Risk Management for Insurers, Second Edition

335 Pages·2011·1.71 MB·English

by  René Doff

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Risk Management for Insurers
Second Edition

Risk Management for Insurers
Risk Control, Economic Capital and Solvency II
Second Edition
by René Doff
Published by Risk Books, a Division of Incisive Financial Publishing Ltd
Haymarket House
28–29 Haymarket
London SW1Y 4RX
Tel: + 44 (0)207 484 9700
Fax: + 44 (0)207 484 9797
E-mail: [email protected]
Sites: www.riskbooks.com
www.incisivemedia.com
© 2011 Incisive Media Investments Ltd.
ISBN 978 1 906348 61 8
British Library Cataloguing in Publication Data
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Editorial Development: Jade Mitchell
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Contents
About the Author vii
Preface ix
1 Introduction 1
2 The Insurer as a Financial Institution 11
3 Underwriting Risks: Life Risk and Non-Life Risk 37
4 Investment Risks: Market, Credit and Liquidity Risk 63
5 Non-Financial Risks: Operational and Business Risk 87
6 The Global Financial Crisis 111
7 Insurance Regulation and Supervision 137
8 Solvency II 169
9 Banking Supervision: Basel I, II and III 211
10 Management Control 233
11 Organising Risk Management 273
12 Conclusion 295
Selected Bibliography 305
v

About the Author
René Doff has worked in banking for a number of years, and been
a risk manager since 2000. Within Rabobank, the largest bank in
the Netherlands, he was involved in Basel II and economic capital
implementations. Since 2005, he has been working in insurance,
especially in the Eureko Group, the largest insurance company
in the Netherlands. He has been involved in risk management
implementation and Solvency II and, in that position, set up and
chaired the Dutch Solvency II working group. In 2006 and 2007,
he worked for the European Insurance Federation (CEA), one of
the leading parties in the Solvency II debate. Since 2007, René has
been involved in risk management and Solvency II implementa-
tion of Eureko’s Dutch and international insurance business.
René Doff has a background in finance, business administration
and mathematics. In 2006, he earned his PhD on risk management
for insurers. He is a regular speaker at international conferences,
publishes regularly in academic and practitioner journals and has
written a number of books. In the Netherlands, Risk Management
for Insurers (2006) and Economic Capital and Risk Management in
Banking (2004) are considered as standard works on risk manage-
ment in that country. The first edition of this book, Risk Manage-
ment for Insurers (2007), has proven to be just as successful.
vii

Preface
In 2007, I published a book on risk management for insurers. Its
foreword was written by Jos Streppel, the then chief financial of-
ficer (CFO) of Aegon and an industry leader on risk management
and fair value. He mentioned that the insurance industry was go-
ing through turbulent times and undergoing a wide range of de-
velopments. How could we have known then that turbulence of a
totally different magnitude was coming our way?
In the meantime, the insurance industry has weathered a severe
financial crisis that put virtually all insurance companies across
the globe under stress. Some insurers faced capital shortages, oth-
ers experienced solvency erosion and reorganised the risks within
their company. This put risk management firmly on the agenda of
executive boards of all insurers. CFOs and chief risk officers (CROs)
worked day and night to ensure that companies got back on their
feet, while explaining to financial stakeholders how they managed it.
In the meantime, Solvency II has approached its implementation
date at top speed. Since the publication of the first edition of this
book, the Solvency II Framework Directive has been published and
approved, providing more guidance on the specifics of the regulation.
Further guidance has come from the European Insurance and Occu-
pational Pensions Authority (EIOPA) in the form of the Quantitative
Impact Study 5 (QIS5) technical specifications and other consultative
documents. Insurers have been working hard to implement all these
regulatory requirements to a level that satisfies supervisor’s criteria.
Jos Streppel also remarked that risk managers are important
people within an insurance company. The financial crisis and the
consequential focus on risk and risk management indicate that
they have become even more important and the demands on them
have increased since. However, the risk manager does not work
in isolation. Attention for risk management has increased to such
an extent that the risk manager has a significant audience. What
ix