1. 1 RISK MANAGEMENT IN INSURANCE Philippe Wautelet Ukrainian Insurance Forum, 3-4 June 2009

2. 2 AXA GROUP To help our clients be life confident Asset Accumulation Retirement Estate Planning Need for financial advice - Risk management Annuities Life Protection Asset Management Savings Financial Planning Retail Banking Products Asset Protection Motor, Property, Health Life Stages

3. 3 AXA in Ukraine VESKO was founded in 1994Ukrainian Insurance Alliance was founded in 2001 AXA Group entered to the Ukrainian insurance market with acquisition of Ukrainian Insurance Alliance (UIA) and Vesko AXA Ukrsibbank AXA Ukraine SHAREHOLDERS AXA Ukrsibbank AXA Insurance AXA Group UKRAINE 1200 employees

4. 4 Insurance – risky business AXA is in the business of managing risk We are in the business of : 1. Taking risks off our clients balance sheet 2. Taking these risks on our balance sheet 3. Transforming and /or transferring them 4. …and generating profit from this activity Risk Management is not a by product of AXAs organization. It is THE business model of AXA.

5. 5 Risk management – main cause of the global crises Global failure of financial services industry is highly due to insufficient risk management practices Financial risks were understated partly because the world economy enjoyed a long term moderate growth and low financial volatility and this was wrongly assumed to be a permanent benefit of prudent regulatory bodies Emphasize was placed on precise – sounding numbers from quantitative models while qualitative judgments based on experience was ignored Good risk management on one hand measures and understands these risks, and on the other hand creates a risk culture within the company

6. 6 Impact of the crises on P&C insurance market Insurable matters Economy slow down / no crediting Unpaid premiums Decrease car sales / smaller cars Competition Weakened competitors State intervention Profitability Fraud increase Price cuts Investment results Impairments Bankruptcies

7. 7 Risk management in insurance An insurance company should assess and understand the following categories of risks: OperationalFinancialStrategic Business processes Fraud People Business continuity Information security Litigation & Regulatory Reserving Investment & Credit Solvency Liquidity Product Design & Pricing Macro economical Political Channel/Product mix

8. 8 Operational Risks AXA Measures and manages its key processes, with a focus on the Core Customer and Distributor facing processes 12131415 1. Company and Strategy Development 2. Planning, Controlling and Steering 3. Strategic Marketing & Customer Insight 4. Product Development and Management 5. Distribution Strategy & Support 8. Customer Lifecycle Management 7. Business Acquisition 9. Policy Administration 10. Claims & Benefit Management 13. Human Resources Management 14. Technology & Change Management 12. Finance and Risk Management 15. Procurement and Corporate Services 6. Distribution Lifecycle Management 11. Policy Retention and Renewal Strategy & SteeringGrowth Core Customer & Distributor Facing Enabling 67891011 12345 * Global Processes

9. 9 AXA Way (Six Sigma) underpins AXAs commitment to process excellence. All processes display variance, which is the source of customer dissatisfaction, but also presents a risk opportunity. The AXA Way process involves using the Six Sigma methodology to measure, improve and control our processes. The key focus is listening to the voice of the customer at all times, enabling us to improve our processes in order to meet their requirements. AXA Way is built around three key objectives: 1. Putting the client at the heart of our actions 2. Optimizing our operational performance, in other words revising our processes to produce less variation and therefore minimizing risk 3. Developing a continuous improvement culture Operational Risks (cont.) Each operational process presents a risk opportunity

10. 10 Financial risks Matched assets Diversification Insurance liabilities Solvency capital Duration Currency To minimize risks Good risk/return balance Split responsibilities in investment policy between shareholders and managers To minimize risks Manage well the price, coverage and reserving Independency of risk management from the operational lines To minimize risks Currency hedging A-L matching

11. 11 Strategic risks More important in emerging markets Flexibility (Tactics as well as Strategy) Share experiences among emerging countries Market watch / Competitor behaviors

12. 12 Conclusion – Back to Basics Insurance companies are institutions providing financial protection by managing its customers and own risks in a profitable way Emphasize should be placed on how to assess the risks and mitigate them instead of only on growth objectives and short term profits