implementing ERM [in financial services]

ERM is not a magic bullet, a panacea. It is a rigorous and exacting approach to understanding risk in a financial services firm; it is completely consistent with the direction and thrust of all financial services regulation. Ultimately, it is unavoidable.

EVALUATION

LEADERSHIP

RESEARCH

Commentators and zealots have been pushing ERM for years. But up to now, ERM has failed to deliver on its promise of providing a source of advantage to the firm.

Four forces are changing that: First, as a result of the financial crisis, risk is coming under the spotlight as never before; more astute executives are looking at the crisis as a learning opportunity in relation to risk. Secondly, ever-increasing competition is driving the search for advantage in to all areas of management practice; risk is no exception. Thirdly, driven by both the former pressures, there is a growing acceptance that the risk and performance measurement tools of the financial sectors can be applied to corporate practice. Finally, regulation is driving renewed attention to ERM.

In insurance, Solvency II provides a blueprint for enterprise risk practice which is based on the precepts of ERM. For insurers, well thought-through implementation of Solvency II really is ERM by another name.

We have advised major insurers right up to the external board on how to prepare for and implement enterprise risk management within the context of Solvency II. The time for enterprise risk management is at hand – it is the real potential for competitive advantage within Solvency II.

Outside insurance, in banking and asset management, the regulatory terminology differs but the concepts are the same: capital is at the heart of ERM regardless of sector. The growing pressure for regulatory activism and intrusive supervision will leave firms few places to hide. The only real choice facing banks and major buy-side firms is to adopt a proactive approach to regulatory requirements: to embark on the ERM journey – to look at every aspect of the firm to determine its contribution to managing risk in the firm – and to create a coherent approach to risk in the firm and risk narrative for the firm’s people.

We have helped firms to understand their risk exposures more deeply in all sectors of financial services and to view their risk challenge through a wider lens. The ERM challenge is not a trivial one, but it is worth the effort. We can show you the trail; you need to walk it (and talk it).

RISK CONSULTING

> RISK STRATEGY

> RISK APPETITE & TOLERANCE

> RISK FRAMEWORKS & SYSTEMS

> QUANTITATIVE RISK ANALYSIS

> RISK & ECONOMIC SCENARIOS

> RISK DISCLOSURE

RATING AGENCY GUIDELINES

Assessing ERM in insurers

Ratings agency Standard & Poor's has led the charge on ERM in insurers with ratings guidance for issuing insurers.

RATING AGENCY GUIDELINES

Assessing ERM in banks

Ratings agency Standard & Poor's issued guidance on assessing ERM for financial institutions in September 2006.

INTERNATIONAL GUIDANCE FROM IAIS

Guidance on ERM in insurers

International Association of Insurance Supervisors (IAIS) issued useful guidance on ERM in insurers for solvency purposes in 2008