The risk management function is an essential part of the management of credit, insurance and surety institutions, which allows them to avoid exposures to losses that threaten their viability and identify opportunities for improvement.

In support of achieving these objectives, Numeravi’s consultants generate periodic reports of risk exposure for those institutions, with the ability to adapt them to the particular characteristics of each company’s business. These reports have the following information:

Market Risk

  • Calculate the market VaR:
    • Global
    • Individual
    • By currency
    • By type of instrument (debt, capital, derivatives and structured notes).
    • By sub-portfolio defined by each company.
    • Marginal VaR or contribution by asset and by risk factor to the global VaR
  • Perform Stress testing of market risk.
  • Conducting backtesting of market VaR, in order to confirm the accuracy of the estimations.
  • Perform sensibility analysis to movements in interest rates and exchange rates.

Liquidity Risk

  • Determine liquidity gaps based on:
    • Projections of cash flows from the investment portfolio.
    • Projections of cash flows derived from loan portfolios.
    • Resources derived from other assets susceptible to becoming liquid.
    • Expected and maximum claims.
    • Expected and maximum loan defaults.
  • Estimate the loss due to early or forced sale of securities.

Mismatch risk

3.1 Calculate duration of financial assets and technical liabilities.

3.2 Estimate market VaR of assets and liabilities (economic capital)

3.3 Perform sensibility analysis to movements in interest rates and exchange rates, jointly considering assets and liabilities.

3.4 Build maturity gaps and depreciation gaps.

Credit Risk

  • Estimate the expected loss by potential defaults of:
    • Issuers of debt securities
    • Counterparties in repurchase agreements
    • Reinsurance Companies
    • Debtors
    • Other counterparties
  • Credit Value at risk of loans or debt securities portfolios.
  • Rating and reserves estimation of commercial and consumption loans portfolio, as well as mortgages portfolios.

Concentration Risk

5.1 Calculate concentration within investment portfolios.

5.2 Calculate actuarial liabilities’ concentration.

5.3 Measure concentration under other criteria.

5.4 Monitoring of regulatory limits on investments concentration.

5.5 Calculate concentration by reinsurer.

5.7 Measure concentration in loan portfolios.

Underwriting risk for insurance and surety companies

  • Estimation of the amounts and terms of claims applying:
    • Statutory statistical models
    • Statistical models (frequency/severity) adjusted for each institution.

The expected and probable maximum or VaR of claims are estimated.  These estimations are also used to measure exposure to market risk in technical liabilities, as well as mismatch and liquidity risks.

Operational Risk

7.1 Development of policies and procedures.

7.2 Identification of risks associated with operational processes and construction of the operational risk matrix.

7.3 Definition of key risk indicators.

7.4 Definition of tolerance levels.

7.5 Definition of the incident database structure.