Insurance risk is a risk of loss or of adverse change in value of insurance liabilities, due to inadequate pricing and provisioning assumptions (in particular for technical provisions).
The objective of insurance risk management is to maintain insurance risk on an acceptable level and to limit potential loss from adverse change in the value of insurance liabilities.
68.1. Identification and assessment of insurance risk
Exposure to insurance risk exists in PKO Życie Towarzystwo Ubezpieczeń S.A. (PKO Życie) and concerns the following sub-types of risk:
- contracts withdrawal,
- cost increase,
Assessment of exposure to insurance risks in PKO Życie is as follows:
- mortality and morbidity risk (in a current solvency regime risk of claims) is assessed at a low level due to the small share of insurance policies relating to this risk in the whole Company’s insurance portfolio and reinsurance applied,
- the catastrophic risk is limited by i.a. regional diversity,
- the contracts withdrawal risk relates primarily to insurance products with Insurance Capital Funds. Based on data from 2014 the level of contracts withdrawal is assessed as stable.
Insurance risk measurement in PKO Życie is carried out as a part of contracts withdrawal analysis, claims analysis, analysis of assets covering technical provisions (APR) and annual analysis of shock scenarios – stress-tests, on the basis of methodology required by the PFSA Office. In preparation for implementation of the new Solvency II system, PKO Życie performs analyses of exposure to insurance risks in the process of Quantitative Impact Studies (QIS) supervised by the PFSA Office.
68.2. Monitoring of the insurance risk
Assets covering technical provisions (APR) were at a sufficient level (above 100%), as well as had the appropriate structure (in line with regulatory requirements). The total provisions cover ratio amounted to 101% at the end of 2014. For insurance products with Insurance Capital Funds and for structured products, which comprise the greater part of the portfolio of PKO Życie, surplus of assets is not required, hence the total level of ratios remains at the level slightly above 100%.
68.3. Insurance risk reporting
Insurance risk reporting is performed in PKO Życie in the form of monthly report for the Management Board and the quarterly report for the Assets & Liabilities Management Committee and for Risk Committee.
68.4. Management actions covering insurance risk
As to mitigate the insurance risk exposure, PKO Życie uses among others:
- reinsurance of risks (mortality, morbidity),
- grace periods,
- retention activities.
Passive reinsurance of PKO Życie is performed on the basis of:
- obligatory - facultative, quota share - surplus treaties, on the basis of risk - premium,
- facultative reinsurance agreements, on the basis of risk – premium,
- obligatory, proportional reinsurance agreements, on the basis of risk – premium.
Facultative reinsurance is applied for all insurance agreements and risks not covered by obligatory – facultative reinsurance agreements, in which the sum on the gross risk exceeds agreed amount.
In case of the new products and the risks, PKO Życie choses reinsurer, level of protection, conditions of the reinsurance, changes in concluded reinsurance contracts and concluding new reinsurance contracts in relation to the newly introduced to offer or modified insurance products and new risks.