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IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM: Modeling for Capacity – What’s Your Appetite?
ARF Program Track, Session #608
Agenda
Section 1 Considerations for evaluating risk capacity, tolerances,
and appetite
Section 2 Rating Agency Influences
Section 3 ERM in the Real World
ERM: US P&C Insurer Survival 1987-present
Source: AM Best US P&C Group Net Written Premium ranking 1987, 2014-01-13 (9 mos)
'87 Company '13 Disposition '87 Company '13 Disposition '87 Company '13 Disposition
1 State Farm 1 34 America exited 67 Orion Capital bought by Royal
2 Allstate 3 35 Employers Re bought by GE, Swiss Re 68 Teledyne spun off into Unitrin
3 Aetna sold P/C to Travelers 36 Zurich 17 69 NJ Manufacturers 47
4 AIG 6 Federal bailout 37 Motors =GMAC 70 Westfield 46
5 Liberty Mutual 4 38 Progressive 7 71 Utica National 78
6 Nationwide 8 39 Commercial Union bought by White Mountain 72 John Hancock no longer writing P&C
7 Hartford 11 40 California State Auto Assn 73 Foremost bought by Farmers
8 Farmers 9 bought by Zurich 41 Sentry 42 74 State Auto Mutual 48
9 Travelers 5 42 Associated Insurance bought by Travelers 75 Country Companies 37
10 CIGNA sold to ACE 43 Auto Owners 15 76 Selective 41
11 CNA 13 sold pers/l (ALL); reins (WTM) 44 Erie Ins. Exch. 16 77 Clarendon bought by Hannover Re
12 Continental bought by CNA 45 PMA under supervision 78 American Mutual Liab
13 USF&G bought by St Paul 46 Interins Exch Auto Club S. CA 31 = Auto Club Enterprises Ins Group 79 Shelter Ins 51
14 Crum & Forster bought by Fairfax 47 Auto Club of MI 80 Mercury General 34
15 Fireman's Fund bought by Allianz 48 Berkshire Hathaway 2 81 Skandia America In runoff
16 Chubb 12 49 Southern Farm Bureau 56 82 Employers Mutual Casualty = EMC
17 Kemper in run off 50 Cincinnati Financial 23 83 Zenith National
18 St. Paul bought by Travelers 51 Munich Re 18 84 California Casualty
19 Royal in run off mgmt buyout 52 Employers of TX 85 Alfa 60
20 USAA 10 53 Swiss Re 35 86 ALLIED bought by Nationwide
21 General Re bought by Berkshire Hathaway 54 Metroplitan 28 now Met P&C 87 Argonaut
22 Lincoln National sold P/C to Am States/Safeco 55 Old Republic 36 88 Arkwright merged with FM Global
23 Home bought by Zurich 56 Federated Mutual 57 89 Fremont Calif WC, Unicover
24 Prudential bought by Liberty Mutual 57 Ford Motor sold? 90 Allendale merged with FM Global
25 American General bought by AIG 58 Colonial Penn run off / no longer in P&C 91 Medical Liab Mut (NY)
26 American Financial 30 = Great American 59 Nationale-Nederlanden no longer writing 92 Penn National
27 Transamerica spun off to TIG (Fairfax) 60 Amica Mutual 44 93 Central Benefits Mutual exited P/C
28 Reliance insolvent 61 Atlantic Mutual Balboa partnership 94 Hartford Steam Boiler bought by AIG
29 Safeco bought by Liberty Mutual 62 Winterthur bought by CSFB, XL 95 Commercial Credit
30 GEICO bought by Berkshire Hathaway 63 20th Century rescued by AIG 96 Grange Mutual 59
31 American Family 14 64 Amerisure Companies 90 97 SAIF Oregon state fund
32 General Accident no longer in US P/C 65 Harleysville Sold to Nationwide 98 American Bankers bought by Assurant
33 Ohio Casualty bought by Liberty Mutual 66 W. R. Berkely 20 99 Motorists Mutual 89
100 Indiana Farm Bureau
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM – What is the Objective?
Ensuring you are properly compensated for the risks you assume
Measure
Monitor Manage
Risk
Return
Specify risk tolerance and manage within it
– Must understand risks individually to determine premium adequacy
– Must understand how risks aggregate to assure risk taking is aligned with risk capacity
Complexity of task increases exponentially with size of organization
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Risk Capacity
Risk Tolerance
Risk Appetite
Capacity: Absolute risk bearing capacity; loss in excess of capacity results in insolvency
ERM Framework Capacity, Tolerance, Appetite, Limits
Tolerance: Amount company is willing to venture in the normal course of business
Appetite: Process used by companies to evaluate risk vs. return tradeoff; type of risks accepted
Risk Limits: Set of silo-based sub-limits such as maximum credit risk per principle, net line size, catastrophe risk limits
Risk Tolerance/Risk Appetite Statement Examples
“The Company manages its exposure to key risks such that the modeled economic loss at
a 1 in 15 year and a 1 in 75 year return period are less than the economic capital
the Company is willing to expose to the key risks at those return periods... The Company’s risk limits
are stated as explicit numerical expressions, such as total aggregate limits in a
catastrophe zone, earned premium for casualty business, and the market value of equity and equity-like securities.” (Modeled economic loss appetite by risk type: Cat risk at a 1 in 75yr $960M max, Casualty at a 1 in 15yr $480M max, Equity at a 1 in 75yr $720M max)
Quantitative
Definition
“The risk appetite is set in relation to a variety of risk measures including economic capital and earnings at
risk, as well as regulatory capital requirements. To ensure exposures to particular risks are appropriate and that the Company remains well-diversified across risk categories, we manage specific risk exposures against enterprise-wide limits established for each of these specific risks.”
Qualitative
Definition
Simple
Definition “Grow as fast as possible at a 96 Combined Ratio”
44%
12%
8%
8%
7%
7%
7%
3%
3%
Def. Reserves / Inadequate Pricing
Rapid Growth
Miscellaneous
Affiliate Problems
Cat Losses
Alleged Fraud
Investment Issues
Change in Business
Reins. Failure
0% 10% 20% 30% 40% 50%
Primary Causes of U.S. P/C Impairments (1968 – 2013)
A.M. Best Impairment Study – Non-Life Focus on Most Material Risk Sources
Source: A. M. Best Impairment Study 2014
* A. M. Best defines impairment as any type of restrictive regulatory action
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Spectrum of Approaches to Risk Tolerance
Qualitative Quantitative
Catastrophe Risk
Lat/Long level
exposure data
available
Model-centric
quantitative approach
Likelihood and
severity both
quantified
Portfolio level
tolerance linked to
front line underwriting
decisions
Market/Credit Risk
CUSIP level exposure
information available
Scenario based
quantitative approach
Severity impact of
interest rate changes
or stock price drop
quantified
Portfolio level
tolerance linked to
asset allocation limits
Credit quality and
concentration limits
Operational Risk
Limited exposure
data
Rarely quantified or
articulated as a limit
Limited monitoring of
specific exposures
Examples:
– Regulatory Risk
– Financial Controls
– HR/Employee
Turnover
Reserve Risk
Limited exposure
benchmark data
Rate and reserve
adequacy monitored
Variability not
commonly quantified
Rarely articulated in
“limit” formulation
Usually increases
along with growth
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Catastrophe Risk Tolerance Study Overview
Composition
96 Different Reinsurers/Insurers
Global Reinsurers/Insurers
Year Percent Reporting
2013 85%
2012 89%
2011 89%
2010 83%
2009 86%
2008 81%
2007 77%
15%
18%
4%
20%
44%
0% 10% 20% 30% 40% 50%
Not Disclosed
Secondary Sources
Investor / AnalystPresentations
Annual Reports
10K Reports
Distribution of Data Sources
68% of the data came from Primary Sources (10K,
Annual Reports, or Investor Presentations)
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Catastrophe Risk Tolerance Disclosure Distribution
61%
34%
5%
Net PML
Reinsurance Structure
Other
0% 10% 20% 30% 40% 50% 60% 70%
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
45%
27%
20%
8%
Specific Peril - Regional
All Perils - All Regions
Specific Peril - All Regions
All Perils - Regional
0% 20% 40% 60%
All Regions vs Regional Aggregate vs Occurrence
Occurrence
70%
Aggregate
30%
Risk Metrics PML Disclosures
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Catastrophe Risk Tolerance Disclosure Analysis Sample Composite PML Target Ranges Post Tax Detail: 2013
4%
17% 14%
19%
0%
5%
10%
15%
20%
25%
30%
Mean High
1:100 After Tax Net PML as a Percent of Equity
6%
28%
16%
25%
0%
5%
10%
15%
20%
25%
30%
Mean High
1:250 After Tax Net PML as a Percent of Equity
Reinsurers generally operate at a higher catastrophe risk exposure
relative to equity
Post-event share price decline best predicted by reported Katrina losses
alone, rather than Katrina, Rita and Wilma losses combined
Reinsurers/Insurers losing less than 10% of shareholder value had Katrina
losses in the following ranges, which are consistent with recent PML public
disclosures:
The average 100-year PML risk tolerance disclosure for primary and
reinsurance companies is in-line with Aon Benfield’s post-Katrina study
Event-Level Risk Tolerance: Post Katrina
Katrina Study Loss % Ranges YE 1:100 PML Disclosure
Mean As a % of Equity
Sector As % of Equity As % of Prospective
Consensus Earnings 2011 2012 2013
Primary
Insurers 3% to 6% 21% to 34% 4% 4% 4%
Reinsurers 12% to 19% 107% to 110% 13% 14% 14%
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
External Natural Catastrophe Risk Tolerance Considerations
A.M. Best S&P Fitch Moody’s Demotech NAIC
Net PML
Greater of:
100yr Wind,
250yr EQ
250yr
All Perils
TVaR @
various
levels
100-1,000
250yr
All Perils 100yr HU
100yr HU &
100yr EQ
Loss View Occ. Agg. Agg. Agg. Occ. Agg.
Prob. View NT NT NT NT LT NT or LT
Stress Test Yes No Yes Yes Yes No
Other considerations include premium offset, reinstatement premium, taxes, cat
modeling settings (i.e. demand surge), treatment of non-indemnity reins., etc.
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Risk vs. Uncertainty Frank Knight – Risk, Uncertainty & Profit, 1921
Randomness amenable to
empirical classification and
statistical analysis
– Randomness driven by a structural, external, physical process
– Stable risk distribution parameters so past experience can be used to quantify randomness
RISK UNCERTAINTY
Randomness not easily amenable to empirical classification and statistical analysis
– Randomness driven by a behavioral process
– Unknown risk distribution, with time varying parameters
Examples:
– Casino
– Catastrophe Losses
– Auto accident frequency
Examples:
– Taleb “Black Swan” events
– Known and Unknown “Unknowns”
– Regulatory Activity
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Threats to Insurers’ Financial Strength A.M. Best Special Report ‘Grey Swans’
Knockout Punch Events Slow, Painful Death Events
Mega-Catastrophe Regulation
Financial System Shock Alternative Capital
Risk Management Shortfall Emerging Underwriting Risk
Hyperinflation Interest Rate Spike
Model Error Loss of Talent / Entrepreneurial Spirit
Source: A.M. Best Special Report
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
The Reserve & UW Market Risk Cycle: A Structural View
-15%
-10%
-5%
0%
5%
10%
15%
55% 60% 65% 70% 75% 80% 85% 90% 95%
Accident Year Ultimate Loss Ratio at 12 Months
Ca
len
da
r Y
ea
r L
oss
Re
serv
e D
eve
lop
me
nt
Coming off the hard market
detect decrease in pricing, terms
& conditions and increase loss
pick
Hit barrier of “maximum
bookable loss ratio”, find
reasons why it will be different
this time; adequacy of initial
loss pick decreases, reserve
deficiencies build up
Dam breaks, market hardens, substantial increase in
rate leads to drop in current AY loss pick concurrent
with prior year development
Fill soft market
reserve hole
booking
conservative
initial loss ratios
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
A.M. Best’s Approach to Enterprise Risk Management
Risk Profile Characteristics
Line of Business Volatility
Correlation Liquidity
Policy Limits Product/Coverage
Competition Regulatory
Judicial Investments
Financial
Flexibility
Economic
Concentration Data Quality
Growth Credit Quality
Ceded Leverage Impact of
Reinsurance
Management Philosophy
Market Risk • Bonds
• Stocks
• Other
Credit Risk • Bonds
• Reinsurance
• Other
Underwriting Risk • Pricing
• Reserving
• Other
Off Balance Sheet
Operational Risk
Strategic Risk
Capital Management
Risk Identification
Risk Measurement
Risk Tolerance
Risk Culture
Risk Management Capabilities
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
A.M. Best: Risk Tolerance Statements
A.M. Best indicates risk tolerance
statements should define both:
1. How much money willing to
lose
2. At a certain probability level
55% gave a least one desired
metric
45% are still giving generalized
statements about “conservative”
measures or did not respond
While specific SRQ questions
have been eliminated, this topic
is still critical to rating
35%
31%
21%
10%
4%
Generic Statement
Defined Both
Defined How Much
Blank
Defined How Often
0% 20% 40%
What is managements overall appetite / tolerance for risk?
Source: Based upon 2012 ERM SRQ responses of 72 clients
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
A.M. Best: Largest Risk Types
What has management identified to be its largest potential threat to the overall
financial strength of the rating unit [by Risk Type]?
Source: Based upon 2012 ERM SRQ responses of 72 clients
47%
36%
9%
4%
2%
2%
0%
0% 10% 20% 30% 40% 50%
Underwriting
Market
Credit
Operational
Other
Strategic
Liquidity
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
S&P ERM Assessment Criteria
Culture Controls Emerging Risk Risk Models Strategic Risk
Management
Insurers with a positive score on risk management culture typically demonstrate:
Well-defined risk appetite framework
Enterprise risk profile linked to its risk appetite
Track record
Typically see:
Active involvement from the Board
Strong buy-in from senior management and business units,
Aligned with the organization's strategic goals
Clear rationales supporting the chosen risk tolerances and limits
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
S&P ERM Distributions from Annual Level 2 Report
4%
24%
16%
53%
3%
Very Strong
Strong
Adq. w/ SRC
Adequate
Weak
0% 20% 40% 60%
0%
25%
50%
75%
100%
Positive Neutral Negative
Sub-factor Assessments ERM Score Distribution
Source: S&P Annual ERM Report, May 2014. ERM score
distribution is for P/C only whereas sub-factor distribution is for both
P/C and L/H.
Terrorism: Rating Agency Perspective
Influence views on ERM
• Continue looking at Terrorism Exposure through an ERM perspective as TRIA is likely to be renewed in some form
• Ex: Analyzing a nuclear scenario (although no specifics guidelines are in place) is good, practical risk management in order to understand how bad things could get and track the trend over time
Focus on deterministic stress scenarios
• A.M. Best uses the largest 5-ton truck bomb loss net of reinsurance excluding TRIA as a stress event
• S&P collects information for deterministic scenarios; a 2-6 ton truck bomb with a 500ft blast radius for example
Impacts small insurers
• Large insurers have higher capital available to absorb the shock of a terrorism event
• Small insurers are usually less diversified and have greater exposure as a percent of surplus
S&P Terrorism Commentary
Capital Model:
ERM:
IICRA:
Key Terrorism Questionnaire Updates:
Quantify your gross and net (of TRIA and other reinsurance) losses if a 9/11 event were to happen today.
What steps are performed to validate model results and align them to management’s view?
What underwriting or pricing rules are in place for terrorism coverage (non- workers' compensation)? i.e. Are there discounts if the insured opts out or is it priced separately?
Describe how capacity is allocated for terrorism coverage
If TRIA coverage becomes unsatisfactory, in what capacity/pricing strategy would you offer terrorism coverage for non- workers' compensation business?
List any criteria for denying terrorism coverage
Request for large nuclear attack (5-20kt) was removed
Negative rating action seen where
modeled terrorism losses exceed
net income, deplete capital by a
sizable amount, or have high
exposure relative to peers
S&P is interested in
observing insurer’s
strategic
management as it
tries to optimize their
risk profile in
anticipation of TRIA
modification /
nonrenewal
US P&C sector currently
“Intermediate”, but may deteriorate
to “Moderate” or worse with TRIA
nonrenewal or significant increase
in deductible requirements
Rating
Implications
Key Rating Implications:
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ORSA Analysis Guidance – Risk Tolerance
Establish quantitative limits and qualitative statements for
risks
Underlying risk tolerances and limits embedded in strategic
planning and business processes
Monitoring and reporting actual assessed risk versus risk
tolerance
Section 3:
Group Risk and
Prospective Solvency
Assessment
Section 1:
Risk Management
Framework
Section 2:
Assessment of Risk
Exposure
Risk
Tolerance
Guidelines
Outlined In
Draft
Handbook
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Stress Scenario Framework
Stress Scenario Examples
100 yr PML Cat Loss
Adverse Reserve Development
Inflation Increase
Interest Rate Spike
Credit Spread Spike
Equity Market Decrease
Creditor Default
Combo
Stress
Scenarios
Combo
Stress
Scenarios
Combo
Stress
Scenarios
Reverse
Stress
Scenario
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Energy Insurance Mutual The Real World
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Introduction to Energy Insurance Mutual
Vision:
To be the premier provider of insurance and risk management services to utilities
and the energy services industry.
29
• Characterized by low frequency/high severity losses, 4-5 year duration
• Investment portfolio creates volatility with a 25% equity allocation
Corporate Risk Tolerance:
A 10%, or less, chance in any given year of losing more than 20% of surplus.
Core vales:
• Member Focus
• Integrity
• Quality
• Innovation
Strategic Goals:
• Membership
• Financial
• Business Process
• People
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
EIM Financial Overview
$1,848
$1,363
$421
$823
$1,851
$1,372
$322
$890
$1,942
$1,554
$381
$958
$0 $500 $1,000 $1,500 $2,000 $2,500
Total Assets
Invested Assets
Loss reserves, net
Surplus
2014
2013
2012
(in millions)
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Financial Overview
0%
50%
100%
150%
Net Lossratio
Expenseratio Combined
ratio Invest.Return
68% 9% 77%
7.2%
38%
10%
48%
6.2%
140%
9%
149%
9.2% 2014
2013
2012
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
EIM Financial Overview
43
49
(44)
75
43
80
46
108
76
96
(100) (50) - 50 100 150 200
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
Net Underwriting Contribution Net Investment Contribution
(in millions)
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Overview of Limits Offered
Maximum Limit Minimum Attachment
General Liability $ 100,000,000 $ 35,000,000
D&O / General Partners 50,000,000 35,000,000
Fiduciary 25,000,000 35,000,000
Property 35,000,000 Excess of underlying
deductibles
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM – In the Beginning………
There was nothing………….
Governance……….
Framework……….
Risk Capacity
Risk Tolerance
Risk Scoring
Risk Limits
Buy in from personnel……….
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM – Governance
Governance……….
• ERM committee
• Board reporting
• Minutes
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM Structure - Framework
Risk Capacity
• the amount and type of risk an organization is able to support in pursuit of its business objectives
• 1/200 TVaR maintain “A” rating
Risk Tolerance
• the amount and type of risk an organization is willing to accept in pursuit of its business objectives
• 10% chance of a 20% loss on surplus
Risk Target
• the optimal level of risk that an organization wants to take in pursuit of a specific business goal
• Goals or budgets (i.e. property portfolio - $35m gross; LR; CR; ROE)
Risk Limits
• thresholds to monitor that actual risk exposure does not deviate too much from the risk target and stays within an organization’s risk tolerance/risk appetite. Exceeding risk limits will typically act as a trigger for management action
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Risk Capacity – 1/200 TVaR
Risk Tolerance < 10% chance of
a 20% loss
Risk Metrics
• Insurance
• Asset
• Strategic
• Operational
$226.5m
“A”
Rating
$46.4m
ERM Framework
(in millions)
ERM Framework
771.5 896.5
0
100
200
300
400
500
600
700
800
900
1000
A- A
TVaR =
226.5m A Minimum
- $670m
A- Minimum
- $545m
12/31/14
surplus -
$958m
(in millions)
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM Structure – Framework Risk Capacity
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
TVaR 99.5% TVaR 99.5%
Standalone Diversified
Catastrophe Risk
RI Credit
Operational
Market
Reserve Risk
Premium Risk
(in millions)
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM Structure – Framework Use of Modeling
Investments
• Equities
• Fixed income
• Alternatives
Distributions
• Excess capital
Reinsurance
• Pricing
• Structure
Underwriting
• Pricing
• Excess capital
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Allocate excess surplus to allow for significant events and determine
accumulated surplus available
Calculation of available surplus
Available capital (20% of capital & surplus of $896m) $ 179.2
1/10 VAR (75.0)
Control environment factor – 30% (54.0)
Accumulated surplus available $ 50.2
ERM Structure – Framework Use of Modeling (in millions)
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
ERM Structure – Framework Risk Scoring
Determine drivers of risk capicity
Calculate inherent risk associated
thereof
Evaluate mitigating controls in place
Evaluate current environment
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Top Five Risks
Emerging Underwriting
Risk Bonds Equities
Reserve Adequacy
Underwriting Procedures
Risk
Enterprise Wide
Page 44
ERM Risk Scoring – Inherent Risk
Likelihood – the likelihood the given risk will occur within the
next three years
• Almost Certain
• Very Likely
• Likely
• Unlikely
• Remote
Impact – the potential financial or operational efficiency
impact that would be incurred if the given risk took place,
absent of any controls.
Use materiality
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Enterprise Risk Management Top 10 Inherent Risk
Page 46
ERM Risk Scoring – Residual Risk
Controls are identified that specifically address either the
likelihood of the risk occurring or the impact it would have on
the Company.
• Key Control
• Standard Control
• Reactive Control
• Entity Level Control
Further impacted by an Environmental Risk Factor
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Top 10 Inherent vs Residual Risk Heat Map
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
Enterprise Risk Management Buy in From Personnel
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
EIM Closing
IASA 87TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW
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