|Targeted News Service|
As Enterprise Risk Management (ERM) has grown from buzzword to corporate must-have, the Chief Risk Officer, or CRO, has emerged as an important corporate position.
At insurers and other financial firms, actuaries commonly fill the CRO role. And the job is growing in complexity while rising in prominence, as three risk officers pointed out at the
Most major insurers have a CRO in their senior management team, and even in these uncertain financial times, their offices are growing, Matson said. Companies new to ERM are figuring out how to structure a program while regulators worldwide are hoping to use a company's ERM program to help them monitor the company's financial strength.
Not all companies design their ERM programs the same way. At CNA, Verheyen said, he works with approximately 20 people in three core areas:
* Risk and capital modeling, in which a team of people develop computer models that help determine how much capital each business area requires. This knowledge helps the company determine whether an area's profits justify the amount of capital it needs. The group also helps in evaluating reinsurance purchasing.
* A catastrophe modeling group which builds tools for use by each business area to better assess and price for catastrophe risk.
* A core risk management and purchasing group, which performs more traditional risk management functions, such as helping CNA purchase its own workers' compensation insurance.
Within Zurich, the work is organized by segment - life insurance, general (property-casualty) insurance, group operations and a separate function for
All this enjoys significant support from company executives and boards of directors, the CROs agreed. It helps businesses take intelligent risks, Franklin said.
As the C-suite learns to depend on ERM, regulators are following suit. By 2015, the
The panel generally welcomed the regulators' approach - trying to avoid making the
"The NAIC was very flexible" in its original requirements to find out how insurers assess their own ability to manage risk, Verheyen said. He noted the approach may cause confusion for some insurers, because the flexibility the NAIC provided means there isn't a detailed checklist of items to provide.
While Franklin liked the idea of an
Such a statement would be difficult at Zurich, a company that writes both life insurance and property-casualty and does so across the globe.
"Is it possible to construct a single risk appetite statement that covers the entire
Complicating matters is a drive to harmonize financial services regulation worldwide. This would, in theory, subject companies in different countries to similar levels of regulation. And it could streamline regulation, in theory, for global carriers. But there are challenges.
Even a simple balance sheet can get complicated across political boundaries, as moderator Lowe pointed out. Some countries rely on GAAP standards. Others use IFRS. Many U.S. insurers report on a statutory basis. And ERM often focuses on economic value - the fair market value of everything the insurer owns - and economic capital - the economic cost of the risks an insurer takes on. Which should a regulator require? Lowe asked. He responded that any of them would be acceptable "as long as it's not all of the above."
Matson worried that regulators could seek harmony by writing more regulations. "I think the intent is very good," she said. But the level of detail is amazing "in a bad way." It's hard, she said, to have a common framework that all regulators accept and can still satisfy the business needs of management in their strategic decision making processes.
To make sure U.S. insurance concerns are heard, top risk officers formed the
Actuarial training, with its focus on understanding both the underwriting and financial aspects of insurance, is a great starting spot for a would-be CRO, Franklin said. "But you don't know everything," he said. "You need to understand at a ground level how things are done within an insurance company."
Getting involved with industry committees is an important way to start working toward the CRO chair, especially with committees looking into emerging risks, according to Matson and Verheyen. Active participation is important in an emerging field like ERM, Verheyen said. "The playbook for how we do our job is being developed as we speak," he said.
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