Insurance Agenda - Issue 1, 2017

Credit risk management

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Why it matters and how insurers can enhance their capabilities

As enterprise risk management has moved up the strategic agenda for insurance executives in the years since the global financial crisis, insurers have formalised and standardised policies and processes for managing different types of risks. In many cases, the role of risk management groups is clearly defined. When it comes to credit risk management, however, insurers have varying approaches. At some carriers, the risk management group plays a basic oversight role, while at other firms it more broadly and deeply involves credit and portfolio risk monitoring.

With increasing regulatory pressure and ongoing economic turbulence, credit risk management is moving up the agenda for senior management. In fact, many insurers are making significant investments to strengthen their credit risk management capabilities and infrastructure. Specifically, they are seeking to use data and analytics to gain more insight into the exposure to different types of credit risks and to make “smarter” credit risk decisions. Some insurers are likely to find that they are not investing aggressively enough to boost their risk-adjusted returns.

EY’s new paper identifies the four main types of credit risk for insurers, and explains why credit risk matters for providers:

  1. Investment portfolio risk
  2. Counterparty risk
  3. Reinsurance counterparty risk
  4. Country risk or transfer risk

For more information, contact a member of the EY Oceania Insurance team:

Andrew Mead – Partner, Financial Services
Kent Wong – Director, Financial Services