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RISIKOSTYRING SOM STRATEGISK VIRKEMIDDEL I FORSIKRING SAS Institute ”Risk Forum”, 3. april 2014 Adm. direktør Idar Kreutzer, Finans Norge Risk management - when risks collide Global governance failure ! 2 Risk management in insurance ”Managing risks is what we do” Source: Securityreseach.at 3 Insurance – a key role in society Protect Prepare Understand 4 Key risks insurance must manage Financial risks Biometric risks Property & casualty 5 Regulatory dynamics Property & casualty Implications of a changing climate Challenge the traditional insurance way of thinking. Unknown risks ? Public Private Partnership • Claims data - pilot project. New products • • • Green covers Carbon delivery wraps Forestry & agriculture New markets • • • Weather risk Risk consulting Cat Bonds Promote loss prevention Participate in Carbon markets Microinsurance • 6 “Society is simply too vulnerable to weather impacts “ Biometric risks Longevity Migration • • • • • Increasing length of the retirement age Longer pay-out period for pension providers Significant reserve requirement in the private sector • Expected life age – Norwegian population 1846-2010 ddddddddddddddddddddd 7 Source: Statistics Norway • • New risks in the market Cultural differences Living next to the North pole Changes in the urban landscape Diseases Financial risks Low interest rates vs. long term guarantees Asset – liability matching Asset risk and allocation Financial shocks & market value 8 • Long-term contracts • Annual interest rate guarantee • Inappropriate capital buffer • Existing DB and paid-up policies challenging • Close-down of municipal pension schemes • Need for long duration assets • Low allocation to risky asset classes with volatility (equities) for DB • Liquidity in ALM to be prepared for transfer from DB to DC (or hybrid) schemes • Focus to obtaining return to cover guarantee of define benefit schemes (DB) • Low allocation to risky asset classes with volatility (equities) for DB. Any surplus of guarantees used to build buffers in DB • Reduce market risk • Hold to maturity management in focus Low interest rates – consequences for the industry 14 Norway, Gov. Bonds, 10 Years 12 10 Sweden, Gov. Bonds, 10 Years 8 6 Denmark, Gov. Bonds, 10 Years 4 2 0 Average guaranteed interest rate in Norwegian life insurance Source: Finance Norway 1,200,000 400000 350000 300000 250000 200000 150000 100000 50000 0 1,000,000 800,000 600,000 400,000 200,000 0 2005 2006 2007 2008 2009 2010 2011 2012 Defined benefit (DB) – number of insured 2005 2006 2007 2008 2009 2010 2011 2012 Defined contribution (DC) – number of insured Source: Finance Norway 9 Liability driven investments Valuing liabilities – and matching the duration 5,5 5 4,5 4 3,5 3 2,5 jan. 05 Assets 100 jan. 06 jan. 07 SEK Liabilities 100 jan. 08 EUR GBP 2 % point fall in rates Source: Bloomberg 20 yrs swap 30% increase in liabilities Stylistic example of liabilities Example: duration 15 If the liabilities' duration is 15, then a 2 percentage points fall in interest rates alters the present value of liabilities with 30% if this change is simply carried through for the purpose of liability valuation Which assets (apart from too few long dated bonds) yield 30% with certainty over 4 months? 10 ? Assets 100 Liabilities 130 Regulatory dynamics – life & pensions Main challenges: • • • • 11 Risk based capital requirements (Solvency II) Macro economic prudential regulation IFRS 4 phase II (Market Value) Systemically important (IAIS global capital standards) Solvency II: A new risk management system ORSA Internal models Capital requirement calculation Key implications Regulatory asset risk will become a key driver Asset-liability-matching strategically important Increased focus on liquidity and rating Affects insurers’ investment decisions Moving away from long-term assets Distorting effect on financial markets and the economy Higher cost of funding for corporates and governments Source: Oliver Wyman, ”Funding the future”, 2013 12 Systemic risk – not just banks? • IAIS 10 October 2013: Global quantitative capital standards Peter Braumüller, chair of the IAIS Executive Committee: “It is undeniable that the business of insurance is global, and global issues demand global responses,” [...]“This is why the IAIS, whose Members constitute nearly all of the world’s insurance supervisors, has committed to develop and implement the first-ever risk based global insurance capital standard.” 13 Summary • The times and risks are changing • Understanding and managing risks – ”that’s what we do!” • We have to deal with a changing regulatory environment • A well functioning insurance industry is crucial to society 14 TAKK FOR OPPMERKSOMHETEN 15