Appetite for risk
The appetite for risk is defined as the amount of risk that a company is ready to take in order to obtain the appropriate or necessary yields, or even the total impact of the risks that a company is ready to accept in the pursuit of its strategic objectives.
To achieve this appetite, we often rely on the following dimensions:
- The value of the company, the net asset value (NAV)
- The solvency, the solvency ratio
- The profitability, the combined ratio (non-life)
- The liquidity, in % of technical reserves
- The reputation
Thus, for example, the company will have as objective a strategic growth of the NAV of 5% per year but it can only accept 1 year in 10, growth is limited to 1%. The development of the appetite at the risk will therefore be the strategic business plan of the company.