Enterprise Risk Management

Under Enterprise Risk Management, ERM abbreviated, refers to an enterprise-wide, holistic ( "holistic " ) approach to corporate management. Goal is to increase the company's value by entering the planned desired risk and securing the company's goals against disruptive events.

Description

The essential distinction to the traditional risk management consists in overcoming the silo thinking, in which individual risk categories or individual business units considered separately and treated. For example, while an investment policy can be considered as a risk management tool, it must make for a good ERM also the context of existing liabilities. Only the holistic perspective allows the identification and exploitation of diversification effects.

In addition, it comes with the ERM is not a short-sighted avoiding losses or plan sub- fulfillment, but it is used a modern, two-sided concept of risk, which includes in addition to the dangers and opportunities. This is in line with the ISO 31000 risk management, which defines risk as the " effect of uncertainty on objectives ". Similarly, flows into the ERM a consideration of emerging risks.

Goal of ERM is to enter into desired risks in a manner determined by the Board in the risk strategy extent, and reduce unwanted risks so as to take optimal for the company risk-return position. To this end, the company places within its risk tolerance ( eg given by the capital ) a risk appetite determined. A possible risk appetite statement is, for example, that a life insurance company mainly want to write contracts with longevity risk.

ERM is an extension and enhancement of the classical risk management, it also shows that companies are increasingly setting up the position of Chief Risk Officer. Another Professionaliserung is reflected in the use of internal capital models for calculation of the required solvency capital.

Conditions

In Germany, the Federal Financial Supervisory Authority Circular ( " MaRisk " ) has the minimum requirements for risk management for banks and Minimum Requirements for Risk Management ( " MaRisk " ) issued for insurance companies.

International ERM is strongly influenced by the requirements of the rating agencies. Standard & Poor's ERM explicitly introduced as a separate category of financial strength ratings 2005.

Since 2004 there is also an " Integrated Framework " to the ERM COSO.