ING Canada’s 2007 Q4 net income drops

Canada Inc. reported net income of Cdn$95.8 million for 2007 Q4,

down from $109.4 million in 2006 Q4, mainly due to lower results from invested assets, the company notes.

“Our investment activities continue to generate substantial interest and dividend income, but recent unfavourable capital markets conditions led to a net loss of Cdn$3.3 million on invested assets,” Charles Brindamour, president

EGI Financial Holdings sees 2007 profits slip

Financial Holdings Inc. reported a profit of Cdn$15 million for 2007, a decrease of 11.3% over 2006.

For 2007 Q4, the company reported a net income of Cdn$3.7 million, a decrease of 28.3% from 2006 Q4.

Underwriting income decreased 31.2% (to Cdn$10 million) for the year, compared to Cdn$14.5 million in 2006, an EGI release says.

For 2007 Q4, total underwriting income decreased 82.6% to Cdn

‘Favourable’ auto claims development boosts The Co-operators’ 2007 Q4 profit

Co-operators General Insurance Company has reported a 2007 Q4 consolidated net income of Cdn$60.8 million, up from the Cdn$18.5 million it reported in 2006 Q4.

“The improvement was due to favourable automobile claims development, higher investment returns and tax recoveries,” the company announced in a release.

Net income for the entire year of 2007 amounted to Cdn$148.2 million, compared to Cdn$118.1 million for the same period last year.

The company said an “excellent claims development experience and higher realized investment gains” contributed and CEO, commented in a release. “Despite a more challenging environment in 2007, our profitability for the year remains strong with a net income of Cdn$508.3 million and a 15.4% return on equity.”

The company’s 2007 net income is down from its 2006 net income of Cdn$658.1 million.

Increases in underwriting income in personal property and commercial

$600,000.

“The primary reason for this result is the increase in the loss ratio in the quarter to 65.1% compared to 61.0% in 2006,” the statement says.

This increase, the company said, is due to the loss ratio for its niche products division climbing to 73.4% in the quarter, primarily due to losses in the emergency travel health line of business.

The combined ratio for 2007 Q4 increased to 98.2%, compared with 85.6% for the same period of 2006. •

to the increase in annual results.

CGIC’s 2007 Q4 combined ratio was 93.6%, compared to 99% for 2006 Q4. For the whole year of 2007, the combined ratio was 98.3% (the 2006 COR was 99.8%).

CGIC said its gross written premium in 2007 Q4 increased to Cdn$523.1 million, compared to Cdn$518.7 million in 2006 Q4, “primarily due to growth in policy count and insured values in the auto and home lines of business which was partially offset by lower commercial premium rates.”

The company reported its 2007 return on equity (ROE) was 13.5%, as opposed to its 2006 ROE of 12%. • non-auto largely offset lower results in auto insurance, the company reported.

For the year 2007, underwriting income fell 48.3%, to Cdn$208.9 million.

The company attributed its 94.7% combined ratio to more claims in personal auto and in property. Overall the combined ratio increased by 1.7 percentage points during the quarter to reach 95.3%. •

Northbridge in 2007 reports 76.6% increase in profit

Northbridge Financial Corporation (TSX: NB) reported 2007 profits of Cdn$295 million, a 76.6% increase from its 2006 net income of Cdn$167.1 million.

Underwriting profit for 2007 increased to Cdn$84.3 million, compared to Cdn$23.5 million in 2006, a company release says.

The company’s combined ratio for 2007 was 92.3%, compared to 98.0% for 2006.

Profits for 2007 Q4 were Cdn$79.5 million, a 114.4% increase from net earnings of Cdn$37.1 million for 2006 Q4, the statement says.

Underwriting results for 2007 Q4 reflected a loss of Cdn$2 million, compared to a profit of Cdn$16.9 million over the same period of 2006.

Northbridge also included financial results of its subsidiaries. Underwriting incomes and combined ratios (COR) for 2007 (respectively) were as follows:

• Lombard Canada Ltd., Cdn$43.9 million, 93.7% COR;

• Markel Insurance Company of Canada, a profit of Cdn$9.2 million; 95.2% COR

• Commonwealth Insurance Company, a profit of Cdn$25.1 million, 77% COR; and

• Federated Insurance Company of Canada, Cdn$6.1 million, 94.1% COR. •

The old saying ‘full-time risk, part-time risk management’ has become a thing of the past: with the creation of the new CRO (chief risk officer) designation, risk managers have now climbed the next rung on the corporate ladder, eyeing the executive’s proverbial corner office

If some risk managers have their way, another set of letters will soon be added to the C-suite soup– i. e. the’CRO,’ or Chief Risk Officer. For some time, risk managers have said at conferences that their profession will not have truly arrived until it is recognized at the board level. But it’s difficult to tell if the profession has collectively edged itself into the corner office, or if they’ve been left on the sidelines.

A clear definition of the CRO model, the perceived feather in enterprise risk management (ERM)’s cap, is still a work in progress. Nonetheless, risk management representatives argue that in order for ERM to be effective, an organization needs a risk management representative at the senior level. When decisions are made, they argue, risk management is an inherent part of the process; ultimately, by having a seat at the table, the profession will have gained the recognition for which it has strived for over the past decade or so.

The CRO model does have its critics: some say the position itself is counter to ERM principles. ERM is supposed to aim at holistic risk management, for example, whereas the corporate boardroom often breaks down into ‘silos’ heade up by the so-called C-types– CEOs CFOs, COOs and CTOs (Chief Technology Officers). Does a seat for the CRO actually alleviate the other chief executives sitting around the table from shouldering responsibility for the organization’s risk management?

BENCHMARKS AND PLACEMENTS

Before debating the perfect model for the CRO, Canadian risk managers need to gain a sense of where they collectively sit within their respective employers’ organizational structures. Kim Hunton, Risk & Insurance Management Society (RIMS) Canada Council chair, says earlier this year the council established as a target for the next decade the transition of the risk manager position into the C-suite.

The first hurdle, says Hunton, is to find out where RIMS members are currently placed within their organizations’ corporate governance structures. This information would then be used for benchmarking purposes. “Currently we don’t necessarily know where our members are,” she says. “So one of our first challenges is to find out where RIMS members are today, and then to track those member position levels as they move through their working life.”

The Conference Board of Canada’s Corporate Finance and Risk Management division in 2005 published the survey Enterprise Risk Management: Inside and Out. The report surveyed 86 organizations (81 were Canadian), examining the role ERM plays in each company. A majority of respondents were government organizations (25%), followed closely by publicly-traded companies (23%) and crown corporations (21%).

Slightly more than half of the respondents reported having a CRO. The majority of companies that did have a CRO could be found in the financial, utilities and insurance industries.

Karen Thiessen manages the Conference Board of Canada’s Strategic Risk Council — a council composed of senior executives (CFOs, CROs, CIAs, COOs and vice presidents of risk management) with responsibility for ERM. She explains that the position is more prevalent in those sectors that tend to be much more heavily regulated. But, she adds, in the past three of four years, she has noted other sectors — both private and public –including healthcare, manufacturing, telecommunications, Crown corporations and federal government are appointing risk executives to the C-suite.

Thiessen hypothesizes that this recent shift toward increased implementation of ERM by Canadian companies may be a result of two developments: the regulatory dust of the Sarbanes Oxley Act of 2002 (SOX) settling south of the border and credit rating analysis of ERM at nonfinancial companies.

The US was knee deep in complying with SOX for the past few years, and Canadians’ interest in ERM was at an even keel for year one of SOX, but then started to grow over the next couple of years, she says. Canadians could have been waiting to see the final outcome of SOX before supporting a major initiative such as ERM or improving on their existing process. “Sure enough, after the first year of SOX implementation, the Strategic Risk Council grew by more than 50%,” she notes, adding that more Canadian companies will be breathing ERM as a result of the ratings evaluation process of S & P/Moody’s Investors Service.

David Price, regional vice president of financial institutions and professional liability for Arch Insurance (Canada), says that when underwriting a director’s and officer’s liability risk, the presence of a CRO in an organization is generally a sign of complexity in the risk. He notes CROs are commonly found in financial institutions, energy companies and large complex organizations that allocate and manage capital on a risk basis.

A CRO role is “a growing cornerstone” of ERM, Price says. “I believe that if you have someone who is evaluating risk, and assisting the CEO and the board in assessing how much risk they can take for given activities, that is a very strong underwriting risk characteristic.” But the existence of CROs in smaller, less-complex organizations is not a trend Price has observed in the Canadian marketplace. In a smaller, less complex organization, it may not be necessary to have the CRO position, he says, “but it would be a positive addition.”

A SILO OR A BRIDGE?

Susan Meltzer, the assistant vice-president of risk management at Aviva Canada, admits she’s not entirely sold on the concept of a CRO. “I think it takes away the embedding of accountability for risks in the jobs of all of the [other] senior executives, in particular,” she says. “All senior executives have accountability for risk in one way or another. By carving it out, I believe it can create a culture where if you have a risk event, then it was the chief risk officer’s fault.”

Assessing risk holistically should be encouraged as a way of thinking, she stresses. “I think having a CRO takes away from that.”

Thiessen, can see Meltzer’s point of view if, for example, it’s a smaller company whose business processes are highly integrated and relies on all individuals to be owners of risk in their own department. A CRO, on the other hand, she says, formalizes, coordinates and oversees an ERM process. An organization that practices enterprise-wide management of risks, including the setting of corporate risk tolerances and risk profiles, collectively coordinating and overseeing the process and providing written and verbal reports to the executive team and board, needs a CRO to keep the momentum of ERM.

Doug Brooks is the senior vice president and chief financial officer at Equitable Life Canada. He says that although his title says CFO, he is officially the organization’s CRO. It’s not the job of the CRO to do day-to-day risk management, he says. “The real key is that there are people who are making decisions day-to-day that have to make good risk-adjusted business decisions.” The role of the CRO, he added, “is to create the tools and the culture to make risk management happen within the organization.”

Meltzer says in an ideal world, a company’s top risk manager would have access to the board room table, have a senior-enough position to influence strategy, manage risk at all levels (both high and at ground level) and must be able to “help executives manage their risks, but also challenge the way that they’re managing their risks.”

She compares her notion of the risk manager to the cartoon illustration of the conscience — a devil perched on a person’s left shoulder and an angel on the right.

Senior executives aren’t wired to think pessimistically she says, so it’s up to the risk manager to offer all sides of a risk. “It’s not our job to ensure executives make the decision we think they should make. Our job is to ensure that the right people at the right level of the organization have the right information — both the upside and the downside — to make a decision.”Whether or not that warrants a spot in the C-suite, she added, “well, I’m not entirely convinced.”

Still, many in the risk management community maintain the profession needs to be in the boardroom, rather than on the outside waiting for an invitation in. For years, risk managers have

been battling to gain executives’ ears, says Hunton. Placed in a middle-management position, a risk manager is constantly worried about garnering buy-in from the upper ranks rather than just being able to focus on the job at hand.

EARNING YOUR SPURS

Whether or not they wear the executive threads, risk managers must overcome hurdles before either sitting at the executive table or advising the C-types. The Conference Board’s 2005 report suggests most CROs have moved into their positions from within their own organizations; the departments of finance and administration/ financial services predominantly serve as the springboard into the position (18% of the cases).

The very nature of risk management creates a challenge unto itself when it comes to demonstrating the value of the position to those in the upper ranks of management, Meltzer says. “The biggest obstacle is, [risk] isn’t measurable. It’s kind of esoteric.”

The whole point of the profession is to avoid “the big loss,” Meltzer observes. But how can anyone say ‘I averted the big loss’ when no one knows what that loss might have been? “What you’re trying to do is stop big, bad hairy things from happening,” Meltzer says. “And if you’re successful, then they don’t happen. But that’s difficult to measure.”

Brooks says if ERM is driven top-down, it might be viewed internally as just so much more bureaucracy, particularly in a large corporation. “If it’s not properly done, then it can feel like another corporate requirement,” he says. “People will question if it is really adding value.”

Buy-in at the business level is key, he suggests. But it can be tricky to achieve that buy-in before a problem erupts. “I know some companies have gotten into it [ERM] because of a burning platform, and there was an issue that had to be dealt with,” he says. “But I think over the past few years, people have come to realize there have been failures or frauds. These things can and do happen, and companies need to put proper things in place even if they believe that things are under control.”

John Fraser, Hydro One’s CRO, says that when he was asked to take on the role of head of risk management in 2000, the biggest challenge he faced was establishing credibility and adding value.

To overcome this obstacle, Fraser explains, he worked with one of the organization’s subsidiaries and ran a series of workshops on the company’s top risks. Using anonymous voting technology, (similar to that used on the game show Who Wants to Be a Millionaire?) Fraser and his staff ran the workshop, it was a hit, and the president of the subsidiary asked them to add another workshop with additional risks. “If it was not successful that probably would have been the end of ERM for the company,” he says. “That’s what I mean about credibility, you have to earn your spurs.”

Fraser was invited to bring his anonymous voting technology to the senior management team. He put to gether a series of mini-workshops, each about 40 minutes long. Each one tackled one of the Top 10 risks facing Hydro One. “It was funny, because the first time we ran this workshop, when we asked each person to vote and press his or her key pad, everyone looked to the president to see what she was thinking,” he recalls. “But what this anonymous voting allows you to do is to be really anonymous and express your opinion in an unbiased fashion. And then you could engage in this great dialogue without the ‘who-said-what.'”

Thiessen agrees with Fraser that if risk managers are going to elevate themselves professionally, they need to find a way to create value for themselves. “I think all risk managers are struggling with this. I also think all risk managers know they are valuable, but that they have to find an innovative way to convey this message to the right people who will let them sit in on the decision-making,” she says.

To gain credibility within an organization, risk managers must not try to do everything at once and keep it simple, Meltzer says. “By bringing in a consultant and working with fancy models right away, and coming up with fancy numbers that no one understands — it doesn’t work,” she says. “You need to take the time to build people’s confidence that you know what you’re doing. If you call the meeting, and you set the agenda and take the minutes, then you’ll be in charge.” SOFT FOCUS

To start an ERM program and earn the respect of the upper ranks requires a person to have a skill set that allows them to influence others. Too often, Meltzer says, people will focus on a person’s technical skills. But, “influencing people to do things when you don’t have any authority over them is a very difficult thing to do,” she says. “I don’t believe there’s a roadmap to success if you’re trying to embed risk management into the culture or DNA of an organization. You really need those people with that skill set to influence.”

Thiessen explains that the Conference Board is finalizing a briefing that includes the latest opinions from Canadian directors on what constitutes a good CRO. What are their attributes? Among them, she says, is for the CRO to”play a real challenge role and push back questions onto the executive team and board. A good CRO should be able to speak his mind in a very diplomatic fashion and understand that there may be consequences for doing so.

The CRO must be able to challenge the current paradigm and thinking process within the organization. How else can a company remain competitive, anticipatory and innovative?

“A good analytical ability” and someone who is really a “third eye of the organization” also topped the list, she continues. “That means that the person has an inside and an outside perspective and protects the organization from the downside of risk.” He or she, says Thiessen, citing the report, focuses on what is not being measured. While a good CRO looks at what can be measured and uses the mathematical modelling tools available, he or she also pays attention to whatever is not being measured. “The CRO should be able to tell executives that they need their eye on the intangibles, like reputation.”

An effective CRO also conducts forecasts and assessments when things are going really well so that he or she understands the drivers and is able to speak at multiple and conflicting views. “So, you’re not afraid to always research and find out exactly what your view is even if it’s contrary to where the view of the organization or executive team is,” she explains. “It’s like driving a car. You always have to know where your blind spots are.”

10-YEAR PLAN

Hunton says RIMS Canada is still hammering out exactly how it plans to elevate the profession. Already the council has taken on a few initiatives to help risk managers reach the next level of their professional career. The education committee is working towards having more Canadian universities offer undergraduate risk management degrees. The University of Calgary is currently the only school to offer such a program; the RIMS Canada council would like to see two or three more Canadian universities offer risk management degrees.

Thus far, the initiative is still in the feasibility study phase,Hunton says. Should it be successful, undergraduate students will develop an awareness of the risk management profession at a much earlier stage; they won’t have to wait until after they start their careers.

“We also want more recognition of the RIMS fellow designation,” Hunton says. To increase awareness and visibility in the Canadian marketplace, the council has been advertizing in financial services trade publications, targeting accountants specifically, she says. “We want to do more outreach in those areas so that there is more familiarity with what the RIMS fellow designation entails. Then hopefully, when bosses are hiring one day, they’ll say: ‘Gee, I’d like a RIMS fellow.'”

Finally, she says, the council is striving to ensure the annual RIMS Canada conference offers material specifically intended for future CROs. “We’re planning to deliver to our members regular, practical and high-quality educational offerings and risk management tools on a day-to-day basis through RIMS, enabling technology to give risk managers the tools they will need to move into the C-suite one day.”

The jury is still out on what the head of risk management position should look like (if indeed there should even be one), and where the position should appear within an organization’s corporate governance flow chart. Hunton maintains the CRO’s move into the proverbial corner office would solidify the recognition that risk managers have an important role to play within an organization — as important a role as that of the CFO, the COO or the CTO. “If the CRO is there when the executive committee has its regular meetings, they would know what’s going on, they would be able to influence decisions and they wouldn’t have to try to go up and sell it [risk management]. They would already be there. That’s the goal: that there is recognition the profession warrants a seat at the table.” CU