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

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Adoption of EC supports Management to make better informed decisions Management Aspect Business Benefits Capital Management • Optimizing the asset allocation strategies, both at product and aggregate level Risk Management • Managing and allocating Group capital more efficiently, to maximize value creation • Provides an improved understanding of risks to avoid costly mistakes PPerformance f Measurement M t • BBusiness i iis managed d bbased d on ttrue underlying d l i economics, i management t iincentives ti are aligned to “Managing for Value” objectives and to develop strategies which create value and balance risk Product Management • Optimizing the business mix according to the value creation potential of products • Different products become comparable under this framework, e.g., able to compare the profitability of a VA in the US and Japan, which up to now is very difficult due to differences in economic assumptions, risk profile, etc. • Improved definition of value is important to “Managing for Value” • Implement value improvements to the in-force block of business • Pricing according to market consistent principles (i.e., a fair price for the risk taken) Increased value creation leads to increased Total Shareholder Return Retirement - Insurance - Investments 7
The Executive Board defines Risk Appetite Risk appetite sets boundaries… Spare risk taking capacity BU risk i k appetite Actual BU risk profile Breach of risk i k appetite Actual risk profile is monitored against the risk appetite (in part through the dashboard) The role of the business is to maximize value within these bounds Group intervenes when there are material breaches Risk appetite is a core consideration in the strategic planning process Retirement - Insurance - Investments 8 …across multiple dimensions Earnings at Risk (EaR) Capital at Risk (CaR) Based on stressed scenarios Risk management metrics presented in the Risk Dashboard Economic Capital Based on extreme stress scenarios Defines internal view of solvency capital requirements
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: EC/ERM requires continually improvi
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 and 36: Rating Agencies Four major rating a
Page 37 and 38: Source: Citigroup Global Markets,
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

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