Rethink Enterprise Risk Model in Recession
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Copyright 2009 A.M. Best Company, Inc.All Rights Reserved BestWire
March 5, 2009 Thursday 03:28 PM EST
465 words
Rethink Enterprise Risk Model in Recession
Lee McDonald
SCOTTSDALE, Arizona
When the going gets tough, it's time to rethink your approach to enterprise risk management. That's the message of Raj Singh, chief risk officer at Swiss Re, to fellow insurers and reinsurers at A.M. Best's annual ratings conference.
Singh knows first-hand, after Swiss Re suffered some financial shocks based on plummeting asset values. That's led to a revised approach to risk management and oversight that Singh said he believes should reduce
the chance of further surprise pitfalls.
Swiss Re posted a net loss for 2008 and as it continued to struggle with losses on its investments and in its legacy portfolio. The reinsurer's 2008 net loss was 864 million Swiss franc (579.4 million euro). For 2007, the company posted a net profit of 4.2 billion francs.
Singh oversees a unit that includes about 400 of Swiss Re's 10,000 global employees. He reports to Chief Executive Officer Stefan Lippe and works with Chief Financial Officer George Quinn. Singh's team examines risk from all possible angles and seek to avoid surprises.
However, that doesn't mean eliminating all possible risk -- that's the nature of insurance. "In our industry we have to take risks," Singh said. "That's exactly what we do. You have to have a risk attitude that allows
you to do that."
Following losses based on trading and complex instruments, Swiss Re has also built in layers of checks and balances to protect against wayward risk-taking. That includes obtaining three signatures on significant
transactions and reporting all risk-related activities on a weekly schedule.
Singh said his group developed some new insights -- including take no assumptions for granted -- that lead to a tighter focus on enterprise risk management. For example, assumptions about stress test criteria, credit spread, risk models of securitized assets and dependencies needed to be revisited regularly and re-calibrated. Swiss Re is also benefitting from the financial crisis, which is bringing financial talent to the market who otherwise would have been employed elsewhere.
Swiss Re characterizes its approach to risk management as three pillars: quantitative risk management, enterprise risk governance and risk disclosure. Internally, that means updating a spectrum of risk reports and
capital-focused dashboards. Externally, that means reporting risk results to policyholders, shareholders, investors and regulators.
Gone are units such as those focused on financial guarantee reinsurance and the company is running off several trading activities.
admin
Singh said its primary focus is to maintain capital so it remains in more-desirable rating categories. The reinsurer has also benefitted from investments by Berkshire Hathaway.
Swiss Re currently has a Best's Financial Strength Rating of A (Excellent).
(By: Lee McDonald: Lee.Mcdonald@ambest.com)
March 6, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
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March 5, 2009 Thursday 03:28 PM EST
465 words
Rethink Enterprise Risk Model in Recession
Lee McDonald
SCOTTSDALE, Arizona
When the going gets tough, it's time to rethink your approach to enterprise risk management. That's the message of Raj Singh, chief risk officer at Swiss Re, to fellow insurers and reinsurers at A.M. Best's annual ratings conference.
Singh knows first-hand, after Swiss Re suffered some financial shocks based on plummeting asset values. That's led to a revised approach to risk management and oversight that Singh said he believes should reduce
the chance of further surprise pitfalls.
Swiss Re posted a net loss for 2008 and as it continued to struggle with losses on its investments and in its legacy portfolio. The reinsurer's 2008 net loss was 864 million Swiss franc (579.4 million euro). For 2007, the company posted a net profit of 4.2 billion francs.
Singh oversees a unit that includes about 400 of Swiss Re's 10,000 global employees. He reports to Chief Executive Officer Stefan Lippe and works with Chief Financial Officer George Quinn. Singh's team examines risk from all possible angles and seek to avoid surprises.
However, that doesn't mean eliminating all possible risk -- that's the nature of insurance. "In our industry we have to take risks," Singh said. "That's exactly what we do. You have to have a risk attitude that allows
you to do that."
Following losses based on trading and complex instruments, Swiss Re has also built in layers of checks and balances to protect against wayward risk-taking. That includes obtaining three signatures on significant
transactions and reporting all risk-related activities on a weekly schedule.
Singh said his group developed some new insights -- including take no assumptions for granted -- that lead to a tighter focus on enterprise risk management. For example, assumptions about stress test criteria, credit spread, risk models of securitized assets and dependencies needed to be revisited regularly and re-calibrated. Swiss Re is also benefitting from the financial crisis, which is bringing financial talent to the market who otherwise would have been employed elsewhere.
Swiss Re characterizes its approach to risk management as three pillars: quantitative risk management, enterprise risk governance and risk disclosure. Internally, that means updating a spectrum of risk reports and
capital-focused dashboards. Externally, that means reporting risk results to policyholders, shareholders, investors and regulators.
Gone are units such as those focused on financial guarantee reinsurance and the company is running off several trading activities.
admin
Singh said its primary focus is to maintain capital so it remains in more-desirable rating categories. The reinsurer has also benefitted from investments by Berkshire Hathaway.
Swiss Re currently has a Best's Financial Strength Rating of A (Excellent).
(By: Lee McDonald: Lee.Mcdonald@ambest.com)
March 6, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
Terms and Conditions Privacy Policy
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