Risk innovation of the year: Argo Group
The demands of regulators can often be a burden on insurers, but sometimes it can provide the impetus to develop value-enhancing processes.
Such is the case with Argo Group, which in 2016 received a request from the Bermuda Monetary Authority to expand its investment stress tests to include management contingency plans.
The request led to the group securing sponsorship from the board to widen its stress-testing scope, and the result was considerable development of its existing stress and scenario test framework (SSTF), covering gross and net risks.
In 2017, development of the SSTF included 20 risk scenarios targeting five key risk areas: market, credit, underwriting, reserve and operational.
In each case, mitigation and response plans were developed, discussed and approved by risk owners. The net stress scenarios were tested against risk tolerance measures. Further actions were developed where necessary.
One example of an operational risk scenario used by Argo is an investigation by the US Securities and Exchange Commission on financial reporting with potential consequences including fines, shareholder litigation and prosecution of executives.
In the ever-changing world, the stress tests help inform risk owners on decisions such as extending terrorism reinsurance for the Argo Group, as well as augmenting its cyber insurance protections.
"The terrorism analysis helped us articulate exposures and make important risktransfer decisions," said Axel Schmidt, chief underwriting officer at Argo Group.
According to Argo, such development has been a combined effort, with legal, actuarial, underwriting, investments and treasury teams collaborating to develop scenarios and create response plans.
Taking its lead from a regulatory suggestion, Argo believes it has turned the SSTF into "a powerful business tool."