Society of Actuaries Partners with Leading Actuaries to Help Businesses Deliver on Promise of Enterprise Risk Management

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Well-Informed Decisions on People, Approach and Viewpoint Yield Smarter and More Confident Decisions, Actuaries Say. Without a set of guiding principles, businesses may find themselves at perilous crossroads in defining and managing risks; and instead, they may over-mitigate risks, underestimate risk exposures or altogether miss opportunities to capitalize on risks. As consultants, chief risk officers and risk managers, members of the actuarial profession are seeing a startling trend -- many businesses are failing to deliver on the promise of ERM. The Society of Actuaries is providing the five guiding principles to evaluate businesses' ongoing ERM investments.

Introduced only a few short years ago as a framework for operating in a post-9/11, Sarbanes-Oxley-compliant era, the notion of enterprise risk management (ERM) is steadily evolving from "buzz terminology" to an accepted practice. Pushing this little acronym into the limelight are today's challenges and tomorrow's uncertainty: an expanding breadth of individual risks and their sometimes not-so-apparent interconnectivity; globalization; ratings agency requirements; financial disclosures; Basel compliance; and continued attention from boards of directors. As consultants, chief risk officers and risk managers, members of the actuarial profession are seeing a startling trend -- many businesses are failing to deliver on the promise of ERM.

Without a set of guiding principles, businesses may find themselves at perilous crossroads in defining and managing risks; and instead, they may over-mitigate risks, underestimate risk exposures or altogether miss opportunities to capitalize on risks.

"With so much at stake, it is time for a step check to ensure businesses and their enterprise risk managers are informing, approaching and defining ERM in a consistent way," said S. Michael McLaughlin, FSA, CERA, FIA, MAAA, member of the Society of Actuaries' (SOA) Board of Governors and global leader, A&IS, for Deloitte Consulting LLP. "As it relates to risk, actuaries believe it is crucial to make well-informed decisions on people, approach and viewpoints before making decisions about solutions."

Based on best practices from years of experience, leading actuaries, in partnership with the SOA, urge businesses to commit to five principles to evaluate their ongoing ERM investments.

1. A Qualified Leader -- Without proper guidance, training and leadership from a skilled risk professional, actuaries point out that attempting to navigate risks is a futile exercise. Based on the premise that risks cut across an entire organization, the obvious first step is to ensure that disparate departments are in the same room and on the same page about an organization's risks.

"Businesses require a qualified leader to mediate the cross-section of delegates who sometimes have varying agendas," said Max Rudolph, FSA, CERA, CFA, MAAA, founder and actuary at Rudolph Financial Consulting, LLC. "In our experience, multinational businesses are engaging chief risk officers with an actuarial background to fill this role, just as smaller companies are moving toward outsourcing chief risk advisors (CRAs) from consulting firms."

The SOA has been aggressive in the continued professional development of actuaries as leaders in risk management, recently launching the Chartered Enterprise Risk Analyst (CERA) credential, which is earned by individuals who complete a curriculum incorporating the most comprehensive and rigorous demonstration of enterprise risk management available. It is the SOA's first new credential in nearly 60 years.

2. Clear Communication -- ERM processes that do not lead to the translation of highly complex and technical issues cannot arrive at actionable information to make smarter, more confident decisions. Actuaries say that businesses must "sell" in a need for risk management, but it is equally important that businesses have a corporate culture that fosters willingness to listen to what they need to do.

3. A Combination of Qualitative and Quantitative Information -- Every risk should be assigned a quantifiable number for management to make a well-informed decision. Though ERM is not a new concept, actuaries report that many companies are not practicing this technique. Additionally, businesses need to prioritize risks and develop scenario mapping to understand any unintended consequences that can result from how the risks are mitigated.

Through their rigorous credentialing process (required to become an ASA, FSA or CERA), actuaries are trained to apply both qualitative and quantitative insights to risk management.

4. A Broader Focus -- Risk management processes also suffer from inefficiencies when business operations are separated from those managing risk. The best ERM examples integrate risk, capital and financial management.

"Actuaries often serve as a bridge between financial and business risks and regularly communicate about threats and opportunities associated with their interconnectivity," said Douglas W. Brooks, FSA, CERA, FCIA, MAAA, senior vice president and chief financial officer for Equitable Life of Canada. "In addition, businesses often don't think about the unintended consequences of their decisions. Consider the recent subprime mortgage issues or the agricultural issues with more farmers converting crops to ethanol. All of these decisions have led to new risks and challenges that must be addressed."

5. An Attitude Adjustment -- As asserted by the profession's tagline, Risk is Opportunity.(SM), delivering on the promise of ERM depends on an ability to see risk differently. Understanding risk exposures and defining the "risk appetite" will maximize every opportunity.

"Businesses need a consistent definition of the evolving complex risks through a robust ERM framework," said Sim Segal, FSA, CERA, MAAA, member of the SOA's Board of Governors and managing director at Aon Global Risk Consulting, Aon Corporation. "With that in mind, actuaries take a 360-degree perspective to understand the shock resistance of the enterprise to its key risks and to better manage enterprise risk exposure to the level desired by senior management."

About Actuaries
Actuaries bring a complex future into focus by applying unique insight to risk and opportunity. Known for their comprehensive approach, actuaries enable smart, more confident decisions.

About the Society of Actuaries
The SOA is an educational, research and professional organization dedicated to serving the public and its 19,000 members. The SOA's vision is for actuaries to be recognized as the leading professionals in the modeling and management of financial risk and contingent events. The SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems involving uncertain future events. To learn more, visit http://www.soa.org.

Visit the electronic press kit at http://www.redwoodeditor.com/content/societyofactuaries/cera.

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