Because they actively seek and retain risk, insurers have always emphasized effective risk and capital management. As ERM matures, several professional bodies and industry groups are publishing their views on ERM best practices and recommending new courses of action for insurers. The US ORSA is perhaps the most publicized of these, but there are other ERM initiatives with implications for insurers from the Federal Reserve, NAIC and IAIS (Internal Association of Insurance Supervisors).
However, while regulatory intervention is often the driver of change, some of the most successful ERM cultures have developed in response to internal events or errors, such as volatile earnings, over-reliance on models, poor value decisions and so on in order to improve risk culture, governance and quantification.
Whether pressure comes from internal or external sources, insurers have become subject to ever-increasing scrutiny from clients, investors, rating agencies, auditors and business partners on their ERM practices. The level of initial comfort that insurers can provide stakeholders on their risk management capabilities has a distinct impact on the scope, depth and timing of risk-focused analysis and examination procedures.
PwC is at the forefront of insurance ERM and advises insurers on assessing, monitoring, and managing risks from all sources. Our multi-disciplinary team provides comprehensive services in all key risk areas, including actuarial, financial, operational, and regulatory and compliance, as well as across all key risk management framework components, including strategy, governance and organization, measurement and analytics, reporting, and systems and data infrastructure.
Would you like to improve broad ERM practices but are unsure where to focus the effort?
Enhancing your risk management framework
We can help you assess the effectiveness of your current ERM framework, identify gaps against emerging industry standards and best-practices and design a plan with which to drive ERM improvements. We have many years of experience of designing target operating models for the risk function, including the framework, policies and roles which act in unison for solid governance.
Would you like to produce a meaningful ORSA summary report?
Assisting in the development or review of your ORSA report
The NAIC’s Own Risk and Solvency Assessment (ORSA), effective January 1, 2015, will be applicable to most insurers. The ORSA strongly emphasizes strategic risk management and requires insurers to – among other things – formally document their approach, quantify risk exposures and assess solvency levels under differing circumstances.
The ORSA’s scope encompasses the full range of risk management activities within an insurance organization. While emphasis differs slightly between state regulators, all of them are using the ORSA as a mechanism with which to drive improvements in risk management, capital assessment, and risk culture. For most companies, perhaps the greatest challenge is in realizing the cultural and behavioral changes that make them business-as-usual. This takes time and planning, and is almost impossible to fast-track in time to meet a regulatory review schedule.
PwC has helped many insurers align their ORSA processes in a structured manner and review their ORSA summary report. With our broad market view, we are able to provide relevant insights into best-practices across the many different aspects of the ORSA.
What steps are you taking to ensure that models are being used correctly within your business and that management is aware of their limitations?
Model risk management framework design
The concept of model validation has evolved into something much more holistic – a model risk management framework. MRM frameworks address the risk of model misuse and seek to create model inventories, articulate roles and responsibilities, and set minimum standards for model design and validation. PwC can help you design a framework that addresses your risks; we will leverage your existing work, as appropriate, as well as apply lessons we have learned elsewhere in the industry.
Are you trying to make your risk appetite more actionable and meaningful to your business?
Embedding risk appetite within your day-to-day business
It can be difficult to articulate a useful and effective risk appetite that management can effectively monitor and scale to a level staff understand in their day-to-day activities. We have helped both large and small insurers establish a meaningful risk appetite, and have worked closely with senior management to identify the key positions on risk appetite and create usable frameworks based on these preferences.
Have you considered how your business may fare in times of severe pressure?
Designing stress and scenario frameworks
Stress and scenario tests are a key ERM tool, from business planning to model validation. We can work with your management team to understand the current gaps in your framework, design relevant and meaningful tests for your business, and embed these tests into the planning and decision-making processes.
Are you concerned about the accuracy and implications of what your models tell you?
Increasing your confidence in the models through validation
Leveraging both our extensive Solvency II experience in the European market and work we have done here in the US under Federal Reserve guidelines, we have designed model validation processes that reflect US regulatory regimes and expectations. Our processes are holistic and cater to the full model inventory, not simply economic capital models.
Would you like to develop a more rigorous, quantitative view of risk within your business to facilitate better decision making?
Designing or reviewing economic capital models
We have experienced capital modelers who have designed, built and reviewed models for insurers of many different sizes and profiles. We can help you define key risks to model, as well as determine the most efficient way to do so. In certain circumstances, we can build the model and its parameters for you, and thereby allow you to focus on the insights it will bring. We also can validate economic capital models, irrespective of modelling software, and provide comfort to you on model effectiveness and limitations.
Do your current operational and capital structures effectively support your existing business and your strategic ambitions?
Creating value through the smarter use of capital
We can help you develop the strategic insights, capital efficiency, and effective risk management that are critical to generating favorable and sustainable returns. We can also help you optimize capital management and turn new regulation to your advantage by making the most of opportunities for acquisition, divestment, run-off and restructuring.
As part of the world’s largest professional services firm, we can offer an integrated solution covering such key related areas as tax, regulation and transaction support, as well as actuarial and capital management.
Do external reviews take up significant time and create ad-hoc requests and last-minute stress?
Preparing your team for regulator and rating agency inquiries
We closely track US and global regulatory and rating development and have detailed knowledge and understanding of external review focus. We can help prepare your senior management for interviews, advise your risk function on the best way to present results, and perform mock assessments to highlight gaps that could present an impression that your ERM program’s design and effectiveness is deficient.