Regarding insurance and reinsurance undertakings, Solvency II Directive introduces the notion of risk appetite in its article 44, pointing out that they shall have in place an effective risk-management system. CEIOPS (now EIOPA) explained in the Consultation Paper 33 what is the meaning of “effective”: “An effective risk management system requires at least a clear defined and well documented risk management strategy that includes the risk management objectives, key principles, risk appetite and assignment of risk management responsibilities across all the activities of the undertaking’s overall business strategy”.
Risk appetite is the maximum amount of risk an undertaking is willing to accept in order to achieve its strategic objectives. This global amount will then act as the root of all risk management processes and limits that will be cascaded throughout the daily operations.
Assessing, defining and formalizing a consistent risk appetite framework is not an easy exercise. It encompasses strategic, qualitative and quantitative considerations and needs the right level of granularity to be efficient. In addition, undertakings define it too often on a generic and high-level basis, missing the central role of their risk appetite framework which is to be the core link between the strategy, risk management system and day-to-day operational processes.
In order to support our customers and help them to achieve proportionality and an easy implementation, we have developed a methodology based on a mixed top-down and bottom-up approach. This methodology is a strong facilitator aimed at identifying, defining, assessing and formalizing a comprehensive, pragmatic and proportionate risk appetite framework.
Choosing AGRC advisory capabilities to support your global risk appetite process will help you to: