ACF308 Risk Management in International Banking, Insurance and Finance

Assignment 1 Guidance
Key points:
 Ensure you read the assignment information sheet and that you understand
the assessment criteria
 You must fulfil the assessment criteria to pass the assignment and the better
you fulfil these criteria, the higher your mark will be
 A critical review requires much more than simply describing what Old Mutual
(OM) does to manage risk. If you find yourself repeating large amounts of
information from OM’s annual report then you are being overly descriptive.
 Make sure you use quality academic sources. It is strongly recommended that
you focus on the sources recommended in class. If you use other sources and
they are not high quality or not relevant then you will lose marks.
 Structure your work around the 3 assignment tasks. Start with any relevant
theory and then use this to analyse the value and effectiveness of OM’s risk
management framework.
 Only complete the 3 tasks; do nothing else.
 No definitions or background is needed; this includes basic information about
OM. If you include any unnecessary information like this you will lose marks
and waste valuable words.
 Do not compare Old Mutual with any other organisation, you are using
academic literature only as the means to review Old Mutual’s risk
management.
 Spell and grammar check your work – there is no excuse for poor spelling or
grammar when Word will check this automatically. Good (high scoring) work
takes time and careful editing.
Introduction
This should be around 50-100 words
Explain that you are investigating the value and effectiveness of OM’s risk
management framework.
Explain that to achieve this you will be looking at the 3 question elements only.
Include no background (including no background on OM) or definitions. Even a
sentence or two of unnecessary material will lose marks.
The theoretical value of OM’s risk management activities
Around 700 words
Start with a brief explanation of why, in theory, risk management can add value to
OM. There is no need to define value, but you should explain that value is linked to
stakeholder satisfaction and ultimately a higher share price. The lecture on how risk
management can add value will be useful here (3 key theoretical reasons for value
are provided), supported by the following key sources:
R Stulz (1996) “Rethinking Risk Management” Journal of Applied Corporate Finance,
Vol 9, No. 3, pp8-25.
V Aebi, G Sabato, & M Schmid (2012) "Risk Management, Corporate Governance,
and Bank Performance in the Financial Crisis." Journal of Banking & Finance Vol.
36, No. 12, pp3213-3226.
S Bartram (2004) Corporate Risk Management as a Lever for Shareholder Value
Creation, Financial Markets, Institutions & Instruments, Vol 9, No 5, 297-324.
C Smithson & B Simkins (2005) “Does Risk management Add Value? A Survey of
the Evidence” Journal of Applied Corporate Finance, Vol 17, No. 3, pp8-17 (see also
Chew, Ch. 11)
Apply this literature to OM. Look for evidence in the annual report of how risk
management is adding value to OM. There is plenty of evidence you can use –
examples will be highlighted in class, so be sure to attend. Be careful not to provide
too much, quality is more important than quantity.
The effectiveness of OM’s enterprise risk management and risk appetite
frameworks
About 700 words
You should not attempt to define risk management or what a risk management
framework is. This would be too descriptive.
Rather you should start by explaining the elements of an effective (1) enterprise risk
management framework (ERM) and (2) risk appetite framework, as identified within
the relevant theoretical literature. This literature can then be used as the basis for
your review of the effectiveness of OM’s ERM and risk appetite frameworks.
The lectures on risk appetite and ERM are essential to help you understand the key
points to focus on within the theoretical literature, so be sure to attend these.
Important considerations include:
 Whether OM consider both risk and return
 Whether OM use soft tools, such as risk culture, as well as harder risk
management tools like risk metrics (see material on Simon’s levers of control)
 Whether OM use different tools to assess and control different types of risk
You will find the following sources especially useful here:
S Ashby and S Diacon (2012) Understanding Enterprise Risk Appetite, Insurance
ERM, 3 rd August, http://www.insuranceerm.com/
CRO Forum (2013) Establishing and Embedding Risk Appetite: Practitioner’s View,
Chief Risk Officer’s Forum, Amsterdam, www.croforum.com
COSO (2017) “Enterprise Risk Management: Integrating with Strategy and
Performance” www.coso.org/Documents/2017-COSO-ERM-Integrating-with-
Strategy-and-Performance-Executive-Summary.pdf
G Kaplan and A Mikes (2014) “Towards a Contingency Theory of ERM”, Harvard
Business School Working Paper, 13-063
(http://www.hbs.edu/faculty/Publication%20Files/13-063_5e67dffe-aa5e-4fac-a746-
7b3c07902520.pdf)
B Nocco and R Stultz (2006) “Enterprise Risk Management Theory and Practice”,
Journal of Applied Corporate Finance, Vol 18, No 4, pp8-20. Note: this is an easy
paper to read, but a little old, it is recommend that you supplement this with:
P Bromiley, M McShane, A Nair and E Rustambekov (2015) “Enterprise Risk
Management: Review, Critique, and Research Directions” Long Range Planning, Vol
48, pp 265-276
C Callahan and J Soileau (2017) “Does Enterprise Risk Management Enhance
Operating Performance?” Advances in Accounting, Vol 37, pp122-139 (you can
ignore sections 4 and 5)
You should then look for evidence in OM’s annual report to examine whether or not
they have effective ERM and risk appetite frameworks. Look for both positive and
negative evidence. Possible evidence that you could use will be identified in the
relevant classes. Use the ‘Find’ tool in Acrobat Reader to search for more.
Whether OM’s corporate governance arrangements adequately support their
risk management activities
About 700 words
In the lecture on governance we will focus on one key theme: whether integrating
risk management and corporate governance supports, or hinders, effective risk
management. This is the issue that you should focus on here.
The academic literature on risk management has not looked at this issue in detail, as
it is a new area of research. But you will find the recommended reading in the lecture
on corporate governance helpful, as well as the lecture contents. See especially:
A Bhimani (2009) “Risk Management, Corporate Governance and Management
Accounting: Emerging Interdependencies.” Management Accounting Research, Vol
20, No. 1, pp2-5
S Lundqvist (2015) “Why firms implement risk governance : stepping beyond
traditional risk management to enterprise risk management” Journal of Accounting
and Public Policy, Vol 34, pp 441-446
In this section look for evidence on how OM’s corporate governance arrangements
support, or hinder, its risk management activities. Possible evidence that you can
use will be identified in the lecture on governance.
Conclusion
About 300 words
Provide a final answer to each of the three question elements, highlighting the key
evidence you have to support your conclusion. Never say ‘I think’ and never provide
an unsubstantiated opinion. Remember opinion counts for nothing without evidence
(usually this evidence will be from OM’s annual report and/or the relevant academic
literature).
Use the above to sum up whether OM’s risk management activities are both effective
and value adding.
Note that you should not provide any recommendations on how OM could improve –
this is not part of the question. If you include any points that have not been included
in the assignment brief you will lose marks.
Spend time on writing a good conclusion – it will help you to get more marks. Paul
Harington can provide advice on this if needed.

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