• Enterprise Risk Management

    Services - Enterprise Risk Management

Enterprise Risk Management (ERM) helps you identify and manage the risks in running you firm while balancing 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 firm. ERM uses a broad and objective set of policies and procedures to identify, measure, monitor, and improve risk management. It can be applied to any risk source including financial, credit, and operational risks.

What is the value of ERM?

Effective ERM improves the chance of achieving your firm’s goals. Those can include maximizing profits, increasing book value, accessing excess capital, or expanding into new markets. Some firms use ERM to better balance their risk profile against their risk appetites and tolerances. Other firms want improved controls, or an uplift to their credit or quality rating. Some firms want to join competitors in realizing the full benefit of industry best practices. Effective ERM is a must-have for best-in-class companies.

How can Huggins help?

Insurance is an important tool to transfer risk. In the insurance business actuaries are expert risk professionals. We have the experience you need to design, improve, and implement ERM solutions. Our ERM analysis often includes Economic Capital Modeling, which is a special part of ERM. We customize the following services to the current state of your ERM whether mature, evolving, or not yet in place.

An ERM Framework is a written document that describes how enterprise risk management works at your firm. It identifies the participants including their roles and responsibilities from front-line staff up to and including the Board. Huggins can build an ERM Framework from scratch, customized to your needs, and reflecting your corporate culture. If your firm already has an ERM Framework, then Huggins can provide an independent review and recommend improvements.

An ERM Framework is supported by policy documents that 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 participants, and oversight.  Both types of documents clarify the detailed ERM Framework.

Huggins can create a set of policies and procedures that reflect your firm’s view of ERM and how it should work. If you already have an ERM Framework, then we can review your policies and procedures to recommend improvements.

Risk is the possibility of an adverse outcome. Risk identification is the first step in managing the risks to which your firm is exposed. Huggins can evaluate your risk profile to identify the most material current and emerging risks as well as the risk drivers. We can perform actuarial analyses to determine the materiality of risks. Additionally, we can create a risk library containing information to manage material risks.

How much risk should your firm bear? A risk appetite is a high level statement of your interest in bearing risk. It usually identifies the type of risk that can be borne, or the type that cannot be borne. A risk tolerance is a slightly lower assessment of the firm’s interest in bearing risk. A risk limit is a very specific and usually numeric cap on the amount of risk allowed under normal circumstances.

Huggins can determine your firm’s appetite and tolerance for bearing risk. It is important for both to agree with your business plan and corporate mission. We can also set reasonable risk limits, which typically reflect your capital position. In addition, we can make sure the appetites, tolerances, and limits align with your ERM policy and procedure documents.

risk concentration is the total of your firm’s exposure along a specific dimension. These include to an individual counterparty or policyholder, or among all counterparties within a given industry or geography. They can also include exposure to a common event (e.g., a natural catastrophe). For holding company clients, another dimension is the group exposure across all subsidiaries.

Huggins can create a process for calculating risk concentrations, and calculate current concentrations and compare against your risk limits. We can also create risk dashboards and exhibits to your specifications for use in reporting concentrations in near real-time.

Pro-forma financial statements include an income statement, balance sheet, and statement of cash flows. These can be projected into the future over a time period of your choosing, such as one to five years. The statements can be prepared as part of a financial analysis. We can perform a financial analysis on a scenario basis, which reflects a specific financial view of the future. Sensitivity analyses can also be performed to explore the impact of various factors on your future financial performance.

Information in an easily understood format and as close to real-time as possible is essential in today’s uncertain and rapidly changing world. Actuarial and risk management analyses often generate large volumes of outputs. But their value to the Board or management team depends on how well the results are packaged in informative dashboards. We can work with you to determine the specific information you need and create an MIS or dashboard that presents information in the manner you find most helpful.

For many firms 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 poor.

Huggins uses your firm’s claim history along with external data to perform an analysis. We evaluate your reinsurance under a wide range of possible outcomes from no recovery to limit exhaustion. The analysis uses a probability model. The value of reinsurance is determined by comparing possible recoveries to the ceded premium, while also minimizing costs. We can help optimize your reinsurance program, such as by changing limits or attachment points, by comparing the benefit of your current program against alternative programs that may provide greater value.

Many insurance companies are required to perform an annual ORSA (Own Risk and Solvency Assessment). The ORSA must discuss your capital adequacy and ERM Framework among other topics. A summary ORSA is provided to regulators who may use it, if deemed reliable, to set the frequency or depth of financial examination. Every firm can realize the benefits of the ORSA process as a matter of good corporate practice even if done voluntarily.

Huggins can create an ORSA process, perform the capital adequacy and ERM review, or draft an ORSA report that you finish. We can also increase the perceived reliability and objectivity of your ORSA report by performing an independent review that you can provide to 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.