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Financial Crisis Puts Spotlight on ERM
An ERM Update on the Global Insurance Industry
December 2010
The insurance industry has witnessed two years of
business turbulence following the onset of the fi nancial
crisis. This diffi cult period began soon after the release of
Towers Watson’s 2008 global insurance industry survey,
Embedding ERM: A Tough Nut to Crack, which reported
that companies were fi nding it challenging to integrate
enterprise risk management (ERM) into their businesses.
Two years later, our sixth biennial ERM survey provides an
invaluable opportunity for insurers to gauge how successful
companies have been in advancing their ERM programs.
Financial Crisis Puts Spotlight on ERM 3
Financial Crisis Puts Spotlight on ERM
An ERM Update on the Global Insurance Industry
Table of Contents
Executive Summary 4
Introduction 6
Figure 1. Top 10 questions insurers should ask themselves about ERM 6
Six Major Findings 7
Finding One: ERM Performance During the RecentFinancial Crisis Was Mixed 7
Figure 2. Core risk controls were the most effective techniques
Finding Two: Risk Appetite Is Important to ERM Success 8
Figure 3. More metrics are included in risk appetite statements
Finding Three: The Business Impact of ERM Continuesto Grow 9
Figure 4. Economic capital usage is up but lags earlier predictions
Finding Four: Resource Availability Is Challenging ERM Development 10
Figure 5. People and data challenges will slow ERM implementation
Finding Five: Convergence of Economic CapitalMethodology Has Slowed 11
Figure 6. One-year VaR still dominates but has not become the global standard
Finding Six: Solvency II Proves Challenging in Europe, but Its Infl uence Is Spreading 12
Figure 7. European insurers expect higher capital requirements from Solvency II
Appendix: Select List of Participating Companies 14
4 towerswatson.com
The insurance industry has witnessed two years of business turbulence following the onset of the fi nancial crisis. This diffi cult period began soon after the release of Towers Watson’s 2008 global insurance industry survey, Embedding ERM: A Tough Nut to Crack, which reported that companies were fi nding it challenging to integrate enterprise risk management (ERM) into their businesses. Two years later, our sixth biennial ERM survey provides an invaluable opportunity for insurers to gauge how successful companies have been in advancing their ERM programs.
Our 2010 survey found seasoned ERM practitioners advancing in economic capital modeling and making ERM part of their decision-making process, while less seasoned ERM practitioners continue to strengthen their ERM frameworks. Insurers increasingly view risk appetite statements that link governance, metrics and modeling to risk and capital decisions as fundamental to a strong ERM program. But while there is ample evidence of considerable year-over-year progress by insurers in their ERM and economic capital develop-ment efforts, the industry still faces many challenges.
This ERM report highlights six major fi ndings regarding risk and capital management progress among insurers worldwide.
ERM performance during the recent fi nancial •
crisis was mixed. While the majority of survey participants were satisfi ed with how their ERM programs performed, many others were neutral, signaling that more work is yet to be done. Meanwhile, traditional risk management techniques contributed the most to enhancing business performance over the past two years. Risk appetite is important to ERM success. •
Corporate risk appetite statements continue to receive considerable industry attention, growing in overall prevalence, number of metrics and business impact. Having a formally documented risk appetite stands out as a key differentiator in insurers’ overall satisfaction with ERM.
The business impact of ERM continues to grow. • Ever-increasing numbers of respondents say their ERM program has resulted in key business changes — primarily as it relates to asset strategy, followed by risk strategy or appetite, product pricing and reinsurance strategy for property & casualty (P&C) insurers. A lack of resources is inhibiting ERM •
development. Across the industry, a shortage of skilled people resources is viewed as the top challenge to ERM implementation while, for large insurers, data quality and integration issues are the top obstacles slowing economic capital efforts.Convergence of economic capital methodology •
has slowed. While a one-year risk assessment period continues to be most popular, driven by Solvency II requirements, there are regional differences, particularly for North American P&C insurers that are using alternative methods. Solvency II proves challenging in Europe, but •
its infl uence is spreading. Implementation challenges persist, as only 10% of European respondents subject to Solvency II believe their
current models meet expected future regulatory requirements. Meanwhile, Solvency II’s infl uence is being felt outside of Europe, particularly in Asia and Bermuda. The degree to which U.S. regulators will step up their ERM requirements remains unclear.
This research report refl ects the perceived state of ERM implementation two years after the fi nancial crisis began. We look at what progress insurers have made and how they are continuing to reshape their approaches to ERM. We anticipate that senior insurance executives reading this report will fi nd this information useful in benchmarking their own company’s position, prioritizing ERM refi nement and development efforts, and shaping future business plans.
Executive Summary
“ Our sixth biennial ERM survey provides an invaluable opportunity
for insurers to gauge how successful companies have been in
advancing their ERM programs.”
Financial Crisis Puts Spotlight on ERM 5
About the SurveyOur 2010 survey report — Financial Crisis Puts Spotlight on ERM — details fi ndings from our web-based survey of chief risk offi cers (CROs), chief fi nancial offi cers (CFOs) and chief actuaries in insurance companies around the world. More than two-thirds of the 465 insurance individuals interviewed were C-suite executives. Conducted during May and June 2010, this is the largest survey to date of the insurance industry on ERM.
Survey respondents represented many of the world’s largest insurers; more than half have revenues in excess of $1 billion, and approximately 13% take in over $10 billion annually. Smaller fi rms — those with revenues of up to $1 billion — were also well represented, contributing 47% of the survey’s respondents.
Participants covered a wide geographic spread of insurers, including companies from North America (31%), Europe (21%) and Asia Pacifi c (19%), with the remaining 29% coming from multiple regions.
In addition, all lines of insurance business were covered, including life insurance (37%), P&C insurance (29%) and reinsurance (13%). Multiline insurers and other fi nancial groups accounted for the remaining 21% of participants.
We are grateful to the 465 executives from around the globe who took the time to participate in this survey and share their thoughts on these important issues.
Conducted during May and June 2010, this is the largest “
survey to date of the insurance industry on ERM.”
6 towerswatson.com
In retrospect, the insurance industry — with certain exceptions — performed relatively well over the past two years. Select insurers with too much asset and liquidity risk chose to de-risk their balance sheets and reduce their susceptibility to another global fi nancial event. For the industry as a whole, insurers recognized that risk taking must be well-controlled and aligned with their capitalization and stakeholder expectations. In particular, as evidenced in our 2010 survey results, insurers have increased their use of risk appetite statements and risk limits, and
have heightened their focus on market, credit and operational risks following the fi nancial crisis.
But where does the industry see itself going from here? In our survey, we asked insurance industry executives to indicate their top ERM development and risk management improvement areas for the next two years. We have listed in Figure 1 their top ten answers and posed the key questions that company executives need to ask themselves now if they truly seek to derive value from their organization’s ERM program.
Introduction
The recent global fi nancial crisis put the spotlight on ERM practices for fi nancial
services companies, including the insurance industry. While the loss of funding and
liquidity that hit banks proved to be of less consequence to the insurance sector,
most insurers recognize that there is still room for improvement in their ERM
programs, especially given rising investor interest, looming Solvency II regulatory
requirements at the end of 2012 and ever-increasing rating agency expectations.
Figure 1. Top 10 questions insurers should ask themselves about ERM
1. Risk Monitoring and Reporting
Does our organization and governance �
structure foster regular and transparent risk monitoring and reporting to senior management and the board?
2. Risk Appetite Statement
Have we defi ned risk appetite and �
communicated this effectively to our key stakeholders?
3. Risk Limits and Controls
Have we adequately set risk limits for our �
top risks, and have they been linked to our corporate risk appetite through suffi cient analysis?
4. Economic Capital Modeling
Do we have the capability to quantify the �
risks we take and take suffi cient note of the results?
5. Risk Governance Structure
Is our board suffi ciently aware of and �
engaged in all relevant risk management issues?
6. Use of Economic Capital in Decision Making
Are capital allocation, asset strategy and �
reinsurance strategy decisions supported by analytics that include economic capital modeling?
7. Risk Culture
Does our culture and compensation �
structure support an appropriate balance of risk and reward?
8. Scenario Testing/Planning Capabilities
Do we have appropriate systems and �
processes in place to monitor and manage rapidly emerging risks?
9. Managing Individual Risk Exposures
Have we established risk owners who are �
accountable for managing and mitigating our top risk exposures?
10. Risk Resources, Skills and Capabilities
Do we have appropriate skilled resources, �
systems and processes to continually enhance our ERM program and stay ahead of our peers and regulator/rating agency requirements?
“We recognize the ability of our business to survive and thrive requires a degree of creative thinking and mea-sured risk taking. The key is to make the right decisions in all environments, even under the most risky and volatile conditions. ERM is at the heart of this.”
— Scott Cochran,Corporate Actuary
and Chief Risk Offi cer,Reinsurance Group
of America
Financial Crisis Puts Spotlight on ERM 7
Finding One: ERM Performance During the Recent Financial Crisis Was Mixed
In the aftermath of the global fi nancial crisis, it is clear that insurers’ fi nancial stability generally fared better than other fi nancial services companies, principally because of insurers’ lower liquidity and funding requirements, more conservative business models and less leveraged balance sheets. Never-theless, the results of our 2010 study suggest that insurers worldwide view their ERM performance as mixed, with 58% of participants saying they are satisfi ed with their ERM capabilities’ performance over the past 18 to 24 months, while 31% were neutral and 11% were dissatisfi ed. Clearly, based on these results, insurers feel that more work remains to improve their risk management practices over the long run.
Meanwhile, more than two-thirds of participants felt that their risk management programs had contributed to enhanced business performance in one or more of 14 key risk management areas over the past two years, as shown in Figure 2.
In particular, core risk-control techniques, as well as strengthened risk culture, were the most widespread means of enhancing performance across all industry segments. Survey participants cited management of individual risk exposures (69%), risk monitoring and reporting (65%), and risk limits and controls (64%) as the top ERM areas contributing to enhanced performance. In one sense, this suggests a back-to-basics approach, although insurers have made discernible progress in advancing more sophisticated ERM techniques as well.
Globally, while insurers continue to wrestle with embedding ERM more fully in their organizations, there are some encouraging signs that the embedding process is well under way. This is reinforced by 64% of respondents, who stated that a strong risk culture enhanced their company’s performance. Further, more than half of survey participants (56%) said the use of economic capital in decision making enhanced performance.
0% 20% 40% 60% 80% 100%
Risk technology or systems
Risk/reward optimization capabilities
Economic capital modeling
Risk appetite statement
Scenario testing/planning capabilities
Other risk models
Risk resources, skills and capabilities
Risk governance structure
Allowances for risk
Economic capital use in decisions
Risk limits and controls
Risk culture
Risk monitoring and reporting
Managing individual risk exposures6969
6464
6464
5656
5656
5656
5555
4949
4949
4747
4242
3737
3434
6565
Figure 2. Core risk controls were the most effective techniques
Core Risk-Control Techniques
Other ERM Techniques
“The fi nancial crisis and the ongoing uncertainty in the economic outlook have emphasised the importance of ensuring that risk management is fully integrated into insurers’ business processes. Aviva believes strongly in this and our senior leadership team is actively championing both the continual enhancement of the risk aware culture and the use of economic capital in decision-making.”
— Mark Chaplin, Group Enterprise Risk Director, Aviva plc
Six Major Findings
8 towerswatson.com
Finding Two: Risk Appetite Is Important to ERM Success
Companies have done a signifi cant amount of work in developing and implementing corporate risk appetite and tolerance statements since 2008, with 59% of survey participants indicating that they have a documented risk appetite in 2010, up from 47% in 2008. The prevalence of such statements has grown incrementally by size, with smaller insurers increasing the most, but still lagging behind their medium-sized and larger counterparts.
This clear trend reinforces that risk appetite statements are becoming an integral governance steering mechanism for companies of all sizes as a means to effectively articulate, gauge and monitor the degree of risk that an organization is willing to take. As expected, there are also meaningful variations in insurers’ risk appetite readiness, with reinsurers and European insurers outpacing Asia Pacifi c and North American companies.
As shown in Figure 3, companies are including more measures based on a range of stochastic and deterministic methods in their risk appetite statements than they did in the past, depending on their level of sophistication. Balance sheet metrics remain pervasive across survey respondents and focus principally on regulatory, economic capital and rating agency measures.
However, there are distinct differences. For reinsurers, economic capital is the most prevalent measure, refl ecting a more developed ERM approach that looks beyond regulatory and rating agency constraints. European insurers are also keenly focused on regulatory capital and breaching regulator thresholds due to looming Solvency II requirements. In contrast, North American insurers strongly emphasize the risk of a rating downgrade and rating agency capital, given the signifi cant market infl uence of these de facto regulators, particularly in the U.S.
2010 2008
11
22
55
33
00
00
00
00
00
Figure 3. More metrics are included in risk appetite statements
0% 20% 40% 60% 80%
Other measures
Reduced embedded-value earnings or economic profit
Reduced return on equity
Reduced GAAP or IFRS earnings
GAAP or IFRS earnings volatility
Other measures
Reduction in stock price
Capital to support specified corporate debt rating
Capital to support specified insurer rating
Regulatory intervention
Loss of embedded value/economic value
Loss of GAAP or IFRS equity
Breach of regulatory capital threshold
Rating agency downgrade
Rating agency capital
Economic capital
Regulatory capital/buffer on regulatory capitalBalance sheet measures
Earnings measures
6666
5555
6262
5454
3535
3333
3232
2222
2828
2727
2626
2020
1717
2727
3535
2828
3434
2020
2727
1414
2121
1010
66
1313
1111
77
77
44
3131
“We found that implementing an expressed risk appetite statement enabled our management to consider more risk taking relative to well-defi ned strategic boundaries.”
— Gil Korthals,Chief Actuary, GuideOne Insurance
Financial Crisis Puts Spotlight on ERM 9
Meanwhile, more companies are beginning to add earnings-related metrics (led by earnings volatility and reduced earnings) to their risk appetite/tolerance statements. More than one-third of respondents indicated that they were using GAAP/IFRS earnings metrics, which refl ect earnings volatility considerations and provide a link to everyday business decisions.
It is not surprising that companies with a documented risk appetite statement said they were more satisfi ed with the performance of their ERM capabilities during the fi nancial crisis than those lacking one (66% versus 47%). Even more striking is the increasing satisfaction level when leading companies link their risk appetite statement to bottom-up risk limits in their organizations (76%). Large and medium-sized insurers in this group registered an 88% satisfaction level. This best practice, which requires more advanced analytics and embedding risk appetite in day-to-day processes, is making a distinct difference for leading ERM practitioners.
Finding Three: The Business Impact of ERM Continues to Grow
ln spite of the challenges of embedding ERM, the proportion of respondents indicating that their ERM program has resulted in key business changes has increased signifi cantly — from 78% in 2008 to 92% in 2010. This trend is consistent with the growing maturity of more insurers’ ERM programs, as processes, systems and results become more stable and better understood. Further, rating agency scrutiny and the Solvency II regulatory deadline have contributed to increased pressure to demonstrate how ERM is integral to the management of the company (i.e., companies are focused on passing the “use test”).
Over the past two years, ERM programs have infl uenced major business aspects, including changes in asset strategy (52%), risk strategy or appetite (47%), product pricing (44%) and management decision-making processes (36%). However, there are fundamental differences across insurer categories. In particular, life insurers (61%), multilines (59%) and reinsurers (48%) are more likely to have changed asset strategy than P&C insurers (34%). Meanwhile, P&C insurers (43%) are more likely to have changed their reinsurance strategy using sophisticated risk modeling to assess the risk/reward trade-offs of their reinsurance program design and retained risk levels.
In addition, the use of economic capital in decision making has also increased across the board. More than 60% of respondents are using economic capital in capital management decisions, while 54% are using economic capital in setting asset strategy, and 52% report using economic capital in strategic planning. As in 2008, company size still matters when it comes to using economic capital modeling in decision making, with smaller companies continuing to lag behind their larger counterparts by a wide margin.
However, the percentage of companies currently using economic capital is lower than the proportion of 2008 survey respondents that planned to be using it by now. This is true across all risk manage-ment areas, particularly with regard to annual business planning, product design and pricing, and performance measurement, as shown in Figure 4.
9292
Currently using EC Plan to use EC in the next 24 months
Figure 4. Economic capital usage is up but lags earlier predictions
2010
2008
2010
2008
2010
2008
2010
2008
2010
2008
2010
2008
2010
2008
2010
2008
2010
2008
2010
2008
0% 20% 40% 60% 80% 100%
Incentive compensation
Performance measurement
M&A and divestiture
Product design and pricing
Reinsurance purchasing
Annual business planning
Strategic planning and capital allocation
Asset/investment strategy (including hedging)
Capital adequacy assessment/capital management
Calculating economic capital25256565
28285757
26266262
35354444
28285454
32323636
35355252
47473131
33334646
44443030
26264646
33333333
39393737
39392828
28282424
27271515
42422323
42421717
31311515
24241010
10 towerswatson.com
We believe this shortfall is driven by two factors. First, companies were generally distracted from development and embedding activities during the turbulence of the fi nancial crisis. Second, the efforts required to implement, validate and embed the required infrastructure were likely underestimated.
Looking ahead, 41% of respondents highlighted the use of economic capital in decision making as a priority for 2010 and 2011. This proportion increased signifi cantly for Bermuda (85%) and Europe (52%). Over the next 24 months, insurers anticipate signifi cantly greater use of economic capital in decision making — for example, in product design and pricing (up from 37% to 76%) and in performance measurement (up from 23% to 65%).
However, the impact of ERM may be limited unless approaches to incentive compensation change. Currently, only 43% of respondents indicate that they incorporate risk measures of any kind in incentive compensation arrangements, and only 15% use economic capital for this purpose. Further, 54% of insurers globally have no current plans to use economic capital in incentive compensation.
Finding Four: Resource Availability Is Challenging ERM Development
A lack of available resources — in particular, people with the required level of skill and experience — has contributed to slower than expected enhancement of companies’ ERM and economic capital capabilities. In total, people challenges were noted by 56% of respondents — followed by data challenges, at 45% — as the greatest challenge to ERM implementation (Figure 5).
The people skills shortage is most noted in the Asia Pacifi c region, where risk management practices are, perhaps, historically not as strong. Surprisingly, in spite of the skill shortfall worldwide, only 23% of respondents cited risk resources, skills and capabilities as a priority for future development.
Availability of skilled resources is also seen as the biggest challenge in terms of implementing or using economic capital, particularly among small companies. This challenge is most acute for those insurers dissatisfi ed with their overall ERM capabilities.
Globally, data issues were cited as the number one challenge for large companies (56%), while small companies were much less concerned. This is not surprising, given that larger companies typically have more complex, less integrated systems across the organization. Further, larger insurers have demonstrated a superior commitment to economic capital modeling, and therefore tend to exhibit (and need to resolve) more data quality and control issues than their medium-sized and smaller counterparts.
Large (rev. > $10 billion)
Medium (rev. $1 billion – $9.9 billion)
Small (rev. < $1 billion)
Figure 5. People and data challenges will slow ERM implementation
0% 20% 40% 60% 80%
Leadership
Technical actuarial or analytical
Business process
Systems
Cultural
Data
People
24
26
41
11
19
22
40
36
32
44
45
38
47
48
36
53
56
57
56
48
40
“Larger organiza-tions continue to make investments in evolving their internal economic capital models so that they can be used to meaning-fully support a growing number of practical business decisions”
— Michael W. Mahaffey,
Senior Vice President,
Chief Risk Offi cer,Nationwide
Financial Crisis Puts Spotlight on ERM 11
Meanwhile, 41% of respondents identifi ed risk culture as a challenge, suggesting that they may have ongoing diffi culties with fully embedding ERM in their respective organizations.
Interestingly, leadership challenges are seen as much less signifi cant now (19%) than two years ago (35%). This improving trend is consistent with favorable survey responses in the area of risk management governance and organization, and refl ects greater CEO support, board engagement, and the maturing role of CROs and their equivalents.
“The insurance industry’s efforts to build out its ERM programs have defi nitely been made more diffi cult by the high demand for a limited supply of risk experts — a trend that is expected to continue well into the future.”
— Steve Taylor-Gooby,Managing Director, Towers Watson
Finding Five: Convergence of Economic Capital Methodology Has Slowed
On a global basis, nearly two-thirds of respondents indicate they are calculating economic capital using some type of model, up from 57% in 2008. In addition, the vast majority of respondent companies that calculate economic capital (85%) are planning further development within the next year. So companies clearly believe that their work in this complex area is not fi nished.
Not surprisingly, there are signifi cant regional and size variations. For example, insurers in Bermuda (92%) and Europe (84%) are more likely to calculate economic capital than their Canadian (55%) and U.S. (49%) counterparts. The more widespread infl uence of economic capital in Europe refl ects Solvency II pressures. Greater prevalence in Bermuda refl ects the number of global reinsurers domiciled there, as well as the infl uence of Bermuda regulators seeking recognition from their European counterparts with regard to solvency.
Further, company size still makes a difference, with 87% of large insurers calculating economic capital, compared to 77% of medium-sized insurers and only 46% of small companies. The large companies continue to lead the way, given their greater sophis-tication, pools of resources and more complex risk profi les.
In our 2008 survey, we pointed out that standards were emerging with regard to the quantifi cation of economic capital. In this year’s survey, we see that many aspects of the approaches used to perform these calculations are stabilizing, but the convergence of methods has slowed.
With regard to the risk assessment period, Solvency II strongly encourages companies to use a one-year approach. On a global basis, we see that the one-year approach is most prevalent (68%) as shown in Figure 6, and particularly favored by life insurers in Europe (88%), Asia Pacifi c (88%) and North America (70%). Only 49% of P&C insurers use this approach. P&C insurers are more likely to use longer risk assessment periods, including a two- to fi ve-year time horizon (35%) and the runoff of the portfolio (14%).
0% 20% 40% 60% 80% 100%
Other
Economic cost of ruin (ECoR)
Tail value at risk (TVaR) or conditional tail expectation (CTE)
Value at risk (VaR) or risk of ruin (RoR)
72
67
2021
4
4
5
7
Figure 6. One-year VaR still dominates but has not become the global standard
2010 2008
Primary Measure of Risk Tolerance Used to Calculate EC
Risk assessment period in calculating EC
0% 20% 40% 60% 80% 100%
68 15 14 3
68 13 14 52008
2010
One year Two to five years Runoff of portfolio Other
“ With regard to the risk assessment period,
Solvency II strongly encourages companies to
use a one-year approach.”
12 towerswatson.com
Where a one-year approach is adopted, use of a market-consistent terminal balance sheet is common among multiline companies, and European life insurers and reinsurers. The market-consistent balance sheet continues to present challenges for many North American life insurers; nonetheless, it remains the most commonly used (50%) balance sheet valuation basis among this group when a one-year time horizon is used.
The use of VaR (value at risk or risk of ruin) as the primary measure of risk tolerance to calculate economic capital has increased from 67% in 2008 to 72% in 2010. The popularity of VaR is consistently high across the industry, with only marginal differences among life (79%), multilines (76%) and P&C (70%) fi rms. Tail value at risk (TVaR) is most commonly used in North America (33%), where it is also employed in aspects of rating agency and regulatory capital calculations. It is also popular among reinsurers (37%). Other measures have largely fallen away.
Finding Six: Solvency II Proves Challenging in Europe, but Its Infl uence Is Spreading
For European insurers, Solvency II remains a primary focal point as implementation challenges become more evident and expectations for its impact on the market evolve.
As the Solvency II requirements have become clearer over time, the consensus view on the impact to capital levels has swung toward increased capital requirements. Of those who expressed an opinion, 54% expected an increase in capital in our 2010 survey, compared to 31% in 2008 and only 14% in 2006 (Figure 7). As expected, small and medium-sized insurers indicated greater concern over increased capital requirements than large companies, given their lower risk diversifi cation benefi ts.
Solvency II is also expected to dramatically change many aspects of Europe’s insurance market, led by an increased need for raising capital (60%), higher prices for customers (59%) and change in the relative attractiveness of their products (59%), particularly for life insurers. Market consolidation (59%) also seems inevitable as larger companies take full advantage of their diversifi cation benefi ts. The dual upward swing toward increased need for capital raising and consolidation is consistent with the signifi cantly steeper capital requirements anticipated at the time of our survey, although these have subsequently been scaled back somewhat under Quantitative Impact Study 5 (QIS5).
0% 20% 40% 60% 80% 100%
54 11 20 15
14 16 36 34
31 19 27 23
2006
2008
2010
Expect increased capitalrequirement
Expectreduced capitalrequirement
Expect littlechange in capitalrequirement
Unsure of impact on capitalrequirements
Figure 7. European insurers expect higher capital requirements from Solvency II
“ The use of VaR (value at risk
or risk of ruin) as the primary
measure of risk tolerance to
calculate economic capital has
increased from 67% in 2008 to
72% in 2010.”
Financial Crisis Puts Spotlight on ERM 13
For European insurers, planned internal model utilization remains strong, although somewhat down from our 2008 survey, particularly for operational risks (from 51% to 37%). However, internal model preparedness is a concern: Only one in 10 European respondents believe their internal models would currently pass the approval requirements. Of the six tests that insurers must pass for internal model approval, the use test is considered the most challenging requirement (38%).
Meanwhile, the infl uence of Solvency II is being felt outside Europe, particularly in regions where local regulators are paying close attention to emerging standards and practices in Europe. In that regard, 23% of non-European insurers aim to refl ect at least some aspects of Solvency II in their ERM frameworks, with the Asia Pacifi c region the most infl uenced (35%) and North America insurers the least (13%).
Going forward, its unclear at this time what infl uence risk-focused exams and the Solvency Modernization Initiative will have on U.S.-based insurers as the National Association of Insurance Commissioners (NAIC) reacts to ERM regulatory developments elsewhere in the world.
“The shift from formula-based to risk-based solvency regulation in Europe has very signifi cant implications for insurers in that market, and may infl uence similar changes elsewhere in the world if other regulatory regimes follow suit.”
— Paul WhitlockManaging Director, Towers Watson
For more information:
Americas
Mark Scanlon, Life Insurance+1 212 309 [email protected]
Joe Lebens, P&C Insurance+1 860 843 [email protected]
Eric Simpson, P&C Insurance+1 215 246 [email protected]
Asia Pacifi c
Penny Fosker+852 2593 [email protected]
Kazuyuki Doi, Japan+81 3 3581 [email protected]
Europe
Ian Farr+44 20 7170 [email protected]
Gerard L’Aimable+44 20 7170 2162gerard.l’[email protected]
14 towerswatson.com
AAA Life Insurance Company
Accident Fund Insurance Company of America
ACE Asia Pacifi c
ACE Insurance Limited
Achmea Holding N.V.
Advantage Workers Compensation Insurance Company
AEGON INVERSIÓN, S.A.
AEGON USA
AIOI Insurance Company, Ltd.
Allianz S.p.A.
Allianz Taiwan
Allied World Assurance Co. Ltd.
Allstate Insurance Company
American European Insurance Company
American Family Insurance Group
American Fidelity Assurance Company
American International Group Australia Pty Ltd
American National Insurance Company
Amerihealth Casualty Services
Ameriprise Financial, Inc.
Arab Insurance Group (B.S.C.)
Arch Capital Group Ltd.
Armour Reinsurance Group Ltd.
Asahi Mutual Life Insurance Co.
Assicurazioni Generali S.p.A.
Assumption Mutual Life Insurance Co.
Aviva Ltd.
Aviva USA
AXA
AXA Asia Pacifi c Holdings Limited
AXA Seguros
AXA Sun Life plc
AXA Winterthur Vida Sociedad Anonima de Seguros y Reaseguros
Bajaj Allianz Life Insurance Company Limited
Bharti AXA Life Insurance Company Limited
Blue Cross Life Insurance Company of Canada
Boston Mutual Life Insurance Company
BT Financial Group
CAMICO
Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.
Canopius Managing Agents Limited
Cardif Taiwan
CASER
Clal Insurance Company Ltd.
Columbian Mutual Life Insurance Company
CommInsure
Commonwealth Bank
Co-operators Life Insurance Company
Country Insurance & Financial Services
CUNA Mutual Insurance Society
Daido Fire & Marine Insurance Co., Ltd.
Daido Life Insurance Company, Ltd.
The Dai-ichi Life Insurance Company, Ltd.
Delta Lloyd Groep
Desjardins Groupe d’assurances générales
Ecclesiastical Insurance Group plc
Empire Life Insurance Company
Ergo Previdenza S.p.A.
Erie Insurance Group
Eurolife Cyprus
Everest Reinsurance Holdings, Inc.
FaithLife Financial
Family Heritage Life Insurance
Farmers Mutual Hail Ins. Co. of Iowa (FMH Insurance Group)
Fidelity Life Association
Finanssektorens Pensionskasse
Folksamgruppen
Friends Provident Plc
Fuji Fire & Marine Insurance Company, Ltd.
Fukoku Mutual Life Insurance Company
Generali Deutschland Holding AG
General Insurance Corporation of India
Generali USA Life Reassurance Company
Genworth Financial, Inc.
Gjensidige Forsikring BA
Great American Financial Resources, Inc.
Groupama Assicurazioni S.p.A.
Guaranteed Funeral Deposits of Canada (Fraternal)
Guardian Life Insurance Company of America
GuideOne Insurance Company
Hannover Life Re of Australasia Ltd.
Hannover Rückversicherung AG
Hansard Europe Limited
Harel Insurance Company Ltd.
Heng An Standard Life
HSA
HSBC Insurance Holdings Limited
ICICI Prudential Life Insurance Company Limited
IDBI Fortis Life Insurance Company Limited
If P&C Insurance Ltd.
IMT Insurance Co. (Mutual)
The Independent Order of Foresters
IndiaFirst Life Insurance Company
ING Australia
Irish Life Assurance Plc
Japan Post Insurance
Just Retirement Limited
Kansas City Life Insurance Company
KB Life
KGM Underwriting Agencies Ltd.
Kinsale Capital Group, Inc.
Kotak Mahindra Old Mutual Life Insurance Ltd.
Lancashire Insurance Company, Ltd.
Länsförsäkringar AB
Lusitania-Companhia de Seguros, S.A.
Lusitania Vida, Companhia de Seguros, S.A.
Magyar Posta Biztosító
The Main Street America Group
Manulife Financial
Marfi n Insurance Holdings ltd
MassMutual Financial Group
Max New York Life
Meadowbrook Insurance Group Inc.
Meiji Yasuda Life Insurance Company
Appendix:Select List of Participating Companies
Financial Crisis Puts Spotlight on ERM 15
Merchant Investors Assurance Company Ltd.
Merchants Group, Inc.
MetLife Inc.
MetLife India Insurance Co. Pvt. Ltd.
MGM Advantage
Midland National Life
Missouri Employers Mutual Insurance
Mitsui Sumitomo Insurance Co., Ltd.
Mitsui Sumitomo MetLife Insurance Co., Ltd.
MMG Insurance Company
Montpelier Re
Mountain States Insurance Group
MTL Insurance Company
Mutual Mèdica de Catalunya I Balears Mutualitat de Previso Social
Nateus N.V.
National Guardian Life Insurance Company
National Wealth Management Group
Navigators Underwriting Agency
New Jersey Manufacturers Insurance Co.
New York Life Insurance Company
NFU Mutual Insurance Society Ltd
Niederösterreichische Versicherung AG
Nipponkoa Insurance Co., Ltd.
Nissay Dowa General Insurance Company, Limited
Nonprofi ts Insurance Alliance Group
Northwestern Mutual
Odyssey America Reinsurance Corporation
Old Mutual Financial Network
Old Mutual Plc
OneAmerica Financial Partners Inc.
Optimum RE Corporation
ORIX Life Insurance Corporation
Pacifi c-Antai Life
Pacifi c Life Insurance Company
Partner Reinsurance Europe Limited
Partnership Assurance
Pearl Group Limited
Penn Mutual Life Insurance Co.
Penn National Insurance
Philadelphia Insurance Companies
Platinum Underwriters Re
Pohjola Insurance Ltd.
Powszechny Zaklad Ubezpieczen na Zycie SA
Principal Financial Group, Inc.
Principal Life Insurance Company
The Progressive Corporation
The Prudential Life Insurance Company of Korea Ltd.
QBE European Operations
RBC Insurance
RBC Insurance Services Inc.
Reale Seguros Generales, S.A.
Reliance Life Insurance Co. Ltd.
Reliance Mutual Insurance Society Ltd.
RGA Reinsurance Company
Rockhill Insurance Company
The Royal Bank of Scotland
The Royal London Mutual Insurance Society Ltd.
RSA - Sun Insurance Offi ce Ltd.
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A.
Sara Assicurazioni S.p.A.
Scor Reinsurance Company
SCOR Switzerland Ltd.
Scottish Re (U.S.), Inc.
Scottish Widows Group
SECURA Insurance Companies
Securian Financial Group, Inc.
Seguros Atlas, S.A.
Shinhan Life Insurance Company
Sinatay Life
Skandia - BSM Life
Società Cattolica di Assicurazione - Soc. Coop.
Society Insurance, a mutual company
Sompo Japan Insurance Inc.
Sony Life Insurance Co., Ltd.
Southern Farm Bureau Life Insurance
The Standard Life Assurance Company
The Standard (Standard Retirement Services)
Standard Life Plc
The Standard Steamship Owners Protection
State Auto Insurance Company
Sumitomo Life Insurance Company
Sun Life Hong Kong Limited
Taiyo Life Insurance Company, Ltd
Tapiola Group
Tata AIG Life Insurance Company Limited
T&D Financial Life Insurance Company
TM Asia Life Singapore Ltd.
Tokio Marine Europe Ins Ltd.
Tokio Marine Global Ltd.
Tokio Marine & Nichido Financial Life Insurance Co.
Tokio Marine and Nichido Fire Insurance Co. Ltd
Tokio Marine & Nichido Life Insurance Co., Ltd.
Tokio Millennium Re Ltd.
Topa Insurance Company
Tower Australia Limited
Tryg Vesta A/S
Uni.Asia Life Assurance Berhad
UNIFI Mutual Holding Company
Union Labor Life Insurance Company
Union Mutual
United Educators Insurance
United Fire Group
United Heritage Financial Group, Inc
Unum
USAA
Validus Holdings, Ltd
Vanliner Insurance Company
Vermont Mutual Ins. Co.
Vital Forsikring ASA
Western General Insurance Company
Westfi eld Group
White Mountains Re Group Ltd.
White Mountains Reinsurance Company of America
Woodmen of the World Life Insurance
Woori Aviva Life Insurance Co.
Workmens Auto Insurance Company
Wright Risk Management Company, Inc.
XL Capital Ltd.
Yapi Kredi Emeklilik
Zurich España, Cía. De Seguros Y Reaseguros, S.A.
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