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Enterprise Risk Management

Enterprise Risk Management. AAC/MIS XV Annual Conference Linda Viera-Orengo, CPA Vice-president of Finances Cooperativa de Seguros Múltiples de Puerto Rico. Enterprise Risk Management. Why does the subject matter? Recent Events Hurricanes 2004/2005 Problems of subprime mortgages

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Enterprise Risk Management

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  1. Enterprise Risk Management AAC/MIS XV Annual Conference Linda Viera-Orengo, CPA Vice-president of Finances Cooperativa de Seguros Múltiples de Puerto Rico

  2. Enterprise Risk Management • Why does the subject matter? • Recent Events • Hurricanes 2004/2005 • Problems of subprime mortgages • Global vision • Technological advances • Emphasis of qualifying agencies like AM Best & Standard & Poors

  3. Enterprise Risk management • Definition : • Enterprise Risk Management (ERM) is a structured and disciplined approach. It aligns strategy, processes, technology and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value…It is a truly holistic, interrelated, forward-looking, and process-oriented approach to managing all key business risks and opportunities not just financial ones, with the intent of maximizing shareholder value as a whole. (J.W. DeLoach, Enterprise-wide Risk Management: Strategies for Linking Risk and Opportunity, Financial Times, London, England, 2000, p. 5.)

  4. Underwriting Risk Management Risk Reputational Risk Catastrophic Risk Operational Risk Strategic Risk Commercial Risk Credit Risk Traditional Risk Management

  5. Underwriting Risk Management Risk Reputational Risk Catastrophic Risk Operational Risk Strategic Risk Market Risk Credit Risk Distribution Risk Traditional Management Risk

  6. Operational Risk Credit Risk Cyclical Management Risk Distribution Risk Reputational Risk Catastrophic Risk Strategic Risk Legal Risk Commercial Risk Enterprise Risk Management Enterprise Risk Management

  7. Enterprise Risk Management • ERM in the global insurance industry:

  8. Enterprise Risk Management • ERM in the Cooperativa de Seguros Múltiples de Puerto Rico (CSM): • It is traditionally managed • In 2006 we began with enterprise risk management. We hired a firm of consultants to carry out the project in 2007.

  9. Enterprise Risk Management • ERM in CSM: • Several scenarios were identified in order to assess the five most significant risks. • Top management identified four of these five risks. • Three of the five risks take place due to combinations or relationships between risks (ex. Diversification effect) • None of them were catastrophic

  10. Enterprise Risk Management • Comments from management • Limited knowledge on the subject • Assistance in informed decision-making and preparation for the future • The five most significant risks may cause critical situations in the company. Nevertheless, the risks were those expected, except for the diversification effect.

  11. Enterprise Risk Management • Benefits: • Better informed decisions are made (calculated risks) • Tools for anticipating the future • Identification of opportunities and creation of competitive advantages

  12. Enterprise Risk Management • Keys to success • Requires commitment of Top Management and Board of Directors • Requires education to understand the concept, believe in it, and change way of thinking. • It is a dynamic process which takes time. • Everyone is responsible for dealing with company risks.

  13. Enterprise Risk Management • Additional Information: • http://www.rims.org/Template.cfm?section=ERM • http://www.standardandpoors.com • http://www.imanet.org • http://www.ambest.com/ • http://www.iais.org • http://www.fin.gov.bc.ca/ocg/ias/ERM_Implementation_Training_Manual.htm

  14. Thank You

  15. Click here to add title • Click here to add text

  16. Hurricane Category 4 - Charley

  17. Hurricane Category 4 - Charley • Damages to property amount to $15,000 millions • Death toll 17 • 2 million people without electrical power for 15 days.

  18. Hurricane Category 4 - Katrina

  19. Hurricane Category 4 - Katrina • Other aspects: • Tourism industry • NFL Games

  20. Florida Hurricanes 2005 • Need of labor for reconstruction • Labor was in New Orleans • Increase in replacement costs due to shortage • Increase in incurred losses

  21. Diversification effect risks • Owners of the business (capital investment) • Distribution channel or business partners • Investments in time deposits • Intangible aspects

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