Saturday, 31 March 2012

IRM Solvency II Special Interest Group - making Risk Function more relevant

The IRM guys always put on a good show with their Special Interest Group activity for Solvency II, and generally has relevance outside of the Insurance industry. Couple of interesting subject matters for the last two, my notes below.

Developing the Risk Function to be Board-relevant (under Solvency II) - international flavour in presenters, so bear that in mind when you look at the slides!
  • Jose Morago presentation - Aviva's EU Risk Director has a nice slide on educating and supporting the Board on risk responsibilities, but on the Risk function's "four distinct personalities", I would disagree that the function "leads the optimisation of the insurer's risk/capitalisation profile" (advises, certainly, but leads?). The personalities seem to be light on review and challenge activity as well, and there is a fair amount of risk jargon, which Boards are never keen on in my experience.
  • Kendra Felisky presentation - While Jose went with Risk function as "Officer, Business Leader, Teacher and Advisor", Kendra has the second line of defence as "Assess, Monitor, Support and Challenge", which I concur with, and goes on to comment that "Our job is to enable to Board to do their job", which I would also subscribe to. She has a rather dated slide showing what the Risk function was compared to what it is/needs to be (you'd need a time machine to remember the 'old' Risk function!), and a good slide on levels of participation in risk management, and MI requirements. The slide on how to talk to the Board recommends 'no jargon' (which cuts across Jose's terminology a bit!), and the section on Key Risk reporting seems to be focused on risk mitigation and elimination, rather than optimisation.
  • Pierre-Andre Camps presentation - Feels like a lot is lost in translation on these slides, so have a leaf through, but don't hang your hat on anything.
Survey findings on  making the Risk function Board relevant (35 participants, so small sample)
  • Only half have their CRO communicating directly with the Board on risk matters- surely explains the necessity of this event!
  • Horrifically, almost half said risk papers are "noted with a short discussion" at Boards - is the problem that all papers are not 'risk papers', hence it can be siloed as a talking point?
  • Half said the process of implementing Solvency II affects their ability to becoime relevant to the Board - that is definitely a bad development all round
  • Three-quarters said there is no action plan or training programme to aid the Risk function in communicating and presenting to Boards.
  • A third of attendees report to a CRO, while a quarter report to a CEO (I find that instinctively high)
  • Not surprised by smattering of risks not covered by the attendees' functions - smaller companies are unlikely to cover financial and non-financial categories, and the categories with least coverage tend to lean towards having expert ownership and established controls (ALM in particular).
  • Over half felt they had overlap with either Actuarial or Compliance
  • A worrying number are not directly delivering testing and validation of the internal model. Understandable on the design/implementation/documentation front, but surely testing and validation?

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