• Enterprise Risk Management

    Enterprise Risk Management Slider

Enterprise Risk Management (ERM) improves decision-making by objectively considering and managing the uncertainties in running a business and the appetites and tolerances for bearing risk.

What is ERM?

Business means taking risk and risk means uncertainty. Some risks are common to all companies while other risks are unique to your organization. ERM uses a comprehensive, holistic, and objective framework of methods and approaches to identify, measure, monitor, and continuously improve the management of risk whether financial, credit, operational, reputational, legal, or strategic in nature.

What is the value of ERM?

Prudently managing risk improves the chance of achieving organizational goals and objectives such as maximizing profits, increasing book value, accessing excess capital, or expanding into new markets. Some companies implement ERM to better balance their risk profile against their risk appetites and tolerances. Other companies seek to gain greater control effectiveness, justify an uplift in their credit or quality rating, or join competitors in realizing the full benefit of industry best practices. Effective ERM is a necessity for best-in-class companies.

How can Huggins help?

Insurance is an important tool to transfer risk and within the insurance business actuaries are expert risk professionals. We have real-world experience designing, improving, and implementing ERM solutions. In addition to Economic Capital Modeling, which can be a component of ERM, Huggins customizes the following services to the current state of your organization’s ERM framework whether mature, evolving, or not yet in existence:

An ERM Framework is a written document that describes how enterprise risk management works at your organization. It identifies the entities engaged in ERM often using a three-line-of-defense model, including their roles and responsibilities, from front-line staff up to and including the Board. The Framework is often based on ERM practices as laid out by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the International Organization for Standardization (ISO) or regulators.

Huggins can build an ERM Framework from scratch, customized to your organizational needs and reflecting your corporate culture and structure. If your organization already has an ERM Framework, then Huggins can provide an independent review, assessing its adequacy and effectiveness and recommending improvements.

The ERM Framework is typically supported by documents providing details on how ERM is actually put into practice. Policy documents provide details on the rationale or intent of certain aspects of ERM. Procedure documents describe how processes are intended to work, such as controls, interactions between ERM entities and oversight.  Documents in both categories clarify the complexities underlying the ERM Framework.

Huggins can create a set of policies and procedures that reflect your organization’s view of ERM, empowering an efficient and effective implementation of your Framework. If you have an existing ERM Framework, we can review the alignment of your set of policies and procedures with your framework, or review any individual policy or procedure to assess its adequacy or effectiveness, and to recommend improvements.

Risk is the possibility of an adverse outcome. Risk identification is a prudent first step in managing the risk sources to which your organization is exposed. Huggins can help by evaluating your risk profile and identifying the most material current and emerging risks as well as the risk drivers. Huggins can create a risk library containing essential information to manage material risks.

Materiality can be expressed either qualitatively or quantitatively in terms of frequency and severity. Huggins can help by performing actuarially sound risk measurements.

How much risk should your organization bear? A risk appetite is an expression of the firm’s macro level interest in bearing risk in tandem with the type of risk that can be borne, or the type that cannot be borne. A risk tolerance is a slightly less macro assessment of the firm’s interest in bearing risk, and a risk limit is a very specific and usually numeric cap on the amount of risk allowed under normal circumstances.

Huggins can help determine your organization’s appetite and tolerance for bearing risk and ensure alignment with your business plan and corporate mission. Huggins can also help set reasonable risk limits, which typically take your capital position into account. Huggins can create risk policies for key risks that summarize your organization’s appetite, tolerance, and limits and ensure consistency with your ERM Framework and the set of Policy and Procedure documents.

Monitoring the concentration of risk is essential to ERM, especially with regard to respecting risk limits. A risk concentration is the summation of your organization’s in-force exposure and can be monitored along multiple dimensions, such as by individual counterparty or policyholder, among all counterparties within a given industry or geography, or exposure to a common event (e.g., a natural catastrophe). For holding company clients, another dimension is the group exposure calculated across all subsidiaries.

Huggins can help by creating a standardized process for calculating risk concentrations, and by calculating current concentrations. We can also help by creating tailored risk dashboards and exhibits to your organization’s specifications for use in reporting concentrations periodically or in near real-time.

Pro-forma financial statements consist of an Income Statement, Balance Sheet, and Cash Flow Statement. These can be projected forward over a time period of your choosing, such as one to five years into the future. The statements can be prepared as part of an underlying financial analysis or financial forecast.

Huggins can perform a financial analysis on a scenario basis, incorporating selected trend rates or growth assumptions, or prepared as part of a sensitivity analysis to explore the impact of various factors on your expected overall financial performance. The financial analysis can include expenses, dividends or assessments, or loss experience under existing or proposed insurance or reinsurance contracts.

Information in an easily understood format and delivered as close to on-demand as possible is essential for successfully managing an organization in today’s uncertain and rapidly changing world. Actuarial and risk management analyses routinely generate large volumes of data and insights, but their value to the Board or management team depends on how they are packaged in informative dashboards. We can work with you to determine the specific information you need to best manage the firm and then create an MIS or dashboard that presents information in the manner you find most helpful.

For insurance companies, reinsurance is one of the most effective tools to manage risk. However, ceded reinsurance reduces top line revenue and can reduce the bottom line if the value of your reinsurance spend is suboptimal.

Huggins uses your organization’s claim history to parameterize a probabilistic model that evaluates your reinsurance under a wide range of possible scenarios from no recovery to limit exhaustion. The value of reinsurance is determined by comparing possible recoveries to the ceded premium and minimizing organizational costs. Huggins can help optimize your reinsurance program, such as by changing limits or attachment points, by comparing the benefit of your organization’s current program against alternative programs in order to generate maximum value.


Many insurance companies have a regulatory requirement to perform an annual ORSA (Own Risk and Solvency Assessment) addressing capital adequacy and their ERM Framework among other subjects. A summary ORSA is provided to regulators who may use the self-assessment, if deemed reliable, to determine the frequency or intensity of financial examination. Every organization can realize the benefits of the ORSA process as a matter of good corporate practice even if pursued voluntarily.

Huggins can help by creating an ORSA process, performing the capital adequacy and ERM assessments underlying the ORSA, or drafting an ORSA report for your organization’s finalization. We can also help increase the perceived reliability and objectivity of your ORSA report by performing an independent review that you can provide to interested third-parties such as a regulator or rating agency.

The Huggins Advantage

Our firm’s philosophy centers on our commitment to the highest level of quality service delivered by quality people.  Our long tradition of providing responsive, technical excellence to our clients’ needs through an integrated team approach requires that we focus on quality in every aspect of every engagement.

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