1. Risk strategy

We have set ourselves ambitious targets in connection with our corporate strategy UNIQA 2.0. In summary, we aspire to sustainable and profitable growth; we take the initiative, optimise processes and back innovation. We do this with a view to keeping the promise we made to our customers, our shareholders and our employees. In addition, we are mindful of a business strategy that knows the right answer to all of our company’s risks. The Management Board has therefore adopted a risk strategy borne by four principles.

  • We know our responsibility
  • We know our risk
  • We know our capacity
  • We know our opportunities

With these four principles, we will move confidently into the future and maintain a financial strength that allows us to achieve our corporate goals, keep our promises and fulfil our obligations.

1.1. We know our responsibility – we are under obligation to various stakeholders

We understand that our responsibility as one of the largest insurance groups in Central and Eastern Europe involves a great deal more than complying with regulations. We bear responsibility to our customers’ requirements, our owners’ capital, our employees’ jobs, the value of our brand and the future of our next generation.

Always committed to the customer.

For more than 150 years, our customers have travelled through life with a sense of security. We want to continue enabling this worry-free existence in the future.

The owners can rely on UNIQA.

We promise growth and profit in our core business. We want to be a long-term, stable and profitable investment for our owners.

Creating a solid basis for our employees’ lives.

We want to remain an attractive employer in future.

Preserving the brand’s values.

UNIQA stands for innovation, stability and reliability. We take care of our image and will continue to protect it with all available means.

Leaving behind a future worth living for the next generation.

We make a great contribution to the stability of our society and thus for the next generation. We want to keep living up to our high aspirations of sustainable business.

Our responsibilities include our strategic objectives. We want to grow profitably and service 15 million customers by 2020, and report EBT of up to € 550 million in 2015 on the basis of a leaner corporate structure.

1.2. We know our risks – we see risk as the heart of our business

The origin of the word risk is as uncertain as its meaning. Risk is also the central element around which our business revolves. Our core business is to accept risk from our customers, pool it in order to reduce it and thus to generate profit for our company. This centres on the understanding of risks and their particular attributes.

Risk is a top-level matter for us. In order to guarantee a focus on risk, we have created a separate risk function in the Group’s Management Board with a Group Chief Risk Officer and made the function of Chief Risk Officer a part of the Management Board in our local companies. We thus guarantee risk-based decision-making in all relevant bodies.

We have established processes that allow us to identify, analyse and manage risks retrospectively and prospectively. Our business involves a diverse range of different risk types, so we employ specialists to identify and manage them.

We regularly validate our risk profile on all levels of the hierarchy and hold discussions in specially instituted committees with members of the Management Board. We draw on internal and external sources to obtain a complete picture of our risk situation. We regularly check for new threats in the Group and in our subsidiaries.

1.3. We know our risk-bearing capacity – we have a clear idea of our capabilities

We take risks and do so in full knowledge of our risk-bearing capacity. We define risk-bearing capacity as our ability to absorb potential losses from extreme events so that our medium- and long-term objectives are not put in danger. Our risk-bearing capacity is a significant central component of our business planning and sets out the necessary framework within which we can achieve our strategic goals. We achieve our goal of sustainable value creation by regularly evaluating our need for risk and checking it against our capacity to bear it.

Our risk decisions centre on our “economic capital model” (ECM), which we use to quantify our risks and determine economic capital. The ECM is based on the standard model according to Solvency II, supplemented with our own risk assessment. This is expressed in the quantification of the risks from the non-life sectors, where we use a stochastic cash flow model, additional capital requirements of government bonds and a valuation of asset-backed securities in greater keeping with the market.

Based on this model, we are aiming for excess cover of the quantifiable risks of over 150 per cent for 2015. In the medium term, we are targeting excess cover of roughly 170 per cent. In our view, this guarantees a sufficient buffer for us to remain on track even after extreme events.

We are also looking for external confirmation of our course. Standard & Poor’s gives us a credit rating of “A-“. One of our central targets is to keep the rating at least at this level or to improve it if possible.

Non-quantifiable risks, especially operations risks, litigation risks and strategic risks are assessed in the risk assessment process and by means of scenario planning. When required, risk mitigation measures are taken on the basis of this assessment.

Our risk strategy defines which risks we assume and which we want to avoid. As part of our strategy process, we define our risk appetite on the basis of our risk-bearing capacity. From this we derive tolerances and operational limits that provide us with an early warning system sufficient for us to take prompt countermeasures should we deviate from our targets. Moreover, we also consider risks outside of our defined appetite. Although there is no appetite for reputation risk, we are aware that we bear a risk in this regard and take measures to mitigate or control it.

We focus on risks that we understand and can manage actively. We part with investments whose business principle does not fit with our core business. We knowingly take risks from life, health and non-life actuarial practice in order to generate our income from our core business in a targeted manner. We work on a balanced mix of risks to achieve the strongest possible diversification effects.

In addition, we set ourselves clear goals that ensure us an adequate level of risk in relation to our business strategy.

Examples of this are:

  • We want to reduce our market risk to a share ranging between 60 per cent and 65 per cent of our total risk.
  • For our new business in the personal sectors, we expect a minimum margin of 2.0 per cent (new business margin).

We analyse our profit and the underlying risk and optimise our portfolio with regard to value-orientated principles. We thus aim for a balanced ratio of risk to profit.

Our risk analyses are highly significant for the development of our business strategy. For example, we are reducing our risk for the current low-interest phase by optimising our products from the life sector with regard to mortality risk. Our unit-linked products are also strengthened as a result of our analyses.

We implement measures to reduce and avoid risks. Some of these are:

  • We have implemented stringent acceptance procedures for the introduction of new insurance products. New life and property insurance products are tested for impairment using actuarial methods. We thus guarantee sustainable value creation for our company.
  • We have introduced a Code of Conduct that helps our employees conduct themselves in compliance with our values in everyday situations. We thus take measures to reduce our reputation risk.
  • We are a liability-driven investor. Our investment strategy reflects the requirement for future expected payments from our liabilities. This reduces the probability of liquidity shortages and the risk of losses from interest-rate fluctuations.
  • We centralise our reinsurance. The pooling of risks allows us to reduce risks significantly via targeted diversification. Furthermore, risk pooling provides advantages when setting prices with external reinsurance partners.
  • We painstakingly monitor regulatory developments. Among other things, the goodwill analysis was subjected to a critical inspection in order to prepare for the requirements of the new enforcement panel.

We have valid guidelines on the underwriting of private customers and corporate business. We thus control an adequate risk selection and promote understanding of our risk strategy among our employees.

1.4. We know our opportunities – we identify new paths

Risk also means opportunity. We have taken this old adage particularly to heart. In our processes, we constantly examine whether the results of the risk evaluation allow new lines of business to be tapped into, risk-mitigation measures to be developed or advantages to be gained in general. Offensive and defensive strategy are closely linked for us.

In order to be equipped for all future challenges, our actuarial models, data warehouse solutions and investment management tools are kept constantly up to date.

We can thus develop and advance our products and innovations with the aid of cutting-edge technology.

We regularly analyse trends, risks and phenomena that influence our society and thus our customers and ourselves. We involve our employees in the whole company in order to identify and analyse trends early and to develop suitable measures and innovations.

The direction is right – only the territory is uncharted

We are certain that we are taking the right course. However, we also know that we are working in a volatile environment, which can lead to rapid changes in the overall conditions. In order not to be knocked off course, we set standards with our risk management and risk strategy. We can thus look confidently into the future and keep the promise we made to our customers, our shareholders and our employees.

© UNIQA Group 2014