Page 101 - Risk Management in current scenario

in the calibration of risk factors, the liquidity of financial markets,
accounting standards, product specific features, methodology etc.

Many of the regulatory regimes around the world are treating cyber risk
in a crude way, though it can have a catastrophic impact because there
is a shortage of data, cyber insurance is limited and many insurers do
not provide such protection, blurring of territorial boundaries proving
difficult to pinpoint the fault increases the complexities. Currently, cyber
risk sits in the operational risk category and does not gain enough
importance whereas its impact could be very high; therefore, there is a
need to have a separate category for cyber risk similar to catastrophe
risk to allow for appropriate risk change. It should attract more regulatory
focus in RBC.

Interest rate risk
Companies selling long-term traditional products with guarantees face
high capital charge due to interest rate risk. Many Asian economies are
lacking longterm risk-free assets to back long-term liabilities, this makes
difficult to match the assets and liabilities in long terms products.

The interest rate shocks result in higher capital requirement where there
is a mismatch between assets and liability duration.

To manage this risk, the Companies need to focus on assets liability
management, reduction in duration gap between assets and liability and
hedge the risk from derivatives.

There is a need to realign the investment strategy based on the available
capital and focus on the customer target segment matching with the
investment philosophy. For example, a more capital constrained
Companies may invest in relatively secure assets to save capital and make
product strategy that consumes lesser capital such as protection or unit-
linked business.

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