Practical ERM Applications: Capital Allocation
- Topics:
- Enterprise Risk Management
- Tags:
- Allocation,
- Business Operations,
- Business Security,
- Business Segment,
- Enterprise Risk Management,
- ERM,
- International Risk Management Institute Inc.
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Overview: "Enterprise risk management" (ERM) for an insurance company has been defined as the optimization of the dynamic relationship between risk and value throughout the enterprise. The ERM process consists of the development, implementation, and monitoring of financial and operational strategies for assessing, mitigating, financing, and exploiting risks of all types for the purpose of increasing enterprise value. Enterprise value is increased by first establishing the minimum amount of capital to provide security to the policyholders, and then selecting business strategies that optimize— on a risk/reward basis— growth, return, and consistency for the benefit of the shareholders. Capital is attributed to business segment by adopting a common capital standard, and thus a common risk threshold, across all business segments. Capital requirements by business segment are then derived in the same manner as for the enterprise overall. A better way is to establish a common quantitative risk threshold across all business segments, and to use that threshold to determine segment capital requirements.
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Format: HTML | Date: Nov 2002 | Pages: 1
