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					       ERM Newsletter
Volume 1, Issue 4   ERM Newsletter Date: 4th November 2010
                               Volume 1, Issue 4         ERM Newsletter Date: 4th November 2010




Inside this Issue:                   A note from the Editor
                                                           Welcome again “Trust Re” family to the ERM
A note from the Editor         1
                                                           Newsletter.
                                                           As a team, we have already stated that we wel-
Formulating Risk Appetite at                               come any suggestions the “Trust Re” family may
                               1                           have on how to make this newsletter better.
Trust Re


Extract from Risk Appetite     3
                                     Formulating Risk Appetite at Trust Re
Definitions of the Quarter     4
                                     In all Enterprise Risk Management literature,
ERM Employee of the Quarter    5     actual implementations and overall risk man-
                                     agement programs the concept of Risk Appetite
Your comments and articles     5     is at the forefront.
                                     Articulating the Risk Appetite of the Company is extremely important,
Newsletter Crossword           6     but more important is to effectively communicate it and to properly use
                                     the overall Risk Appetite framework as a primary tool for risk managing
Newsletter Cartoon             7     the objectives of the organization.

This very brief introduction on Risk Appetite is intended to provide some background on the overall concept
to all of us in the Company in view of the fact that we are currently in the process of formalizing our Risk
Appetite and establishing a formal Risk Appetite Framework as part of our ERM implementation plans. Most
of you have a very good understanding of this Company’s view on different risks as well as the specific toler-
ances that the Company has with respect to these. For example, we all know that the Company is not will-
ing to risk its reputation, has no appetite for fraud and that there are specific levels of tolerance or limits
when it comes to accepting certain insurance risks or investing in certain assets.
Before we proceed with any more details lets establish first of all our interpretation of certain key terms as
they are used in the context of our Risk Appetite Framework (please note that due to their importance these
terms also appear in the definitions section of this Newsletter).

Risk Appetite is very simply defined as the amount of risk that the Company is willing to accept with re-
spect to a specified risk category or major area of concern to the Company. Risk Appetite is a higher level
statement attempting to set the tone from the top by considering broadly the levels of risks that manage-
ment deems acceptable and although it can be quantitative it is usually qualitative.

Risk Tolerance is a high-level statement that considers broadly the levels of exposure to risks that the Board
deems acceptable. It sets out the overall quantitative and qualitative tolerance levels and defines tolerance
limits for each relevant and material category of risk, taking into account the relationships between these
risk categories.
Risk Limits are narrower than Risk Tolerances and set the acceptable level of variation around objectives
associated with the annual business plan and budget. Limits translate the risk tolerance into language that
can be used by the business on a day to day basis.
                                                                                            Continued Page 2
                            Volume 1, Issue 4               ERM Newsletter Date: 4th November 2010




Formulating Risk Appetite at Trust Re - Continued
Risk Appetite Framework is the totality of all of the above integrated together and working as part of the
overall ERM framework and in parallel with our overall strategy.
The above are merely an introduction to the important concept of Risk Appetite and are presented here to
serve as a prelude to a more comprehensive treatment of Risk appetite for our Company. A special issue of
the ERM newsletter will deal with our Risk Appetite as viewed by the Board based on the results of a mini
workshop undertaken with the Board’s Risk Committee where the first attempt to formalize the Risk
Appetite was made.
The Risk Appetite Statements excerpt from the completed formalized Risk Appetite Statement that was
recently completed and which is provided here (see next page please) can be used to illustrate how Risk
Appetite is really a primary driver of any Risk Management program.


Take for example the statement for “Insurance”:
Insurance Risk is our business and as such we do have an appetite for specified Insurance Risks
since we expect our assumption of such risks to add value to our Company.
This simple statement clarifies that we are in the business of assuming insurance risks and we therefore have
a normal appetite for doing so (thus the green color). The statement does not explain in more detail the
lines of business we can accept, how much we can accept and under what circumstances we can accept
risks. This will be done through the Risk Tolerance Statement which will be more detailed and more
specific and will set more practical guidelines for the management. Then, the retention levels by specific risk
type within a line of business and more detailed underwriting guidelines will be defined in the Risk Limits
based of course on the Risk Tolerance levels.


Now consider the statement for “Liquidity”:
We have no appetite to fail to meet timely settlement of our liabilities.

This is a simple message that is very clear, but carries a very strong message. The Board and the executive
management has no appetite whatsoever for the Company to fail to meet its liabilities in a timely manner.
The tone at the top has been set in a crystal clear manner and it is now up to the management to work on
the Risk Tolerances and the Risk Limits that will ensure that the board’s appetite with respect to this area of
concern or risk category is not violated. As an example, it could be decided that the maximum period for
settling an established liability is x days (the tolerance) and this will then drive a number of actions that will
ensure that this is met. These could include maintaining bank balances needlessly at certain levels (risk limit),
monitoring the number of days that a payment due is outstanding and ensuring that it does not exceed a
defined maximum (risk limit), etc.


                                                                                               Christos Patsalides
                                                                            Group Chief Actuary and Risk Manager
  Risk Cate-                                                                                                           Risk
    gory /                                                Key                      Existing                          Appetite
Issue of Con-          Description                       Risks                     Controls                         Statement
     cern
                We are facing the risks that
                                                                         Reinsurance and Risk transfer
                  are inherently embedded
                                                                         Defined Underwriting Limits
                into the nature of the insur-                                                               Insurance Risk is our busi-
                                                                         Specific Underwriting Guide-
                 ance business due to the       Natural Perils                                                ness and as such we do
                                                                            lines
                  uncertainty of the occur-     Man made actions                                            have an appetite for speci-
                                                                         Monitoring and review of de-
 Insurance       rence, timing and amount       Wrong Underwriting                                          fied Insurance Risks since
                                                                            veloping experience
                   of cash flow that will be       judgment                                                 we expect our assumption
                                                                         Business Plan process
                 necessary to cover our li-                                                                of such risks to add value to
                                                                         Analysis of diversification of
                   abilities experience and                                                                        our Company.
                                                                            underwritten risks and their
                which could differ from our
                                                                            location
                          expectations.
                The risk of being unable to     Concentration of as-
                                                                         Monitoring of experience ver-
                 settle financial obligations     sets
                                                                           sus expected data using          We have no appetite to fail
                when they are due or being      Quality of assets
                                                                           cash flow projections and       to meet timely settlement of
 Liquidity       able to do so only at a sig-   Depth and liquidity of
                                                                           scenarios                             our liabilities.
                                                                                                                                                                                  Volume 1, Issue 4




                  nificant cost by having to      markets in which
                                                                         Monitor exposure of liquidity
                realize assets at a sizeable      assets are
                                                                           risk
                              loss.




                                                                                                            Incurring expenses is nec-
                                                                                                           essary for running the busi-
                                                                                                                       ness.
                                                                         Budget monitoring and vari-
                We are facing the risks that
                                                                           ance analysis
                our operation could end up      Unauthorized ex-
                                                                         Business Plan Process
                 losing value in case that        penses
                                                                         Monitoring and review of de-
 Expenses         our expenses or our ex-       Excessive spending
                                                                           veloping experience
                pense commitments end up        Unexpected significant
                                                                         Expense approval process
                                                                                                                                           Extract from Risk Appetite Statement




                  differing materially from       costs
                                                                         Delegated Authority Limits
                        that expected.
                                                                                                           However, we have very little
                                                                                                           appetite for expenses over
                                                                                                             and above our expecta-
                                                                                                           tions / budget, especially if
                                                                                                                                                                                  ERM Newsletter Date: 4th November 2010




                                                                                                               they are avoidable.
                       Volume 1, Issue 4           ERM Newsletter Date: 4th November 2010




Definitions of the quarter:
Even though certain definitions have appeared in previous newsletters we
felt that due to their integral nature in our ERM strategy that they should be
included again in the newsletter
Risk Appetite:
It is the amount of risk that the Company is willing to accept with respect to a specified
risk category or major area of concern to the Company. Risk Appetite is a higher level
statement attempting to set the tone from the top by considering broadly the levels of
risks that management deems acceptable and although it can be quantitative it is usually
qualitative.
                             Risk Tolerance
                             Risk Tolerance is a higher-level statement that considers
                             broadly the levels of exposure to risks that the Board deems
                             acceptable. It sets out the overall quantitative and qualitative
                             tolerance levels and defines tolerance limits for each relevant
                             and material category of risk, taking into account the
                             relationships between these risk categories.
                             Risk Limits
                             Limits are narrower than Risk Tolerances and set the
                             acceptable level of variation around objectives associated with
                             the annual business plan and budget. Limits translate the risk
                             tolerance into language that can be used by the business on
                             a day to day basis.
                             Examples of Risk Limits:
                             ◊ Counterparty credit limits for investments
                             ◊ Maximum percentage of ceded business by reinsurer
                             ◊ Concentration limits for lines of business/products,
                             geographies and counterparties
                             ◊ Setting insurance reserves to target an explicitly quantified
                             ‘probability of adequacy’
                             ◊ Liquidity benchmarks by reference to the amount of
                             investment assets to be held in ‘highly liquid’ assets
                             ◊ Limits on the use of equity, financial derivatives, fixed
                             income securities, property investments, etc
                        Volume 1, Issue 4          ERM Newsletter Date: 4th November 2010




                  ERM Employee of the Quarter
Malcolm Fonseca
Mr. Malcolm Fonseca was nominated by his fellow managers for his commitment to the ERM
process.
Mr. Karafoulidis noted that “He is a cooperative team player who is willing to
put in the extra time needed to get the job done. He realizes the importance of
supporting other departments to help the company achieve its goals”

                                                              “Kalaass. Done”
                                                              Malcolm Fonseca


                     Your Comments and Articles
                                    Hussain Matooq
                 Quality Assurance: Supporting the ERM Culture

Trust Re’s Board of Directors supports a strong ERM foundation; in order to ensure that we
are capable of withstanding any risks, through both internal and external factors.
Awareness of these factors allows employees to better understand risks which their
respective departments may face, as well as risks we may inadvertently cause. Quality
Assurance (QA) is an integral component of ERM.
QA refers to the systematic monitoring and evaluation of various aspects of a company's
processes, in order to ensure that company defined standards of quality are met. QA
attempts to improve the quality of Trust Re’s services, by diagnosing operational and
departmental risks and putting in place action plans to achieve our quality standards.
Recently the QA team has been spearheading several
projects, including the 2010-2011 Discretionary Authority
Limits (DAL) and the IT Steering Committee. Both of which
aim to improve workflow, structure, efficiency of the
company.
The QA team is implementing a quality improvement process
to enhance management of operational risks which we
encounter. As well as supporting and encouraging the
achievement of a high quality of service which in turn
supports the ERM culture.
                                                           Volume 1, Issue 4                                 ERM Newsletter Date: 4th November 2010




     Last Crossword’s Solution:
     O              C                              T                          O                    Thank you to all those who attempted to solve the
     C     A     P  A     C    I    T     Y        E                          P                    crossword. The winner is:
     T              S                              X               C     R    E    D    I    T     Sayed Hussain Salman
     O              H               B              T                          R                
                                                                                                   Join me in congratulating Sayed on his win.
     P              C               E              I                          A                
     U           M  A     N    D    A     R     I  N            F             T                
     S              L               V              G      O     L  D     F    I    S    H      
                    L     I    G    E     R                     A             O                
                                    R                           M             N                
                                                M               I             A                
                                                E               N             L                
                                    B     O     X  I      N     G                              
                                                I               O                              
                                                C               S                              
                                                O                                              

Newsletter Crossword:
1                                                          2                                                       Across:                    Down:
3                                                                                                                  3. This animals name   1.This country’s name
                                                                                                                   means “River Horse” in means “Land of the
                                                     4                                                        5 
                                                                                                                   ancient Greek.         Free”

6                        7                                                                    8                    4.They communicate         2. In 1634, it was a
                                                                                                                   by doing push-ups          form of currency in
                                                           9      10                                            
                                                                                                                                              Holland
                                                                                                                   6. Proportionate
                                                                                                                
                                                                                                                   relationship of incurred 5. A horizontal
                                                                                                                   losses to earned         segment of the liability
                   11                                                                                              premiums expressed as insured
                                                                                                                   a percentage.
                                                                                                                                            7. A reinsurance of
                         12                                                                                     
                                                                                                                   9. This fruit has more   reinsurance.
                                                                                                                   vitamin C than an
                                                                                                                                            8. A flightless bird that
                                                                                                                   orange
                                                                                                                                            can walk faster than a
                         13                                                                                     
                                                                                                                   11. This animal has      human.
                                                                                                                   become synonymous
                                                                                                                                            10. This animal’s
                                                                                                                   with Peace.
14                                                                                                                                          appearance is a lot
                                                                                                                   12. This animal only     worse than its bite.
                                                                                                                   sleeps 2 hours a day.
                                         Please submit your completed crossword                                    13. Sega’s most
                                         to the editor.                                                            famous video game
                                         All correct crosswords will then be                                       character.
                                         placed in a draw and the winner will                                      14. Nintendo
                                         receive a wonderful prize.                                                character was originally
                                                                                                                   called Jumpman.
                            Volume 1, Issue 4       ERM Newsletter Date: 4th November 2010




        Newsletter Cartoon -                    By Ali Kalawadh
                                    The Frog and the Actuary


       Look a guy is
       crossing the
       street. Maybe                                    Hey there!!
       he can help me
                                                        If you kiss me I will
                                                        turn into a beautiful
                                                        Princess!




                                                       What the??
                                                       Why isn't he
    Finally!! This
                                                       kissing me?
    guy is going
    to do it




If you kiss me and turn                                What the??
me back into a beautiful                               Why is he still
Princess, I will keep you
                                                       not kissing
company for a whole
                                                       me?
week




                                       Continued Next Page
                                Volume 1, Issue 4           ERM Newsletter Date: 4th November 2010




            Newsletter Cartoon -                        By Ali Kalawadh
                                                    Continued

  If you kiss me and turn
  me back into a Princess,                                       Why is he still
  I'll stay with you for a                                       not kissing
  whole week and do                                              me?
  *Anything* you want                                            I GIVE UP !!




  What is it? I've told you                                     Look princess, I really
  I'm a beautiful Princess,                                     appreciate the offer but
  that I'll stay with you for                                   I'm an actuary. I don't
  a week and do                                                 have time for girlfriends.
  *Anything* you want.                                          BUT a talking frog is
  Why won't you kiss me?                                        really cool




‘Suggestions & Recommendations Box’.
If you have any suggestions/recommendations please feel free to send an email
to:
akalawadh@trustgroup.net.bh




                         Editor-in-Chief Christos Patsalides
                                     Editor Ali Abdulnabi Kalawadh
                   Other Contributors Hussain Matooq

				
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