Risk management

We owe it to our clients and to the community as a whole to think ahead when managing our risks.

Why should companies concentrate on their risks as much as on their opportunities?
The answer is quite simple. It goes hand-in-hand with managing a business in an entrepreneurial yet sustainable way; to remain competitive in the long term, it is a necessity and to lead the way in quality, it is indispensable.

Recent years have shown that the risk landscape can change quickly and without warning. We will long remember the terrorist attack on New York’s World Trade Center as a catastrophe with consequential losses that no insurer had reckoned with. As a result of the attack, insurers, politicians and society in general became more aware of the risks and began to take a broader view of them. Nowadays, risk models must also take account of other perils, such as climate change and bird flu pandemics.

Consequently, Group-wide monitoring and control of risk management at Munich Re is the responsibility of the Board, supported by Integrated Risk Management, headed by the Group Chief Risk Officer, which is responsible for identifying, evaluating, controlling, monitoring and communicating risks on the asset and liability sides. Decentralised risk-management units support it in this function.

Integrated Risk Management also sets standards and develops methods and tools as a basis for consistent Group-wide risk management. The decentralised risk controllers throughout the Group adapt them to their specific needs and take account of legal requirements when necessary. On a day-to-day basis, management at each business unit is responsible for systematically handling individual risks in insurance and reinsurance.

To ensure that we are able to assess our risks accurately at all times, the tools we use to monitor and control risks are constantly being enhanced. Our experts evaluate the risks for us with a view to their occurrence probability and possible financial repercussions. In addition, we carry out stress tests and scenario analyses and take appropriate steps to exclude or limit unacceptable risks.

We pay particular attention to emerging risks – those that arise as a result of changes in, for example, legal, socio-political, scientific and technological conditions. It is inevitably hard to assess the propensity of such risks to produce losses. We adopt a multidisciplinary approach, using the experience and expertise of geoscientists, biologists, specialist underwriters, lawyers, economists, sociologists and actuaries.

We have also set up an early-warning system for risks. Developments and faint signals that might have an impact on our business are identified through systematic trend research using our knowledge management and Group-wide risk surveys. Various forms of cooperation with external partners complement our internal early-warning system.

The knowledge and performance of our staff is the key to our success and we therefore analyse and manage the resultant human resources risks by means of appropriate indicators and metrics.

As an independent function, internal audit at the individual Group companies also examines the risk management system and its further development. It additionally checks whether the controls and monitoring procedures that have been implemented are appropriate and are being complied with. Last, but not least, the risk management system is examined by the external auditors in the course of their end-of-year audit.