Corporate Risk & Insurance

1. Corporate Risk & Insurance Role of Insurance in Corporate Risk – Nasreen Al Qaseer 4th Nov 2009

2. Types of Corporate Risk Page 2 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

3. The Components of Corporate Risk Page 3 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

4. How to Manage Excess Risk Corporate Risk Manageable Tolerable Risk (Expected Loss) Risk Management of the Corporate Transfer A large risk to an insurer Excess Risk (Unexpected Loss) Pay a small Premium Page 4 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

5. Impact of insurance On Corporate Risk Operational risk event has two aspects: • Probability of occurrence; and • Severity/ impact of the event. Impact of insurance • Probability of the adverse event is not significantly reduced with insurance. • However, the impacts of individual risks are reduced (reduction in standard deviation) due to insurance cost being both low and predetermined. Page 5 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

6. Corporate risk insurance: Direct & indirect benefits • Direct Benefits • Reduces financial impact of loss. • Indirect Benefits • Loss control and corporate risk management services are provided by insurers. • External monitoring and investigation of risks by insurance company. • The cost and availability of insurance acts as incentive to reduce losses. • Increases the risk awareness Page 6 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

7. Credit Risk & Insurance: An Overview • Credit Risk is the risk of default of counterparty on a contracted obligation • Insurance Solutions transfer the risk of the counterparty to the insurer • Large Credit risks may also be transferred by the insurer to the larger Re-insurance company which is higher in credit rating (i.e. Ahli re-insuring with Arig) • The insurer bears the risk of default on behalf of the corporate in exchange of a predetermined premium Page 7 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

8. Credit risk : Insurance options Credit insurance solutions could be customized to the corporate needs: • Whole Turnover/Multi Buyer – Covering all buyers • Top Account – Covers the largest accounts only, • (80% of turnover from 20% of buyers) • Single Risk – Covers a single buyer only • Domestic/Export – Both or either type of trading can be covered • Political Risk – Covers actions by foreign governments • Bank Guarantees Page 8 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

9. Operational risk and insurance: Overview What is Operational Risk? • Operational Risk arises from failed processes, systems, people and external events Why Operational Risk Insurance? • Tool for reduction of financial impact of adverse event • Tool for management of external and uncontrollable sources of risks Risk transfer: Insurance Internal controls and compliance Page 9 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

10. Operational risk: Insurance options • Fidelity Bond • Covers policy holders for losses incurred as a result of fraudulent acts by specified individuals • Electronic computer crime • Covers for losses resulting from computer failures, viruses, forged electronic activity etc. • Professional indemnity • Provides cover against liabilities to third parties for claims arising out of employee negligence etc. • Non Financial Property • Covers buildings etc. • Other policies • General and Other Liability • Employment Practices Liability • Directors and Officers Liability Page 10 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

11. Transportation risk and insurance: Overview What is the risk? Buying or selling goods from the international market involves risk of damage or loss or delay of goods in transit. People who facilitate the movement of goods in supply chain operate under conditions limiting the liability in cases of loss, damage or delay. Why insurance? Insurance coverage manages the risk that goods may be lost, damaged or delayed because the compensation can be claimed if there is any financial loss to the business. Page 11 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

12. Transportation risk: Insurance options Cargo insurance Covers goods in transit via road, rail, sea or air. In its simplest form it provides cover against accidental damage and other risks Limited liability Without insurance only the minimum protection for the goods will be provided because freight forwarders and carriers typically have limited liability in the event of loss, or damage or delay Marine insurance Covers the whole journey – over land as well as sea. Acts of god and acts of war Under international law, transport carriers aren't liable for acts of God, i e unforeseen acts of nature such as lightning - or acts of war or civil unrest. Piracy, which is very common in some waters, is also considered an act of war. Page 12 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

13. Litigation risk: Role of insurance Companies face all sorts of lawsuits that either clearly are not covered by liability insurance indeed, most contract disputes are uninsurable or else are subject to coverage disputes or policy limits that render the availability and extent of insurance coverage a major source of uncertainty . Even where there is some insurance coverage potentially available, a company will often face uncertainty not only over how much it will have to pay the plaintiff but also over how much, if any, it will be able to collect from insurance. The conventional liability insurance offered by the insurance carriers helps the corporate in mitigating the litigation risk. General liability insurance policy is available to defendants, but it is available only for specified categories of litigation triggering events and is available only before something has gone wrong and a lawsuit has been filed. Page 13 Role of Insurance in Corporate Risk – Nasreen Al Qaseer

14. Last word: insure • Transfer to risks • Credit • Market • Operational • Pay less to save more • Do business safely and secure the continuity

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