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The Actuary The magazine of the Institute & Faculty of Actuaries

Communication skills needed

From the CRO panel discussion at this year’s seventh annual convention of the Global Association of Risk Professionals, reported in Financial Engineering News (subscribe free at www.fenews.com):

‘Every member of the panel emphasised the need for progress in the ways risk managers communicate their results, to facilitate the incorporation of those results in the decision-making process. The importance of doing a better job in communicating results is difficult to overestimate. Coming from very quantitative backgrounds, many risk managers tend to focus on the technical aspects of calculating risk. This technical analysis is essential, but equally vital is the ability to summarise analytical results and present them to decision-makers in a cogent manner. Thomas Daula, CRO of Morgan Stanley, even spoke about “the risk aversion of management when they don’t feel they truly understand the risk”. That is exactly what happens when a CRO is not effective in communicating key conclusions to senior management. “At the end of the day, this is about business judgement”, said Daula. The role of the CRO is to facilitate that judgement.

‘The chief risk officer should not be the risk managers’ risk manager. Rather, the skill-set required is less technical and quantitative, and more integrative and analytical, with a very strong communications component. The CRO’s job starts with the development of an effective risk-management system, which requires promoting a proper risk-management culture within the organisation. Critical elements of developing this culture are clear communication of risk concepts and promotion of risk-management activities throughout the organisation, and elucidation of the benefits of risk management processes.’

Insurers developing rapidly

Insurance companies are increasingly raising the bar for enterprise risk management (ERM), according to the latest life insurance CFO survey by the Tillinghast business of Towers Perrin. Fuelling this change, in large part, are the rating agencies – nearly 60% of respondents said that increased rating agency scrutiny is influencing how they set up and evolve their ERM framework. In addition, more than one-quarter (27%) of respondents cited compliance with rating agency requirements as a top objective of ERM. More at www.towersperrin.com/tillinghast.