Module 1 - Unit 3 Enterprise Risk Management Flashcards
What is ERM?
Enterprise risk management (ERM) it’s a coordinated approach to assessing & responding to all risks that affect the achievement of an organisation financial objectives
What is SCR?
Solvency Capital Requirements
What is ICAAP?
The Internal Capital Adequacy Assessment Process (ICAAP) allows firms to assess their capital adequacy and requires them to have appropriate risk management techniques in place.
What is ORSA?
Own Risk & Solvency Asessment (ORSA) is an internal process undertaken by an insurer or insurance group to assess the adequacy of its risk management and current and prospective solvency positions under normal and severe stress scenarios
What is FLAOR?
Forward Looking Assessment of Own Risk - (prior to Solvency II - now migrated in ORSA)
What is internal context?
Internal context relates to the organisation’s structure, objectives, policies, strategies, processes and culture. It includes;
a) the organisations div, depart, structures
b) internal stakeholders
c) corporate governance, competencies & capabilities
d) factors that influence how the organisation will set and achieve its objectives.
What is external context?
External context is the environment within the organisation exists. It includes:
a) social and cultural
b) the industry, products
c) key drivers
d) relationship with external stakeholders
3 level objective setting
1.Strategic (org wide)
2. Tactical (mid-level division or dept obj)
3. Operational (team, personal)
ERM vs Traditional Risk Management
ERM approach:
• risk in context of b/s strategy
• risk portofolio development with risk interconnectivities
• focus on critical risk
• risk is entity wide
• identifying and defining risk responsabilities
• monitoring
• risk is embedded
ERM allows organizations to take a more strategic and integrated approach to risk management, aligning risk management with business objectives and enabling the organization to take calculated risks that can drive innovation and growth.
ERM has a greater focus on continuous improvement and adaptation to changing circumstances, proactively working to identify potential risks and mitigate them before they become significant issues. This requires a culture of risk awareness and collaboration across the entire organization.
Identify 4 rigorous capital asessment
Basel III
Rigorous capital assessment include:
- The board should set a risk appetite
- Monitoring compliance with internal limits & controls
- All material risk exposures should be measured and estimated (including risks not addressed in Pillar 1)
- A system for reporting risks
Identify 3 common elements of ORSA & ICAAP
Capital adequacy requirements
Supervisory requirements
Disclosure of information
What aspects do regulators look for ICAAP?
Board and senior management oversight
Established policies and procedures
Sound capital asessment
Comprehensive assessment of risks
Stress testing
Monitoring and reporting
Internal control review
What is PIML?
PIML is a component for implementing ERM:
Plan
Implement
Measure
Learn
This format is similar to the plan-do-check-act approach used by several management systems.
Standards & Poor’s ERM analysis (what do they look at?)
- RM culture
- Risk controls
- Emerging RM
- Risk models
- Strategic RM
3 benefits of establishing context for risk management
Define objectives
Identify scope, responsibilities & resources
Metodologies for evaluating success
