Research

Risk appetite gains momentum in a changing world

2017/2018 Global Reinsurance and Risk Appetite Survey Report

July 9, 2018

Willis Towers Watson’s latest risk appetite survey has again confirmed that risk appetite is increasingly central to insurers’ business decisions.

Key takeaways

  • The motivation for buying reinsurance has shifted toward earnings protection and volatility reduction driven by investor relation efforts.
  • Enterprise risk management (ERM) capabilities have improved, as suggested by higher satisfaction with current frameworks; however, it appears progress is still needed to achieve companies’ risk culture goals.
  • Among different emerging risks, most respondents say cyber risk is clearly their main concern, due largely to the difficulties in defining and managing this serious risk both from underwriting and operational perspectives.

In an insurance industry of increasing complexity and risks, risk appetite and reinsurance are gaining momentum as cornerstones of a successful operation, regardless of geography or size.

The top drivers for reinsurance purchasing

Survey highlights

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Risk appetite is evolving, dynamic and almost universal

  • Risk appetite statements are among the day-to-day must-have management tools: Nearly all survey respondents (98%) have adopted or are planning to adopt a formal risk appetite statement in the next three years.
  • Risk appetite is dynamic: One-third of insurance companies with a formal risk appetite plan intend to make a material change in the coming year, mainly due to regulatory requirements.

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Risk appetite guides reinsurance buys, particularly earnings

  • Risk appetite is a strategy optimizer: Increasingly (80%), risk appetite statements optimize capital and earnings and, hence, reinsurance strategies.
  • Drivers of reinsurance buys: Earnings protection and volatility reduction are top drivers for reinsurance purchasing. Capital is still very important; however, the advanced implementation of recent regulatory requirements has absorbed this need.
  • Advanced metrics and less tolerance: Insurers are moving to more sophisticated metrics such as return on equity and economic capital; however, they are becoming less tolerant of missing their earnings targets due to pressure to perform from investors.

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ERM satisfaction widespread, but insurers’ final vision still far-off

  • ERM front and center: ERM is increasingly prominent, and regulation most commonly drives implementation.
  • ERM satisfaction overwhelming: The vast majority of insurers across all regions are satisfied with their ERM capabilities. Compared with 2015 survey results, the proportion of dissatisfied survey respondents was halved — indicating progress in ERM implementation over the period.
  • Risk culture key to ERM vision: Risk culture was ranked most important to the final strategic ERM vision; however, only 20% of surveyed companies reported significant progress (more than 75%) toward achieving their visions for risk culture.

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Cyber risk looms as top emerging risk

  • What concerns insurers? Unsurprisingly, technology, cyber risk and industry disruptors are prime concerns, while regulatory issues remain central. Climate change, globalization and connectivity also featured heavily in the survey responses.

View the full report using the "Download" button.

Questions?

For more information about survey results and our observations, contact us at surveys@willistowerswatson.com.

About the survey

Our web-based survey of 260 insurance executives from 51 countries was fielded June 8 through August 10, 2017. For more details about the survey participants, please download the report.