Risk management and administration is an iterative process as it is part of the company’s strategy and decision-making process. Its application allows organizations to identify, measure, control, and supervise the different risks to which they are exposed, with the purpose of creating and protecting their value.
Companies in the insurance market assume different risks that must be managed and controlled, in order to achieve strategic objectives and meet the commitments agreed with clients. The main risks that companies in the insurance market must manage are the following:
- Technical risk: this risk for the insurance market implies the possibility of loss of the insurance market due to inadequate technical bases or actuarial and statistical calculations to determine the value of premiums or technical reserves.
- Market risk: this risk involves the insurer’s loss in the financial markets, which is why the company must reserve a part of the premiums as a reserve to reduce the risk of poor returns.
- Credit risk: it may arise when there are premiums not collected by the insurer, that is, the debtor does not comply with the contract obligations.
- Operational risk: it is one of the main risks to be managed because insurers undergo the ORSA (Own Risk and Solvency Assessment) which analyzes the company’s ability to continue its operation.
- Liquidity risk: risk that may arise due to insufficient financial resources, so it is important that your portfolio is diversified and maintains sufficiently liquid assets to meet your financial obligations.
- Legal risk: this risk is that in which the possibility of lawsuits, lawsuits, or unenforceable contracts affect the operations or financial situation of the insurer.
There are several international regulations and standards for the control of insurance companies and their risks. In Ecuador, insurance companies are governed by the Codification of Monetary, Financial, Securities, and Insurance Resolutions, and in terms of solvency and technical reserves these regulations are characterized by:
- Solvency: it is the risk equity that every insurance entity must maintain, the appropriate capital regime is the determination of this minimum required equity, which is established based on an adequate level of capital intended to protect companies from insurance and reinsurance companies against the effects generated by deviation in the frequency and severity of underwriting risk, as well as credit risk
derived from reinsurance operations. (Codification of Monetary, Financial, Securities and Insurance Resolutions, Art 1, Chapter VII) - Technical reserves: is the identification and calculation methodology of the different types of reserves, corresponding to the amounts that must be reflected in the liabilities of the balance sheet to meet the contingencies and obligations that emerge from insurance contracts, as well as the deviations in results and expected accidents. (Codification of Monetary, Financial, Securities and Insurance Resolutions, Art 1, Chapter V).
Adequate risk management in insurance companies is essential so that they can fulfill their corporate purpose and the optimal development of the business.
In order to help these companies measure and control these risks, ACTUARIA offers advisory services in the management and implementation of comprehensive risk management, as well as the calculation of Technical Reserves for insurance and the preparation of Technical Notes. to carry out actuarial calculations on the premiums they offer.
