Archive for the ‘INARM’ category

Many Deadly Sins of Risk Management

November 16, 2009

Compiled by Anton Kobelev at www.inarm.org

Communication Breakdown

  • CEO thinks that risk management is the CRO’s job;
  • Not listening to your CRO – having him too low down the management chain;
  • Hiring a CEO who “doesn’t want to hear bad news”;
  • Not linking the Board tolerance for risk to the risk management practices of the company;
  • Having the CRO report to the CFO instead of to the CEO or Board, i.e., not having a system of checks and balances in place regarding risk practices;
  • The board not leading the risk management charge;
  • Not communicating the risk management goals;
  • Not driving the risk management culture down to the lower levels of the organization;

Ignorance is not Bliss

  • Not doing your own risk evaluations;
  • Not expecting the unexpected;
  • Overreacting to risks that turn out to be harmless;
  • Don’t shun the risk you understand, only to jump into a risk you don’t understand;
  • Failure to pay attention to actual risk exposure in the context of risk appetite;
  • Using outsider view of how much capital the firm should hold uncritically;

Cocksureness

  • Believing your risk model;
  • The opinion held by the majority is not always the right one;
  • There can be several logical, but contradictive explanations for one sequence of events, and logical doesn’t mean true;
  • We do not have perfect information about the future, or even the past and present;
  • Don’t use old normal assumptions to model in the new normal;
  • Arrogance of quantifying the unquantifiable;
  • Not believing your risk model –  waiting until you have enough evidence to prove the risk is real;

Not Seeing the Big Picture

  • Making major changes without heavy involvement of Risk Management;
  • Conflict of interest: not separating risk taking and risk management;
  • Disconnection of strategy and risk management: Allocating capital blindly without understanding the risk-adjusted value creation;
  • One of the biggest mistakes has to be thinking that you can understand the risks of an enterprise just by looking at the components of risk and “adding them up” – the complex interactions between factors are what lead to real enterprise risk;
  • Looking at risk using one single measure;
  • Measuring and reporting risks is the same as managing risks;
  • Risk can always be measured;

Fixation on Structure

  • Thinking that ERM is about meetings and org charts and capital models and reports;
  • Think and don’t check boxes;
  • Forgetting that we are here to protect the organization against risks;
  • Don’t let an ERM process become a tick-box exercise;
  • Not taking a whole company view of risk management;

Nearsightedness

  • Failing to seize historic opportunities for reform, post crisis;
  • Failure to optimize the corporate risk-return profile by turning risk into opportunity where appropriate;
  • Don’t be a stop sign.  Understand the risks AND REWARDS of a proposal before venturing an opinion;
  • Talking about ERM but never executing on anything;
  • Waiting until ratings agencies or regulatory requirements demand better ERM practices before doing anything;
  • There is no obstacle so difficult that, with sufficient thought, cannot be turned into an opportunity;
  • No opportunity so assured that, with insufficient thought, cannot be turned into a disaster;
  • Do not confuse trauma with learning;
  • Using a consistent discipline to search for opportunities where you are paid to accept risk in the context of the entire entity will move you toward an optimized position. Just as important is using that discipline to avoid “opportunities” where this is not the case.
    • undertake positive NPV projects
    • risk comes along with these projects and should be priced in the NPV equation
    • the price of risk is the lesser of the external cost of disposal (e.g., hedging) or the cost of retention “in the context of the entire entity”;
    • also hidden in these words is the need to look at the marginal impact on the entity of accepting the risk. Am I better off after this decision than I was before? A silo NPV may not give the same answer for all firms/individuals;
  • What is important is the optimization journey, understanding it as a goal we will never achieve;

More Skin in the Game

  • Misalign the incentives;
  • Most people will act based on their financial incentives, and that certainly happened (and continues to happen) over the past couple of years. Perhaps we could include one saying that no one is peer reviewing financial incentives to make sure they don’t increase risk elsewhere in the system;
  • Not tying risk management practices to compensation;
  • Not aligning risk management goals with compensation;
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Global ERM Best Practices Webinar III

October 13, 2009

Date
December 1, 2009

Time

Times vary by location.  Program runs for 18 hours to allow for daytime viewing in all locations.

Location:
This webcast takes place via the Internet.  At your location.

Speakers from Europe, Americas and Asia-Pacific areas.

ERM is a unique field that is developing in all parts of the world at more or less the same time; therefore it is a new practice area where a global actuarial community of practitioners is developing. The webcast includes speakers from Europe and Asia/Pacific, as well as the Americas, and allows risk officers to share emerging risk management practices across different geographical regions.

The objective of this webcast is to provide the global actuarial community with new and emerging enterprise risk management (ERM) practices from different geographical regions. This webcast will include speakers from Asia/Pacific, Europe and the Americas offering insight into ERM best practices.

The webcast objectives

  • Disseminating and promoting global ERM best practices to the actuarial community
  • Offering accessible information about ERM to actuaries
  • Facilitating the discussion of practical and theoretical ERM issue and possible solutions
  • Promoting global standards of best practices in ERM

Who Should Attend

  • Actuaries who are currently practicing in the ERM area within Insurers or consultancies and
  • Actuaries and actuarial students who wish to get exposed to ERM practices so they can participate in ERM programs at insurers in the future
  • Other nonactuarial risk officer

MORE INFORMATION

REGISTER HERE

Session Description in Comment to this post.

Speakers will be posted when available.

INARM Blog Died

April 23, 2009

Try LinkedIn Group

International Network of Actuarial Risk Managers

Now 2400 members.

Invitation to Australia

April 18, 2009

Dear INARM Member
You may be aware that the Institute of Actuaries of Australia will be holding its Biennial Convention in Sydney from 19 – 22 April 2009. We will be holding a live webcast of the five Convention plenary sessions and would like to share our experience with INARM members as you may find some of them interesting.
There will be two plenary sessions on Monday 20 April, two sessions on Tuesday 21 April and one plenary on Wednesday 22 April.
See below or click to view the program and times of the plenary sessions (all times are Australian Eastern Standard Time). For convenience, here’s a link to the current world times – http://www.timeanddate.com/worldclock/
If you would like to view the live webcast and see the topics to be covered, please click on the following link (or open it in your browser) – http://www.mediavisionz.com.au/actuaries/biennialconvention
During the live webcast you will be able to send an email question to the speaker by entering your email address in the area provided on the live webcast player. Your question may be chosen by the facilitator on the day, so please include your name and country of origin at the start of your question.
The video used in the live webcast will be a Windows media player format and the link above will be optimised for viewing in Internet Explorer.
We hope you enjoy the free live webcast and would welcome any feedback which can be sent to events@actuaries.asn.au
Please note that if the timing of the live webcast doesn’t suit, you can watch the recording at the time of your own choice. All the concurrent sessions will be available from our website by the end of next week.
Kind regards,

John Maroney
Chief Executive Officer
Institute of Actuaries of Australia

INARM Linked In Group reaches 500 members!

March 25, 2009

INARM activities include this Blog, a email listserv and a LinkedIn Group.

The email group (Join) distributes news items of ERM activities around the globe and occasional lively discussions.

The LinkedIn group allows members to share professional information about themselves and get to know other members. If you are interested in joining the other 500 members (join)

Wwlcome!

Spanish ERM Newsletter

February 20, 2009

The Joint Risk Management Section has published a Spanish language newsletter with translations of selected articles that appeared in the 2007 English language editions. This means that the newsletter is now available in Engligh, French, Mandarin and Spanish.

http://www.soa.org/news-and-publications/newsletters/joint-risk-management/pub-joint-risk-management-newsletters-details.aspx

Actuaries & ERM

February 16, 2009

The following 9 statements were preferred to tell people about why actuaries are good candidates for risk management responsibility:

1. bright enough to understand the models, curious enough to do so, and
skeptical enough to understand their limitations.

4. understand the key assumptions, benefits and limitations of financial
models, know the difference between the map and the territory.

20. balance of technical numerical expertise with “real-life” business
experience and judgment

19. trained in making reasonable, justifiable, practical, and useful
decisions based on data known to be less-than-fully credible

15. deep understanding of the financial products and financial
organizations

5. trained to adopt a long term perspective both in terms of drawing
from past experience as well as building long term financial projections

16. familiar with risk Pricing, Markets and marketing and Operational
risks, their inter-relationships, their measurement/management paradigms
and their links to the financial statements

13. capable of anticipating trends and risks – known unknonwns and the
unknown unknowns risks/trends

11. organized as an international profession with continuous training,
standards of practice, integrity

And some additional suggestions were made:

>well-versed in financial economics, but is trained to look for breakdowns of the numerous assumptions (frictions, liquidity problems, etc.) that must be satisfied for financial economics to “work”
>have both a profound understanding of the technical and operational side of the business as well as of the economical, competitor and legal/regulatory environment which the firm is operating
>financial engineers, with a strategic perspective and aware of uncertainties.
>trained for, and often hold, roles which require them to take a holistic view of a financial organisation to understand and forecast its
financial dynamics; thereby recognising that financial model’s structure
and assumptions must be coherent and adaptive, as firm and market behaviour will impact future financial dynamics.

>more precise about the systemic risk around the OTC markets and the links between moral hazard and credit derivatives

My suggestion is that each of us needs to have a crisp answer to the question of why actuaries make good risk managers. And as you are forming YOUR list, you can look at this set of possibile statements are then frame what you think is the key message in your terms.

Several people made very good comments about the considerations for constructing an elevator speech which we should all consider as well. These are posted to a separate page.


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