At the Crossroads of Change: Risk and Capital Management in the Insurance Industry

Insurance companies are currently under considerable pressure from regulators, analysts and investors to change their approach to risk and capital management. As insurers consider how to implement new ways to measure and manage their business in response to these demands, they would do well to heed the lessons learned in the banking industry, which has been on a similar path for the last decade. Firms that implement a well-constructed risk and capital management framework can derive significant near-term business benefits, and substantially strengthen their medium-term competitive position. Keywords: risk-based capital; Solvency II; capital allocation; economic capital; RAROC; risk governance