Enterprise Risk Management: Ratings Agency View

1. Enterprise Risk Management:Ratings Agency View David Ingram Standard & Poor’s Financial Services Ratings

2. Agenda • Our ERM Criteria • Who has been Evaluated • Overall Findings • ERM Elements • What’s Next

3. S&P’s Evaluation of ERM Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Risk Control Processes Risk Management Culture

4. Who we have evaluated?

5. Who have we evaluated? • Both Europe based and US based companies • Companies primarily selected based on schedule of review • Small number of “Leading Edge” off-cycle evaluations • The findings to date may not be representative • Sample too small • Slight positive skew from Leading Edge volunteers But percentages have remained stable with each passing month

6. Overall Findings

7. Overall Findings

8. ERM Impact on Rating • Out of 78 reviews completed approximately: • 5% ERM Evaluations Strengthen Ratings • 25% ERM Evaluations Affirm or Support Ratings • 65% ERM Evaluations Neutral to Rating • 5% ERM Evaluations Negative to Rating

9. 4 3 5 6 2 7 1 S&P’s Evaluation of ERM Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Insurance Risk Control Investment Risk Control Operational Risk Control Risk Management Culture

10. S&P’s Evaluation of ERM Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Risk Control Processes Risk Management Culture

11. Risk Management Culture

12. S&P’s Evaluation of ERM Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Risk Control Processes Risk Management Culture

13. Investment Risk Control

14. Insurance Risk Control

15. Operational Risk Control

16. Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Risk Control Processes Risk Management Culture S&P’s Evaluation of ERM

17. Extreme and Emerging Risks

18. S&P’s Evaluation of ERM Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Risk Control Processes Risk Management Culture

19. Risk & Economic Capital Models

20. S&P’s Evaluation of ERM Strategic Risk Management Extreme Events Management Risk & Economic Capital Models Risk Control Processes Risk Management Culture

21. Strategic Risk Management

22. Coming Attractions - Criteria • Risk Tolerance • New Product Risk • Extreme Event and Emerging Risk Management • Risk Control • Broad Considerations • ALM / Market • Credit • Insurance – PC – Non-Life • Insurance – Life • Insurance – Health • Operational • Risk Models

23. Risk Tolerance • Many Insurers will have several Zero Tolerance Risk Areas

24. Sound Practices:Credit Risk • Broadly four approaches: • Traditional Credit Management • Underwriting Standards & enforcement process • Limits for concentrations by sector, location, rating, name • Workout Process to provide best residual value • Portfolio Based Management • Use of a Portfolio Credit Risk metric with structural model support • Risk/Reward optimization process • Credit Spreads and Sales • Loss limitation targets • Firm Sales Triggers • Regular monitoring and assessment of Credit Spreads • Credit Instruments • Uses of CDO’s & other credit instruments to effect changes in credit risk retained

25. Sound Practices:Insurance risk– P&C • Underwriting Process – Set, monitor and enforce standards • Underwriting guidelines and enforcement • Risk review • Pricing • Cycle management • Claims • Process for assessing claims experience & comparing to pricing expectations & process to limit losses when appropriate • Monitoring and feedback mechanism • Underwriting, Pricing & Claims • Catastrophe Risk • Exposure concentration limits, monitoring & enforcement process • Model and process to set and update model assumptions • Reinsurance • Policy for usage of reinsurance with update as conditions change • Process to monitor and enforce compliance with policy • Optimizing risk-return trade-off

26. Questions? • Laura Santori Director, Enterprise Risk Management Financial Services Ratings, Paris Tel: + 33 1 44 20 73 20 E mail: laura_santori@standardandpoors.com David Ingram Director, Enterprise Risk Management Financial Services Ratings, New York Tel: + 1 212 438 71 04 E mail: david_ingram@standardandpoors.com