Risk Management

As a financial institution, risk management is essential for our business. As an insurer, we must, by definition, work to a long-term horizon. For Eureko this is specifically so because of our commitments to customers, employees, shareholders and distribution partners. Our risk management is, therefore, organised and driven by that long-term view. This section describes how we identify, assess, measure, manage, monitor and report on the risks to which we are exposed.

Managing risk
The financial crisis has once again demonstrated just how crucial it is to have insightful, prudent and sound risk management. The risk management of the future requires a high level of interaction and embedding into decision-making. At the beginning of 2009, the Executive Board decided to strengthen the risk management organisation, incorporating lessons learned from the crisis. In September 2009, we implemented a reinforced finance and risk organisation that facilitates a better view of risks within the Eureko Group. We centralised our risk management at Group level into a Group Risk Management department and, from 1 January 2010, our risk management committees have been restructured.

Other goals for 2009 were ensuring the continuity and solvency of the Group, thus optimising the balance between risk and return to create long-term value for our stakeholders. We pursued those goals by taking major measures on de-risking the portfolio. Equity holdings have been reduced significantly. Monitoring of the counterparties from a Group perspective was improved. The capital and liquidity position were closely monitored.

The risk managers are deeply involved in developments on Solvency II, the new risk-based regulatory regime for European insurance companies, and IFRS4 Phase II, which, among others, will require insurance companies to report insurance liabilities at market value in the balance sheet. While much has been achieved on our 2009 goals, the aims set for 2010 and beyond represent further development of our insight into areas for improvement.

Risk governance
Risk governance is based on a three-line defence model that ensures risk management processes are embedded at every relevant level of the organisation.

The first line of defence is Division and Operating Company management and some Group staff departments. The second line of defence is the risk and compliance officers and actuaries in Divisions and Operating Companies, the Group Risk Management department and Group Compliance & Regulatory Affairs. Group Internal Audit Services acts as a third line of defence and provides independent assurance on the effectiveness and efficiency of the overall internal control infrastructure. Audits include the assessment of Internal Control Statements and Operational and Compliance Audits.

At the highest level of the organisation the Executive Board and the Supervisory Board’s Audit & Risk Committee have an important role in risk management. The Executive Board is responsible for ensuring that effective internal risk management and control systems are in place. This includes defining risk appetite and establishing the annual risk budgeting and monitoring process. The Audit & Risk Committee oversees that there is an appropriate risk structure across the Eureko Group which is geared to the organisation, and discusses finance and risk issues.

The Executive Board is supported by the Finance & Risk Committee, which is responsible for the preparation of risk budgeting decisions, risk monitoring and will approve risk-management policies defined for managing risk budgets. The CFO chairs this Committee and two other board members participate to guarantee top-level commitment. Participants are directors from Eureko’s Finance and Risk departments and Eureko Re. Directors of Compliance and Internal Audit are present when their reports are discussed. Further delegation to divisions and departments occurs through clear charters and policy documents.

Banking operations have several committees in place with specific risk management responsibilities, such as the Asset and Liability Committee, the Credit Committee, the Pricing Committee and the Operational Risk Committee.

To control our risk position, several policies and procedures, including risk limits, are in place, and our risk position is reviewed and evaluated through regular reporting. Risk reporting assesses whether our risk profile is within predefined risk limits, and action is taken when necessary. A Eureko Risk Dashboard provides an overview of all key risk indicators, and is reported quarterly to the Finance & Risk Committee, the Executive Board and the Audit & Risk Committee.

Due to the financial crisis, monitoring frequency was increased substantially and several risks were monitored on a daily basis. Eureko applies several methods and models to measure our risk profile, including regulatory and rating models. Furthermore, an Economic-Capital model has been developed to provide an overall view of our Group risk profile.