Risks Influencing
the balance sheet

•1
Influence of Risk on your Balance sheet
 The Approach – the consulting perspective
 In Practice – the client perspective...
Aon
Risk Management
Influencing the
Balance Sheet
A consulting
perspective
Alex van den Doel
Managing Director
Aon Global ...
Deepwater Horizon accident

4
Financial Impact on BP
Share Price

Balance sheet:
 Liabilities + 32%
 15% of Assets to be sold
 Equity -6%

5
Risk Management and financial impact
Chemie-Pack (Moerdijk)




45 employees
EUR 7 m revenue
EUR 10 m Equity

Fire on J...
The Upside of Risk Management!

7
Integrated Risk Management
Why?
•Return

•Risk

 Resilience – Protecting the downside:
 Shareholder value
 Financial ob...
The IRM Approach – modular and pragmatic
Annual

Risk Rating

Stress test

Risk Maturity

Identify main risk areas from a ...
Integrated Risk Management - Results

10
Stress Test – approach
 What (extreme) scenarios can jeopardize your financial
objectives?
 Approach
 Define risk beari...
Stress Test – Risk Bearing Capacity


Information from financial statements
 Balance sheet total: 880M
 Equity: 330M
 ...
Stress Test – Example result
Risk Appetite:
EUR 15M

Risk Bearing Capacity:
EUR 28M

Take decisions

Scenarios

Business I...
Van Gansewinkel Groep

Case Study: Risk Management
Influencing the Balance Sheet
A client perspective
Doede de Waij
Direct...
Profile
• Waste service provider and
supplier of raw materials and
energy

• Annual revenues

€1 billion

• Nine countries...
•Minerals

Our contribution to
the circular economy

• 7 Mt Waste

•VG Collection

Household and
Commercial waste
•Chemica...
Our risk management process
Identify

Analyse

Impact on balance sheet

Property Damage Assessment
Reputation assessment
L...
What if scenario


Looking at our Chemical Depots

Versus







What happened at Chemie Pack
Moerdijk (2011):

Ins...
Lessons learned ?
Casus

Sandoz 1986

CMI 1996

ATF 2000

Chemie Pack

Cause

Human error
Large fire

Human error
Large fi...
Central question
 What will be the impact on
our 4 Central Chemical
Depots in case of a worst
case scenario?

20
What if scenario: BLEVE

21
Financial impact vs. protection
•Stress test results: (7 m. vs. 30 m.)
•Property Damage Assessment

•Stress test results: ...
Financial impact vs. protection

•Stress test results:
•15 m. vs. 30 m.
•Business Interruption
Analysis

23
Scenarios
07 million. Property damage
15 million. Business Interruption

13 million. Reputational damage

13 million unins...
Benefits
 Manage our Licence to Operate
 Minimise impact on cash flow due to an incident
 Avoid breaching financial obj...
Zurich Global Corporate UK

Risk Management Influencing
the Balance Sheet
An Insurers Perspective
Nick Major
CUO Zurich Gl...
Importance of identifying risks that
affect the financial objective
 How customers can use this from
an insurance perspec...
Insights from Van Gansewinkel
 Holistic view of risk and insurance
 PD Limits / D&O limits /
Reputational
 Do Insurers ...
What’s the impact, where’s the pay back?
 Maximising value from
insurance spend and
packaging risk transfer – multi
line ...
Business continuity is the real risk differentiator
962

Loss Index (2005=100)

900

700

500

474

300

100
2005

2006

2...
Understanding the Killer Risks!
 Property explosion
 Casualty explosion /
pollution
 Impacts of Social Media
 Brand Re...
Supply chain management impact on
business resilience and reputation
 Trade credit protects when you sell products, what
...
Predicting future risk
 Emerging risks radar
 How organisations should
use this management tool to
drive ERM
 Risk Room...
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FORUM 2013 Risk Management influencing the balance sheet

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FORUM 2013 Risk Management influencing the balance sheet

  1. 1. Risks Influencing the balance sheet •1
  2. 2. Influence of Risk on your Balance sheet  The Approach – the consulting perspective  In Practice – the client perspective  Impact on insurance costs – the insurer perspective 2
  3. 3. Aon Risk Management Influencing the Balance Sheet A consulting perspective Alex van den Doel Managing Director Aon Global Risk Consulting •3
  4. 4. Deepwater Horizon accident 4
  5. 5. Financial Impact on BP Share Price Balance sheet:  Liabilities + 32%  15% of Assets to be sold  Equity -6% 5
  6. 6. Risk Management and financial impact Chemie-Pack (Moerdijk)    45 employees EUR 7 m revenue EUR 10 m Equity Fire on January 5, 2011   Damage: EUR 71 million Bankruptcy on August 25, 2011 6
  7. 7. The Upside of Risk Management! 7
  8. 8. Integrated Risk Management Why? •Return •Risk  Resilience – Protecting the downside:  Shareholder value  Financial objectives and covenants  Reputation •€  High performance – Creating upside:  Higher P/E ratio, higher predictability  Higher risk maturity creates value  Better decision making  Cost Effective and Pragmatic 8
  9. 9. The IRM Approach – modular and pragmatic Annual Risk Rating Stress test Risk Maturity Identify main risk areas from a financial perspective (QUICK SCAN) Identify and quantify scenenario's Identify the gaps between existing and desired risk maturity levels Risk Assessment Identify and assess most significant risks: strategic, operational, financial, compliance threatening financial objectives Scenario analysis Detailed analysis on the most severe scenarios. Focus on supply chain (Business Impact Analysis) and liability risks Risk Management Implementation Close the gaps with respect to the risk maturity targets Registering and Reporting Record and monitor risk developments realtime andonline Outsourcing Risk management activities bij external resources Assuring Independently review risk management and financial measures Risk Financing Optimise the risk financing structure and programmes Business Continuity Management Optimise the risk financing structure and programmes 9
  10. 10. Integrated Risk Management - Results 10
  11. 11. Stress Test – approach  What (extreme) scenarios can jeopardize your financial objectives?  Approach  Define risk bearing capacity  Develop scenarios Industry specific Organization specific Out-of-the-box  Quantify impact of scenarios  Evaluate against risk bearing capacity 11
  12. 12. Stress Test – Risk Bearing Capacity  Information from financial statements  Balance sheet total: 880M  Equity: 330M  Solvency ratio = 38% 39 % 38 % 37 % 36 % 35 %  Covenant in financing arrangement specifies a threshold of 34% 34 % 33 %  Claim of 50M will lower ratio to 32%  Breach of Covenant!  32 % 31 % An impact of 28M will lower the ratio to 34% → RBC = 28M 12
  13. 13. Stress Test – Example result Risk Appetite: EUR 15M Risk Bearing Capacity: EUR 28M Take decisions Scenarios Business Interruption Environmental liability Product liability Decreasing demand Product recall 0 5 10 15 20 25 30 35 40 45 Impact EUR (M) 13
  14. 14. Van Gansewinkel Groep Case Study: Risk Management Influencing the Balance Sheet A client perspective Doede de Waij Director SHEQ (Safety, Health, Environment and Quality) Van Gansewinkel Groep •14
  15. 15. Profile • Waste service provider and supplier of raw materials and energy • Annual revenues €1 billion • Nine countries • Market leader in the Benelux • 5,800 employees 15
  16. 16. •Minerals Our contribution to the circular economy • 7 Mt Waste •VG Collection Household and Commercial waste •Chemical s 16
  17. 17. Our risk management process Identify Analyse Impact on balance sheet Property Damage Assessment Reputation assessment Liability Risk Quantification Business Impact Analysis 17
  18. 18. What if scenario  Looking at our Chemical Depots Versus       What happened at Chemie Pack Moerdijk (2011): Insurance claims: 70 million Coverage PD/BI: 5 million Environmental pollution Bankruptcy Management sentenced to 240 hours of community service 18
  19. 19. Lessons learned ? Casus Sandoz 1986 CMI 1996 ATF 2000 Chemie Pack Cause Human error Large fire Human error Large fire Human error Large fire Human error Large fire Licence to operate Present Present Present Present Government oversight Insufficient Insufficient Insufficient Insufficient Professional fire fighting Insufficient Insufficient Insufficient Insufficient Safety policy Insufficient Insufficient Sufficient Insufficient Governmental More rules and More rules and More rules and More response enforcement enforcement enforcement enforcement 19
  20. 20. Central question  What will be the impact on our 4 Central Chemical Depots in case of a worst case scenario? 20
  21. 21. What if scenario: BLEVE 21
  22. 22. Financial impact vs. protection •Stress test results: (7 m. vs. 30 m.) •Property Damage Assessment •Stress test results: (13 m. vs. 0) •Reputation assessment •Stress test results: (30 m vs. 25 m) •Liability assessments 22
  23. 23. Financial impact vs. protection •Stress test results: •15 m. vs. 30 m. •Business Interruption Analysis 23
  24. 24. Scenarios 07 million. Property damage 15 million. Business Interruption 13 million. Reputational damage 13 million uninsured 06 million. Employers liability 25 million. General liability 12 million. Environmental liability 30 million. D&O liability 05 million uninsured 108 million. Total impact on combined worst case scenario Risk Bearing Capacity = 12 million (5% impact on EBITDAE) 18 million uninsured 24
  25. 25. Benefits  Manage our Licence to Operate  Minimise impact on cash flow due to an incident  Avoid breaching financial objectives due to an incident  Raise awareness on business continuity objectives 25
  26. 26. Zurich Global Corporate UK Risk Management Influencing the Balance Sheet An Insurers Perspective Nick Major CUO Zurich Global Corporate UK •7/10/2013 •26
  27. 27. Importance of identifying risks that affect the financial objective  How customers can use this from an insurance perspective…  Drives risk transfer strategy – minimise purchasing and maximise value  Structures a self Insured retention strategy – may utilise Captive  Supports Business decisions via risk and return perspective  Drives board level influence 27
  28. 28. Insights from Van Gansewinkel  Holistic view of risk and insurance  PD Limits / D&O limits / Reputational  Do Insurers key risk assessments match the Customers – are we selling what you need?  Engaged and business continuity focused  Risk managers need to talk the language of the CFO  Enhanced value of risk manager role in business planning and operations 28
  29. 29. What’s the impact, where’s the pay back?  Maximising value from insurance spend and packaging risk transfer – multi line options ?  Focusing management attention on critical risks  Sets agenda for insurer engagement  The value of risk maturity on pricing  Business continuity vs failure !! 29
  30. 30. Business continuity is the real risk differentiator 962 Loss Index (2005=100) 900 700 500 474 300 100 2005 2006 2007 2008 2009 2010  Claims stats from Zurich indicate BI is growing significantly as a proportion of claims payments for large Property losses.  Use risk data / knowledge to intervene pre-impact and draw conclusions beyond the obvious 2011 30
  31. 31. Understanding the Killer Risks!  Property explosion  Casualty explosion / pollution  Impacts of Social Media  Brand Reputation of Van Gansewinkel  Mitigation vs risk transfer Crisis Definition; When written in Chinese the word “crisis is composed of two characters. One represents danger and the other represents opportunity. 31
  32. 32. Supply chain management impact on business resilience and reputation  Trade credit protects when you sell products, what happens if you have no products to sell?  Supply chain modelling - map exposure to anticipate and then manage risk ( recognising may be no choice on supplier) 32
  33. 33. Predicting future risk  Emerging risks radar  How organisations should use this management tool to drive ERM  Risk Room – decision tool to assess relative risk between countries  Risk insights  Risk Grading App  Flood resilience studies  CAT Analysis 33

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