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Moving to systemic risk analysis

Moving to systemic risk analysis

The world’s ever-shifting dynamics are reshaping the different ways of doing business, opening organizations to new opportunities and risks. Insurance companies play a key role in this ecosystem, being in the business of purveying risk.

Many insurance companies have grappled with financial system collapses in the past, turning to risk management to mitigate and prevent future occurrences. However, organizations are starting to question the effectiveness of these risk methodologies and processes, as market trends continue to evolve and businesses fail. The insurance sector’s past failures still loom large in boardroom discussions while shareholders’ expectation of risk management is changing. Therefore, how the risk management function contributes to the success of an organization has also evolved overall.

At KPMG, we examine and cover the system of risk management instead of prescribing methodologies and policies limited to an organization’s spread and breadth. A systemic risk analysis is essential to address the risk management function’s growing scope and shareholder expectations; therefore, it’s important in managing endogenous and exogenous risks.

That said, the real value of effective risk management comes from correctly aligning it to the business’ management, ultimately aligning with and feeding into the organization’s performance management. Integrating risk management with performance management delivers an effective ERM strategy and meets shareholder aspirations. And, as a by-product, it will also open eyes to the systemic opportunities available. 

KPMG Luxembourg offers a leading risk management solution that provides a comprehensive and scientific approach driven by systemic risk assessment. KPMG’s Dynamic Risk Assessment (DRA) tool improves on traditional risk and enterprise risk assessment processes by introducing:

  • The science of expert elicitation to identify future outcomes of the risk identification process.
  • A scientifically researched methodology that collects quantitative metrics on identified risks.
  • The potential risk interconnectedness beyond traditionally observed correlation and diversification conventions.
  • The expected velocity of risks.
  • Scientific theories — such as graph theory — that depict risks as an interconnected, dynamic and adaptive network, capable of scientific and mathematical analysis.

KPMG’s DRA tool challenges the traditional two-dimensional method by taking the four-dimensional approach depicted below: 

View graph

Furthermore, DRA ultimately creates the below outputs:

View graph

KPMG’s DRA methodology helps organizations transform risk into value by focusing on both sides of the coin — the upside and downside of risk. Organizations will be able to identify “mega trends” to uncover the opportunities of risk, allowing them to gain a competitive edge

For more information please get in touch:

Contacts

Sven Muehlenbrock
Partner
KPMG Luxembourg
Phone: +352 22 51 51 6819
Email: sven.muehlenbrock@kpmg.lu


Qurat al Ain Khan
Manager
KPMG Luxembourg
Phone: +352 22 51 51 7241
Email: quratalain.khan@kpmg.lu

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