Happy Birthday Megrow!

Heading Into Year 5

Megrow Consulting has turned four. A big “THANK YOU” to all clients, business partners, advisers, service providers and supporters for another fruitful year! Time really flies. Sometimes it is hard to believe that Megrow now is in its fifth year of operation.

I am also quite humbled by the high click-rates my “Happy Birthday Megrow” post got on LinkedIn. Close to 2000 views after approximately 1 week!

Looking Back

I’m grateful to some of Megrow’s past and current customers who allow me to display their logos on our site. Head over to the client section of the site to get an impression of our past and current customers. Most notably, the list keeps getting longer every year.

The work my partners and myself have done over the past year has slightly shifted in nature compared to the previous period. ERM did remain a key activity and service. Teaching activities and a significant interim mandate as the Chief Executive of a Lloyd’s of London entity in Singapore complement the 2018/2019 palmares.

High Level Analytics of Megrow's current and past portfolio. Happy Birthday Megrow!
Happy Birthday Megrow! Diversification has improved

ERM remains an important pillar of Megrow’s deliveries. However, the past year has seen a wider diversification of mandates, notably teaching and interim management services grew significantly.

Reto Brosi, founder of Megrow Pte Ltd

The analytics above are the result of a straightforward approach, i.e. I simply counted the number of contracts per category. More accurately, I should have used “hours spent” or “outcomes”. However, for the purpose of a high level view on how the portfolio is developing, this simplified approach is good enough.

The Podcast

I have launched the Megrow Podcast early 2019 and thus far published three episodes. A podcast or more precisely a VLOG on YouTube is a good complement to the other marketing and branding activities that I undertake. You can access the latest episode via the embedded link below.

Episode 3 of the Megrow Podcast, October 2019

The podcast is slowly getting traction, I’m happy with that. Episode 4 is scripted and ready for recording. Furthermore, ideas for a few more releases are ready. Stay tuned! However, all my “shout-outs” for interviews and guest contributors haven’t born fruit yet. Maybe I need to advertise the podcast a bit more emphasizing the high “click” rate the podcasts gets on LinkedIn.

if you would like to appear on the Megrow podcast, contact me via the links at the bottom of the page!

If you like the contents, please subscribe to the channel to stay current with the latest episode.

Looking Forward

Business School teaching and common sense indicate that Megrow is at a stage of either “scale up” or “pack up”. Needless to say, the “scale up” challenge is what keeps me awake at night. From a more transactional perspective, both risk management and teaching are future-proof activities. Naturally, the contents and modes of delivery will evolve. Hence, I need and will “stay modern” in these aspects.

The more challenging consideration, however is the question “how to scale up a micro-enterprise”? Some early successes are emerging, but I’m not yet “at peace” with a more strategic and scalable approach. I’m sure the Happy Birthday Megrow! blog post in a years time will have interesting news to share.
In the meantime, stay tuned for updates on this blog and on Megrow’s YouTube channel.



Megrow Podcast: Episode 3

Episode 3 of the Megrow Podcast is live ! It focuses on the tangible benefits that good ERM brings to a company. If you like to listen to the video podcast, click the embedded link below. However, if you like to read the (almost) verbatim script, just scroll down and enjoy.

The Script of Episode 3

Megrow Podcast Episode 3 picks-up the topic trail where episode two ended. Back in episode 2, I scratched on the importance of making ERM a tangible benefit to any business. In this episode I will elaborate substantially more on this topic and most importantly share some examples to illustrate my point.

the evolution of the benefit slides

I start with a slide that is a core part of Megrow’s marketing materials since almost day 1 of the company. When I show this slide to colleagues and clients, the reactions are always very positive.

all stakeholders benefit from good enterprise risk management

Everybody seems to see the message of “benefits to business” right away. Naturally, some people tell me that the looks of the slide is borderline childish and inappropriate for business. However, the many spontaneous, “eyes wide-open” positive reactions I got and keep getting from different audiences convince me that it is a good slide. Hence, it keeps its important spot in many of my presentations.


Having said that, as I keep acquiring and completing more mandates, I felt the need to give the slide a good second look and decided to overhaul it: more focus and a slightly more polished look. So, here is the new version of the slide:

Good ERM improves results!

The diverse, colorful head image is the best representation of the variety of stakeholders that benefit from good ERM. For the updated version, I reduced the number of “benefits boxes”. Furthermore, I significantly enlarged the “improved results”. The “improved results” text box now sits right below the image – simply to give it the importance it deserves!

On to the real topic now: I will focus on a few, very tangible benefits of good Enterprise Risk Management.

ERM and Credit Rating

I start with the lever that Enterprise Risk Management has on credit rating.

Credit rating is the combination of balance sheet strength analysis and a number of adjustment factors; ERM being a crucial adjustment factor to derive a final credit rating. I refer to AM Bests’ credit rating approach, because I’m most familiar with their method. Having said that, all credit rating agencies use similar ways to go about it.

AM Best increase their assessment by one “notch” for a leading ERM-approach and, most importantly, lower their rating by up to 4 “notches” for an nonexistent ERM-approach. 

”Minus four notches” – that is very very significant. In other words, it pays off greatly to be at the “good practice level” for ERM. At the other end of the scale it is devastating to have a sub-standard ERM-output.

Higher credit rating means access to additional business, hence higher profits. Furthermore, a higher credit rating also lowers financing cost for a company. In reverse, a lowered credit rating closes some doors to business and makes access to some forms of capital more expensive. Hence, good ERM translates 1:1 to improved profit.

ERM Eases Communication

I’m very grateful to the CEO of a customer who “lifted” me onto the second “benefit” I highlight in this paragraph.

During a past mandate, the senior management team of the customer and I spent a lot of time compiling a good “risk appetite statement”. We managed to find a very sensible balance between some quantitative and a few, selective qualitative statements. In other words, we managed to define a tangible, yet flexible enough risk-appetite description. This enables the company to evaluate the up- and downside risks of some major strategic endeavors against its own perception of risk. I was very happy with that outcome.

The icing on the cake: what the CEO shared with me after the company’s next board meeting. According to the CEO, the revised risk appetite statement made the communication with the board so much more tangible, faster, efficient and easier. The bottom line: a significantly more efficient board of directors meeting!

ERM and Cyber

The risk landscape is continuously evolving; most risks are more interconnected and more challenging to mitigate than ever before. The entire realm of Cyber risk is a prime example. Exposures are interlinked, severity and frequency sometimes difficult to estimate and a plethora of mitigation efforts are deployed. ERM with its company-wide, consistent approach to identify and mitigate risk, is the best tool to “up” the defense for a company. It also is best suited to help a company finding additional business opportunities in the Cyber realm.

Thank you for reading through the transcript of the Megrow Podcast Episode 3. More episodes are in the making already. Megrow is here to make your ERM-journey fast and efficient. Contact details are at the bottom of the page.



The Superhuman CRO

I wrote about the “ideal” CRO Superhuman almost a year ago in a blogpost. Interestingly, this topic remains an evergreen. During almost all conversations about ERM sooner or later the question about the CRO’s ideal skill set come up.

the decathlete

In my earlier blog, I used the “decathlete” analogy quite frequently. Whilst this analogy is tangible, it probably isn’t the best explanation in a business context. Hence, I came up with a different, more business-relevant description. A good CRO has a “thorough understanding of the entire value chain” of the respective industry.

What does that mean? Taking the insurance industry as an example, a CRO must understand how risk management and capital provision interlude along the value chain. If we imagine the value chain as a line, then insured and capital provider sit at either end. In business reality, the risk and the capital pass through many hands and undergo multiple transformations. Each component of the value chain has its idiosyncrasies, uncertainties, upside and downside risk embedded in it. Hence, the understanding of the interlude and which ‘change’ triggers which reaction is the key.

In other words, the CRO’s ensures that the organisation

  • understands both external and internal drivers that influence the value chain
  • recognises, quantifies and mitigates downside risks and opportunities associated with these drivers in a consistent manner
who then?

(1) Any professional who has developed a thorough understanding of the entire value chain is a good candidate. Naturally, qualified actuaries and CIIs (or equivalents) with leadership experience are very well suited.

(2) a strong trait of constructive curiosity, excellent communication and influencing skills in all dimension of an organisations current set-up.

(3) a mind-set and corresponding actions to position good ERM as a strategic tool that supports all stakeholders.

Over the past years, I’ve had the opportunity to support clients who asked themselves the “superhuman” question. Together we found a matching answer every time!

you can reach me at reto.brosi@megrow.asia



COSO ERM Framework – One Year After the Update

The COSO ERM framework update

COSO released a significant update of its well-known ERM-framework in late 2017. An executive summary is accessible on their website.  The ERM community, especially the “COSO-istas” most eagerly awaited the update. Additionally, the wider stakeholder community was excited to see how the new framework will benefit businesses.  I’m a fan of COSO because their approach is forward looking and tries to integrate strategy and performance with Enterprise Risk Management.

So far so good.

who is the target?

Once I started reading the executive summary, a few questions came to my mind. First, who is the target audience? Second, how many ERM-sceptics can this update convince? And lastly, where are the increased, practical benefits of this version versus its predecessors? I’ve shared some of my supportive and critical views about the new framework in a few blogposts.

gnōthi seauton

Lo and behold, pwc, one of the key contributors to the revision, published a blog reflecting on the “so what” question one year after the update. I really like the open and candid views in that blogpost. Hurdles, miss-conceptions, prejudices, resistance to change… not surprisingly, it’s all there. My advice: “NEVER EVER GIVE UP”.  Having said that, it is no surprise to me that “take up” of the new framework probably isn’t where the authors envisaged it.

and now?

Talking to practitioners and clients across Asia, I noticed that the new framework needs significantly more marketing. It appears not to be known (almost) at all. Out of the many people I spoke to, only ONE (yes 1) appears to have read the new framework.

I have a few suggestions

  1. The effort to summarise the entire approach into a picture is a great endeavour. However, this double-triple helix (*) needs to be simplified and made more tangible. Only then, business leaders will buy into it. In plain simple English: the current depiction is too complicated.

    COSO ERM framework update
    the COSO ERM double triple helix
  2. Nothing beats tangible, $$$-denominated examples. Concepts and frameworks are great, but ultimately businesses will only buy into it, once they see tangible top and bottom line benefits. Preferably, these benefits are palpable within the coming quarter or two.  Dear reader: I “hear” you screaming that ERM is a long-term strategic undertaking,,,, but after all,,,,, sales and results drive a business.
  3. I’m also cognisant that a special compendium with “real life” cases has been released. However, why do we need to buy and read even another document to convince us that the first document (the framework) is a good thing? Somehow counter-intuitive..
megrow

Whenever I speak or write about ERM, I make a point to emphasise the tangible benefits of good ERM for the business. The benefits come in various shapes and forms:

  1. better understanding of new risks can be transformed into new business
  2. better ERM contributes to positive credit rating evaluation, which will lower capital costs and open doors to new business as well
  3. properly managed Cyber exposures protect the downside and can lead to new business opportunities, too
  4. good ERM will lower compliance costKeen to know more? Contact Megrow via the “buttons” at the bottom of the site and stay tuned for new blogs on www.megrow.asia

    (*) the picture is used with permission from COSO as stated on their website.


ERM – The Benefits

ERM done – so what

I’ve shared some technical and practical considerations about ERM in a few previous blogposts. This episode addresses the most important topic: “ERM done – so what”. Whenever I talk about Enterprise Risk Management, I emphasize on its tangible benefits. ERM is about managing downside and creating opportunity.

The picture below displays a wide, although not complete, stakeholder landscape and the tangible benefits of good ERM. The regulatory, governance and credit rating agency related values are clear. Furthermore, an optimal alignment of risk appetite and capital possibly supports increased risk taking. So far, all so good.

good ERM - happy stakeholders
all stakeholders profit from good ERM

cyber

IMHO Cyber Risk is one of the best cases in point to illustrate practical benefits of ERM; two aspects:

  1. Firstly, the defensive angle: companies must prepare to deal with Cyber attacks as an “entirety”, silos don’t work. This is relatively new category of risk(s), hence it requires some subject matter expertise and a very diligent look “across” the entire organization. Megrow has done Cyber risk mapping with clients (and for its own good – just to state the obvious). I will not dwell on that here. However, if you are interested in good Cyber-webinars, I highly recommend FireEye.com – excellent!
  2. Secondly, the opportunity angle. Let’s assume an insurer covers small and medium sized enterprises. Very many of these clients could and should do more to identify and manage Cyber risks. Buying Cyber insurance is only one mitigating factor. How can the insurer provide additional value and services for this type of risk? The principles of Cyber Risk management are rather universal. In other words, if an insurer has a good grip on its own Cyber risk landscape, this knowledge can become part of its service offering to insureds. This works exactly the same way as traditional loss prevention services that insurers offer their customers. Any sales person of that insurance company will be more than pleased to have an additional service ace in his/her sleeve!

 

In other words, we killed two birds with one ERM-stone. Thorough ERM helps this insurer manage potential downside risk of Cyber and enhances the company’s value proposition to its customers. It doesn’t get much better than this!


ERM – It’s All About Strategy!

NO, it isn’t.

I have sympathy with directors who complain about boring red-amber-green risk heat maps. How do we engage directors for Enterprise Risk Management? COSO and other opinion leaders have taken a great step into the right direction with the new COSO framework. Linking risk and opportunity to strategy and performance is the right way to go. I have shared some thoughts about the 2017 update  in previous blogposts.

however

By its very nature Enterprise Risk Management looks at the entire enterprise. Hence, we need to find a way to cover the micro, such as smaller operational risks AND the macro, such as the really significant risks and opportunities. Then ERM truly becomes “E”. When I accompany customers along their ERM journey’s, I really make sure we cover the entire spectrum. Otherwise we miss out on either end. And btw – that’s the beauty and the challenge of doing good ERM….

and the benefit is

I still have two bones to pick with some of the proponents of the ‘new’ ERM. Firstly, strategy is very important, but let’s not forget all the other, smaller risks! Many a little makes a mickle. And secondly, we need to up the ante in terms of communicating the tangible benefits of ERM. Concepts are great to understand a matter. However, a board of directors or a CEO will want to see expected tangible benefits before engaging a CRO. When writing about ‘tangible benefits’ in a business context, I’m clearly referring to a measurable impact on either sales or profits and preferably on both. These benefits must be on top of the well-documented benefits of good ERM with regards to credit rating or reduction of compliance costs.

Keen to know how my work benefits your company? Contact me via the social media buttons below or directly at reto.brosi@megrow.asia

 

The COSO ERM Update – Megrow Starts the Dissection

The COSO ERM Update – So What?

COSO, together with a number of partners, published the much anticipated ERM-framework update a few months back. I blogged about it the moment it was hot off the press.

The dust has settled, it’s time to dig a little deeper and ponder about the actual impact of the update. The executive summary of the press release already spans 16 pages, giving us an indication about the complexity of the task the authors have tried to tackle.

I decided to look at the new framework from two angles. First: what does it mean to the “converted”, i.e. the ERM practitioners who are familiar with the matter and second, how does an ERM-skeptic (yes, they exist in large numbers… ) look at the new framework and more importantly would it convince him or her to become an ERM-believer?

for the converted

For the “converted” it seems to makes sense. The world has moved on, risks have become more complex, Cyber, IoT and other hot topics were not on the agenda 14 years ago when the original framework was published.

Furthermore, linking ERM to strategy and ultimately to performance also is the right thing to do. After all, elaborately conceived risk heat maps that end up in drawers don’t contribute much to a company’s performance. Boards have become bored with just looking at risk maps, showing numbers in red, amber and green.

And lastly, to counter the ever-increasing complexity of risk with a set of principles is probably the only way to go about it. It is impossible to define universal, detailed standards for today’s and tomorrow’s rapidly evolving risk landscape. Taking the “principles” route is an easy way around being tangible – this criticism of the new framework is heard often.

for the non-converted

stay tuned, update coming soon.



 

ERM and THE NEW NORMAL

another new normal?

“The New Normal” is a popular theme in the insurance industry. What does it actually mean? And how do ERM and the New Normal go together?

The word “new” implies that matters have changed – so far so good. What about the term “normal”? One meaning of the word “normal” is “as expected”. Here it gets difficult when e.g. looking at data that indicates an ever-increasing frequency of hurricane landfall (cf ref below). In other words, the “new normal” is probably closer to the “new abnormal”.

I therefore coined the phrase “the ever-increasing volatility” to describe the challenge and opportunity of the re-/insurance industry.

How can businesses deal with increasing volatility? Portfolio planning and steering is one approach; in layperson’s terms it’s all about “take more different bites and take smaller bites”. A second solution is to harvest from good Enterprise Risk Management practice and a third approach leverages partnership between reinsurers and insurers that go beyond the provision of capacity.

Good Enterprise Risk Management creates a number of tangible benefits. Firstly, companies that practice good ERM are more robust to withstand shocks. Secondly, companies with strong ERM are more profitable than their peers with average or poor ERM-practice. And last but not least, companies with good ERM demand a higher valuation. Most recent data point at a 20% uplift in company valuation through good ERM!

Keen to know more about the benefits of ERM? Read my blog posts here.

AM Best was kind enough to interview me during the 14th Singapore Reinsurance Conference (“SIRC“) early November 2017.

the interview

Watch the 3+ minutes interview HERE. Thanks to AM Best for having me.


Diana Dorahy and Reto Brosi @ SIRC
with Diana Dorahy of AM Best

 

 

 

 


  • http://www.air-worldwide.com/Blog/How-Often-Are-There-2-U-S–Major-Hurricanes-in-2-Weeks-/


 

ERM and CREDIT RATING

ERM links to Credit Rating

Have you ever wondered how ERM links to Credit Rating? One is about financial stability (or debt repayment capabilities to be precise) and the other one deals with potential upside and downside of the business. So where is the link?

ERM as a key component

AM Best’s rating methodology outlines the connection very well . The picture below depicts the importance of good ERM as one of the rating adjustment factors. For example, if your ERM efforts are very good, the rating can increase by one notch  (the +1 in the ERM box). However, if your ERM efforts falls short of expectation, there is a potential of 4 notches downward adjustment (the “-4” in the box).

At first glance, it appears a daunting task to embed ERM into a rating process. The crux of the matter is to set-up a robust process and then use it, learn from the outcomes and amend as you go along. I have described the steps in setting up a ERM framework in several blog posts. Credit rating agencies look for the robustness of the ERM-approach. Furthermore, they seek evidence  that ERM is an integral part of strategy setting.

As an experienced ERM-practicioner and business executive who has dealt with rating agencies for several years, I’m well positioned to support you in making the ERM-Credit Rating link effective.

Keen to know more? Contact me via the social media buttons or directly reto.brosi@megrow.asia

btw: Picture is taken from publicly available material. 



 

Hong Kong – ERM on the Move

RBC on the horizon

In the run-up to the introduction of the RBC regime, Hong Kong’s recently established independent insurance regulator (“IA”), has issued this circular. Specifically, the regulator encourages all authorized insurers to participate in a first, quantitative impact study (“QIS 1”). The IA has given a challenging deadline for submission: the report is due by 01 December 2017.

ERM on the Move

Amongst many other things, HK-based insurers need to provide their “top 10” operational risk events by loss amount.

If they have these data at a simple push of a button, that’s great, but what if they don’t? Enterprise Risk Management enters the stage here. Risk reporting is a key feature of any good ERM framework. Furthermore, risk reporting will become a standard feature under Hong Kong’s evolving insurance regulation. Hence, it is the right time to set-up a risk register now and profit from easy reporting in the future.

In addition, a good risk register is as good as “half way there” to set up an ERM-framework. Do you know that companies with good ERM practice are valued approximately 20% higher compared to peers with sub-standard ERM? That sounds like a good investment to me.

SO WHATs NEXT?

Setting-up a risk register can be a daunting task. How broad and detailed should a good risk register be? What is the right balance between high level views and the necessary attention to details? How do I balance management views with the risk perceptions of the board of directors? And last, but not least: how do rating agencies and regulators look at risk?

My blog posts describe the journey of risk mapping.

My Contribution

How do you get ERM on the Move? Wouldn’t it be nice to have a pre-populated risk list? Or some industry benchmarks to start with? No need to reinvent the wheel, right?

That’s exactly where I, as an experienced industry and risk professional, come in to make your journey to a good risk list, efficient, smooth and effective. I’d be happy to tell you more how I will accelerate your ERM-journey. Contact me at reto.brosi@megrow.asia or via any of the social media buttons at the bottom of the page.