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Enterprise Risk Management Specialty Guide
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In its “Overview of Enterprise Risk Management,” the Casualty Actuarial Society describes Enterprise Risk Management as:
“...the discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risk from all sources for the purposes of increasing the organization’s short- and long-term value to its stakeholders.”
Similarly, COSO defines ERM as:
“...a process, affected by an entity’s board of directors, management and other personnel, applied in a strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity goals.”
The definitions are compared and contrasted, and ERM is differentiated from traditional risk management (RM). It is the holistic aspect of the enterprise that makes the difference—the contribution to the overall portfolio risk, rather than the risk associated with each individual investment.
Generally, the appropriate risk context is that of the entire enterprise. The enterprise view is consistent with the economic decisions facing the organization. If an insurance company is able to reduce risk, it will be able to reduce capital and hence, costs. A second reason supporting the enterprise context is that it aligns with stakeholders’ perspectives. An investor in an insurance company, like an investor in a particular mutual fund, is only concerned with the risk and return of the company in total.
With their technical backgrounds, actuaries are experts in quantifying insurance risk and by way of training are well positioned to quantify other types of risks and their interactions as well.