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Risk appetite A market study

2 Contents3 Foreword4 Executive summary5 Background6 Approach10 Measures14 Monitoring and reporting18 Future challenges19 Conclusion

Contents

2 Risk appetite A market study

Welcome to the first Grant Thornton risk appetite market study. Recent increased regulatory and supervisory focus has demanded an articulation of risk appetite and improved decision making for organisations and this is the first in an ongoing series of studies designed to monitor and report on progress and future challenges across the market.

Foreword

Our rationale for undertaking the study stems from our discussions with a range of senior market participants and their general reaction to understanding the concept of risk appetite. There was a keen interest into understanding what everyone else was doing and how far they had progressed. We also knew that demand would be heightened with timelines looming for delivery of draft Own Risk and Solvency Assessments (ORSA), in which the risk appetite frameworks, high level statements, sub statements and underlying metrics are a key component.

Our study set out to define current maturity of practice, answering some of the common questions coming out of the market. Our intention is to conduct this study periodically; monitoring overall progress and trends across the market in relation to risk appetite.

This is purely a study of market practice and is not intended to recommend one approach over another, it simply conveys what the market told us.

Stephen KellyRisk and Capital Management Practice Leader T +44 (0)20 7728 3073 M +44 (0)7976 963187 E [email protected]

Risk appetite A market study 3

Executive summary

The study highlighted the vital nature of engaging the board in discussions from day one. Persistency in this regard has been proven to pay dividends. Notwithstanding this, the time lapse from commencing efforts to gaining initial sign-off is averaging at 12-18 months.

Those organisations that arrived at the conclusion that their risk appetite was inferred in their business plan have made more significant progress and appear to be better placed to present a fully cohesive risk appetite framework.

Respondents discovered that the vast majority of monitoring metrics already existed within the business. It should be noted that these metrics were heavily driven from the business plan which will not extend to operational risk metrics.

An actuarial led approach was, as one would expect, more quantitive in nature and tended to demonstrate greater progress. However it also appears responsible for the almost exclusive focus on insurance and to a lesser degree, investment risk. The risk management led approaches were found to be more qualitative in nature focusing on operational risk issues. Additionally they haven’t achieved the same degree of buy-in to date.

High level risk appetite statements were, in general, narrative in their structure with supporting sub categories designed from a quantitive standing.

As the business plans of our respondents were heavily influencing the risk appetite frameworks, companies began to ask the question ‘does risk appetite drive the business plan or does the business plan drive risk

appetite?’ In reality they are symbiotic in nature and feed back into each other in a continuous cycle. Companies are flexing their risk appetite to accomodate the business plan for the coming year, where the business case exists. Where it does not, plans are being made to fall within appetite.

A commonality of measures were arrived at and used by the contributors of the study, particularly around ‘Earnings at risk’, ‘Capital at risk’ and ‘Solvency at risk’, with most companies selecting a variety of ‘return period’ outcomes ranging from 1 in 5 year occurrence to 1 in 1000 year occurrence. The 1 in 5 year and 1 in 10 year were found to be driven by the average board tenure. Almost all were found to be measures of different points of the expected probability curve.

Most companies have now refreshed their reporting in terms of format, frequency and detail, revisiting who receives which report.

The future challenges included initiatives to embed the monitoring and reporting measures into business as usual (BAU) operations and many respondents are now progressing to the next stage, introducing a suite of BAU performance measures in the business which support, not only risk appetite, but contributes to both the business planning process and the completion of an organisation’s ORSA.


“You cannot separate appetite from return”

Background

Specifically this relates to the issues around setting risk appetite for the organisation and determining how to translate that risk appetite into meaningful day to day operating limits and tolerances. It also involves working out how to monitor and report on adherence to both high level appetite and lower level limits. Grant Thornton’s instinct was that of a market often struggling with the most appropriate approach and facing difficulties in gaining consensus and buy-in from relevant stakeholders.

Based on this understanding, Grant Thornton carried out a series of one to one meetings with industry participants who kindly agreed to be involved in an informal study to examine the current approaches, measures, monitoring metrics and reporting formats employed, along with the associated future challenges as seen through the eyes of the market. This was designed to allow the participants to understand how their peers were progressing, to observe the degree to which the regulators were guiding this and to understand what were the challenges and advantages from the implementation of certain approaches. The general enthusiasm and willingness to share experiences demonstrated the degree to which risk appetite is enjoying its moment in the spotlight.

Spanning the full spectrum of the London Insurance Market and providing

a comprehensive sense of progress, as well as the difficulties and pressure points, one of the most significant findings of these discussions was the disparity across participants with reference to most aspects of the study. The waters were muddied further from the inconsistency in the use of related terminology. Rather than force the acceptance of a ‘common language’ the more mature organisations, in terms of progress with designing their risk appetite framework, chose to speak to their varied audiences in a language that those audiences would understand.

Grant Thornton worked on the overarching hypothesis that whilst ‘top down’ and ‘bottom up’ approaches both come with their own merits, early adopters or those most advanced will be the participants that manage to combine the two and embed meaningful risk appetite limits and related processes across the organisation. This report relays what we heard from respondents without attributing the various findings to any one organisation or person. The pre-eminence of the Lloyd’s Insurance market in this study was the result of proximity and ease of access, but Grant Thornton has brought to bear its own experience outside of the London Market to substantiate more general insights and themes.

The London insurance market is enduring a period of significant reform as it grapples with increasing focus from regulators and market supervisors, most pronounced through Solvency II, but also relating to the market’s own drive towards greater operational efficiencies. Revised capital requirements and redefined reporting obligations are forcing the hand of the industry and within this; risk appetite remains one of the most challenging areas.


Approach

“This is a journey – and education of the board is key”

One of the first things that became apparent was that whilst there was no single emerging industry standard, consistent patterns were emerging when certain approaches were employed. We observed a distinction between the actuarial led approach of some organisations and the risk management led approach of others. As may have been expected, risk management led approaches were qualitative and had an operational risk bias. Actuarial lead approaches while quantitative, displayed more discipline and, in general, demonstrated greater progress. In practice, those who have made the most headway in successfully defining risk appetite have struck a balance between a practical led, qualitative risk management method and the more rigorous and disciplined, actuarial approach. There was a further distinction between those that began their efforts from their business plan and underlying operating limits and worked back up (bottom-up) and those who adopted a top-down approach from a high level risk appetite statement. Those that worked from the ground up were better able to demonstrate a comprehensive and cohesive risk appetite framework.

In terms of where respondents were positioned on a continuum, the market had adopted a pack mentality. Keen to avoid a public catastrophe, they

wanted to remain part of the majority and so, ‘waiting and seeing what your peers were doing’ became a strategy in itself for some organisations. Given the degree of transparency and availability of data through knowledge sharing peer groups in the market, this may become an increasingly viable strategy. However, with resourcing identified as a general challenge, this reactive approach may not suit smaller operations. Indeed, our findings demonstrated that many of those struggling to make notable progress were held back by resource constraints. In the main, companies wanted to avoid being the trail blazers or falling too far behind, due to both these positions attracting additional scrutiny from supervisors.

When questioned regarding their approach to different types of risk, the message was clear that insurance and (less so) investment risk are the only areas in which participants were seeking to make a return. Within that, insurance risk was seen as the key focus with one respondent commenting:

“While the net position is important, we are an insurance organisation and as such seek to make a gross underwriting profit”

It was generally observed that companies see other risks such as operational risk or credit risk as

The first and most significant area refers to the approach that our participants favoured and the rationale behind this. Our working assumption was that most companies would have already started articulating their high level risk appetite statements and begun the process of cascading these statements down to low level operating limits. In doing so, they may have encountered difficulties in maintaining cohesiveness when trying to cascade from the master statement down to subcategory statements.


unavoidable consequences of being in business which should not be used as a measure of appetite but simply be mitigated against. Fixed limits were commonly set for these other risk categories.

“We distinguish between risk monitoring (eg. reserves, operational risk) and those ones where we have an appetite and seek a return (eg. insurance and to a lesser extent investments)”

The majority of respondents began their efforts with a workshop with senior management, exploring the principles and defining a high level statement of risk appetite. The more advanced participants focused heavily on educating the board, seeking an effective way of communicating with them and other significant stakeholders, to achieve a consensus. As one company commented:

“Successful design and embedding of a risk appetite framework demands a huge education and communication exercise”

This led to the development of measures, metrics and thresholds that better supported senior management decision making. On average companies were taking 12 to 18 months to achieve initial sign-off on their high level statement. The statements derived were generally in narrative form, reflecting the practice by organisations of putting narrative principles in place that address the qualitative aspects of appetite including; the terminology used, the time horizons and confidence levels.

“ABC Ltd aim at all times to maintain a 10% buffer above our regulatory capital requirement”

Class of Business Plan Current EPI £ Signed Latest Forecast £ Status Position last Comments Business Projection £ Premium £ month

A 5554629 4818915 2306651 4744090

B 3994299 3889750 1225633 3832445

C 34484702 34686121 19444258 30263913

D 54998777 74405939 59017289 63585477

E 2964938 2673797 2135218 2488334

F 13341423 12893946 9767164 12983274

G 3813657 3099983 3306938 3590712

H 12056835 21590900 12517968 12274046

I 7131279 6910691 4665524 6168615

J 6686775 5615184 5599111 6168615

K 10951026 8055265 5572418 9851900

L 15810084 18870930 11353116 22319101

Whole £171,788,423 £197,511,421 £136,911,288 £178,270,522 Comment on Account whole account

2010 Premium Income

Comments on current status, recent changes, and foreseen changes


Class of Business Plan Current Latest Forecast Status Position last Comments Business Projection GULR% Incurred LR% ULR% month

A 82% 55% 88%

B 58% 3% 60%

C 71% 41% 66%

D 77% 25% 55%

E 73% 23% 48%

F 71% 21% 100%

G 56% 21% 52%

H 72% 36% 79%

I 77% 16% 68%

J 61% 53% 91%

K 51% 15% 51%

L 71% 50% 75%

Whole 68% 30% 69% Comment on Account whole account

2010 Gross Incurred Loss Ratio

Comments on current status, recent changes, and foreseen changes

Some organisations also surveyed the board and senior management to capture their views and compared these to the internal model results. In some instances, there was a remarkably strong correlation between the executive management view and the modelled output.

Having agreed the narrative principles many respondents next step was to follow with the numbers, as summed up neatly by one company:

“Start with the principles, follow with the numbers”

There was a distinct divergence in the various approaches to achieving the underlying numbers. We observed a general difficulty in cascading the narrative or qualitative statement into sub-risk categories. On reaching this juncture, companies appeared to be taking stock and considering other approaches, such as bottom up.

At this point some respondents concluded that their business plan will imply the organisation’s risk appetite, with one company commenting ‘we put a lot of effort and discipline into producing our business plan – let’s use that’.

Approach


This generally resulted in the measurement of performance by looking at variation against plan where a high level statement; narrative and qualitative in nature, was agreed. The sub-category statements were then derived from a more quantitative perspective and the supporting metrics, limits and tolerances were generally arrived at by measuring volatility of results against plan. Those companies that had made this ‘leap of faith’ concerning the relationship between the business plan and risk appetite found that the vast majority of information required to monitor risk appetite in the form of metrics and tolerances already existed within their management information (MI). What followed was a completeness check for required MI rather than a full scale gap analysis. One respondent commented ‘Our business plan implies our risk appetite, therefore we monitor against plan’. This then raised the question of which is influencing which, does risk appetite influence the plan or vice versa? In reality one will influence the other and acts as a bench mark to reflect on historical performance before agreeing the business plan for the year ahead.

Where companies had undertaken an analysis of prior performance over the preceding 5 or more years, there emerged a consistency in the application of risk appetite and capital to key risk

categories, allowing companies to make statements regarding their overall risk profile such as:

‘No less than 80% of our capital will support insurance risk’

With the previous year’s appetite measures being used as a ‘Stop / Go’ check as part of the business planning process. Some companies had embedded this concept into their governance structures by designing mechanisms to ensure ‘flags’ were escalated to the board. If the plan falls outside of the agreed appetite it will be flagged and escalated to the appropriate forum (risk committee or board) for challenge and decision. The decision arising is to either adjust the appetite to accommodate the plan or scale back the plan to fall within appetite. Respondents were then knowingly taking risk versus blindly taking risk with the rationale behind the decision documented and evidenced. This flexible approach appeared to be the most successful, with one organisation commenting

“We are more willing to have a variable result as we are more likely to experience better results on average while maintaining our risk of ruin”

One company, displayed a conviction that their approach was fully cohesive by demonstrating that they could cascade down to specific metrics and aggregate back to their master statement. They extracted their risk appetite from their business plan using a disciplined, actuarial led approach that relied heavily on the use of their internal model. They were unique in demonstrating this cohesiveness. However, it was apparent that developing and articulating a narrative describing the qualitative aspects of risk appetite, such as terminology, timeframes/horizons and then following with the numbers to develop the underlying, lower level supporting quantitative detail, was a favoured approach.


Measures

“All measures come from different parts of the same EP curve”

We observed that the majority of respondents settled on a set of measures that, while variations on a theme, were common to most organisations. These measures, in nearly all cases, were different return periods derived from the same Expected Probability (EP) curve.

Net Underwriting Profit

Prof

it (£

m)

Percentile

£50

£40

£30

£20

£10

£0

-£10

-£20

-£30

-£40

-£50

70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

£60

-£60

Budgeted Earnings44.5%

Break Even27.9%

Loss of Buffer 1.2%

Loss of Regulatory Capital0.05%

All figures quoted in £m


The graph shows the probabilities of obtaining up to a particular profit. The probabilities of achieving less than the budgeted earnings, and less than the break-even point are identified, as are the probabilities of losing more than the buffer and losing more than the regulatory capital.

As can be seen in the adjacent exhibit various points along the same curve have been selected to satisfy those areas that senior management are particularly interested in.

“Earnings, liquidity and capital are what the Board are concerned about”

The ‘near’ horizon return periods of 1 in 5 and 1 in 10 years were commonly selected to reflect the time horizons that were of most interest to senior management.

“1:10 return period was chosen as a proxy for average Board tenure”

A selection of the most commonly observed measures are shown in the exhibit opposite.

Example Measures Earnings @ risk - over the planning horizon Capital @ risk – investment returnSolvency @ risk – Regulatory 1:200 measure

Value @ risk measures Regulatory capital ≤ 100% net written premium Desired net combined Ratio at 1:10 years ≤ 125% Desired Net Less Ratio @ 1:10 years ≤ 100%

Mean – Target return on equity 1:5 year – Earnings @ risk – probability of loss1:200 year – Capital Adequacy Ratio 1:100 year – Concentration risk

• % split by category ≥70% Insurance

• % RDS ≤ X% of capital

Net tangible assets – Group Measure % Gross written Premium – Syndicate measure Earnings loss as a % of Net Assets gross and net.

0%

5%

10%

15%

20%

25%

Net Underwriting Profit All figures quoted in £m

-90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30

Prob

abili

ty

Profit £m

1 in 10

1 in 5 profit

1 in 2 profit

Break even

1 in 50 loss

1 in 100 loss

1 in 200 loss

Plan


The graph shows the profits/losses associated with a range of pre-defined probabilities.

Measures

Net Underwriting Profit

Profit (£m)

Perc

entil

e

All figures quoted in £m

1 in 10 profit

1 in 5 profit

1 in 2 profit

Break even

1 in 50 loss

1 in 100 loss

1 in 200 loss

Plan

0%

20%

40%

60%

80%

100%

-£12

0

-£11

0

-£10

0

-£90

-£80

-£70

-£60

-£50

-£40

-£30

-£20

-£10 £0 £10

£20

£30

£40

£50

£60

£70

£80

£90

£100

£110

£120

26%

24%

22%

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

Prob

abili

ty

Organisations had generally undertaken a historical review of past performance against business plan. One company revisited the business plan to derive a qualitative statement of appetite, defining how much money they were willing to lose using the following underlying metrics:

• Earningsatrisk–overtheplanninghorizon

• Capitalatrisk–investmentreturn• Solvencyatrisk–regulatorycapital

1:200 measure.

Some statements of appetite assume open ‘survival’ of the organisation following back to back catastrophes. Some organisations have developed and modelled such scenarios by using a tri-metric/tri-peril approach. This approach combines limit information, probable maximum loss information and catastrophe model output, coupled with expert judgement to arrive at an extreme but plausible scenario to test their liquidity limits and tolerances and answer the question ‘do we have sufficient free funds to survive’. They were seeking to arrive at measures that allowed

them to demonstrate they could survive an event that arose from anywhere in their portfolio.

Respondents were found to be making good use of their internal model and where an actuarial-led approach was employed, there was a focus on measuring insurance and underwriting risk.


The graph shows the probabilities of achieving different ranges of net underwriting profits, and the cumulative distribution of the profit. Profit and loss probabilities are specified. The profits which are at least achieved at the given probabilities are shown, as are the losses which are at least suffered at the given probabilities.

Net Underwriting Profit All figures quoted in £m

0%

5%

10%

15%

20%

25%

Prob

abili

ty

Profit £m-40 -30 -20 -10 0 10 20 30 40

Plan Lower Quartile (25% deviation from plan) Upper Quartile (25% deviation from plan)

0%

5%

10%

15%

20%

25

Plan 9.225% positive deviation from Plan 19.2 (10.0 above Plan)25% negative deviation from Plan -4.2 (13.0 below Plan) Maximum 80.1Minimum -96.0

Measure Profit £m


The graph shows the probabilities of achieving different ranges of profits, along with a volatility measure showing the extremities of 25% deviations above and below the Plan.

Monitoring and reporting

Enquiries and discussions under this area of the study highlighted the fact that the majority of respondents were in the midst of revisiting and indeed redesigning their reporting formats and the content. In some cases companies were revising committee structures.

Given the varying size and complexity of insurers that we engaged with as part of this study, we observed some form of proportionality in action. For example, most companies had a small number of committees that would receive risk management reports, others had up to six committees comprising for example:

• UnderwritingCommittee• ManagementCommittee(dealing

with operational issues)• FinanceCommittee• ReservingCommittee• RiskandCapitalCommitteeand• DelegatedUnderwriting

Committee.

In a number of cases, management information while produced monthly was reported quarterly. A number of organisations were reappraising the reporting frequencies for different risk categories though one common theme was the use of the Own Risk and Solvency Assessment (ORSA) as a vehicle for reporting summary risk appetite information on a quarterly

Quarterly monitoring of risk triggers

Risk Triggers Quarter 1 Quarter 2 Quarter 3 Quarter 4 Comments

Risk 1

Risk 2

Risk 3

Risk 4

Risk 5

Risk 6

Narrative comment explaining quarterly movements


Duetothegeneralinterest,andinsomecasesrequestsfrom study participants, this section includes both sanitised and hybrid examples showing reporting formats and typical contents generally being deployed across the market.

basis. We observed that, in a number of instances, insurers were redesigning or indeed designing for the first time, risk dashboard reports or ‘flash’ reports with the information specifically targeted for the end users.

Some companies, rather than organise their risk appetite statements

by risk category, had in an effort to embed it into the business, structured their statements by function/practice area: pricing, exposure management, credit control and business planning.

Likelihood and volatility of risks in and out of appetite

Critical

Minor

Significant

Unlikely Likely

Capital risks Liquidity risksInsurance risks Market risks Insurance risks

There was a definite trend towards companies marrying risk management information (using a variety of risk appetite monitoring metrics) and performance management information. Indeed a number of organisations had developed online dashboards with a screen for each of their supporting risk appetite statements. In general companies were reporting monthly by exception across areas such as large losses, breach of tolerances and control effectiveness. A number of standing reports remain comprehensive in nature

such as exposure management reports addressing catastrophe risk. These range between 20 to 25 pages with a single page dashboard for the board. Similarly, it is common for the Chief Risk Officer report to cover the whole risk management process. However it could be seen that a number of insurers were making efforts to present risk information in a wide variety of formats to meet the needs of the wide variety of users of the information.

With respect to the monitoring of risk appetite metrics, it is apparent

in most situations that these metrics already exist and are generally being reported as part of the current suite of management information. This reflects the growing recognition among insurers that their business plan implies their risk appetite, and by inference monitoring performance against plan is a proxy for monitoring risk appetite. This avoids the development of standalone risk monitoring metrics that have limited business use.


Monitoring and reporting

Appetite statement > x% y% to x% < y%

> x% y% to x% < y%

> x% y% to x% < y%

Underwriting risk Red Level Amber Level Green Level

Amounts written in each class are not to exceed x% of ABC’s book as whole

Deviation from average line written not to exceed x%

Planned LR not to be exceeded by x%

Appetite statement > b% c% to b% < c%

> b% c% to b% < c%

Reserving risk Red Level Amber Level Green Level

Deterioration of reserves is not to exceed b% in any one quarter

1-in-200 deviation not to exceed b% of gross income

Appetite statement > p% q% to p% < q%

> k days m to k days < m days

Credit risk Red Level Amber Level Green Level

No more than p% exposure to be held by any one counterparty

Aged debtor position is not to exceed k days

Appetite statement y% to x% z% to y% < z%

> k days m to k days < m days

Any rating less than AA

Reinsurance risk Red Level Amber Level Green Level

Exposure to any single reinsurer is to be less than x%

Aged debtor position is not to exceed k days

Ensure that reinsurers have a credit rating not less than AA

We were keen to discover the way companies were handling risk appetite reporting including the format, frequency and sorts of data captured. Our hypothesis being it was clear that the reporting of risk appetite should leverage a whole raft of data that currently exists. It would just need to be interrogated to the required level of granularity and presented in the most meaningful format to suit the audience. A particular challenge was the setting of threshold metrics to measure volatility on a whole account and by line of business. This was seen as a key measure.


Appetite statement Any risk

FSA reprimand

> v hours w to v hours < w hours

Operational risk Red Level Amber Level Green Level

Zero tolerance for acceptance of risks outside of the approved business plan

Zero tolerance for regulatory interventions such as FSA s166

Tolerate material IT systems failure for no more than v hours

Appetite statement x% y% z%

q% p% r%

Market risk Red Level Amber Level Green Level

The probability of negative return in any year should not exceed x%

ABC do not expect to lose q% of capital due to FX risk more than once every B years

Appetite statement

Liquidity risk Red Level Amber Level Green Level

At a minimum, hold sufficient funds to meet estimated liabilities when they fall due

Liquidity must be sufficient to meet an RDS event without unnecessary cost to ABC

(100-a)% (100-b)%

(100-c)% (100-d)%

Funds fall short of estimated liabilities

Insufficient to cope with simulated RDS

Typical reporting structures and formats state the target risk appetite, RAG rates the deviation against the selected metrics supplemented with explanatory narrative text. With some companies comparing total capital consumed to available funds. We also found that most organisations were making a concerted effort to build monitoring of risk appetite into their business as usual operations which will ultimately ensure the reporting process becomes more embedded within the organisation. Risk appetite was generally reported in dashboard form, monitoring targeted risk appetite performance against deviation from a set of metrics defining acceptable and unacceptablethresholds.Dashboardswere supported by a narrative, detailing the findings across the quarter.

“A distinction is generally drawn between monitoring and appetite”


Future challenges

“We want to determine how much capital is being consumed by line of business and compare that with available capital”

There was a general acknowledgement that transitioning into business as usual would be an iterative and educational process. Some organisations are looking at developing ‘entity level risk tolerances’ as well as grouping those tolerances across the business. Other companies were undertaking a proof of concept around their risk appetite framework , testing how it sits together and works in practice. The message was clear that there was more work to be done to fully understand the risk exposures of many businesses.

Many organisations were considering allocation of capital across lines of business and looking to build on the work to date to introduce some form of risk adjusted return on capital.

A key future challenge is that of finding thinking time and breathing space to conduct much needed analysis. A number of organisations have targeted the automation/industrialising of risk appetite reporting as key to the objective of achieving more time analysing – and less time producing.


Many companies cited ‘going live’ with new committee structures, reporting formats and frequencies.

Grant Thornton observed a broad range of practices in the market, each with varying degrees of success. Respondents had adopted a pack mentality when it came to progress, eager not to draw undue attention to themselves from supervisors, either by leading the pack or lagging behind.

Conclusion

On the whole, the market has made strong progress that has been enabled through iterative education of the board and senior management. Unsurprisingly, given the need to introduce greater quantification respondents made a conscious decision to focus the majority of their efforts on insurance risk and, to a lesser extent, investment risk. Within that we observed significant progress in underwriting, with a variety of monitoring metrics derived from the business plan and appropriate triggers and thresholds reporting on volatility of results against plan.

That progress aside, there is an underlying danger that other areas of risk may be being overlooked, operational risk for example; with history indicating that this is the most consistent driver in the collapse of insurance companies, e.g. Sharma 2002, and Ashby and Sharma 2003. In conclusion, any high level risk appetite framework that is not balanced in its inclusion of other significant areas of risk, irrespective of whether or not they generate a return, may be sub optimal in its effectiveness.


For more information please visit: www.grant-thornton.co.uk/riskappetite

21744

© 2012 Grant Thornton UK LLP. All rights reserved.

‘Grant Thornton’ means Grant Thornton UK LLP, a limited liability partnership.

Grant Thornton is a member firm of Grant Thornton International Ltd (Grant Thornton International). References to ‘Grant Thornton’ are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms, which are not responsible for the services or activities of one another. Grant Thornton International does not provide services to clients.

This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication.

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