1. Risks Influencing
the balance sheet
•1

2. Influence of Risk on your Balance sheet
 The Approach – the consulting perspective
 In Practice – the client perspective
 Impact on insurance costs – the insurer perspective
2

3. Aon
Risk Management
Influencing the
Balance Sheet
A consulting
perspective
Alex van den Doel
Managing Director
Aon Global Risk Consulting
•3

4. Deepwater Horizon accident
4

5. Financial Impact on BP
Share Price
Balance sheet:
 Liabilities + 32%
 15% of Assets to be sold
 Equity -6%
5

6. Risk Management and financial impact
Chemie-Pack (Moerdijk)



45 employees
EUR 7 m revenue
EUR 10 m Equity
Fire on January 5, 2011


Damage: EUR 71 million
Bankruptcy on August 25, 2011
6

7. The Upside of Risk Management!
7

8. Integrated Risk Management
Why?
•Return
•Risk
 Resilience – Protecting the downside:
 Shareholder value
 Financial objectives and covenants
 Reputation
•€
 High performance – Creating upside:
 Higher P/E ratio, higher predictability
 Higher risk maturity creates value
 Better decision making
 Cost Effective and Pragmatic
8

9. The IRM Approach – modular and pragmatic
Annual
Risk Rating
Stress test
Risk Maturity
Identify main risk areas from a financial
perspective
(QUICK SCAN)
Identify and quantify scenenario's
Identify the gaps between existing and
desired risk maturity levels
Risk Assessment
Identify and assess most significant
risks: strategic, operational, financial,
compliance
threatening financial objectives
Scenario analysis
Detailed analysis on the most severe
scenarios. Focus on supply chain
(Business Impact Analysis) and liability
risks
Risk Management
Implementation
Close the gaps with respect to the risk
maturity targets
Registering and Reporting
Record and monitor risk developments realtime andonline
Outsourcing
Risk management activities bij external resources
Assuring
Independently review risk management and financial measures
Risk Financing
Optimise the risk financing structure and programmes
Business Continuity Management
Optimise the risk financing structure and programmes
9

10. Integrated Risk Management - Results
10

11. Stress Test – approach
 What (extreme) scenarios can jeopardize your financial
objectives?
 Approach
 Define risk bearing capacity
 Develop scenarios
Industry specific
Organization specific
Out-of-the-box
 Quantify impact of scenarios
 Evaluate against risk bearing capacity
11

12. Stress Test – Risk Bearing Capacity

Information from financial statements
 Balance sheet total: 880M
 Equity: 330M
 Solvency ratio = 38%
39 %
38 %
37 %
36 %
35 %

Covenant in financing arrangement specifies a threshold of 34%
34 %
33 %

Claim of 50M will lower ratio to 32%

Breach of Covenant!

32 %
31 %
An impact of 28M will lower the ratio to 34% → RBC = 28M
12

13. Stress Test – Example result
Risk Appetite:
EUR 15M
Risk Bearing Capacity:
EUR 28M
Take decisions
Scenarios
Business Interruption
Environmental liability
Product liability
Decreasing demand
Product recall
0
5
10
15
20
25
30
35
40
45
Impact EUR (M)
13

14. Van Gansewinkel Groep
Case Study: Risk Management
Influencing the Balance Sheet
A client perspective
Doede de Waij
Director SHEQ
(Safety, Health, Environment and Quality)
Van Gansewinkel Groep
•14

15. Profile
• Waste service provider and
supplier of raw materials and
energy
• Annual revenues
€1 billion
• Nine countries
• Market leader in the Benelux
• 5,800 employees
15

16. •Minerals
Our contribution to
the circular economy
• 7 Mt Waste
•VG Collection
Household and
Commercial waste
•Chemical
s
16

17. Our risk management process
Identify
Analyse
Impact on balance sheet
Property Damage Assessment
Reputation assessment
Liability Risk Quantification
Business Impact Analysis
17

18. What if scenario

Looking at our Chemical Depots
Versus






What happened at Chemie Pack
Moerdijk (2011):
Insurance claims: 70 million
Coverage PD/BI: 5 million
Environmental pollution
Bankruptcy
Management sentenced to
240 hours of community service
18

19. Lessons learned ?
Casus
Sandoz 1986
CMI 1996
ATF 2000
Chemie Pack
Cause
Human error
Large fire
Human error
Large fire
Human error
Large fire
Human error
Large fire
Licence to
operate
Present
Present
Present
Present
Government
oversight
Insufficient
Insufficient
Insufficient
Insufficient
Professional
fire fighting
Insufficient
Insufficient
Insufficient
Insufficient
Safety policy
Insufficient
Insufficient
Sufficient
Insufficient
Governmental More rules and More rules and More rules and More
response
enforcement
enforcement
enforcement
enforcement
19

20. Central question
 What will be the impact on
our 4 Central Chemical
Depots in case of a worst
case scenario?
20

21. What if scenario: BLEVE
21

22. Financial impact vs. protection
•Stress test results: (7 m. vs. 30 m.)
•Property Damage Assessment
•Stress test results: (13 m. vs. 0)
•Reputation assessment
•Stress test results: (30 m vs. 25 m)
•Liability assessments
22

23. Financial impact vs. protection
•Stress test results:
•15 m. vs. 30 m.
•Business Interruption
Analysis
23

24. Scenarios
07 million. Property damage
15 million. Business Interruption
13 million. Reputational damage
13 million uninsured
06 million. Employers liability
25 million. General liability
12 million. Environmental liability
30 million. D&O liability
05 million uninsured
108 million. Total impact on combined worst case scenario
Risk Bearing Capacity = 12 million (5% impact on EBITDAE)
18 million uninsured
24

25. Benefits
 Manage our Licence to Operate
 Minimise impact on cash flow due to an incident
 Avoid breaching financial objectives due to an incident
 Raise awareness on business continuity objectives
25

26. Zurich Global Corporate UK
Risk Management Influencing
the Balance Sheet
An Insurers Perspective
Nick Major
CUO Zurich Global Corporate UK
•7/10/2013
•26

27. Importance of identifying risks that
affect the financial objective
 How customers can use this from
an insurance perspective…
 Drives risk transfer strategy –
minimise purchasing and
maximise value
 Structures a self Insured retention
strategy – may utilise Captive
 Supports Business decisions via
risk and return perspective
 Drives board level influence
27

28. Insights from Van Gansewinkel
 Holistic view of risk and insurance
 PD Limits / D&O limits /
Reputational
 Do Insurers key risk assessments
match the Customers – are we
selling what you need?
 Engaged and business continuity
focused
 Risk managers need to talk the
language of the CFO
 Enhanced value of risk manager
role in business planning and
operations
28

29. What’s the impact, where’s the pay back?
 Maximising value from
insurance spend and
packaging risk transfer – multi
line options ?
 Focusing management
attention on critical risks
 Sets agenda for insurer
engagement
 The value of risk maturity on
pricing
 Business continuity vs failure !!
29

30. Business continuity is the real risk differentiator
962
Loss Index (2005=100)
900
700
500
474
300
100
2005
2006
2007
2008
2009
2010
 Claims stats from Zurich
indicate BI is growing
significantly as a proportion of
claims payments for large
Property losses.
 Use risk data / knowledge to
intervene pre-impact and draw
conclusions beyond the obvious
2011
30

31. Understanding the Killer Risks!
 Property explosion
 Casualty explosion /
pollution
 Impacts of Social Media
 Brand Reputation of Van
Gansewinkel
 Mitigation vs risk transfer
Crisis Definition;
When written in Chinese the word “crisis is composed of two
characters. One represents danger and the other represents
opportunity.
31

32. Supply chain management impact on
business resilience and reputation
 Trade credit protects when you sell products, what
happens if you have no products to sell?
 Supply chain modelling - map exposure to anticipate
and then manage risk ( recognising may be no choice
on supplier)
32

33. Predicting future risk
 Emerging risks radar
 How organisations should
use this management tool to
drive ERM
 Risk Room – decision tool to
assess relative risk between
countries
 Risk insights
 Risk Grading App
 Flood resilience studies
 CAT Analysis
33