Allianz Chief Risk Officer Balances Risk and Reward

Thomas Wilson, one of the executives on the 100 Most Influential List in 2012, has worked to professionalize the financial services firm’s risk management operations.

A chief risk officer can never rest on his or her laurels, especially one heading up risk management at Munich-based Allianz Group, the international financial services firm with more than $100 billion in annual revenue that provides products and solutions in insurance, asset management and banking.

Thomas Wilson is the fluent economist who runs the global risk function at Allianz and is responsible for day-to-day management of limits and controlling of all risk positions. Given the topsy-turvy global economy over the past five years, it’s a full-time job.

“If you had asked me in 2007 about backing long-dated Italian bonds, I would have said it’s a safe bet,” Wilson says. “Today that’s not true, of course.”

Wilson, who has a Ph.D. in economics from Stanford University, is considered by his peers to be one of the best risk managers in the profession. In June, at the first-ever joint meeting of the CRO Council and the CRO Forum, the associations of European and U.S. insurance industry CROs, respectively, when Wilson spoke, often to express a contrarian stance, heads nodded in seeming unison. As Allianz CFO Oliver Bäte says of his colleague, “Under Tom’s leadership, our risk teams, both central and locally based, are doing a great job safeguarding Allianz.”

Wilson joined Allianz in 2008, not the most opportune time to wrestle with risk. He managed the response to the bursting of the credit bubble the prior year, as well as the financial crisis that followed. He helped set up contingency teams on counterparty risk to push legal notification out in case of default and worked with the investment management function to develop reasonable plans that balanced risk and reward. Wilson also worked to mitigate and reduce the company’s exposure to potentially affected asset classes, an effort, he says, that “has never really ended,” pointing to the ongoing European sovereign debt crisis.

Fortunately, when the financial crisis broke, Allianz, traditionally a conservative institution, had less than $400 million worth of collateralized debt obligations (CDOs) and was relatively well positioned on the cash side of the balance sheet.

“We’ve always been conservative with regard to solvency and solvency ratios, which clearly supported us in the flight to quality financial institutions,” Wilson says. “Of course, as an insurance company, we were brushed with the same tar as the banking industry, but less so because of our recognized conservative profile and [manageable] property and casualty exposure.”

Wilson is most proud, he says, of “professionalizing” the risk management organization at Allianz. “When I came here, we were still working up spreadsheet solutions,” he says. “We have for the past four or five years migrated to and enhanced our internal models to meet the future Solvency II requirements, but also to make sure we had robust controls and efficient reporting.”

CFO Bäte likes what he’s seen so far. “We have fared well during the crises to date, and we’ve maintained a resilient capital position,” he says.

Wilson has assembled risk models that are designed to control the 95% of risks that can be more or less assessed and mitigated at present, freeing him up to focus on the remaining 5%. “That’s where my framework may prove to be inadequate—a model failure due to the inability to keep up with the market,” he says.

For those elements, Wilson adds, “I need to be a risk manager.”

 

 

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