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The meaning of ERM in Insurance

Comparing & Contrasting Few Definitions of ERM

„…… A comprehensive and integrated framework for managing credit risk, market risk, operational risk, economic capital, and risk transfer in order to maximise firm value” (Lam, 2003)

„……A process by which organizations in all industries assess, control, exploit, and finance and monitor risks from all sources (i.e. hazard, financial, operational and strategic) for the purpose of increasing the organization’s short and long term value to its stakeholders” (Casualty Actuarial Society, 2003)

„…… A process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise , designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement  of entity objectives” (COSO, 2004)

„…… ERM for insurers’ as the optimization of the dynamic relationship between risk and value throughout the insurance enterprise. It comprises : the development, implementation and monitoring of financial and operational strategies for assessing, mitigating, financing and exploiting financial and operational risk for the purpose of increasing enterprise value ” (Tillinghast - Towers Perrin , 2002)

„…… A process of defining all the risks that an organization faces and then building a framework to not only monitor and mitigate those risks but to use risk management to increase shareholder value” (PriceWaterhouseCoopers 2002)

Searching for an appropriate Definition of ERM for Insurance:
See An appropriate definition of ERM in Insurance in The S2 Executive Guide.

Working Definition of ERM for the RMA Approach

• ERM is a proactive approach of managing insurance companies „all risks” ;
• It is not merely a management tool or a process having different steps of risk management viz. risk assessment, risk measurements and risk management as seen in TRM;
• It is more likely a cultural and philosophical issue specific to any particular insurance organisation;
• From a multidisciplinary perspectives the overriding objectives of REM is to maximise the profit while protecting solvency of the organisation (i.e., bottom-line issues)at all time;
• In order to achieve this objective ERM works to introduce and maintain a common risk management understanding in holistic term throughout the organisation;
• ERM smooth out the volatile financial and operational results of insurance undertakings at all stages by utilizing organisation’s limited resource in the face of competitive market and uncertain economic environment.

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