Risk management
continued
Principal risks continued
What is the risk? Why do we have it? How is it managed?
Regulatory change
The insurance industry Insurance is a regulated We currently have a dedicated team assessing and developing
is undergoing a period of industry. While regulations new internal arrangements compliant with new regulations,
unprecedented regulatory typically evolve on an operating under the guidance of the Group CFO.
change, which may impact ongoing basis, there may
the capital we are required be times where the
to hold. regulatory landscape
undergoes a significant shift.
Major risks: secondary
What is the risk? Why do we have it? How is it managed?
Insurance risk:
binding authorities
Hiscox generates Binding authorities give Vetting and auditing: All binding authorities we grant are closely
considerable premium the Group access to a controlled through tight underwriting guidelines. We vet all our
income through agents greater volume of business. agents prior to appointment and monitor and audit them regularly.
to whom binding authority Agents are frequently audited to ensure they meet our standards.
is given to underwrite
insurance policies on
our behalf. Agents may
underwrite business outside
of our normal guidelines.
Credit risk:
reinsurance
counterparties
We buy reinsurance to We cover clients against Careful selection: We buy reinsurance only from companies that
protect us from large single a range of catastrophes we believe to be strong. Every reinsurer we use must be approved
claims as well as the and protect ourselves by a dedicated Reinsurance Security Committee, based on an
aggregate effect of many through reinsurance. assessment of financial strength, trading record, payment history,
claims resulting from We face credit risk where outlook, organisational structure, plus its external credit ratings.
catastrophes. The risk we seek to recover sums Monitoring: Our credit exposures to these companies are closely
is that our reinsurers are from other reinsurers. monitored. The companies are continuously monitored so that
unable to meet their we are able to identify any potential problems. The committee
obligations to us, which considers public information, experience of the companies
would put a strain on our concerned, their behaviour in the marketplace and analysis from
earnings and capital. external consultants and from rating agencies.
Guidelines: We set guidelines for exposure to each of our
approved reinsurers.
26 Risk management Hiscox Ltd Report and Accounts 2012