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A GlobeRisk Perspective on Life Insurance

Life Insurance businesses represent a mix/spectrum of three types of risk:

The first seven years of this century has been a time of unprecedented change for Life firms as mortality improvements, market factors and the development of risk based regulation have forced major change.

Pure risk taking is hampered by the surprisingly weak quality of risk rating models in most firms. Whilst some rating criteria are not permitted in many western economies to avoid a divided society, many useful factors are permitted but not fully used. Examples include:

A young but growing business is now emerging in "sub-prime" business, for example impaired life annuities. At present the margin between prime and sub-prime business is sufficiently great that there is little real pressure on the quality of risk rating models. However, it is inevitable that increasing underwriting capacity will intensify risk rating pressure over the next few years.

In the UK, Investment Management based Life firms were dominated by With Profits offices until recently. Here. Weaknesses in ALM were exposed in the early years of the 21st century as stock markets felt dramatically following the end of the dot com / telecommunications stock market frenzy. Most firms were in serious trouble by 2003 with many escaping closure to new business only through an unusual flexibility from the UK regulator.

The principal cause of problems for WP firms was investment guarantees, although guaranteed annuity options were also an issue as UK interest rates fell to very low historical levels in part response to the Stock Markets crisis. As at 2007 most firms have hedged their risks to imbedded guarantees.

Notwithstanding ALM is still major issue for the Life industry:

Life firms have, in general, made good progress in meeting regulatory requirements for improved risk management and all have agreed a first round of "Pillar2" based capital requirements. Notwithstanding, the regulator has made it clear that firms still have a long way to go to meet their expectations. Typical issues include

Solvency 2 represents the next major challenge...

GlobeRisk has developed several consultancy services to assist Life Firms these issue areas

In respect of controls, governance and operating models, GlobeRisk services include

In respect of the extension to Solvency 2, GlobeRisk services include:

On a more traditional perspective, GlobeRisk services include:

From a Firmwide risk management perspective, GlobeRisk services include: