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OPERATING AND FINANCIAL REVIEW / THE COMPANY / DELIVERING VALUE /
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JAMES ILLINGWORTH DIRECTOR, BUSINESS INTELLIGENCE & MONITORING
“Inspired by the desire to deliver strategic objectives, to improve performance
and to address a growing need to cater for regulatory requirements, Amlin has
been developing and enhancing its risk management systems. Over the past
four years, we’ve invested in skills, technology and analysis to improve our
understanding, reporting and management of the key risks which face the
Group, both strategically and on a day to day basis.”
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| RISK MANAGEMENT FRAMEWORK |
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Amlin’s risk management framework is based
on the following:
- Risk appetite is approved by the Board;
- Risk is reviewed by a Risk Committee
which comprises senior management,
meets quarterly and reports to the Board
through the Audit Committee;
- The Risk Committee reviews the Group’s
top and emerging risks, as well as any
material control weaknesses, and either
satisfies itself that sufficient action is being
taken to address such risks and weaknesses
or requests that further action is taken;
- Risks are clearly classified by category
with responsibility for risk categories
being defined and documented;
- Risks and the adequacy of controls over
risks are assessed and reported to the
Risk Committee on a cyclical basis, the
frequency of review depending on their
nature and grade;
- Amlin’s Internal Audit and Compliance
Department reviews the risk assessments
performed by its Operating Divisions and
other Departments.
Our Risk Committee comprises:
– Chief Executive
– Director, Audit and Compliance (chair)
– Director, Business Intelligence & Monitoring
– Finance Director
– Operations Director
– Underwriting Director
Risk management in the business is the
responsibility of divisional or departmental
management. Two departments and two other
committees play meaningful roles in monitoring
and reporting risk on a Group wide basis.
These are:
Business Intelligence & Monitoring
Department: monitors and reports on
underwriting exposures across the Group,
performs or oversees independent assessments
of underwriting quality, major event risk
analysis and the structure of reinsurance
programme, and performs independent
assessments of the quality and adequacy
of reserving.
Internal Audit and Compliance Department:
conducts a detailed programme of work to
provide an independent appraisal of the
adequacy and effectiveness of internal
controls in operation.
Reserving Committee: reviews the reserving
processes, work conducted by Amlin’s operating
divisions and by Business Intelligence and
Monitoring on reserves and considers reserving
issues of major subjective judgement.
Reinsurance Security Committee: reviews the
security of reinsurers and monitors aggregate
exposures to reinsurers so that they are
maintained within approved risk appetite levels.
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| INTEGRATED RISK AND CONTROL DATABASE |
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Amlin has invested in an integrated risk
management database, namely Telelogic
Doors software, to facilitate the assessment
and reporting of risks and their associated
controls. The introduction of the database to
different areas of the Group has been phased
over four years and was completed in 2004
so that the entirety of the Amlin Group now
uses it. Risks are analysed into the following
major categories:
- Strategic risks;
- Underwriting risks;
- Financial risks;
- Operating risks;
- Regulatory risks;
- Reputational risks.
The software links risks to their corresponding
controls and generates a graded reporting of
risks ranging from “high impact” (over £10
million impact on pre-tax profit), “high
probability” (more than 40% probability over
a 5 year period) to “low impact” (less than
£1 million impact on pre-tax profit), “low
probability” (less than 5% over 5 years).
Presently, while the software provides a good
framework for the reporting and assessment
of risk, there remains a higher element of
subjective judgement used in quantifying and
grading the risks than would be ideal and this
will be addressed over the next year.
The Risk Committee reviews the output from
the Doors system at a high level at each of its
meetings and at a more detailed level on a
rotational basis.
Controls over underwriting and investment
risks are referred to in their respective parts
of this Operating and Financial Review. The
status of some of Amlin’s other financial risks
are highlighted in the following graphs.
The chart below demonstrates Amlin’s prudent
approach to reserving, with caution being
removed from forecast net ultimate loss
ratios as underwriting years mature.
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