Through its insurance activity the Group is naturally exposed to several types
of risks, which are related to movements of financial markets, to adverse development
of insurance related risks, both in life and non life business, and generally
to all the risks that affect ongoing organized economic operations.
These risks can be grouped in the following main categories which will be later
detailed: insurance risk, financial risk, credit risk and business risk.
Insurance Risk
Insurance risk has different characteristics depending on the business segment
(life or P&C):
-
Life segment: the risks related to the underwriting activity are the risk linked to a possible
increase of mortality rates on policies covering the risk of death (mortality
risk), the risk linked to a possible decrease of mortality rates on policies such
as annuities (longevity risk), risk related to voluntary withdrawal from the contract
(lapse risk) and the risk related to inadequacy of charges and loadings in the
premiums in order to cover future expenses (expense risk).
-
P&C segment: the risk arising from the underwriting of non-life insurance contracts takes
account of the pricing risk and the reserving risk.
The pricing risk covers the risk that the premium charged is insufficient to
cover actual future claims and expenses.
The reserving risk relates to the uncertainty of the run-off of reserves around
its expected value; it is the risk that the claims reserve is not sufficient to
cover all liabilities of claims incurred.
Financial Risk
Financial risks regard all the risks related to financial market trends and to
the company asset management. This macro category encompasses the following risks:
-
Market risk - Unexpected movements in prices of equities, real estate, currencies and interest
rates might negatively impact the market value of the investments of the Group.
-
Currency risk - It refers to the impact of adverse variations of exchange rates on the asset
values denominated in a currency different from the liabilities’ one.
-
Liquidity risk - It refers to the potential risk of the Group not to be able to adequately
meet the expected and unexpected cash needs.
-
Market concentration risk - It refers to single exposures or group of exposures that could increase the
asset volatility or produce consistent losses that could threaten the core business
of the Group.
Credit Risk
Credit risk refers to the impact on the economic solvency of the Group/company
due to a default of a counterparty - including reinsurance counterparties - or
issuer (default risk) or to the deterioration of the credit merit (migration or downgrading risk) or to an increase in the general level of market spreads due to a credit crunch
or a liquidity crisis (credit spread risk).
Business risk
The business risk category encompasses risks not directly included in the other
three main categories. Business risks can not be quantified adequately but must
nevertheless be monitored and controlled.
Operational Risk - risk of loss arising from inadequate or failed internal processes, or from
personnel and systems, or from external events. The operational risk includes
all legal risks but do not include risks deriving from strategic decisions and
reputational risks.
Strategic Risk - risk of a change in value due to the inability to implement appropriate business
plans and strategies, make decisions, allocate resources and react promptly to
changes in the business environment.
Reputational Risk - risk of potential damage to the company or to the Group due to the deterioration
of reputation or to a negative perception of the image of the company among clients,
counterparties, shareholders or Regulators.
Contagion Risk - risk related to the membership to a Group – intended as the risk that, due
to the relation between the company and the other Group entities, difficult situations
born in one Group entity may spread with negative effect on company solvency;
risk of conflict of interests.
Compliance Risk - risk to incur in legal or administrative sanctions, to incur in losses or
reputational damages due to the lack of compliance with laws, Authority regulations
or internal regulations, bylaws, conduct codes or self-discipline codes. In addition,
it is the risk due to changes in the law framework or legal orientation.
Financial Reporting Risk - risk of a failed accounting due to an event or transaction that imply an untruthful
and incorrect representation of the financial reporting data of the company in
the balance sheet and in the consolidated balance sheet, together with any other
financial communication.
