Wednesday, 20 March 2013

Reactions magazine - CRO Risk Forum - Solvency II and ERM opinion

I covered the last one of these releases from Reactions magazine this time last year on the basis that it had some good all round coverage of ERM and Solvency II from Europe's highest profile risk executives, and again they haven't disappointed.

This recent release again has a veritable Who's Who of European CROs providing their take on a range of matters, so is definitely worth your time. It covers most of today's hot topics, including SIFIs, ERM, Solvency II, ORSA (in US), Internal Modelling and Emerging Risk.

I've taken the following from it;

Hannover Re CRO
  • "...experiencing increasing requirements for internal model approval" - strange one this, as they have already converted to a Societas Europaea, potentially driven by a wish to escape a more onerous challenge in this respect from Bafin and the FSA - doesn't therefore sound like that tactic is of much use!
  • Their internal model is currently S&P ECM III-approved - detail on the significance of that available here for those not familiar with their methodology etc, but of course a positive review of an ECM will impact both S&P's assessment of a company's ERM framework, as well as the amount of capital required to sustain a particular rating.
  • The CRO uses the cost of the Risk Function against the capital savings from an approved model as a demonstration of the function's value - in the absence of a range of alternatives, I guess it's worth a shot.
  • As CRO, has a veto of decision making at executive committee level
  • Comments in a rather peeved manner that current draft Level 3 proposals insist upon separately staffed and operationally independent compliance, risk and actuarial functions (they appear to have everything balled up into a second line of defence 'risk control unit'  - bit confused by this, but I'm guessing he has seen something behind closed doors, and rightly doesn't appreciate EIOPA determining how a company should be departmentally structured.
  • The financial crisis "...has shown that the diversification of financial risks disappears in extreme situations"
Kiln CRO
  • "Every generation of activity since [Level 1] has produced ever increasing requirements for documentation"
  • "We are wallowing in paperwork"
  • As with Hannover Re, they cite S&P internal model approval positively against the developing EIOPA/national requirements - only 40 pages required to evidence a standard sufficient for S&P 'model approval'
  • They differentiate between Strategic Risk and Emerging Risk, with the latter seen positively as product development opportunities.

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