Summary

For some while there has been a growing awareness from both internal and external stakeholders that the governance and risk management in the insurance companies needed to be enhanced. The development of Solvency II and the recent economic turmoil back this fact. This paper, while touching on some of the benefits of enterprise risk management (ERM), considers an approach of risk management being fitting within the wider control environment of the company, rather than simply fulfilling a statutory requirement.

While the paper is set in the UK corporate governance and regulatory control framework, its relevance to the South African insurers is still considerable. The reader is taken back to the very emergence of risks in a business and hence given the opportunity to put aside the recent developments in the profession and regulatory requirements.  One can therefore place the need for risk management into a hopefully more complete context.

The paper considers how enterprise risk management can bring together the various control frameworks needed to support the company governance. It looks at the underlying governance required in order to assist management to identify, measure and manage risks. Whilst no two companies are the same or have the same risk appetites, and hence the solutions to these issues will vary, there are several common themes linked to successful implementation. Similarly, various barriers to success are identified, together with solutions to resolve them.

This is not a technical paper on risk management.

http://www.actuaries.org.uk/__data/assets/pdf_file/0009/148086/sm20090323.pdf

SSG is a forum composed of senior supervisors of major financial services firms from Canada, France, Germany, Japan, Switzerland, the United Kingdom and the United States. This report follows on from Observations on Risk Management Practices during the Recent Market Turbulence, issued in March 2008, where the authors identified the following firm-wide risk management practices as differentiating better performance from worse:

• Effective firm-wide risk identification and analysis;
• Consistent application of independent and rigorous valuation practices across the firm;
• Effective management of funding liquidity, capital, and the balance sheet; and
• Informative and responsive risk measurement and managing reporting.

Based on subsequent industry surveys, further weaknesses have been identified in corporate governance and control procedures, namely:

• Board direction with regards to risk appetite and senior management oversight;
• Compensation practices;
• Adequate IT infrastructure;
• Identification of risk concentration; and
• Ability to conduct firm-wide stress testing.

The report starts off with a high-level discussion of these weaknesses and their effects. The focus of the report, however, is funding and liquidity risk management, since these may be among the most difficult to adjust under pressure as they are often closely tied to each firm’s central strategies. The unusual strains in a range of funding markets were thought to be a defining characteristic of the crisis from March 2008 onward and are therefore a primary focus of this report.

The report concludes with the supervisory evaluation of self-assessments by firms and explores critical areas of risk management practice still in need of improvement across the financial services industry world-wide.
This is quite a detailed paper, however it is not very technically demanding and a glossary of jargon used is included at the end of the paper.

Intended Audience: supervisory authorities; senior management; professionals in the banking industry

Link to the paper: http://www.sec.gov/news/press/2009/report102109.pdf