Risk Management

SFMI runs an integrated enterprise risk management system to maintain a stable growth and maximize the value for shareholders and customers.

Risk Type

Risk Type

Risk Definition Management Method Measurement Method
and System
Insurance Risk Risk of loss led by higher actual claim payment rate over assumed claim payment rate
  • Set tolerance risk level based on changes in loss ratio, policy termination rate and regularly monitor related risks
  • Establish reinsurance strategies
  • VaR(Value at Risk)
  • ReMetrica
  • RAFM(Risk Agility Financial Modeler)
Interest Rate Risk Risk of loss from shrinkage in adjusted net worth led by asset and liability duration and ALM mismatch due to a fluctuation in interest rates
  • Establish guidelines to formulate estimated interest rate and minimal guaranteed rate
  • Set asset duration target based on liabilities cashflow that takes account of liabilities structure and interest rates
  • VaR
  • ALM
  • RAFM
Market Risk Risk of loss from drop in market value of asset led by negative market fluctuations in interest rate, stock prices, and exchange rates
  • Set reference investment criteria for marketable securities, loans and establish loss criteria to prevent high losses
  • Market VaR
  • KRM(Kamakura Risk Management)System
Credit Risk Risk of loss caused by default or fall in credit rate of counterparty
  • Set investment limits by each industry to diversify risks and check maxed–out risk through the exposure monitoring system
  • Credit VaR
  • Credit Metrics
Liquidity Risk Risk of loss from discrepancy between supply and demand of capital or sudden capital outflow
  • Monitor daily monetary transaction
  • Establish monthly asset management strategy
  • Monitor quarterly liquidity ratio
  • Liquid Asset
  • Liquid Liabilities

Risk Management Process

SFMI conducts risk management through a systematic process from risk recognition to risk measurement & monitoring and further to risk control and reporting.

  • Risk
    Recognition
    - Insurance/interest rate/
    market/credit/operating/
    liquidity risk
  • Risk
    Measurement
    & Monitoring
    - Risk assessment,
    system use
    - Full-time monitoring
    (Daily/Weekly/Monthly/
    Quarterly Basis)
  • Risk
    Control
    - Defining maximum risk
    levels, monitoring burn
    rate
    - Solvency margin ratio
    management
  • Risk
    Reporting
    - Reporting key risk
    management issues

Operating Risk Management

Operational risk refers to potential risks of financial loss in business management and drop in corporate value that may arise from insufficient internal control, mistakes by employees, unexpected external events, failure in strategic decisions, etc. It is difficult to measure operational risks accurately and reduce or transfer such risks through derivative instruments or reinsurance schemes. SFMI manages operational risks at the enterprise level through concerted efforts of individual departments under risk-specific managing functions.

  • Infrastructure risk refers to potential loss that may arise from management failures or external factors in the management of IT systems at worksites. Under the guidance of IT Strategy Team, Auditing Team, HR team and Actuarial RM Team, SFMI strives to minimize such risks by implementing compliance activities including contingency and recovery plans against system failures, mock drills for malware prevention, worksite safety assessment and infrastructure security training.
  • Process risk arises from lack of procedures and governance, human errors, insufficient internal control, etc. in the work process. Under the guidance of Chief Compliance Officer and Actuarial RM Team, SFMI conducts risk management through year-round monitoring of operational risks by business class, differentiating authority in accordance with regulations on delegation, and preventing accidents through compliance education.
  • Strategic risk may arise from failures in corporate strategies on system, industrial structure, demographic changes as well as M&A and marketing strategies. Under the guidance of Corporate Planning Team, SFMI monitors domestic and overseas business trends and relevant laws and regulations along with systemic changes in order to preempt risks in implementing corporate strategies.
  • Reputational risk may arise from reputational damage by customer grievances and complaints, negative public sentiment, lower credit rating, etc. SFMI manages reputational risks through on-going monitoring activities as well as operating functions including PR Team, Compliance Team, Customer Policy Team, and product/ sales/claims business divisions.

Risk Management Organization

SFMI develops and implements risk management strategies through Risk Management Committee and administrative organizations for integrated management of major enterprise risks.

    • BOD
    • Risk Management
      Committee
    • CRO
      • Product Committee(Long-term, Automobile,
        General, Retirement)
      • Product Departments
      • Asset Management Committee(Asset RM, Credit, Investment)
      • Asset Management
        Departments
    • Actuarial RM Team
    • Insurance & Operating Risk
      Management
    • ALM(Interest rate)Risk
      Management
    • Market, Credit, and Operating
      Risk Management
  • Chief Risk Officer (CRO) CRO supervises the Risk Management Committee, and also attends the Product Committee and the Asset Management Committee to oversee risk management across business lines.
  • Risk Management Departments Under CRO, risk management departments — RM Planning Department, RM Operating Department 1, RM Operating Department 2 — are placed to assess, monitor, and control risks. They operate separately from insurance sales and asset management departments in order to secure independence. Also in order to facilitate risk–related decision making, SFMI operates General / Long–term / Auto Insurance Product Committees for insurance business, and governs Asset RM Committee, Investment Deliberation Committee and Loan Deliberation Committee for asset management.
  • Risk Management Committee As a sub–committee within the board of directors, the Risk Management Committee defines tolerable risk levels for both underwriting and asset management operations and establishes risk management guidelines that are reflected in the company–wide business decision making. The Committee also internally promotes the importance of risk management. The Committee, composed of one executive director and two outside directors, is authorized by the board of directors to establish basic risk management guidelines in accordance with the company’s culture, to gauge risk tolerance level, and to draft and revise risk management–related regulations.

Business Continuity Management

In preparation for potential business interruptions caused by disasters such as fire, natural disasters, and war crises, SFMI established Business Continuity Management system. The company has prepared emergency response scenarios by major types of accidents to conduct regular trainings and education sessions, which brought the company ISO 22301 in January 2018, an international standard on business sustainability management.

  • PLAN
    - Understand demands
    based on different
    organizational
    environments
    - Establish business
    continuity plan target,
    guidelines, and
    procedures
  • DO
    - Adopt and execute
    business continuity plans
    - Develop recovery
    procedures from
    business interruption
  • CHECK
    - Verify and assess
    performance
    relative to target
    - Report results for
    managerial review
    - Grant authority over
    activities for
    improvement and
    correction
  • ACTION
    - Reassess business
    continuity plans and goals
    - Implement necessary
    measures based on
    managerial review
    - Maintain and complement

Emerging Risks

In order to protect costumer's interest from uncertainty, Samsung Fire and Marine is preparing against anticipated new risks in the insurance industry.

  1. 1.Climate change
    Climate change

    Definition of risks Climate change risks refer to significant long-term changes in the global climate caused by the increase in the average surface temperature of the earth, which results from rising greenhouse gas emissions such as Carbon Dioxide. Climate change risks are largely classified into two categories: 1) Physical risks associated with the increasing frequency and severity of natural disasters caused by global warming, such as typhoons, floods, and heavy snowfall, etc., and 2) Transitional risks associated with regulatory and market changes related to climate change.
    Impact on business
    1. 1) Impact of physical risks Increased frequency and severity of natural disasters caused by global warming may have a great impact on the loss ratio in the insurance business. Our auto insurance business also suffered from natural disasters such as floods and typhoons, recording approximately 11% of cumulative increase in average loss over the last decade. The general insurance business is also exposed to risks from natural disasters that may occur in Korea but also overseas. Given that a third of our direct written premiums come from automobile and general insurance, SFMI needs to develop measures to minimize the negative impact of natural disasters and reduce our carbon footprint.
    2. 2) Impact of transitional risks There is a possibility for the Korean government to reinforce laws and regulations on carbon emissions in order to achieve its long-term goals set forth in the Paris Climate Change Agreement. Failure to deal with such regulatory changes may cause loss in business. Considering that environmental changes brought by climate risks may generate potential needs for new products and services, we need to pay close attention to the relevant market trends and strive to seek opportunities early on.
    Preparation against risks SFMI engages in various activities to reduce risks posed by climate change. To manage cumulative risks associated with natural disasters, SFMI measures cumulative risks of earthquakes, floods, typhoons for domestic and overseas accounts, and continuous monitors these risks. SFMI’s internal experts conduct quantitative analysis of natural disasters for corporate clients by using simulation programs, identify their weaknesses, and suggest specific and realistic solutions for clients to support risk management related in natural disasters. In addition, SFMI provides real-time typhoon information to clients so that they can make thorough preparation against typhoon risks. SFMI makes a continued effort to provide loss control intelligence by operating its own weather data system, and offering precipitation predictions according to climate change in the Korean peninsula. In addition, the company staged various environment protection campaigns to reduce carbon footprint which employees can participate. In 2018, all SFMI employees installed a multi-power outlet and practiced switching off on electronic devices when they leave the office, as part of the “Standby Power Zero” campaign to reduce standby power consumption. SFMI also raised awareness about pollution and stressed the importance of recycling through internal TV promotional campaign named, “Nudge for Green.” Employees also participated in the Eco-share campaign where they donated used books and stationeries to children in the developing countries, which generated both environmental and social values at the same time. On a company-wide level, SFMI has been taking steps to deal with potential transitional risks associated with climate change. The company joined the Carbon Disclosure Project (CDP) in 2010 and continued its efforts for greenhouse gas reduction, which was proven by its certifications on Scope 3, ISO 14001 and ISO 50001. We are also committed to developing environment-friendly products and services such as the “Eco-mileage” rider and the electronic policy signing service, in order to proactively manage climate change risks and related market changes.
  2. 2.Technological changes
    Technological changes

    Definition of risks Risks from technological changes refer to potential changes brought forth by the 4th industrial revolution including AI, block chain, and IoT. Before long, these cutting-edge technologies will be applied to the insurance industry as well the product sales and claims processes for insurance services, transforming the entire industrial landscape. Such changes may cause concerns of losing competitiveness but on the other hand, they also may unlock huge opportunities to explore new markets.
    Impact on business
    1. 1) Insurance and automation As AI technologies enable insurers to collect, store, process, and analyze massive data at a rapid speed, insurers may streamline the business process of insurance purchasing, underwriting, and claims settlement through customer data analysis based on texts, audio, and image files.
    2. 2) Diversification of services Despite its stagnant use in the real world, IoT technology that is designed to connect things to the internet and exchange data is also expected to create a sizable market in the future. If more sophisticated technologies are applied in the insurance industry, this may provide customers with healthcare services and security protection while mitigating their burdens on premiums.
    3. 3) Change in the sales channels Recently, we have been witnessing growing marketing opportunities in the digital ecosystem through internet portals and mobile applications, etc. in addition to the existing distribution channels. The insurance business is no exception to the broadened opportunities thanks to the diversified marketing and sale channels. Intense competition in launching new platforms is anticipated, as insurance products are being distributed through various online platforms.
    Preparation against risks SFMI has made various attempts to embrace technological changes that could affect the insurance industry. SFMI is operating a “Family Medical History Consulting System,” a data-driven insurance information service where customers register their body indexes and lifestyle patterns, and prepare for potential health risks based on their input and the family’s medical history. SFMI also runs “Anyfit,” an IoT-based healthcare service, which measures the amount of exercise, and provides rewards for healthy activities. T-map, launched in 2019, is another special product to reward users with premium discounts for safety driving. Moreover, SFMI announced its plan to invest KRW 39.6 billion in the InsureTech Fund managed by Samsung Venture Investment to take full advantage of big data and AI technologies in the insurance business.
  3. 3.Demographic Change
    Demographic Change

    Definition of risks Korea is expected to enter into a phase of the super-aged society in 2026 with people aged 65 or older representing 20% of the nation’s total population. Demographic risks refer to risks arising from population aging, and includes the decrease in productive population, drop in the economic growth rate as well as the interest rate, reduction in the scope of coverage, and other potential risks that may weaken the prospect of the future insurance business environment.
    Impact on business
    1. 1) Deterioration of asset management yields Diminishing productive population and growing fiscal spending on aging may ignificantly slow down the economic growth rate. A falling interest rate may decrease asset management yields for the entire financial industry.
    2. 2) Decrease in scope of coverage and new demands Economic slowdown weakens investment, and this also stands for reduction of the scope of coverage. Direct premiums written may decrease due to the diminishing demand for insurance in line with population aging and low birth rate, market saturation and intensified competition.
    3. 3) Impact on the health insurance business Growing burden of medical expenses and an increasing number of patients with chronic diseases may deteriorate the profitability of the existing health insurance business and increase demand for new services in healthcare.
    Preparation against risks To tackle the low interest rate environment, SFMI maintains its focus on ALM-based asset allocation to long-term bonds. As an alternative investment to raise profitability, SFMI has expanded corporate lending such as large office mortgage loans and SOC investment, while diversifying sources of overseas investment. As part of its effort to fend off dropping health insurance profitability resulting from population aging, SFMI also expanded healthcare services that can help reduce the loss ratio and meet customer needs at the same time. SFMI has provided healthcare service Anyfit since June 2018, which is a mobile app service to reward users for achieving certain exercise goals through walking, running, or hiking. Customers can use the reward points at convenience stores and coffee shops, or purchase mobile coupons. Starting this year, they can also use the points to pay insurance premiums.