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The pros and cons of Enterprise Risk ManagementThis blog discusses innovative research on Enterprise Risk Management in the financial services comprising of a wide range of topics in relation to economical, organizational, political and environmental issues. July 09, 2010 S&Ps ERM Level III reviewIn May 2010, Standard and Poors, the rating agency, published a document titled A New Level of Enterprise Risk Management Analysis: Methodology for assessing Insurers Economic Capital Models for public comments. Continue reading "S&Ps ERM Level III review" Posted by Madhu Acharyya at 12:50 AM | Comments (0) November 13, 2009 Walker review highlighted ERM and the significance of chief risk officer in banks and other financial institutionsThe massive failure of several national and multinational banks in their risk assessment and management functions has received considerable attention of regulators. The current focus of FSA, the UK’s financial regulator, is to strengthen the corporate governance of banks and other financial institutions. Sir David Walker, a senior adviser to US bank Morgan Stanley, is leading an independent review of corporate governance in the UK banking industry and produced a comprehensive draft review with recommendations in July 2009. The final version of the report is due to publish on 26th November, 2009. Posted by Madhu Acharyya at 04:08 PM | Comments (0) February 24, 2009 New research finds no explicit relation of insurers ERM practice with their stock market performanceNew research finding indicates no clear relationship between insurers’ enterprise risk management (ERM) practice with their stock market performance. ERM is regarded as the management of all significant risks in a holistic framework irrespective of risk types and sources. This is in contrast to traditional silo (or departmental) perspective of risk management. Posted by Madhu Acharyya at 06:13 PM | Comments (7) April 18, 2008 The value of ERM - some research findingsWhy should a firm practice Enterprise Risk Management (ERM)? Where are the benefits? How to demonstrate them? These are the tough questions that the risk management professionals are facing today. Previous researches on Corporate Risk Management (CRM) suggest that firms should engage in risk management (i.e., hedging). The benefits are implicit i.e., reduction of bankruptcy cost, lower tax, higher borrowing capacity, etc. There is no established evidence that suggests the tangible benefits of managing risks (e.g., increase of share price). However, ERM fundamentally differs with CRM in many aspects. Theoretically, ERM intends to see the firm as a whole beyond disciplinary silos or boundaries. It includes the elements of human and market irrationality in the hard measures of risk. This introduces the complexities in ERM researches. Indeed, the ultimate objective of the [financial] firms is to make profit, which in modern terminology called 'value'. From the perspective of finance theories, every action of the management should be aligned with this overriding objective (i.e., maximization of shareholder value). ERM is not an exception. A research was carried out with four major European insurers to see how they demonstrate the value of their ERM. The results indicate that although their conceptual understanding on ERM is somehow consistent, the best practice of ERM is yet to evolve. However, one of the key cornerstones of ERM is the economic capital, which theoretically reflects the total [economic] risk of the firm. The research finds that the demonstration of value of ERM is complex since its close association with the corporate [finance] functions. Every corporate action involves risk and it is difficult to separate risk management from the management of business either in part or as a whole. Consequently, the study concluded that the value of ERM is integrated with the value of the entire firm. Alternatively, the performance of ERM should be evaluated with the performance of the entire firm. The study also revealed that a well designed ERM can not guarantee the success of the firm. This is because ERM is a system which includes policies, processes, and arrangements embedded at all parts of the firm. These are heavily exposed to the strength of appropriate human actions. If the firm does not have adequate expertise, intelligence and importantly the willingness to enforce ERM, it may not demonstrate the expected value. Academically speaking, the ERM is truly a multidisciplinary subject which includes the integration of the knowledge from financial economics and strategic management. Practically, ERM needs the aggregation of the techniques of corporate finance and corporate governance. Indeed, the ERM practicing firms enjoy some short-term benefits which are often awarded by third parties such as recognition of regulators (e.g., Solvency or Risk Based Capital) and rating agencies (e.g., superior financial ratings). However, the long term benefits of ERM are mostly intangible (e.g., reputation). Finally, ERM is to achieve the corporate objectives of individual firms. Posted by Madhu Acharyya at 06:28 AM | Comments (2) About Madhu AcharyyaI am particularly interested on the innovative research on Enterprise Risk Management in the financial services comprising of a wide range of topics in relation to economical, organizational, political and environmental issues. I have completed PhD in Enterprise Risk Management in the insurance industry from the University of Southampton in 2006. This award winning research conducted an inductive study on the understanding, evolution, structure, challenges of implementation, and performance of Enterprise Risk Management (ERM) in the insurance industry. The data were collected from four major insurance companies located in Switzerland, Italy and United Kingdom (including 68 interviews) comprising of a wide range of professions i.e., actuaries, finance managers, auditors, risk officers, underwriters, accountants, HR managers, investment officers, and so on. The opinions and arguments of industry managers were then communicated to a range of risk experts, i.e., consultants, financial regulators, academics, rating agency people (through face-to-face and telephone discussions) to receive their comments and feedback. A conceptual framework along with the emerging issues of ERM was proposed. Although the study concentrated on the ERM for insurance industry, the output can be adopted both in the financial and non-financial sectors with necessary modifications or adjustments. The key motivation of the research (at least from an academic perspective) is to identify and demonstrate the gaps of understanding and conceptualizing the economical, political, organizational, and environmental dimensions of risk across disciplines (i.e., business and economics including management, finance & accounting, psychology and sociology). The study has won an international award titled "SHIN Research Excellence Award" presented jointly by the Geneva Association and International Insurance Society in 2006 worth $10,000. Several research papers have been prepared on the basis of the study and two of them have already been published (please see below). In addition, a chapter is under preparation for a book titled "New Frontiers in Risk Management" by Springer. It is important to mention that my academic career has followed a long industry experience where I worked for an insurance company in Bangladesh from mid 1991 to mid 2000. Posted by Madhu Acharyya at 06:26 AM | Comments (2) |
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