1) Risk mutualization
Risk represents the AXA Group's raw material. The insurance business involves taking on our customers' risks and "converting" them. There are different ways of doing this. The Group can take on the risks itself by diversifying them, which means pooling them together with other risks, or it can transfer them to outside organizations such as reinsurers or financial markets through a securitization approach.
Risk management, which applies to all of the Group's areas of activity - life, property and casualty, asset management - consists of managing these conversion processes. As such, risk management is about understanding and measuring risks more effectively in order to manage them in a controlled, responsible and profitable way over the long term, with a deliberate focus on sustainable development, while facilitating this risk-taking.
2) AXA Group Risk Management
Within the Financial Division, Group Risk Management (GRM) is responsible for identifying, quantifying and managing the main risks that the Group is exposed to. This is not about preventing risk-taking, but rather being able to understand and manage the risks taken in an optimum way, with a view to the best possible trade-off between risk and profitability. To achieve this, various measurement and tracking methods and tools are developed and deployed by GRM, covering all of AXA's business lines (life insurance, property and casualty, and asset management).
From the Group's point of view, this work makes it possible to manage its risks in an optimum way, while contributing to, on the one hand, reducing the volatility of its results by setting standards aimed at a better assessment of all the dimensions of risks taken and, on the other, optimizing the equity allocated by the Group for its various activities.
The GRM's main missions are to:
- Evaluate and approach risk in a consistent way throughout the Group
- Implement appropriate control processes
- Optimize risk-taking (harnessing the diversification effect) and risk transfer (reinsurance and securitization) activities
- Disseminate the risk culture, notably through suitable operational tools and programs to educate stakeholders about risk
The GRM is coordinated by a central core of 65 experts, supported by local risk management teams in each one of the Group's operational companies, representing some 250 experts in total.
Risk Management Colleges
The dissemination of a risk management culture within the Group is essential, since the "risk dimension" must represent an integral part of the business. To have a good understanding of it, it is vital to have good indicators such as financial data and statistics. This is what enables us to make the right decisions. Employees who manage risk must immerse themselves in a genuine risk management culture. Whether they are actuaries, financial analysts or pricing specialists, they must all be one step ahead of the competition. With this in mind, AXA has launched the Risk Management Professional College in conjunction with AXA University. Designed in partnership with professors from a number of major universities, this program will train from 800 to 1,200 members of staff between 2006 and 2010.
3) Risk management: creating value for the Group
Risk management has a direct impact on the Group's business. It makes it possible to optimize the distribution of our equity, avoid concentrating it needlessly, and allocate it to areas where risk taking is the most cost-effective. Far from discouraging risk-taking, the GRM represents a business enabler. Indeed, since it enables us to identify and quantify risks, it represents a useful tool for defining new opportunities and developing new products with controlled risks, optimum pricing and a stronger market position. There is a direct relationship between risk management and product innovation.
Lastly, risk management enables the Group to harness its international reach and "multi-business" approach. Spreading risks on a worldwide scale allows the Group to take more risks at local level without increasing the global risk. Thanks to this approach, the equity required to cover the Group's entire needs is significantly less than the total sum required by each of its subsidiaries. This represents the optimum way of managing the AXA Group's economic capital.
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4) Emerging risks
The basis of risk mutualisation remains applicable to "emerging risks". Indeed, over the past few years, the insurance sector has found itself confronted with the financial consequences of new risks: environmental issues, climate change included, but also social and governance risks as well. Sustainable development has added yet more issues to the profession of managing risk, such as local or large-scale social, environmental or governance risks. These emerging risks are diverse and often difficult to assess using conventional risk management techniques. Nevertheless, the underwriting mechanisms are not different : insurance cover is possible when there is uncertainty and historical data. The whole insurance sector's history has been to integrate and cover emerging risks : from maritime, to fire, road safety and AIDS to nanotechnologies and climate change. AXA's trade consists in helping its clients to identify and correctly price these emerging risks.
Sustainable development is opening up new opportunities for the insurance sector, both on traditional markets, benefiting from being specifically showcased in this way, and on emerging markets, in which product innovation is essential.
Risk Foundation
Specialized telecommunications and aeronautics training courses are relatively common, but there are no risk management schools. This observation led to the launch of the Risk Foundation in 2006, reflecting a collective effort to which the Group made a major contribution. The four insurance and banking companies supporting this Foundation are AXA, AGF, Groupama and Société Générale. The Foundation's objective is to develop a training and research center for financial and industrial risk management. To start, international teaching and research positions were created in partnership with a number of French business and engineering schools: Polytechnique, ENSAE, Paris-Dauphine and the Center for Actuarial Studies. AXA is involved on "insurance and major risks" - international conflicts, acts of god, etc. All combined, these businesses will be providing Dauphine with some 6.5 million euros over five years.
5) Business continuity management
A business continuity management (BCM) plan that can be implemented in the event of a major crisis that could potentially result in a significant interruption of services now represents an operational requirement both for financial institutions and for their shareholders, which have started paying very close attention to this issue - as for any operational risk, businesses owe it to themselves to assess the potential impacts of any interruption in their activities, comparing them against the costs of measures aimed at taking them down to an acceptable level. BCM has also become a positive differentiating factor for stakeholders.
Within a Group the size of AXA, the BCM process requires a sound governance structure and effective buy-in among all company management teams.
Since 1997, the Group has rolled out a series of measures aimed at improving its ability to continue operating in the event of major crisis. An audit conducted in 2000 and a self-assessment in 2002 helped raise awareness on this subject within the Group. In 2003, a general audit was carried out in order to evaluate the continuity capabilities of each Group company, with the findings showing that some of them needed to improve their capacity to react to and "survive" an incident endangering their activities. A Group BCM Program was set up in 2003 with a view to guiding companies in their efforts and providing them with a set of standards, as well as a methodology and support in this area. In 2004, the Group BCM Program was launched worldwide.
The cross-business BCM Program aims to minimize the impact of a major or minor incident on one or more business-critical processes or resources (human and material). BCM defines the processes needed for business to continue, as well as the backup solutions, the contingency procedures and the corresponding organizational aspects.
The Group BCM team provides companies with a methodology, a process, dedicated intranet sites, a training program and coordination, while the actual level of BCM maturity is now factored into CEO scorecards.