April 30th, 2009
Posted at 1:01 AM ETFinancial Intelligence Team
EXCERPTS
Overview
As the financial crisis continues to unfold — and explanations are offered — it is clear that more robust enterprise-wide risk management will be the result. Many industry participants and observers anticipate that regulatory and rating agency scrutiny will accelerate at an unprecedented rate. Further, insurer and reinsurer shareholders and Boards of Directors are likely to demand that risk be measured and managed as it relates directly to capital on an enterprise-wide basis, particularly as an integral part of the corporate governance process.
Advancing the ERM dialogue can help insurers make value-accretive decisions through the improved deployment of capital. A thorough understanding of the basic concepts of enterprise-wide risk is fundamental to the implementation of ERM disciplines, establishing risk management parameters, and integrating this knowledge into the process of making strategic business decisions. As a result, insurance and reinsurance firms will not only be better prepared to respond to the internal and external questions relating to risk and capital, but (perhaps more importantly), they could benefit by establishing hedging or reinsurance strategies to drive capital efficiencies and maximize stable risk-adjusted returns.
We will address three core aspects of the emerging ERM and capital management dialogue:
1.We will offer a framework for defining common terminology: distinguishing Risk Profile, Risk Appetite, and Risk Tolerance. Currently there are no consistent, overarching definitions of commonly used risk terms. Greater clarity in this area is fundamental to a proper understanding of the concepts involved.
2.We will offer a framework for discussing risk tolerance, including best practices.
3.We will present the results of Guy Carpenter’s initial risk tolerance benchmarking study, which will allow us to advise our clients about their own circumstances and the general context of the markets in which they operate.
Risk Profile, Risk Appetite, and Risk Tolerance
Access Article: http://www.gccapitalideas.com/2012/01/27/weeks-top-stories-january-21-27-2012/
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