Integrated Risk Management

Aon Global Risk Consulting (Alex van den Doel)

Van Gansewinkel (Doede de Waij)

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Risk Management and financial impact

Chemie-Pack (Moerdijk)

45 employees EUR 6,5m Revenu

Fire on January 5, 2011

Damage: EUR 71 million Bankruptcy on August 25, 2011

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Events can have huge impact!

Source: Aon / Oxford Metrica: Reputation Review 2012

More than 50% value impact possible!

Company Event Value Reaction

TEPCO Japan EQ -89.6% - $ 37bln

Dexia Greek debt -87.3% - $ 3.9 bln

Research in Motion Service Disruption -49.7% - $ 6 bln

BP Explosion / Oil spill -29% - $ 53 bln

Apple Iphone Antenna -2.4% - $ 6 bln

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Objectives Integrated Risk Management (IRM)

Protect: Shareholder’s value Financial objectives

Set priorities

Take more not less business risk!

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Agenda Integrated Risk Management – Film

Integrated Risk Management – Execution

1. Risk Rating and Maturity

2. Stress Test

3. Risk Bearing Capacity

Integrated Risk Management – In Practice– Case Study Van Gansewinkel – Doede de Waij

Wrap-up and Questions

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Integrated Risk Management – Film

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IRM Approach – Execution1A

Risk Rating & MaturityIdentify main risk areas from a financial perspective (QUICK

SCAN)

1B

Risk AssessmentIdentify and assess most significant risks: strategic,

operational, financial, compliance

2B

Scenario analysisAnalysis in detail of most

severe scenario's impacting financial objectives

2A

Stress testIdentify and quantify industry

specific stress scenario's

3A

Risk Bearing CapacityCalculate and substantiate how much a company can

retain

3B

Risk AppetiteConsultative Approach to determine how much a

company wants to retain

4 RegisterRecord and monitor risk developments online

6 ComplianceIndependently review risk management and financing measures

7 Risk FinancingOptimize the Risk Financing structure and programmes

Annual update

5 OutsourcingRisk management activities delivered by external resources

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IRM Approach – Execution1A

Risk Rating & MaturityIdentify main risk areas from a financial perspective (QUICK

SCAN)

1B

Risk AssessmentIdentify and assess most significant risks: strategic,

operational, financial, compliance

2B

Scenario analysisAnalysis in detail of most

severe scenario's impacting financial objectives

2A

Stress testIdentify and quantify industry

specific stress scenario's

3A

Risk Bearing CapacityCalculate and substantiate how much a company can

retain

3B

Risk AppetiteConsultative Approach to determine how much a

company wants to retain

4 RegisterRecord and monitor risk developments online

6 ComplianceIndependently review risk management and financing measures

7 Risk FinancingOptimize the Risk Financing structure and programmes

Annual update

5 OutsourcingRisk management activities delivered by external resources

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1A) Risk Rating Qualitative assessment of adequacy of:

– Risk identification process– Risk management measures– Risk financing measures

Scope:– Balance Sheet and P&L – Enterprise-wide

Results– Risk Rating dashboard– Starting point for further analysis – Basis for monitoring progress effectiveness

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1A) Risk Rating

Tangible Fixed Assets 7.425 Equity 3.843Key tangible fixed assets Equity componentsBuildings 4.533 Share capital 1.500Plant & Machinery 2.331 Retained earnings 2.333

Minority interests 10Other operating equipment 561

Non-current Liabilities 5.791Intangible Fixed Assets 2.569 Key non-current liabilititesKey intangible fixed assets Borrowings 3.834Goodwill 2.000 Pension obligations 1.440Licenses 561 Deferred tax credits 11

Provisions 253Other intangibles fixed assets 8

Other non-current liabilities 253Financial Fixed Assets 335Key financial fixed assets Current Liabilities 4.460Derivatives 239 Key current liabilititesDeferred tax assets 89 Current part of borrowings 2.554

Trade payables 1.895Other financial fixed assets 7 Payables to subsidiaries 10

Current Assets 3.765 Other current liabilities 1Key current assetsInventories 587 Contingent Liabilties (Added)Trade receivables 2.333 Product liabilitiesAssets held for sale 56 Employers liabilitiesCash & cash equivalents 781 General liabilities

Professional liabilitiesOther current assets 8 Environmental liabilities

Employment practices liabilitiesPatent infringement liabilities

Total Assets 14.094 Total Equity & Liabilities 14.094

Risk Financing Risk RatingRisk Rating Risk FinancingRisk

ManagementRisk

Identification

Balance Sheet(x1000) Risk

IdentificationRisk

Management

4 3 2 1 1 2 3 4

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1A) Risk Rating

Tangible Fixed Assets 7.425 Equity 3.843Key tangible fixed assets Equity componentsBuildings 4.533 Share capital 1.500Plant & Machinery 2.331 Retained earnings 2.333

Minority interests 10Other operating equipment 561

Non-current Liabilities 5.791Intangible Fixed Assets 2.569 Key non-current liabilititesKey intangible fixed assets Borrowings 3.834Goodwill 2.000 Pension obligations 1.440Licenses 561 Deferred tax credits 11

Provisions 253Other intangibles fixed assets 8

Other non-current liabilities 253Financial Fixed Assets 335Key financial fixed assets Current Liabilities 4.460Derivatives 239 Key current liabilititesDeferred tax assets 89 Current part of borrowings 2.554

Trade payables 1.895Other financial fixed assets 7 Payables to subsidiaries 10

Current Assets 3.765 Other current liabilities 1Key current assetsInventories 587 Contingent Liabilties (Added)Trade receivables 2.333 Product liabilitiesAssets held for sale 56 Employers liabilitiesCash & cash equivalents 781 General liabilities

Professional liabilitiesOther current assets 8 Environmental liabilities

Employment practices liabilitiesPatent infringement liabilities

Total Assets 14.094 Total Equity & Liabilities 14.094

Risk Financing Risk RatingRisk Rating Risk FinancingRisk

ManagementRisk

Identification

Balance Sheet(x1000) Risk

IdentificationRisk

Management

4 3 2 1 1 2 3 4

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1A) Risk Rating

Tangible Fixed Assets 7.425 Equity 3.843Key tangible fixed assets Equity componentsBuildings 4.533 Share capital 1.500Plant & Machinery 2.331 Retained earnings 2.333

Minority interests 10Other operating equipment 561

Non-current Liabilities 5.791Intangible Fixed Assets 2.569 Key non-current liabilititesKey intangible fixed assets Borrowings 3.834Goodwill 2.000 Pension obligations 1.440Licenses 561 Deferred tax credits 11

Provisions 253Other intangibles fixed assets 8

Other non-current liabilities 253Financial Fixed Assets 335Key financial fixed assets Current Liabilities 4.460Derivatives 239 Key current liabilititesDeferred tax assets 89 Current part of borrowings 2.554

Trade payables 1.895Other financial fixed assets 7 Payables to subsidiaries 10

Current Assets 3.765 Other current liabilities 1Key current assetsInventories 587 Contingent Liabilties (Added)Trade receivables 2.333 Product liabilitiesAssets held for sale 56 Employers liabilitiesCash & cash equivalents 781 General liabilities

Professional liabilitiesOther current assets 8 Environmental liabilities

Employment practices liabilitiesPatent infringement liabilities

Total Assets 14.094 Total Equity & Liabilities 14.094

Risk Financing Risk RatingRisk Rating Risk FinancingRisk

ManagementRisk

Identification

Balance Sheet(x1000) Risk

IdentificationRisk

Management

4 3 2 1 1 2 3 4

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1A) Risk Maturity

Above average

Below average

Risk Maturity Rating

Comments for

Improving Rating

Insight Into Risk Maturity Ratings Globally

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1A) Higher Risk Maturity adds value!

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2A) Stress Testing Identify scenarios that can impact

the financial objectives

Scenarios:– Industry specific (Aon Database)– Company specific (desk study)– Out-of-the-box scenarios

(workshop)

Cyberrisk scenario

Supply chain risk scenario

Fraud scenario

Credit risk scenario

Product liability scenario

RBC = 50M

0 10 20 30 40 60 70 80 90

Sce

nario

s

Equity

Assets

Liabilities

Balance Sheet 31/12

Retained Earnings

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Module 2B – Scenario analysis

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In-debt analysis of most critical scenarios Approach

– Determine most critical activities for strategy, value chain, sales, costs or liability risks– Workshops with internal and external experts– Event trees to determine financial consequences in detail

Very detailed insight in the impact of a critical scenario on the financial objectives Insight and focus for improvement in risk management

Retention

Limit (XoL)

Risk appetite

Risk bearing capacity

0

500

1000

1500

2000

2500

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5

Costs per loss category

Punitive damages

Defence costs

Tort/Litigation

Other contractual liability

Recall and replacement

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Module 3A – Risk Bearing Capacity Quantify of the absolute maximum amount of risk the company

is able to retain (Risk Bearing Capacity) Approach

– Analyse the company's financial strategy and policies (i.e. future CAPEX, dividend increase) > discussion Treasury / CFO

– Select the most "constraining financial ratio's (from bank covenants, credit rating)

– Develop a model for calculating risk bearing capacity– Calculate risk bearing capacity

Result– Definition and understanding of the company's risk bearing

capacity and risk appetite

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Integrated Risk Management - In practice

Van Gansewinkel Groep

Doede de Waij - Risk- & Insurance manager

Doede.de.waij@vangansewinkel.comPhone: +31 40 751 44 45

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• Waste services, raw materials and energy supplier

• Active across the entire waste chain

• Annual revenues €1.1 billion

• Nine countries

• Market leader in the Benelux

• Top 5 player in Europe

• Approximately 5,800 employees

• 150,000 customers

• 1 million households

About Van Gansewinkel Groep

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Our customer driven supply chain

Collection (c. 7 Mt)

Collection of household -, commercial -, & hazardous waste

• 2,000 vehicles

Recycling (c. 5 Mt)

• Coolrec (plastics / metals)

• Maltha (glass)

• VG Minerals (building mat.)

• VG Paper (office paper)

Energy from Waste

2 EfW plants – Rozenbrug & Duiven

•Steam

•Electricity

•City heating

c. 2 Mt fuels

~70%

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Risk management process

Operational Risks Risk Management Risk Financing Risk Rating

Fire / Natural hazards Fire protection systemSHEQReal estateSite surveys by insurers

All risk policy(Property / machinery breakdown / business interruption)

Road incidents Driver training / Driver coaching / Toolbox meetings Motor fleet insurance Land based equipment insurance

Reputation risk Crisis management exercising and planningEmergency response teams

Credit risk Prompt follow up by credit receivable departmentTerms & conditionsVendor screening

Credit insurance for the paper division

Financial fraud AO/IC procedures Fraud insurance

Liability risk ( occupational incidents, product -, service delivery, etc)

SHEQ proceduresEmployee trainingTerms and conditionsQuality systemsMaintenance systems

Workers compensation insuranceGeneral liability insuranceEmployers liability insuranceProduct liability insuranceLegal environmental insuranceDirector & Officer insurance

Business Risks Risk Management Risk Financing Risk Rating

Price erosion Business process reengineering

Market developments Innovation around “ waste no more”

Price volatility raw materials Risk committee Hedging

Shortage waste volume Terms & conditions Import of waste P&I insurance

Assessment of the risks which:

Can decrease the total assets

Can reduce the equity and/or increase the liabilities

Can decrease our revenues and/or increase costs

Can impact our cash flow

Risk assessments Stress Test

Review Maximum Possible loss (MPL scenario)

Liability Risk Quantification

Business Impact Analysis

Reputation assessment

What will be the impact of the various stress tests looking at:

Our balance sheetProperty, plant, equipment, inventoriesIntangible assetsContingent LiabilitiesEtc.

Our Profit & Loss StatementRevenueRaw material, supplies & energy

Financial analyses

Define worst case scenario’s

Define risk tolerance

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Insurance solutions & Risk rating

Operational Risks Risk Management programmes to mitigate the risk Risk Financing programmes Risk Rating

Fire hazards

Fire protection systemSHEQReal estateSite surveys by insurers

All risk insurance (Property / machinery breakdown / business interruption)Construction All Risk insurance

Road incidents Driver training / Driver coaching / Toolbox meetings Motor fleet insurance Land based equipment insurance

Reputation risk Crisis management exercising and planningEmergency response teams

Credit riskPrompt follow up by credit receivable departmentTerms & conditionsVendor screening

Credit insurance

Liability risk ( occupational incidents, product -, service delivery default, etc)

SHEQ proceduresEmployee trainingTerms and conditionsQuality systemsMaintenance systems

Workers compensation insuranceGeneral liability insuranceEmployers liability insuranceProduct liability insuranceLegal environmental insuranceDirector & Officer insurance

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What if – CCD scenario

?

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The balance sheet impact versus financial protection

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The impact on our profit & loss statement

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Wrap-up Application

– Pragmatic RM framework– (Re) start risk management– Tool for analysis and presentation– Assess Risk Management maturity – Apply the stress test– Linking risks to financials– Quickly identify areas for improvement– The basis for comprehensive risk management

Apply the stress test, it will make a big difference!

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Question

What is a Stress Test?

It is a test to determine how much pressure or tension a company can withstand.

Do you know how much pressure your organisation can withstand?

Can anyone tell me?

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Question

“Most of us spend too much time on what is urgent and not enough time on what is important.”  

- Stephen R. Covey -

“What the wise do in the beginning, fools do in the end.”  - Warren Buffett -

Is risk management a proactive, value adding process in your organisation?

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Question

“Read books are far less valuable than unread ones"

- Nassim Nicholas Taleb -

Who has had a brainstorm session during the last 6 months about what you never expected to happen?

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Other questions?