Risk Governance Flashcards
Benefits of risk management
Avoid surprises
React more quickly to emerging risks
Improve quality and stability of the business
Improve their growth and returns by exploiting risk opportunities
Improve their growth and returns by better management and allocation of capital
Identify opportunities arising from synergies
Identify opportunities arising from risk arbitrage
Identify the aggregate risk exposure and interdependencies
Integrate risk into business process and strategic decision making
Give stakeholders in their business confidence that the business is well managed
advantages of managing risk at the business level
parent company decides on overall risk appetite and divides into business units
management of each business unit manages the risks within the allocated risk appetite
business units may ‘bid’ for risks with the highest expected return
each business unit feels a sense of responsibility/direct involvement
management teams are most closely involved in understanding and how to deal with the risks
advantages of managing risk at the enterprise level
group risk management function is established
risks of various business units are identified and combined into a risk assessment model at enterprise level
involves considering the risks of an enterprise as a whole rather than considering individual risks in isolation
makes allowance for the benefits of diversification or pooling of risk
provides insights into the areas with undiversified risk exposures or too much concentration of risk where need to be transferred or sufficient capital set aside to cover
such an approach is important is ensuring efficient capital use across the group
more effective in enabling a company to take advantage of opportunities to add value
understanding risk better across the whole enterprise can allow to take greater risks to increase returns
What types of business does business unit/enterprise-wide risk management work best in?
Business unit risk management
business units have a high degree of risk correlation
such as life insurers operating in different geographic areas
Enterprise-wide risk management
business units are very diverse
such as a multinational diversified financial services group
