1. Risk Appetite Framework

2. Why Define Risk Appetite & Tolerance? ●Helps align risk taking with strategic objectives –Establishes direct link between strategy and front-line risks –Better allocation of resources  Ensures risk taking activities add value ●Helps guide decision makers at all levels of organization –Definition process aligns senior-level risk perceptions and understanding –Agreed definitions provide boundaries for risk taking ●Promotes consistency in actions throughout organization –Encourages desired behaviors ●Helps prioritize mitigation actions for risks outside of tolerance Risk Appetite Framework2

3. Challenges ●Lack of consensus on terms & methodology –Risk appetite, tolerance, & capacity used interchangeably ●Many guidance documents focus on financial institutions ●Initial framework below Risk Appetite FrameworkSlide 3

4. Risk Appetite Framework Risk Appetite - Amount and type of risk company is prepared to pursue, retain or take; qualitative Risk Tolerance - desired level of risk; quantitative Risk Target - Risk owner’s optimal residual risk level, specific to each risk; quantitative 4Risk Appetite Framework

5. 5 Strategic Plan Measures of Success Corporate Objectives ERM Risks Risk Appetite Risk Tolerance Risk Target Risk appetite statements

6. Risk Appetite – Rating Scale* 6Risk Appetite Framework * Defining your taste for risk- Rob Quail, Corporate Risk Canada spring 2012

7. Risk Appetite - Calibration Risk Appetite Framework7

8. Risk Appetite - Statements Risk Appetite Framework8 ● ●Overall risk philosophy statement ● ●Risk appetite statements for each measure of success

9. Very Likely Quite Likely Somewhat Likely Unlikely Extremely Unlikely InsignificantMinorModerateMajorCatastrophic Likelihood Consequence Measure of Success: XXYY Risk Appetite Framework9 Risk Tolerance

10. Very Likely Quite Likely Somewhat Likely Current residual risk Unlikely Risk target Extremely Unlikely InsignificantMinorModerateMajorCatastrophic Likelihood Consequence Measure of Success: XXYY Risk ZZ-2014 Risk Appetite Framework10 Risk Tolerance