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May 2021

Trust, but verify

Source: Asia Insurance Review | May 2021

What makes the financial services arena such a dynamic place to work in is that things can change in an instant. ‘Never a dull moment’ is a well-worn phrase but one that could easily be applied to risk managers.
 
Roll the clock back a little more than two months and which of us can honestly say that we knew much about Greensill Capital? Today the whole game is still in the process of being played out – and is fast making the corporate risk manager the most important person on the block.
 
Or perhaps that should be the most important person on the chopping block, if Credit Suisse is anything to go by.
The banking giant revealed that it had taken a $4.7bn hit from the twin implosions of Archegos Capital and Greensill Capital – and swiftly moved to address the situation by looking to its own internal risk management processes.
At least seven senior members of staff at the bank are said to have lost their positions as a result of the affair – including the group’s chief risk and compliance office and the head of the investment bank.
 
It appears like a serious blow and prompted the lender to suspend its share buyback programme, slash its dividend and enact multiple other remedial measures.
 
But what moved the story into the spotlight more than anything else were the general implications that developments had on the risk management community. The harsh reality is that sometimes in a business transaction, one party will dissemble, prevaricate and obscure relevant details. Sometimes they will simply get it wrong, misunderstand or lack attention to detail.
 
But when it comes to the role of the corporate risk manager, nothing can be taken at face value. Everything has to be audited and checked. It requires an approach that the Russians call ‘trust, but verify’.
 
In the Asia-Pacific region, risk management bodies like the RMIA, PARIMA, RIMS and others have been proclaiming for many years that the role of the corporate risk manager has to be a central part of the C-suite. Risk is no longer a function that can be covered off effectively as part of the CFO’s role – because it encompasses areas of risk that go far beyond finance and include cyber, concentration risk, reputational risk and much more besides.
 
In the digital era things can go massively and overwhelmingly wrong in an instant. Reputations can be destroyed with a single tweet or revelation. The role of the chief risk officer is to make sure that every potential risk facing a business is identified, assessed and covered. The current buzz phrase is that the head of risk should ‘provide resilience’.
 
Simply put, the insurance industry is there to serve these risk officers – and to price risk for them and tailor underwriting solutions that meet their needs in a competitively priced way. In many ways the P&C sector is well ahead of the curve on this – and it is the chief risk officers who are playing catch up.
 
Never before have they faced such a complex and dynamic risk environment that can hammer their share price – with new perils arriving every day ranging from heavy winds over the Suez Canal, throwaway off-the-cuff remarks by the CEO that were misconstrued as insensitive, pandemics and newly politically-unfashionable regimes through to good old-fashioned wildfires, earthquakes and flash floods.
 
It’s a messy old world, but someone’s got to cover it.
 
Paul McNamara
Editorial director
Asia Insurance Review
 
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