17 Annual Report 2020 Risk identification Risk is defined as the possibility of a fu ture deviation from a predefined goal which can individually or cumulatively significantly affect NewRe s financial situ ation or result in a reputational damage Risks are identified and classified accord ing to their potential exposure to one or a combination of the following risk types strategic financial underwriting market credit liquidity operational reputational and compliance risks Only the financial risks are quantified with appropriate mod els while the rest are assessed qualita tively Risk measurement The evaluation and measurement of the quantifiable risks are documented in the Internal Risk Report prepared on a regu lar basis NewRe determines the eco nomic capital required to carry its risks by using a stochastic internal risk model This internal risk model is based on the Munich Re Group capital model and was specially developed for the Swiss Solven cy Test SST The economic risk capital corresponds to the 99 Tail Value at Risk TVaR over a one year time horizon This represents an estimate of the ex pected annual loss likely to occur with a frequency of less than once in a hundred years Internal Control System ICS As part of its operational risk manage ment NewRe operates an effective inter nal control system ICS The objective is to promote and enhance a risk and con trol culture for the relevant processes NewRe has a holistic approach to the ICS and its application is a continuous process based mainly on the segregation of duties The ICS is refined periodically to reflect changes in the processes and business environment NewRe s ICS is embedded into the Group s operational risk control system process NewRe s risk and control activities focus on the area of underwriting in particular correct pricing and contract wording Risk assessment addendum to the management report Governance and responsibilities The Board of Directors is responsible for the risk management principles and poli cies as well as for approving the overall risk tolerance NewRe s risk management function is fully embedded in the Group risk management framework The risk management function sets up and imple ments a risk management system This risk management system comprises strategies processes and procedures necessary to regularly identify measure monitor manage and report any risks to which NewRe is or could be exposed Risk management objectives and methodology The careful selection of underwritten risks is at the core of NewRe s business model The company deploys a variety of risk management tools processes and functions to manage its risks and seeks to optimise the balance between risks taken and earnings opportunities NewRe s risk management strategy is aimed at maintaining NewRe s financial strength safeguarding the reputation of NewRe and Munich Re Group enabling NewRe to protect and gener ate sustainable shareholder value The three main elements of NewRe s risk management approach are risk identification the regular and structured analysis and measurement of risks the effective management of operation al risks internal control system NewRe AnnualReport 2020 indd 17 28 04 21 19 06

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