MILLIRE_2019_Annual Report

Milli Re Annual Report 2019 82 Non-Financial Risks Operational Environment Risk This risk is defined as the risk of negative impact of external factors (political, economic, demographic etc.) of the Company’s operating environment, on the operational ability of the Company. Qualitative methods are used to measure this risk. The underwriting portfolio is monitored on country basis to see if there are any business acceptances from countries that are defined as “unapproved” due to political or economic conditions and also credit ratings of countries, generating the highest share of estimated premium income in respect of developing market acceptances are analysed. Strategy Risk This risk arises due to the inefficient managerial and organisational structure of the Company, inability of the management to determine and/or develop effective strategies or non-disclosure and/or lack of implementation of these strategies, erroneous business decisions, and improper application of decisions or noncompliance with the changing market dynamics. Qualitative methods are used to measure the level of this risk. On the basis of “Self-Assessment Methodology”, “Questionnaire” and/ or “Interview” methods are used to determine the impact and probability level of the risk as “High”, “Acceptable” or “Low”. Model Risk This risk expresses the probability of loss that may occur if the models that the Company uses within risk measurement processes are inappropriately designed or not properly implemented. In measurement and assessment process of Model Risk, “Questionnaire” and/or “Interview” methods are used on the basis of “Self-Assessment Methodology”, to determine the impact and probability level of the risk as “High”, “Acceptable” or “Low”. Operational Risk This risk expresses the probable losses arising from inappropriate or inoperative business processes, human errors, technological or infrastructural interruptions, changes in management or processes, inaccurate internal/ external reporting or external factors occurring while Company conducts its vital functions necessary for the continuation of business, and inability to secure low cost and high efficiency as a result of business interruption due to disasters. Qualitative and quantitative methods are used together in measuring the operational risk. Factor Based Standard Approach is applied as a quantitative method. In this method, the required capital for operational risks is calculated by multiplying gross technical provisions and gross earned premiums by the factors in respect of the relevant lines of business. “Self-Assessment Methodology”, which allows determination of the risks related to activities conducted with the involvement of staff performing such activities, is applied as a qualitative method for operational risk. The level of the operational risk that the Company is exposed to is subsequently classified as “High”, “Acceptable” or “Low” depending on the result of the assessments. Reputation Risk This risk can be defined as the probable loss due to loss of confidence of the Company or damage to the “Company Reputation” resulting from failures in operations or noncompliance with current regulations. Qualitative methods are used to measure the level of the risk. On the basis of “Self-Assessment Methodology”, “Questionnaire” and/or “Interview” methods are used to determine the impact and probability levels of the risk as “High”, “Acceptable” or “Low”. RISK MANAGEMENT PRACTICES