Page 149 - Risk Management in current scenario

risks categories: Liquidity Risk, Credit Risk, Market Risk, Lapse riskand
mortality risk.

Risk Management :
The risk can be assessed by applying sever stress test on following risks
parameter to assess capital resources required to meet liabilities:
X Lapses
X Interest rate
X Inflation
X Liquidity
X Mortality

The level of stress should be more severe than defined in the QIS-5 at
99.5% confidence level over one year period because such events sits in
the tail of the distribution covering 0.5% of critical region and losses are
unknown.

A good risk management technique is to prepare management action plan
based on identifying resources to meet liabilities. Other proactive actions
could be pricing less interest rate sensitive product; a good mix of portfolio
with annuity and term product to manage mortality risk and longevity risk;
limiting the mortality risk by fixing the maximum exposure in pure
protection business, limiting the reinsurance to reduce the reinsurance
credit risk etc.

Impact on new business risk could be assessed by stressing new business
volume to assuming nil new business over next three to five years and
see impact on Key Performance indicators.

Liquidity risk may be tested by identifying the cost of liquidity (direct and
indirect). The direct cost would be the cost of borrowing and indirect cost
would be loss resulting by creating mismatch between assets and
liabilities by selling the long dated bonds kept for ALM purpose.

Therefore, Geo-political risk may trigger big impact on the life insurance

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