Linking Risk & R eturn under Solvency 2. Christopher Chappell Association of Financial Mutuals London, February 2013. Agenda. Strategic Approach. Business strategy What are our competitive advantages? Are we generating value for our members ?.
Christopher ChappellAssociation of Financial Mutuals
London, February 2013
Business strategyWhat are our competitive advantages? Are we generating value for our members?
Enterprise risk and capital management framework
Strategic risk managementWhich risks do we want to take and why?
How much risk do we want to take?
Risk & capital models
Emerging risk mgt
What are the threats & opportunities to our business? Are events likely to invalidate our model? What is the plan to manage threats? What are the triggers?
Solvency & capital management
How much capital do we need to hold in each entity? How do we manage risk-taking?
Embedded through business processes
Products & pricing
Governance & controls
Linking the risk strategy and
the business strategy
By risk category - market risk:
Establishing performance measures and
risk appetite statements
Impact of balancing multiple appetite statements. Zone bounded by target tolerances controlled by limits
Target risk appetite
BAU cash flows
In a stressed scenario
Brand & reputation
Operational & capability
Operationalising risk appetite
SCR multiples are implied solvency levels and therefore risk capital limits are inverted
Limits move over year in line with plan numbers
Then refine to assess how RAG statuses should change to reflect earnings risk appetite and risk strategy output
RAG for each risk proportionately allocated from central target
Scenario: business operating at the upper red limit for particular risk type
Scenario tests whether limits reasonably protect diversification benefit