Ecclesiastical Insurance Office PLC Annual -5-
24 Mars 2015 - 5:33PM
UK Regulatory
The risk of actual claims payments consequence of incurring insurance levels are closely monitored. Claims
exceeding the amount we are holding claims. Throughout the reserving risk primarily
in relation to our lifecycle of a claim the estimated arises from longer-tail liability
long-tail liability risks. ultimate cost will vary as business. For statutory and
additional information becomes financial reporting purposes
available. margins are added to a best estimate
outcome to allow for uncertainties.
This approach generally
results in a favourable release of
previous year's provisions within
the current financial
year. Claims reserves are reviewed
and signed off by the Board acting
on the advice and recommendations
of the Group Reserving Actuary and
the Group Audit Committee.
Further information on this risk is
given in notes 2, 3 and 27 to the
full financial statements.
Uncertainty around our long-tail
liability claims means that this
risk has increased during
the year.
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Reinsurance risk Reinsurance is a central component This risk is managed by taking a
The risk of failing to access and of our business model, enabling us long-term relationship view towards
manage reinsurance capacity at a to insure a portfolio reinsurance purchases
reasonable price. of large risks in relation to our to deliver sustainable capacity
capital base. The Board appetite for rather than opportunistic results.
our strategic exposure Strict criteria exist which
to the reinsurance market is well relate to the ratings of the
established. reinsurers and a Reinsurance
The global reinsurance market is Security Forum approves all of our
beginning to see a reshaping of the reinsurance partners.
market, with diversification The size of this risk has remained
by territory and/or class seen as broadly similar over the year.
the way forward. As a consequence,
merger and acquisition
activity is now beginning to take
place. Not all reinsurers have been
prepared to follow pricing
down and accept wider terms and
conditions and have actively scaled
back their portfolios
including breaking long-standing
relationships with insurers or
standing firm on terms.
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Concentration and model error risk Exposure measures are fundamental to
This is the failure to manage risk determining our reinsurance
concentrations across our different purchases. Errors within
business and risk areas the models could fail to identify Risk appetite limits have been
and includes the reliance on models significant concentrations of risk established to manage our
which if found to be wrong could and lead to the Group concentration of risk and these are
give rise to significant having net retentions which are in reviewed regularly by the Group Risk
unplanned losses. excess of our risk appetite. Committee.
The risk is mitigated through the
use of industry recognised models
alongside our scenario
and stress testing framework.
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Market Risk Market risk principally arises from A robust investment risk management
Market risk investments held by the Group. We framework is in place to mitigate
The risk of adverse movements in net accept such risks to the impact of changes
asset values arising from a change seek enhanced returns on these in financial markets.
in interest rates, investments. Our fund manager, EIM, manages our
equity and property prices and Our investment strategy for assets funds in accordance with the
foreign exchange rates. backing reserves is primarily investment strategy and guidelines
focused on fixed income stocks. agreed by the Finance and Investment
This gives us exposure to interest Committee of the Board.
rate risk. We also hold some of our Interest rate risk is partly managed
investments in corporate through selecting stocks of an
bonds, which expose us to credit appropriate duration that
spread risk, for which higher will match the expected cash flows
expected yields are obtained. from longer-term liabilities, and
Market risk also arises as we have a partly through holding
significant equity portfolio. stocks with a relatively short
A proportion of our equity portfolio period to maturity, that are not
is invested in overseas equities. exposed to significant volatility
This gives us exposure upon changes in interest rates.
to wider investment opportunities Credit spread risk is risk is
and diversified returns, but also controlled through the investment
introduces currency risk. strategy and guidelines agreed
by the Finance and Investment
Committee of the Board. It is
managed by our investment manager's
assessments of risk and by limiting
our exposure to both non-rated and
lower rated bonds and
ensuring that we adhere to the
limits set for exposure to any
single issuer.
We hold a relatively significant
equity portfolio in order to deliver
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