Concurrent Sessions

Tuesday, March 15, 11:45 am – 1:00 pm

Capturing Risk Appetite through ERM - Implementation Challenges

The objective of this session is twofold: (i) illustrate that establishing Risk Appetite as part of ERM is a best practice in any financial services institution, (ii) highlight the challenges in using Risk Appetite itself as a risk management tool. We define Risk Appetite as the expression of the types and quantity of risk to which an institution wishes to be exposed. Risk Appetite reflects the business strategy, expectations of stakeholders, characteristics of the risk-bearing entities, nature of the risks undertaken, and possible internal and external contagion of risk situations across different organizational units at different time horizons.

With heightened focus on overall risk management amid the current financial crisis, an institution’s Risk Appetite may drive its strategy and capital management process. By fully integrating Risk Appetite in business planning, the institution’s performance can be enhanced by dynamically managing and monitoring its risk-reward framework. In that respect, Risk Appetite can be considered as the cornerstone of modern approaches to risk management.

While managing through Risk Appetite, an institution needs to find its right balance between subjectivity and metrics-driven approaches to risk management as Risk Appetite is prone to several organization and regulatory challenges. Even though establishing Risk Appetite is a best in class ERM practice, the implementation of Risk Appetite is still unproven and requires changing cultural mindsets and investment in technology and people. Risk Appetite by default would require greater transparency in corporate governance and with increased transparency comes greater responsibility and accountability. We present such implementation challenges.

    Venkat Veeramani, Assistant Vice President, HSBC North America, Inc
    Varun Agarwal, Senior Vice President, HSBC North America, Inc

Integrating ERM into Strategic Planning and Company Culture: A Case Study

This session will discuss how to effectively integrate an ERM program into strategic planning and other business decision-making. A case study will be presented of an insurance company that succeeded in fully implementing ERM, and used it to enhance its strategic planning process, to make better decisions (including on acquisitions) and to generally embed risk culture into the company culture.

    Wayne H. Fisher, FCAS, Executive Director, Enterprise Risk Management Institute International
    Sim Segal, President, SimErgy Consulting LLC
    Richard J. Lauria, Vice President & Senior Actuary, Assurant Inc.

Managing Risks in Incentive Compensation Plans

Compensation is a particularly critical issue for job seekers, employees, and employers alike; as such, companies need to carefully consider and construct competitive compensation and benefit packages. Compensation programs are commonly designed with the goal of attracting and retaining talent. However, another critical component that is not always considered in compensation plan design and management is the incentives they provide for employees and the resulting risks these incentives may present for a company. In particular, a poorly designed or managed compensation plan may cause employees or management to engage in behavior to their own advantage which may be detrimental to company value. These risks are insidious and need to be analyzed with a view towards the company’s strategic vision and risk appetite.

In this presentation, we outline actionable risk management techniques that CROs and risk professionals can use to identify, assess, measure and manage incentive compensation risks. We map these techniques against the Performance Management and Compensation Development Cycle across both the near-term and longer term. Given the fact that most compensation plans are administered on an annual cycle, it might take a company several years to fully embed effective risk management into the incentive compensation program. Many of the longer term action items, including Stress Testing, build upon the strategies employed in the short-term over the course of the compensation cycle.

This presentation will help CROs and risk professionals to develop techniques and approaches to allow them to:

  • Better align current incentives in compensation programs with the company’s risk profile and appetite;
  • Understand and enhance the company’s controls to appropriately mitigate excessive risk taking;
  • Balance risk management with the need to maintain an appropriate level of incentive compensation to attract and retain the necessary talent in the organization; and,
  • Meet increasing demands for disclosure, analysis, and documentation from external regulators and stakeholders.
    Karen DeToro, Senior Manager, Deloitte Consulting
    Nathan Pohle, Consultant, Deloitte Consulting
    Suzette Huovinen, Sr Associate Actuary, Securian Financial Group

Optimal Layers for Cat Reinsurance & Investment and Reinsurance Counterparty Risk

This session will cover two topics, namely:

  • Optimizing the use of catastrophe reinsurance to mitigate catastrophe risk
  • Managing reinsurance counterparty risk.

In the first part of this session, Luyang Fu will present a methodology for determining the optimal catastrophe reinsurance layer by maximizing the risk-adjusted underwriting profit within a classical mean-variance framework. From the perspective of enterprise risk management, this study improves the existing literature in two ways. First, it considers catastrophe and non-catastrophe losses simultaneously. Previous studies focused on catastrophe losses only. Second, risk is measured by lower partial moment, which we believe is a more reasonable and flexible measure of risk compared to the traditional variance and VaR/TVaR approaches.

The second part of this session is on reinsurance counterparty risk, which represents the largest source of potential bad debt exposure for property casualty insurance and reinsurance organizations. Traditional methods of evaluating this risk may fall short of rating agencies' and companies' internal needs. Perry Mehta will outline key methodologies for assessing counterparty credit risk, particularly as it applies to insurance and reinsurance firms, with the relative merits of each approach. Stuart Hayes will present a sophisticated, credit-based approach that applies a stochastic simulation, based on information readily available from the bond market.

The methodology incorporates a transition matrix and recovery rates, and reviews both base case and stressed scenarios. A numerical example is included to enhance understanding of the methodology.

    Perry D. Mehta, Director of Valuation Methodologies, Prudential Insurance Co.
    Stuart Hayes, Consultant, Towers Watson
    Luyang Fu, Director of Predictive Modeling, State Auto Insurance Companies

Systemic Risk: Financial Reform–Too Little or Too Much, On-Track or Off-Course?

The Dodd-Frank Act represents the most sweeping financial reform measure since the Great Depression. The measures introduced by the reform have provoked debates on the effectiveness and appropriateness of the "too big to fail" concept, systemic risk, executive compensation and regulation of various financial instruments. This panel will address the following issues:

  • What essential elements are needed to maintain the functioning and viability of risk systems in times of unusual stresses and unlikely events?
  • Emerging from the events in the last two years, is it possible to effectively develop early warning indicators that trigger beneficial actions in advance of a complete collapse of an entire financial system or market?
  • Will the reform work? Is it enough? Did it go too far?
  • Does the United States need a chief risk officer?

The panel will examine and debate these questions as well as discuss the essential elements needed to maintain the functioning and viability of risk systems in times of unusual stresses and unlikely events.

    Robert Wolf, Staff Partner - Risk Management, Society of Actuaries
    Louise Francis, Consulting Principal, Francis Analytics & Data Mining Inc.
    David J Merkel, Principal, Aleph Investments

The Next Challenge in the Evolution of Portfolio Management: Accounting for Liquidity in Pricing and Risk Assessment

The recent financial crisis and subsequent regulatory action have brought liquidity risk management to the spotlight. As financial institutions revisit liquidity risk management practices and adapt to tighter supervisory oversight, two themes emerge. First, liquidity risk, which is tied to other sources of risk in the balance sheet, should be measured and managed holistically at the enterprise level. Second, a tighter liquidity regimen will result in additional costs, which need to be priced appropriately. This session will explore an economic approach for the measurement and pricing of funding liquidity risk in a portfolio setting. The economic framework addresses the challenge of measuring liquidity risk of a portfolio of credit exposures with embedded options in an uncertain funding environment. The following topics will be highlighted: Calculation of expected and unexpected funding liquidity costs for individual exposures in the portfolio. Accounting for linkages between borrowers demand for funds and the cost of funds of the financial institution, and the impact of these linkages on risk and pricing measures. Integration of liquidity risk measurement within economic models for enterprise risk management. Application to origination pricing, transfer pricing, and risk-adjusted performance measurement.

    Yashan Wang, Director, Quantitative Research, Moody's Analytics
    Yaakov Tsaig, Associate Director, Moody's Analytics

A Universal Language for ERM – Is it Possible?

It is widely agreed that to in order to manage risk you need to measure risk. But it is even more important you actually know what the word risk really means.

During the past few years many firms have tried to implement comprehensive enterprise risk management (ERM) programs. ERM, by definition, is a process that applies across an enterprise. So to avoid confusion everyone involved must speak the same language. But at this point there is not even a consensus definition of risk. Some practitioners think of risk as a metric – a measure of deviation or adverse deviation from an expectation. Others view risk as a type of unpleasant incident or event. Still others see risk as the possibility of a loss. And lastly, another group believes risk is the possibility that an event will occur and adversely affect the achievement of objectives. Even seasoned risk managers have difficulty defining risk in a manner that is both precise and universally acceptable.

There is also confusion the meaning of risk-related concepts such as risk exposure, risk aversion, risk neutrality, risk mitigation, risk tolerance, risk limit, risk assessment, risk measurement etc. Many of these terms mean different things when used in the context of a different definition of risk. There is also much confusion about how to classify risks. Some people define the top line risks as credit, insurance, market, operational and strategic risk. But this set of risks is neither mutually exclusive nor comprehensively exhaustive.

To further advance industry knowledge in this area, in December 2010, the Joint Risk Management Section of the Canadian Institute of Actuaries, Casualty Actuarial Society and Society of Actuaries (SOA) (together, the Sponsors) recently sponsored a research project to address these issues. The primary goal of this project is to develop a universally acceptable definition or risk and a common risk language and taxonomy.

This discussion will be led by two of the lead researchers of the project, who will present their preliminary findings. Audience discussion will be encouraged.

    Steve Siegel, Research Actuary, Society of Actuaries
    Ali Samad-Khan, President, Stamford Risk Anal;ytics
    Barry Franklin, Director, Towers Watson

Wall Street Demons - Macroeconomics, Math and Human Behavior

A review of how the apocalyptic trio of flawed macroeconomic policy, mathematical over-confidence and self-destructive human behavior brought the world's financial system to its knees in 2008, concluding with remarks about what changes in these elements have to be made to prevent future recurrence.

    Stephen Lindo, Director, Treasury Management and Mortgage Risk, Fifth Third Bancorp
    Timur Gök, Director, Arditti Center for Risk Management, DePaul University
    Stephen Lindo, Director, Treasury Management and Mortgage Risk, Fifth Third Bancorp
    John Dodson, The Options Clearing Corporation

Tuesday, March 15, 2:15 – 3:30 pm

Anticipating Black Swans

The session will first provide basic information about the major systemic threats that can break down our economy and our enterprises. The risk probabilities of each of the threats will be discussed. I will then lead the discussion. I have 20 years of experience leading large meetings with lively discussion.

Climate change will be the most controversial and will create a very lively discussion. Whatever their views on this subject, their enterprises will be affected. Professional risk managers should rise above politics but it may not be easy. They must weigh probabilities using the best available scientific information. Where to get that is a major question to be discussed. Whatever the cause, risk managers need to deal with the changes that we are experiencing such as more extreme weather events, more wildfires, pests migrating northward, water scarcity, and more. Each are defined risks that may affect operations, supply chains, markets. Then there will be the compliance requirements such as reducing carbon dioxide emissions, building efficiencies, land use and an imposed green strategy.

Electromagnetic pulse is perhaps the biggest threat facing our nation. Scientists say that a large pulse from the sun is due. There is also the risk of a high altitude nuclear detonation that would have the same disastrous effect. Our enterprises should be preparing for blackouts of weeks or even months. For many, this would be a real black swan as knowledge of the EMP risk is not widespread. This is a threat that few know about. Our enterprises have not been organized to survive lengthy blackouts. Those that start planning now may well survive. This discussion is critical. Participants are welcome to add their suggested strategies to my own.

Pandemics seem to be regularly on the horizon. H1N1 was not quite the disaster it might have been but the threat of one kind of pandemic or another is there. Most enterprises were reportedly not responding to warnings. The discussion will examine how risk managers can work on fortifying their enterprises.

Earthquakes, volcanoes and even major oil spills that are large enough can cause systemic failures. While all of these have been considered low frequency/high consequence events, frequencies appear to be increasing. It is difficult to call these black swans when we know what they are and we can work to manage/mitigate the risk.

    Stephen Lindo, Director, Treasury Management and Mortgage Risk, Fifth Third Bancorp
    Alan D. Roth, Chief Risk Officer, Advanced Fusion Systems LLC

Company and Regulator Best Practices for Enterprise Risk Management – State Farm’s View

This session will discuss the evolution of ERM at State Farm and share with the audience State Farm’s views on company and regulator best practices as related to Enterprise Risk Management. Topics will include:

  1. Current structure of ERM at State Farm, how it has evolved, the challenges posed, and the role it now plays.
  2. Highlight Best Practices in Corporate Governance as related to ERM.
  3. NAIC’s Solvency Modernization Initiative (SMI) including:
    1. The use of models.
    2. Potential NAIC requirement for an Own Risk & Solvency Assessment (ORSA).
    3. Group vs. individual insurance entity capital requirements.
    4. FASB & IASB valuation requirements.
  4. Stress testing’s role in Solvency Regulation.
  5. Treatment of Systemic Risk.
    Greg Hayward, Assistant Vice President and Actuary, State Farm Insurance Company
    Susan Cleaver, Director Enterprise Risk Management, State Farm Insurance Company
    Tobe Bradley, Actuarial Analyst, State Farm Insurance Company
    William R. Sergeant, Director, State Farm Mutual Automobile Insurance Company

Economic Capital for ERM -- Some Practical Challenges and Ways to Overcome Them

Economic capital modeling is a key step for companies incorporating overall risk into business plans and decisions. Economic capital is based on measures of adverse outcomes, and calculations often involve running complex simulation models. Drawing on their experience in the Life and P&C industries, the panelists will discuss some theoretical and practical shortcomings of these models and the challenges in applying them to decision making.  The panelists will then discuss some practical management considerations to maximize the usefulness of the existing models despite their limitations, and will also explore alternative modeling techniques which may address some of the current limitations( in particular the use of Extreme Value Theory to develop closed-form solutions that are much faster to run).

    Mark Scanlon, Towers Watson
    Paul J. Kneuer, SVP and Chief Reinsurance Strategist, Holborn Corporation
    Art Saul, Senior Actuary, ING US Financial Services

ERM: Practical Issues for the Smaller Company

How is enterprise risk management progressing at smaller companies? Sit down with fellow small company representatives to discuss ideas, pitfalls and triumphs. You and other attendees will share your experiences on how companies prioritize ERM efforts in a challenging environment. How can you change the risk culture and develop the risk appetite? What skill set should a team seek out to successfully implement ERM? After this session, you will better understand how your peers have addressed these issues and brainstorm ideas about how to improve the process.

    Max J. Rudolph, Owner, Rudolph Financial Consulting, LLC
    Phil Ferrari, Senior Manager, Actuary, LECG

Integrating Risk and Performance Management: A case study

This session builds on the presentation by Halpert/Nyce during the 2010 ERM Symposium entitled "Integrating Risk and Performance Management". The 2010 session provided a theoretical framework for using capital models to support a wide variety of management decision making. This 2011 session will provide a practical case study on how to utilize the framework. An implementation of a capital model for a hypothetical large personal lines insurer will be presented. Concepts from the paper "Integrating Risk and Performance Management" will be illustrated. Included will be approaches to understand obtaining quantitative estimates of the direction of the efficient frontier, setting strategic plans to move the organization towards the efficient frontier, using the concepts to evaluate alternative reinsurance arrangements, and evaluating strategic acquisitions. The presentation will focus on results of using the model, both expected and surprising, but also work steps undertaken to perform the analysis, the main challenges faced, and remaining opportunities to improve and sharpen the analysis. The objective of the session is to make embedding capital models in management decision making not just a theoretical goal, but a series of identified tangible steps and challenges that attendees will be better prepared to tackle at their own companies.

    G. Chris Nyce, Principal, KPMG
    Aaron Halpert, Principal, KPMG

Managing Personal Wealth in Volatile Markets -- An ERM Approach

Investing is an exercise in taking risk — never more so than now. The essence of informed investing has always been intelligently balancing the inherent trade-off between risk and return. In recent years, though, much more of the risk of securing our financial future has been shifted to us as individuals (e.g., by the death of defined benefit plans and by the shaky state of Social Security). Given this, and the experience of the 2008 market crash, we need to know how to manage risk effectively, if we want to enjoy our ever-increasing longevity.

This session proposes four key tenets of ERM as an organizing framework for managing personal investment risk.

  • Natural Hedging: Where enterprises look across organizational silos to find risky operations that offset each other, individuals diversify and allocate investments among uncorrelated asset classes — but they have to use up-to-date tools. Modern Portfolio Theory needs to be further modernized to incorporate technical advances such as copulas, ARMA/GARCH modeling, risk budgeting, and regime-based optimization.
  • Risk Exploitation: Where organizations use an ERM-enlightened view to do informed risk-taking and exploit areas deemed too risky by competitors, individuals can exploit high-performing but risky assets and make volatility work for them, by employing opportunistic rebalancing and dynamic asset allocation, informed by reliable early warning indicators.
  • Catastrophe Protection: Where organizations transfer only those risks that cannot be naturally hedged away, and insure those risk only at catastrophic levels, individuals can use “safety net” portfolio protection as catastrophe insurance against major market shocks that diversification canot handle. A specific approach will be discussed that is much more cost-effective than traditional solutions such as put options.
  • Strategic Focus: Where enterprises customize ERM around, and in service to, the organization’s specific strategic objectives, individuals should customize their investment strategy around their own unique long-term financial objectives, using a tool common to high-end financial planning.

By adopting an ERM approach to their own financial situation, attendees will be much better prepared to face the uncertainties in their financial future.

    Jed Isaman, FCAS, PricewaterhouseCoopers
    Jerry A. Miccolis, Chief Investment Officer, Brinton Eaton

Research Session: Diversity in Risk Assessment

The 2011 ERM symposium highlights select innovative cutting edge papers that explore and advance risk management topics with a focus on various tools and considerations in assessing and mitigating risk. Three of the authors will be presenting their papers at this session.

Papers Presented:
Hedging Policy Consistency - Theory vs. Practice
The Role of Conditional Probabilities in Risk Assessment
Implementing Risk Appetite Modeling for Variable Annuities

    Alfred Weller, Weller Associates
    Vladimir Antikarov, Overseas Shipholding Group
    Richard (Dick) Joss, Self
    Nick Jacobi, Metropolitan Life Insurance Co.

Risk Culture Starts with Leadership

The 2008-09 financial crisis has illustrated that embedding ERM into an organizational culture is difficult to effectively implement in reality. In the insurance sector, the NAIC’s Solvency Modernization Initiative and EU’s Solvency II have extensive requirements including embedding ERM into culture, decision making and business activities. Are there best practices to meet these challenges and which are applicable to all organizations? ERM becomes useful when put into action resulting from choices made by an organization’s decision makers making business decisions in the face of ambiguity. Thus ERM is inexorably tied to Strategic Organizational Behavior.

Using historical and contemporary examples, panelists will search for the existence of best practices. Panelists will:

  • Explore leadership characteristics by comparing leaders that would have made effective CROs with leaders that would not.
  • Consider cultural characteristics by comparing leaders and organizations who harnessed competitive advantages to achieve results versus those that did not.
  • Survey strategic organizational behavior, culture, processes and decision making from the perspective of ERM principles.
    Jin Li, Director, Actuary, Prudential Financial
    Tim Cardinal, Vice-President, PolySystems, Inc.

Wednesday, March 16, 9:45 – 11:00 am

Behavioral Economists vs. Cultural Theorists: The Human Element of ERM

Ultimately, one can argue that many of the risks that we face in society today manifest themselves through the decisions, behaviors, and biases of people, and not necessarily through any exogenous and uncontrollable event. As humans, we tend to not search for disconfirming evidence to our own beliefs. As decision makers, we all deviate from rationality based on our own biases and we are clearly influenced by the format of how we receive information. So say the behavior economists.

Cultural theorists main premise, on the other hand, claim that we neither follow the risk averse individual in classical economics, nor the emotional human via behavioral finance. Their main premise concerns human behavior and decision-making as part of a group as groups form because people share the same concept of risk.

Join us in a thought provoking session of the human element of risk management as we compare and contrast the behavior economist and cultural theorist view points of risk, particularly as it pertains to the financial problems risk managers face under changing economic conditions, given the risk management tools available, and the clumsy solutions that follow.

    Robert Wolf, Staff Partner - Risk Management, Society of Actuaries
    David Ingram, Senior Vice President, WillisRe

Continuous Controls Monitoring – Futuristic Approach to Enterprise Risk Management

Continuous Controls Monitoring is the fastest growing demand in the Enterprise Risk Management. It is now emerging as a GRC/ERM tool helping organizations to identify, manage and reduce business exposure. It provides intelligent knowledge in the form of exceptions and dashboard reporting. It identifies the breakdown of controls in the overall chain of ERM. The automated solutions and continuous monitoring are now a norm for enterprise risk management. The question is: Are we really taking this as a norm to business and are we doing it the right way? This presentation will discuss the following:

    Changes In Corporate Environment
    Changes in Enterprise Risk Management Tools and Methods
    Enterprise Risks/Impact of Frauds
    What is Continuous Controls Monitoring Tools For Continuous Auditing
    How It Helps In Detecting and Preventing Frauds
    Continuous Auditing Scenarios Other Related Areas, such as, Balance Score Card, Dashboard Reports, CMM and Six Sigma Models
    Joesph Lebens, Director, Towers Watson
    Syed Ali, Sr. Audit Manager, City of Toronto
    Alan Ash, Director, Auditor General's Office, City of Toronto

Insurance Investment Practices during an Economic Downturn

This session will share the results of research conducted for the SOA on investment practices of insurers (all types) and the challenges encountered during the recent financial crisis. An online survey is currently being distributed and there will be follow up phone interviews to capture the nuances of the impact as investors entire world changed very quickly. The speakers are the researchers, and will expand on the research and share their experiences as they navigated themselves and clients through this period.

    Max J. Rudolph, Owner, Rudolph Financial Consulting, LLC
    Marc A. Tourville, Managing Director, Cardinal Investment Advisors

Leveraging Financial Data for Enterprise Risk Management

Recent events are driving toward the integration of enterprise risk management (ERM) and financial performance management (FPM). Over 70% of the data needed for both ERM and FPM is finance data, therefore a trusted financial data foundation is a cornerstone for both areas.

The convergence of risk, finance and accounting disciplines will be illustrated. An anatomy of risk and financial performance will be dissected into component parts. KPIs needed for both ERM and FPM will be reviewed and compared. Data required to support these KPIs and challenges in obtaining data will be reviewed. Strategies, tools and techniques in data management to overcome these challenges and build a trusted data foundation will also be explored. Lastly the value of data improvements on the business will be discussed. An illustration of enterprise risk management dashboards built upon an extensible data model and discussion of alternative data population strategies will be included.

Key Points:

  • Integrated Enterprise Risk and Performance Management Approach
  • KPIs needed for ERM and FPM, data required and data challenges
  • Uses of data for Risk Analytics
  • Building and leveraging a trusted financial data foundation for both risk and financial management
  • ROI/Impact of improved data availability and quality on the business
    Alessandrea Quane, SVP-Chief Risk Officer, Chartis International
    Patricia Saporito, Senior Director, Insurance Analytics, SAP Labs, LLC

When Swans are Gray: The New Paradigm of Risk Management

Financial crisis risk is now firmly in the spotlight after a turbulent past quarter century bore witness to a number of market events previously thought to be once-in-a-lifetime occurrences. The apparent inability of risk models to deal with real world financial markets produced a whole line of popular books decrying unrealistic assumptions behind the extended CAPM-type models, especially the bell curve assumption. We closely examine the old paradigm and present evidence which clearly shows that this focus on the distributional axioms is misguided and that the main deficiency of the old paradigm lies elsewhere, namely in equating risk with presently observed volatility. The problem of equating risk forecast with rolling realized volatility arises from the conception of the market place as an equilibrium seeking and continuous system and it led to complete disregard of the behavioral risk taking cycle and the effect of that cycle on financial stability and risk.

The first part of the talk will deal with philosophical and methodological issues in risk forecasting. The second part will outline crucial problems with traditional risk models and suggest a direction of research to overcome them. The third part will present a new approach to forecasting risks and thoroughly examine its performance and implications over a number of crisis events in the past 25 years, while comparing it to traditional methods. This approach, which is based on the assessment of risk-taking behavior of market participants in the endogenous risk framework, dominates alternative methods of risk estimation, while still allowing finance professionals to continue utilizing familiar risk metrics like Tracking Error and Value-at-Risk.

    Jed Isaman, FCAS, PricewaterhouseCoopers
    Daniel Satchkov, President, RiXtrema Inc.

Research Session: Extreme Events

The 2011 ERM symposium highlights select innovative cutting edge papers that explore and advance risk management topics with a focus on the management of emerging risks and the modeling extreme events. Two of the authors will be presenting their papers at this session.

Papers Presented:
Stress and Resiliency Testing: Mandelbrotian Grey Swan Scenarios
Emerging Risk: An Integrated Framework for Managing Extreme Events

    Greg Slone, Algorithmics
    Steve Craighead, Towers Watson
    Kathleen Locklear, Teva Pharmaceuticals

Ten Key ERM Criteria: Best Practices for Benchmarking an ERM Program

This session explores the ten key criteria that define best practices for an ERM program, and which can be used as a benchmark for evaluating your ERM program’s capability-maturity. We will discuss common industry practices and evaluate them against each of these ten criteria, and discuss the advantages and disadvantages related to each criterion. In addition, we will discuss three easily observable “symptoms” that indicate whether or not an ERM program is likely satisfying many of these criteria. In addition, a case study will be discussed, highlighting how one organization satisfies selected criteria.

    Richard J. Lauria, Vice President & Senior Actuary, Assurant Inc.
    Sim Segal, President, SimErgy Consulting LLC
    Dale Hall, Vice President & Chief Actuary, COUNTRY Financial

Wednesday, March 16, 11:30 am – 12:45 pm

Best Credit Risk Management Practices in Insurance, Banking and Other Financial Services Industries

The speakers draw on their extensive risk management experience working with and advising insurers and banks. They will discuss the main challenges which the two industries are facing in devising a complete credit risk management system and integrating it with other risks as a part of a comprehensive ERM solution. They will also discuss the differences in credit risk management practices between two industries and what each could learn from the other.

    Andrew Bockelman, Senior Director, Risk Management Advisory Services, Moody’s Analytics
    Dan Rosen, President, R2 Financial Technologies

Cross Pollination of Modeling Techniques

Join us for a thought –provoking discussion intended for both life and casualty insurance risk professionals to discuss, compare, and contrast the various modeling tools, techniques and corresponding issues as it relates to the ERM discipline underlying the two business sectors.

There are arguments that the two disciplines life/casualty) differ materially as the two business paradigm, regulation, and business model are so completely different (like baseball and football). There are arguments that the two business models are really more alike (like hockey and soccer). Some argue that they are exactly the same, save for the fact that two different languages are spoken, with completely misunderstood jargon by the opposing sectors. What say you?

Join us in an interaction session as we compare and contrast the two business models, the corresponding ERM frameworks, the corresponding models underlying the framework, and tools currently in use in the interest of determining how alike or how different the two ERM approaches (in casualty and life) really are.

The goal of the session is for life risk professionals to learning new tricks from casualty risk professionals and casualty risk professionals to learn new tricks from life risk professionals.

    Al Schulman, Vice President - Enterprise Risk Management, Nationwide
    Kevin Madigan, Consulting Actuary, Pinnacle Actuarial Resources, Inc.
    David Schraub, Director, Risk and Capital Metrics, Risk Management, Aviva North America

Deriving Value from ERM: The Process of Embedding

While many organizations have introduced ERM as a key management function, the value of this discipline cannot be fully realized until effective ERM practices have become deeply ingrained within business processes. Yet industry surveys repeatedly reveal that companies continue to struggle with the process of embedding ERM within their organizations. Achieving broad and deep organizational understanding of ERM practices along with needed changes in behaviors may in fact prove to be the most time consuming and difficult tasks of ERM implementation.

This session will focus on the approaches certain organizations have adopted to successfully embed ERM within their organizations. We will focus on how risk culture, governance, the use of economic capital models and stress testing, alignment with strategic planning and targeting, risk analytics, and risk reporting each play a role in this important process.

Emerging Risks

Organizations can make better decisions if they have an idea of what potential scenarios, both positive and negative, are material for their firm. Panelists will present the annual emerging risk survey completed by the Joint Risk Management Section. A focus of this year’s survey is how leading indicators are being used. Company practitioners will discuss how these methods are implemented and the challenges they face.

    Max J. Rudolph, Owner, Rudolph Financial Consulting, LLC
    Beverly Barney, Prudential Insurance Company of America

Enterprise Risk Management for Decision-Making and Tracking for Insurance Companies

I.- Introduction.
Brief introduction of kinds of decisions made based on Risk Analysis, a circular process to feed back the Risk assessment and its relation with Solvency II.

II.- Decision Making and tracking in investments. (Example).
A practical example for an Insurance company for a decision taken in investments and its tracking, as well as an evaluation of this decision contemplating the risk assessment.

III.- Decision Making and tracking in Pricing. (Example).
Effect on Pricing due to the change in Solvency II - Reserves & Capital

  1. Change on Market Value Reserves vs Guaranteed Rate Traditional Reserves
  2. Change on Surplus due to change on market value reserves and assets
  3. Effects on Pricing.

IV. Tracking indicators, Keys performance and Risk indicators a Solvency II scope.
Solvency II will require companies to fully understand its risks in order to managing them properly. Standard models should be tested periodically to ensure they capture the risks characteristics in order to make adjustments or propose a different model.

To perform these tasks, new tracking indicators and back-testing techniques will be required. This presentation aims to making some proposals in this direction

    Irma Medina. Chief Risk Actuary, Grupo Nacional Provincial
    Maria Angeles Yanez, Instituto Tecnologico Autonomo de Mexico
    Jorge Luis López Araiza, Prudential Seguros México S.A.
    Alejandro Mares, Seguros Monterrey New York Life

Call for Papers: Strategic Risk, Value Creation, Risk Indices, and the Cost of Capital

The 2011 ERM symposium highlights select innovative cutting edge papers that explore and advance risk management topics. In this session, three authors will be presenting their respective papers in discussing topics evolving aligning strategic risk management with value creation, attributing capital or the cost of capital, and the modeling of underwriting cycles for the purposes of creating risk indices.

Papers Presented:
Sustainability of Earnings: A Framework for Quantitative Modeling of Strategy, Risk, & Value
Capital Allocation in the Property-Liability Insurance Industry
U.S. Property-Casualty Underwriting Cycle Modeling & Risk Benchmarks

    Fred Tavan, Vice President, Insurance Risk Management, Sun Life Financial
    Neil Bodoff, Willis Re, Inc.
    Stephen D'Arcy, University of Illinois
    Shaun Wang, Chairman, Risk Lighthouse LLC

VA Product Design: Creating Value Through ERM

ERM is often erroneously perceived by marketing and product development as another barrier to gain final product approval at the end. Another perception is that the “value pie” for policyholders and companies is fixed via a trade-off between benefits and profit. This session shows how ERM can create more value for the policyholder and simultaneously increase profit margins. It is not alchemy. Creating a bigger pie is the result of integrating risk management into product design at conception and during the development process.

This session will discuss preliminary results from the current research project “VA Risk Mitigation Strategies” sponsored by the SOA/CAS/CIA Joint Risk Management Research Team and the SOA’s Committee on Finance Research. The project report will use case studies to depict the trade-offs between the revenue, profit and risk profile and to identify product designs that generate more manageable risk profiles for VA guarantees. The report will provide insights into how those designs mitigate the risks, the corresponding earning impacts and the resulting value for policyholders. Additional product design considerations will be addressed in a broader ERM context.

    Tim Cardinal, Vice-President, PolySystems, Inc
    Jin Li, Director, Actuary, Prudential Financial
    Haibin Rao, Prudential