This presentation focuses on the principles and practicalities of establishing a working risk appetite statement supported by risk limits and tolerances.
This presentation focuses on the principles and practicalities of establishing a working risk appetite statement supported by risk limits and tolerances.
A new emphasis on enterprise risk management from regulators has heightened awareness among bankers to get educated and adopt these best practices at their institution. In response to this increased focus, the RMA ERM Council developed the ERM framework and associated competencies, which became the foundation for a series of highly practical workbooks for implementing effective ERM.
An introduction to risk management concepts for future outdoor leaders. It serves up metaphors and poses suitable questions for other forms of risk management.
Introduction To Risk Management Powerpoint Presentation SlidesSlideTeam
Presenting this set of slides with name - Introduction To Risk Management Powerpoint Presentation Slides. This is a one stage process. The stages in this process are Introduction To Risk Management, Risk Management Overview, Risk Management Outline. https://bit.ly/3jpib2E
Shaping Your Culture via Risk Appetite Andrew Smart
Andrew Smart will briefly explain risk appetite and how it can be linked into the overall strategy and risk management process of an organisation. He will then go on to clarify how Risk Appetite statements work alongside Vision statements; creating the right ‘tone from the top’, and how that can be cascaded through the organisation in the form of Risk Tolerances and KRI's. The webinar will conclude with a demonstration of how to enable and embed change, leveraging your SharePoint investment.
Please contact andrew.smart@stratexsystems.com for more details about the presentation or to have a talk about our software solutions.
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Enterprise Risk Management (ERM) is the process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization's capital and earnings.
Enterprise Risk Management expands the process to include not just risks associated with accidental losses, but also financial, strategic, operational, and other risks.
In recent years, external factors have fueled a heightened interest by organizations in ERM.
Industry and government regulatory bodies, as well as investors, have begun to scrutinize companies' risk-management policies and procedures.
In an increasing number of industries, boards of directors are required to review and report on the adequacy of risk-management processes in the organizations they administer.
Since they thrive on the business of risk, financial institutions are good examples of companies that can benefit from effective ERM.
Their success depends on striking a balance between enhancing profits and managing risk.
In order for any enterprise to properly, effectively, and prudently manage their future growth, Business Strategy needs to be sustained by modern Enterprise Risk Management (ERM) principles and practices.
The Enterprise Risk Management discipline is not anymore a separate management profession or kinky management way, but rather it is a core competency that all organizations and executives must have in this Global Age. It should be a way of life for all.
IFAC Senior Technical Manager Vincent Tophoff presentation during the Institute of Chartered Accountants of Pakistan's CFO Conference 2013, CFO: Meeting Future Challenges! Mr. Tophoff discusses current trends and thinking in risk management and best practices.
Risk is a result or outcome which is other than what is / was expected. It is the amount of money that an investor can afford to lose in the interim, in his quest for certain return on investments. It is a state of uncertainty. Read more to find out how to access your risk appetite.
A new emphasis on enterprise risk management from regulators has heightened awareness among bankers to get educated and adopt these best practices at their institution. In response to this increased focus, the RMA ERM Council developed the ERM framework and associated competencies, which became the foundation for a series of highly practical workbooks for implementing effective ERM.
An introduction to risk management concepts for future outdoor leaders. It serves up metaphors and poses suitable questions for other forms of risk management.
Introduction To Risk Management Powerpoint Presentation SlidesSlideTeam
Presenting this set of slides with name - Introduction To Risk Management Powerpoint Presentation Slides. This is a one stage process. The stages in this process are Introduction To Risk Management, Risk Management Overview, Risk Management Outline. https://bit.ly/3jpib2E
Shaping Your Culture via Risk Appetite Andrew Smart
Andrew Smart will briefly explain risk appetite and how it can be linked into the overall strategy and risk management process of an organisation. He will then go on to clarify how Risk Appetite statements work alongside Vision statements; creating the right ‘tone from the top’, and how that can be cascaded through the organisation in the form of Risk Tolerances and KRI's. The webinar will conclude with a demonstration of how to enable and embed change, leveraging your SharePoint investment.
Please contact andrew.smart@stratexsystems.com for more details about the presentation or to have a talk about our software solutions.
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Enterprise Risk Management (ERM) is the process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization's capital and earnings.
Enterprise Risk Management expands the process to include not just risks associated with accidental losses, but also financial, strategic, operational, and other risks.
In recent years, external factors have fueled a heightened interest by organizations in ERM.
Industry and government regulatory bodies, as well as investors, have begun to scrutinize companies' risk-management policies and procedures.
In an increasing number of industries, boards of directors are required to review and report on the adequacy of risk-management processes in the organizations they administer.
Since they thrive on the business of risk, financial institutions are good examples of companies that can benefit from effective ERM.
Their success depends on striking a balance between enhancing profits and managing risk.
In order for any enterprise to properly, effectively, and prudently manage their future growth, Business Strategy needs to be sustained by modern Enterprise Risk Management (ERM) principles and practices.
The Enterprise Risk Management discipline is not anymore a separate management profession or kinky management way, but rather it is a core competency that all organizations and executives must have in this Global Age. It should be a way of life for all.
IFAC Senior Technical Manager Vincent Tophoff presentation during the Institute of Chartered Accountants of Pakistan's CFO Conference 2013, CFO: Meeting Future Challenges! Mr. Tophoff discusses current trends and thinking in risk management and best practices.
Risk is a result or outcome which is other than what is / was expected. It is the amount of money that an investor can afford to lose in the interim, in his quest for certain return on investments. It is a state of uncertainty. Read more to find out how to access your risk appetite.
Establishing Effective ERM of IT: Implementation and Operational Issues of th...Robert Stroud
IT risk is receiving growing attention from executive management, risk managers and regulators to indentify and correctly manage risk in the operational environment. This pressure requires the implementation of an effective risk management process. ISACA recently delivered the RISK IT Framework to assist IT too effectively identify risk and how to develop processes to accept or mitigate risk.
When leveraged in conjunction with the COBIT® Framework which provides the generally accepted control framework, the RISK IT Framework will deliver an effective enterprise risk management solution.
This session will demonstrate how to establish effective enterprise risk management of IT including implementation and operational issues using ISACA’s new ‘Risk IT Practitioner Guide’.
Operational risk management and measurementRahmat Mulyana
a short description in mixed English and Bahasa Indonesia on Operational Risk Management and Measurement, in particular value at risk calculation using Monte carlo Simulation. Another method using EVT (Extree Value Theory) will be delivered shortly. regards
Risk Appetite: new challenges to manage an insurance companyPhilippe Foulquier
Based on a survey of European insurance companies, the results call into question some of the risk appetite indicators chosen by insurers. The study shows how risk appetite is applied to all decisions in a fully objective manner and it signals the need for a profound culture change with regard to risk-return analysis. It is on this point, which lies at the heart of the competition among players in the insurance sector – evaluating the performance of allocated capital by activity, measured against the risks incurred – that a number of structural shifts, innovations and changes will have to be made
PECB Webinar: Aligning ISO 31000 and Management of Risk MethodologyPECB
The webinar covers:
• ISO 31000 as the adopted standard, for ISO standards that have risk components, such as ISO 27005 and OHSAS 18001
• Description of Management of Risk (MoR) – how organizations can benefit
• Complementary values that ISO 31000 and MoR bring to each other
• How Risk Managers can evolve a practical approach to carrying out Risk Processes
Presenter:
This webinar was presented by PECB Trainer Orlando Olumide Odejide, an experienced Enterprise Architect and Chief Trainer for Training Heights Limited.
Business and Risk go hand in hand, the professionals like chartered accountants with expertise in finance, management and audit are well suited for the role of forecasting, evaluating, and mitigating prospective risk involve in any organization’s activity and seize opportunities to take the growth of business on next level. This article brings you in-depth details of the role of a chartered accountant in Enterprise Risk Management.
STRATEGIC PLANNINGManaging Risks A NewFrameworkby Rob.docxsusanschei
STRATEGIC PLANNING
Managing Risks: A New
Framework
by Robert S. Kaplan and Anette Mikes
FROM THE JUNE 2012 ISSUE
W
Editors’ Note: Since this issue of HBR went to press, JP Morgan, whose risk management practices are
highlighted in this article, revealed significant trading losses at one of its units. The authors provide
their commentary on this turn of events in their contribution to HBR’s Insight Center on Managing
Risky Behavior.
hen Tony Hayward became CEO of BP, in 2007, he vowed to make safety his top
priority. Among the new rules he instituted were the requirements that all
employees use lids on coffee cups while walking and refrain from texting while
driving. Three years later, on Hayward’s watch, the Deepwater Horizon oil rig exploded in the Gulf
of Mexico, causing one of the worst man-made disasters in history. A U.S. investigation commission
attributed the disaster to management failures that crippled “the ability of individuals involved to
identify the risks they faced and to properly evaluate, communicate, and address them.” Hayward’s
story reflects a common problem. Despite all the rhetoric and money invested in it, risk
management is too often treated as a compliance issue that can be solved by drawing up lots of rules
and making sure that all employees follow them. Many such rules, of course, are sensible and do
reduce some risks that could severely damage a company. But rules-based risk management will not
diminish either the likelihood or the impact of a disaster such as Deepwater Horizon, just as it did
not prevent the failure of many financial institutions during the 2007–2008 credit crisis.
Identifying and Managing
Preventable Risks
In this article, we present a new categorization of risk that allows executives to tell which risks can
be managed through a rules-based model and which require alternative approaches. We examine
the individual and organizational challenges inherent in generating open, constructive discussions
about managing the risks related to strategic choices and argue that companies need to anchor these
discussions in their strategy formulation and implementation processes. We conclude by looking at
how organizations can identify and prepare for nonpreventable risks that arise externally to their
strategy and operations.
Managing Risk: Rules or Dialogue?
The first step in creating an effective risk-management system is to understand the qualitative
distinctions among the types of risks that organizations face. Our field research shows that risks fall
into one of three categories. Risk events from any category can be fatal to a company’s strategy and
even to its survival.
Category I: Preventable risks.
These are internal risks, arising from within the organization, that are controllable and ought to be
eliminated or avoided. Examples are the risks from employees’ and managers’ unauthorized, illegal,
unethical, incorrect, or inappropriate actions and the risks from br.
Risk management in the investment banking industry involves proactive risk management strategies and other mitigation systems to avoid surprises in the business. Learn more here.
A presentation on the proposed ERM risk evaluation standard by the US Actuarial Standards Board.
Présentation de la norme ERM du Actuarial Standards Board des USA
Proposition de la création d'un fond de capital de risque pour l'industrie to...Michel Rochette
Une proposition de recherche pour la création d'un fond de capital de risque pour l'industrie touristique au Québec. Ce document date de quelques années mais les idées seraient toujours pertinentes.
A research proposal to stude the creation of a capital risk fund for the Québec tourism industry. The document dates from a few years back but some of the ideas are still relevant.
Proposition d'une liste électorale informatiséeMichel Rochette
Une analyse que j'ai produite en 1995 à la suite d'un concours lancé par l'Institut Fraser. J'ai proposé et calculé les avantages pour l'État d'établir une liste électorale informatisée. C'est maintenant le cas au Canada.
An analysis that I produced in 1995 following a call for paper by the Fraser Institute. I proposed and calculate the advantages for a governement to establish a computerized electoral list. It is now the situation in Canada. Other countries should envision the same.
L'intérêt public: Étalon de la gouvernance étatiqueMichel Rochette
Un rapport dans le cadre de mes études doctorales sur la notion de l'intérêt public par rapport au rôle de l'État.
A report done as part of my doctoral studies on the notion of the "public interest" as used by the State. In French only.
Assurance-chômage au Canada: propositions de réformeMichel Rochette
Un rapport de recherche concernant des propositions de réforme au programme d'assurance-chômage au Canada. Le rapport date de quelques années mais les concepts sont toujours d'actualité.
Unemployment Insurance in Canada: proposals for reformMichel Rochette
A older public Policy research report on reforms to the Canadian Unemployment program as it used to be called/
Un rapport de recherche concernant un projet de réforme au programme d'assurance-chômage au Canada.
Operational and reputation risk: Essential components of ERM-MandarinMichel Rochette
An article on the Relationship of operational risk and reputational risk in madarin/
Un article sur la relation entre les risques opérationnels et réputationel en mandarin
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
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how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
1. ESTABLISHING RISK BOUNDARIES
Michel Rochette, MBA, FSA
Caribbean Actuarial Association Annual Meeting
Trinidad & Tobago
December 4th 2008
Enterprise Risk Advisory
2. TOPICS
Context from 2006 to 2008
Risk appetite and ERM
Definition and its evolution
Value of articulating risk appetite
Stakeholders’ influence on risk appetite statement
Components of risk appetite and responsibilities
Ex. of a risk appetite statement: ING
Summary of methods to determine risk appetite
Success factors
Enterprise Risk Advisory, LLC @
3. Risk Appetite: 2006 UK FSA
Most firms have documented their approach for risk
management through risk policies/procedures/risk
appetite.
However, « risk appetite » is not well understood
throughout many firms to a level of clarity that
provides a reference point for all material decision
making.
A big step exists between defining and applying risk
appetite.
UK FSA Insurance Sector Briefing, Risk Management
in Insurance, 2006
Enterprise Risk Advisory, LLC @
4. Risk Appetite: 2008 UK FSA
For insurers demonstrating a strong integration of
risk and capital management:
Clearly articulated and quantified risk appetite,
tolerances, and trigger points for each risk.
Michel Rochette
Processes are set to assess on a continuous basis the
level of risk appetite.
Coherent and well articulated processes to actively
manage risk exposures that exceed risk appetite: risk
monitoring.
UK FSA Insurance Sector Briefing, 2008
Enterprise Risk Advisory, LLC @
6. Strategy
Objectives: markets, products and services,
distribution channels, stakeholders
Financial goals:
Capital goals in relation to solvency issues.
ROA and ROE without considering risk taking.
RAROC if integrating risk taking into the strategic
framework.
Value creation goals if objective is to maximize
shareholder’s: Embedded Value.
Non Financial goals: customer satisfication, corporate
social responsibility objectives.
Enterprise Risk Advisory, LLC @
7. ERM Framework
Enterprise risk Policy:
All existing key risks:
financial/operational/business/strategic
Emerging risks: « known and unknown risks »
Champion of Risk: CRO who can initiate a discussion of
risk appetite at the Board/top management level,
supported by a centralized risk unit.
Risk technology: control of risk taking through risk limits,
risk reporting through a dashboard.
Businesses: risk management at the unit level.
Audit/Compliance: independent oversight of the risk
framework.
Enterprise Risk Advisory, LLC @
8. Risk Appetite: Evolution
Turnbull Report: Risk appetite reflected indirectly by
« those risks which are acceptable » UK 1999.
COSO I: Focused on internal controls only. 1992
COSO II ERM: Give management reasonable assurance
that strategic objectives will be met within risk appetite.
2004
CAS ERM Definition: Process to manage risks to create
value. Risk appetite not explicit but indirect.
Solvency II: Risk tolerance limits and business strategy
must be defined.
UK FSA Prudential Regulations: Risk appetite defined.
ISO 31000: Risk appetite is defined indirectly in relation to
value creation and risk acceptability.
Enterprise Risk Advisory, LLC @
9. Risk Appetite: Definitions
COSO II ERM: Amount of risk that an entity is willing
to accept in pursuit of value.
Would add: « in line with the firm’s strategic
objectives taking into the capability of its ERM
framework.
Similar to a mission statement but focused on risk:
Impact that risk can have on the capacity of the firm to
attain its strategic objectives.
Defines boundaries of what is « too much » or « too
little » and what is « acceptable » or « non accpetable »
in relation to the firm’s strategic objectives.
Enterprise Risk Advisory, LLC @
11. Value of Articulating Risk Appetite
Allow a FI to:
Clarify desired risks: retained and non retained .
Set the tone from the Top. Preferable to a bottom-up
approach which tends to overemphasize exisiting risks.
Estimate/Assess their impact, both financial and non
financial – ex. social responsibility –
Evaluation of risks, not a valuation of risks!
Establish clearly the risk preferences of the company:
Are we risk averse, risk takers in light of potential
returns?
Enterprise Risk Advisory, LLC @
12. Value of Articulating Risk Appetite
Set a consistent communication - transparency -
from management to :
Business units/product lines
External parties:
Shareholders: can diversify away if they don’t like it!
Regulators: Part of Pillar II and III of SolvencyII/Basel II.
Other stakeholders: Employees may not want to be part of
your organization. Ex. Army! Customers as well.
Recent example: AIG only mentions the word risk
appetite without ever elaborating about it in their
official published documents.
Enterprise Risk Advisory, LLC @
13. Value of Articulating Risk Appetite
Top –down approch is preferable because:
Stakeholders’ requirements are discussed explicitely among
board members.
Allows a more balanced view of risks instead of just focusing on one
group: credit agencies, financial analysts, employees, shareholders,
regulators, customers, society at large!
More forward looking:
Introduces forward thinking in terms of desired risk profile, not just
existing risk profile!
Can link risk appetite with strategic goals and required capital to
support growth and risks.
Board members/management are on the same page on risk
appetite.
Management can then react/take action if the risk profile
exceeds/is below its desired/target risk appetite.
Enterprise Risk Advisory, LLC @
14. Stakeholders’ Influence: Board
Risk preferences of individual board members/management:
Risk averse vs risk takers.
Risk Averse Type Board:
Focuses on « value preservation ».
Reduces earnings volatility.
Low impact of extreme events!
« Keep us out of trouble » We don’t want surprises!
Concerns about legal fines, external scrutinity if they take too
much risk.
Wants to keep their desired ratings.
Usually found in mutuals.
Wants to preserve capital. Less concerned about capital efficiency.
Incurring losses is perceived to be negative. Don’t consider the
gains realized before losses occured.
Enterprise Risk Advisory, LLC @
15. Stakeholders’ Influence: Board
Risk Taker Type Board:
Focused on « Value Enhancement ».
Considers risk vs opportunity relationship.
Focuses on higher returns and risks.
Anticipates « newer » risks, capitalizes on them, optimizes
the risk/return relationship. Concept of efficient frontier!
Optimizes use of capital. Capital management and risk
management are done proactively.
Usually found in public companies.
When risks materialize, board shouldn’t panic if within
target risk appetite! Risk and losses are not viewed as
negative!
Enterprise Risk Advisory, LLC @
16. Stakeholders’ Influence: Regulators
Risk preferences of the local/global regulators:
Asian: stricter, more rules based.
European: more principle based.
US: more rules based…Stricter on Admitted assets, …
Single regulator - OSFI/UK FSA – vs a diversified
group of regulators – US SEC, NAIC, OCC, OTS, FED,
FDIC –
My prediction: US will tend towards a « single
regulator model » common view, not one
organization!
Internationally: Moving towards « college »
Enterprise Risk Advisory, LLC @
17. Stakeholders’ Influence: Rating Ag.
Risk preferences of rating agencies:
Impact on agencies’ rating:
Financial Strength or Claims Paying ability.
If risk appetite is expressed solely as « desired AA rating »,
constraints immediately risk appetite to a certain overal
probability of default/ruin.
SP’s ERM evaluation method:
Risk Appetite is part of their Governance evaluation:
« Clearly articulated risk tolerance is a key factor. »
Enterprise Risk Advisory, LLC @
18. Stakeholders’ Influence: Others
Risk preferences of :
Employees/customers/clients/policyholders:
Risk of loosing key employees if taking too much risk!
Will customers buy our products if the firm may not longer
be there to service them in the future? Ex. GM/Ford…
In a pension plan, ratio of projected active/retired employees
would certainly affect your desired risk appetite.
Shareh0lders:
If long-term/passive investors, may be willing to tolerate
more risks.
Political groups/media/advocacy groups.
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19. « Risk Appetite »: Components
Risk Capacity:
Maximum amount of risk that an enterprise is able to accept
in line with its mission/values/strategic goals.
Risk appetite per se:
Overall statement about the amount and type of risk that an
enterprise is willing to accept in line with its strategic goals.
Risk Target: Optimal level of risk desired.
Risk Tolerance: Max/Min amount of risk for each
class/subclass of risk.
Risk Limits/Budgets: Thresholds not to exceed/min to
accept.
Not all firms have all these components!
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20. Components: Risk Capacity
Influenced by the quality of its risk management framework and processes:
Overall ERM effectiveness: Sources could be an external view as assessed by a rating
agency, external governance score.
Management of past losses, especially unexpected and risk transfer options.
Influenced by the amount and quality of its capital structure or Value of the business:
Amount: measured by RBC, rating agencies’ required capital, economic view.
Quality: Tier 1 versus Tiers 2 & 3 capital.
Liquidity of capital: sources and availability particularly in times of stress.
Access to central banks’ liquidity facilities: US recent history with AIG for ex.
Systemic view by governments/markets:
Too big too fail! Too big to rescue!
Think of how Iceland was affected by the combined effect of risk appetite of its
banks on the country itself.
Value: Value of the business model to generate economic value.
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21. Components: Risk Appetite
Lower than Risk Capacity and if focused on downside risk:
Defined as acceptable/non acceptable volatility of capital -
quantitative component/metric – over a certain horizon for certain
risks deemed to be acceptable/non acceptable. – qualitative
component
Quatitative metric: prob of ruin/ certain target rating/ minimum
regulatory capital ratio
Golden rule on acceptable/non acceptable risks:
Would our stakeholders be surprised if we annonced losses due to this
risk? Think of AIG with credit derivatives!
Focused on existing balance sheet risks/preservation of capital.
Capital centric statement.
Ex. « Level of risk that results in no more than a 0,1% chance of failure
over a one-year horizon, where failure is defined as loosing 100% of
capital, measure by US GAAP. »
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22. Components: Risk Appetite
If focused on downside/upside risk:
Defined as an acceptable/non acceptable volatility of
value - quantitative component/metric – over a certain
horizon for certain risks deemed to be acceptable/non
acceptable. – qualitative component –
Value metric: could be economic value/embedded value
based on discounted earnings/cash flows at WACC.
Focused not only on existing balance sheet risks but also
takes into account emerging risks in line with strategy.
Value centric statement, but not necessarily optimizing
risk/return relationship as it expresses risk preferences.
Tends towards a portfolio view of risks.
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23. Components: Risk Target
Specifies the optimal level of risk that an organization
desires taking into account its risk capacity, risk appetite
and desired returns.
Efficient frontier concept: for a given level of capital –
capital centric approach – or returns – value centric
approach - where do I want to be in terms of risk given
my strategic goals? Target risk profile vs actual risk
profile?
Set risk objectives so that if risk is outside target –
monitoring of risk profile – then actions are taken to
reduce/enhance/increase risk taking.
Could be done overall and by type of major risk class.
Not all firms have risk targets.
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24. Components: Risk Tolerance
Sinceestimating risk capacity/appetite/target is not a perfect
exercise, tolerance sets bands around which company is
tolerating fluctuations of its risk appetite/target.
Similar to the statistical concept of estimating a mean from a
sample: Real mean = sample mean +/- Variability/Noize
Set so that the aggregation of total risk is within the overall
organization’s risk appetite/target.
Certain risks like SOX/Fraud/Legal Compliance: Zero Tolerance
Financial risks: Tolerance expressed as a +/- yearly IRR duration
mismatch, % of ALM, Greeks, GAP, Unexpected losses, yearly
expected losses above a certain threshold, % economic capital
depleted, volatility of embedded value
Non financial risks: min customer satisfaction rates, employee
retention rates, % of clients’ funds retained …
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25. Components: Risk Limits/Budgets
Max not to exceed/min to accept.
Practical/day-to-day constraints on business activities with some risk
tolerances.
Limits/risk budgets can be set up for:
Business units, product lines, country, types of risks, concentration, market
limit of securities held, existing, future – derivatives -.
Ex. ABCP recent problems in Canada. CDP Capital held 1/3 of market…too
much..didn’t have a market limit…
Devising an overall limit system should be done so that it akes into account all
acceptable/non acceptable risks, correlation, aggregation of risks, & risk
tolerances in order to tend towards the firm’s desired risk target/risk appetite.
Risk limits should also be explained/negotitated with business units and
embedded into compensation schemes.
Limits should be established in the same units: Capital/Value
As much an art as science here!
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26. Risk Appetite: Responsibilities
Board:
Approves, discusses & challenges the Risk Appetite Statement.
Reviews it annually & authorizes exception.
Communicates it to stakeholders.
Management:
Reviews/discusses the risk capacity exercise.
Proposes the risk appetite to the Board along with its components:
target/tolerances/risk limits.
Negotiates/explains the limits with the business units.
Reports risk appetite to the Board. Frequency: quaterly.
ERM Group:
Performs the risk capacity/appetite/target/tolerance/limits
exercise.
Monitors the overall risk appetite/limit system.
Updates analysis with changes in external environment, strategy…
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27. Examples of Risk Appetite: ING
Risk appetite measured along 3 dimensions:
Earnings at Risk, Capital At Risk, Economic Capital
Earnings at Risk (EaR) is a measure of the potential reduction in IFRS earnings
from expectations, assuming no mitigating management actions, during a
moderate (i.e. ‘1 in 10’) stressscenario.
Capital at Risk (CaR) is the potential reduction of the current net asset value
(based on fair values) of the balance sheet over the next year relative to the
expected value during a moderate (i.e. ‘1 in 10’) stress scenario, and assuming
no mitigating management action.
Economic Capital (EC) is the amount of capital required to absorb unexpected
losses in times of severe stress given ING’s AA target rating, 99,95%, (i.e. ‘1 in
2000’ ).
Integrates shareholder’s point of view: EaR & CaR
Integrates rating agencies/debtholders point of view: EC
Integrates their banking and insurance operations/all risks
Risk appetite appears 34 times in their 2007 Financial Statements compared to
1 time in AIG’s 2007 Statements!
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28. Risk Appetite: Methods
Simple like KPI/KRIs combined in a scorecard indicator.
Easy to set up and monitor.
Concept of the Green/Amber/Red zones.
Heat Map Approach: Evaluate Likelihood and Impact. Risk
Appetite is the boundary line.
Efficient frontier Approach: Investment Perspective.
« Sophisticated Approach » : EC/Enterprise/Embedded
Value Modelling.
Recommend: Combination of methods if sophisticated
modelling fails!
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29. Risk Appetite: Success Factors
Integrate both internal and external stakeholders’ different risk
tolerances into the process from value protection to value
creation.
Integrate process within the overall strategy, culture and risk
capabilities.
Consider past historical decision making, reactions to events to
assess risk appetite/tolerance. If CRO is fired all the time,
maybe risk appetite is lower than said! ING CRO is leaving?
Integrate non financial and financial risks: portfolio view of
risks.
Create a few measures that are practical and that represent the
most critical aspects of the business.
Communicate it through the firm! From top-down to bottom-
up feedback.
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