Implementation and Uses of Economic Capital ... - ERM Symposium

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“We value the more meaningful information provided by [MC]EV-based measures because they more faithfully represent the underlying economics of the insurance portfolio, and enable us to dissect financial performance by new business contribution, experience deviations for all principal assumptions, and assumption changes.” Source: S&P RatingsDirect, October 15, 2007 Summary of S&P position: • Encourages MCEV as a global financial reporting standard • Starting in 2008, will allow for capital relief based on internal MCEV models • In favor of valuation via market consistent discounting plus margins • Does not object to “day one” profits (and losses) • Prefers going concern market consistent value rather than exit value S&P Endorses MCEV Reporting Disadvantages noted by S&P: • Recognizes that fair value reporting will add to volatility, but says that volatility is a reality of the business • Fair value will require “huge” actuarial resources, adoption of new systems, and increasing administrative costs • Insurers are worried that accelerated recognition of profits will accelerate taxation 7 7
Source: Citigroup Global Markets, “Valuation Crisis in Insurance – Can Better Disclosure Rescue the Sector?”; Sept. 17, 2007 European Analysts Favor Transparency of MCEV But Demand Whole Lot More 8 8
Page 1 and 2: Use of Economic Capital for Perform
Page 3 and 4: Definition of Economic Capital (“
Page 5 and 6: Economic Capital is a more complete
Page 7 and 8: EC/ERM requires continually improvi
Page 9 and 10: The Executive Board defines Risk Ap
Page 11 and 12: Risk Dashboard provides an overview
Page 13 and 14: Example of EC approach within the R
Page 15 and 16: Concluding Remarks • ING has been
Page 17 and 18: Key technical elements of the EC me
Page 19 and 20: The rationale behind using a stress
Page 21 and 22: The key risks that financial servic
Page 23 and 24: Example of Stressing Key Risks: Equ
Page 25 and 26: Aggregating results across risks fo
Page 27 and 28: Linkage of EC with capital manageme
Page 29 and 30: Evolution of usage for capital mana
Page 31 and 32: It should be noted that this presen
Page 33 and 34: ERM’s efforts “connect the dots
Page 35: Rating Agencies Four major rating a
Page 39 and 40: European Insurers Report Increasing
Page 41 and 42: Economic Capital at AIG By focusing
Page 43 and 44: CRO Forum Recommendations Re EC Tim
Page 45 and 46: Assessment of Financial Strength of
Page 47 and 48: Economic Capital - the Importance o
Page 49 and 50: $BN 101.68 GAAP Shareholders' Equit
Page 51 and 52: $BN 25.0 20.0 15.0 10.0 5.0 0.0 AIG

Implementation and Uses of Economic Capital ... - ERM Symposium

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