ERM is a valuable tool to optimise capital and reduce exposure to risk.
According to Shimpi, insurative means any corporate capital resource, be it debt, equity, insurance, derivative, contingent capital or any other.
Insurative model defines total average cost of capital as: [Cost of debt x Debt value/firm value] + [cost of equity x Equity value/firm value] + [Cost of insurance x Insurance value / firm value]
Enterprise risk management process: Risk Control: process of identifying, monitoring, limiting, avoiding, offsetting and transferring risks, Strategic risk management: process of reflecting risk and risk capital in the strategic choices that a company makes, Catastrophic Risk Management: process of envisioning and preparing for extreme events that could threaten the viability of the enterprise, Risk management culture: general approach of the firm to dealing with its risks.
The Chief Risk Officer (CRO) manages market risks, credit risks and operational risks; s/he needs to work with the corporate management and the management of the business units to determine the form of the risk management function.
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