1 / 16

FIN-13:The Evolving Role of Enterprise Risk Management Considerations in Ratemaking

Moderator Robert F. Wolf, FCAS, MAAA Principal, William M. Mercer, Incorporated/MMC Enterprise Risk Consulting Panelists: Scott M. Sanderson, Senior Vice President Marsh, Inc./Marsh Advanced Risk Solutions Benedetto Conti, Chief Actuary Winterthur Insurance Group.

lisandra-graham
Download Presentation

FIN-13:The Evolving Role of Enterprise Risk Management Considerations in Ratemaking

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ModeratorRobert F. Wolf, FCAS, MAAAPrincipal, William M. Mercer, Incorporated/MMC Enterprise Risk ConsultingPanelists:Scott M. Sanderson, Senior Vice President Marsh, Inc./Marsh Advanced Risk SolutionsBenedetto Conti, Chief ActuaryWinterthur Insurance Group FIN-13:The Evolving Role of Enterprise Risk Management Considerations in Ratemaking 2002 CAS Ratemaking Seminar March 7-8, 2002

  2. Agenda • Introduction • What is ERM? • ERM Platforms • Insurance Customers • Insurance Companies • Wrap-up • Q&A Copies of Presentations Downloadable at www.casact.org

  3. What is ERM? • To me, Enterprise Risk Management is a process for identifying and prioritizing critical risks facing an organization, quantifying their impact on financial and strategic objectives, and implementing financial and organizational solutions to address them. • To others, it varies but the essence is the same • “ERM assesses and manages all risks while looking for upsides in identifying risks.” • “Enterprise Risk Management is about information and capital management.” • “The ultimate goal of Enterprise Risk Management is preservation of shareholder value.” • “The job of Enterprise Risk Management is figuring out where the edge of the cliff is, and making sure the risk takers know where it is.”

  4. No Consensus on Best Risk Measure C EPD Principal B D B= VaR (Pr Ruin) Principle A A =Variance Principal= Squared Dev from Mean TVaR Principal= C+D

  5. Why the Evolution of ERM • New/Larger Risk • E-Commerce, Market/Book Values • New Risk Products • Merger of Insurance and Financial Institutions • Realization that Silo-Based Approaches are Flawed • Ignores inherent hedges and correlation • Increased Management Accountability • New Regulations requiring corporate governance

  6. Why the Evolution of ERM • In short, because Society Demands it • Computer and Information Age • We couldn’t do what we are doing today if we needed to use slide-rules or abacus. • Focus Optimize Shareholder Value

  7. First-Step: Two Inquiries? • How much capacity does a corporation have to bear risk? • = F(size and financial Structure, Attitude Towards Where the Edge of the Cliff Lies) • Within the above capacity, how desirable is it to retain/bear additional risk? • Businesses are not in business to merely survive, but to thrive.

  8. Two Questions • Does the benefit of reduced costs given additional risk enhance or destroy a corporation’s shareholder value? • “How will the additional risk influence the total risk of retained portfolio of risks with regard to the marginal rewards in retaining the additional risk?”

  9. Risk Retention: A Pseudo-Investment Decision Goal of this Project is to Go Northwest NW Return = Cost Savings

  10. …Subject to Market Constraints …however, the market is going southeast Getting the Best Deal in this area. Market Efficient Frontier

  11. Goal Accomplished This point signifies the best of all alternatives. Market Efficient Frontier

  12. Fortune 1000 Group Analysis10% of the Fortune 1000 companies suffered a loss of over 25% of shareholder value within one month % of top 100 Primary Cause of Stock Drop (# of Companies) Law-suits Natural Disasters Competitive Pressure Mis-aligned Products Loss of Key Customer R&D Delays Manage-ment ineffective- ness Foreign Macro-Economic Issues High Input Comm-odity Price Interest Rate Fluct-uation Cost Overruns Customer Demand Shortfall Customer Pricing Pressure Regulatory Problems Supplier Problems M&A Integration Problems Accounting irregularities Supply Chain Issues Strategic Operational Financial Hazard Source: Compustat, Mercer Management Consulting analysis - Period Examined was June 1993 to May 1998 Note: There were also 5 stock drops for which the primary cause could not reliably be determined. These 5 stock drops are not depicted. How Does Risk Manifest Itself?

  13. Two Ways to Interpret Graph • Hazard and Financial Risk is Not Important • Hazard and Financial Risk has been and continues to be managed well • Testimonial for risk managers, actuaries, brokers, and financial analysts. • We need to continue the process • …The opportunity now is to work on the left side of the graph.

  14. …….Significant Challenges and Opportunities for Actuaries. “….We don’t do things because they are easy. We do them because they are hard.” ….John F. Kennedy

  15. Thank You

  16. Q&A

More Related