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Captive Insurance Upcoming Best Practices: Risk Appetite Statement?

Risk Appetite
March 23, 2016

Intelligent Insurer has published an article outlining Willis Re's findings from a global survey concerning formal risk appetite statements. "Buyers' strategies changed by 'formal risk appetite' statements," March 21, 2016, reports a summary of the Willis Re survey results as follows.

"Almost two-thirds (64 percent) of insurers now have a formal risk appetite statement," the article states, "with a further 17 percent planning to develop one in the near future...."

In an earlier publication, "Risk Appetite Statement: Make or Break?" prepared by Nadine Boghdadi, risk consultant, Willis Risk Services, and published in March 2015, Willis defines a risk appetite statement as follows: "A risk appetite statement, put simply, is the amount and type of risk that an organization is willing to take in order to meet its strategic objectives—this includes reference to both the organization’s risk appetite as well as its risk tolerance."

"The adoption of formal risk appetite statements within the insurance industry is driving a fundamental shift in reinsurance purchasing as insurers adapt to increasing regulation and wider scrutiny from investors," states a Willis Re press release announcing the survey results.

While adoption has been slower in North America than the rest of the world, the study suggests there is increasing interest by US insurers to begin to adopt this practice. As the article notes, publicly traded companies are at the forefront of this endeavor. For corporations, it raises the question of whether those with captive insurance companies include them within their risk appetite statements and, if so, how. 

It also suggests risk appetite statements will become part of standard best practices going forward. As such, the captive market might be well served by starting to follow and adopt this trend as part of its overall risk management philosophy.

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