Stephan SCHRECKENBERG Swiss Re Centre for Global Dialogue

1. Risk Governance
A re/insurer's view
Stephan Schreckenberg, Swiss Re
Davos, August 27, 2012

2. Outline
 DRM and role of insurance
 Risk Governance & Risk Culture
 Public Sector examples & Outlook
2

3. Why invest all this effort? - making risks
tractable
Frequency High Low
Severity
Low Precision high
Uncertainty low
High Precision low
Uncertainty high
 The aim is to "move" risks from red to the green category.
 The notion of "tractability" is "purpose and value dependent"
 In face of limited resourced this requires a prioritisation: value system
3

4. Disaster risk management & insurance
 Rationale:
– influence severity, frequency of occurrence, duration and strength of recovery
Risk - & Crisis management
Pre- During- Post-
 Insurance:
– provides an option – get back to "new normal" quicker
– secure funding ex ante for times of crisis: insurance concept of "burden sharing"
is in most circumstances more efficient than (1) meeting costs independently or
(2) raising funds ex post
4

5. Re/insurance
 Re/insurance:
Insurance premium
Insured Re/
Client Insurer
Payment promise
 Activities involved:
– Identify, assess, evaluate, decide, monitor, Strategy
manage and report risk comparably and
consistently – company internally and
externally across all operations Portfolio &
– Involve risk management-, finance-, performance Capital
underwriting-, marketers-, support functions measure- allocation
ment &
– Dialogue and collaboration with stakeholders target
key, as appropriate to the topic setting
Decision
 But how and to what purpose is this done? making
5

6. Risk governance:
Risk Policy, guidelines & code of conduct
 Risk governance architecture
– business purpose, business activity, risk tolerance, roles/responsibilities,
accountabilities, processes, "business ethics"
Tools
Commonality of purpose, values – Group Risk Policy, RM Guidelines
– Economic framework across the firm
Universal adoption
– Approval processes and committees
– Limit allocation processes (delegation
authority with escalation procedure)
– Risk aggregation, - measurement- and
monitoring processes
– Reporting processes, incl. risk and
performance reports
6

7. Controlled risk taking
Risk Management Framework Organisational Set -up
Board of e.g. Audit, Finance
Intention Directors & Risk CO
philosophy, policy, strategy,
business plan, objectives, etc
Group CEO
Operation Observation Group Functions
Group Committees
deciding, executing, monitoring risk management - Risk-& Capital Co. - Risk Mgmt (Head
transacting, etc. process, reporting, measuring,
- Asset Liabiity Co. Chief Risk Officer)
controlling, reviewing, etc - Group Underwriting
- Group Products &
Owner Taker Controller Limits C - Finance
…
On top level: BoD EC GIA
level below: EC e.g. BU RM
and then: PC lead Marketer Underwriter
Business Business Business
Unit 1 Unit 2 Unit 3
* GIA= Group Internal Audit, EC=Executive Committee,
7

8. Risk culture
– an interplay among several dimensions
 "Hardware":
– eg risk management information systems, guidelines, code of conduct,
organisational roles and functions
 Stated values and beliefs:
– eg 'identification and assessment concerns all major risks', 'for each risk
responsibility is allocated', dealing with mistakes, …
 'Base' assumptions (often not explicitly mentioned or questioned):
– eg who/what is supported, who is respected, who is recruited, what is/isn't to
be challenged, who is rewarded, who is promoted, …
Consistency among stated goals & intentions, tools and the way
employees live them in their daily work is key.
Integrity, transparency, accountability
*s. also seminar by A. Zeier, I.VW St.Gallen 2011 8

9. Role of company Chief Risk Officer
manage diligently and take care of incentives
 Charged, among others with
– screening/monitoring and assessing the risk landscape as appropriate
– working in an integrative manner across functional units with access to all
business units
– heading important cross functional steering decision bodies regarding risk
assessment, evaluation, risk avoidance, risk taking or risk mitigation/transfer
 Outcomes, e.g.
– Risk map of company
– Basis for decision making
 Analogy in the public sector
– country risk maps (CH, UK, ..)
9

10. Examples
 National level: Mexico  International level: CCRIF
– Fund of natural disasters – offers 16 CARICOM govts
(FONDEN) insured insurance for EQ, hurricane
against EQ und Hurricane
– Immediate liquidity
risk (290m USD)
– Cover USD100m aggregate
– Funds used for
emergency relief – Swiss Re reinsurer
– Index based catastrophe  Facility payed after:
bond for 3 years (2009- – Dominica & St. Lucia after
2012) earthquake (2007)
– Arranged through World – Turks & Caicos after
Bank Treasury, Swiss Re Hurricane Ike (2008)
– Haiti , Barbados, St. Lucia,
Anguilla and St. Vincent
(2010)
10

11. Tractable risks: a long way to go
Natural catastrophe losses 1981-2011, in USD billion  Multiple reasons, eg:
350
– lack of understanding (eg
Insured losses
300
Economic losses
developed economies –
250 interconnectivity, inability
to estimate effects of
200
events)
150
– hurdles to implementation:
100 eg cost & distribution
50 structures, non-existing
insurance market, lack of
0
1981 1986 1991 1996 2001 2006 2011 access to knowledge, will/
alignment of stakeholders
Appropriate strong governance and risk culture in the private or public
sector provides a solid base for each stakeholder to contribute to meeting
the challenges of Disaster Risk Management
11

12. Thank you

13. Legal notice
©2012 Swiss Re. All rights reserved. You are not permitted to create any
modifications or derivatives of this presentation or to use it for commercial
or other public purposes without the prior written permission of Swiss Re.
Although all the information used was taken from reliable sources, Swiss Re
does not accept any responsibility for the accuracy or comprehensiveness of
the details given. All liability for the accuracy and completeness thereof or
for any damage resulting from the use of the information contained in this
presentation is expressly excluded. Under no circumstances shall Swiss Re
or its Group companies be liable for any financial and/or consequential loss
relating to this presentation.
13