ERM Usage Continues to Evolve

Gen Re finds more insurers using enterprise risk management for strategic planning, and to determine what lines of business to emphasize.

Insurance Networking News, February 22, 2013

Chris McMahon

The use of enterprise risk management applications continues to evolve, according to “2012 U.S. Enterprise Risk Management (ERM) Survey,” from Gen Re. The survey focused on setting biometric risk assumptions, which had largely been ignored by previous ERM research.

A study from Towers Watson asked insurers to rank areas of their business most impacted by their evolving ERM programs and found product pricing (51 percent versus 39 percent in 2010), risk strategy (48 percent versus 38 percent in 2010) and reinsurance strategy (44 percent versus 34 percent in 2010) were the leaders.

Whereas ERM has been used primarily to demonstrate effective risk management to rating agencies, insurers now are expanding both the focus and use of the studies; several companies reported their senior management and board of directors use ERM to guide their decisions, Gen Re said, and more companies now use ERM for strategic planning and to determine what lines of business insurers should emphasize.

The Gen Re survey also addressed hedging, reinsurance and preparedness for the National Association of Insurance Commissioners (NAIC) Own Risk and Solvency Assessment (ORSA). As NAIC has not finalized ORSA requirements, a majority of participants said in order to file an ORSA report, they have much work to do but most insurers have begun preparing to file an ORSA, according to Gen Re.

“In setting biometric assumptions it appears companies tend to use realistic assumptions and then run stress tests to determine the impact on the company of conditions other than expected,” Gen Re said. “Most tests were done on a deterministic basis but some also ran stochastic scenarios. In managing their risk appetite, most companies look to reinsurance as the means to manage their exposures.”

The 26 participants in the Gen Re survey reported having more than $148 billion premium in force, on a combined basis, as of Dec. 31, 2011, which is slightly more than 25 percent of the Life/Health industry.

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