Risk Appetite - Finity Consulting

23 Pages·2013·0.88 MB·English

Risk Management Frameworks and
relationship with Capital and Risk Appetite
“An insurer must at all times have a risk
management framework to manage the risks
arising from its business”

APRA Prudential Standard 220
© 2013 Finity Consulting Pty Limited
Agenda
Risk Management is getting a lot of attention
Board’s Role; Management’s Role
Risk Appetite and Capital
Integration into the Business - Culture
A continuous Journey
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First, What is Risk Management?
Risk is about
uncertainty (desirable or undesirable)
impact
Management is about
approaches and techniques
Framework
accountability
Appropriate level of risk is the Risk Appetite – a difficult
thing to express
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Its enshrined - The Australian Risk
management Standard - AS/NZ 31000
Mandate and

Commitment

Framework Design
for managing risk
Continual
Implementing risk
improvement of
management
Framework
Monitoring and
review of framework
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High Profile Risk Management Failures
HIH – Lead to Royal Commission
Centro – Australia’s second biggest shopping centre owner
Lehman Brothers in 2008 triggered the ‘Global Financial
Crisis’
Others – Enron, World Com, Tyco, Parmalat,
AIG a case study
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High Profile Risk Management Failures
HIH Royal commission 2003 is a great manual
Risk exists to some extent at the heart of every business
Risk is taken for reward
No system of corporate governance can prevent mistakes –
corporate failures will occur
Good governance helps focus the purpose of activity and
enable identification emerging problems early

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Risk Management critical for all Boards
Not insurance specific
all organisations
all Boards
all management
But special insurance requirements – Prudential Standard 220
The Principle
Boards require management to design and implement
risk management and internal control systems and
report to it on whether risks are being managed
effectively (ASXCGC recommendation 7.2)
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What should Directors Know about Risk
Familiar with what is meant by risk and the various tools and
technique for managing risk
Must understand the Board’s roles and responsibilities in
relation to risk
There is no one best practice mode
Depends on organisation size, complexity, resources
available, external environment
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Boards responsibilities
Board to approve and review
Risk management strategy
Risk appetite
Board to ensure risk management process done including
Risk identification
Assessment and quantification
Mitigation and control
Monitoring – Escalation, Communication and Culture
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Risk management critical for Management
Implement risk management framework is core part of
Management’s responsibilities
Integral part of internal management processes
Advise Board and assist in the development of
Risk management strategy
Risk appetite
Report to Board on risk management implementation
Develop a risk management culture within the organisation
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