Insurer CEOs Tout Risk Management Process
RM committees now make formal reports to board of directors on key exposures
New York
Risk management took center stage at last weeks Standard & Poors annual insurance conference, as top insurers hailed the discipline as an increasingly high-profile tool to deal with key exposures, including terrorism.
We have a risk management committee of senior management that explores and reviews all of these issues. Were not leaving it to individual underwriters in individual cities to make decisions that have an impact like that, noted Jay Fishman, chief executive officer of St. Paul Travelers, seemingly referring to decisions about writing risks that could expose the company to terrorism losses.
Adding that the risk management team reports to a risk committee of the board of directors, he said: The board is significantly involved in issues of catastrophe exposure, new lines of business, tort exposure [and] asbestos.
Ed Kelly, chairman, president and CEO of Boston-based Liberty Mutual, said his company has a very deliberate strategy of diversifying lines of business, so that there is not too much exposure to any single line. We have a better understanding of our mix of businesses, [and] we also have a very rigorous internal program to understand concentration of risk, he said, noting that the carrier is much more attuned to risk concentration.
The two p-c insurer CEOs werent the only ones on the risk management bandwagon. Indeed, Robert Benmosche of New York-based MetLife was the first to utter the phrase during the CEO panel. He said that as the public looks for more guaranteed benefits from life insurers, what weve got to think about is the risk management associated with providing those benefits over time.
Like Mr. Fishman, Mr. Benmosche said MetLifes board is hearing more about risk management and that a special team is now in place that goes through a very formal process for the enterprise. Weve defined the responsibilities of risk management on a more detailed level for our governance committee of the board. They are looking at a lot more detailed analysis [of] where all the risks of Met Life [are]from liquidity to mortality risks.
During a separate, standing-room-only session devoted to enterprise risk management, William Riker, president and chief operating officer of Bermuda-based Renaissance Res Glencoe Group, noted that Renaissance Re was formed on the premise of being able to manage risk better than anyone else.
Everything we think about is probabilistic, he said, adding that an analysis is not robust if someone in the company says a piece of business will produce a loss ratio of 58. Unless you attempt to quantify the variability around an expected outcome, you dont understand the risk, he said.
The probabilistic mindset is huge, he added. Thats where were seeing a paradigm shift in our business, with the past analysis of expected values taking a backseat to the idea of looking at everything in a probabilistic way.
He went on to warn that risk management models need to be tested continually against actual results. Just because you have a probabilistic analysis, doesnt mean its any good, he said.
Reproduced from National Underwriter Edition, June 18, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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