Insurance Risk Appetite Survey

Current state of the Belgian and Dutch Insurance Industry

Everyone these days seems to agree that risk appetite frameworks are good things – yet, there remains a surprising variety of opinion about what it actually means to establish and embed a proper risk appetite framework. The purpose of this survey is to provide a current state of the risk appetite frameworks at insurance companies active on the Belgian and Dutch market and investigate if there is an emerging consensus on the core concepts of a risk appetite framework amongst insurance companies.

We surveyed 12 firms’ current practices and views on key stages in implementing and running a risk appetite framework:

  1. Set strategic plan & objectives, risk strategy and risk capacity: Risk appetite should be closely aligned to the pursued strategy. The first step in linking risk to strategy is the explicit articulation of risk appetite in order to establish a benchmark with which actual risks can be compared.
  2. Articulate risk appetite statements and limits: Typically one has a hierarchy of risk appetite statements, starting with high-level risk appetite statements which then cascade down  to directional, specific  and finally detailed risk appetite statements.  Developing risk appetite statements requires business input and understanding across the firm, driven by both top down leadership and bottom up management involvement.
  3. Monitor and report: Risk appetite limits, if breached by the firm’s risk profile, necessitate immediate escalation and corrective action. A risk appetite framework allows the firm to identify and determine the relative positions of its risk capacity, risk profile and risk appetite when evaluating and pursuing its strategy and to take corrective action where necessary.  
  4. Control & correct: A risk appetite framework is not a one-off process and needs to be embedded within the financial institution. The bank or insurer should not only monitor the risk profile within the boundaries of the risk appetite, but should also timely review and adjust its risk appetite (statement).
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