Financial Risk Management Enterprise Risk Management

Question: Describe about the Financial Risk Management for Enterprise Risk Management. Answer: Company overview Our focus company will be Allianz Malaysia Berhad. The company is part of a large organization group known as Allianz located in Germany. First established in Germany in 1890 the firm has expanded greatly with over 148,000 employees globally. The firm is proud to serve close to 83 million customers globally in 70 countries. It first establishment in Malaysia was in 2001 when it became the controlling shareholder of Allianz General Insurance Malaysia Berhad (AGIM). In 2007, they transferred their business to Allianz General. After the completion of transfers of general insurance business, AGIM changed its name to Allianz Malaysia Berhad (AMB). Currently, the firm is recognized as one of the prominent general insurers in Malaysia. It is also widely known for its broad spectrum of services it offers such as personal lines, motor insurance, and small to medium enterprise and large industrial risk. The firm is also credited of it provision of comprehensive range of life and health insurance, their investments are also linked to products and it has been regarded as one of the growing life insurers firms in Malaysia. With over 30 branches across different cities nationwide, the firm distinguishes itself as most trusted provider of financial services, thus suiting the lifetime needs of most Malaysians, as well as play the role of responsible corporate citizen. Risk exposures Just like any other insurance organization, AMB suffers from different risks due to their daily operations. Hence, this means that they should be able to manage the risks that are insured by exclusion of certain types of coverages taken from a policy. In this case, we will discuss some of the risk that AMB faces in their daily operations. Perils- refers to the policy coverage for individuals automobile, life, home or health insure against losses. Hence, a peril is perceived to be an event that has a potential cause of harm or loss. AMB have different perils for different types of policies. For instance, the peril for an automobile includes theft and vandalism (Wu Olson, 2015). For homeowners, the issuance of perils by AMB is against wind, storms or fire. The firm also protects people from health related perils such as heart attack. Hence, this means that AMB is likely to suffer from personal or property loss exposure. As a result, this tends to mean that failure by AMB to effectively categorize this exposure they may suffer losses because the occurrence of insured events are catastrophic or accidental. Distribution of loss also serves as a risk exposure. AMB as an insurance firm needs to calculate the amount and type of risk to insure meaning they should effectively understand the distribution of losses. Failure to quantify the losses may lead to a specific period known as frequency loss. In addition, failure to quantify the loss leads to them suffering from severity of losses. Loss severity refers to the typical amount that an insurer pays out from a benefit or even a claim (Olson, 2008). Hence, this means that AMB needs to effectively quantify the severity of the insured policy before accepting to insure the asset or individual otherwise they are under the context of suffering from huge losses when claims are made. Volatility is also a risk that AMB is exposed to. By definition, volatility is referred to as the amount of uncertainty size of changes when it comes to security value. Therefore, the higher the volatility means the greater the security value can be easily spread out over a large range of value. Whereas, low volatility means that security doesnt fluctuate dramatically but changes value as pace progresses over a period of time. Therefore, in any instance where there is aggregate variance amounts it is likely that there would be an increase in non-dependence of risk which may not be good for business because of its risks. AMB as an insurance company primary objective is mainly to pay claims and to maintain that they get some profits. Hence, this can be achievable only accomplishment of certain types of business insuring. But, in our case AMB provides health covers which include heart attacks or accident covers on vehicles. Hence, this means that AMB are under the voyage of suffering from the risk of claims, as more claims in a short period may affect the business negatively. Uncertainty also tends to be a risk that affects AMB policy setting. By definition, uncertainty refers to the inability to predict the future. Therefore, the presence of uncertainties brought about by different catastrophic such as nature tend to affect possible deviations being projected (Batten et al, 2013). In this case, AMB suffers from two general insurer uncertainties. (1) Uncertainty as to outcome that has already been written (2) uncertainty in pertinence with the premiums that the insurer needs for charging the future to as to achieve their financial objective. Therefore, such risks of uncertainties need to be effectively observed. Tools to measure the risk Hampton (2011) legislates that there is need of them carrying out a thorough evaluation on insured property before they actually calculate the total premium rates. Hence, this tend to enable them assess their risk exposures. As a result, they use the Moody risk analysis to set their data so that they can easily segment their potential consumers behaviors. The moody risk methodology tends to be effective as it informs their rating process, supports their fundamental analysis and also impacts greatly on their business decisions and future financial health. The use of verified data developed by insurance underwriters also tend to have a greater effect this is because AMB as an insurer is covered from any potential exposure claims which results to large payouts (Hirreff, 2008). Recommendation of the best strategies that should be used by AMB Paying valid claims efficiently- payment of valid claims may seem simple, but it tends to involve more that the obvious. Therefore, AMB needs to have the essential technology as well as training staffs. They also need to price their risk in an accurate and fair manner. Take the example of an insurer underpricing it is likely that he will go out of business. Hence, insurers should pay valid claims efficiently by keeping the cost down (Porteous, 2006). Hence, this means that premiums should be calculated by account for both risks and operation cost for provision of the policy. Strategic philanthropy- this involves partnering with organizations in community for mutual benefit purposes. Therefore, this type of corporate giving not only does it impact the community but also benefit the stakeholders in the business (Briss Varenne, 2001). As a result, there will be a reduction on personal or property exposure. Climate change leadership- for insurers, the big part of risk reduction involves the environment. Therefore, as a method of lowering the risk they should consider hedging the financial risk exposures as this lowers their viability of being prone to risks. References Wu, D. D., Olson, D. L. (2015).Enterprise risk management in finance. Hampton, J. J. (2011).The AMA handbook of financial risk management. New York, American Management Association. Olson, D. L., WU, D. (2008).New frontiers in enterprise risk management. Berlin, Springer. Choi, J. J., Powers, M. R. (2002).Global risk management: financial, operational, and insurance strategies. Boston, JAI/Elsevier Science. Walker, R. (2013).Winning with risk management. Singapore, World Scientific Pub. Briys, E., Varenne, F. D. (2001).Insurance: from underwriting to derivatives : asset liability management in insurance companies. Chichester [England], John Wiley. Hirreff, D. (2004).Dealing with financial risk. London, Economist. Porteous, B. T., Tapadar, P. (2006).Economic capital and financial risk management for financial services firms and conglomerates. Hounds, Basingstoke, Hampshire, Palgrave Macmillan. Batten, J., Mackay, P., Wagner, N. F. (2013).Advances in financial risk management: corporates, intermediaries and portfolios. Allianz Malaysia Berhad, (AMB) (2015). Allianz Malaysia Berhad annual report.