Letter from the CEO
Patrick Thiele
President and Chief Executive Officer
Risk Management
Last year was notable for the spectacular failures of risk management systems in some banks, hedge funds and insurers. As a result of the sub-prime mortgage credit crisis, a number of financial institutions disclosed losses that were far in excess of the levels expected by investors. Stock prices collapsed, funds were shut down and investors lost billions of dollars.
We will learn more about the reasons for the failures as investigations and class action lawsuits proceed, but it seems that there will be several key themes:
- Inappropriate metrics that didn’t capture the extent of the risks assumed,
- A culture that placed incremental return above prudence,
- Lack of transparency to investors around the extent of the risk taken, and
- Flawed compensation systems that encouraged individuals to take excessive risks.
The world is a risky place and bad things happen; but at PartnerRe we’re committed to not making those same mistakes. As we have described in our annual reports over the last three years, we evaluate and value risks within an embedded, integrated risk management framework. The key elements of our risk management system are clearly defined risk appetite limits, accountability, appropriate policies and guidelines, and a belief that investors and clients deserve to know about all the major risks that we take.
Our risk culture does not guarantee that we won’t have losses or disappointments. As a result of the sub-prime credit crisis in 2007, we wrote down our total investment in financial guarantee reinsurer, ChannelRe, to $0. This is a good example of how limiting risk exposure, rather than relying on models to evaluate risk, offers better protection against the type of disaster that has befallen some financial institutions. Next >
