Part 1 (Ch 1 - 7) Flashcards
Strengths of the S&P ERM evaluation COCO SET UD
Components of ERM checked
Overall ERM emphasized vs. Silo approach
Classification to ease communication
Operational performance of risk controls checked
Standard criteria applied
Economic capital assessment
Transparency of ERM encouraged
Unique structure of the company is recognized
Diversification of the company’s risks considered
Weaknesses of the S&P ERM evaluation SOULS API
Specific to S&P Understanding of the company’s risk exposure may lack from ratings agency Overly optimistic Limited to insurance companies Subjectivity in complexity assessment
Costly and time consuming
Agency risk not considered
Procedures conducted not clearly explained
Impact of the addition of ERM assessment of rating outcome unsure
Themes of best-practice corporate governance APRICS
Appointment of the board Performance review of the board Remuneration of the board Independence of the board Communication with Stakeholders Statutory requirements
Role of directors in ERM: SMIRCC
Set risk appetite, strategy, policies Monitor key risks Implementation of RMF Review lessons learnt current RMF Compliance with requirements Culture establishment
The risk faced by companies LOCUM CLIMB A RED PEPERS
Liquidity risk Operational risk Credit risk Underwriting risk Market risk
Conduct risk Legal Risk Interest rate risk Moral Hazard Basis risk Agency risk Reputational risk Environmental Risk Demographic risk Political risk Exchange rate risk Project risk Economic risk Regulatory risk Strategic risk
Systemic risk main sources MILE
Market positions - share price falls resulting in further falls
Infrastructure of financial systems - dependencies on each other
Liquidity constraints - the credit crunch (lack of availability of credit)
Exposure to a common counterparty
Key components of an ERM framework CLAP TDS
Corporate Governance Line Management Analytics of risk Portfolio Management Transfer of risk Data and Tech Stakeholder Management
Components of good risk culture COCA REAP VIDOS
Consultation
Organisational learning
Communication
Accountability
Reporting on risk
Extent risk management integration
Appetite for risk
Participation is risk management across the company
Value of ERM well understood
Improvement of risk management continually done
Decision-makers are highly qualified and in the right positions
Objectives of business align with risk management
Soft and hard side of risk management appreciated
Role of risk subcommittee in ERM: ROTIC RIFS
Risk policies setting Oversight of ERM on behalf of board Treatment of key risk assess ID of key risks Compliance to GC requirements Reporting Implementation Focus on risk management Specialist knowledge on risk management provided
Role of CRO in ERM: DIME PROMO TCC
Drive buy-in to ERM Implementation Maintenance of RMF Establish Leadership of ERM Policy development and monitoring Reporting on risk Oversee other areas of business w.r.t. risk management – challenge! Models and data systems developed to monitor and manage risk Optimise risk portfolio Trends analysis of key risks and ERM approaches Capital allocation Culture risk management established
Role of Corporate Governance in ERM: CADAC SMOCAR
Compliance checks Appetite, tolerance, capacity of risk setting Direction Accountability Controls Strategies and policies to risk Monitor key risks Culture establishment Organisational structure - roles and responsibilities, board structure Alignment of interests Reporting is trustworthy and accurate
S&P measurement of of ERM Quality CCEMS
Culture Controls Extreme event management Models - Capital and risk Strategic management
Risk Control as part of ERM: MILE L
Mitigations of risks Identification of risks Limits set on retained risks and process in place to ensure this Execution of the risk management process Learning from risks
Fraud prevention
Learning from risks
Accuracy of financials ensured
Compliance ensured
Strategic Management as part of ERM: DRIP CAR
Dividend strategy
Retained risk decision making
Investment strategy
Pricing strategy
Corporate goals at risk
Allocation of capital - optimal risk-adjusted returns
Reward structure put in place
Definition of ERM: HIV TRIMS
Risk management approach containing the following elements:
Holistic approach
o Common risk measures and limits, language and culture in place
o Approach consistent across organization
o Portfolio level management: Interaction and concentrations considered
o Collaboration between all decisionmakers and experts
Integrated in all operations and strategies
Value adding
o Up- and downside considered
o A controlled risk taking environment is created
Top-down approach
o Board > CRO > RMF > Line Management
o Risk frameworks and controls created
Risk responses are in place
o Avoid, Retain, remove, reduce, transfer
Identification of risks are appropriately done
o Common risk language
o Risk taxonomy approach
Measurement to ensure proper aggregation of risks can be done
o Quantifiable and unquantifiable
o Risk measurement approaches
o Likelihood and financial impact
o Distribution of losses
Structured approach
o ID and assessment
o Treatment
o Monitor – continual improvement
o Reporting
