® Value of Enterprise Risk Management MetLife Ruth Sayasith - Vice President & Actuary Corporate Risk Management July 29, 2003.

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Presentation transcript:

® Value of Enterprise Risk Management MetLife Ruth Sayasith - Vice President & Actuary Corporate Risk Management July 29, 2003

® 2 ERM & Envisioned Future Board and Exec Mgmt Know the Top Ten Risks Strategic Planning is Focused on Risk Appetite and Optimizing Risk versus Return Operational Risk is Minimized Through Effective Compliance and Audit Functions Aggregate Level and Concentration of Risk is Transparent Risk Culture is Pervasive

® 3 Enterprise Risk Management Risk Operational Risk Control Operational Risk Control Scenario Testing Returns on Risk Capital Oversight

® 4 Enterprise Risk Management Oversight Board and CEO Board and CEO Audit Committee Audit Committee Internal Audit Internal Audit Controllers Controllers Risk Operational Risk Control Operational Risk Control Scenario Testing Returns on Risk Capital Oversight

® 5 Enterprise Risk Management Operational Control Self-Assessment Self-Assessment Process Mapping Process Mapping Compliance Compliance Risk Operational Risk Control Operational Risk Control Scenario Testing Returns on Risk Capital Oversight

® 6 Enterprise Risk Management Returns on Risk Economic Capital Economic Capital Diversified Risks Diversified Risks Strategic Planning Strategic Planning Ratings and Regulatory Capital Ratings and Regulatory Capital Risk Operational Risk Control Operational Risk Control Scenario Testing Returns on Risk Capital Oversight

® 7 Enterprise Risk Management Scenario Testing Liquidity Liquidity Predominant Risk Stress Testing Predominant Risk Stress Testing Extreme Scenario Analysis Extreme Scenario Analysis Risk Operational Risk Control Operational Risk Control Scenario Testing Returns on Risk Capital Oversight

® 8 Economic Capital “A Picture of How it’s Done” Vol. x = Total Enterprise Volatility * Market Benchmarks Required Capital Attribution back to risk elements based on their contribution to Enterprise Volatility Risk Elements Vol.... * Annual Standard Deviation of Market Value of Surplus

® 9 Economic Capital - Fundamentals Shareholder Perspective - Market Value Focused Risk Defined in Terms of Volatility and Uncertainty “Right” Level of Capital for Measuring Risk versus Return (RAROC) Consolidated across the Enterprise Marginal Attribution to Products/Businesses (Diversification Measured)

® 10 Return on GAAP Equity A Good Indicator of Stock Price ROEPrice to Equity 77% Correlation 20% 60% 100% 140% 180% 220% 260% Co. ACo. BCo. CCo. DCo. ECo. FCo. G 10% 11% 12% 13% 14% 15% 16% 17%

® 11 Risk-adjusted Return on Capital (RAROC) The Best Indicator of Stock Price RAROCPrice to EC 98% Correlation 20% 60% 100% 140% 180% 220% 260% Co. ACo. BCo. CCo. DCo. ECo. FCo. G 10% 11% 12% 13% 14% 15% 16% 17%

® 12 Price to EC as predicted by RAROC 0% 100% 200% Benchmark RAROC where Price to EC = 100% PRICETOECPRICETOEC G A BC D E F RAROC

® 13 Strategic Planning Rank Products/Businesses - Amount of Shareholder Value Added or Subtracted Catalyst for Discussion about Risk Appetite and Optimizing Risk versus Return Know Why We Are “Investing” in a Business and When It Will Payoff Develop Strategy to Maximize Shareholder Value