Our core business is to take risk and our One of our Executive Directors – either the
Risk management strategy is to maximise return on equity
within a defined risk appetite. Our ongoing
Chairman, Chief Executive Officer, Chief
Financial Officer or Chief Underwriting Officer –
success depends on how well we understand chairs each of these committees, apart from
and manage the significant exposures we the Operational Risk Committee, which is
face. It is therefore crucial that our knowledge chaired by the Chief Operations Officer.
of those risks underpins every important
decision we make across the Group. The responsibilities of our senior management
are clearly defined, as are our reporting lines,
The risks from our core business of insurance and where responsibilities are delegated the
and reinsurance represent many of our most Board and its committees closely monitor their
significant exposures. We are also exposed activity, aided by financial and non-financial
to a number of other risks: investment, credit, management information.
operational, liquidity, and strategic. To identify
and manage these we have developed a risk This monitoring assesses the level of risk being
management framework, which we regularly taken by the Group in pursuing its objectives,
review and improve in the light of the changing and ensures that this level of risk remains within
risk environment and evolving best practice the parameters set by the Board.
on risk management. Our risk management
framework is designed to oversee a culture A dedicated team reports to the Risk Committee
of innovative and prudent underwriting. of the Board which monitors and reviews
the risk profile and the effectiveness of our risk
The Group risk management framework management activities. This team has a wide
The Risk Committee of the Board advises our range of tools to measure risks and is organised
Directors on how best to manage the Group’s centrally so we can share best practice
risk profile. Our risk appetite is set by the Board on managing risks across the Group.
and fed through to our divisions through the
risk management framework, which is made Major risks
up of a number of committees, including: The major risks facing the Group are designated
Group Underwriting Review as being either of ‘principal’ or ‘secondary’
Reserving Committees importance. Principal risks are those viewed to
Cash Flow Review Group be potentially the most damaging for the Group,
Reinsurance Security Committee while secondary risks are not deemed to be
Broker Credit Committee critical at this stage. Certain of these risks arise
Investment Committee from financial instruments held by the Group and
Operational Risk Committee. are also discussed in note 3 to the consolidated
financial statements.
Principal risks
What is the risk? Why do we have it? How is it managed?
Catastrophic and systemic
insurance losses
We insure individual Though volatile and potentially Diversified portfolio: Hiscox has a well-diversified portfolio by
customers, businesses and costly, this business is product and geography to help balance any catastrophe exposure.
other insurers for damage compelling for us, as it is Risk appetite: We clearly define our risk appetite for underwriting
caused by a range of capable of earning good risk, which dictates our business plan. To ensure that we do not
catastrophes, both natural margins over the medium- exceed our risk appetite, we monitor our exposures closely and
(e.g. hurricanes, earthquakes) to long-term. take mitigating actions to maintain business plan. This enables
and man-made (such as us to maximise the expected risk return profile on the whole portfolio
terrorism), which can cause and offset the potential losses on more volatile accounts.
heavy underwriting losses that Underwriting discipline: Underwriters are incentivised to make
could have a material impact sound decisions that are aligned with Group’s overall strategic
on the Group’s earnings. objectives and risk appetite. Clear limits are placed on their
underwriting authority. Policy wordings are regularly reviewed
in the light of legal developments to ensure the Group’s exposure
is restricted, as far as possible, to those risks identified in the policy
at the time of issue.
Modeling: We have tailored our modeling resources to assist
insurance and reinsurance plans and ensure that the exposure
we write matches expectations. The risk aggregation and modeling
resources are shared across the Group to ensure everyone uses
the same modeling tools.
Risk management Hiscox Ltd Report and Accounts 2012 23