Risk management – The guidance system for corporate governance
Effective risk management preserves Munich Re's financial strength, secures our clients' claims to benefits, creates enduring value for our shareholders and protects our reputation.
Assuming risks is our business, and our risk strategy defines the scope of the risks we assume for our clients and shareholders. Implementing risk management operationally involves identifying, measuring, analysing and assessing risks and on that basis then reporting, monitoring and limiting them. Here we distinguish on the one hand between market, credit, liquidity and reputational risks and on the other between operational and strategic risks.
Efficacy through transparent management
To ensure effective risk management, Munich Re has established special risk management functions and bodies. The Integrated Risk Management (IRM) Division is responsible for risk management throughout the Group. IRM is headed by the Group Chief Risk Officer (Group CRO), who, like the CROs in the individual units, is backed by highly qualified interdisciplinary teams. All Group units involved in handling risks also have the duty to ensure active risk management within their respective areas of responsibility.
This guarantees that our risk management covers all units and all exposures in the Group, while bringing about transparency and making it possible to actively manage the risks assumed.
The Chief Risk Officer is a permanent member of Munich Re’s Group Committee, the Board of Management forum for strategic matters. Risk issues throughout the Group are dealt with by the Group Risk Committee.
Determining the risk strategy
The development of the risk strategy is embedded in the annual planning cycle, and hence in our business strategy. It is approved by the Board of Management and discussed regularly with the Supervisory Board. Our risk strategy takes into account the interests of our clients and shareholders. We strive to maintain our financial strength in order to meet our obligations to clients as well as to protect and augment our shareholders' equity in the long term. A great deal of our attention is also focused on protecting our reputation.
Our risk strategy is determined by our risk appetite, which is defined for a number of risk limits/criteria. Our risk appetite is based on the capital and liquidity available and on our earnings target within specified volatility limits, and provides a frame of reference for the Group’s operational divisions.
Multidisciplinary approach toward emerging risks
We pay particular attention to so-called emerging risks, i.e. risks that arise as a result of changes in, for example, economic, legal, socio-political, scientific or technological parameters. The probability of these risks actually occurring is by nature difficult to estimate. We take a multidisciplinary approach, utilising the expertise and experience of our specialists, who include geoscientists, engineers, biologists, underwriting experts, lawyers, economists, sociologists and actuaries. They routinely prepare detailed analyses and assessments of topics such as nanotechnology, pandemics and IT risks for our core business.
“Risk management involves not only quantitative approaches but also a lot of common sense. This is an essential part of our risk culture or, in other words, the foundation of our Enterprise Risk Management.”
Joachim Oechslin, Group Chief Risk Officer
Reputational Risk Committee – Forum for sensitive business issues
We know that a company’s success depends to a significant extent on its reputation, and this is especially true of the insurance sector. Munich Re’s Reputational Risk Committee deals with reputational risk issues that arise in the course of our day-to-day business operations. This body is composed of representatives from various divisional units and central divisions and is chaired by the Compliance Officer. All those involved carefully scrutinise the ethical tenability of business transactions on a regular basis and (in special cases) upon request; by doing so, they help to avoid operational decisions that could lead to unforeseen reputational risks. Ready to convene at short notice, the committee can discuss an issue and make a clear recommend suitable action within 48 hours.
