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RISK MANAGEMENT IN INSURANCE

RISK MANAGEMENT IN INSURANCE. Philippe Wautelet Ukrainian Insurance Forum, 3-4 June 2009. Life Stages. AXA GROUP To help our clients be life confident. Financial Planning. Estate Planning. Retirement. Annuities. Need for financial advice - Risk management. Asset Management.

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RISK MANAGEMENT IN INSURANCE

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  1. RISK MANAGEMENT IN INSURANCE Philippe Wautelet Ukrainian Insurance Forum, 3-4 June 2009

  2. Life Stages AXA GROUPTo help our clients be life confident Financial Planning Estate Planning Retirement Annuities Need for financial advice - Risk management Asset Management Asset Accumulation Savings Retail Banking Products Life Protection Asset Protection Motor, Property, Health

  3. AXA in Ukraine AXA Group UKRAINE 1200 employees AXA Ukraine AXA Insurance AXA Ukrsibbank SHAREHOLDERS AXA Ukrsibbank AXA Group entered to the Ukrainian insurance market with acquisition of Ukrainian Insurance Alliance (UIA) and Vesko Ukrainian Insurance Alliance was founded in 2001 VESKO was founded in 1994

  4. Insurance – risky business AXA is in the business of managing risk • We are in the business of : • 1. Taking risks off our clients’ balance sheet • 2. Taking these risks on our balance sheet • 3. Transforming and /or transferring them • 4. …and generating profit from this activity • Risk Management is not a “by product” of AXA’s organization. It is THE business model of AXA.

  5. Risk management – main cause of the global crises • Global failure of financial services industry is highly due to insufficient risk management practices • Financial risks were understated partly because the world economy enjoyed a long term moderate growth and low financial volatility and this was wrongly assumed to be a permanent benefit of prudent regulatory bodies • Emphasize was placed on precise – sounding numbers from quantitative models while qualitative judgments based on experience was ignored • Good risk management on one hand measures and understands these risks, and on the other hand creates a risk culture within the company

  6. Impact of the crises on P&C insurance market • Insurable matters • Economy slow down / no crediting • Unpaid premiums • Decrease car sales / smaller cars • Competition • Weakened competitors • State intervention • Investment results • Impairments • Bankruptcies • Profitability • Fraud increase • Price cuts

  7. Risk management in insurance An insurance company should assess and understand the following categories of risks: Operational Financial Strategic • Business processes • Fraud • People • Business continuity • Information security • Litigation & Regulatory • Reserving • Investment & Credit • Solvency • Liquidity • Product Design & Pricing • Macro economical • Political • Channel/Product mix

  8. Operational Risks AXA Measures and manages it’s key processes, with a focus on the Core Customer and Distributor facing processes Strategy & Steering Growth 1 2 3 4 5 1. Company and Strategy Development 2. Planning, Controlling and Steering 3. Strategic Marketing & Customer Insight 4. Product Development and Management 5. Distribution Strategy & Support Core Customer & Distributor Facing 6 7 8 9 10 11 6. Distribution Lifecycle Management 7. Business Acquisition 8. Customer Lifecycle Management 9. Policy Administration 10. Claims & Benefit Management 11. Policy Retention and Renewal Enabling 12 13 14 15 12. Finance and Risk Management 13. Human Resources Management 14. Technology & Change Management 15. Procurement and Corporate Services * Global Processes

  9. Operational Risks (cont.)Each operational process presents a risk opportunity • AXA Way (Six Sigma) underpins AXA’s commitment to process excellence. • All processes display “variance”, which is the source of customer dissatisfaction, but also presents a risk opportunity. • The AXA Way process involves using the Six Sigma methodology to measure, improve and control our processes. The key focus is listening to the voice of the customer at all times, enabling us to improve our processes in order to meet their requirements. • AXA Way is built around three key objectives: • Putting the client at the heart of our actions • Optimizing our operational performance, in other words revising our processes to produce less variation and therefore minimizing risk • Developing a continuous improvement culture

  10. Financial risks Matched assets Insurance liabilities Duration Currency Diversification Solvency capital • To minimize risks • Currency hedging • A-L matching • To minimize risks • Good risk/return balance • Split responsibilities in investment policy between shareholders and managers • To minimize risks • Manage well the price, coverage and reserving • Independency of risk management • from the operational lines

  11. Strategic risks More important in emerging markets • Flexibility (Tactics as well as Strategy) • Share experiences among emerging countries • Market watch / Competitor behaviors

  12. Conclusion – Back to Basics • Insurance companies are institutions providing financial protection by managing it’s customers’ and own risks in a profitable way • Emphasize should be placed on how to assess the risks and mitigate them instead of only on growth objectives and short term profits

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