BESTS REVIEW

www.bestreview.com November 2010

Technology Insight

Technology
the enterprise system. To this, the historical perspective provides an understanding of why the business took the form that it did. The current perspective provides a look at the present situation and a deeper understanding of the current markets and variables in which it operates. A future planning perspective will provide specific projections of operational performance, as well as ways to challenge the products, markets and systems. The collection of data and the application of technology as the means to measure risk and financial performance in a unified way would seem to be a daunting challenge for any insurer. However, this is changing. Information technologies embrace time-to-value using programs that can acquire and move data with greater speed and accuracy than ever before. The organizational structures used by accounting for budget, planning and reporting can incorporate risk into those measurement and reporting systems. The reporting is expanded for deeper analytics and predictive modeling applications to form a competed circle. Risk-adjusted return on capital, capital development and allocation, and economic value added are now incorporated in our business psyche and systems. Accounting rules, statistical models and risk measurement and management techniques are interrelated and should be unified. The evolution of accounting standards, risk management and inferential statistics have collidedwith a profound effect on our lives thats shaping policy, regulation, management systems and technology. The next few years will yield new promises with better results for financial institutions and insurers that can exploit the combined sensibilities of risk measurement with financial perBR formance management. 
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By Pat Saporito & Dale Strobel

Listen to an interview with Pat Saporito and Dale Strobel at www.ambest.com/audio. Digital readers: Hold cursor over icon for content.

isk and financial performance measurement and management can no longer operate independently. New tools, techniques and data that quantify risk and measure financial performance have come together to define our economic and financial times. This, combined with widespread collection of data and crunching of numbers, has given cause to complex financial derivatives, sophisticated value at risk modeling, economic capital allocation along with additional and new regulatory guidance.

Risky Business
Bringing together risk management and financial performance helps carriers transcend transparency and compliance ideals.
The GAAP, or statutory accounting model, is used to calculate net income and to value assets and liabilities. From this perspective, we look for ways to better understand risk-adjusted return on capital, projected future net income and capital requirements that are ascribed to different segments of the business. Risk and financial calculation models needed for enterprise risk and solvency metrics are backed by statistical, statutory, management and accounting data. The new paradigm for an integrated risk and performance model exploits risk and performance measurement and management in a unified way. Risk measurement and performance management are best optimized when brought together into the planning, reporting and business intelligence processes of Bests Review columnist Pat Saporito and contributor Dale Strobel are with the business analytic solutions group for SAP Labs LLC. They can be reached at pat.saporito@sap.com.

Risk management and performance management are best optimized when brought into the planning, reporting and business intelligence processes of the enterprise system.

Bests Review November 2010 REPRINT

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