Risk management system
The risk management system, defined within the Group Risk Management Policy, updated annually by the Board of Directors, sets out the guiding principles and minimum requirements of the process to identify, evaluate, manage and monitor risks to which the Group is exposed to, on current and forward looking basis.
The Policy ensures effective management of risks throughout the Generali Group in line with the Group Risk Appetite Framework defined by the Board of Directors of the Parent company.
The main processes, procedures and responsibilities set out in this Policy are aimed at ensuring sound management of risks to preserve the stability and solvency of the Group under extreme conditions, using synergies, best practices, and specialist competences developed within the Group.
Group companies are required to adopt this Policy, with due consideration of local specificities and regulatory requirements.
The risk management process, regulated by the Policy includes the following main phases:
- Risk identification,
- Risk measurement,
- Risk management and control,
- Risk reporting (including also ORSA Report).
Own Risk and Solvency Assessment (ORSA) is defined as the set of processes and procedures used to identify, assess, monitor, manage and report risks on a current and forward-looking basis, as well as the level of own funds required to ensure that solvency needs are met.
The Group Risk Map approved by the Board of Directors of Assicurazioni Generali identifies the main risks listed hereafter:
|Group Risks Map|
|Risks covered by the Partial Internal Model|
|Internal Model||Standard Formula|
|Financial risks||Credit risks||P&C underwriting risks||Life underwriting risks||Operational risks||Non-quantifiable risks|
|Interest rates||Enlargement of spread||Pricing||Catastrophe mortality||Liquidity|
|Interest-rate volatility||Credit default||Reserving||Non-Catastrophe mortality||Strategic|
|Share prices||Counterparty default||Catastrophes||Longevity||Reputational|
|Share volatility||P&C redemptions||Morbidity / Invalidity||Emerging|
|Illness Claim||Risk interdependence*|
*Risks significant only at Group level
Financial risk encompasses risks deriving from unexpected movements in interest rates, equity, property and exchange rates or increases in interest rate and equity volatility that may have an adverse impact on the economic or financial results. It considers losses arising from an excessive concentration in a single counterparty.
Credit risk refers to possible losses arising from the default or failure of counterparties to meet their payment obligations (default risk), or from the changes in value resulting from movements in their credit ratings or from the widening of the credit spreads (spread widening risk).
Non-Life insurance risk refers to the uncertainty as to the occurrence, amount and timing of insurance liability events. This includes the following sub-risks:
- Reserving risk relates to the uncertainty of the claims reserves run-off with respect to their average expected value, over a one-year time period. Specifically, it considers the possibility that actuarial reserves are not sufficient to meet future obligations towards policyholders.
- The lapse risk relates to the uncertainty of the option exercise rates in the calculation of technical provisions for non-life obligations.
- Pricing risk and catastrophe risk relate to the premium underwritten being insufficient to cover actual future claims, expense and extreme events.
Life & Health underwriting risk includes biometric risks embedded in life and health policies deriving from the uncertainty in the expected future claims payout. This uncertainty relates to assumptions regarding mortality, longevity, morbidity and disability rates. The category also includes risks deriving from the uncertainty relating to the expected value of lapses and expenses.
Operational risk refers to risks of losses arising from inadequate or failed internal processes, personnel and systems or from external events.
The operational risk category includes the compliance risk that is the risk of incurring in legal or regulatory sanctions, or material financial losses, or reputational damage rising from failure to comply with laws, regulations and administrative provisions applicable to the Company business. In addition, the financial reporting risk is also considered an operational risk. This is the risk of a transaction error which could entail an untrue and incorrect representation of the situation of the assets, liabilities, profit or loss in the company's financial statements, in the yearly and half-yearly consolidated financial statements and in any other financial release.
In addition to the previous categories, other so called non quantifiable risks are considered, for which there is no specific capital requirement. These are:
- Liquidity risk: refers to the risk that the Company will not be able to efficiently meet both expected and unexpected cash flow requirements. Liquidity risk may arise due to insufficient future cash flows to meet expected and unexpected cash obligations or to the illiquidity of assets held to meet the cash requirements.
- Strategic risk refers to the risk arising from external changes and/or internal decisions that may impact on the future risk profile of the company or of the Group.
- Reputational risk is the risk of potential losses due to a reputational deterioration or to a negative perception of Company's or Group's image among its customers, counterparties, shareholders and Supervisory Authorities.
- Contagion risk is the risk deriving from belonging to the group, i.e. the risk that problems arising from one of the Group's Local Entity could affect the solvency, economic or financial situation of the Generali Group.
- Emerging risk refers to the new risks due to internal or external environment changes, that may bring to an increase in the exposure to risks already included in the Group Risk Map or that may require to define a new risk category.