CORPORATE RISK MANAGEMENT & INSURANCE BY R P BLAH D.G.M. INCHARGE THE ORIENTAL INSURANCE COMPANY LIMITED REGIONAL OFFICE BHUBANESWAR

RISK MANAGEMENT :  Risk is an inherent element for both operational and strategic decision making in all business and policy matter.  Risk Management is the process by which companies systematically identity, measure and manage the various types of risk inherent within their operations.  Corporate Risk Management or Enterprise Risk Management differs from traditional risk management in the manner how risks exposures in an organisation are treated.  Corporate Risk Management which is popularly known as Enterprise Risk Management is defined as: “Enterprise Risk Management is a process, effected by an entity’s board of directors, management, and other personnel, applied in strategy setting and across the enterprise designed to identify potential events that may affect the entity and manage risk to be within its risk appetite to provide reasonable assurance regarding the achievement of entity objectives.

The definition reflects the following  A process ongoing and flowing through an entity  Effected by people at every level of an organisation  Applied in strategy setting  Applied across the enterprise, at every level and unit, and includes taking an entity level portfolio view of risk.  Designed to identity potential events that if they occur will affect the entity and to manage risk within its risk appetite.  Able to provide reasonable assurance to an entity’s management and Board of directors.  Geared to achievement of objectives in one or more separate but overlapping categories.

Objectives of Risk Management :  The fundamental objectives of a sound risk management programme are:  To manage the organization’s exposure to potential earnings and capital volatility.  To maximise value to the organization’s various stakeholders  Not to eliminate risk and volatility but to understand it and manage it.  To identity and quantify the risk  Set risk tolerances based in overall corporate objectives  Take necessary actions to manage risks in light of objectives.

Results :  Risk Management fosters an operative environment that supports strong financial controls and risk mitigation.  Prudent risk taking to seize market opportunities.

What is Corporate Risk Management in Insurance Industries?  Significant and widespread additions to Insurance Industries’ vocabulary.  Natural extension of Insurer’s fundamental risk management practices.  Foundation rooted in sound traditional controls and policies encompassing five key categories of risk  Credit Risk  Market Risk  Underwriting Risk  Operational Risk  Strategic Risk

Enterprise Risk Management in Insurance Companies represents :  Development of an enterprise wide view of risk  To identify, quantify and manage risk on a more holistic basis  Considers the individual risk at hand as well as any correlations and interdependencies of risk across the entire organisation  To create a structured, integrated framework to increase the value of the firm.

Three Key Areas of Corporate Risk Management: Culture:  Establishment of an environment throughout the organisation from board level to senior.  Management to business line management to the employee.  Create risk awareness and accountability in daily operation.

Identification & Management :  Ability to consistently identify key risks across the entire organisation.  Establish uniform controls and procedures to effectively manage and mitigate the impact of risk.

Management:  Use of sophisticated tools and data collection to quantify risk  To quantify impact of risk of correlations within and among five categories of risk.  To quantify the impact of general economic conditions, industry specific events and extreme events  To report these risk assessments to senior management on a regular basis.

Major Categories of Risk in Insurance Industry: Credit Risk  Business Credit Risk – Failure of reinsurer  Invested asset risk – Non-performance of invested assets. Marked Risk  Interest rate risk – Losses due to change in interest rate.  Equity & rate risk – Losses due to drop in equity prices

U/W Risk  Underwriting process  Pricing of the product  Product design  Frequency, severity  Lapse  Economic Environment

Operational Risk  Monetary Controls  Financial Reporting  Legal controls  Distribution  IT System  Regulatory provision  Training  Turnover  Data capture

Strategic Risk  Competition  Demographic / Social Change  Negative Publicity  Rating downgrade  Customer demands  Technological

The strong and fundamental practices and processes encompassing traditional risk management, capital management and enterprise risk management provide a wealth of information and sophisticated tools. However, a company’s risk profile and its ultimate success or failure still are dictated by decisions made by the management.

THANK YOU ALL