Risk Factors
Non-life insurance businesses operate differently from other types of financial institutions, prompting the
management to give priority to financial stability. The company thus continuously places importance on development
and improvement of risk management processes in order to retain the benefits of the insured, the beneficiaries, and
others entitled to make claims, while at the same time creating stable returns for shareholders in the long run. The risk
factors that may directly affect the company’s operations and financial status are considered below.
The
risk
of
underwriting
: The company’s risk of underwriting is related to the uncertainty and the fluctuations of
risks, which may affect the amount of compensation and the cash flow estimated in the projections. While the
company consistently makes analysis and follow-up of markets to assess risks and tendencies that might have effects
on insurance business, there are still other risks that may affect the company’s operations. These include competition,
economic factors, the insured’s behavior and natural disasters.
To reduce the risk of underwriting and keep it at a reasonable level, the company regularly considers and
reviews the underwriting policy. Underwriting guidelines for all types of insurance are provided for standard practice,
including the provision of advice for the insured to reduce losses, control or to protect themselves against further
losses. In this way, the company can analyse risks and determine appropriate premium rates. This is in line with the
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hypothesis in underwriting, under coverage conditions that enables the company to fulfil its obligations in a timely
manner with fairness to the insured and/or concerned parties.
The
risk
of
natural
hazards
and
disasters : Changes in global environment and climate have resulted in serious
natural hazards and disasters such as earthquakes and floods. For example, in 2006 a number of provinces in the
country experienced flooding and sustained loss of lives, injuries as well as damage to belongings and properties. It is
possible that such problems could become even more serious and may affect the cost of damage that the company
is liable to the insured. Therefore, the company has made analyses and considered preparing re-insurance contracts
in advance with financially stable reinsurers. Such practice of transferring and distributing the risk of non-life insurance
business enables the company to indemnify its insureds without having its financial status affected. However, in case
where losses in one year exceeded the expected levels, the company might suffer indirect impact in searching for
new reinsurers to share the company’s risks in the following year.
The
risk
of
taking
re-insurance : Major risks related to re-insurance include the changes of rules and regulations
governing non-life re-insurance business and the changes in the financial situations of re-insurers. However, the
company has clear guidelines for underwriting consideration and the transferring of risks to reinsurers. Underwriting
follow-up and evaluation of all types of insurance are done regularly. Both domestic and foreign non-life insurance
business market situations are always monitored. A work unit has been assigned the responsibility of following up and
checking the stability status of each reinsurer to ensure that the company can claim indemnity from reinsurers in all
cases.
The
risk
of
information
technology
system
downtime : The company is determined to continuously develop
information and communication technology systems to increase efficiency and to support the company’s services,
operations and management. During the past year, the company invested in a variety of hardware and software.
Moreover, it invested in staff development to enhance their knowledge and skills for operating the systems and
programs, especially those that have been developed for use with business partners, such as the Government’s
Savings Bank and the Krung Thai Bank. The company has considered the continuity of business operations, and
whether vital machines, equipment, and work systems could be faulty or broken for various reasons. The resultant
damage from such eventualities could jeopardize the company’s business operations.
The
risk
of
investment : The company’s investments are operated within legal limits as permitted regarding types
or conditions of investment as well as the investment proportions. The company’s returns on investments during the
past year, such as interest, dividends, and the profit from securities trading satisfactorily reached the targeted levels.
However, investment risks are associated with social, political and economic conditions, financial systems, as well as
changes in related laws. All these are uncontrollable external factors and there needs to be careful monitoring of
information on any developments in the money market and the capital market. This should make it possible to
allocate investments of various types to suit the changing situations.
The company has invested in instruments with acceptable risks and that are suitable for the company’s liquidity
management and business. It also invested in various types of instruments to diversify the risks to invested money.
However, as all the investments were domestic in nature, there were limitations to the types of financial instruments
and investment instruments available. Accordingly, the company kept under review investment policies and risks 11
distribution. Information regarding interests and financial economic situations was followed closely to prevent changes
in economic conditions impacting on the value of assets. The company’s investment policies are regularly reviewed
by the investment management committee.
All types of risks that have an impact on the company’s operations are dealt with in accordance with the
guidelines. Each department is assigned to evaluate and manage all types of risks efficiently and proactively so any
risk that may occur can be identified in time. Appropriate measures, both preventive and corrective, for risk control in
various situations have been set. In 2006, both the management and staff went through programs in management of
risks in insurance, investment and operations and other types of risks as determined by the Insurance Department. The
training programs provided staff at all levels with better knowledge and understanding of the company’s risks. The
company also reviewed risk factors of all types on a regular basis and improved the measures devised to deal
effectively with the possible impact. All of the above came under the supervision of the Risk Management
Committee.