Enterprise Risk ManagementAn Insurance Company

Perspective

CAS ERM Seminar

San Francisco, April 2&3, 2001

Claus S. Metzner, FSA, FCAS, MAAA, Aktuar - SAV

Chief Actuary/Risk Manager

Zurich Financial Services Group - Region Switzerland

ERM - Zurich Switzerland

• Background: ZFSG - Region Switzerland– P&C, Life Insurance, Asset Management are the

primary businesses– Structure is 9+ SBU's– Prem Revenue: Life $ 2,500; P&C $ 1,350– Total Assets: $ 24,000– Markets: Personal and Commercial– Distribution: Agents, Brokers, Direct Sales

ERM - Zurich Switzerland

• Risk Management Committee Structure– Risk Management Committee

• CEO, CFO, CIO, CLO, Chief Actuary Life, Non-Life, RM, Head of Regional Internal Audit

– Investment Committee (incl. ALM)• CEO, CFO, Chief Actuary Life, Non-Life, RM,

Controller, Group Representatives, Inv. Manager

– Working Groups: Safety, Compliance, etc

ERM - Zurich Switzerland

• Responsibilities– Analysis of Financial Risks: DFA/ALM

processes • Chief Actuaries, Risk Manager

– Models, Applications

– Support from Group Home Office Areas

– Analysis of Operational Risks• Operational Areas with Risk Management

ERM - Zurich Switzerland

• Responsibilities – Identification of Risks/Opportunities

• SBU's

• Support Functions (IT, Finance, Corp Development, Claims)

• Bottom-Up with RM review

ERM - Zurich Switzerland

• Responsibilities – Executive Committee

• As Part of Strategic Planning Process, Region Key Issues identified

• Tasks/Specific Responsibilities Assigned for each Issue

– Detailed Analysis: Operational Area and RM• As required (examples: e-commerce,

pricing/underwriting, new products evaluation, IT security, etc)

ERM - Zurich Switzerland

• Organisational Risks– Checks and Balances is First Line of Defense

• Examples– Pricing/Underwriting separate from Reserving/Valuation

functions– Internal/External Audit; Claim Audits

• Assigned Responsibilities– Compliance Officer– Safety Officer– IT Security– Financial/Pricing - Chief Actuaries/CFO

ERM - Zurich Switzerland

• Organisational Risks– Detailed Analysis via Total Risk Profiling

• Team Based Approach which consists of– Identification of Risks

– Assigning of Values for Frequency and Severity risk

» measure may be impact on earnings, capital

» evaluate financial impact of "soft measures" as well

» consider multi-year implications

– Determining which Risks are unacceptable and therefore need risk mitigation & assign responsibility

ERM - Zurich Switzerland

• Organisational Risks– Review Process - Multi-Tiered

• Operational Management– MBO process (individual goals and performance

measurement)

• Risk Management Committee– Quarterly Reports on Status of Key Issues

• Goal: the key issues, etc are an operational means of dealing with issues that will have financial impacts

ERM - Zurich Switzerland

• Financial Risks– Note: Financial and Operational Risks are

related even though I am discussing them individually

– Key Risks• Pricing Assumptions/Guarantees

• Asset Risk

• Liability/Valuation Risk

ERM - Zurich Switzerland

• Financial Risks– Management of Risk & Assessment

• Know where you stand (valuation/reserving)

• Pricing Models

• ALM/DFA models and analysis

– Implement• Strategic Asset Allocation

• Marketing

• Capital Allocation/RBC

ERM - Zurich Switzerland

• Financial Risks– Review/Monitor

• Actuarial Review of Financial Plans for Realism

• Measurement of Deviation from Plan and Causes– Financial

– Target Dates for Key Issues

• On-going ("rolling") Adaptation

ERM - Zurich Switzerland

• Interrelationship of Operational and Financial Risk/ERM– Recognise that risk/opportunities can arise from

internal or external conditions– Have processes in place that work bottom-up and

top-down to assure consistency of response to emerging conditions

– Rely on these processes (background) as part of the evaluation of the enterprise risk position

ERM - Zurich Switzerland

• Interrelationship of Operational and Financial Risk/ERM– Consider Systemic Risk within context of RBC

ERM - Zurich Switzerland

• Where Are We– Processes - Checks and Balances - are in place– Evaluations on a quarterly basis– Specific Risk Reviews (Total Risk Profiling) in

place and used three to four times a year– DFA/ALM work on-going