Survey Shows Corporations’ Emphasis on Risk Management Initiatives, Expressed Need for Clarity Among Stakeholders


Ninety percent of risk management experts surveyed have implemented or plan to implement an enterprise-wide risk management approach, according to a new survey from the Society of Actuaries (SOA) and its partners. As corporations work to gain a foothold following the global financial crisis, businesses are taking a closer look at risk management implementation and the role of the Chief Risk Officer (CRO), as noted in the survey. Other top factors in the decision to implement ERM are ratings agencies and risk events affecting the firm.

In addition to an increased emphasis on risk management, it is evident that more clarity and communication on the topic is necessary for stakeholders. Nearly half of respondents, 46 percent, either disagreed or were not sure their firm’s external risk disclosures effectively convey an understanding of the key risks inherent in shareholders’ investment. Additionally, many respondents indicated no change or uncertainty of any change in their organization’s executive compensation packages. Given the current economic environment and growing calls for risk-adjusted compensation packages, communication on this topic is clearly needed.

The SOA has led the effort to provide clarity on risk management issues. Last month, international actuarial organizations announced the creation of a global risk management credential – the Chartered Enterprise Risk Analyst – to help ensure informed decision-making and sound reasoning on risk management issues. The global credential was based off the SOA’s original CERA credential. In addition, the SOA has developed a set of five guiding principles companies should adopt in order to deliver on the promise of ERM, one of which is clear communication.

“The collapse of the U.S. financial and economic systems has caused fundamental changes in how businesses look at risk,” said Dave Ingram, FSA, CERA, MAAA, senior vice president at Willis Re Inc. “With their rigorous training and risk management expertise, actuaries are at the forefront of that movement and can help strengthen firms’ risk management approaches to avoid similar fates.”

Other findings of the survey include the position of CRO becoming more prominent, with 70 percent of respondents’ organizations having or planning to have a CRO. Those CROs, as well as other executives and boards, will face a multitude of risk management issues in 2010, according to the survey.

In order of importance, these include:

  • Financial risk
  • Systemic risk–or risk affecting an entire financial market or system–
  • Regulatory risk
  • Pandemic risk
  • Terrorism risk

Operational risk, which encompasses a wide range of events and actions including execution errors, violations of policy, law/regulation and excessive risk taking, was mentioned frequently as an important issue for executives and boards. The SOA recently highlighted a new, modern approach for managing operational risk, which includes the recommendation that businesses consider this approach to better assess potentially catastrophic losses. To read about the Modern Operational Risk Management approach.

Companies have also shown an increased emphasis on risk modeling as a result of the financial crisis.

  • 62 percent of respondents’ organizations have increased modeling efforts
  • 37 percent reported no change
  • One percent noted decreased modeling efforts.

The survey was conducted by the Society of Actuaries and its Joint Risk Management Section, along with the Canadian Institute of Actuaries and the Casualty Actuarial Society. It garnered input from more than 450 respondents in the insurance, consulting and management services and financial service industries.

Ninety percent of risk management experts surveyed have implemented or plan to implement an enterprise-wide risk management approach, according to a new survey from the Society of Actuaries (SOA) and its partners. As corporations work to gain a foothold following the global financial crisis, businesses are taking a closer look at risk management implementation and the role of the Chief Risk Officer (CRO), as noted in the survey. Other top factors in the decision to implement ERM are ratings agencies and risk events affecting the firm.

In addition to an increased emphasis on risk management, it is evident that more clarity and communication on the topic is necessary for stakeholders. Nearly half of respondents, 46 percent, either disagreed or were not sure their firm’s external risk disclosures effectively convey an understanding of the key risks inherent in shareholders’ investment. Additionally, many respondents indicated no change or uncertainty of any change in their organization’s executive compensation packages. Given the current economic environment and growing calls for risk-adjusted compensation packages, communication on this topic is clearly needed.

The SOA has led the effort to provide clarity on risk management issues. Last month, international actuarial organizations announced the creation of a global risk management credential – the Chartered Enterprise Risk Analyst – to help ensure informed decision-making and sound reasoning on risk management issues. The global credential was based off the SOA’s original CERA credential. In addition, the SOA has developed a set of five guiding principles companies should adopt in order to deliver on the promise of ERM, one of which is clear communication.

“The collapse of the U.S. financial and economic systems has caused fundamental changes in how businesses look at risk,” said Dave Ingram, FSA, CERA, MAAA, senior vice president at Willis Re Inc. “With their rigorous training and risk management expertise, actuaries are at the forefront of that movement and can help strengthen firms’ risk management approaches to avoid similar fates.”

Other findings of the survey include the position of CRO becoming more prominent, with 70 percent of respondents’ organizations having or planning to have a CRO. Those CROs, as well as other executives and boards, will face a multitude of risk management issues in 2010, according to the survey.

In order of importance, these include:

  • Financial risk
  • Systemic risk – or risk affecting an entire financial market or system–
  • Regulatory risk
  • Pandemic risk
  • Terrorism risk

Operational risk, which encompasses a wide range of events and actions including execution errors, violations of policy, law/regulation and excessive risk taking, was mentioned frequently as an important issue for executives and boards. The SOA recently highlighted a new, modern approach for managing operational risk, which includes the recommendation that businesses consider this approach to better assess potentially catastrophic losses. To read about the Modern Operational Risk Management approach.

Companies have also shown an increased emphasis on risk modeling as a result of the financial crisis.

  • 62 percent of respondents’ organizations have increased modeling efforts
  • 37 percent reported no change
  • One percent noted decreased modeling efforts.

The survey was conducted by the Society of Actuaries and its Joint Risk Management Section, along with the Canadian Institute of Actuaries and the Casualty Actuarial Society. It garnered input from more than 450 respondents in the insurance, consulting and management services and financial service industries.

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David Kaye and Julia Graham’s book A Risk Management Approach to Business Continuity: Aligning Business Continuity with Corporate Governance extensively addresses the relationship between business continuity and risk management.

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