk identification
Risk analysis/ evaluation
Risk management
Risk monitoring
Risk and limit monitoringthroughout the year
Own Risk & Solvency Assessment (ORSA)
Risk appetite statement:willingness/limitation
Risk Strategy
Risk Reporting and Communication
Org
aniz
atio
nal s
truc
ture W
orkflow M
anagement
Liquidity risk
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What are key components of an ORSA?Risk appetite: what risk scenarios are beyond our tolerance or limits and what risk response to give?
Examples are for illustration only
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Fiscal crisis in key economies
Structurally high employment
Water crisis
Severe income disparity
Failure climate change mitigation
Extreme weather events
Global governance failure
Risk scenarios
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What are key components of an ORSA?360-degree view: where are potential risk accumulation?
Examples are for illustration only
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What are key components of an ORSA?Sensitivities and scenarios: how does it impact key metrics?
Source: Zurich Insurance Group Ltd.’s Investors presentation, February 2014
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Beyond the ORSAThe objective is to strengthen the company’s risk culture and drive accountability for risk taking
Source: McKinsey&CompanySource: CRO Forum and CRO Council
10 dimensions addressing attitudes & behaviors toward risk
The elements of a sound risk culture
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In conclusion
• The ORSA is a ‘tool owned’ by companies to support decision-making –a well-articulated risk appetite framework is at its heart.
• The ORSA is anchored in enterprise risk management and governance. It also has to drive better risk culture and accountability.
• Regulation on the ORSA needs to strike the right balance: focus only on purpose and principles, not on the means to achieve these.
• ‘Continuous improvement is better than delayed perfection’ (Mark Twain)
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Thank you
Group Risk Managementzurich.comCaveat*The comments related this presentation reflects the personal views of the presenter and not necessarily the views of Zurich Insurance Company Ltd or Zurich Mexico.*The data specified in this document may contain information classified as confidential therefore the total or partial reproduction of the document is prohibited.
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