Managing Risk in All its Dimensions

The Generali Group, third largest insurer in Europe and among the top twenty worldwide, has recently started a program to concentrate and coordinate its asset management activities through three dedicated units: Generali Finances based in France, Am-Generali Finanz based in Germany and Generali Asset Management based in Italy. This program aims to consolidate the assets under management of the smaller local entities within each of the three dedicated investing units, and to create a virtual community that links the three investing units with their customers. Moreover, from a financial point of view, Generali's key strategic objective is to achieve the best possible performance within the framework of strict financial risk management.

Paolo Pirona, head of information services, Generali Asset Management says, "Until recently asset management was not complicated for us. Interest rates were high, so we just bought government bonds and that was it. The risk on government bonds was very low, and there was thus no need for a structural risk management system. Now, however, we must contend with the growing challenge posed by falling interest rates. Most of our policies are linked to a minimum return, so whatever happens in the financial markets we have an obligation to pay this rate.

"To cope with the evolution of the financial markets, we started investing in the corporate sector (bonds and equities) with a more diversified mix of instruments, which causes greater credit risk exposures, and we have also shifted from domestic to international investments. As a result, the business of insurance and asset management has become much more demanding and complex for us, and carries a much higher risk. We are now not only concerned with market risk, but with credit risk as well."

Seeking the Right Solution
"Because the financial world has become rather more complicated, and because we now offer many more financial products, we needed a group risk management system capable of supporting a network of inter-related units using a wide range of instruments, each of which has different return drivers carrying a variety of risks," continues Pirona. "We needed an implementation that had the capability of focusing on the asset management segment, from the risk management point of view."

In short, Generali needed a solution that could manage risk across a variety of dimensions, and that could consolidate and aggregate data so that the whole group is using the same language when it comes to internal risk management. "We are gathering data from several European countries and a variety of legacy systems, but the methodologies and risk measures have to be the same throughout the group," says Pirona. "Without a common analytical framework it would be impossible to manage risk at the group level."

Generali therefore specified a business intelligence solution based on a high-quality data warehouse, advanced analytics and a quick-to-implement but flexible risk management solution. The whole architecture had to deliver synergy with the existing IT infrastructure and offer easy Web-based access to information and reports.

SAS – Expertise in Risk Management
"We chose SAS Risk Management firstly because of the data extraction and integration capabilities," says Pirona. "With data from several different legacy systems to consolidate, each of them implemented independently on the basis of national rules and regulations, the solution had to provide powerful data-warehousing capabilities.

"We were also looking for a solutions provider with a strong and stable international presence to support people working in various European countries. It was crucial for us to work with an intelligence solutions provider who knew what they were talking about when it comes to risk management. The SAS team had the experience and expertise in risk management that we needed and a broad understanding of the business issues involved, and we are very thankful for that.

"We had talked to other vendors, but they offered closed solutions packages and we would have been stuck with components that were not relevant to us. These offerings lacked the flexibility that we needed, and they simply could not offer us what SAS did. We needed world-class risk management software from a worldwide provider, and SAS provided us just that."

Tackling the Complexities
Given the technical complexity of the project, Generali chose to set up a virtual community exploiting the expertise and competence across the group and overcoming the traditional functional distinctions between project participants (analysts, programmers, risk managers and so on). It also followed a step-by-step, prototype-driven approach delivering results in short development cycles. The first prototype was realized in six months, followed by parallel development of various segments (such as mark-to-market funds and insurance funds).

The main data inputs for the solution are static and dynamic reference data, benchmark constituents, portfolio positions and day-to-day transactions. "The central repository resolves conflicts between the various input data and performs a wide range of checks and data cleaning operations," says Pirona. SAS Risk Management takes this data and carries out Value at Risk calculations and performance attribution to deliver static and dynamic reports to users via the Web in PDF, HTML or Excel format.

The final challenge was to roll out the solution to production, which was effected through a coordinated change management programme, with the establishment of a back-office data warehousing support and maintenance function and a Group Risk Management competence centre.

Result? An Instant View of Risk Exposure
"The end result is an object lesson in how to leverage corporate-wide strengths to drive down costs and improve management in a multinational environment," says Pirona. At the start of the project none of the national subsidiaries had a risk management structure. Now, Generali has an enterprise-wide solution based on a common methodology, but one that takes full account of the particular circumstances of each subsidiary or branch. Generali now can get an instant view of the company's risk exposure on a daily, weekly or monthly basis.

"The recent turmoil and nervousness in financial markets make it essential to be able to provide answers in a very short timeframe," says Pirona. "For example, if a particular equity looks weak, our managers want to know immediately how much we have invested in it across Europe, what is the Value at Risk and what action we should take. Without the SAS Risk Management solution we might have to wait weeks to gather that information, and in the meantime we could easily lose millions of euros. "The other major benefit of the solution is the confidence that it gives customers and prospective customers. If you do not have a system in place that can calculate and demonstrate performance, many customers simply will not give you their business. Reliable performance information is a must."

SAS – A Key Competitive Advantage
"The SAS solution was implemented quickly and to our particular specifications. It gave us the flexibility and the opportunity to exploit and implement some proprietary ideas and methodologies that give us a key competitive advantage. No other financial software packages we looked at could offer this to us, so we are quite happy that we chose SAS. We are willing to go a long distance with SAS in the future," concludes Pirona.

About Generali Asset Management
Generali Asset Management is a subsidiary of the Generali Group, which consists of 450 companies directly or indirectly controlled by the Trieste-based Assicurazioni Generali, Italy's leading insurer. The Generali Group has operations in some 50 countries, carried out through a network of branches and subsidiaries as well as specialized offices providing assistance to multinational clients. In terms of written premiums, the Generali Group is the third largest insurer in Europe and ranks among the top twenty worldwide with approximately €250 billion in assets under management. Generali Asset Management, the Group's asset management unit in Italy, has approximately €60 billion in assets under management.

Copyright © SAS Institute Inc. All Rights Reserved.