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on 22-Apr-10 02:41.
Enterprise Risk Management
February 4, 2008,by Bruce Branson, PhD
An enterprise risk management (ERM) program provides a framework for managing risk at your organization, and typically asks you to identify risks and opportunities relevant to your organization's objectives, assessing them their likelihood and magnitude of impact on your organization, determining your response strategy and monitoring progress. By identifying and proactively addressing risks and opportunities, your firm can protect and create value for your stakeholders, including owners, employees, customers, regulators and society overall.
Despite the many benefits associated with active ERM programs, many firms have resisted ERM initiatives, citing concerns about costs, loss of focus on managing operations and lack of skilled personnel. Recent events, however, may increase external pressures on many firms to begin or expand their ERM efforts. This column discusses one important new source of external pressure on firms - Standard & Poor's (S&P) recent release of their proposal to include an evaluation of ERM practices as part of their overall credit ratings analysis of nonfinancial companies.
on 22-Apr-10 02:40.
ERM-Benefits for Strategic Planning
Originally Published: September 25, 2006
The Quarterly Journal of the EDS Agility Alliance article titled, Coming of Age: As Enterprise Risk Management Matures, So Does Its Value in Strategic Planning, emphasizes the rewards of ERM. Even though some senior managers still lack the broad perspective needed to deal with risk management issues, new tools have emerged and ERM has rapidly gained momentum. It is imperative for senior management to place ample emphasis on competition risks just as common hazard risks are already addressed on a consistent basis.
Due to increased competition, stakeholder expectations, and an augmented number of helpful tools available for businesses, enterprise risk management (ERM) has gained momentum. The Committee of Sponsoring Organizations of the Treadway Commission's (COSOs) framework for ERM has generated needed assistance after continual publicity of fraudulent business activity.
The RCV Framework is one tool that can assist businesses with risk management. The concept focuses on maximizing value through effective management of risks and the capital used for financing business. Since the methods of dealing with risks and corporate finance can be so different, the RCV Framework can be used to merge the language of both. Risk must be first quantified and then the analysis of how much capital and what type of capital to be used can be performed. The goal of management is to make certain the reward is greater than the capital investment.
on 22-Apr-10 02:39.
Enterprise Risk Management and Solvency II
by Andy Davies
There is a great deal that the insurance sector has to come to terms with as it addresses the implications of Solvency II. There are broad general questions such as: What does it all mean? How will it be achieved and its requirements met? How much will it cost both from a capital and a monetary perspective? What resources are required? Then there is the related issue of how the International Financial Reporting Standards will fit with Solvency II.
Enterprise Risk Management: Culture Is the Key
Rating agencies, analysts, shareholders, and regulators are all taking more interest in capital models and enterprise risk management (ERM). Effective ERM acts as the common thread that links balance sheet strength, operating performance and business profile."1
In an ideal ERM model, the risk management group will work with the board and all employees to ensure that their organization has effective ERM. It is fair to say that the majority of companies today have some form of ERM, but it is also true that for many this is an area that needs further development.
ERM is not about finding the perfect model, it is about having a strong risk- management culture which ensures that risk is understood, controlled, and effectively communicated. Effective ERM should be part of an insurance company's DNA.
on 22-Apr-10 02:38.
European Reinsurers Implementing ERM More Often
Move toward ERM could stabilize market, according to experts
by Stuart Collins
Europe's ultimate risk takers increasingly are using enterprise risk management techniques to reduce their own financial exposures.
Reinsurers across the continent employ economic capital models, price-tracking procedures, protocols to control risk accumulation, and other ERM techniques to get a firm grasp on the risks they face, experts say.
And as they are the organizations at the end of the risk-transfer process, reinsurers' drive to implement ERM is likely to have a stabilizing effect on the whole market, experts say.
Several insurers and reinsurers in Europe have embraced sophisticated risk management techniques for managing their exposures, said Simon Harris, team managing director for insurance in the Europe, Middle East and Africa region for Moody's Investor Service in London.
"Reinsurers were first and fastest to react to the recognition that risk management had to improve after the equity crisis of 2002, building dedicated teams of risk professionals and appointing chief risk officers," he said.
on 22-Apr-10 02:37.
Enterprise Risk Management: Aligning Design Principles to Corporate Goals
As most financial institutions have taken steps to increase their firm's value creation and capital productivity, further business optimization will likely require substantial transformation of their organizational structure and operating environment. Implementing an Enterprise Risk Management (ERM) function properly integrated with key management processes is one critical task facing many firms.
The language of bank executives and asset managers has converged significantly in recent years. And, while bankers are not yet talking about Alpha and Risk Budgeting, aren't they referring to the same concepts when they discuss Economic Value Added (EVA) and Required Capital? Investors and competitors are pressuring both sides toward performance optimization, forcing them to apply well-accepted laws of finance, derived from the Capital Asset Pricing Model, with more rigor.
Risk-adjusted return has become the norm, and the market is increasingly less inclined to reward performance that doesn't exceed expected averages for given risk levels.
Risk-Adjusted Performance Management (RAPM) is not limited to Enterprise Risk Management (ERM), but it is generally recognized that ERM is the cornerstone of RAPM. To that extent, ERM could be defined as the capability to assess risks and control exposure at the business unit and enterprise levels, in a manner that supports the optimization of a firm's financial performance.
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