Implementing and Transitioning Enterprise Risk Management Vinaya Sharma and Randy Tillis Allstate Financial - PowerPoint PPT Presentation

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Implementing and Transitioning Enterprise Risk Management Vinaya Sharma and Randy Tillis Allstate Financial

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  1. Implementing and Transitioning Enterprise Risk Management Vinaya Sharma and Randy TillisAllstate Financial ERM Symposium – Chicago CS 6-A April 26/27, 2004 CONFIDENTIAL - DO NOT DISTRIBUTE

  2. VisionTo be the company financial service professionals choose for their clients' financial protection, savings and retirement needs MissionTo assist financial service professionals in meeting their clients' financial protection, savings, and retirement needs by providing top-tier products delivered with reliable and efficient service About Allstate Financial CONFIDENTIAL - DO NOT DISTRIBUTE

  3. Strategies Broadly distribute a focused portfolio of top-tier products through a multi-channel network of financial service professionals Drive operational scale, efficiency and effectiveness in all that we do Leverage investment and risk management expertise to deliver growth and superior risk-adjusted returns. Capitalize on the strength of the Allstate brand Operate as a high performance organization About Allstate Financial CONFIDENTIAL - DO NOT DISTRIBUTE

  4. Life Insurance Term Whole Life Universal Life Deferred Annuities Fixed Variable Equity-Indexed Market Value Adjusted T-Link Payout Annuities Immediate Structured Settlements Health Disability Long Term Care Accident Banking services Institutional Markets CONFIDENTIAL - DO NOT DISTRIBUTE

  5. Risk Analysis • Current: Risks are addressed/owned, but fragmented • Desired: Enterprise view of risks (e.g. equity, default, interest rate, disaster recovery, etc) • Current: Each product viewed independently • Desired: Capture offsets from other lines of business • Current: Infrequent selected measurements of risk • Desired: Routine measurement of risk levels • Current: Limits to risk, if any, are at micro level • Desired: Enterprise level bounds to risk tolerances CONFIDENTIAL - DO NOT DISTRIBUTE

  6. Why Enterprise Risk Management • Provide company-wide scope/assessment to risk analysis which currently doesn’t exist • Present how a single relevant economic event affects the company • Reveal natural hedges and portfolio effects • Enhance capital allocation process • Clarify roles/responsibilities • Best Practice in today’s environment CONFIDENTIAL - DO NOT DISTRIBUTE

  7. Enterprise Risk Mgmt Approach • Analysis of significant risks (e.g. equity, default, interest rates, etc) • Risk Dashboard (See Appendix 1) • Quarterly Risk Profile Report • Aggregate risks throughout Enterprise • Catalog of risks • Monthly updates • Risk Forum • ‘Point’ team on large events that impact the enterprise CONFIDENTIAL - DO NOT DISTRIBUTE

  8. Enterprise Risk Mgmt – Significant Risk Analysis • Aggregate information • Equity: VA, EIA, Unaffliated common stock, etc • Default: Private Placements, Inv Grade Corp Bonds, Real Estate, etc. • Establish Metrics • Not subject to manipulation • Must be used/understandable to the practitioner • Samples: Income, Capital, Cash Flow CONFIDENTIAL - DO NOT DISTRIBUTE

  9. Enterprise Risk Mgmt – Significant Risk Analysis • Establish Tolerance • Considerations • Insurance Departments • Investors • Rating Agencies • Establish scenarios • Stochastic vs Deterministic • Goal of scenarios • Determine how often risk profile to be measured CONFIDENTIAL - DO NOT DISTRIBUTE

  10. Enterprise Risk Mgmt – Aggregate Risks • Catalog of risks within Areas of Responsibility (See Appendix 2) • Monthly updates from ERM liaisons • Risk Forum • Day long event • 15 minutes of fame • Goals • Share information • Quantify risks/opportunities • Clarify roles (See Appendix 3) CONFIDENTIAL - DO NOT DISTRIBUTE

  11. Enterprise Risk Mgmt – Point Team • Terrorist Attacks • NIMBDA Virus • Bush 2003 Tax Proposals CONFIDENTIAL - DO NOT DISTRIBUTE

  12. Enterprise Risk Mgmt Successes • Conduit of information • Aggregation of exposure • Increased discipline • Broader understanding/measurement of risk CONFIDENTIAL - DO NOT DISTRIBUTE

  13. Enterprise Risk Mgmt Lessons • Turf issues on Significant Risks • Witch hunts on aggregating risks • Risk Mgmt is different to different people • Can not satisfy all of the people all of the time • Senior Management buy-in is essential • Quantifying ERM value can be difficult CONFIDENTIAL - DO NOT DISTRIBUTE

  14. Transitioning Enterprise Risk Management Creating Value Handling Change CONFIDENTIAL - DO NOT DISTRIBUTE

  15. Creating Value from ERM - A beginners perspective • A Three prong approach to ERM • Dashboards • Aggregate Risks • Reactive Risk Management CONFIDENTIAL - DO NOT DISTRIBUTE

  16. Creating Value from ERMDashboard • Variable Annuity changes in 2003/04 that impact the dashboard include • Market Recovery • SOP 03-01 (GAAP GMDB/IB reserving) • RBC Phase II (Statutory capital) • New Product developments (GMWB,GMAB) CONFIDENTIAL - DO NOT DISTRIBUTE

  17. Creating Value from ERM – Aggregate and Catalog Risk • Risk identification • Culture shift • Witch hunts CONFIDENTIAL - DO NOT DISTRIBUTE

  18. Creating Value from ERM – Reactive Risk Management Examples • Business Recovery • Investment Advisors • Parmalat • 2003 Flu Deaths CONFIDENTIAL - DO NOT DISTRIBUTE

  19. Transitioning Enterprise Risk Management Handling Change CONFIDENTIAL - DO NOT DISTRIBUTE

  20. Early Learnings involved • Research • Practicality • Communication • Timeliness CONFIDENTIAL - DO NOT DISTRIBUTE

  21. Changes in the Industry by • COSO • Basel II • International Accounting Standards • Involvement with • CAS • PRMIA • SOA CONFIDENTIAL - DO NOT DISTRIBUTE

  22. Integrating ERM with a parent/subsidiary involves • Communication • Clearly defined roles/responsibilities • Demonstrating Value added by ERM CONFIDENTIAL - DO NOT DISTRIBUTE

  23. Implementing and Transitioning Enterprise Risk Management Vinaya Sharma and Randy TillisAllstate Financial ERM Symposium - Chicago April 2004 Appendices CONFIDENTIAL - DO NOT DISTRIBUTE

  24. CONFIDENTIAL - DO NOT DISTRIBUTE

  25. Catalog of Risks CONFIDENTIAL - DO NOT DISTRIBUTE

  26. Responsibility Template CONFIDENTIAL - DO NOT DISTRIBUTE