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Mutual insurers and risk appetite statements

Mutual insurers and risk appetite statements

This blog first appeared as an article in an Insurance Day Special report on Mutuals, and as a guest blog for ICMIF.


Willis Re’s recently published Global Reinsurance and Risk Appetite Report 2016 is the most comprehensive survey into how insurers’ approach the subject of developing a formal risk appetite.

The report analyses responses received from over 240 insurers in nearly fifty countries to Willis Re’s annual Risk Appetite survey. Almost two-thirds of those companies surveyed have a formal risk appetite statement*, with a further 17% planning to develop one in the near future.

This finding doesn’t surprise us; recent years have seen an increasing level of regulatory pressure across the board in the insurance industry, with the implementation of Solvency II in Europe and the rolling out of Own Risk and Solvency Assessment (ORSA) requirements in North America. There is a clear pattern, common to almost all territories in the insurance world, of regulatory and other stakeholders increasingly expecting insurers to employ transparent and detailed risk management frameworks, and to be explicit about their risk appetite.

That is not to say that there are not certain regional variations; the survey shows that in Europe and APMETA (Asia Pacific, Middle East, Turkey, Africa), more than 70% of those taking part in the survey have already adopted a formal risk appetite statement. In contrast, take-up rates in the North American and LAC (Latin America and Caribbean) are significantly lower; little more than 50%.

This seems to be, at least in part, a timing issue with some territories leading others. In fact, when you add in the responders in North American and LAC that are planning on having a formal risk appetite statement in the near future, the total comes closely into line with Europe and APMETA.

Of those responding to our survey, 17% identified themselves as mutuals**, including many members of the International Cooperative And Mutual Insurance Federation (ICMIF), of which Willis Re is aSupporting Member.  Interestingly when we dig into the results as respects mutuals, we were a little surprised to see that only 55% have a formal risk appetite statement, markedly below the 70% overall average. While mutuals may not have the need to be as explicit about their risk tolerance as publicly traded companies do an unambiguous risk appetite statement is nonetheless very helpful in providing macro-level guidance to underwriting, risk retention and cession strategies, all of which are of fundamental importance to a mutual, where capital is provided by the member policyholders.

The International Co-operative Alliance, the apex organisation for cooperatives worldwide, lists 7 core principles for all cooperatives and mutuals. The third of these revolves around promoting the economic participation of members, stating that “Members contribute equitably to, and democratically control, the capital of their cooperative”

The Seven Cooperative Principles

  1.          Voluntary and open membership
  2.          Democratic member control
  3.          Member economic participation
  4.          Autonomy and independence
  5.          Education, training and information
  6.          Co-operation among cooperatives
  7.          Concern for community

We see a clear statement of risk appetite statement as being central to empowering stakeholders of all types, but especially those without a background in financial services, to participate democratically in the control of their mutuals. As such, we would encourage all mutuals who have yet to set a risk appetite statement to do so.

We hope that the survey findings, which are available in more detail on our website, will provide ICMIF members with an interesting insight into the trends we are observing and will help you better understand how your organisation’s position concerning risk appetite and reinsurance compares with others. We will also be glad to provide you with a more in-depth, customised analysis to further help you on this journey.


A risk appetite statement is a formal written statement of the aggregate level and types of risk that an insurance company is willing to accept, or to avoid, in order to achieve its business objectives.

** Throughout this article we use the word “Mutual” as short-hand for any policyholder owned entity, including cooperatives, mutuals, risk retention group, trusts, reciprocals, exchanges, pools, societies, affinity and group captives, and any other form of policyholder or association owned insurance vehicle.  We trust the reader will recognise the convenience of using a single term to cover all forms of policyholder owned insurance entities.

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