Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — Cheuvreux Conference 2003
30 slides from Zurich Insurance's conference presentation, Nov 26, 2003
Slide 1: Risk Management at Zurich Financial Services
Risk Management at Zurich Financial Services Cheuvreux Conference London November 26, 2003 Wayne Fisher
Slide 2: Risk Management at Zurich Financial Services
Risk Management at Zurich Financial Services • Initial Steps • Initial Challenges • Current Risk Management Framework • Next Steps © Zurich Financial Services - November 2003 2
Slide 3: Initial Steps
Initial Steps • CRO position established in 1996 • Investment Bank/Discipline • No written policy for risk or governance • Comprehensive Risk Policy Manual by 1998 • Material issue identification/reporting • CRO had multiple responsibilities © Zurich Financial Services - November 2003 3
Slide 4: Initial Risk Policy Manual
Initial Risk Policy Manual • Non-Life Underwriting • Life Underwriting • Investment Risk • Credit Risk • Asset/Liability Risk • Financial Products Risk • Operating Risk • Correlated Risks © Zurich Financial Services - November 2003 4
Slide 5: Initial Risk Policy Manual
Initial Risk Policy Manual • Initially written in 1998 • In hindsight, risk limits not sufficiently specific • Substantial variation in approach/detail by risk type • Correlations not quantitatively addressed • No linkage between ‘risk of ruin’ and limits for risk types © Zurich Financial Services -
Slide 6: Risk Management at Zurich Financial Services
Risk Management at Zurich Financial Services • Initial Steps • Initial Challenges • Current Risk Management Framework • Next Steps © Zurich Financial Services - November 2003 6
Slide 7: Initial Challenges
Initial Challenges • Culture of Independent BUs • “Data desert” at Corporate Center • Specific policy for risk categories varied widely - Alignment between risk categories • CRO “Multi-tasked” • “Substance over Form” © Zurich Financial Services - November 2003 7
Slide 8: Culture of Independent BUs
Culture of Independent BUs © Zurich Financial Services - November 2003 8
Slide 9: Group Risk Management Zurich Risk Policy
Group Risk Management Zurich Risk Policy Version June 2000
Slide 10: Initial Challenges
Initial Challenges • Culture of Independent BUs • “Data desert” at Corporate Center • Specific policy for risk categories varied widely - Alignment between risk categories • CRO “Multi-tasked” • Substance over Form © Zurich Financial Services - November 2003 10
Slide 11: ABC: The Leading Edge in EWRM
ABC: The Leading Edge in EWRM Nowhere in the research for this book did we encounter an organization further along in the journey towards EWRM than ABC. For example: • ABC requires its business units to adopt uniform processes for the identification and management of risks. © Zurich Financial Servic
Slide 12: ABC: The Leading Edge in EWRM continued
ABC: The Leading Edge in EWRM continued • The company uses an internal ‚underwriting‘ team to work with business managers to fully evaluate and understand the risks of new projects. • Capital allocations require full board approval and are evaluated based on probabilistic RAROC (risk adjusted return
Slide 13: ABC: The Leading Edge in EWRM continued
ABC: The Leading Edge in EWRM continued • ABC evaluates new investments both on a discrete and an enterprise- wide portfolio impact basis. • The ABC board is fully-briefed on the group’s risks, and consequently, the company is able to move quickly on opportunities that would be cause for trepidation
Slide 14: ABC: The Leading Edge in EWRM continued
ABC: The Leading Edge in EWRM continued • The underwriters ‘certify that these are the risks associated with this project’. • First, ABC looks at risks – delineated in any project’s Deal approval Sheet (DASH) – via RAROC, VaR and probabilistic analysis. Second, ABC takes an EWRM view, and looks at t
Slide 15: ABC: The Leading Edge in EWRM continued
ABC: The Leading Edge in EWRM continued • Risk acumen is a principal driver in ABC’s successful transition to a world leader. © Zurich Financial Services - November 2003 15
Slide 16: Risk Management at Zurich Financial Services
Risk Management at Zurich Financial Services • Initial Steps • Initial Challenges • Current Risk Management Framework • Next Steps © Zurich Financial Services - November 2003 16
Slide 17: Current Risk Management Framework
Current Risk Management Framework • “Orchestra Conductor” - Decentralized in functional areas and Bus - Aligned risk appetite; coordination and oversight • Networking • Communication • Technical • Matrix environment © Zurich Financial Services - November 2003 17
Slide 18: Risk Management organization structure
Risk Management Zurich Financial Services Board Audit Committee Chief Executive Officer Group Finance Council Group Operat. Committee ALMIC Chief Risk Officer Group Risk Risk Management Technical Committees Risk Management Management Leadership Team Related Areas • Risk Management • Business Divisio
Slide 19: Risk Classifications
Risk Classifications Financial Strategic Insurance Operational Credit and Risk Risk Risk Risk Investment Risk © Zurich Financial Services - November 2003 19
Slide 20: Risk Classifications
Risk Classifications Financial Strategic Insurance Operational Credit and Risk Risk Risk Risk Investment Risk Liquidity Capital structure Pricing GPIP Execution Asset / liability / management Solvency Relative risk Claims Human capital Portfolio tolerance management Reporting Integrity Strategic New
Slide 21: Risk Management Framework
Risk Management Framework Audit Committee / Board CEO Information / Recommendation / Decision Group Executive Committee Enterprise Risk Management Human Capital Fraud/ security Governance Reputation Regulatory/ compliance Strategic investments Zurich Financial Services Litigation Credit ratings Poli
Slide 22: Risk Evaluation Process-Total Risk Profiling
Risk Evaluation Process-Total Risk Profiling • Systematic risk identification, assessment and mitigation tool used at senior management level to identify, measure and monitor risk across the Group • Identifies risks in terms of route-cause relationship • Identifies, defines and assesses all types of
Slide 23: Characteristics of a Zurich Financial Services TRP
Characteristics of a Zurich Financial Services TRP • strategic / macro / holistic • top-down, unconstrained • prospective • aligned with Strategic & Operational Plan • acceptability focuses on long-term risk adjusted return • quantification in terms of economic capital and impact on financial statem
Slide 24: Distribution of Total Prioritized Risks 2002
Distribution of Total Prioritized Risks 2002 Reputation 8% (10% in 2001) Underwriting 10% (7% in 2001) Strategic 35% (42% in 2001) Finance 16% (12% in 2001) Operating 31% © Zurich Financial Services - November 2003 (29% in 2001) 24
Slide 25: The Risk Tolerance Boundary
The Risk Tolerance Boundary Highlights risks A requiring Prioritized management’s B attention (prioritized) C D reflects the team’s attitude to risk and their Probability E rating of scenarios F IV III II I reflects ZRP compliance / non-compliance Severity © Zurich Financial Services - November 2003
Slide 26: Risk Management at Zurich Financial Services
Risk Management at Zurich Financial Services • Initial Steps • Initial Challenges • Current Risk Management Framework • Next Steps © Zurich Financial Services - November 2003 26
Slide 27: Risk Management – Next Steps
Risk Management – Next Steps • Assess sensitivity to aggregate risk • “Perfect storm” stress tests • Focus on correlations/dependencies - Judgment based reflecting available data - Linkage to Risk Based Capital analyses and preliminary quantitative analyses © Zurich Financial Services - November 200
Slide 28: Risk Management – Next Steps
Risk Management – Next Steps • Catastrophe; natural and man-made (such as terrorism) • Credit risk; investments and reinsurance aggregation • Underwriting risk • Life liability risk • Operational risk • Asset/liability management © Zurich Financial Services - November 2003 28
Slide 29: Risk Management – Next Steps
Risk Management – Next Steps • Challenges include: - Strategic and planning risk - Risks associated with acquisitions and divestitures - Reputation risk - Counter party aggregation - Operational Risk - Subjective assessments/model risk/”all other” © Zurich Financial Services - November 2003 29
Slide 30: © Zurich Financial Services - November 2003
© Zurich Financial Services - November 2003 30
Zurich Financial Services — Cheuvreux Conference 2003 on 6ix