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Every organization's directors and officers will approach ERM differently in order to achieve their unique objectives. Zurich has taken many steps to help develop a strong and effective ERM program. This program did not emerge overnight, but today Zurich views its ERM program as a competitive advantage well worth the investment. Despite having embedded a robust program into the fabric of its business, Zurich does not rest on its laurels. The program is constantly scrutinized in search of better ways to identify, assess, manage, and monitor Zurich's key risks. The company has even developed an ERM Gap Analysis that can be done yearly to help determine risk maturity and focus on its top areas for improvement. The organization's management continuously looks for opportunities to create a closer partnership between ERM and the core business, so that its ERM team is ready to consult and assist the business in understanding risk in pursuit of profit. ERM is certainly a long journey defined by many paths, but one that can continue to yield tremendous benefits for the organization.


Internally, Zurich uses its Risk-Based Capital (RBC) model, which also forms the basis of the SST model. The RBC model targets a total capital level that is calibrated to an AA-rated financial strength. Zurich defines RBC as being the capital required to protect the Group's policyholders in order to meet all of their claims with a confidence level of 99.95 percent over a one-year time horizon.

While the Group's RBC model and the SST model are broadly the same, the following is a summary of the main differences between the three approaches:

Model calibration. The RBC calibration is based on a value at risk at a 99.95 percent confidence level, whereas SST calibration is based on an expected shortfall at a 99 percent confidence level. The Group thereby sets itself a higher financial strength target than the SST regulatory requirement.

Scope. Operational and business risks for General Insurance are reflected in RBC, but are not required in SST.

Market/ALM risk. The extreme scenario for market/ALM risk in RBC is directly attributed to that risk, whereas extreme scenarios in SST are aggregated to the combination of all risk types. This treatment of the extreme scenario in the RBC model leads to a more conservative result than in the SST model.

Available financial resources (AFR). Senior debt is included in AFR for RBC purposes, but not included in AFR for the SST calculation.

Zurich uses RBC to assess the economic capital consumption of its business in a one-balance-sheet approach. The RBC framework is an integral part of how Zurich is managed. The RBC framework is embedded in Zurich's organization and decision making, and is used in capital allocation, business performance management, pricing, reinsurance purchasing, transaction evaluation, and risk optimization, as well as regulatory, investor, and rating agency communication.

Zurich compares RBC to its AFR to derive an economic solvency ratio. AFR reflects financial resources available to cover policyholder liabilities in excess of their expected value. It is derived by adjusting the IFRS shareholders' equity to reflect the full economic capital base available to absorb any unexpected volatility in the Group's business activities.

At a Group level, the management committees dealing with risks are:

• The Group Balance Sheet Committee (GBSC) acts as a cross-functional body whose main function is to control the activities that materially affect the balance sheets of the Group and its subsidiaries. The GBSC is charged with setting the annual capital and balance sheet plans for the Group based on the Group's strategy and financial plans, as well as recommending specific transactions or unplanned business changes to the Group's balance sheet. The GBSC has oversight of all main levers of the balance sheet, including capital management, reinsurance, asset/liability management, and liquidity. The GBSC reviews and recommends the Group's overall risk tolerance. It is chaired by the CEO.

• The Group Finance and Risk Committee (GFRC) acts as a cross-functional body for financial and risk management matters in the context of the strategy and the overall business activity of the Group. The GFRC oversees financial implications of business decisions and the effective management of the Group's overall risk profile, including risks related to insurance, financial markets and asset/liability, and credit and operational risks, as well as their interactions. The GFRC proposes remedial actions based on regular briefings from Group Risk Management on the risk profile of the Group. It reviews and formulates recommendations for future courses of action with respect to potential mergers and acquisitions (M&A) transactions, changes to the Zurich Risk Policy, internal insurance programs for the Group, material changes to the Group's risk-based capital methodology, and the overall risk tolerance. The GFRC is chaired by the chief financial officer, while the chief risk officer acts as deputy.

The management committees rely on output provided by technical committees, including:

• The Asset/Liability Management and Investment Committee (ALMIC) deals with the Group's asset/liability exposure and investment strategies and is chaired by the chief investment officer.

• The General Insurance Global Underwriting Committee (GUC) acts as a focal point for underwriting policy and related risk controls for General Insurance and is chaired by the Global Chief Underwriting Officer for General Insurance.

• The Group Reinsurance Committee (GRC) defines the Group's reinsurance strategy in alignment with its risk framework and is chaired by the Global Head of Group Reinsurance.

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