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frequent changes to these rules can trigger areas of non- following considerations are essential from a risk
compliance. A change in regulation can necessitate management perspective:
significant adjustments to core business areas, including: Inherent Product Risks: A clear identification and
Information Technology systems assessment of the primary risks embedded in the
product structure, including interest rate, expense,
Investment norms and restrictions
mortality/morbidity, and withdrawal risks.
Reinsurance arrangements
Sensitivity Analysis: Rigorous testing of the product's
Public disclosures and financial reporting profitability against adverse changes in key assumptions.
This includes analyzing the sensitivity of profit margins
Failure to adapt to these changes can result in compliance to shifts in interest rates, higher-than-expected
challenges, financial penalties, and official warnings from expenses, increased withdrawal rates, and adverse
regulatory bodies. mortality or morbidity experience.
Capital Requirements: A precise calculation of the
4.3 Reputational Risk capital required to support the new product, with a
Reputational Risk arises when an event or a series of events specific focus on the "New Business Strain"-the initial
has the potential to negatively influence the perceptions of capital outlay required when the policy is written.
the public, customers, investors, and other stakeholders.
Payback Period: An analysis of the time required for
This risk is a potential consequence of other realized risks
the product to become profitable and for the initial
but can also be triggered by a number of specific factors.
capital investment and acquisition costs to be
recovered.
Key Triggers for Reputational Risk:
o Failure to meet the expectations of key As a matter of procedural governance, the Pricing Team is
stakeholders (e.g., poor claims service, unethical required to provide a comprehensive pricing report that
sales practices). considers all these elements. This report must be reviewed
o Rumors, such as a potential hostile takeover or and formally signed off by the Chief Risk Officer before a
new product can be launched.
adverse changes to the board of directors.
o Negative or adverse media reports.
6.0 The Strategic Value and Common
o A significant data breach or cyber attack.
Failures of Risk Management
o The materialization of any other major risk (e.g., a A mature risk management framework offers far more than
large operational failure or regulatory penalty).
just downside protection; it is a source of strategic value and
competitive advantage. However, understanding why such
Having identified the major categories of risk, we now turn frameworks often fail in practice is just as important as
to the practical application of this knowledge in shaping appreciating their benefits. This final section outlines both
business strategy.
the significant advantages of robust risk management and
the common pitfalls that can lead to catastrophic failures.
5.0 Integrating Risk Management into
Core Business Strategy The Benefits of a Mature Risk Management
Framework
Effective risk management cannot exist in a silo; it must be
deeply embedded within the core strategic processes of the When properly implemented, risk management delivers
organization. One of the most critical areas for this tangible benefits across the organization:
integration is in product design and pricing. A new product Capital Optimization: Ensures capital is allocated
represents a long-term promise to policyholders and a efficiently to cover risks, freeing up resources for
significant capital commitment from the company. growth.
Therefore, a thorough risk assessment must be a non- Better ALM/Liquidity: Improves the management of
negotiable component of the development process. assets and liabilities, ensuring the firm can meet its
obligations.
Key Risk-Related Considerations in Product Design Improved Firm Value: Enhances investor confidence
Based on the core determinants of product design, the and can lead to a higher valuation.

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