delivering risk management into the business – clash of cultures…€¦ · ·...

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Delivering risk management into the business – clash of cultures…meeting of minds…adding value

Stephane Le Donné, AXA Mike Wilkinson, Towers Watson Sabine Leboulanger, Towers Watson

26 – 27 September 2013, Brussels

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Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Agenda

The challenge

Discussion with AXA

Building success

Q&A

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The challenge

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What’s needed in practice?

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risk based decision making – aligning risk profile and growth strategy at board levelEmbedding

the purpose and ethos of the risk function – putting it into practice and demonstrating its valueEstablishing

an integrated and complementary assurance model – separating out first line activitiesBuilding

the whole organisation – cementing risk management awareness, responsibilities and governance within the structureEmpowering

a practical evidential and monitoring framework – bringing tangible benefits without overburdening the businessImplementing

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Evolving a mature risk operating model

Clearly defined organisational

structure

Well integrated lines of defence

Proportionate risk governance

Embedded risk culture

Key Function policies and ToR

Risk policies and processes

Internal Control System

Responsibilities &

Accountabilities clearly allocated

Risk Management framework

Effective MI & Communication

Effectiveness of decision making

Maximising effectiveness &

efficiency

Making work in practice

What needs to be in place

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Aligning and sustaining the risk culture

5

1

43

2

Create sustainability

Empirical assessment

Prioritise cultural levers

Implementation & alignment

Articulation of risk culture

“What should our risk culture be?”

“How do I ensure our incentive programme takes account of risk and meets regulatory

requirements?”

“How do people in our company view

risk management?”

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Risk Governance Risk Culture Tools, Systems and Data

Effective integration across the business

Risk Appetite Framework

Feedback LoopFeedback Loop

Risk-Based Management Risk Controls and Processes

l Definition of value creationl Optimisation of value creation l Capital managementl Risk in business planning

l Risk control processl Risk policiesl Emerging risk managementl ORSA report

l Operating modell Roles and responsibilitiesl Risk reporting and MI

l Attitudesl Behaviourl Understandingl Communication

l Risk models for each riskl Economic capital modell Reporting tools

l Risk strategy l Risk preferences

l Risk tolerancesl Risk limits

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Discussion with AXA

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• AXA has not waited for Solvency II to develop its own internal economic capital framework

2001 2006 2009• Economic capital

project is launched• Embedded value is

included in the scope of the project

• AXA internal model is reshaped so as to accord to Solvency II requirements

• Risk Appetite Statements are defined

• Risk scenarios approach is strengthened

Since 2010• Significant

development and effort in connection with pre-application process

• AXA internal economic model provides an adequate picture of the company risk profile

• It is used internally for most of AXA processes, within the ERM, e.g. : • Capital and Risk Management• Risk Appetite• Product Approval process• Reinsurance Strategy• Investment Approval Process• Operational Risks

Main milestones of AXA’s ERM implementation

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Phase 6Implementation

within ORSA process

Phase 5MI &

Reporting

Phase 4Alert thresholds,

risk control & management

actions

Phase 3Set up risk

limits

Step 3 – This enables us to implement a continuous process to monitor the risk

profile, including a yearly review of risk appetite and risk limits, as a part of the

ORSA process

Building a risk profile monitoring process step by step

2011 - 2013Step 1: 2004 - 2008Step 2: 2009 - 2010

AXA starting point, 10 years ago

Step 1 - The first step consisted of setting up risk limits, defining management

actions and implementing regular reporting to the Senior management

Step 2 – This assisted the Senior management to review and refine the Global

Risk appetite of the company

Phase 2Risk Profile &

Global Risk appetite

Phase 1Diagnostic

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Risk Appetite FrameworkObjectives

n The aim of the risk appetite framework is to ensure that appropriate governance, reporting, limits and decision processes have been set up to drive risk management decisions. It helps the Group to: l monitor accumulation of risks,l have a clearly stated risk appetite, andl manage its own exposure through interactions with local operating units.

Risk Appetite is a risk governance tool ...

... to ensure that risks are limited and their consequences on all dimensions understood

Empower local units and manage the Group

n The risk appetite considers potential impact of risks on 4 dimensions across 7 key indicators:l earnings: underlying earnings, adjusted

earnings, net income (IFRS)l value: Group EEV,l solvency: solvency I II coverage ratios,l liquidity: liquidity coverage ratio.to set up limits on functional risk indicators.

n The risk appetite is a structured process between the Group and local units to ensure consistency of risk tolerance, related governance and decision processes - empowering local units to actively manage their risk exposures through their own choice of local risk limits.

Solvency

Liquidity

Value

Earnings

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Risk Appetite FrameworkProcess

n The Group Risk Appetite process:

§ A quarterly release of a Group risk reporting, with sensitivities of the 7 key indicators to various risk factors (financial & insurance) in case of adverse events (1 in 20 years) and extreme events (1 in 200)

§ and the translation into risk limits at Group level to be validated by the Management Committee.

§ Regular reporting and management of the Group risk exposure vs. limits, specifically monitored by

- the Group ALM Supervisory Committee for financial risks, - the Risk Insurance Supervisory Committee for insurance risks, and - the Risk and Compliance Committee for operational risks.

§ A process mirrored in local units - quarterly reporting, risk limits, on going management of exposure with on going discussions with the Group to ensure alignment.

Quarterly reporting and review of limits

Regular management of Group exposure

Similar local processes

n Risk Appetite is a risk governance tool to ensure that appropriate governance, reporting, limits anddecision processes have been set up to drive risk management decisions

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Risk Appetite FrameworkOperational implementation

n A clearly stated Risk Appetite:

§ Considering our key indicators (earnings, value, capital and liquidity) in various stress scenarios

§ against our risk appetite statements (maximum allowed sensitivities in pre-defined stress scenarios)

§ and adapt – where necessary – our risk limits to manage our risk profile.

Earn

ings

Valu

eSo

lven

cyLi

quid

ity

n The functional risk indicators are simple indicators (no complex calculations), used day to day to manage the risk exposures - they are easily and frequently monitored, reported and understood by people in the operations. They are needed to ensure that risk appetite will translate operationally.

n For each functional risk indicator, two thresholds are defined :

n Actions taken to manage risk will depend on the area of the reported exposure.

An operational framework

... with alerts and limits to actively manage risk exposure

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Aligning strategic planning process and the ORSA

ORSA forward looking scenarios are consistent with the scenarios used during the (previous)

strategic planning process

Year NYear N Year N+1Year N+1

Conclusions drawn from ORSA process feed (next) strategic

planning process

Strategic planningStrategic planningStrategic planning

ORSAORSAORSA

Strategic planningStrategic planningStrategic planning

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Processes timelines

Governance

Cultural implication

… Benefits

Training dedicated to Senior Executives and Board Members

Transversal Training initiatives

Level of seniority

Ris

k / f

inan

ce

stak

ehol

ders

Sub-committees reporting to BoD or MC (RCC, GBL Boards, …)

BoD members

MCmembers

Senior Course

Mastery Course

Indi

vidu

al o

r ple

nary

se

ssio

ns (

upda

te, n

ew

join

ers)

Ris

k C

olle

geFundamentals

Course

PBR College

SCR / AFR trainingfor experts

AXA CORE

AXA FINE

E-LEARNING

“ONE” intranet

Ris

k C

ultu

re

Risk Watch letter

§ Explain and evidence the

different initiatives for

increasing the knowledge

and understanding about

Solvency II and the internal

model

Training Initiatives

§ Specific focus on

Executive and Senior

Management

AXA training initiatives

n Different training initiatives have been launched for several years to assist AXA SeniorManagement and Executives as well as Board members in their understanding of the InternalModel and Solvency II.

Non

–ris

k / f

inan

ce

man

agem

ent &

em

ploy

ees

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Building success


Navigating the journey

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Clarity of purpose, pragmatism in implementation

Empowerment, communication, information and terminology

Ensuring real ownership of risk within the business

Prioritising, using ORSA dry runs, testing and refining over time

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delivering risk management into the business – clash of cultures…€¦ · ·...

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