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Managing Enterprise Risk in Insurance: Insights from Zurich Financial Services

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This seminar presentation by Claus S. Metzner, Chief Actuary/Risk Manager at Zurich Financial Services, outlines the comprehensive framework of Enterprise Risk Management (ERM) from an insurance perspective. It covers the structure of risk management committees, analysis of financial and operational risks, and the processes used for identifying and mitigating risks across the organization's segments, including P&C and life insurance. Key responsibilities include strategic planning, compliance, and effective risk profiling to enhance decision-making and ensure financial stability within the Swiss market context.

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Managing Enterprise Risk in Insurance: Insights from Zurich Financial Services

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  1. 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

  2. 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

  3. 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

  4. 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

  5. ERM - Zurich Switzerland • Responsibilities • Identification of Risks/Opportunities • SBU's • Support Functions (IT, Finance, Corp Development, Claims) • Bottom-Up with RM review

  6. 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)

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. ERM - Zurich Switzerland • Interrelationship of Operational and Financial Risk/ERM • Consider Systemic Risk within context of RBC

  15. 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

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