CORPORATE CRISIS
CONTINGENT CAPITAL:
4Ć
RIMS Fairfield / Westchester
November 29 2012
For eyes only of companies having signed
a non-disclosure agreement with Willis
“4Ć” Patent Pending (Product in development)
 Environment
Align with Client Focus
 Shareholders
 CEO & Board of Directors
 Risk Managers
 Brokers
 Brokerage Firms
 Insurance Carriers
 Reinsurance
 Capital Markets
Focus of Insurance
Industry
2
Focus of Clients
2
The top concerns of the
C-Suite
Catastrophe
Regulation
Cyber Security
Business Disruption
Brand Reputation
Supply Chain
International Issues
Source: 10K reports of Fortune 100 companies
3
3
What Companies Need
From Resilience
Financial Stability (Using Risk
Finance)
Information Disclosure about
Business Continuity
Total Assessment
1
Disaster Prevention Plan
0.9
0.8
Emergency Respones &
Operations
0.7
Crisis Communications to
Stakeholders
0.6
0.5
Secodnary Disaster Prevention
Plan
0.4
0.3
Resilience of Supply Chain &
Value Chain
0.2
Compliance
0.1
Target
0
Awareness & Training Programs of
Business Continuity
Strategy of Business Continuity
from a View Point of Stakeholde
Management
Target Resoratation Time Based
on Supply Delivery Responsibility
Sample
Durability of Important Property
Distribution and Fungibility of the
Head Office & Important Bases
Redundacnt of Infromation
Systems
Understanding & Time Series
Priciniple of Business Continuity &
Analysis
Crisis Management Plan
Risk Assessment for Business
Continutiy
4
4
Executive Expectations of
Risk Management?
Importance
Sustatinability of future Profiability
Infusing a Risk Culture in the
Organisation
Risk Adjusted Performance
Management
Enabling Long-Term Profitable
Growth
Reduced Operational Credit or
Market Losses
Improved Capital Allocation
5
Achieved
93%
76%
91%
78%
88%
75%
91%
80%
80%
76%
89%
86%
5
6
6
On average, leading companies
experience serious and sudden
reversals of fortune once every 7 years
•
IBM 1992 and 1993
Technical obsolescence; management changes
•
Disney 2001
Terrorism fears reduce revenues at theme parks
•
Amgen Inc 1993
Market worries on biotech companies
•
Boeing 2001
Airline industry crisis due to the terrorist attacks
•
Starbucks 1999
Uncontrolled costs rises in non-core business
•
•
McDonald's 2000
Failed strategy and senior executives changed
France Telecom 2002
Heavy leverage caused liquidity problem; government bailout
and CEO resigned
•
Procter & Gamble 2000
Failed strategy and CEO resigned
Monsanto 2002
Counter party default in emerging markets
•
Vivendi 2002
Debt stress lead to liquidity problem; Chairman resigned
•
Merck 2004
Withdrawal of Vioxx, largest drug recall to date
•
•
Nike 2000
Failure in distribution channels plus unfavourable currency
translations
•
Costco 2000
•
Uncontrolled increasing in costs on adding offices and expenses
•
Microsoft 2000
Estimated cuts in sales and profits combined with the influence
of Dot-com bubble
•
Adidas 2000
Allegation to the abuse of labour
•
Intel 2000
Market demand decreased sharply in European market


7
Ford 2008
Recall of “Ford Explorer” due to tire failure
•
Toyota 2010
Engineering issues trigger product recalls
•
BP 2010
Well blows out triggering huge liability commitments; CEO
change
•
And many more...
1,853 crisis events from our 600 companies sample*
Crises can arise from any source of which are very few insurable perils.
In these situations, traditional risk financing is not ‘fit for purpose’
* Source: Willis team analysis; companies are members of S&P 500 and FTSE 100
Increasing threat level
4Ć offers the opportunity to
pre-fund life-threatening risks

 Low threat and predictable risks
should be retained to avoid value
leakage from the Company
Risks Retained
 Current risk management practice
 Transfers risks at operational level to the
market (i.e. pre-funding)
 Company bears crisis events (postfunding)
8
Pre-funding high severity risks
protects corporates from lifethreatening events
Risks Pre-funded
 Ideal risk management should be…
 Retaining operational risks which have
little or no impact on company’s KPIs
 Pre-funding risks that may threaten
company’s survival