Event identification

In order to enable a consistent, systematic and disciplined approach to risk management, Zurich categorizes its main risks as follows:

1. Strategic risk corresponds to the unintended risk that can result as a by-product of planning or executing the strategy. A strategy is a long term plan of action designed to allow the Group to achieve its goals and aspirations. Strategic risks can arise from:

• Inadequate assessment of strategic plans

• Improper implementation of strategic plans

• Unexpected changes to assumptions underlying strategic plans

2. Insurance risk is the inherent uncertainty regarding the occurrence, amount or timing of insurance liabilities.

General Insurance risk includes the reasonable possibility of significant loss due to uncertainty in the frequency of the occurrence of the insured events as well as in the severity of the resulting claims. The following provides an overview of the Group’s main lines of business:

• Motor includes automobile physical damage, loss of the insured vehicle and automobile third party liability insurance.

• Property includes fire risks (for example fire, explosion and business interruption), natural perils (for example earthquake, windstorm and flood), engineering lines (for example boiler explosion, machinery breakdown and construction) and marine (cargo and hull).

• Liability includes general/public and product liability, excess and umbrella liability, professional liability including medical malpractice, and errors and omissions liability.

• Special lines include directors and officers, credit and surety, crime and fidelity, accident and health, and crop.

• Worker injury includes workers compensation and employers liability.

The risks associated with Life Insurance include:

• Mortality risk is the risk that actual policyholder death experience on Life Insurance policies is higher than expected.

• Longevity risk is the risk that annuitants live longer than expected.

• Morbidity risk is the risk that policyholder health-related claims are higher than expected.

• Policyholder behavior risk is the risk that policyholders’ behavior in discontinuing and reducing contributions or withdrawing benefits prior to the maturity of the contract is worse than expected. Poor persistency rates may lead to fewer policies remaining on the books to defray future fixed expenses and reduce the future positive cash flows from the business written potentially impacting its ability to recover deferred acquisition expenses.

• Expense risk is the risk that expenses incurred in acquiring and administering policies are higher than expected.

• Market risk is the risk associated with the Group’s balance sheet positions where the value or cash flow depends on financial markets, which is analyzed in the ‘Market Risk’ section in the Risk Review.

• Credit risk is the risk associated with a loss or potential loss from counterparties failing to fulfill their financial obligations, which is analyzed in the ‘Credit Risk’ section in the Risk Review.

3. Market risk is the risk associated with the Group’s balance sheet positions where the value or cash flow depends on financial markets. Fluctuating risk drivers resulting in market risk include:

• Equity market prices

• Real estate market prices

• Interest rates and credit spreads

• Currency exchange rates

4. Credit risk is the risk associated with a loss or potential loss from counterparties failing to fulfill their financial obligations. The Group’s exposure to credit risk is derived from the following main areas:

• Cash and cash equivalents

• Debt securities

• Reinsurance assets

• Mortgage loans and mortgage loans given as collateral

• Other loans

• Receivables

• Derivatives

5. Liquidity risk is the risk that the Group may not have sufficient liquid financial resources to meet its obligations when they fall due, or would have to incur excessive costs to do so.

6. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems or from external events.

7. Risks to the Group’s reputation include the risk that an act or omission by the Group or any of its employees could result in damage to the Group’s reputation or loss of trust among its stakeholders.

Date: 2015-02-16; view: 694