Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Friday, May 11
8 – 9:30 a.m.
Session 60
Session Sponsor: Joint Risk Management
Emergence of the Chief Risk Officer
Moderat...
Enterprise Risk Advisory, LLC
May 11 2007
Bob Lautensack
Henry McMillan
Michel Rochette
Sim Segal
Role of the CRO
Enterprise Risk Advisory, LLC 2
(1)Main Roles of a CRO:
 CRO is NOT the Risk Manager of the Risk Managers!
 Leader, faci...
Enterprise Risk Advisory, LLC 3
(1)Main Responsibilities of a CRO:
 Develop, maintain, and update risk governance
framewo...
Enterprise Risk Advisory, LLC 4
(1)Main Responsibilities of a CRO:
 Senior management:
 Advice on risk issues in strateg...
Enterprise Risk Advisory, LLC 5
(1)Skills Required:
 Some quantitative skills but not be a polymath: analytical,
understa...
Enterprise Risk Advisory, LLC 6
(1)Differences between Actuaries and CRO
 Actuaries:
 Emphasize high
quantitative skills...
Enterprise Risk Advisory, LLC 7
(2)Internal: Interaction with the Board
Once a month
Once a quarter
Twice a year
Once ever...
Enterprise Risk Advisory, LLC 8
(2)Internal: Interaction with Senior
Management
Once a month
Once a quarter
Twice a year
O...
Enterprise Risk Advisory, LLC 9
(2)External: Interaction with Shareholders
Once a month
Once a quarter
Twice a year
Once e...
Enterprise Risk Advisory, LLC 10
(2)External Interaction with Regulators
Once a month
Once a quarter
Twice a year
Once eve...
Enterprise Risk Advisory, LLC 11
(2)External Interaction with Rating Agencies
Once a month
Once a quarter
Twice a year
Onc...
Enterprise Risk Advisory, LLC 12
(2)Internal Communication of Risk
Regular reports to executive
committee/board of directo...
Enterprise Risk Advisory, LLC 13
(2)External Communication
Provide separate information to rating
agencies
Separate sectio...
Enterprise Risk Advisory, LLC 14
(3)Decision Making by CROS: Risk/Control
 High Level position => High level involvement
...
Enterprise Risk Advisory, LLC 15
(4) Risks under CRO’s Purview Now
 Financial risks:
 Interest rate (97%)
 Equity(81%)
...
Enterprise Risk Advisory, LLC 16
(4)Risks under CRO’s Purview: Emerging
Reputational Risk
(52)
Regulatory Risk
(40)
Human ...
Enterprise Risk Advisory, LLC 17
(5) TOP RISKS
 Economic risks:
 Credit losses are at historical lows: Risk of downturn ...
Enterprise Risk Advisory, LLC 18
(6)Reporting relation of the CRO
Responsible for Risk Management
To Whom Primarily Report...
Enterprise Risk Advisory, LLC 19
(7)ERM Culture
 Evolutionary process: Must see a trend in a company from:
 Existing ris...
Enterprise Risk Advisory, LLC 20
(7) ERM Culture: Enshrined in organizations
when:
 Business lines takes the initiative o...
Enterprise Risk Advisory, LLC 21
(8) Risk Appetite:
 Definition: Risk appetite is defined as the
organization’s willingne...
Enterprise Risk Advisory, LLC 22
(8) Risk Appetite:
 Link with overall strategic goal.
 Ex. Insurance financial strength...
Enterprise Risk Advisory, LLC 23
(9) Challenges of the CROs
 Ensuring that the organization is in compliance with
the eve...
Enterprise Risk Advisory, LLC 24
(9) Challenges of the CROs
Improving the risk measurement and quantification
processes
Ac...
Enterprise Risk Advisory, LLC 25
Thanks
 Ellen Bull, Librarian at the SOA for useful references
and help for my two prese...
SOCIETY OF ACTUARIES
Life Spring Meeting (May 2007)
Session Topic:
Value Ladder
All Sessions 60
Expected Attendance 2,690 ...
SOCIETY OF ACTUARIES
Life Spring Meeting (May 2007)
Session Evaluation (Participants' Comments)
Session Value Ladder Overa...
Upcoming SlideShare
Loading in …5
×

Emergence of the Chief Risk Officer function

522 views

Published on

Description of the role of the Chief Risk Officer(CRO)
Description du rôle du Chef de la gestion du risque

Published in: Leadership & Management
  • Be the first to comment

Emergence of the Chief Risk Officer function

  1. 1. Friday, May 11 8 – 9:30 a.m. Session 60 Session Sponsor: Joint Risk Management Emergence of the Chief Risk Officer Moderator: Sim Segal, FSA, MAAA Presenters: Robert G. Lautensack, Jr., FSA; Henry M. McMillan, FSA, MAAA; Michel Rochette, FSA A chief risk officer and an industry expert will explain the function of the CRO and skill sets required to serve in this capacity. What is the CRO’s responsibility and how does it fit within the organizational and decision-making structure of the firm? How is CRO performance evaluated? The discussion will include an examination of the value the actuarial skill set provides to those in, or being considered for, this role You will learn for yourself what skills need to be acquired to sit in the “C” suite. Or, if you are a company executive, understand better how this role can serve the needs of your firm. Targeted Value Ladder Stage: Market Coordinators: Anthony Dardis, FSA, FIA, MAAA; David T. Henderson, FSA, MAAA
  2. 2. Enterprise Risk Advisory, LLC May 11 2007 Bob Lautensack Henry McMillan Michel Rochette Sim Segal Role of the CRO
  3. 3. Enterprise Risk Advisory, LLC 2 (1)Main Roles of a CRO:  CRO is NOT the Risk Manager of the Risk Managers!  Leader, facilitator, integrator, coordinator of risk rather than a manager of risk.  Create a culture risk awareness within the organization.  Formally bring consideration of risk into the strategic decision making.  Develop a center of excellence for managing risk using the skills sets of individual risk managers.  Communicate to all stakeholders – internal and external – about risk.  Bring the BIG PICTURE PERSPECTIVE!
  4. 4. Enterprise Risk Advisory, LLC 3 (1)Main Responsibilities of a CRO:  Develop, maintain, and update risk governance framework:  Risk policies, risk appetite and risk limits.  Risk infrastructure, process and reporting.  Risk integration and links between risks.  Coordinate with business line:  Risk training  Risk assessment and action plans  Incorporate risk elements in performance metrics  Ensure lines of business have risk capacity both in personnel and risk systems.
  5. 5. Enterprise Risk Advisory, LLC 4 (1)Main Responsibilities of a CRO:  Senior management:  Advice on risk issues in strategic decision making  Provide aggregated and detailed reports on risk in line with risk appetite and limits  Keep management appraised of industry standards  Committees:  ALM, Credit, Operational, IT, Security  External Party liaison  New regulatory risk initiatives: Ex. NAIC Corporate Governance for Risk Management Act.
  6. 6. Enterprise Risk Advisory, LLC 5 (1)Skills Required:  Some quantitative skills but not be a polymath: analytical, understands the models and bright!  Excellent understanding of the supply value chains of your organization: See the links between risks that the risk silos don’t see!  Strategic and tactical thinker.  Ability to understand business issues.  Ability to compare risk and reward.  Leader/ educator in terms of promoting a risk culture.  Project manager of risk initiatives.  Ability to synthesize a lot of data and see trends and potential impact on company.  Communication skills are a priority because a CRO is a C-level Executive: written and oral.
  7. 7. Enterprise Risk Advisory, LLC 6 (1)Differences between Actuaries and CRO  Actuaries:  Emphasize high quantitative skills  Specialize in a field: Valuation, pricing, risk…  Risk field: focus on measurement of risk  Communication with peers  Usually function with other actuaries in actuarial departments.  CROs:  An analytical background is sufficient  Overall view of the businesses: Integrative view. Can see the links.  Some risk can’t be quantified but doesn’t mean that they can be managed.  Communication to a broad audience, internal/external.  Build links with business units where risks are managed.
  8. 8. Enterprise Risk Advisory, LLC 7 (2)Internal: Interaction with the Board Once a month Once a quarter Twice a year Once every year Other Do not formally report 8% 1% 11% 15% 53% 12% TP 2006 ERM Survey 92% report on risk to their Board of Directors at least annually
  9. 9. Enterprise Risk Advisory, LLC 8 (2)Internal: Interaction with Senior Management Once a month Once a quarter Twice a year Once every year Other Do not formally report 7% 5% 6% 8% 35% 39% More frequent than with the Board, about 40% monthly TP 2006 ERM Survey
  10. 10. Enterprise Risk Advisory, LLC 9 (2)External: Interaction with Shareholders Once a month Once a quarter Twice a year Once every year Other Do not formally report 39% 4% 27% 8% 18% 4% TP 2006 ERM Survey The majority (61%) of respondents indicate they report on risk to shareholders at least annually
  11. 11. Enterprise Risk Advisory, LLC 10 (2)External Interaction with Regulators Once a month Once a quarter Twice a year Once every year Other Do not formally report 38% 5% 32% 3% 18% 4% 62% of the participants formally report on risk to regulators TP 2006 ERM Survey
  12. 12. Enterprise Risk Advisory, LLC 11 (2)External Interaction with Rating Agencies Once a month Once a quarter Twice a year Once every year Other Do not formally report 37% 3% 48% 6% 6% 0% 63% report on risk to the rating agencies at least annually TP 2006 ERM Survey
  13. 13. Enterprise Risk Advisory, LLC 12 (2)Internal Communication of Risk Regular reports to executive committee/board of directors On an ad hoc, as-needed basis Regular reports to CRO Risk “dashboards” at the risk category, business or corporate level Regulatory reporting formats Other 4% 25% 29% 32% 45% 75% (75%) provide reports on key risk exposures and risk management activities to the executive committee or Board of Directors TP 2006 ERM Survey
  14. 14. Enterprise Risk Advisory, LLC 13 (2)External Communication Provide separate information to rating agencies Separate section devoted to risk management in annual report Provide supplementary information to regulators Use regulatory reporting formats Provide separate information to financial analysts Do not externally communicate with stakeholders Hold focus groups with key customers/suppliers/community Other 4% 3% 14% 18% 31% 32% 45% 59% More common with European insurers (68%) North America (26%) TP 2006 ERM Survey
  15. 15. Enterprise Risk Advisory, LLC 14 (3)Decision Making by CROS: Risk/Control  High Level position => High level involvement  Oversight role, not a cop!  Must exist at the same level as CFO.  Areas of focus:  Risk identification, particular emerging risks  Risk approval process of new initiatives making sure that all risks are taken into account  Risk exception authorization  Risk prioritization and escalation.  Risk mitigation strategies and alternatives  Risk compliance and business continuity.  Risk communication
  16. 16. Enterprise Risk Advisory, LLC 15 (4) Risks under CRO’s Purview Now  Financial risks:  Interest rate (97%)  Equity(81%)  Credit (asset default/migration) (80%)  Liquidity (41%)  Demographic risks:  Mortality (92%)  Lapse ( 84%)  Longevity (73%)  Policy holder behavior (58%)  Operational risks (70%) TP 2006 ERM Survey
  17. 17. Enterprise Risk Advisory, LLC 16 (4)Risks under CRO’s Purview: Emerging Reputational Risk (52) Regulatory Risk (40) Human Capital Risk (40) IT RISK (35) Financial, Market, Credit and Insurance Risk (30) Crime, security, political, natural hazard, FX, Terrorism, Country Risk (20) Source: Economist Intelligence Unit, 2005 Max Scale: 100
  18. 18. Enterprise Risk Advisory, LLC 17 (5) TOP RISKS  Economic risks:  Credit losses are at historical lows: Risk of downturn is increasing. No spill over yet from SubPrime meltdown.  Political risks are increasing everywhere.  Liquidity risk: private equity, structured deals.  Thus: Scenarios and Stress tests still RELEVANT.  Compliance with the new regulatory environment:  NAIC Corporate Governance For Risk Management Act  Solvency II.  Principles-based  Others: AML  Monitoring and identifying emerging risks:  Longevity risk. Impact of new lifestyles, drugs on health.  Extreme events: Avian Flu, terrorism and business continuity  Concentration of risks and links between risks.
  19. 19. Enterprise Risk Advisory, LLC 18 (6)Reporting relation of the CRO Responsible for Risk Management To Whom Primarily Reports The person responsible for risk management most often reports to the CEO (45%) Chief Risk Officer Chief Fin. Officer Risk Management Committee Chief Actuary Head of Internal Audit Other 14% 1% 8% 16% 18% 43% CEO CFO or Financial Director Board of Directors COO Risk Committee Other 6% 4% 4% 17% 24% 45% TP 2006 ERM Survey
  20. 20. Enterprise Risk Advisory, LLC 19 (7)ERM Culture  Evolutionary process: Must see a trend in a company from:  Existing risk identification in silos.  Start establishing links between risks: Ex. Natural Hedge between life and annuity operations.  Start being proactive in risk assessment: Forward looking, not just reporting on existing situation.  Embed risk analysis in new initiatives – new product, new IT system, M & A,  Communicate internally and externally about your risk situation.
  21. 21. Enterprise Risk Advisory, LLC 20 (7) ERM Culture: Enshrined in organizations when:  Business lines takes the initiative on risk issues: Behaviors have changed.  Prevention: Scanning for risks, consciously choosing the risks we want to retain, then managing them proactively.  Detection: Early identification of risks from internal or external sources.  CRO focuses only on emerging risk.  Recovery after risk occurrence and learn quickly: continuous improvement.  Risk analysis becomes as important as revenue generation: activities are evaluated on a risk-adjusted basis.  Compensation becomes tied to risk.
  22. 22. Enterprise Risk Advisory, LLC 21 (8) Risk Appetite:  Definition: Risk appetite is defined as the organization’s willingness to accept risk in pursuit of its strategic objectives.  Risk appetite is assessed against the organization’s key drivers of success: financial and non financial.  The establishment of the statement on risk appetite is intended to guide employees in their actions and ability to accept and manage risks.  Preferable if determined from top down rather than bottom up.  Define metric: Debt rating, earnings volatility.
  23. 23. Enterprise Risk Advisory, LLC 22 (8) Risk Appetite:  Link with overall strategic goal.  Ex. Insurance financial strength rating or desired debt rating - which implies a desired capital to keep that rating over a given time horizon-.  Translate into day-to-day management:  Allocate risk appetite to each type of risk by setting up appropriate limits including the zero tolerance risk.. Ex. Fraud..  Allocate risk appetite even for the non quantifiable risk: Ex. Reputation risk. Firm not willing to compromise its reputation.  Define risk tolerances around that risk appetite.  Communicate internally and externally: Build expectations about risk. When risk materializes within limits, markets will not react as they have already built it into their pricing.
  24. 24. Enterprise Risk Advisory, LLC 23 (9) Challenges of the CROs  Ensuring that the organization is in compliance with the ever changing regulatory environment.  Informing the Board about significant risk issues.  Assuring business continuity and prepare for crisis: crisis management and fight inertia to do so.  Monitor emerging risks: Operational, reputation, environmental.  Get an integrated picture of risk: Establish links.  Embed risk management in day-to-day operations.  Linking risk management in capital management.
  25. 25. Enterprise Risk Advisory, LLC 24 (9) Challenges of the CROs Improving the risk measurement and quantification processes Acting to manage the risk profile of your organization Improving internal risk reporting processes Ensuring that risk management considerations are explicitly factored into decision making Improving the risk identification and prioritization processes Establishing a risk framework and/or risk policy Improving education and internal communication of risk management principles and approach Establishing a risk management organization and governance structure Improving external communications Incorporating risk management considerations into incentive compensation Other 1% 8% 14% 42% 46% 53% 54% 59% 63% 64% 77% TP 2006 ERM Survey
  26. 26. Enterprise Risk Advisory, LLC 25 Thanks  Ellen Bull, Librarian at the SOA for useful references and help for my two presentations
  27. 27. SOCIETY OF ACTUARIES Life Spring Meeting (May 2007) Session Topic: Value Ladder All Sessions 60 Expected Attendance 2,690 32 Actual Attendance 2,238 17 Number of responses 998 11 Return rate (# of resp./actual att.) 45% 65% Overall 1 Rating Overall rating of this session 3.78 4.30 Provided you with practical technical information 3.97 3.60 Will enable you to make better business decisions 3.83 4.10 Prepared you to impact industry-wide changes 3.64 4.00 Knowledge of Subject 4.28 4.36 Effectiveness of Delivery 3.79 4.50 Number of participants indicating presenter included commercial promotion in presentation 0 Knowledge of Subject 4.28 4.27 Effectiveness of Delivery 3.79 3.90 Number of participants indicating presenter included commercial promotion in presentation 0 Knowledge of Subject 4.28 4.55 Effectiveness of Delivery 3.79 4.30 Number of participants indicating presenter included commercial promotion in presentation 0 Sim Segal Moderator Effectiveness 1 : Rate the moderator's skills in managing this session 3.80 4.64 1 The rating scale used: Excellent (5), Very Good (4), Good (3), Fair (2), Poor (1), and N/A (no value). 2 The rating scale used: Strongly Agree (5), Agree (4), Neither Agree nor Disagree (3), Disagree (2), Strongly Disagree (1), and N/A (no value). Emergence of the Chief Risk Officer Robet Lautensack Market Learning Experience 2 Indicate your level of agreement with the following. This session: Evaluation Tips to keep in mind when reviewing the responses: Numerical evaluations tend to give you a pretty good feeling for how well the attendees responded to the session as a whole. Scores in the range of 3 to 5 are considered successful programs. Written comments come from people who may have a strong opinion, therefore they tend to be very good or very bad. Repetitive comments that point to the same theme could be an indication of an area you may want to capitalize on in the future or work on for future presentations. Henry McMillan Michel Rochette PresenterEffectiveness1 4.30 3.60 4.10 4.00 4.36 4.50 0 4.27 3.90 0 4.55 4.30 0 4.64 3.78 3.97 3.83 3.64 4.28 3.79 4.28 3.79 4.28 3.79 3.80 This Session All Sessions Perception Solutions, Inc. www.perceptionsolutions.com 7/17/2007
  28. 28. SOCIETY OF ACTUARIES Life Spring Meeting (May 2007) Session Evaluation (Participants' Comments) Session Value Ladder Overall Comments Regarding This Session 60 Market Good discussion - should be repeated so more attend. 60 Market Great format! Perception Solutions, Inc. www.perceptionsolutions.com 7/18/2007 Comments- 1

×