Major risks: secondary continued
What is the risk? Why do we have it? How is it managed?
Investment risk:
foreign exchange risk
Our reporting currency is We are an international Currency matching: As the US Dollar is the Group’s largest
Sterling, but a significant insurance and reinsurance underwriting currency, our policy is to match our US Dollar insurance
proportion of our underwriting group that operates in liabilities with investments held in that currency to minimise any
activities is located in the numerous markets around losses from currency fluctuations. We will hold a percentage of our
US and Europe. In addition the world. capital in the matching currency of that part of our underlying
the capital bases of our business, where it is deemed appropriate.
insurance companies in Currency hedging: We closely monitor our net currency positions
Bermuda, Guernsey and US and will enter into currency hedges if we anticipate adverse
are in US Dollars. Therefore, movements in exchange rates. Further details of the Group’s
movements in foreign investment profile and its management of currency risks are provided
exchange rates may have in notes 3 and 19 to the consolidated financial statements.
a material adverse effect
on our financial performance
and position.
Strategic risk:
Hiscox credit rating
The external ratings assigned The business in which we Careful management: We have identified the key aspects of our
to the Group and its operate is determined largely business that are critical to maintaining our ratings. These are closely
subsidiaries are essential to by financial strength ratings managed to minimise the risk of an event, or change in strategy,
our profitability, particularly issued by the major credit that might jeopardise our ratings.
for our reinsurance business, rating agencies. Communication: Regular and open communication with the
and to manage our financing major credit rating agencies helps to ensure we continue to meet
costs and access to capital. their expectations.
A reduction in these external
ratings may impact the Group’s
ability to generate business
and/or access finance.
Operational risk:
IT continuity
We are unable to transact with Like every other business Disaster recovery planning: A formal disaster recovery plan
intermediaries and customers we are reliant on data is in place to deal with workspace recovery and the retrieval
due to an IT failure. and computer systems of communications, IT systems and data should a major problem
in order to go about occur. These procedures would enable us to move the affected
our everyday business. operations to alternative facilities quickly. The plan is tested regularly
and includes simulation tests.
Emerging risks
We are exposed to new Our business is taking Risk assessment: Identifying, planning for and controlling emerging
and emerging risks, primarily risk, which by its nature risks is an important part of our risk management activity across
through legal or political is inherently uncertain. all aspects of our business, including underwriting, operations and
decisions. For example, strategy. We make a significant effort to identify material emerging
a change in US legislation threats to the Group. It is a core responsibility of each of our risk
may result in exposures being committees and we believe we take all reasonable steps to minimise
included within our coverage the likelihood and impact of emerging risks and to prepare for them
that had not been intended in case they occur.
by our underwriters, or may
require us to cease business
in certain US states.
Risk management Hiscox Ltd Report and Accounts 2012 27