43. Challenges and priorities in risk management for 2021

Capital market environment

The current capital market environment is a topic that will continue to occupy UNIQA in 2021. Last year was also characterised by a low interest rate environment. In addition, the Covid-19 pandemic caused interest rates to drop sharply in early 2020 along with a strong increase in spreads and losses on the equity markets. The stock markets saw some of the most dramatic daily losses in history. The risk premiums (spreads) – in particular but not only for corporate bonds – rose sharply and recorded movements in some cases similar to those during the financial crisis of 2008–2009. Interest rates reached almost historic lows. Even though the situation has stabilised at present and the worst seems to be over for the moment, the overall situation and further developments still entail a good deal of uncertainty. This topic therefore represents a major challenge for UNIQA. UNIQA will continue to monitor the capital market environment closely in 2021 in order to be able to respond quickly to potential movements (triggered e.g. by another wave of Covid-19).

Sustainability

Sustainability is one of the topics that has become increasingly important in recent years, both in the applicable regulations as well as in terms of public perception. UNIQA established a separate group for this topic in the “HR & Brand” Management Board department at the beginning of 2020 in order to account for this trend. The focus for risk management is particularly on managing and handling sustainability risks. A working group was set up for this reason with the objective of monitoring the various developments in the area of sustainability regulation and analysing the impact on the risk management system. The output of this working group and main focus in 2021 will be on incorporating the new aspects of the requirements into the internal processes, internal regulations and reporting.

Further development of the internal model

In October 2020, the decision was taken to develop UNIQA’s partial internal model into a full internal model over the next few years. With the approval of the market risk PIM approximately 80 per cent of the risk profile is already covered by the partial internal model. The plan is to replace the remaining 20 per cent currently still modelled using the standard formula with an internal model. This would make UNIQA the first Austrian insurance group to have a full internal model. This project is designed to be a multi-year project that will continue beyond 2021.

GRC tool rollout

As mentioned in the section on activities, a GRC tool has been set up as a central instrument for managing operational risk. Rolling it out across the entire Group will be one of the focal points and challenges in 2021. The focus on the one hand will be on the fact that the relevant employees must be trained to work with the tool, and on the other hand that the data must be migrated into this new system.