Strategic corporate management and risk control

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Strategic corporate mangement and risk control - Munich Re

Strategic corporate management and risk control will become more demanding

Risk management and strategic and value-based management will become more professional as a result of Solvency II. This means that strategic corporate management and risk control will become more demanding.

At Munich Re, risk-management tools and processes are closely interlinked with the Group-wide value-based management system and hence an integral part of the management of the business. Our value-based management is geared to ensuring that individual business units’ pricing takes risk-based capital costs into account. Munich Re deploys both decentralised and centralised risk-management tools and processes.

The specialist knowledge we have at Munich Re is the backbone of our risk-assessment expertise. Over the last few years, we have been able to build up an extensive compendium of knowledge on the Solvency II Project. Indeed, risk management is not just about quantitative methods. It has as much to do with experience and plain old common sense. The CRO Team, and especially our Solvency Consulting experts, are ideally positioned to assist our clients with Solvency II.

Solvency II brings more discipline to the insurance industry. Examples:

  • Life insurance
    Problem: long-term guarantees and options are often not properly priced and hedged.
    Solvency II: more capital required to cover mismatches between investments and insurance liabilities. It will now be clear where the return is insufficient for the risk incurred.
    Solution: improve asset-liability matching and product design
  • Investments
    Problem: high investment risks are taken to compensate for inadequate profitability.
    Solvency II: risk capacity places limits on risky investment strategies
    Solution: focus on profitable underwriting
  • Reinsurance
    Problem: reinsurance programmes are not always optimal in terms of risk transfer
    Solvency II: reinsurance will become a key capital management tool
    Solution: measure and optimise impact of reinsurance structures

Munich Re assists its clients in adjusting to the new regulatory challenges in many ways. Examples:

  • We assist our clients in performing standard formula calculations for reinsurance and stochastic modelling, focusing on the underwriting risk (PODRA).
  • Irrespective of whether our clients use the standard formula or a (partial) internal model, we understand the main risk-capital drivers in their portfolios, draw conclusions from them and discuss possible solutions – reinsurance, traditional and alternative, as well as other options.
  • We evaluate existing reinsurance structures and develop and propose optimised structures.
  • We illustrate in detail the effect of different reinsurance structures or of a particular treaty on our clients’ balance sheets.
  • Using the future criteria for the recognition of risk transfer as a basis, we advise our clients on developments in the criteria for recognition of reinsurance structures and conditions in the context of Solvency II.


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