Implementation and Uses of Economic Capital ... - ERM Symposium

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AIG’s Multi-Layered ERM Processes Credit Risk Management Market Risk Management Gen Ins. Risk Management Life Ins. Risk Management Op. Risk Management Liquidity Risk Management Each of the ERM functions focuses on systematic (non-diversifiable) risks Combination of centralized and decentralized processes that fit the business model Regional ERM hubs in North America, Asia and Europe Mature risk governance structure since early 90’s ERM does not compensate for, but rather builds on, profit center RM Extensive use of “stress scenarios” that cut through all risk types (e.g. Pandemics) AIG’s corporate philosophy has always encouraged full profit center accountability for risk management – ERM has built on this unique risk culture 3 3
ERM’s efforts “connect the dots” between each of the businesses’ silo risk management processes to maximize economic value for shareholders Within & Between Segments “Pyramid” Risk Governance Structures Three Pillar Approach ERM’s “Enterprise” - Wide Focus ERM’s focus has been on activities of an “aggregation” nature – e.g. economic capital, stress testing/catastrophic scenarios, consistent economic-based performance measurement, concentration risk management, reinsurance & risk mitigation (e.g. hedging) strategies, emerging risk management, etc. Commencing with the Board and its Committees (e.g. Finance and Audit); cascading down to the four business segments, the regional/management subdivisions, the functional risk management committees (e.g. loss reserves) and the legal entity/profit center risk committees ERM’s Pillar 1 capital requirement approach is centered around the ECM and quantification of risk capital ERM’s Pillar 2 supervisory review approach is guided by stress testing and the active dialogue with regulators and rating agencies ERM’s Pillar 3 market discipline approach is demonstrated by regular risk based disclosures in the Form 10-K and 10-Q supplements and the enhanced disclosures to investors through the AIG website (e.g. sub-prime presentation and ECM Initiative update) 4 4
Page 1 and 2: Use of Economic Capital for Perform
Page 3 and 4: Definition of Economic Capital (“
Page 5 and 6: Economic Capital is a more complete
Page 7 and 8: EC/ERM requires continually improvi
Page 9 and 10: The Executive Board defines Risk Ap
Page 11 and 12: Risk Dashboard provides an overview
Page 13 and 14: Example of EC approach within the R
Page 15 and 16: Concluding Remarks • ING has been
Page 17 and 18: Key technical elements of the EC me
Page 19 and 20: The rationale behind using a stress
Page 21 and 22: The key risks that financial servic
Page 23 and 24: Example of Stressing Key Risks: Equ
Page 25 and 26: Aggregating results across risks fo
Page 27 and 28: Linkage of EC with capital manageme
Page 29 and 30: Evolution of usage for capital mana
Page 31: It should be noted that this presen
Page 35 and 36: Rating Agencies Four major rating a
Page 37 and 38: Source: Citigroup Global Markets,
Page 39 and 40: European Insurers Report Increasing
Page 41 and 42: Economic Capital at AIG By focusing
Page 43 and 44: CRO Forum Recommendations Re EC Tim
Page 45 and 46: Assessment of Financial Strength of
Page 47 and 48: Economic Capital - the Importance o
Page 49 and 50: $BN 101.68 GAAP Shareholders' Equit
Page 51 and 52: $BN 25.0 20.0 15.0 10.0 5.0 0.0 AIG

Implementation and Uses of Economic Capital ... - ERM Symposium

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