Chief Risk Officers at Insurance Companies Concerned by Capital Standards and Increased Regulation

Risk executives also cite interest rates and the economy as major challenges

News provided by

May 13, 2015, 10:02 ET

NEW YORK, May 13, 2015 /PRNewswire/ -- The size and scale of the issues facing Chief Risk Officers (CROs) in the insurance industry show no sign of slowing, according to EY's fifth annual survey of North American CROs. The most significant concerns include looming capital standards as well as a grudging acceptance that more regulation is on the way. However, CROs reported that risk management has become embedded within their organizations, making them better prepared to deal with these risks.

The survey was conducted as industry discussion intensifies about major risk issues – notably the need to meet capital requirements. CROs report that the current lack of common accounting standards and capital measures makes it difficult for firms to compare performance and solvency across companies. As the United States Federal Reserve and the International Association of Insurance Supervisors (IAIS) examine options for a common standard, insurers of all sizes are readying themselves to deal with the new mandates.

"While the capital standards currently being formulated may initially only impact internationally active or systematically important insurers, the survey found that there is an acceptance that the standards will trickle down to all insurers," said Bill Spinard, Executive Director of the Insurance Risk Management practice of Ernst & Young LLP. "The CROs we interviewed realize that multiple sets of minimum capital standards are unworkable, and that the Fed and IAIS will ultimately adopt converged standards."

The survey shows that 40% of CROs see regulation and capital standards as the biggest risk challenges facing the insurance industry today. The next-biggest area of concern (14% of respondents) is around cybersecurity.

In addition, the survey finds that:

Interest rates and the economy are still a major risk challenge for the CROs, with 13% citing it as the biggest risk challenge facing the industry.
Many companies (74%) have some form of a three lines of defense risk organizational structure, but there are still many "gray areas" that need to be worked out.
Just over half (53%) of the companies have a formal model of risk governance/validation practice in place.
Most companies (74%) believe that Own Risk Solvency Reports (ORSA) have value beyond satisfying regulatory requirements, such as identifying possible gaps in the risk management practices.

The survey reveals that risk management has become a "team sport" – something in which everyone plays their part. CROs are spending more of their time and resources integrating risk management practices into the business, with nearly one-third citing this as their biggest accomplishment in 2014. Although the value of the risk function is hard to measure, 37% of CROs surveyed say that discussion and dialogue with management demonstrates that the risk function is creating value. This occurs when "business people learn the vocabulary of risk," according to one respondent.

"Since the financial crisis, risk management and the role of the CRO have expanded significantly," Spinard added. "Many internal challenges remain, such as talent and recruitment, and many external challenges are on the horizon, such as capital standards and more regulation. But the fact that risk is so deeply embedded within the organizational dialogue at most insurers is reassuring. Most CROs feel they can meet the challenges that will come their way."

This survey was based on interviews with CROs and other senior risk executives from 20 North American insurance companies.

To read the full report, visit ey.com/insurance.

Notes to editors

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by Ernst & Young LLP, a member of the global EY organization that provides services to clients in the US.

Photo - http://photos.prnewswire.com/prnh/20130701/NY40565LOGO-b

SOURCE EY