chapter 3 s(1)

7/23/2019 Chapter 3 s(1)

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Chapter 3

Introductionto Risk

Management

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3-2

Accident 1

• April 2010

On April 5, the Massey Energy-owned Upper Big Branchmine in Montcoal, West Virginia, exploded, illing !" o# the$% miners at the site& 'he accident, the worst in the United(tates since )ent*cy+s inley oal ompany disaster in%"./, was 0lamed on high le1els o# methane, which ca*sedthe explosion a#ter a spar was generated #rom the mine+smantrip, the sh*ttle *sed to transport worers thro*gh themine& 'he tragedy 0ro*ght to light Massey+s trac o# sa#ety1iolations and #atalities& 2n !//", Massey Energy was #ined 3$4!,/// #or serio*s 1iolations, some in re#erence toimproper 1entilation& 2n the month 0e#ore the explosion,a*thorities cited the mine #or 5. sa#ety in#ractions, and theday 0e#ore the explosion, the mine recei1ed two additional

citations& 'he Upper Big Branch coal mine disaster p*t acritical spotlight on the inade*acies o# worer sa#ety inU&(& mines&

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3-3

Accident 2

• May 20106*st 0e#ore midnight on May 4, an explosionocc*rred at 7*ssia+s largest *ndergro*nd coalmine near )emero1o O0last, d*e to a 0*ild*p o#

methane gas& 'he mine, owned 0y 7*ssian coalcompany 7aspadsaya, had a history o# sa#ety1iolations and deaths& 2n March !//%, a methaneexplosion illed #o*r miners and in8*red six, and in

6an*ary !/%/ one worer was illed a#ter a partialmine collapse& 'he most recent explosion illed 99:::::::

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3-4

Accident 3, 4…

• August 2010

;art o# the (an 6ose copper<gold mine near opiapo, hile,collapsed on A*g*st 5, lea1ing $$ miners trapped !,$// #eet0elow gro*nd #or 9" days& 'he mine, owned 0y ompaniaMinera (an Este0an, had a history o# insta0ility andaccidents, incl*ding one death& Between !//= and !/%/, thecompany recei1ed =! #ines #or 0reaching sa#ety reg*lations::&&

• cto!er 2010On Octo0er %9, $. men were illed in an explosion ca*sed0y a gas lea at a coal mine located in hina+s >enan;ro1ince&

• http?<<www&rmmag&com@ote? the recent one occ*rred in May !/%= in '*rey

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3-5

Recent case?UB( trader Ado0oli held o1er 3!0n loss

• "#$ has 0ecome the latest 0an to experience arog*e trading scandal as it re1ealed that a $%-year-old trader had 0een arrested in ondon ons*spicion o# 0lowing a 3!0n hole in its 0oos,

exactly three years a#ter ehman Brotherscollapsed

• UB( warned that the disco1ery which drewparallels with the C=&"0n D39&40n hit ca*sed to

(ociFtF GFnFrale 0y 6FrHme )er1iel in !//4 co*ld p*sh the gro*p into a loss #or the third*arter

• (eptem0er %5, !/%% "?$5 pm '&com&

Note: UBS 2014second-quarter profit before tax CHF 1.2 billion (about $1.3billion)

http://markets.ft.com/tearsheets/performance.asp?s=ch:UBSN

http://markets.ft.com/tearsheets/performance.asp?s=ch:UBSN

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3-6

%& said

• 'he re1elation that a trader in IJelta OneK an area o#deri1ati1e trading acti1ity that is one o# the onlyremaining ways #or 0ans to tae 0ig 0ets with theirown money co*ld ca*se s*ch a catastrophic loss hasprompted calls #or #resh restrictions on in1estment

0ans&• IManagement doesnLt *nderstand whatLs going on in

the Jelta One dess,K said 'erry (mith, chie# exec*ti1eo# '*llett ;re0on, the interdealer 0roer& I2# yo* satdown with a EO and ased them to please explainwhat happens they wo*ld try 0*t they co*ldnLt gi1e yo*an acc*rate answer 0eca*se they donLt *nderstand&K

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3-7

'hy these types o( serious accident keepon happening) 'hat do you think)

• 2s there any ris management, apart #romthe iss*es o# sa#ety

• 'oo expensi1e #or ris management or they

8*st ignore it• (a#ety preca*tion costs o*tweighed

expected losses in monetary term 6*dge earned >and+s r*les DB; #orm*la to 0e

co1ered in the ;into case

etLs loo at 'he ord ;into ase&

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3-8

Agenda

• Meaning o# 7is Management

• O08ecti1es o# 7is Management

• (teps in the 7is Management ;rocess

• Bene#its o# 7is Management

• ;ersonal 7is Management

utcomes

• Understand the processes and techni*es*sed to deal with di##erent types o# ris

• Apply r*les to the ;into case

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3-9

Meaning o( Risk Management

• 7is Management is a process that identi#ies lossexpos*res #aced 0y an organiNation and selects themost appropriate techni*es #or treating s*chexpos*res

• A is any sit*ation or circ*mstance inwhich a loss is possi0le, regardless o# whether aloss occ*rs

E&g&, a plant that may 0e damaged 0y an

earth*ae, or an a*tomo0ile that may 0edamaged in a collision

• @ew #orms o# ris management consider 0oth p*reand spec*lati1e loss expos*res

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!*ecti+es o( Risk Management

• 7is management has o08ecti1es 0e#oreand a#ter a loss occ*rs

• ;re-loss o08ecti1es?

;repare #or potential losses in the mosteconomical way

7ed*ce anxiety Dminers are doing it

Meet any legal o0ligations

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3-11

!*ecti+es o( Risk Management

• ;ost-loss o08ecti1es?

MinimiNe the e##ects that a loss will ha1e onother persons and on society

Costa Concodia,

Italian cruise ship sinking

14 Jan. 2012,http://www.dailymail.co.uk

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3-12

Can # sur+i+e the oil spill) Can its C-)./une 2010

• B;+s share price down 0y near =/P since the April !/thaccident&• Both Moody+s and itch ha1e downgraded their rating o#

B;+s 0onds, with lower ratings #orcing B; to pay ahigher rate o# interest to #inance pro8ects&

• B; says it+s already spent o1er 3% 0illion on the spill&

• ine? *ncertainty a0o*t what the clean*p, the #ines, thelaws*its and p*niti1e #ine #rom the #ederal go1ernment*ltimately will cost

• the damage to the corporate image&

• 2n1estorsL di1idend Daro*nd 3%/ 0illion<E##ects on theen1ironment&

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3-13

Re(erences

-'he %"4" Exxon ValdeN spill Docc*rred in ;rinceWilliam (o*nd, Alasa, which e1ent*ally costExxonMo0il 3=&5 0illion, incl*ding clean-*p costs,legal settlements and p*niti1e damages&

-Ji1idend? a0o*t 3%/ 0illion

-B; will generate a0o*t 3!5 0illion to 3$= 0illionoperating income in year !/%/, depending on oilprices ranging #rom 39/ per 0arrel to 34/ per

0arrel&

Would you do insurance based on above figures?

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3-14

Rising estimations

• BP Spill Costs Raised to $33 Billion,

• BP has spent $3.1 billion so far on containment efforts, cleanup andlegal claims. – Bloomberg, ul !, "#1#

• BPs clean%up costs for the &ulf of 'e(ico ha)e no* reached $+.1bn

– he elegraph, 1# -ug "#1# ,• B mid%September, the response effort alone, e(cluding damages

claims, had cost BP $! billion. – Reuters, /ec 1, "#1#

• BP has lifted its estimate of the li0el cost of the &ulf of 'e(ico oil

spill to $# billion, – #"21121# http22***.eurone*s.net

Is it big enough to destroy BP? If not then…

http://www.euronews.net/

http://www.euronews.net/

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3-15

Risk Management rocess

• 2denti#y potential losses

• Meas*re and analyNe the loss expos*res

• (elect the appropriate com0ination o#techni*es #or treating the loss expos*res

• 2mplement and monitor the rismanagement program

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3-16

-hi!it 31 (teps in the 7is Management;rocess

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3-17

Identi(ying oss -posures

• ;roperty loss expos*res

• ia0ility loss expos*res

• B*siness income loss expos*res

Jirect Q indirect• >*man reso*rces loss expos*res

• rime loss expos*res

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3-18

Identi(ying oss -posures contd

• Employee 0ene#it loss expos*res E&g& ail*re to 7etirement plan expos*res lie large corps& not

eno*gh #*nd #or pension• oreign loss expos*res

Exchange rate riss )idnapping o# ey personnel ;olitical riss or terrorism

• 2ntangi0le property loss expos*res

Jamages to R so#tware ormo1ie ind*stry Jamages o# company image

Boeing reported strong fourth-quarter results on Wednesday but forecast

lower-than-expected profits for 2012 because of rising pension costs and…Januar 25 2012 The New York Times

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3-19

&ypes o( Risk -posure in practice

• >a1e a *ic loo at

I2nd*stry ris report a*to man*#act*ring

7is Q 2ns*rance&htmK

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3-21

Identi(ying oss -posures contd

• ail*re to comply with go1ernment r*les andreg*lations

A 7*ssian co*rt con1icted Mihail B&)hodoro1sy, the em0attled tycoon and #o*nder

o# the S*os oil company, o# criminal charges todayand sentenced him to nine years in a prison camp

Mr& )hodoro1sy, =%, who had 0een the wealthiestman in 7*ssia *ntil he p*0licly challenged;resident Vladimir V& ;*tin, was #o*nd g*ilty o# six

charges, incl*ding #ra*d and tax e1asion& D&6&hi1ers and Erin Ar1edl*nd , @ew Sor 'imes May$%st, !//5 http?<<www&corpwatch&org

http://www.corpwatch.org/

http://www.corpwatch.org/

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3-22

Identi(ying oss -posures

• 7is Managers ha1e se1eral so*rces o# in#ormation to

identi#y loss expos*res? T*estionnaires ;hysical inspection lowcharts

• show prod*ction #low to identi#y potential loss

expos*re e&g& the 2 chips o# mo0ile phone may o#high demand Dsee the case next slide

inancial statements

>istorical loss data

• 2nd*stry trends and maret changes can create newloss expos*res& e&g&,

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3-23

5our eadership Approach Must Anticipate Crisis%e! 10, 2006

• -arly Recognition Can 7eep Crisis %rom #ecoming

Chaos• As reported in the Wall (treet 6o*rnal, the re1ersal o##ort*nes started with a lightning strie at a semicond*ctorplan owned 0y ;hilips Electronics& &he resulting (ire 8asout in ten minutes, !ut its market9changingdisrupti+e conse:uences to ;okia and -ricsson 8ere

not apparent (or 8eeks to come Both @oia andEricsson depended on the same chip prod*ced 0y theplant, 0*t @oia prospered while Ericssons*##ered tremendously & 2n #act, Ericsson ended *ppermanently sh*ttering its cell phone man*#act*ring andrelying *pon s*0contractors&

• 'he di##erence in 0*siness o*tcome can 0e attri0*ted tothe leadership c*lt*re di##erences 0etween the twocompanies& @oiaLs c*lt*re promoted #lexi0ility thro*ghopen and rapid comm*nication inside and o*tside thecompany& EricssonLs c*lt*re #ostered complacency andrigidity&

http://garybclayton.com/leadership/2009/02/crisis-chaos-leadership-approach-2/



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3-24

5our eadership Approach Must Anticipate Crisis

• @oia was alert #or emerging pro0lems, with aphilosophy o# IWe enco*rage 0ad news to tra1el #ast&We donLt want to hide pro0lems&K @oia noticedchanges to its s*pply stream within .! ho*rs o# the#ire and *icly ele1ated its awareness to the head o#

the di1ision& When the enormity o# the disr*ption0ecame apparent 8*st two wees later Dchipprod*ction disr*pted #or an *nnown time into the#*t*re, @oia assem0led a crisis management teamand immediately sw*ng into action& 'he team created

alternati1e designs to eliminate the part in someprod*cts and wored acti1ely with ;hilips to createemergency so*rcing #or the component&




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3-25

Measure and Analy<e oss -posures

• Estimate the #re*ency and se1erity o# loss #or eachtype o# loss expos*re

oss re#ers to the pro0a0le n*m0er o#losses that may occ*r d*ring some gi1en time period

oss re#ers to the pro0a0le siNe o# thelosses that may occ*r

• Once loss expos*res are analyNed, they can 0e ranedaccording to their relati1e importance

• oss se1erity is more important than loss #re*ency?

'he maxim*m possi0le loss is the worst loss thatco*ld happen to the #irm d*ring its li#etime

'he pro0a0le maxim*m loss is the worst loss that islikely to happen

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3-26

Qualitative Quantitative• 4er high

• Catastrophic

• 5umber of /eath 1%1#

• 6oss 7 $1# billion

•

8igh• Critical

•……

• 'edium

•

Serious

Example: Estimating Probability and Severity

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3-27

$elect the Appropriate Com!ination o(&echni:ues (or &reating the oss -posures

• 7is control re#ers to techni*es that red*ce the#re*ency and se1erity o# losses

• Methods o# ris control incl*de?

A1oidance oss pre1ention

oss red*ction

• A1oidance means a certain loss expos*re is ne1er

ac*ired, or an existing loss expos*re is a0andoned 'he chance o# loss is red*ced to Nero

2t is not always possi0le, or practical, to a1oid alllosses

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3-28

$elect the Appropriate Com!ination o(&echni:ues (or &reating the oss -posures

oss pre1ention re#ers to meas*res thatred*ce the #re*ency o# a partic*lar loss

• e&g&, installing sa#ety #eat*res onhaNardo*s prod*cts

oss red*ction re#ers to meas*res that red*cethe se1erity o# a loss a#ter is occ*rs

• e&g&, installing an a*tomatic sprinlersystem

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3-29

$elect the Appropriate Risk Management&echni:ue

• 7is #inancing re#ers to techni*es thatpro1ide #or the #*nding o# losses

• Methods o# ris #inancing incl*de? 7etention

@on-ins*rance 'rans#ers

ommercial 2ns*rance

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3-30

Risk %inancing Methods= Retention

• 7etention means that the #irm retains part or all o#

the losses that can res*lt #rom a gi1en loss 7etention is e##ecti1ely *sed when?

'he retention le1el is the dollar amo*nt o# lossesthat the #irm will retain• A #inancially strong #irm can ha1e a higher

retention le1el than a #inancially wea #irm• 'he maxim*m retention may 0e calc*lated as apercentage o# the #irmLs net woring capital

The loss of BP is estimated to be in billions. It can only

receive at most millions from its captive, BP “keeps” most of the

losses to herself.

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3-31


A ris manager has se1eral methods #or payingretained losses?

• *rrent net income? losses are treated asc*rrent expenses

• Un#*nded reser1e? losses are ded*cted #roma 0ooeeping acco*nt

• *nded reser1e? losses are ded*cted #rom ali*id #*nd

• redit line? #*nds are 0orrowed to pay lossesas they occ*r

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3-32


• A capti1e ins*rer is an ins*rer owned 0y a parent #irm #or thep*rpose o# ins*ring the parent #irmLs loss expos*res

A single-parent capti1e is owned 0y only one parent An association or gro*p capti1e is an ins*rer owned 0y

se1eral parents Many capti1es are located in the ari00ean 0eca*se the

reg*latory en1ironment is #a1ora0le apti1es are #ormed #or se1eral reasons, incl*ding?

• 'he parent #irm may ha1e di##ic*lty o0taining ins*rance• 'o tae ad1antage o# a #a1ora0le reg*latory en1ironment• osts may 0e lower than p*rchasing commercial ins*rance• A capti1e ins*rer has easier access to a reins*rer• A capti1e ins*rer can 0ecome a so*rce o# pro#it

;remi*ms paid to a capti1e may 0e tax-ded*cti0le *ndercertain conditions

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3-33

etroChina .00>?@ to in+est 3# in capti+einsurance /B , 0? /an 2012 In(ocast

• ;etrohina D//45. anno*nced that it has agreed withits controlling shareholder, hina @ational ;etrole*morporation D@;, on the esta0lishment o# @;apti1e 2ns*rance ompany imited, a capti1eins*rance company, that has a registered capital o#

7MB5 0illion D>)39&%$5 0illion&

'he 6V company wo*ld 0e held as to 5%P 0y @; and="P 0y ;etrohina and its registered capital will 0econtri0*ted as to 7MB!&55 0illion D>)3$&%!" 0illion 0y

@; and 7MB!&=5 0illion D>)3$&//9 0illion 0y;etrohina&

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3-34

etroChina .00>?@ to in+est 3# in capti+einsurance /B 0? /an 2012 In(ocast contd

• 2t is proposed that the 6V company sho*ld principallyengage in property ins*rance, lia0ility ins*rance, creditins*rance, g*arantee ins*rance, short term healthins*rance, accident ins*rance, the reins*rance o# thoseins*rance 0*sinesses and the *se o# ins*rance #*nds&

;etrohina said that it decided to set *p the 6V company#or the p*rpose o# satis#ying its ris managementre*irements o# highly risy and o1erseas pro8ects,reasona0ly mitigating its operational riss, 0alancing the

0*siness ins*rance costs, impro1ing its a0ility to withstandthe riss, and ens*ring the ins*rance en#orcement e##ecta#ter the occ*rrence o# certain co1ered incidents&

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3-35

R-A$;$ %R &- %RMA&I; % &- /I;&

B-;&"R- CMA;5

Due to the feature of high risks and speciality in the petroleum

industry, the normal business insurance cannot cover all businessoperations of the Company at the current stage. For the purpose of

satisfying its risk management requirements of highly risky and

overseas projects, reasonably mitigating its operational risks,

balancing the business insurance costs, improving its ability towithstand the risks, and ensuring the insurance enforcement effect

after the occurrence of certain covered incidents, the Company

decides to set up the Joint Venture Company and the detailed

reasons are as follows:

(a) the formation of the Joint Venture Company is helpful toprovide more comprehensive,

safer and more efficient insurance services for the Company and its

subsidiaries;

htt ://www.hkexnews.hk/listedco/listconews/sehk/2012/0104/LTN201201041173. df

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3-36

• D0 the #ormation o# the 6oint Vent*re ompany is a0le to steadily

s*pport the segmental• operations and o1erseas 0*sinesses o# the ompany which

increases its o1erall

• capa0ilities to react to rissR

• Dc the #ormation o# the 6oint Vent*re ompany is a0le to sa1e thetotal ins*rance costs o# the ompany which will decrease operationcostsR and

• Dd the #ormation o# the 6oint Vent*re ompany is help#*l #or theompany to acc*m*late

• experiences to withstand the riss, to 0roaden the channel o#reins*rance, and to *pgrade

• its specialised ris management operations which will #inallymaximise the shareholders+

• interests o# the ompany as a whole&

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3-37

Captive Insurance Domiciles Worldwide

Domiciles Number

Bermuda 1150

Cayman Islands 694

ermont 5!4

"uernsey 410

Britis# ir$in Islands %50

Barbados !5&

'u(embour$ !19

Dublin !14

)otal 4*4!

Source: Business Insurance - 2005 captive spotlight (please update

the figures )

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3-38

Number o+ Captive Insurance ,wned by Countries

-arent Country Number

./ %4*5

n$land 465

Canada 145

/weden 10*

rance 9&"ermany 5%

Net#erland 59

/wit2erland 5&

3on$ on$ 1!apan 65

C#inese ainland 1

Source: Business Insurance -2005 captive spotlight

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3-39

Capti+e

• 2n !//", glo0al capti1e n*m0ers reaching5,$"/

• new #ormations totaled $=5 in !//"

• (ingapore and >ong )ong, the minim*mregistered capital o# esta0lishing a capti1e

is (3/&=m and >)3!m respecti1ely• hina? 7MB!//m

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3-40


• (el#-ins*rance is a special #orm o# planned retention

;art or all o# a gi1en loss expos*re is retained 0y the #irm Another name #or sel#-ins*rance is sel#-#*nding Widely *sed #or worers compensation and gro*p health

0ene#its• A ris retention gro*p is a gro*p capti1e that can write any type

o# lia0ility co1erage except employer lia0ility, worers

compensation, and personal lines ederal reg*lation allows employers, trade gro*ps,go1ernmental *nits, and other parties to #orm ris retentiongro*ps

'hey are exempt #rom many state ins*rance laws c*rrent law? restricts a commercial ins*red to o0taining only

lia0ility co1erage #rom a ris retention gro*p the I7is 7etention ModerniNation Act o# !/%/ DActL,K thelegislation sees to expand the a*thority o# ris retention gro*ps towrite commercial property ins*rance co1erage, in addition to theirc*rrent a*thority to write lia0ility co1erage&

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3-41

Risk retention group= !ackground

• 'he ederal ;rod*ct ia0ility and 7is7etention Act o# %"4% D77A, modi#ied in%"49, created another #orm o# capti1e? the

ris retention gro*p&• 'he original goal? to pro1ide a maret #or

ins*rance #or man*#act*rers to o##er relie##rom crippling litigation against prod*cts

they prod*ced, 0*t which may ha1e 0eenmis*sed, modi#ied, etc&

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3-42


Ad1antages

(a1e on loss costs

(a1e on expenses

Enco*rage losspre1ention

2ncrease cash #low

Jisad1antages

;ossi0le higherlosses

;ossi0le higherexpenses

;ossi0le higher

taxes

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3-43

Risk %inancing Methods= ;on9insurance&rans(ers

• A non-ins*rance trans#er is a method other thanins*rance 0y which a p*re ris and its potential#inancial conse*ences are trans#erred to anotherparty

Examples incl*de?

• ontracts, leases, hold-harmless agreements

(*0contractor might 0e responsi0le #ordamages ca*sed d*ring constr*ction

;hysical losses o# photocopier are 0orne0y leasing company

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3-44

Risk %inancing Methods= ;on9insurance&rans(ers

Ad1antages

an trans#er somelosses that are not

ins*ra0le (a1e money

• ess expensi1ethan ins*rance

an trans#er lossto someone who isin a 0etter positionto control losses

Jisad1antages

ontract lang*agemay 0e am0ig*o*s,so trans#er may #ail

2# the other party#ails to pay, #irm isstill responsi0le #orthe loss

2ns*rers may notgi1e credit #ortrans#ers

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3-45

Risk %inancing Methods= Insurance

• 2ns*rance is appropriate #or loss expos*res that ha1e a lowpro0a0ility o# loss 0*t #or which the se1erity o# loss is high

'he ris manager selects the co1erages needed, andpolicy pro1isions?

• A ded*cti0le is a pro1ision 0y which a speci#ied

amo*nt is s*0tracted #rom the loss paymentotherwise paya0le to the ins*red

• An excess ins*rance policy is one in which the ins*rerdoes not participate in the loss *ntil the act*al lossexceeds the amo*nt a #irm has decided to retain

'he ris manager selects the ins*rer, or ins*rers, topro1ide the co1erages

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3-46


'he ris manager negotiates the terms o# the ins*rance

contract• A man*script policy is a policy specially tailored #or the

#irm

ang*age in the policy m*st 0e clear to 0othparties

• 'he parties m*st agree on the contract pro1isions,endorsements, #orms, and premi*ms

;olicy orm? gi1es yo* in#ormation a0o*t yo*rpolicy co1erages, terms and limitations&

Endorsements? may contain in#ormation a0o*t

optional co1erages

'he ris manager m*st periodically re1iew the ins*ranceprogram

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3-47


Ad1antages

irm is indemni#ied#or losses

Uncertainty isred*ced

2ns*rers may pro1ideother ris

managementser1ices

;remi*ms are tax-ded*cti0le

Jisad1antages

;remi*ms may 0ecostly

• Opport*nity costsho*ld 0econsidered

@egotiation o#contracts taes time

and e##ort 'he ris managermay 0ecome lax inexercising losscontrol

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3-48

-hi!it 32 7is Management Matrix

You might want to compare the techniques mentioned above

with those employed by BP.

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3-49

Market Conditions and the $election o(Risk Management &echni:ues

• 7is managers may ha1e to modi#y their choice o#techni*es depending on maret conditions in theins*rance marets

• 'he ins*rance maret experiences an *nderwriting

cycle 2n a maret, when pro#ita0ility is

declining, *nderwriting standards are tightened,premi*ms increase, and ins*rance 0ecomes more

di##ic*lt to o0tain 2n a maret, when pro#ita0ility is

impro1ing, standards are loosened, premi*msdecline, and ins*rance 0ecome easier to o0tain

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3-50

Implement and Monitor the RiskManagement rogram

• 2mplementation o# a ris management program0egins with a ris management policy statementthat? O*tlines the #irmLs ris management o08ecti1es

O*tlines the #irmLs policy on loss control top-le1el exec*ti1es in regard to the ris

management process Gi1es the ris manager greater a*thority ;ro1ides standards #or 8*dging the ris managerLs

per#ormance• A ris management man*al may 0e *sed to?

Jescri0e the ris management program 'rain new employees

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3-51

Implement and Monitor the RiskManagement rogram

• A s*ccess#*l ris management programre*ires acti1e cooperation #rom otherdepartments in the #irm

• 'he ris management program sho*ld 0eperiodically re1iewed and e1al*ated todetermine whether the o08ecti1es are 0eingattained 'he ris manager sho*ld compare the costs and

0ene#its o# all ris management acti1ities

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3-52

#ene(its o( Risk Management

• ;re-loss and post-loss o08ecti1es are attaina0le

• A ris management program can red*ce a #irmLs cost o#ris

'he cost o# ris incl*des premi*ms paid, retainedlosses, o*tside ris management ser1ices, #inancialg*arantees, internal administrati1e costs, taxes, #ees,and other expenses

• 7ed*ction in p*re loss expos*res allows a #irm to enact

an enterprise ris management program to treat 0othp*re and spec*lati1e loss expos*res

• (ociety 0ene#its 0eca*se 0oth direct and indirect lossesare red*ced

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3-53

Insight (how Me the Money7is Manager (alaries7ise

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3-54

ersonal Risk Management

• ;ersonal ris management re#ers to theidenti#ication o# p*re riss #aced 0y anindi1id*al or #amily, and to the selection o#

the most appropriate techni*e #or treatings*ch riss

• 'he same principles applied to corporateris management apply to personal ris

management

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3-55

-ample in Risk Management .re(

• RI$7 MA;AD-M-;&• 'he Gro*p DIWeK are de1eloping an impro1ed #ramewor #or the

management and control o# ris in the Gro*p&• 7iss are in the process o# 0eing more #ormally identi#ied and

recorded in the 7is 7egister #or ey operations, and we aree1al*ating the inherent riss and resid*al riss a#ter mitigating

controls are considered& 'he 7is 7egister will 0e *pdated reg*larlyand *sed to plan the Gro*pLs a*dit and ris strategy& (peci#ic rissthat we proacti1ely manage are detailed 0elow?

• $&RA&-DIC RI$7• We di##erentiate o*r prod*cts primarily thro*gh technology and

inno1ation, and 0y 0eing the sa#e choice #or o*r c*stomers&• We acti1ely #oc*s on inno1ation in technology and prod*ct design&

'his leads to competiti1e ad1antage in marets which arecharacteriNed 0y constant de1elopments in technology, changes inind*stry standards and contin*ing demand #or prod*ct and ser1iceenhancements&

Source: Annual Report 2010, Johnson Electric Holdings Limited

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3-56

-ample in Risk Management

• -RA&I;A RI$7

• We contin*e to de1elop high *alityengineering and man*#act*ring processes

across o*r operations which ena0le *s tominimiNe the ris o# warranty claims&

• We acti1ely see to attract and retain highcali0re management and ey personnel 0y

0*ilding e##ecti1e networs o# eyemployees and partners to sa#eg*ard o*rongoing 0*siness s*ccess&


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3-57

-ample in Risk Management

• MA;AD-M-;&$ EI$C"$$I; A;E A;A5$I$%I;A;CIA RI$7

• We control woring capital and the ris o# 0adde0ts 0y care#*lly e1al*ating credit ris with o*rc*stomers and a low tolerance #or delin*entpayment& We contin*e to monitor o*r recei1a0lescare#*lly as the economic reco1ery contin*es&

• CMIA;C- RI$7• We manage compliance with taxation reg*lations

world-wide thro*gh o*r orporate 'ax departmentwhich also ens*res that o*r legal and tax str*ct*reoptimiNes tax lia0ilities within the constraints set0y tax reg*lations and laws&


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Risk Register or risk log

RiskCategory

RiskName

RiskNumber

Probability ImpactRiskScore

Mitigation ContingencyAction

By

5ature 9ire

chapter 3 s(1)

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