Ferma Benchmark Survey 20012002

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Ferma Benchmark Survey 2001/2002

• "Risk Management Current State and New Trends"

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Table of contents

• Initial objectives
• Content of the survey
• Results How do they compare with America
• Background and company information
• Risk financing programs
• Risk management convergence
• Summary and further comments
• The world has changed
• Sudden increases and decreases in shareholder
  value

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Initial objectives

• Identify risk management best practices in Europe
• Benchmark current risk management practices
• Start building a benchmarking tool that will
  allow to track evolution in the application of
  enterprise risk management in Europe
• By proposing an European benchmark this survey
  aimed at providing a valuable tool to risk
  managers to benchmark and possibly upgrade their
  own organization

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Content of the survey

• Background information
• Identify who did respond to the survey
• Demographic and financial data
• Collect information on the activity and size of
  the respondents
• Risk financing program cost and structure
• Identify the main insurance programs in place
  with their level of self-insurance and limits
• For 2001
• Forecast for 2002

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Content of the survey (contd)

• Risk management convergence
• Risks that matter
• Structure and organization of the risk management
  department
• Enterprise-wide risk management project(s)
• Enterprise-wide risk management organization
• Crisis management organization
• Tools and procedures available to communicate on
  Risk Management
• General comments
• Allow respondents to add comments to improve
  future surveys

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Results How do they compare with America
2851 questionnaires sent 49 answers
received RIMS and Ernst Young conducted a
similar survey in North America 837
organizations in the USA and Canada responded !!!

• Does that mean that
• Risk managers are not interested in benchmarking
  their organization in Europe?
• European risk managers were not comfortable with
  disclosing information related to their
  organization?
• Information was not readily available?
• European risk managers are suffering from survey
  fatigue?

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Background information

• Responses came from
• Director Risks Insurance / Insurance Mgr 79
• Chief Financial Officer 8
• Other 13

• Responses per country

• United Kingdom 35
• France 19
• Belgium 12
• Germany 10
• Denmark 8

• Switzerland 6
• The Netherlands 4
• Greece 2
• Italy 2
• Spain 2

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Company information

• Responses received reflect
• All exposures of the company 75
• European exposures only 4
• Domestic exposures only 10,5
• Business line exposures only 10,5
• Industry represented
• Manufacturing, energy, chemical 37
• Retail, food industry, pharmaceutical 29
• Financial services, telecom, entertainment 19
• Other 15

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Risk financing programs

• Property Damage and Business Interruption
• 40 of the respondents have a Property Damage and
  Business Interruption premium in excess of M.5
  in 2002
• General and Products liability
• 26 of the respondents have a General and
  Products Liability premium in excess of M.3 in
  2002

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Risk financing programs
Property Damage and Business Interruption

• Average premium
• 2001 M.4,64
• 2002 M.7,14
• 54

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Risk financing programs
General and Product Liability

• Average premium
• 2001 M.2,25
• 2002 M.3,17
• 41

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Risk management convergence
Risks that matter

• Strategic risks
• Operational risks
• Financial risks
• Information and knowledge risks

Low impact
Not applicable
High impact
Moderate impact
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Risks that matter
Strategic risks
14
Risks that matter
Operational risks
15
Risks that matter
Financial risks
16
Risks that matter
Information and knowledge risks
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Risks that matter

• At least 70 of the respondents have considered
  the following risks as High or Moderate Impact
• Nearly all strategic risks
• Production process
• EDP integrity
• RD
• Human resources
• While at least 60 of the respondents have
  considered the following risks as Low Impact or
  Not Applicable
• E-Business
• Derivatives
• Knowledge database license

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Risks that matter

• Conclusion
• Nearly all strategic risks are considered as
  important
• Nearly no financial risks are considered as
  important
• Hot issues, like
• Rating agency downgrade
• Drop of share values
• Corporate governance (ethics, internal control,
  delegation of authority)
• are not among the most important risks

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Risk management convergence
Risk management organization
Desired reporting line
Current reporting line

• CEO / COO 6 31
• CFO 49 53
• Legal counsel 17 9
• Treasurer 9 0

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Risk management convergence
Areas of involvement

• Current Desired state
• Risk financing
• Insurance 98 92
• Claims 92 84
• Risk reduction
• Loss prevention 90 88
• Crisis management 61 82
• Corporate governance 51 67
• Sustainable development
• Corporate social responsibility 35 51
• Environment 45 61

Risk managers wish to be more involved in crisis
management, corporate governance and sustainable
development
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Risk management convergence
Enterprise-wide project

• Two respondents out of three appear to have an
  enterprise-wide project related to risk
  management
• Mainly (66) related to crisis management and
  business continuity planning
• Mostly (56) supervised by the CFO
• Driving forces are
• Improve risk identification and treatment
  efficiency
• Optimize costs and coverage
• Main steps involved
• Perform a risk mapping
• Review risk financing approach

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Risk management convergence
Risk management culture

• Governance
• 44 of the respondents have or plan to have a
  risk committee
• Crisis management
• 78 of the respondent have or plan to have a
  crisis management and business continuity
  planning
• Communication
• 75 of the respondents have indicated that the
  only support for communication related to risk
  management was through the company annual report

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Summary and further comments

• Financial risks are not at the top of the risk
  agenda of most of the risk managers
• The survey confirms a trend that shows that risk
  management departments are more and more
  supervised either by the CFO or the CEO/COO
• Most of the companies have an enterprise-wide
  project that aims at having a more holistic view
  on the risks. Most of the projects are related to
  crisis management and business continuity
  planning, which also confirms a trend that risk
  managers tend to be more involved in those two
  areas

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The world has changed
Top 10 risks

• Change management
• Human resources
• Integrity and security of information system
• Commodity price
• Information management

• Competition
• Market share
• Reputation, image,
• Development of new information systems
• Development of new technology

Based on a survey conducted by Ernst Young
France in July 2000. 364 answers, including 23
from CEO/COOs and 64 from CFOs Basically risk
managers are in line with what their management
thought in 2000Since then, the world has
changed and the media remind us, almost everyday,
that corporate governance should be at the top of
the risk agenda of all global organizations
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Sudden increases and decreases in shareholder
value
Value drivers of positive shifts
Value drivers of negative shifts

• Strategic alliances
• Successful execution of core business processes
• Investment in research and innovation

• Failure to adapt to the changing business
  environment
• Customer mismanagement
• Poor investors relations

Based on a study conducted by Ernst Young and
Oxford Metrica released in September 2002
Risks linked to poor investors relations
(noticeably driven by corporate governance)
appear to be one of the key elements identified
to explain sudden decreases in shareholder value