All business decisions entail risk. Deliberately taking an entrepreneurial risk is a calculated move in the expectation of earning a profit while accepting a potential loss in a negative scenario.
The question at the heart of our enterprise risk management is clearly therefore whether a business decision will help to add value for Baloise and what the optimum relationship is between expected return and the risk taken. For this purpose we use a risk management system that adopts a consistent and overarching approach in addressing the key issues at Baloise and helping to shape the Company’s profile.
These are, first of all, abstract issues concerning the Company’s risk appetite, such as the following questions:
- What sort of profitability does Baloise want to achieve overall or in the individual countries where it operates?
- What sort of profitability fluctuations from year to year is it prepared to accept?
- What sort of risks are we prepared to take and what risks would be unacceptable?
- Does Baloise have sufficient capital to run its business? Next, however, we also turn our attention directly to specific transactions.
Yes, we always examine the relationship between additional returns and heightened risk. In doing so, we are guided by questions such as which industrial sector or insurance segment offers the best anticipated premiums-to-claims ratio going forward, or which life insurance product is still attractive at a time of persistently low interest rates? We also consider what sort of insurance business Baloise can keep on its own books and above what claims threshold we need to draw on the support of reinsurers. Risk management also plays a key role in determining the ideal mix of investments. The aim in our life insurance business is to generate the minimum required rate of return with the best risk / return profile by achieving a balanced investment in bonds, equities and real estate.
And, finally, our risk management units also scrutinise each potential acquisition to ascertain whether the external insurance company that we plan to buy meets our minimum profitability requirements. In order to answer all these questions we make models, methods and calculations available and play an active part in the process – for example in investment discussions and the purchasing of reinsurance.
However, risk management is not merely the preserve of one department. Rather, every single employee throughout the organisation puts these ideas and concepts into practice, thereby making Baloise successful.