8.1. Internal monitoring system
Finalising the implementation of a Group-wide internal control system is a major project for the risk management process in 2013. The objective of an internal control system is to secure efficient process workflows, as well as availability and reliability in financial and non-financial reporting.
In addition to prudential requirements, the UNIQA Group places a particularly high value on transparent and efficient processes, which are a prerequisite for attaining the strategic goals defined in the course of the UNIQA Group’s reorientation.
The ICS guidelines, which were adopted at both the Group and company level, define the minimum requirements of an internal control system in terms of methods and scope. Central elements of these guidelines are in accordance with the framework that was developed by COSO (“Committee of Sponsoring Organizations of the Treadway Commission”).
The ICS guidelines stipulate that the internal control system must be implemented for the following core processes (and their subprocesses):
- Asset management
- Product development
- Processing of claims
- Risk management process
- IT processes
The objective is to recognise in a timely manner risks that can occur during a process and prevent them. After the risk identification phase, key controls should be defined for all major risks, and these controls should reduce or eliminate risks. In addition to accounting processes, in which we want to minimise the risk of errors in the consolidated statements by means of appropriate controls, we also place great emphasis on error-free process procedures from the core business.
Our aim for 2013 is to embed the internal control system in everyday processes on the basis of documentation which is already available. In order to ensure this happens, a monitoring system has been established at all process and organisational levels, which is to be used regularly to check the quality of controls. Furthermore, our ICS system is audited each year and adjusted as necessary.
Description of the most important features of the internal control system (ICS) with regard to the accounting process according to Section 243a paragraph 2 of the Austrian Commercial Code
In terms of accounting processes, an ICS process has been defined and in operation since 2009.
The goal of the accounting process internal control system is to implement controls to ensure that a proper report can be reliably produced despite the identified risks. In addition to the risks described in the risk report, the RMS also deals with additional risks as well as those in operational processes, compliance, internal reporting, etc.
Organisational structure and controlling scope
The accounting process of the UNIQA Group is standardised throughout the Group. Compliance guidelines, operational organisation manuals, balance sheet and consolidation manuals exist to ensure a reliable process. Processing is largely centralised for domestic affiliated companies. For international Group companies, the accounting process is largely decentralised.
Identification and controlling of risks
An inventory of the existing risks was taken and appropriate monitoring measures were defined for the identification of existing risks. The most important checks were defined in guidelines and instructions and coupled with an authorisation concept. The checks cover both manual coordination and reconciliation routines as well as acceptance inspections of system configurations for connected IT systems. Identified risks and weak points in monitoring the accounting process are reported quickly to management so that corrective measures can be taken. The procedure for identifying and monitoring the risks is regularly evaluated by an independent external consultant.
8.2. ORSA (Own Risk and Solvency Assessment)
The UNIQA Group will complete the ORSA developments in 2013 that were commenced in 2012. Own Risk and Solvency assessments form a key aspect of governance under Solvency II and consist of an intense focus on the business strategy and the capital this requires, followed by optimisation of capital expenditure, in addition to the Group’s own adequate risk assessment.
In order to be able to implement these requirements, it is necessary to integrate this perception of the development of the equity position and capital requirements situation into the planning process.
This requires the methodical development of corresponding projection approaches and concerted integration into the UNIQA Group’s system landscape. A well-founded stress testing and sensitivity system forms a component of ORSA, which is used to examine risk-bearing capacity in potential extreme situations.
These are to be applied as part of corresponding complex company processes, which are set out in a Group ORSA policy.
8.3. Asset liability management (ALM)/market risk management
ALM is an essential tool for UNIQA for providing the core business with efficient support by means of asset management. In the past year, strategic and tactical asset allocations that are tailored to the respective business models of the Austrian Group companies were approved and implemented by establishing an interdepartmental ALM process. The aim of these provisions is to ensure adequate duration matching between assets and liabilities. This required the further development of limit systems and the migration of associated calculations to a new system, as well as the creation of a Group-wide concept for efficient liquidity management. The plan for 2013 is to expand the ALM process to include targeted capital allocations for certain risk types. The development of central ALM skills for international subsidiaries represents a further key milestone.
The projects commenced in 2012 to overhaul and automate the market and credit risk models will also be implemented finally, as well as being rolled out to the international subsidiaries. A key component of this will be redesigning measurement methods, particularly for more complex financial instruments. To this end, as well as building up the necessary staff resources, an extensive project has been undertaken that will be completed in 2013. Implementing this new system will significantly help to improve the presentation of the current financial risk situation and considerably expand the range of options for risk and scenario calculations, particularly in terms of the further implementation of ALM.
In addition to the limit system for financial risks, the IT tools used to review limits were replaced, modernised and standardised in 2012. On the basis of these newly created options for calculating and reviewing limits, the limit system will be geared towards economic indicators and risk-bearing capacity to an even greater degree in 2013.
In the past year, EIOPA (European Insurance and Occupational Pensions Authority) published recommendations for the European Union’s local supervisory authorities in accordance with its mission. These concern the use of external models in internal group models that are used to calculate capital requirements according to Solvency II. For UNIQA, this applies particularly to the measurement of exposure to natural hazards.
In 2013, as well as Risk Management, UNIQA Re AG’s natural hazard specialists and employees from local companies participating in corresponding projects will also be occupied with the new requirements arising from this. Knowledge databases will be compiled first of all, then external tools and models must be fully understood, and finally, time and care must be taken to analyse and assess the evaluations arising from these. The knowledge acquired in this process, which must go far beyond standard basic knowledge given the EIOPA requirements, is then to be communicated to all Group bodies concerned with this topic during training sessions. UNIQA will not limit this to companies in countries of the European Union to which these requirements are actually addressed. The newly defined quality requirements will become standard for all of our Group companies.
8.5. Actuarial practice – Group actuarials
Products and profitability
Based on analyses aimed at safeguarding the sustainability of the life insurance business, the UNIQA Group began to define standardised profitability analyses in the context of Group guidelines in 2011. Since 1 January 2012, all companies in the UNIQA Group which perform life insurance business activities have been obliged to subject products to profit testing before they are launched. Profit testing is firmly established in each company’s defined product development process and now follows a standardised procedure.
The product acceptance process and minimum profitability requirements represent the cornerstones of the specified guideline. The product acceptance process governs the involvement of the relevant core functions of actuarials and risk management and interaction between operational units and the UNIQA Group’s holding function. Information obligations exist for the Group function in each instance. In cases where the minimum criteria are not met, this must be approved by the Group function. The minimum criteria are designed in such a way that only products that will make a positive value contribution based both on the best estimate and in a predefined stress situation are launched.
A guideline similar to the draft guideline was developed for property and casualty insurance in 2012 and will become a compulsory component of the defined product development process as at 1 February 2013. Products from motor vehicle business segments will represent a particular focus in 2013. The objective for 2013 is to implement the defined guidelines aimed at ensuring a transparent overview of product launches in the Group on a consistent basis, thereby creating the basis for integrating value-oriented management into product development.
Actuarial monitoring of core business
In order to support one of the cornerstones of the UNIQA Group – focusing on the profitability of core business – an actuarial monitoring system has been defined which is intended to represent a technical development in the areas of life insurance and property and casualty insurance in the form of a standardised surveillance system. The reporting system defined will come into use for the first time as at 31 December 2012, will bring together previous analyses into a compact overall instrument, and is expected to provide a comprehensive insight into key actuarial indicators on a quarterly basis. As well as a break-even analysis broken down into business segments and movement statistics, an analysis of sources of income in life insurance and a detailed analysis of reserve run-offs will form the central component of this monitoring system.