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on 22-Apr-10 03:05.
Using Technology to Support ERM: A Case Study
Originally Published: December 31, 2003
Company Background and Risk Goals: Zions Bancorporation is a financial services company that operates six bank charters across the western United States. With the diverse, broad services that it offers, comes a complicated risk profile. One of the main questions of management was what type of technology system would fit the company's needs and facilitate meeting Sarbanes-Oxley Section 404 requirements. Zions came up with three goals for its risk framework:
• Allow Zions to effectively manage risk and cut losses
• Increase shareholder value and customer service
• Meet regulatory requirements
The overarching goal was also to fit this all into one system with a common framework in order to suit management's plans.
on 22-Apr-10 03:04.
ERM and Business Continuity
Originally Published: March 11, 2005
Over the past few years, many have debated about how business continuity functions relate to risk management. There are three main viewpoints associated with this debate: those that say the two are closely related and work side by side, those that think business continuity is a sub-component of risk management, and those that agree there is a link but do not support the order of hierarchy.
Traditional risk management has been around for a long time and is an established function within most organizations, while business continuity is relatively new. Risk management is well understood within businesses and it is difficult to replace it with business continuity management because of people's views, understanding and the general resistance to change. Ultimately, people's experiences lead to which viewpoint on the relationship between risk management and business continuity management they will take.
For instance, if someone is comfortable with and understands risk management, then that person will presumably view business continuity as something downstream from risk management, which in turn leads to seeing business continuity as a component of risk management. Some adopt this view because individuals who have worked in risk management for many years think of business continuity as another name for the legacy disaster recovery function. However, this viewpoint is generally not reflective of current trends now that most business continuity management activity encompasses emergency planning, disaster recovery, security, health and safety, crisis management, and even risk management.
on 22-Apr-10 03:03.
Does ERM Matter?: Enterprise Risk Management in the Insurance Industry
Originally Published: June 01, 2008
While the implementation of ERM in the insurance industry has improved since 2004 study also conducted by PricewaterhouseCoopers, insurers still do not commonly consider risk when making decisions, such as new product offerings. Regulatory authorities and rating agencies now consider ERM capabilities when assessing the financial strength of a business.
Rating agencies like Standard and Poor's, Fitch's, and AM Best evaluate the quality of risk management when rating companies. The extent of a company's implementation of ERM will affect the overall cost of capital and its availability, especially now when market liquidity is diminished. EU Solvency II requirements encourage a holistic and systematic approach to risk management. EU Solvency II and rating agencies consider the strength of risk monitoring, reporting and control, the integration of risk awareness into governance and decision-making, and risk-based capital allocation. Standard and Poor's found that the ERM capabilities of 3% of 274 insurers reviewed in 2008 were rated excellent and 10% were rated strong. Most, however, were rated as adequate.
on 22-Apr-10 02:56.
Driving Need for ERM
Originally Published: March 31, 2001
Most executives would probably agree that risk management is a part of their job and that risks facing companies are on the rise; However, if you ask executives to define risk management or to elaborate on the levels of risk facing their company, you will certainly get varied responses. Some say, "It's about preventing disasters," while others say, "It's something the insurance or finance people handle."
Financial Executives Research Foundation recently published a book summarizing research on risk management gleaned from five companies in different industries. The book, Making Enterprise Risk Management Pay Off, details how the five (J.P. Morgan Chase & Co., E.I. du Pont de Nemours and Co., Microsoft Corp., United Grain Growers, Ltd., and Unocal Corp.) are implementing enterprise-wide risk management. A key finding in the study is that risk management is not just about disasters or insurance or finance, but rather how to effectively run a business and understand, at the core, the risks facing the business.
Today, successful risk management is not only about the downside-it is just as much about opportunities and the upside. Historically, companies have taken a "silo" approach to managing risk, i.e. they focused on how to manage the most obvious risks individually. This new approach, enterprise-wide risk management, seeks to maintain or improve shareholder value by managing uncertainties that may negatively or positively affect the achievement of company objectives. Further, it is an integrated approach utilized to manage all risks in the aggregate.
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.
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