Reputational Risk: Success is Trust-dependent

Ina Catrinescu and René Doff

Solvency II is the general framework for modern risk management practices in insurance firms. In itself, the process of developing this framework has led to enormous progress in the way that companies identify risks, measure them consistently and manage them by taking well-informed risk-mitigation decisions. By introducing Solvency II, the European Commission has achieved a great consistency in the risk spectrum that companies use. The Solvency II risk spectrum, however, does not cover all risks. Strategic, general business risks and reputational risks are not covered. Although a consolidated definition is lacking, strategic risks have been more or less managed implicitly by companies. Naturally, companies manage their strategic plans through a multi-year business planning process, where business objectives are challenged upon their inherent risks.

Reputational risk management is still in its infancy. In the aftermath of the financial crisis, however, the regulatory analysis conducted by the European Insurance and Occupational Pensions Authority (EIOPA) has identified reputational risk as potentially the “most relevant ‘other risks’ an undertaking may be exposed to.”11CEIOPS (2009

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