Enterprise Risk Management Symposium Enterprise Risk Management Case

Enterprise Risk Management Symposium Enterprise Risk Management Case Studies – CS 5 Vinaya Sharma Allstate Financial July 30, 2003 1

Enterprise Risk Management Symposium Why Enterprise Risk Management • Provide company-wide scope/assessment to risk analysis which currently doesn’t exist • Present how a single relevant economic event affects the company • Reveal natural hedges and portfolio effects • Enhance capital allocation process • Clarify roles/responsibilities 2

Enterprise Risk Management Symposium Enterprise Risk Mgmt Approach • Analysis of significant risks – Aggregate information • Equity: VA, EIA, Unaffliated common stock, etc • Default: Private Placements, Inv Grade Corp Bonds, Real Estate, etc. – Establish Metrics • Not subject to manipulation • Understandable to the practitioner – Establish Tolerance • Internal considerations • External considerations – Establish scenarios and frequency of measurement – Risk Dashboard (Appendix 1) • Aggregate risks throughout Enterprise – Monthly Risk Report – Catalog of risks (Appendix 2) – Annual Risk Forum • ‘Point’ team on large events that impact the enterprise 3

Enterprise Risk Management Symposium Enterprise Risk Mgmt Successes • • Conduit of information Aggregation of exposure Increased discipline Broader understanding/measurement of risk 4

Enterprise Risk Management Symposium Enterprise Risk Mgmt Lessons • • • Turf issues (Appendix 3) Witch Hunts You only know what you are told Risk Mgmt is different to different people Senior Management buy-in is essential Quantifying ERM value can be difficult 5

Enterprise Risk Management Symposium Enterprise Risk Management Case Studies Enterprise Risk Management Symposium July 30, 2003 Appendices 6

Enterprise Risk Management Symposium Risk Colour Metric Acceptable Range ($millions) Current Measurement from expected ($millions) Equity ------ • STAT Income • $AA annual income variance • Stress Equity Scenario 1: ($--), • Capital Default Interest Rates ------ • $BB capital variance • Capital variance in Equity Scenario: ($--) • STAT Income • $DD annual income variance Stress Default Scenario: ($--) in Yr 1 • Capital > EE Capital: -- • STAT Income • $FF annual income variance • Interest Rates Up: ($--) • Interest Rates Down: ($--) • Capital > HH • Capital > -- 7

Enterprise Risk Management Symposium Catalog of Risks 8

Enterprise Risk Management Symposium Responsibility Template 9