Transcript The Actuary and Enterprise Risk Management Mark A Verheyen, FCAS, MAAA ReAdvisory A Carvill Service.

The Actuary and
Enterprise Risk
Management
Mark A Verheyen, FCAS, MAAA
ReAdvisory
A Carvill Service
The Actuary and ERM
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The Actuary and ERM
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CAS Activities
Sample Enterprise Risk Management Projects
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CAS Efforts to Date
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CAS ERM Advisory Committee (2000/1)
ERM Definition and Framework
 CAS Research & Education Priorities
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CAS ERM Research Committee (2002-)
Research Priorities
 Progress to Date
 Original Research
 Directed Research
 Future Plans
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CAS Advisory Committee on
ERM: Goals
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Define ERM; develop conceptual framework
Determine current/desired knowledge level
Identify research needs to close gaps
Identify education needs to close gaps
Recommend methods, priorities, timetable
Compile initial ERM bibliography
Recommend additional efforts of existing/new
CAS committees
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CAS ERM Definition
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“The discipline by which an organization in any industry
assesses, controls, exploits, finances and monitors risk
from all sources for the purpose of increasing the
organization’s short- and long-term value to its
stakeholders”
Key elements:
Dual nature of risk
 Value creation
 CAS relevance beyond insurance industry
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CAS ERM Conceptual
Framework: Two Dimensions
Risk Type
 Strategic
 Operational
 Financial
 Hazard
Risk Management
Process Step
 Establish
context
 Identify risks
 Analyze/quantify risks
 Integrate risks
 Assess/prioritize risks
 Treat/exploit risks
 Monitor and review
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CAS ERM Framework Grid
Risk Management Process Step
Risk Type
Establish Identify
Context
Risks
Analyze/
Assess/
Quantify Integrate Prioritize
Risks
Risks
Risks
Treat/
Exploit
Risks
Monitor
and
Review
Strategic
Operational
Financial
Hazard
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Compare to COSO Framework
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CAS has greater
emphasis on
quantification,
integration of risks
COSO has greater
emphasis on internal
controls
Generally consistent
conceptual design
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CAS ERM Advisory Committee
Recommendations -- Research
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Highest priority topics
ERM overview
 Value creation through ERM
 Risk quantification (financial, operational, strategic)
 Risk correlation & integration
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Other priority topics
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Risk tolerances, risk/reward metrics, portfolio
optimization, monitoring, treatment, integrated
products
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CAS ERM Advisory Committee
Recommendations -- Research
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Form standing ERM Research Committee
Direct & monitor research per above
 Expand, update, organize, maintain ERM
bibliography
 Work with other CAS committees to coordinate
ERM research and provide content for education
 Partner with other organizations
 Develop internal and external communications,
designate spokespersons
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CAS ERM Advisory Committee
Recommendations -- Education
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Codified 2005 CAS ERM education needs
For each element of ERM framework
 By degree of desired knowledge level
 By type of education vehicle
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Syllabus
 Continuing Education
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Developed detailed Learning Objectives for each
element of ERM framework
Publish ERM bibliography
Accomplish through existing committees
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ERM Research Committee -Research Priorities (Completed)
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“ERM Overview” document
Financial risk quantification
Risk correlation/concentration/integration
Value creation through ERM
ERM bibliography
Coordination with other CAS committees
Coordination with other professions
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ERM Research Committee -Research Priorities (Ongoing)
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Value creation through ERM
Risk quantification (financial, operational,
strategic)
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The CAS sees ERM in its Future
CAS members will be recognized as leading
experts in the evaluation of hazard risk and the
integration of hazard risk with strategic, financial, and
operational risk.
Excerpt from CAS 2014 Centennial Goal
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Sample Reinsurance ERM Project
Risk / Return Efficient Frontier
7.0
500x500
Swing
6.0
Unreinsured
750x250
Swing
Underwriting Profit
5.0
4.0
500x500
Cessions
3.0
2.0
Quota
Share
1.0
750x250
Cessions
0.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Risk Adjusted Capital
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Concluding Thoughts
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ERM is a value creation tool
ERM is a unifying framework
ERM is an actuarial recruitment tool
ERM is an important part of the actuarial
profession’s future
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