An insurer’s risk appetite is the degree of risk it is willing to accept in order to achieve its business objectives. This appetite is determined by many factors, both internal and external, and can therefore be expected to change over time.
The key to articulating risk appetite is to establish a Risk Management Framework that describes the organisation’s risk tolerance and risk management strategy. Developing such a framework is good business practice as it allows the organisation to gain a better understanding of the profile of risks it is exposed to. The importance is illustrated by the Financial Services Commission of Mauritius making it a requirement for insurers in that country to establish and maintain a formal Risk Management Framework.