Risk profile of PZU Group

The PZU Group distinguishes the six main areas of risk it faces: actuarial risk, market risk, credit risk, concentration risk, operational risk and compliance risk.

The most important factors influencing PZU Group’s risk profile in 2015

The key event from the viewpoint of the PZU Group’s risk profile was integrating the risk management process in the PZU Group’s insurance companies and implementing the requirements of the Solvency II system and the regulatory authority’s guidelines, especially the Office of the Polish FSA in these companies.

 

It is the risk of a loss or an adverse change in the value of liabilities as a result of improper assumptions regarding valuation and the establishment of technical provisions.

The process of risk identification starts with the idea of creating an insurance product and it lasts until the related liabilities expire. Underwriting risk identification is carried out, e.g. by means of:

  • analysis of general insurance terms and conditions in respect of the accepted risk and compliance with generally applicable provisions of law;
  • monitoring of the existing products;
  • analysis of the policies relating to underwriting, tariffs, provisions and reinsurance, as well as the claims and benefits handling process.

Underwriting risk assessment involves recognizing the degree of exposure or a group of exposures related to the possibility of incurring a loss and analyzing the risk elements in order to make a decision on whether PZU should accept a risk for insurance and assume liability. The aim of the risk assessment (underwriting) is the assessment of future claims and the reduction of adverse selection.

Underwriting risk measurement is based in particular on:

  • analysis of selected indicators;
  • scenario method – analysis of impairment arising from an assumed change in risk factors;
  • factor method – a simplified version of the scenario method, reduced to one scenario per risk factor;
  • statistical data.

Monitoring and controlling of underwriting risk includes the analysis of the level of risk by means of a set of reports including selected indicators.

The reporting aims to ensure efficient underwriting risk communication and supports underwriting risk management at different levels of decision-making process from the employee level to the Supervisory Board. The frequency of individual reports and the scope of information are tailored to meet the information needs at different decision-making levels.

Management activities in the underwriting risk management process are carried out, in particular by:

  • specifying underwriting risk tolerance level and monitoring thereof;
  • business decisions and sales plans;
  • calculating and monitoring the adequacy of technical provisions;
  • pricing strategy, as well as monitoring existing estimates and assessing the premiums adequacy;
  • process of assessment, measurement and acceptance of underwriting risk;
  • use of underwriting risk mitigation techniques, including, in particular, reinsurance and prevention.

Furthermore, in order to reduce the underwriting risk associated with the ongoing activities the following actions, in particular, are undertaken:

  • definition of the scopes of liability and exclusions in the general terms of insurance;
  • reinsurance activities;
  • adequate pricing policy;
  • application of appropriate methodology of provisions calculation;
  • appropriate underwriting process;
  • appropriate claims handling process;
  • sales decisions and plans;
  • prevention.