Enterprise Risk Management
Risk Management (ERM) Subgroup
At Aegon we focus on our core businesses of life and pensions. There is a heavy concentration in the U.S., Netherlands and the U.K. In addition to the key markets on this slide, I consider Spain a key market as well. As a result you can see we are spread geographically and we continue to expand opportunistically.
Aegon USA is an Aegon within Aegon. It complicates the challenge from a risk management standpoint.
From a risk management structure perspective it starts with the board. The responsibility for authority has been delegated to the Group Risk and Capital Committee.
For every division there is another risk committee that exists for every division in the U.S. The support is Division Risk Management.
The Risk Reporting Task force is a risk methodology task force. This is a collective effort.
the risk management structure established?
How has this
structure been supported by division heads?
Is there a formal
process to identify and evaluate new risks from new directions?
of County Unit Risk and Capital Committee
The environment may change and limits may have changed as well. They are the approval body for pricing. They are responsible for promoting strong risk management.
of Division Portfolio Management Teams
Group Risk Responsibilities
the benefits been from this Group Risk Reporting initiative thus far?
RCC is Risk and Capital committee.
Country Unit Risk and Capital Committee is CU RCC
Group Risk and Capital Committee is GR CC.
Do you sometimes
have confusion regarding what is a risk decision versus what is a business
Credit risk exists in assets in the general and separate account as well as reinsurance, derivatives and other areas.
We want to truly manage our maximum exposure to credit default.
Credit risk is managed at the local level by credit analysts. There are limits that are in place by ratings, asset classes, etc.
Risk Reporting – 3 sections – what is the current trend in the market and trends in Aegon and are they aligned? There are ”what if” scenarios where we stress test what can happen and how the company would be impacted.
We look at what is
Aegon aggregate credit lost distribution. Then we overlay meaningful points
in time so that the reader can relate the distribution to history.
It is important to have modeling and a crisis planning perspective. What is the plan in case of a crisis? It is important to have that documented before the event occurs in order to have a guide so people know what their roles are. Who has responsibility for managing liquidity crisis? Who has the right to declare a crisis? Who must be notified? How often does the team meet? What does crisis-reporting look like? What are we trying to measure from a crisis? How do crisis management teams coordinate?
From a modeling perspective we look at liquidity modeling from a cash source and need approach. We estimate liquidity needs (a run on the bank scenario). What is the liquidity in each asset class? Try to sell assets in an orderly manner and to not flood the market.
We don’t count surplus assets. Liquidity risk isn’t managed by capital or reserves so we shouldn’t count on surplus assets.
Market risk perspective – risk of economic loss due to changes in market variables.
Reporting takes on what are the market trends?
It’s most important to imbed into the culture of the organization about what is operational risk and have a comprehensive plan to measure it.
We look at process descriptions and this is helped by Sarbanes Oxly. As a cultural step it’s important to identify the controls.
Key risk indicator perspective – look at management indicators and a view of the present. For self assessment, we look at the future of what could go wrong. It is also important to capture losses in a database so that you can learn from the losses, analyze trends and measure improvement and benefits of the operational risk initiative.
You can see a grid forming with the 8 categories of operational risk and the 4 sources of operational risk. Within each cell you could drill down to see the building blocks (process descriptions, self-assessment, key risk indicators and loss data) of operational risk measurement.
of operational risk
Models should be dynamic and also must undergo a recurring assessment process. Models must be reviewed and audited. Trust everyone but you need to be able to verify.
Diversification perspective – we look to apply it across risk types and measured at the group level. Do you want an annuity business to enter the health insurance business for diversification reasons? We think it is important that your economic capital model encourage the behavior desired.
Economic capital model will be used for pricing, unit performance measurement and business growth decisions.
Role of internal
audit versus operational risk
Level of involvement with IT security, compliance, etc. – Everyone has operational risk responsibility. The operational risk manager coordinates and plays an active role in decisions.
How is the
covariance aspect of risk measure across risk types handled and the benefits
you think the Risk Management Task Force and the Risk Management Section
of the SOA should focus over the next few years?
projects that the SOA could sponsor that would help practitioners?
Aegon track qualitative risk? What technology do you use for this?
do you provide for terrorism or similar risks?
From an underwriting risk perspective, look at geographic distribution of mortality and morbidity risk across the county.
Understand your group exposure by location .
Are you referring
to S&P credit rating or do they have an ERM model?
items that are more effective than setting measures or metrics?
Oxley leveraged in operational risk management?
How is liquidity
risk incorporated into pricing?