Actively seeking and retaining risk, insurers have always emphasized effective risk and capital management (ERM). 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 Own Risk and Solvency Assessment (ORSA) is perhaps the most publicized of these, but there are other ERM initiatives with implications for insurers from the Federal Reserve, National Association of Insurance Commissioners (NAIC) and Internal Association of Insurance Supervisors (IAIS).
While regulatory intervention often drives 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, and poor value decisions in order to improve risk culture, governance and quantification.
Insurers are 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.
Our insurance risk and capital management practice advises insurers on assessing, monitoring and managing risks from all sources. Multi-disciplinary teams provide comprehensive services in all key risk areas:
PwC’s professionals also address risk management framework components, including strategy, governance and organization, measurement and analytics, reporting and systems and data infrastructure.
Enhancing your risk management framework
We can help 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 designing target operating models for the risk function, including the framework, policies and roles which act in unison for solid governance.
Assisting in the development or review of your ORSA report
The NAIC’s Own Risk and Solvency Assessment (ORSA) is 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.
ORSA’s scope encompasses the full range of risk management activities within an insurance organization. While emphasis differs slightly between state regulators, all are using the ORSA as a mechanism with which to drive improvements in risk management, capital assessment and risk culture.
PwC helps insurers align their ORSA processes in a structured manner and review their summary report. With our broad market view, we provide relevant insights into best-practices across many different aspects of the ORSA.
Model risk management framework design
The concept of model validation has evolved into something much more holistic—a model risk management framework (MRM). It addresses the risk of model misuse and seeks to create model inventories, articulate roles and responsibilities and set minimum standards for model design and validation. PwC helps design a framework that addresses your risks. We use your existing work, as appropriate, and apply lessons learned elsewhere in the industry.
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 help both large and small insurers establish a meaningful risk appetite, and have worked closely with senior management to create usable frameworks based on these preferences.
Designing stress and scenario frameworks
Stress and scenario tests are a key ERM tool, from business planning to model validation. We 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.
Increasing your confidence in the models through validation
Using our extensive Solvency II experience in the European market and work we have done in the US under Federal Reserve guidelines, we design 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.
Designing or reviewing economic capital models
Our experienced capital modelers have designed, built and reviewed models for insurers of many different sizes and profiles. We help 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, and thereby allow you to focus on the insights it will bring. We also validate economic capital models, irrespective of modelling software, and provide comfort to you on model effectiveness and limitations.
Creating value through the smarter use of capital
We help you develop the strategic insights, capital efficiency and effective risk management that are critical to generating favorable and sustainable returns. We also help 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 offer an integrated solution covering such key related areas as tax, regulation and transaction support, as well as actuarial and capital management.
Insurance Risk & Regulatory Services Leader, PwC US
Insurance Risk & Regulatory Services Partner, PwC US