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ENTERPRISE RISK MANAGEMENT SEMINAR SAN FRANCISCO, CALIFORNIA APRIL 2001

ENTERPRISE RISK MANAGEMENT SEMINAR SAN FRANCISCO, CALIFORNIA APRIL 2001 Shawna Ackerman, FCAS,MAAA MHL/Paratus Consulting Ltd. ERM Process. Identify the question(s) Identify Risks Risk Measurements Formulate Strategies to limit risk Implement Strategies Monitor Results And repeat….

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ENTERPRISE RISK MANAGEMENT SEMINAR SAN FRANCISCO, CALIFORNIA APRIL 2001

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  1. ENTERPRISE RISK MANAGEMENT SEMINAR SAN FRANCISCO, CALIFORNIA APRIL 2001 Shawna Ackerman, FCAS,MAAA MHL/Paratus Consulting Ltd.

  2. ERM Process • Identify the question(s) • Identify Risks • Risk Measurements • Formulate Strategies to limit risk • Implement Strategies • Monitor Results • And repeat…

  3. ERM Process • Provide a reasonable representation of the insurer/company/enterprise operation and its expected outcome given: • Economic assumptions • Environment assumptions • Company risks, goals and assumptions

  4. Identify the Question(s) • Market Expansion/Growth • Capital Setting • Dealings with Ratings Agencies • Insurance / Reinsurance • Capital Allocation

  5. Identify Risks • Interest Rate Risk • Credit Risk • Products • Regulatory / Political / Legal • Financial • Business

  6. Risk Measurements • Profitability measures • Combined ratio • Income • ROI or ROE • Surplus (SAP and GAAP) • Regulatory measures • Premium to surplus • Change in surplus • Others

  7. Risk Measurements • The metric used should match the question. • Growth – ROE, change in surplus, premium to surplus • Rating Agencies – Maximize ROE subject to surplus constraints • Insurance / Reinsurance – reduced ROE volatility

  8. Tools • Quantitative • Dynamic Financial Analysis • Financial Engineering • Qualitative • Identify risk in processes • Quantitative • Qualitative

  9. Tools • Why deterministic models may not tell you everything you need to know. • Potential interactions need to be considered. • Need to understand the range of possibilities and their likelihood (Risk).

  10. Tools • Why deterministic models may not tell you everything you need to know. • All variables are not definite. • Extremes may not be taken into consideration.

  11. Examples of Stochastic Variables • Loss ratios (frequencies and severities) • Catastrophic events • Competitive position • Investment yields • Inflation rates • Others

  12. Identify the Question(s) • Market Expansion/Growth Example

  13. Identify the Risks • Pricing • Underwriting Cycle • Jurisdictional Risk • Competition • New business penalty • Loss reserve development • Catastrophe • Investment

  14. Risk Measurements • ROE • Premium to Surplus • Surplus growth

  15. No increase in Growth

  16. 10% increase in Growth

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