enterprise risk management seminar san francisco, california april 2001
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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…. - PowerPoint PPT PresentationTRANSCRIPT
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…
ERM ProcessProvide a reasonable representation of
the insurer/company/enterprise operation and its expected outcome given: Economic assumptions Environment assumptions Company risks, goals and assumptions
Identify the Question(s)
1. Market Expansion/Growth
2. Capital Setting
3. Dealings with Ratings Agencies
4. Insurance / Reinsurance
5. Capital Allocation
Identify Risks
1. Interest Rate Risk
2. Credit Risk
3. Products
4. Regulatory / Political / Legal
5. Financial
6. Business
Risk Measurements Profitability measures
Combined ratio Income ROI or ROE Surplus (SAP and GAAP)
Regulatory measures Premium to surplus Change in surplus
Others
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
Tools
Quantitative Dynamic Financial Analysis
Financial Engineering
Qualitative Identify risk in processes
Quantitative
Qualitative
ToolsWhy 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).
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.
Examples of Stochastic VariablesLoss ratios (frequencies and severities)Catastrophic eventsCompetitive position Investment yields Inflation ratesOthers
Identify the Question(s)
1. Market Expansion/Growth Example
Identify the Risks1. Pricing
Underwriting Cycle Jurisdictional Risk Competition New business penalty
2. Loss reserve development3. Catastrophe4. Investment
Risk Measurements1. ROE
2. Premium to Surplus
3. Surplus growth
No increase in Growth
D e n s ity: R O E [1 ]
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
- 0 .0 2 0 .0 0 0 .0 2 0 .0 4 0 .0 6 0 .0 8 0 .1 0 0 .1 2 0 .1 4 0 .1 6
R a n g e
De
ns
ity
R O E[1 ]
10% increase in Growth
D e ns it y: R O E [1]
0
50
100
150
200
250
300
350
400
-0 .08 -0 .06 -0 .04 -0 .02 0 .00 0 .02 0 .04 0 .06 0 .08 0 .10 0 .12 0 .14 0 .16
Ran ge
De
ns
ity
R OE[1 ]