Enterprise Risk Management An Insurance Company Perspective CAS ERM Seminar San Francisco, April 2&3, 2001 Claus S. Metzner, FSA, FCAS, MAAA, Aktuar - SAV Chief Actuary/Risk Manager Zurich Financial Services Group - Region Switzerland

ERM - Zurich Switzerland Background: ZFSG - Region Switzerland –P&C, Life Insurance, Asset Management are the primary businesses –Structure is 9+ SBU's –Prem Revenue: Life $ 2,500; P&C $ 1,350 –Total Assets: $ 24,000 –Markets: Personal and Commercial –Distribution: Agents, Brokers, Direct Sales

ERM - Zurich Switzerland Risk Management Committee Structure –Risk Management Committee CEO, CFO, CIO, CLO, Chief Actuary Life, Non- Life, RM, Head of Regional Internal Audit –Investment Committee (incl. ALM) CEO, CFO, Chief Actuary Life, Non-Life, RM, Controller, Group Representatives, Inv. Manager –Working Groups: Safety, Compliance, etc

ERM - Zurich Switzerland Responsibilities –Analysis of Financial Risks: DFA/ALM processes Chief Actuaries, Risk Manager –Models, Applications –Support from Group Home Office Areas –Analysis of Operational Risks Operational Areas with Risk Management

ERM - Zurich Switzerland Responsibilities –Identification of Risks/Opportunities SBU's Support Functions (IT, Finance, Corp Development, Claims) Bottom-Up with RM review

ERM - Zurich Switzerland Responsibilities –Executive Committee As Part of Strategic Planning Process, Region Key Issues identified Tasks/Specific Responsibilities Assigned for each Issue –Detailed Analysis: Operational Area and RM As required (examples: e-commerce, pricing/underwriting, new products evaluation, IT security, etc)

ERM - Zurich Switzerland Organisational Risks –Checks and Balances is First Line of Defense Examples –Pricing/Underwriting separate from Reserving/Valuation functions –Internal/External Audit; Claim Audits Assigned Responsibilities –Compliance Officer –Safety Officer –IT Security –Financial/Pricing - Chief Actuaries/CFO

ERM - Zurich Switzerland Organisational Risks –Detailed Analysis via Total Risk Profiling Team Based Approach which consists of –Identification of Risks –Assigning of Values for Frequency and Severity risk »measure may be impact on earnings, capital »evaluate financial impact of "soft measures" as well »consider multi-year implications –Determining which Risks are unacceptable and therefore need risk mitigation & assign responsibility

ERM - Zurich Switzerland Organisational Risks –Review Process - Multi-Tiered Operational Management –MBO process (individual goals and performance measurement) Risk Management Committee –Quarterly Reports on Status of Key Issues Goal: the key issues, etc are an operational means of dealing with issues that will have financial impacts

ERM - Zurich Switzerland Financial Risks –Note: Financial and Operational Risks are related even though I am discussing them individually –Key Risks Pricing Assumptions/Guarantees Asset Risk Liability/Valuation Risk

ERM - Zurich Switzerland Financial Risks –Management of Risk & Assessment Know where you stand (valuation/reserving) Pricing Models ALM/DFA models and analysis –Implement Strategic Asset Allocation Marketing Capital Allocation/RBC

ERM - Zurich Switzerland Financial Risks –Review/Monitor Actuarial Review of Financial Plans for Realism Measurement of Deviation from Plan and Causes –Financial –Target Dates for Key Issues On-going ("rolling") Adaptation

ERM - Zurich Switzerland Interrelationship of Operational and Financial Risk/ERM –Recognise that risk/opportunities can arise from internal or external conditions –Have processes in place that work bottom-up and top-down to assure consistency of response to emerging conditions –Rely on these processes (background) as part of the evaluation of the enterprise risk position

ERM - Zurich Switzerland Interrelationship of Operational and Financial Risk/ERM –Consider Systemic Risk within context of RBC

ERM - Zurich Switzerland Where Are We –Processes - Checks and Balances - are in place –Evaluations on a quarterly basis –Specific Risk Reviews (Total Risk Profiling) in place and used three to four times a year –DFA/ALM work on-going