Study of ERM Activities at IAA Member Associations. IAA Enterprise & Financial Risk Committee May 2013

Transcription

1 Study of ERM Activities at IAA Member Associations IAA Enterprise & Financial Risk Committee May

2 EFRC Study Data is collected by EFRC members who represent 37 associations 25 members have responded so far Croatia, Lithuania, Poland, Finland, Hungary, Spain, USA, Sweden, China, Australia, South Africa, United Kingdom, Czech Republic, Canada, Ireland, Germany, Slovenia, Japan, The Netherlands, Switzerland, Estonia, Lithuania, Austria, Mexico Study questions selected by EFRC members 2

3 Survey Questions 1: Does your Association have any activities related to ERM? 2: Does your Association have specific events to promote the role of actuaries in ERM? 3: Is your Association a CERA member? 4: Does the Association collaborate with any other professional body in connection with ERM activities? 5: Does your association have a formal risk management process for the risks of the association? 6: To what extent are individual members of the Association involved in activities outside of traditional actuarial roles in insurance and pension funds? 7: What is the degree of interest amongst members of the Association in ERM as a newly emerging area of activity? 8: What is your best estimate of the level of ERM knowledge and experience of actuaries in your association? 9: What strengths does the actuarial discipline bring to the science of ERM? What weaknesses? How do we correct the weaknesses? 10: What industries, other than insurance, most need effective ERM? Can actuaries fill that role? 11: Do you believe actuaries should play a larger role in ERM? 12: What needs to be done to better support the development of actuarial involvement in ERM? What are the perceived barriers to future expansion by actuaries into the ERM space? 13: What is the greatest issue, relative to effectiveness in developing actuarial effectiveness in ERM? 14: Do you think actuaries in your association have the training they need to carry their ERM responsibilities? 15: Do you think actuaries in your association have the adequate methodology? 16: Do you think actuaries in your association have the reference materials they need? 17: Do you think actuaries in your association have the tools (e.g. models, process, and relationship) they need? 18: What type of support would be helpful in taking this further? 19: Does your association have any interest in assistance from the IAA with any ERM related issues? 3

4 OVERVIEW OF RESULTS 4

5 Big Questions For the IAA and Associations 1. Do we as professional organizations want to support the move of members of our profession into ERM? 2. Does success in developing a significant permanent actuarial foothold in ERM require a. More initiatives by individual associations b. More collaborative initiatives among associations i. Through IAA or multilateral c. More IAA initiatives 5

6 Association Activities 17 Report Association ERM activities 5 report no ERM activities Conferences, Annual ERM Seminar CERA Exam Syllabus Continuing Education / CPD ERM Stream/sessions at association annual meeting ERM Practice Area Lecture Series ERM Practice Committee ERM Web Page Colloquium with AFIR/ERM ERM Newsletter Solvency II Working Group ERM Funded Research & Call for Papers Standards of Practice Working with supervisor on solvency standards Comments on Regulatory Exposure Drafts ERM Qualifications Committee Risk Management Section 6

7 Most actuaries are underprepared to be leaders in ERM 7

8 Conclusions ERM is still very much a developing field for actuaries There are still many (potential) weaknesses and barriers. CERA is a good "start point" for ERM actuaries, but not the sufficient condition for ultimate success. Potential Next Steps: Disclose this result to other "ERM specialists" such as bank risk managers, and get the feedback Survey to CRO / C-suites of insurers 8

9 DETAILED RESULTS OF SURVEY 9

10 Q1. Does your Association have any activities related to ERM? Yes 72%, No 28% Most common yes answers - Conferences, CPD events, CERA education programs, ERM seminars and lectures. - Some countries already have a specific practice area dedicated to ERM. Eg South Africa and UK ERM is getting increasingly recognized as an area of actuarial work globally. Responses from survey In its mission statement, the Casualty Actuarial Society (CAS) states that part of its purpose is to expand the application of actuarial science to enterprise risks and systemic risks. As such, the CAS examination syllabus and continuing education programs contain a significant amount of ERM related material. CERA education program, and various CPD events Annual ERM seminar, ERM streams in General Insurance Seminar & Financial Services Forum, Education & CPD, ERM Community knowledge sharing sessions, LinkedIn groups, research 10

11 Q1: Does your Association have any activities related to ERM Formal ERM practice area The Institute and Faculty of Actuaries (i.e. the UK Actuarial Profession) has a specific practice area dedicated to ERM. Series of lectures "Mathematics and Risk Management" was included in programme of Seminar in Actuarial Science co-organised by Czech Society of Actuaries. The Society also has its Solvency II Working Group focusing on current issues related to Solvency II regulatory regime. ERM Committee assigned to advance ERM practice. AFIR/ERM section in colloquia, CERA Web page; ERM Symposium annually; ERM topics at meetings; Joint Risk Management Newsletter & ERM related research & calls for papers Will be finalizing two actuarial standards of practice on ERM by the end of The Academy's Public Policy ERM Committee monitors and responds to ERM matters addressed by US and international insurance regulators 11

12 Q1: Does your Association have any activities related to ERM Technical committee of SAA plans to discuss the Solvency 2 requirements in the area of ERM in September CERA membership ongoing; Members meeting session on "Surviving the Next Crisis - a Risk Management Perspective"; Working group on SST / Solvency; Specific SAV qualification course on Quantitative Risk Management taught by Professor Embrechts 12

13 Q2. Does your Association have specific events to promote the role of actuaries in ERM? Yes 44%, No 56% Most common yes answers Seminars, symposium, meetings, conferences Organizations are still in the process of promoting the ERM as line of actuarial work. Responses from survey The CAS is a sponsor of the annual ERM Symposium which promotes the role of actuaries in ERM. Annual ERM seminar, ERM streams in GI Seminar & Financial Services Forum, Education (Part II and III including ST9 ), regular Risk Management Practice Committee newsletter with news in ERM and also interviews with actuarial champions in the field, ERM Community knowledge sharing sessions, LinkedIn groups, Research Annual risk and investment conference as well as one-off events with an ERM focus 13

14 Q2. Does your Association have specific events to promote the role of actuaries in ERM? Not an event, per se, but we do have a Practice Council devoted to Financial Reporting & Risk Management which works with regulators on risk management topics such as systemic risk and ORSA requirements 14

15 Q3. Is your Association a CERA member? Yes 44%, No 56% Of the associations that are not currently members of the CERA, 64% of them are considering joining CERA. 15

16 Q4. Does the Association collaborate with any other professional body in connection with ERM activities? Yes 44%, No 56% Responses from survey Consulting firms. The CAS collaborates with the Society of Actuaries (SOA) in sponsoring the Joint Risk Management Section (JRMS). The JRMS develops and administers the ERM Symposium. Accredit the UK ST9 exam as part of gaining the CERA qualification for our members. Joint committee with accounting body on bank specific ERM matters; ad hoc interaction with PRIMIA in country Groupe Consultatif 16

17 Q4. Does the Association collaborate with any other professional body in connection with ERM activities? It has long-standing links with the Institution of Civil Engineers and has also collaborated from time to time with IRM and PRMIA. other actuarial bodies, primarily SOA. ERM Symposium is jointly sponsored with CAS & CIA European Actuarial Academy participation, e.g. seminar on Asset and Risk Management; coordination with DAV on CERA training provision UK actuarial profession in terms of ST9 examination. 17

18 Q5. Does your association have a formal risk management process for the risks of the association? Yes 20%, No 72% Most associations have not made any headway in implementing a risk management process for their risks. The Society of Actuaries and The Institute of Actuaries of Australia are the only 2 associations that have fully implemented such a process. This process is still evolving in China, Slovenia and Hungary. 18

19 Question 6: To what extent are individual members of the Association involved in activities outside of traditional actuarial roles in insurance and pension funds? Small 48%, Modest 43%, Large 9% Mexico and South Africa were the countries where a Large proportion (>30%) of members are employed outside of traditional actuarial roles. 19

20 Question 7: What is the degree of interest amongst members of the Association in ERM as a newly emerging area of activity? High 25%, Medium 67%, Low - 8% Low interest expressed in Poland and China 20

21 Question 8: What is your best estimate of the ERM knowledge and experience of actuaries in your association 21

22 Question 8: What is your best estimate of the ERM knowledge and experience of actuaries in your association No associations reported a high percentage of members with Excellent knowledge of ERM Many associations reported a large proportion of their members have a non-existent or low knowledge of ERM 22

23 Question 9: What strengths does the actuarial discipline bring to the science of ERM? What weaknesses? How do we correct the weaknesses? analyticity, ability to understand, create and use mathematical and statistical models and tools. integrating masses of input to develop well-considered business solutions; Problems solving skills and structured framework, Understanding weaknesses of models Good knowledge, training, experience and understanding of quantifying risks (esp. Insurance and Market risks) history of combining quantitative analysis with commercial judgment to advise all levels of management and the Boar. Reflecting competing interests of stakeholders Credibility - strong reputation for quality supported by professional standards and recognized for high level of professionalism. Code of ethics. 23

24 Actuarial Weaknesses Regarding ERM Too much focus on traditional roles of actuaries, Sometimes old fashioned approach, Sometimes looking for too much accuracy Maybe not always full understanding of business demands Current limited field of work. Sometimes less knowledge about asset side and qualitative risk management, operational risk, etc. The modeling process with very limited focus Less experienced in dealing with the qualitative aspects of risk. Perceived as pure quant/financial experts, not as trusted advisers in all business problems. Actuaries are also risk averse and hence not confident on advising on taking risks. 24

25 Actuarial Weaknesses Regarding ERM Believe we can't advise unless they have specific training and tend not to apply for roles in other areas. Lack of awareness outside the profession and/or outside traditional actuarial areas of what actuaries might be able to do Actuaries seen as too technically minded for wider ERM based roles. Image Overly theoretical approach and rigidness are often perceived as weaknesses of actuaries. Communicating to those outside our profession (both other professionals and to non-professionals). Seen as "clannish - feel only actuaries should do work. ERM is out of our comfort zone 25

26 Question 10: What industries, other than insurance, most need effective ERM? Can actuaries fill that role? Energy (2) Telecom Resources Agriculture Banking (7) Big trading companies Infrastructure Financial Services (8) Government Manufacturing Health Care Oil & gas Charitable sector Nursing Homes Any(3) All indicated that they thought that actuaries could fill the needed ERM role. 26

27 Question 11: Do you believe actuaries should play a larger role in ERM; i.e. be less focused on traditional actuarial roles within the insurance / pension space Actuaries should play a larger role because: of all advantages which actuarial science brings as explained above. we have a large knowledge in very different fields (see IAA syllabus) and are constantly improving this knowledge (CPD) Increasing needs for risk management an actuaries are capable to contribute We have a good basis for ERM, understanding the risks at a company taking part into the pricing, reserving, ALM, internal modeling, etc. process (risk quantification). ERM is a large opportunity on which the profession should capitalize. Opens up doors for actuaries to be the trusted advisers to businesses. Professional training and instincts to look practically at long run sustainability of pooled risk systems means we add unique value 27

28 Larger Role for Actuaries? Cautions: Actually, should question "can" actuaries play a larger role. We can if we are able to sustain some leadership in the field through setting professional standards. This will require a change in orientation to view risk from a broader perspective. Establishing ourselves as ERM leaders in organizations needs effort to achieve. must also continue to provide the expertise in the space 'owned' by actuaries, so we need to find an appropriate balance of emphasis between ERM and traditional actuarial roles. The actuary can play this larger role only if they are trained to consider the qualitative as well as quantitative aspects of risk, develop an in depth understanding of the businesses and the risk faced in other industries, and the ability to communicate risk assessment and mitigation strategies to non-technical audiences. 28

29 Question 12: What needs to be done to better support the development of actuarial involvement in ERM? What are the perceived barriers to future expansion by actuaries into the ERM space? Educate the Board, regulator as well as other senior management Education and CPD, increased participation of actuaries in ERM space so as to act as champions and inspire younger generation; improve reputation of actuaries from pure quants to trusted advisers in business Positioning of skills set by profession with regulators - this is where we will get the most traction; Need to make sure actuaries do not get "pigeon holed" as mere calculators; Quick action - the accounting profession may "lay claim" the ERM space before actuaries do. We are undertaking a wide ranging project to develop actuarial involvement in ERM which we can share 29

30 What is Needed? Training is needed in relation to certain mathematical skills (mostly addressed by the ERM course ST9). Marketing and communication also need to be addressed. facilitate exchange between actuarial and risk management communities actuaries training and prior experience in insurance/pensions is not valued over others who grew up in the business into which actuaries want to expand. Research and discussions about how to translate the insurance world of risk management into the broader uses of risk management in other finance and non-finance related industries Insist on such technical knowledge requirement for actuaries which consist specifics of ERM. Development of various ways to quantify risks in the real world. 30

31 Can Actuaries? Lack of credibility outside the traditional actuarial industries. Leadership & management skills. The knowledge is established. Clarifying/Communicating the value add of actuaries and ERM both internally and externally Lack of incentive to make risk-based decision-making on the part of many managements in the financial industry. Confidence, because it is outside our direct comfort zone, but that is no reason not to step into it. 31

32 Question 13: What is the greatest issue, relative to developing actuarial effectiveness in ERM? Lack of data and tools, lack of valuable leadership support. Lack of credibility and management support employers do not naturally hire actuaries for ERM roles, and lack of actuaries applying for ERM roles. The profession will have to build its professional credibility in this space; this will include developing a body of credible research and contribution to ERM "thought leadership". The ability to communicate clearly and effectively on risk matters has to be developed. Our initial research with insurance CROs suggests that they are confident in their own abilities. For tools they often use consultants to benchmark how others are approaching issues. In relation to actuaries on their teams, a lack of ERM skills seems to be a challenge in recruiting actuaries. 32

33 What else is needed? lack of breadth in their business experience / strategic big picture thinking / pragmatism, communication skills, lack of interest in ERM or awareness on the part of actuaries of the opportunities to strategically influence the business through risk management. In relation to moving into other (non-insurance) financial services areas the challenges appear to be: Actuaries: lack of sector knowledge, lack of awareness of opportunities (those who feel limited in moving into senior ERM roles cite a perceived lack of breadth in their actuarial career to date) and Employers: lack of awareness of actuarial skills. Don't have well-developed perspective on ERM relative to traditional actuarial work. 33

34 What Is Needed? Education in ERM field for the actuaries. Employers' awareness of importance of actuaries in ERM. Training, market perception of the actuarial role Solvency II implementation with ORSA will increase the need for ERM in insurance Provide learning opportunities and material, including material of the best practices, standards at the due course Education: wider range of risk classification, quantification, management during actuarial courses, thinking about the risks more integrated way, trying to be involved not only in the classical actuarial tasks. Chance to show the strength we have. 34

35 Question 14: Do you think actuaries in your association have the training they need to carry out their ERM responsibilities? CERA training is adequate at this stage. In general, no. Not clear whether the need is training or different selection - there is an ERM mindset/perspective that is different than traditional actuarial mindset/perspective. Not sure you can train? Maybe you need to be selecting different people? Mostly - additional mathematical skills are required for older actuaries and also training in relation to non-quantifiable risks. Yes. Ops risk & management skills could improve. Many actuaries especially older ones do not have proper ERM education. Some actuaries are close with regards to what would be needed for an ERM professional (knowledge of modeling, knowing the risks in ins. Company, ) 35

36 Do Actuaries in your association have the training needed for ERM? No, we would need systematic ERM education, above traditional actuarial knowledge. General ERM methodologies Could be improved No. But they will have Additional training in the management of operational risk would be helpful. This would include training in the development of and access to public data relevant to operational risk. Additional training in communicating risk concepts with management concepts to management is also important. Yes to a large extent but they feel they don't. ST9 is too technical and doesn't adequately address the Enterprise and qualitative side of ERM. 36

37 No. Question 15: Do you think actuaries in your association have the adequate methodology? If not, what research is needed? Collaboration with other countries is needed To make the CEO more involved with the task. Generally speaking yes, although additional training in methodology relative to qualitative risk assessment is necessary. Yes (5) Some actuaries are well equipped. Others less so. It's a work in progress - ongoing expansion of the material is required. operational risk Yes. Research in measurement and management of ops risk needed. We are promoting CERA 37

38 Question 16: Do you think actuaries in your association have the reference materials they need? If not, what data is needed? Yes (7) yes (English literature is available) Yes to the extent they exist today. sometime is enough, sometime we need more general data More data relative to operational risk would be helpful. The (global?) profession should build a comprehensive ERM reference library to assist actuaries in this developing field. Few associations have the resources to do this effectively on their own and it is something that can be effectively shared. It's a work in progress - ongoing expansion of the material is required. We are promoting CERA Partially. 38

39 Question 17: Do you think actuaries in your association have the tools (e.g. models, process, and relationship) they need? If not, what tools is lacking? Yes 60%, No 40% Risk Aggregation tools needed More actuaries need to learn about ERM frameworks Tools are globally available 39

40 Question 18: What type of support would be helpful in taking this further? Who can provide this support? Training, standards, education are needed. Who can provide support: Insurance companies Government Regulators Actuarial Association Universities IAA IAIS 40

41 Question 19: Does your association have any interest in assistance from the IAA with any ERM related issues? Systematic education on ERM management over and above the actuarial knowledge. education material Training materials, studies about ERM. All kind of assistance is welcome. Not specified. "We are offering ERM education and research through our association, so we don't anticipate a need for IAA involvement in this area. As the IAA works on actuarial branding, we hope that ERM will be included in that work. As well, we support the ERM standards activities." CPD events 41

42 What Assistance Could be provided by IAA? broader collaboration will lead to more work. We don't require specific support but would like to keep in touch with international developments. Guidance or examples on ERM, ORSA. Dispatch speakers on ERM related topics CPD examples Several association offered to assist the IAA. 42

43 Additional General ERM Questions The last 5 questions in the survey were general questions about ERM that were not focused on Actuaries 43

44 Question 20: Give examples of ERM success stories and failures/problems? A considerable number of CROs in Ireland are actuaries but only within the insurance industry. Actuaries play significant roles in ERM within the Financial Markets with many CRO s. Actuaries play significant roles in ERM within the traditional markets with many filling CRO roles. We'd like to see more actuaries as CROs Actuaries' role in technical aspects of banking credit risk notwithstanding lack of professional recognition in this area. Actuaries have also filled the role of CROs of large insurers for some time. AIG is an obvious example of failure. 44

45 ERM Stories "Several actuaries serve as CRO s of Insurance and related organizations. Property & Casualty insurers have fared relatively well during the recent financial crisis, as a result of significant enhancements in risk management at these organizations. Success: Rating and stock market volatility. Failure: What is unpredictable and only qualified, not quantified. We have three large life offices with actuaries as CRO. 45

46 Question 21: Has the universe of risks been adequately identified? Where is the science/art of ERM most successful? Most deficient? ERM is mostly driven by regulator in Lithuania, therefore formal processes are established mainly in financial industry companies. From todays perspective, all main types of risks have bee identified to alarm the company of its deficiencies in time to be on the safe side. In insurance industry they have been covered adequately according to the main types. Generally yes. More focus on emerging risk is needed. "In the insurance industry, it is most successful in dealing with risks that are directly quantifiable. It is most deficient In addressing the inter-relatedness of a variety of risks in order to aggregate different risks facing the organization. Risks are adequately defined. The universe of risks has been identified but the primary risk of behavior is not well understood or considered. 46

47 Universe of Risks Is most successful in stable markets. In times of crises most models collapse. Criteria for prudent and ethical ERM considering all levels of business cycles needs to be advanced. Most structured in banking; insurance following suit with SII. No. We need to understand the rules of risk frequency and possible incurred amounts in order to insured those risks One of the successes of ERM is that it gives Risk Governance for many companies. The insurance industry is quite advanced in ERM thinking, and other industries could start to leverage such skills developed within the insurance sector. The more challenging is to quantify the interdependencies between risks and the diversification effects, CatRisk, operational risk and reputation risk. 47

48 Universe of Risks Within insurance there are very detailed risk breakdowns, e.g. see Kelliher et al (2011), and likewise banking and probably other industries that actuaries touch less. Quantifying or even meaningfully analysing risk for a start-up in a new area from a specifically ERM perspective rather than from a wider business entrepreneurship perspective is tricky. We have to think more about 'unquantifiable risks' (in terms of capital adequacy), extreme events and dependencies Would consider that the universe of risks is constantly changing. ERM is least successful when there is too much focus on specific numbers, especially for certain risks such as operational. We would consider it most successful when the focus is on the process of investigation and attempting to quantify a particular risk. Yes. Initial data. Difficult to model some kind of risks, e.g. operational risks if anybody misses something. 48

49 Question 22: What competencies do employers look for in a Chief Risk Officer? There is not to much feeling about the CRO roles. Ability to understand full range of risks & their drivers/dynamics and engage with business leaders; ability to assess risk impacts; sensitivity to emerging risks; ability to fully understand controls, implementation and monitoring thereof; member of senior management team, and knowledgeable about the business. broad knowledge, strong personality competence, communication Competencies for a CRO (as opposed to individuals within a CRO's team) include a strong business awareness (in the financial sector a strong financial markets awareness), a good understanding of governance aspects of risk, effective people and business management skills and an ability to interpret and explain to less technical individuals the outputs of more quantitative risk management techniques. 49

50 CRO Competencies Deep technical knowledge, ability to interact, communicate and relate to all kinds of people professionals that are well versed in dealing with both the qualitative and quantitative aspects of risk, and the ability to manage teams of various disciplines. Must be able to communicate and exert influence with management and the organization s Board of Directors. General business knowledge, communication and financial knowledge. It differs by company (incl no requirements on competences) Leadership and deep insight for various risks. Leadership skills & technical competence in the area. Leadership, good industry standing, oversight over risk landscape, good quantitative risk knowledge, etc. 50

51 CRO Competencies Leadership, quantitative, communicative, could be a senior actuary. Not a focus of our organization Strong collaboration/influencing skills. Balanced view on risk (ie threats and opportunities). Willingness to partner with business. the role is different in different legislations, and so are the competencies Understand the nature of the insured risks as well as provide management solutions to mitigate the unexpected risk or exceed the expectation Understanding of risk frameworks and ability to work with the business. 51

52 CRO Competencies Understanding the whole risk profile of the company, and the risks inherent in the operation of the company; the interdependences of these risks and the method to quantify, and mitigate them (based on the risk appetite of the company). Willingness to speak about risks in an understandable way, improving risk awareness in the company. Very independent personality with undoubted integrity, experience, leadership skills and entrepreneurial spirit. Good risk assessment skills, including expertise in regulatory and compliance issues, broad understanding of the impact of macroeconomic variables on the company's risk position. 52

53 CRO Competencies Profound understanding of the risks to the company value in all business activities(market /ALM, credit, actuarial, operational, reputational). Strong skills in problem recognition, defining and structuring of solutions. Profound knowledge across the company 's lines of business and products. Ability to recognize the possible risks in the company, perform significant risks monitoring across the whole company and proposing and performing control method of the recognized significant risks. 53

54 Question 23: What are the current perceptions of employers with regard to CRO roles? You don't need to be an actuary to become CRO but a CERA actuary could be a good CRO There appears to be a trend towards chief actuaries reporting to chief risk officers if the two are distinct. In practice very few actuaries are CROs outside the insurance industry. Within the insurance industry views seem mixed regarding use of actuaries within CRO roles. Some firms value actuarial skill sets highly but some firms seem to target individuals they perceive have a wider range of risk backgrounds (e.g. banking or asset management backgrounds who in the main are non-actuaries) perhaps viewing actuaries as typically too "technical" for such CRO roles. There is quite a lot of turnover in CRO roles. 54

55 Employer perception of CRO The whole segment of ERM should be more extended, include higher awareness through trainings, communication congruently this is reflected to CRO role. In Croatia the perception of CRO role is low and should be brought to higher level. The role of the CRO is gaining increasing recognition by employers. There are examples of decisions driven by CROs that have prevented significant loss events. The CRO role is rarely seen in Japan yet. Not very involved in the CRO role. Not a focus of our organization Not 100% convinced. none it differs by company 55

56 Employer perception of CRO internal risk process management Importance of the CRO has increased significantly over the last years, and most companies have elevated the CRO role in the recent past. Differs by industry; in insurance, default to actuarial qualification; in banking, default to finance (accounting) professional. However, overall there is a growing appreciation of the importance of the role. CRO function is getting more and more important. In companies with improved risk management system CRO function is involved in the main decisions. Can be very positive where it is a key role reporting to the CEO, in others it is more a compliance role and not resourced well without good engagement form senior management. 56

57 Employer perceptions of CRO Actuaries considered for such roles within insurance industry but not generally outside of insurance. "Actuaries are not always viewed as having all of the competencies necessary to be successful in the CRO role, although we are making progress and an increasing number of actuaries are filling this role. Actuaries are ideal 57

58 Question 24: Provide examples of the business decisions that ERM provides the best support. ALM/Product Innovation Capital allocation, investment decisions, project appraisals (in particular of new products). capital allocation, new products Capital requirements /adequacy, new product developments, risk profile decisions e.g. Eurozone crisis contingency planning, ALM, Merger and Acquisition decisions, Reinsurance decisions every decision is a decision under uncertainty "In the insurance industry, ERM provides important support to product development and capital management decisions of the firm. New product development 58

59 Business Decisions Supported by ERM Performance evaluation, capital budgeting, product pricing. Pricing; customer specific product development; capital requirements; acquisitions. product design Strategic decisions, capital management, performance management, ALM, product portfolio management strategic decisions, M&A, Strategy setting, capital and business planning. Product pricing. Risk mitigation strategy. The recent financial crisis did not impact all companies the same and reflects decisions regarding product mix and invesment allocation. Where to invest according to the target of the company, where people may commit mistakes and how to solve that as soon and as good as possible, etc. 59

60 Business decisions supported by ERM ERM not only supports business decisions but is viewed as an important strategic consideration in developing business policy. 1. In the absence of any significant change in business strategy, [AB] expects the business strategy to be a stronger influence with Risk becoming a critical part of the strategic debate. 2. Also, they expect to demonstrate to investors that RM is being done well and to see the benefit in the share price -- effective communications will be important here. 3. Competitive positioning has the potential to become much more important for the industry as a whole, as people begin to understand more and more the benefits of Risk Management. 4. expect to see the internal driver, the benefits for management, and thus the longer-term improvements in returns, whether that's for policy holders or shareholders continuing to be the biggest driver of developments in ERM. 60

61 CONCLUSIONS 61

62 Conclusions ERM is still very much a developing field for actuaries There are still many (potential) weaknesses and barriers. CERA is a good "start point" for ERM actuaries, but not the sufficient condition for ultimate success. Potential Next Steps: Disclose this result to other "ERM specialists" such as bank risk managers, and get the feedback Survey to CRO / C-suites of insurers 62

63 Big Questions For the IAA and Associations 1. Do we as professional organizations want to support the move of members of our profession into ERM? 2. Does success in developing a significant permanent actuarial foothold in ERM require a. More initiatives by individual associations b. More collaborative initiatives among associations i. Through IAA or multilateral c. More IAA initiatives 63

64 EFRC and AFIR/ERM Two arms of the IAA that can assist with this process Much more can be done! Develop a process for quick Sharing and Coordination of activities Get the best from each association available to all Make sure all are aware of what each of the associations who are developing ERM materials are planning 64

65 Contact Information Dave Ingram Special thanks to Kabeer Jhaveri for his work without which this study would not have been completed. 65