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2014 PAMIC Financial Management Seminar

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Title: 2003 Claims Division Team Leader Conference Author: Jeffrey Pratt Last modified by: Helpcenter Created Date: 11/10/2002 11:17:56 PM Document presentation format – PowerPoint PPT presentation

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Title: 2014 PAMIC Financial Management Seminar


1
2014 PAMIC Financial Management Seminar
  • Enterprise Risk Management Presentation
  • Jeff Pratt Director FPA
  • September 30, 2014

2
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

3
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

4
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.

5
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

6
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

7
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

8
Current Risks
  • Separated into four Risk Categories
  • Strategic
  • Underwriting
  • Investment
  • Operational
  • Total of twenty nine defined risks
  • Keeping an eye out for emerging risks

9
Typical ERM Program Components
  • ERM Policy
  • Risk Framework
  • Risk Appetite
  • Risk Tolerance
  • Risk Monitoring

10
Standard Poors Risk Framework
Credit Interest Insurance Operational
Asset Default Interest Rates Underwriting IT Systems
Counterparty Interest Spreads Pricing Continuity
Reinsurers Optionality Cycle Management Environmental
Derivative Catastrophe Regulation
Banks Market Reserving Compliance
Brokers Equities Claims Management Fraud
Dealers Foreign Exchange Terrorism
TPAs Real Estate Personnel
Change Management
Distribution
Outsourcing
Reputation
11
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
Concentration Reinvestment Frequency Regulatory Regulatory Capital
Liquidity Severity Training Availability
ALM Lapse Turnover Technological
Interest Rates Longevity Data Capture
Mortality/Morbidity
Optionality
Concentration
Economy
12
Other Important Considerations for ERM
  • Risk Management Culture
  • Prospective Risk Management
  • Financial Models Used

13
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

14
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

15
2014 PAMIC Financial Management Seminar
  • Enterprise Risk Management Presentation
  • Jeff Pratt Director FPA
  • September 30, 2014
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