Risk tolerances and limits cas soa enterprise risk management symposium washington dc july 29 2003
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Risk Tolerances and Limits CAS/SOA Enterprise Risk Management Symposium Washington, DC July 29, 2003. Zafar Rashid Executive Vice President and CFO Prudential Annuities. Enterprise Risk Management.

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Risk Tolerances and Limits CAS/SOA Enterprise Risk Management Symposium Washington, DC July 29, 2003

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Risk tolerances and limits cas soa enterprise risk management symposium washington dc july 29 2003

Risk Tolerances and LimitsCAS/SOA Enterprise Risk Management SymposiumWashington, DCJuly 29, 2003

Zafar Rashid

Executive Vice President and CFO

Prudential Annuities


Enterprise risk management

Enterprise Risk Management

“The discipline by which organizations in all industries assess, control, exploit, finance and monitor risk from all sources for the purpose of increasing the organization’s short and long-term value to its stakeholders”


Role of a chief risk officer

Role of a Chief Risk Officer

  • Risk Policy

  • Governance Issues

  • Organization and implementation

  • Risk analytics and modeling

  • Data development and management

  • Risk monitoring

  • Control and management


Risk management policy

Risk Management Policy

  • Define objectives

  • Risk definition

  • Risk standards

  • Establishing risk appetite


Risk governance

Risk Governance

  • Management/Board approval of policy

  • Approval of risk standards and appetite

  • Establish and manage reporting structure

  • Management of risk committees


Categories of risk

Categories of Risk

  • Market Risk

  • Credit Risk

  • Pricing Risk

  • Legal/Regulatory Risk

  • Operations Risk

  • Strategic Risk


Risk type

Risk type

  • Systematic Risk

  • Non-systematic Risk


Creating transparency

Creating Transparency

  • Local management of risk

  • Enterprise view of risk profiles

  • Improving capital and tax efficiency

  • Monitoring concentration

  • Managing counter-party exposure


Establishing risk tolerance

Establishing Risk Tolerance

  • Managing extreme tail outcomes

  • Reducing the variability of earnings

  • Managing capital requirements

  • Preserving ratings


Establishing risk tolerance1

Establishing Risk Tolerance

  • Deterministic Models

  • Stochastic Models

  • Modeling contagion effects

  • Liquidity testing

  • Diversification


Establishing limits

Establishing Limits

  • Single event limits

  • Aggregate exposure limits

  • Concentration management

  • Managing risk assessment


Measurement

Measurement

  • Varies by nature of risk

  • VaR

  • Present Value of Distributable Earnings

  • Sharpe ratios

  • Traditional measures of exposure

  • Economic value at risk


Monitoring

Monitoring

  • Quarterly updates of exposures

  • Periodic reporting on maximum limits

  • Judgmental self-assessment at least quarterly

  • Regular meetings of divisional RMC’s


The goal of an effective limit system

The Goal of an Effective Limit System

  • Facilitate BU risk/reward choices

  • Enterprise wide consistency

  • Careful selection of global parameters

  • Recognition of contagion/diversification impacts


Lessons learned from experience

Lessons learned from experience

  • Implementing Enterprise-wide Risk Management

  • Creating a risk management culture

  • Overcoming fear and suspicion

  • Broad organizational buy-in

  • Empowerment and control

  • Trigger events


Role of a chief risk officer1

Role of a Chief Risk Officer

Use caution to enhance, not impede, progress.

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