Annual
Report 2013

We adopt the best risk management practices for the retirement and insurance industry and use stringent control measures with high economic, financial, and actuarial security standards to protect the liquidity, solvency, and balance of the benefit plans of our clients. To this end, we have been relying on an asset-liability management (ALM) process for more than a decade. Because of our operations, we are mainly exposed to six types of risk:

Market Risk

These are potential losses when faced with unexpected fluctuations in asset prices or a mismatch between indexes and the maturity dates of our short and long positions. To mitigate such a risk, we identify, size, control, and analyze our market risk by using a set of metrics that is more suitable for the investment strategy of each portfolio or fund to make sure the risks we underwrite match our willingness to accept our market risk.

Liquidity Risk

This means potential losses stemming from inadequate funds to honor our obligations on their due dates. In order to reduce such a risk, we conduct cash flow studies on multiple scenarios, consider our best reinvestment options to maximize available funds, and define thresholds for liquid funds.

Credit Risk

This represents potential losses if a counterparty fails to honor its financial obligations or its credit conditions deteriorate (rating downgrade). To avoid excessive exposure to this type of risk, our funds are only invested in partners that have a high-quality credit rating within clear frameworks and are subject to periodic economic and financial reviews.

Operational Risk

This stems from potential losses due to inappropriate or deficient processes, error, information technology system failure, failed operations, fraud, or even external events that harm our operations or physical assets. To minimize this type of risk, we invest in improved procedures, processes, and tools and we map, monitor, and review each step of a project to identify new improvement opportunities. For future risk modeling efforts, all loss factors that stem from processes, systems, people, and external events are entered in a database.

Underwriting Risk

Underwriting risk lies in potential losses stemming from faulty methodologies or actuarial assumptions, including inaccurate technical product specifications and failed acceptance and pricing terms. It encompasses the following risks: acceptance, cancellation, longevity, mortality, morbidity, and product design. To control it, we have adopted the following measures: we have risk underwriting rules in place, follow up on developments periodically to avoid deviations, develop products with more topical features, stipulate reinsurance treaties to cover extreme disability and death events, review technical provisions at least once a year, and conduct consistency tests and actuarial recalculations to assess their technical and operational appropriateness.

Legal Risk

This stems from potential losses as a result of a failure to comply with legal aspects involving products, signed agreements, and regulatory, labor, tax, corporate, business, civil, criminal, and other obligations. To monitor this type of risk, we rely on our experts and structured processes to follow up on its reverberations in our products and internal processes.