AIG’s company-wide ERM function integrates each business unit’s risk management function so that senior management has a consolidated view of AIG’s key risks. This approach helps AIG embed risk management in our business processes and allows us to appropriately identify, assess, quantify, manage, monitor, report and mitigate AIG’s risk exposures. This includes risks related to changing climate conditions and societal changes that could impact operations and elevate reputational risks.
Our Risk Appetite Framework integrates stakeholder interests, strategic business goals and available financial resources. We balance these by seeking to take measured risks that are expected to generate repeatable, sustainable earnings and create long-term value for our shareholders. The framework includes our risk appetite statement approved by the Board of Directors and a set of supporting tools, including risk tolerances, risk limits and policies, which we use to manage our risk profile and financial resources.
We articulate our aggregate risk-taking by setting risk tolerances and thresholds on capital and liquidity measures. These measures are set at the AIG Parent level as well as the legal entity level and cover consolidated and insurance company capital and liquidity ratios. We must comply with standards for capital adequacy and maintain sufficient liquidity to meet all our obligations as they come due in accordance with our capital management and liquidity management policies. Our risk tolerances take into consideration regulatory requirements, rating agency expectations and business needs. The Group Risk Committee routinely reviews the level of risk taken by the consolidated organization in relation to the established risk tolerances. A consolidated risk report is also presented periodically to the Risk and Capital Committee by our Chief Risk Officer.
Risk identification and measurement are key tools used to inform the Risk Appetite Framework. We identify risk through several processes at the business unit and corporate level, and we conduct an integrated bottom-up risk identification and assessment process at the product-line level. We also perform an annual top-down risk assessment to identify top risks and assign owners to address and manage these risks.
AIG integrates climate risk into its company-wide Risk Appetite Statement and ORSA reports. Business functions are increasingly integrating climate risk into their activities, and business leads are considering how to address climate risk challenges in their strategic plans and track climate-related activities across the year.
The Group Risk Committee (GRC), which is comprised of members of AIG’s Senior Management, is responsible for assessing significant risk issues on a global basis to protect AIG’s financial strength and reputation. The GRC routinely reviews the level of risk taken by the consolidated organization in relation to established risk tolerances. Our Chief Risk Officer also periodically presents a consolidated risk report to the AIG Board of Directors’ Risk and Capital Committee.
AIG has an Emerging Risk Forum to monitor, assess and analyze climate-related risks and other key emerging risks facing the company. The forum includes AIG subject matter experts from across many global geographies and functions. The Emerging Risk Forum conducts horizon scanning to facilitate cross-functional dialogue, improve information flow across the company, catalyze risk management action and spark product innovation.
In 2021, AIG’s Emerging Risk Forum collectively identified risks associated with climate change as a priority, coordinating assessments of climate-related physical and transition risks. To better understand and define climate-related risks and opportunities, and more effectively direct expert insights and opinions to lines of business that could be possibly impacted, the Emerging Risk Forum established dedicated CoPs focused on Energy Transition Risk and Physical Climate Risk. The CoPs consist of subject-matter experts from across different businesses and functional support areas. This approach complements AIG’s existing management of climate-related risks through natural catastrophe modeling, our reinsurance strategy, business continuity planning and regularly revisiting the organizational appetite for such risks.
Healthy ecosystems and biodiversity are critically important to human health and underpin many economic activities. We are dependent on biodiversity for supplying food and clean water, developing medicines and pharmaceuticals, filtering pollution, storing CO2, mitigating the impact of storms and floods, regenerating soils and protecting against infectious disease. According to the World Economic Forum's Nature Risk Rising Report, more than $44 trillion, or more than half of the world’s GDP, is highly or moderately dependent on nature.
Although the full social impact of biodiversity loss is not yet clear, degradation of natural ecosystems can directly impact the frequency and severity of natural catastrophes like flooding, landslides and wildfires. Biodiversity loss may also harm human health in various ways, including increasing the threat of infectious diseases, which, as the COVID-19 pandemic has shown, can carry significant economic and business costs.
AIG recognizes the importance of healthy biodiversity and the need to understand the many effects created by biodiversity loss. As such, we devote meaningful time and resources to better understanding and managing the risks related to biodiversity loss. The ERM team is monitoring the risks and effects of biodiversity loss throughout our business, and our Emerging Risk Working Group holds quarterly briefings to increase education and awareness of biodiversity issues.