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Strategies and technologies to boost
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A Risk Management
Reset for Life Insurers
In an era of shifting demographics, economic unease and regulatory
transformation, life insurers confront new risks. By Bill Kenealy
The very nature of the life insurance business requires insurers to put capital at risk in exchange for the prospect of earning a return. An insurer’s ability to identify threats, uncertainties and, indeed, opportunities, relies
heavily upon its risk and capital management methodologies.
The insurance industry, and the
world as a whole, got a stark reminder
about the importance and limits of risks
management during the financial crisis.
In its wake, a consensus has emerged
that companies failed not for want of
risk management practices, but because
they didn’t adhere to the ones they had
in place. Insurers largely avoided the
conflagration that consumed investment
banks, notes Nancy Bennett, senior life
fellow at the American Academy of Actuaries.
“Prior to the crisis you would hear a
lot about how advanced risk manage-
ment was at banks and how far behind
the life insurance industry was,” she
says. “What we’re seeing post-crisis is
some vindication that life insurers are
really doing a much better job manag-
ing risk than was previously acknowl-
edged. However, some of the credit be-
longs to the regulators.”
Yet, Bennett adds, insurers can’t rest
on their risk management laurels, as
several key deficiencies came to light
during the past few years. One was a
general lack of understanding of the re-
lationship between the assets insurers
hold and the liabilities they present. This
disconnect was evident in the severe
losses recognized throughout industry
investment portfolios.
