2003 Claims Division Team Leader Conference

Report
2014 PAMIC Financial Management Seminar
Enterprise Risk Management Presentation
Jeff Pratt – Director FP&A
September 30, 2014
What is Enterprise Risk Management?
Different Stakeholders / Different Opinions
Pre-Cursors – RBC, Capital Adequacy, DFA
Different Definitions
Initially – Select Rating Agencies
Currently – All Rating Agencies and Regulators
Penn National Insurance ERM start-up timeline
July 2006 – Initial ERM Committee Meeting Held
March 2007 – Initial Risk Tolerances Developed
July 2007 – Incident Log Started
August 2007 – Scorecard Development Started
November 2007 – First Presentation to Board
Primary Purpose of ERM
To assure that the Company properly allocates its capital
to seize appropriate business opportunities and identifies
and mitigates underwriting, investment, financial or
operational risks that approach or exceed acceptable risk
tolerance levels.
Why do we think ERM is important?
ERM Supports Good Corporate Governance
Good Business Practice To Understand Risks
And Opportunities That Exist Throughout The
Organization
Rating Agencies Are Requiring It
Role of the Board of Directors
Knowledge and understanding of corporate
risks
Communicate Board support of ERM to the
organization
Assure that corporate risk taking is in line
with Board expectations
Authorize ERM Committee to implement as
outlined in Policy Statement
Review and approve changes to the ERM
Policy Statement annually
Annual Board Report
Updates on risks previously identified
Identification of emerging risks
Significant items that relate to the
management of risk and capital
Recommended changes to the ERM Policy
Statement
Current Risks
Separated into four Risk Categories
•
•
•
•
Strategic
Underwriting
Investment
Operational
Total of twenty nine defined risks
Keeping an eye out for emerging risks
Typical ERM Program Components
ERM Policy
Risk Framework
Risk Appetite
Risk Tolerance
Risk Monitoring
Standard & Poor’s Risk Framework
Credit
Interest
Asset Default
Interest Rates
Underwriting
IT Systems
Counterparty:
Interest Spreads
Pricing
Continuity
Optionality
Cycle Management
Environmental
Catastrophe
Regulation
Reserving
Compliance
Claims Management
Fraud
Reinsurers
Derivative
Banks
Market
Insurance
Operational
Brokers
Equities
Dealers
Foreign Exchange
Terrorism
TPAs
Real Estate
Personnel
Change Management
Distribution
Outsourcing
Reputation
AM Best Risk Framework
Credit
Market
Underwriting
Operational
Strategic
Default
Equities
UW Process
Monetary
Competition
Downgrade
Other Assets
Pricing
Reporting
Demographics
Disputes
Currency
Reserves
Legal
Publicity
Settlement
Concentration
Product Design
Distribution
Rating
Sovereign
Basis
Basis
IT Systems
Demands
Frequency
Regulatory
Regulatory Capital
Liquidity
Severity
Training
Availability
ALM
Lapse
Turnover
Technological
Concentration Reinvestment
Interest Rates Longevity
Mortality/Morbidity
Optionality
Concentration
Economy
Data Capture
Other Important Considerations for ERM
Risk Management Culture
Prospective Risk Management
Financial Models Used
Financial Models Supporting ERM
Deterministic Models
• Project financial results based upon assumptions, e.g.
• Inflation rates
• Interest rates
• Stock market results
• Rate changes
• Loss reserve performance
• Useful for testing sensitivity to economic and other
changes
Stochastic Models
• Model the full range of possible financial results
• Produces a statistical distribution of financial results
What do we do with ERM data?
Address Identified Risk Tolerance Breaches
Rank Risks
Use Modeled Results In Planning
Supports Reinsurance Purchases
Disclosures to Regulators and Rating Agencies
Allocate Capital
2014 PAMIC Financial Management Seminar
Enterprise Risk Management Presentation
Jeff Pratt – Director FP&A
September 30, 2014

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