Presentation on theme: "The Enterprise in Enterprise Risk Management A Case Study CAS Special Interest Seminar Understanding the Enterprise Risk Management Process."— Presentation transcript:
The Enterprise in Enterprise Risk Management A Case Study CAS Special Interest Seminar Understanding the Enterprise Risk Management Process
Case Study - ABC Corporation Based on composite and rescaled individual data, industry information, recent press releases and some pure “guestimates” Quantify risks individually and aggregate Measure “untreated” earnings impact Quantify the impact of the “portfolio effect” on aggregate risk
ABC Corporation -Assumptions Market Cap = $42.8 Billion Net Income = $5.45 Billion (ttm) EPS = $4.72 (ttm); Share Price = $38.12 Effective Tax Rate = 35% Protect against the “1 in 100 year event” Exposures can be transferred at pretax nominal cost (expenses offset PV factor)
ABC Corporation - Implications To protect against earnings volatility at the “1 in 100 year” level on a pretax basis: –finance $11.2 B if risks treated individually; –finance $3.6 B if risks treated as a portfolio. Risk finance cost difference of $76 Million. –$0.04 in after-tax EPS. –Almost $400 M in market capitalization at current P/E multiple.
ABC Corporation - Caveats Not all risks to Net Income are included. –WC, cargo, etc. due to lack of data; –general economic risks - interest rates, etc. “Portfolio Effect” potentially overstated –not all correlations reflected (warranty, recall and product liability, for example); –companies may look at some risks in portfolios (integrated insurance programs, combined aggregate excess programs, etc.).