The CAS ERM Vision
By John J. Kollar, Vice President-ERM 

Uncertainty is common to all actuarial functions. Ideally, these functions are well coordinated so that risk is treated consistently and in an integrated fashion across your company. That is the objective of Enterprise Risk Management (ERM). The integrated, holistic treatment of risk in the ERM process can help you and your company reduce expenses, increase profits, and increase the company’s value. As an actuary, you will find that ERM is an excellent process by which to understand and be a part of the “big picture” of your company.

The CAS has recognized this, as reflected in the second half of the CAS Centennial Goal, “CAS members will advance their expertise in pricing, reserving, and capital modeling, and leverage their skills in risk analysis to become recognized as experts in the evaluation of enterprise risks, particularly for the property and casualty insurance industry.” What we are trying to say is that we are not abandoning our traditional roles of ratemaking and reserving—rather we are building on them—and that is an important distinction.

Recently, the CAS Board of Directors endorsed a more comprehensive and specific ERM Vision expressing the goal that CAS members will provide ERM services and have the skills and techniques to serve as chief risk officers and in other ERM roles.

So what is the CAS doing to help achieve this vision and the Centennial Goal? First, the board agreed that the CAS should participate in an initiative to develop a global ERM designation. However, to allow CAS more flexibility, the board stopped short of committing the CAS to support the final outcome. So far, eight actuarial organizations have expressed an interest in the designation, with another 12 organizations indicating they want to be supportive observers.

The board also approved release of the report titled, “Making the CAS an Exemplary Non-Profit ERM Organization by Developing Best Practices and an ERM Program.” This report was prepared by the CAS ERM Best Practices Implementation Task Force, chaired by Lee Smith, whose task was to develop and implement an ERM program for the CAS that reflects best practices.

The work of that task force generated the formation of the ERM for CAS Committee. This committee, chaired by Steve Johnston, is working to develop a risk management culture within the CAS and across all CAS functions. As an organization of professionals who deal with financial and other consequences of uncertain future events (risks and opportunities), the CAS should have an exemplary ERM program. This committee is working hard to get us there.

Risk management is a long-standing and evolving corporate function, and no one person or organization can know everything. So it makes sense for the CAS to cooperate with other professionals. Two groups we’re working with closely are the Risk Management Section and the ERM Institute International, or ERM-II for short.

A few years ago the board approved joint sponsorship of a Risk Management Section with the SOA, and now the CIA has become involved as well. The mission of the Risk Management Section is to advance the actuarial profession by assisting members of the Section with the educational, research, networking, and other specialized needs that arise in the risk management area of actuarial practice. The Section is similar to the existing CAS Special Interest Sections and it provides a vehicle for CAS members to learn about and contribute to risk management issues. CAS members are encouraged to join the Risk Management Section and take advantage of the opportunities it offers (to sign up, see http://www.casact.org/sections/rms/).

ERM-II is a nonprofit educational and research organization, initiated by an international group of universities and professional organizations. It focuses on education, research, and training within an ERM conceptual framework. The CAS is a founding member and has played a leading role in the formation and development of ERM-II. ERM-II is very active and welcomes the CAS membership involvement. Among many other activities, they recently held a research seminar in France, published the research project “Enterprise Risk Management for Property-Casualty Companies,” and jointly hosted the Columbia University research conference last year. Additionally, several ERM-II Board members will be participating in panels at the IAA meeting in New Zealand, and CAS Fellow Wayne Fisher serves as the executive director.

There are many ERM-related developments in the marketplace that suggest that ERM or greater focus on risk management is inevitable. For example:

• Rating agencies are considering insurer and reinsurer ERM programs in their financial strength rating process.
• The International Association of Insurance Supervisors (IAIS) is pursuing Solvency II for implementation in 2010 or 2011.
• In Canada, the Office of the Superintendent of Financial Institutions (OSFI) is planning to change to Solvency II-type criteria once it becomes operational in the European Union.
• Currently insurance companies in Mexico are required by law to have an independent ERM opinion that is presented to the regulator, the National Commission of Insurance and Surety (CNSF).   

These are just some of the recent developments that remind us how small the world is today and how it continues to shrink. International developments wash up on North American shores at e-mail speed. Obviously the CAS has to participate in relevant important issues, or we risk being stuck with whatever others decide.

While it will take years before many of the benefits of ERM are realized, the CAS should vigorously pursue ERM or improved risk management techniques so that our employers, our profession and our members are not at a competitive disadvantage in the marketplace. I encourage you to take advantage of the ERM sessions at CAS meetings, the annual ERM Symposium, and CAS-sponsored ERM online courses. As it says in the CAS’s ERM Vision document, “ERM still remains a vision with substantive problems yet to be solved. But these problems create opportunity for those who can solve them.”