Page 25 - Risk Management in current scenario

concepts such as it allows integrated Companywide approach rather than
silo; it allows considering the concentration of risk and give benefits of
diversification of risk and there is a holistic approach to risk management.

Financial Sense of ERM
ERM help in creating the right balance between the demands of the key
stakeholder in the insurance business such as Shareholder, Policyholder,
Regulator and Rating Agencies.

There is an interesting dichotomy that senior management must balance
the need of increasing the company's value and policyholder's security
needs. Shareholder would be interested to have least amount of capital
a company can hold while a policyholder, on the other hand, is almost
always concerned about insolvency and wants a company to hold the
most capital they possibly can and doesn't really care what the
shareholders get in terms of return. 0n the other hand the two other
stakeholders regulator and rating agency are also interested in
policyholder's security and solvency of the Company.

So what is the appropriate level of capital that a Company must hold to
maintain sufficient level of solvency keeping all key stakeholders happy?
What's the appropriate return on capital that Shareholder's want and how
to minimize volatility of return? ERM answers these questions.

Capital
Policyholder is interested in capital, they want to buy from people with
strong solvency, and on the other hand owners are interested in expected
returns and the minimization of volatility of returns. For this purpose a
process is required to assess risk, determines necessary capital based on
risk levels and required returns, looks at the volatility, and figures out how
to minimize volatility. For this there is a need to move from policyholder's
interest to shareholder's interest.

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