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Insurance Risks

Insurance risk is the inherent uncertainty regarding the occurrence, amount, and timing of insurance liabilities. The exposure is usually transferred to Zurich through the underwriting process. Zurich assumes certain customer risks and aims to manage that transfer of risk and to minimize unintended underwriting risks through the following:

• Establishing limits for underwriting authority

• Requiring specific approvals for transactions involving new products or where established limits of size and complexity may be exceeded

• Using a variety of reserving and modeling techniques to address the various insurance risks inherent in the insurance business

• Ceding insurance risks through proportional, nonproportional, and specific risk reinsurance treaties

Market Risks

Market risks can be associated with the Group's balance sheet positions where the value or cash flow depends on financial markets. Fluctuating risk drivers resulting in market risk may include:

• Equity market prices

• Real estate market prices

• Interest rates and credit spreads

• Currency exchange rates

Zurich has policies and limits to manage market risk. Zurich aligns its strategy asset allocation to its risk-taking capacity. The Group centralizes the management of certain asset classes to help control aggregation of risk, and provides a consistent approach to constructing portfolios and selecting external asset managers. Zurich also diversifies portfolios, investments, and asset managers. It regularly measures and manages market risk exposure. Zurich has established limits on concentration in investments by single issuers and certain asset classes, as well as deviations of asset interest rate sensitivities from liability interest rate sensitivities, and also has limits on investments that are illiquid.

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