Risk Management
Risk of Insurance business
There are a variety of risks inherent in the insurance business. Given that the insurance business engages on the payment of insurance claims and benefits, insurance underwriting risks and asset management risks which arise within insurance business must strike a proper balance with return. On the other hand, operational risks stemming from issues such as clerical errors and system failures need to be minimized to prevent losses as far as possible.
The MS&AD Insurance Group takes precise action in response to these risks and regards risk management as its foremost priority in business in order to achieve its corporate vision and management target.
1. Insurance Underwriting Risk
Insurance underwriting risks relate to the possibility of a decline in insurance income as a result of unexpected changes in the frequency and damageability of accidents, or natural disasters.
2. Asset Management Risk
Asset Management risks relate to the possibility of a decline in asset value (including off-balance assets) or income. The major causes are fluctuation of interest rates, stock prices, exchange rates, real estate values, rents, or financial difficulties of investments and loans .
Risks stemming from the inability to matching the mix of assets and the liabilities of payment of insurance claims.
3. Operational Risk
Operational risks relate to areas such as administrative procedure, information system management, personal data protection and legal matters relating to corporate management and transactions, as well as accidents or disasters.
- • Liquidity Risk
We shall prevent a lack of funds required for day-to-day operations and establish a framework for efficiently procuring funds for paying back a large amount of claims and refunds resulting from such event as major earthquakes. - • Clerical/Administrative Risk
By recognizing that administrative errors, accident or misconduct could occur in any kind of operations, we shall establish a framework for preventing these risks. - • Information Asset Risk
We shall ensure confidentiality (protection against unauthorized access), integrity (maintaining in perfect condition) and availability (anytime accessibility) of information and a system for processing and managing information. - • Legal Risk
We shall establish a legal checking system for preventing unexpected legal liability arising from day-to-day operations. - • Accident ⁄ Disaster Risk
We shall establish a framework for preventing and taking appropriate countermeasures against accidents and disasters, which cause damage to the lives or health of officers/employees and our assets.
Risk Management Basic Policy
The MS&AD Insurance Group has set out the "Group Risk Management Basic Policy" which stipulates the basic processes and the group wide framework for risk management. The group companies implement and execute commonly shared risk management subject to the Policy.
It also defines the categories of risks which our Group should identify and manage them.
The Group companies under our holding system set out their own "Risk Management Policies" and manage risk by their own responsibilities in line with the "Group Policy".
Risk Management Structure
The Group insurance companies implement risk management on an individual basis. The Holding Company implements an enterprise-wide risk management program and monitors integrated risk and group companies' risk management activities.
The Corporate Risk Management Department obtains and analyzes the enterprise-wise risk reported from group insurance companies on a regular basis at the Risk Compliance Committee and the all important items are to be reported to the Board of Directors.
Enterprise Risk Management
Based on risk reports and risk management activities at the Group's insurance companies, the Company manages risk in both the ways of a quantitative and qualitative approach.
- • Quantitative approach
Based on quantitative analysis (VaR), the Company periodically measures insurance underwriting risk, asset management risk, and operational risk to confirm that the risk threshold is in alignment with group capital. - The Company also monitors the risk of the Group insurance companies to confirm it does not exceed the set-up limit.
- For the purpose of quantitative analysis, the Company conducts periodic stress tests to ascertain uncertainty of an anomalistic but probable event such as a large-scale natural disaster or turmoil in the financial markets.
- * VaR (Value at Risk) is the particular level of maximum loss in terms of its chance of occurrence.
- • Qualitative approach
To evaluate insurance underwriting risk, asset management risk, and operational risk, the Company assess Group insurance company's risk management activities and risk management framework. - The Company also regulates the accumulation of loans and investments, and monitors transactions between Group companies. This is to ensure that propagation, maldistribution and concentration of risk shall not have an impact on the soundness of MS&AD Insurance Group.
Crisis Management Structure
To prepare for risk discovery and having its influence spreading within the group. The Group’s companies have created crisis management manuals and business contingency plan, and perform drills to assure the effectiveness of these measures. The Company promotes these preparations and oversees the situation.
