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Enterprise Risk Management & BCAR

Enterprise Risk Management & BCAR. Matthew C. Mosher, FCAS, MAAA Group Vice President Property/Casualty Ratings May 10, 2007. ERM in the Rating Analysis. Not a separate component Impacts all three areas of the rating evaluation Capitalization Operating performance Business profile

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Enterprise Risk Management & BCAR

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  1. Enterprise Risk Management & BCAR Matthew C. Mosher, FCAS, MAAA Group Vice President Property/Casualty Ratings May 10, 2007

  2. ERM in the Rating Analysis • Not a separate component • Impacts all three areas of the rating evaluation • Capitalization • Operating performance • Business profile • Integrated into agenda • Clearly the potential to weigh heavily on a rating

  3. ERM – What’s New? • Level of Board and Sr. Management focus • Greater focus on correlation of risks • Consideration of second tier risks • Increased focus on modeling of risks • Risk learning • However, don’t forget the importance of ERM will vary

  4. Enterprise Risk Management • Need to determine the risk profile and complexity of a company • Review of company’s ERM • ERM Culture • Identification & Management of Risk • Measuring the Risk • Assessment of ERM will impact level of capital required to support rating

  5. Assessment of ERM • ERM Culture • Corporate governance and controls • Culture of organization • Identify & Managing the Risk • Traditional risk management plus … • Data integrity • Measuring the Risk • Use of capital models/allocation of capital

  6. Corporate Governance & Controls • CRO responsibilities assigned • Executive level • Separate from immediate responsibility • Board established risk tolerance • Updates provided to the board • Risk management part of executive compensation • Earnings measured in relation to risk

  7. Risk ManagementCulture of the Organization • Part of daily operations • Incorporated into planning process • Importance understood and considered along with profit targets throughout the organization • Evolution based on actual experience

  8. Traditional Risk ManagementPlus • Consistent measurement of risk • Attention to detailed risk management • Integrated risk management • Creates • An objective framework which considers emerging risks, risk accumulation and correlation across the entire organization

  9. Data Integrity • Quality of data • Data verification procedures • Access to the data

  10. Use of Capital Models • Integration into operations to monitor risk accumulation • Allocation of capital decisions • Quality of the model • Sensitivity of the model • Internal Model is given consideration in the evaluation of required capital

  11. Questions?

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