ERM • A tool for enhancing • development • in emerging countries
Luis Guillermo Gutierrez • Enterprise Risk Manager, Suramericana S.A. • President of the Colombian Actuarial Association from 2011 to 2012. Teacher of undergraduate and graduate classes at different universities.Master's degree in Actuarial Science granted by the University of Nebraska at Lincoln, USA. • Luis Felipe Villegas • Enterprise Risk Manager, Suramericana S.A. • Risk manager with more than eight years of experience. • CBCP by DRII, GRCP by OCEG, AIRM by Alarys and CPAR – ALDFT by FIBA
What to expect • Take a closer look at how organizations operating in emerging markets could identify risks in a holistic way and how to evaluate these risks (transferable or not) through the use of quantification techniques leveraged with qualitative aspects of risk management. • Also find out how ERM as an input of the strategic planning of the firm, helps to prioritize its initiatives which are materialized trough projects and processes’ improvements in order to optimize its resources, to increase its value; and lastly, to contribute to the development of the country where it operates
I. About Suramericana S.A. • Suramericana is a Holding Company that handles investments in the insurance and social security sectors. Suramericana’s corporate purpose is to fully satisfy the community's needs with regard to security and savings, with products such as life and general insurance, Workers Comp and healthcare. • Insurers also have risks • We are the Enterprise Risk Managers of the insurance companies • You could imagine how hard it is to tell a group of people that handle other people’s risks, that they have to manage their own risks.
Let’s talk about Colombia • Sofia Vergara Late Show with David LettermanDecember 21, 2010.
II. Emerging Markets (EM) • An emerging market is a phenomena that is not fully described by or constrained to a geography or economic strength. • Similarities & Differences with developed markets • Financial stability • Elevated economic growth rates • Bureaucracies • Higher expected returns • Distribution problems • Low correlation with developed markets • Corruption
II. Emerging Markets (EM) • Typical and not so typical risks in EM • Intuitively, managers know that operating a business in an emerging market is different from doing so in a developed economy, but risks and opportunities in these markets are usually over/under stated. • Then, granular understanding of risk structures is key
II. Emerging Markets (EM) • Risk Indicators • Typical and not so typical risks in EM • Panorama BMI Subsidiaries - Colombia • Political risk • Economical risk • Business environment • The risk rating score is between 0 and 100, where 100 is the top with the most stable situation. • Source: Business Monitor International
II. Emerging Markets (EM) • Challenges & Oportunities when developing ERM strategies in E.M. • Managers often overlook the ways in which emerging markets operate differently than developed economies. • Source: The Global Competitiveness Report 2013-2014
III. Applying simple approaches to risk valuation • Not every company is in the stock market (Especially in EM Countries), so how do we value risk? • Using simple quantification methods to evaluate risk. • Establishing strategies and goals for an optimum balance among growth, performance and risks.
III. Applying simple approaches to risk valuation • Aproximately 2,800 Companies are listed on the New York Stock Exchange • Aproximately 75 Companies are listed on the Colombian Stock Exchange • stock
III. Applying simple approaches to risk valuation • Valuation • Economic Model • inflation • Interest rates • stock market • growth • Unemployment • Administrative Decisions • Strategic Planning • Insurance Market: • Capacity • Market • Reinsurance • Strategy • Competitors • Regulatory Framework • Tactical decisions • Risk Behavior • Strategic decisions • Products, channels, markets • [Risk universe] • Change in Company’s Value • Risk Appetite • Risk Treatment
III. Applying simple approaches to risk valuation • Establishing strategies and goals for an optimum balance among growth, • performance and risks. Growth Capital 1 • Performance 2 • Risk 3
IV. From ERM to SRM. What’s the path? ERM focuses on avoiding downside scenarios while exploiting potentially profitable risks, but ERM is not always “aware” of the granular details of the strategy. SRM focuses on a vision of an ideal future state based on strategy, which is great complement on emerging markets scenarios.
IV. From ERM to SRM. What’s the path? • Applying risk identification and valuation on your tactictal and strategic planning. • Prioritizing your projects and processes interventions based on SRM
IV. From ERM to SRM. What’s the path? • Applying risk identification and valuation on your tactical and strategic planning
IV. From ERM to SRM. What’s the path? • Prioritizing your projects and processes intervention based on SRM
IV. From ERM to SRM. What’s the path? • Strategic planning process • Strategic plan Model • Budgeting process • Tactical planning process • Budget • Tactical plan Model
IV. From ERM to SRM. What’s the path? • Prioritizing your projects and processes interventions based on SRM
V. Enhancing sustainability through SRM • Company’s sustainability + supply chain’s sustainability = Country’s sustainability Personal consumption • Developed • Countries • Consumer goods • and services • Firms • Households • Factors of production • (labor, capital and • natural resources) • Emerging • Countries • Factors incomes • (wages, interest, profit • and rent)
V. Enhancing sustainability through SRM • Company’s sustainability + supply chain’s sustainability = Country’s sustainability • December 2013
VI. Summary • Noteverymarketisthesame, differentrisks emerge. • The stock marketwillnotalwaysbethere as a referenceforriskmanagement. • ERM and SRM are bothneeded. • Granular understanding of risk structures is key • Riskmanagementis fundamental tothrive in anemergingmarket. • Companieshave a veryrelevant rol in emergingmarketsCountries’ sustainability.