ERM Committee
Priorities, Progress and
Findings
Jerry Miccolis, Tillinghast - Towers Perrin
Kevin Dickson, Allstate
Barry Franklin, Aon Risk Consultants
CAS “Big Audacious Goal”
for 2014 Centennial
“The CAS will be globally recognized as the
preeminent resource in educating casualty
actuaries and conducting research in
casualty actuarial science. CAS members
will be recognized as the leading experts
in the evaluation of hazard risk and the
integration of hazard risk with strategic,
financial, and operational risk.”
[emphasis added]
1
Discussion Outline
• CAS ERM Advisory Committee (2000/1)
– ERM Definition and Framework
– CAS Research & Education Priorities
• CAS ERM Research Committee (2002-)
– Immediate Priorities
– Progress to Date
• Original Research
• Directed Research
– Future Plans
2
Advisory Committee on ERM:
Goals
•
•
•
•
•
•
•
Define ERM; develop conceptual framework
Determine current/desired knowledge level
Identify research needs to close gaps
Identify education needs to close gaps
Recommend methods, priorities, timetable
Compile initial ERM bibliography
Recommend additional efforts of
existing/new CAS committees
3
ERM Definition
• “The discipline by which an organization in
any industry assesses, controls, exploits,
finances and monitors risk from all
sources for the purpose of increasing the
organization’s short- and long-term value
to its stakeholders”
• Key elements:
– Dual nature of risk
– Value creation
– CAS relevance beyond insurance industry
4
ERM Conceptual Framework:
Two Dimensions
Risk Management
Process Step
Risk Type
•
•
•
•
Strategic
Operational
Financial
Hazard
•
•
•
•
•
•
•
Establish context
Identify risks
Analyze/quantify risks
Integrate risks
Assess/prioritize risks
Treat/exploit risks
Monitor and review
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ERM Framework Grid
Risk Management Process Step
Risk Type
Establish Identify
Context
Risks
Analyze/
Assess/
Quantify Integrate Prioritize
Risks
Risks
Risks
Treat/
Exploit
Risks
Monitor
and
Review
Strategic
Operational
Financial
Hazard
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Recommendations -- Research
• Highest priority topics
– ERM overview
– Value creation through ERM
– Risk quantification (financial, operational,
strategic)
– Risk correlation & integration
• Other priority topics
– Risk tolerances, risk/reward metrics, portfolio
optimization, monitoring, treatment, integrated
products
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Recommendations -- Research
(cont’d)
• For each topic:
– Priority by industry focus
• P/C Industry
• Other Financial Services
• Other
– Recommended research method
• Original research
• Funded research
• Call Paper programs
• Compile existing research
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Recommendations -- Research
(cont’d)
• Form standing ERM Research Committee
– Direct & monitor research per above
– Expand, update, organize, maintain ERM
bibliography
– Work with other CAS committees to
coordinate ERM research and provide content
for education
– Partner with other organizations
– Develop internal and external
communications, designate spokespersons
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Recommendations -- Education
• Codified 2005 CAS ERM education needs
– For each element of ERM framework
– By degree of desired knowledge level
– By type of education vehicle
• Syllabus
• Continuing Education
• Developed detailed Learning Objectives
for each element of ERM framework
• Publish ERM bibliography
• Accomplish through existing committees
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ERM Research Committee -Immediate Priorities
•
•
•
•
•
•
•
“ERM Overview” document
Financial risk quantification
Risk correlation/concentration/integration
Value creation through ERM
ERM bibliography
Coordination with other CAS committees
Coordination with other professions
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“ERM Overview” Document
• Associate-level exam material
• Contents
– History/evolution of risk management
– Reasons/motivations for ERM
– ERM definition/framework
– Language/measures/models/tools
– Applications/case studies
– Practical considerations in implementation
– Bibliography
• Published May 2003
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Financial Risk Quantification
• Literature review: wealth of existing
material
• Road map/reviews
– The Practice of Risk Management – Goldman Sachs & SBC
Warburg Dillon Read
– Risk Management – Crouhy, Galai and Mark
– FRM Handbook, Jorion
– Market Models: A Guide to Financial Data Analysis - Alexander
• Reviews on CAS – ERM Website
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Risk Correlation/
Concentration/Integration
•
•
•
•
Literature review: limited material available
Call for papers
Coordination with other CAS committees
Call Papers published July, 2003
– Advanced Modeling for the New Risk Landscape – Lee Smith and
Lilli Segre-Tossani
– ERM and DFA using Active Knowledge Structures – James Brander
and Sam Manoff
– The Aggregation and Correlation of Insurance Exposure – Glenn
Meyers, Fredrick Klinker and David Lalonde
• Additional Research
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Value Creation Through ERM
• Literature review: not enough useful
material available to demonstrate
objective value measurement
• Non-insurance industry
– Original research needed
– RFP to professionals, practitioners,
academics
– Co-sponsors from other organizations
• Insurance industry
– Case study documentation
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ERM Bibliography
•
•
•
•
Abstracts
Organization
Maintenance
On-line access established May 2003
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Coordination with
Other CAS, AAA Committees
• DRMC: joint meetings, joint call for papers
• VFIC: joint research project
• Syllabus/Ed Policy/Continuing Ed/SIS/etc.:
working to develop syllabus materials
• RCMS: ERM symposium
• COTOR – Risk Measurement
• AAA P/C Extreme Events Committee
• AAA ERM Committee
• SOA Risk Management Section
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Coordination with
Other Professions
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•
•
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GARP – Banking & Finance
AIMR – Investment Research
RIMS – Risk Management & Insurance
Academia – GSU Center for ERM and
Assurance Services
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ERM Research Committee -Future Plans
• Continue research material production
orientation of committee
• Pursue remaining research priorities
established by ERM Advisory Committee
– See following slide
• Monitor research activities of other
professional organizations, academia
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Additional Research Priorities
• Operational & Strategic Risk
Quantification
• Risk Tolerances
• Optimization, Risk-Reward Metrics
• Preliminary Findings
– Material exists
– Not consolidated
– May or may not need additional research
• Next Steps – develop roadmaps
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Concluding Thoughts
•
•
•
•
ERM is a value creation tool
ERM is a unifying framework
ERM is a recruitment tool
ERM is the CAS’s future
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ERM is a Value Creation Tool
• Systematically identifies material threats/
opportunities (re: business objectives)
• Rigorously analyzes capital requirements
– Financial efficiency (shareholder view)
– Solvency protection (customer view)
• Optimizes strategies under uncertainty -for improving growth and return
• Exploits natural hedges, portfolio effects
• Enhances stability
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ERM is a Unifying Framework
• Actuarial subject areas
–
–
–
–
–
Pricing
– Capital management
Reserving
– Asset/liability management
Risk modeling
– Reinsurance
Accounting
– Portfolio management
Financial performance measurement
• Logical structure/integrated whole/
business-relevant
• Cross-silo Chief Risk Officer training
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ERM is an Actuarial
Recruitment Tool
• Strong business focus
• Re-engagement of CAS candidates and
recent Fellows/Associates
• Coordination with AIMR (CFA), GARP
(FRM), et al
• The membership wants to go there
– ERM Committees oversubscribed
– ERM survey response
– ERM Seminar attendance/response
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ERM is the CAS’s Future
“The CAS will be globally recognized as the
preeminent resource in educating casualty
actuaries and conducting research in
casualty actuarial science. CAS members
will be recognized as the leading experts
in the evaluation of hazard risk and the
integration of hazard risk with strategic,
financial, and operational risk.”
[emphasis added]
25