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on 22-Apr-10 02:55.
Embedding ERM: 2008 Global Insurance Sector Survey Results
Originally Published: October 27, 2008
In a global survey of more than 350 Chief Financial Officers, Chief Actuaries and Chief Risk Officers, Towers Perrin found that insurers are still having difficulty fully embedding ERM into decision-making processes. The survey included respondents from North America (49%), Europe (29%), Asia and the Pacific (19%), Latin America (2%), and Africa and the Middle East (1%).
Using Economic Capital to Measure Risk
Economic capital methodology is moving towards a one-year value at risk approach, with 56% of respondents using a market-consistent terminal balance sheet. The survey found that a significant percentage of insurers are still focused on calculating economic capital, while only 10% of respondents indicated that they have the ability to fully utilize economic capital to make risk-based decisions. Among larger insurers, 40% use economic capital in product design and pricing decisions with another 42% planning to do so within two years.
Eighty-four percent of large insurers calculate economic capital, compared to 69% of medium-size insurers and 37% of small organizations. In larger firms, 44% use economic capital in strategic planning and capital allocation compared to 19% for small firms. Seventeen percent of small firms use economic capital in products design and pricing as compared to 40% of large firms. The study found that larger insurers are more advanced in the calculation and use of economic capital in decision-making, and placed a higher priority on improving the implementation of risk-based decision-making in the future.
on 22-Apr-10 02:53.
ERM in Higher Education
Originally Published: September 01, 2007
The University Risk Management and Insurance Organization (URMIA) is the key source for higher education risk management information. Following the passage of the Sarbanes-Oxley Act of 2002 (SOX), URMIA realized that organizations of all types, including institutions of higher education, are in a new world of risk. In response, URMIA appointed a task force of Risk Managers to prepare this white paper about ERM for institutions of higher education. The purpose of this white paper is to provide URMIA members and institutional colleagues with a better general understanding of ERM and to provide a set of resources available for structuring and implementing an ERM framework at member institutions. This white paper also includes appendices describing how several universities have implemented ERM.
In the 1980s, long before SOX, several significant business failures occurred as a result of high-risk financing strategies. These failures, among others, have placed a greater focus on improving overall risk management practices for organizations of all types, including institutions of higher learning. Several organizations related to educational institutions, such as the Association of College and University Auditors (ACUA) and the Public Risk Management Association (PRIMA), are recognizing the need for more effective risk management practices. These organizations are tracking ERM related developments in the broader corporate sector and looking for ways to implement many of those concepts for institutions of higher education.
on 22-Apr-10 02:52.
ERM - UnitedHealth Group
Originally Published: July 01, 2005
Enterprise Risk Management (ERM) is a discipline at UnitedHealth Group that identifies risks and alleviates negative exposures while profiting from positive opportunities. The risks can range from financial reporting and compliance to planned business risks.
Some companies are adhering to Sarbanes Oxley Act (SOX) compliance and have not yet embraced ERM. However, SOX does not address some of the important value adding elements for stakeholders-strategic business risk and market/business environmental risks. The goal of ERM is to provide value and not primarily focus on enforcing risk reporting and monitoring.
Executive management can more effectively handle uncertainty in both positive and negative risks with an ERM model and process. The key is focusing on the recognition of risks and mitigating those risks within a suitable tolerance level.
UnitedHealth Group's mission is to improve the healthcare system. After the implementation of Business Risk Management (BRM) into their six diverse operating businesses, UnitedHealth Group believed they were prepared to fully integrate ERM into their business culture.
on 22-Apr-10 02:51.
Insurance Companies' ERM Ratings
Originally Published: July 16, 2007
Standard & Poor's specializes in rating companies on a variety of financial and non-financial measures. Since 2005, Standard & Poor's has evaluated the effectiveness of enterprise risk management (ERM) in European insurance companies. Insurance companies have a strong need for a strong risk management strategy because of the high risk of loss in the industry if something goes awry. Overall, they find that 86% of rated European insurance companies have adequate ERM programs in place.
Elements of an adequate ERM program, as defined by Standard & Poor's, include:
• Fully functioning risk control systems that cover all major risks
• Risk management process is classical, silo-based
• Lacks a clear vision of their overall risk profile
• Risk limits for various risks are set independently, no significant coordination between risk profiles
on 22-Apr-10 02:50.
Integrating SOX and ERM- Truths and Myths
Originally Published: April 01, 2007
Currently, the majority of businesses deal with compliance and ERM management as separate processes. One reason for separation is because organizations were not initially using a risk-based approach to meet compliance issues. Management was more concerned with transparency of financial reports and the appeasement of external auditors. The PCAOB's initial focus on testing and documenting control procedures steered management away from using a risk-based approach. At the end of 2006, the SEC and PCAOB issued proposals that would replace Standard No. 2 which many argued discouraged a risk-based approach for compliance.
Because of the disconnection mentioned above, SOX Section 404 and ERM were treated as separate projects. In order to be more efficient, companies such as Countrywide Financial Corporation and Aquila began merging compliance and ERM management. Countrywide is presently integrating SOX functionality into their internal ERM software. The risk management software allows managers at every level to review risk data for their area to determine if it meets their risk appetite. Executive managers, in turn, use the software to develop a strategic plan for Countrywide's entire risk portfolio. They use a top-down and bottom-up approach to effectively communicate risks at all levels.
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