Regulatory environments, natural catastrophes push companies to improve risk management disclosure

Most insurers and reinsurance companies are publishing more about their risk management targets than they were five years ago, and more are using metric-based frameworks to manage capital, according to a new report from Guy Carpenter.

In its latest Enterprise Risk Management Benchmark Review report, the firm analyzed at the risk management practices and policies of 67 companies in Europe, the United States, Bermuda and Asia-Pacific, based on publicly-available data from financial and risk reports.

“External demands such as regulatory developments, the ongoing sovereign bond crisis, and global natural catastrophe events are again showing how critical it is for insurance and reinsurance companies to effectively assess their corporate risks,” Markus Mueller, senior vice president with Guy Carpenter commented in a press release.

“With a thorough understanding of enterprise-wide risk and the integration of this knowledge into the business decision-making process, companies will be better prepared to respond to internal and external questions relating to risk and capital.”

For the types of risks analyzed in the report – including market, credit and insurance risk, as well as catastrophe risk – the general disclosure level has increased across regions, according to Guy Carpenter.

European carriers in particular are preparing for the implementation of Solvency II, while companies in other regions are attempting to catch up to the disclosure levels of European organizations, the report suggests.

Companies are also “increasingly incorporating risk management into their performance and incentives policies,” according to Guy Carpenter.

“This appears to be consistent with the increased requirements imposed by new regulation, such as Solvency II and the NAIC’s ORSA Model Act,” the firm said.

“Specifically, beginning in 2015, U.S. regulators are expected to require companies with more than USD500 million in direct premiums to file an annual ORSA summary report.”

Generally, companies are also “developing their own risk-based capital models that need approval from either risk committees or authorities and external independent third parties,” the firm said.

“Interestingly, companies appear to be reluctant to disclose the exact level of their excess capital, but rather typically refer to their excess capital as a proxy that provides reassurances about their risk levels without explicitly reporting it.”