ORSA – the company’s own risk and solvency assessment30 April 2015James DavenportGlobal Head of Risk and Control

Group Risk Management

Zurich in a nutshellA global presence on 5 continents

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Zurich in a nutshellA traditional insurer with very well diversified revenues

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Zurich in a nutshellAn strong presence in Latin America and Mexico

• Zurich operates since 1984 in Mexico.

• We have more than 55 offices and agencies to serve our clients throughout Mexico.

• We work to provide our retail customers, small and medium-sized companies, as well as large corporates, a broad range of products and financial services customized to the needs of the local markets.

• We have 30 years of experience on the Mexican market.

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Regulatory focus: sets purpose of the ORSA and high-level principles and leaves the ‘how to’ to the companies.

Why an ORSA?• A tool to support decision-making – with the risk appetite framework at its

heart

What are key components of an ORSA?• A 360-degree analysis of material risks • Current and stressed conditions, as well as a forward-looking basis• Anchored in enterprise risk management and governance• Not a statutory capital requirement• Should be different in every company

The own risk and solvency assessment

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Components are strongly integrated in Zurich’s enterprise risk managementWhy an ORSA?

Defines and informs risk limits Takes a shareholder viewDifferent dimensions, e.g.:

Risk appetite

Capital-at-Risk Earnings-at-Risk

Management view of risks Proprietary tool for risk identification and assessment3-5 year time horizon

Total Risk Profiling (TRP)and risk assessments

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abilit

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SeverityIV III II I

AB

C

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Governs risk ownership, roles andresponsibilitiesSets limits by risk typeIs mandatory across GroupIs regularly updated and communicated

Zurich Risk Policy (ZRP)

More quantitative More qualitative Risk Governance

Operational Risk & ControlFocus on operational riskmanagementIntegrated Risk & Control framework and methodology

Sets target capitalization atAA levelTakes a policyholder viewStress testing/forward looking

Z-Economic capital model

AFRZ-ECMcapital required/RBC

AA

Risk reporting

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Why an ORSA?They are embedded in the Group’s risk governance

Risk taking

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irect

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n, S

egm

ent,

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nit l

evel

CEO and Group executive committee

Finance committee Risk committee

Businessmanagement

Audit, risk and control committees

Risk management network(including regional/segment/

Chief Risk Officers & Local Risk Officers)

Risk control

Group Chief Risk Officer

Gro

up A

udit

Board of Directors

Audit committeeRisk committee

Independentassurance

1st

2nd

3rd

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Why an ORSA?They serve one main objective: support our decision-making

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What are key components of an ORSA?The reports to management and regulators capture the various insights from our Enterprise Risk Management tools and processes

Risk categories

Insurance risk

Market/ALM risk

Operational risk

Credit risk

Strategic risk

Reputation risk

Target riskbudget

Allocated risk budget and defintion of capital target

What is our riskbudget and target, do we deploy ourcapital on most

profitable business?

Allocation

Statutory andliquidity

constraintsIs the entity

financially sound? Can it support ist development, andweather stressed

conditions?

LimitsInvestment

LimitsInsurance

LimitsReinsurance …

Limit system

Risk identification

Risk analysis/ evaluation

Risk management

Risk monitoring

Risk and limit monitoringthroughout the year

Own Risk & Solvency Assessment (ORSA)

Risk appetite statement:willingness/limitation

Risk Strategy

Risk Reporting and Communication

Org

aniz

atio

nal s

truc

ture W

orkflow M

anagement

Liquidity risk

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What are key components of an ORSA?Risk appetite: what risk scenarios are beyond our tolerance or limits and what risk response to give?

Examples are for illustration only

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Fiscal crisis in key economies

Structurally high employment

Water crisis

Severe income disparity

Failure climate change mitigation

Extreme weather events

Global governance failure

Risk scenarios

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What are key components of an ORSA?360-degree view: where are potential risk accumulation?

Examples are for illustration only

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What are key components of an ORSA?Sensitivities and scenarios: how does it impact key metrics?

Source: Zurich Insurance Group Ltd.’s Investors presentation, February 2014

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Beyond the ORSAThe objective is to strengthen the company’s risk culture and drive accountability for risk taking

Source: McKinsey&CompanySource: CRO Forum and CRO Council

10 dimensions addressing attitudes & behaviors toward risk

The elements of a sound risk culture

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In conclusion

• The ORSA is a ‘tool owned’ by companies to support decision-making –a well-articulated risk appetite framework is at its heart.

• The ORSA is anchored in enterprise risk management and governance. It also has to drive better risk culture and accountability.

• Regulation on the ORSA needs to strike the right balance: focus only on purpose and principles, not on the means to achieve these.

• ‘Continuous improvement is better than delayed perfection’ (Mark Twain)

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Thank you

Group Risk Managementzurich.comCaveat*The comments related this presentation reflects the personal views of the presenter and not necessarily the views of Zurich Insurance Company Ltd or Zurich Mexico.*The data specified in this document may contain information classified as confidential therefore the total or partial reproduction of the document is prohibited.

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