Introduction

Guoqiang Li

1.1 ABOUT THIS BOOK

This book articulates the close interrelationship between risk management, capital management and value-based management practised in the financial services sector in general and by global insurance groups in particular. Insurance companies are in the business of accepting risks from, and managing risk on behalf of, policyholders. Taking too little risk is likely to result in mediocre returns and will eventually make the insurer irrelevant to its policyholders and unattractive to its shareholders. On the other hand, taking too much risk may cause unexpected financial distress and destroy shareholder value. An insurance company’s key competitive advantage is to take an amount of risk (of appropriate types) that is commensurate with its strategic objectives and balance-sheet strength and then to manage this risk to maximise the possibility of meeting or exceeding these objectives. Strategic objectives, which are the cornerstone of value-based management, include the creation, preservation and enhancement of value for stakeholders. Balance-sheet strength is measured by capital adequacy metrics, which are a component of capital management. The risk and capital