Risk Management Risk Management Can We?Can We?
Presented byPresented by
Dan C. JonesDan C. JonesClinical Assistant ProfessorClinical Assistant Professor
University of HoustonUniversity of Houston
May 20, 2009May 20, 2009
Energy Risk USA 2009Energy Risk USA 2009
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Lets see how well we Lets see how well we have donehave done
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1937-1937- New London, TexasNew London, Texas
Natural Gas explosion Natural Gas explosion is school is school over 200 killedover 200 killed
Now use t-butyl Now use t-butyl mercaptan or mercaptan or thioplane thioplane
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1989-1989- Exxon ValdezExxon Valdez
Spilled 10.8 million gallon of crude of Spilled 10.8 million gallon of crude of coast coast of Alaska, Prince William of Alaska, Prince William SoundSound
Now require double hull crude carriers Now require double hull crude carriers in all in all US portsUS ports
March 2009 Korean vessel found a March 2009 Korean vessel found a drilling drilling rig lost after IKE, Double rig lost after IKE, Double Hull prevented Hull prevented any spillany spill
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2004-2004- Explosion BP plant Texas Explosion BP plant Texas CityCity
Extensive damage. BP Extensive damage. BP admitted admitted fault but fault but ignition came duringignition came duringrecovery cycle but fatalities due to recovery cycle but fatalities due to
location of work trailerslocation of work trailers
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2005-2005- Hurricane Katrina & Rita Hurricane Katrina & Rita Failure of flood gates New Failure of flood gates New
OrleansOrleans Inadequate wave clearance & Inadequate wave clearance &
offshore platforms for class 5 offshore platforms for class 5 storm storm
Inadequate response FEMAInadequate response FEMA
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2008-2008- Hurricane IkeHurricane Ike
Class 2 winds offshoreClass 2 winds offshore
Class 5 storm surge Galveston Class 5 storm surge Galveston Bay and Bay and Trinity BayTrinity Bay
Now referred to as Integrated Now referred to as Integrated Kinetic Kinetic EnergyEnergy
over 2,000,000 million over 2,000,000 million customers lost power. customers lost power. Unforeseen Unforeseen especially by CenterPoint. especially by CenterPoint.
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1984-1984- Bhopal India- Union Carbide Bhopal India- Union Carbide pesticide pesticide plantplant
300 killed, thousands injured 300 killed, thousands injured release of release of 42 tons of methyl 42 tons of methyl isocyanateisocyanate
Plant was not following Plant was not following safety and safety and operating guidelines operating guidelines of Union Carbideof Union Carbide
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19861986 Chernobyl, Ukraine explosion Chernobyl, Ukraine explosion released more released more than 400 times the than 400 times the radioactivity than with radioactivity than with atomic atomic bombing of Hiroshimabombing of Hiroshima
Built a sarcophagus a cover for Built a sarcophagus a cover for the reactorthe reactor
That and Three Mile Island That and Three Mile Island incident stopped incident stopped any nuclear any nuclear construction, in US in 1970’s. construction, in US in 1970’s. Now 4 Now 4 projects being considered in Texasprojects being considered in Texas
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20022002 Approved repository site in Yucca Approved repository site in Yucca Mountain Mountain NevadaNevada
Operational 2010, to be sealed 2035Operational 2010, to be sealed 2035Repository in solid rock 1000 feet Repository in solid rock 1000 feet
underground and underground and on average 1000 feet on average 1000 feet above water tableabove water table
Holds 77000 metric tons of waste Holds 77000 metric tons of waste Plulonuim-239 has half life of 24000 Plulonuim-239 has half life of 24000
years years Cost $9 billionCost $9 billion
2010 budget includes no funding for 2010 budget includes no funding for Yucca Yucca MountainMountain
Present 100 nuclear plants-20% of Present 100 nuclear plants-20% of electricity electricity
30 plants in planning stage30 plants in planning stage
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Asbestos- Alaska Pipe Line recognition Asbestos- Alaska Pipe Line recognition Asbestosis and mesothelioma but was used Asbestosis and mesothelioma but was used in shipbuilding in 1940’sin shipbuilding in 1940’s
Used by the Ancient Greeks because of its soft Used by the Ancient Greeks because of its soft and pliant properties- the miracle mineraland pliant properties- the miracle mineral
Over 80 companies involved with asbestos Over 80 companies involved with asbestos have filed for chapter 11 beginning with have filed for chapter 11 beginning with Johns Mansville Johns Mansville
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US Air Flight 1549US Air Flight 1549
Sulley SullenbergerSulley Sullenberger
Airbus A 320-214Airbus A 320-214
N10GUSN10GUS
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19881988 North Sea- Piper Alpha North Sea- Piper Alpha PlatformPlatform
Explosion many workers killed Explosion many workers killed platform severely damaged.platform severely damaged.
Equipment stacked near crew quartersEquipment stacked near crew quarters
Due to economic effort for more Due to economic effort for more production production
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SEMPRA EnergySEMPRA Energy
Owners of San Diego Gas & Electric- Owners of San Diego Gas & Electric- SDGESDGE
2007 Wildfires in California2007 Wildfires in California
Have $1.1 billion tower of liability Have $1.1 billion tower of liability insurance on aggregate basis and insurance on aggregate basis and now totally consumed.now totally consumed.
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But in all my experience, I have never But in all my experience, I have never been in any accident… of any sort been in any accident… of any sort worth speaking about I have never worth speaking about I have never seen but one vessel in distress in all seen but one vessel in distress in all my years at sea. I never saw a wreck my years at sea. I never saw a wreck and never have been wrecked nor and never have been wrecked nor was I ever in any predicament that was I ever in any predicament that threatened to end in any disaster of threatened to end in any disaster of any sort. any sort.
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EJ SmithEJ Smith
Captain-TitanicCaptain-Titanic
19071907
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We can add others not directly part of We can add others not directly part of energy but which impact us allenergy but which impact us all
9-119-11 20012001EnronEnron 20012001AIGAIG 20082008Banking systemBanking system 2007-08 2007-08
We do live in a risky worldWe do live in a risky world
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Retain and pay from internal funds Retain and pay from internal funds Control eliminate or minimize lossesControl eliminate or minimize losses Transfer usually by insurance but Transfer usually by insurance but
can include contractual transfercan include contractual transfer
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Insurance BuyerInsurance Buyer
Insurance ManagerInsurance Manager
Risk ManagerRisk Manager
Director of Risk ManagementDirector of Risk Management
Enterprise Risk ManagementEnterprise Risk Management
Sustainability Risk ManagementSustainability Risk Management
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Risks we have failed to Risks we have failed to managemanage
BanksBanksInvestment HousesInvestment Houses
Merrill LynchMerrill LynchLehman BrosLehman BrosBear StearnsBear Stearns
All fromAll fromSub prime Credit CrisesSub prime Credit CrisesMortgage valued securitiesMortgage valued securities
CDO’s- Collateralized Debt ObligationsCDO’s- Collateralized Debt ObligationsCredit Default SwapsCredit Default Swaps
AIG- a subject all its ownAIG- a subject all its own
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ERMERM
John Hampton- St Peters CollegeJohn Hampton- St Peters College
COSOCOSO
FailureFailure
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New RisksNew Risks
Cyber LiabilityCyber Liability
Gamma- Ray BurstGamma- Ray Burst
NanotechnologyNanotechnology
Somalia PiratesSomalia Pirates
Global WarmingGlobal Warming
23http://www.houstonpress.com/
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Raises questionsRaises questions
How do we?How do we?
When do we start?When do we start?
Can it make a difference?Can it make a difference?
Should we start with education?Should we start with education?
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UH-GEMI: Founding VisionUH-GEMI: Founding Vision
A premier human-capital supplier for the energy A premier human-capital supplier for the energy industry.industry.
A principal venue to join and develop issues of A principal venue to join and develop issues of critical interest to the energy industry.critical interest to the energy industry.
A research partner for the industry.A research partner for the industry.
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Major Educational Programs Major Educational Programs
Undergraduate Global Energy Undergraduate Global Energy Management (GEM) Program Management (GEM) Program
Graduate Energy Certificates Graduate Energy Certificates
China GEMBA programChina GEMBA program
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Global Energy Management Global Energy Management (GEM) Program(GEM) Program
GEM-Professional Program (Option to do a 5 GEM-Professional Program (Option to do a 5 year BBA/MS in Finance)year BBA/MS in Finance)
GEM-TrackGEM-Track
Global Energy Management MinorGlobal Energy Management Minor
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China GEMBA ProgramChina GEMBA Program
EMBA program in Beijing and EMBA program in Beijing and Houston for Senior SINOPEC and Houston for Senior SINOPEC and CNPC Executives on leadership trackCNPC Executives on leadership track
Instruction by UH Faculty in Beijing; Instruction by UH Faculty in Beijing; Students Come to Houston for a few Students Come to Houston for a few courses & graduation courses & graduation
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GEMI Conferences & GEMI Conferences & WorkshopsWorkshops
Energy Trading & Marketing Energy Trading & Marketing
Recent Trends in the Power Industry Recent Trends in the Power Industry
Petrochemicals & RefiningPetrochemicals & Refining
Bio-fuels Bio-fuels
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Risk Management Risk Management ScholarshipsScholarships
Bauer- AnnualBauer- Annual
3- Houston Marine Insurance 3- Houston Marine Insurance SeminarSeminar
2- Local Chapter RIMS2- Local Chapter RIMS
4- Dedicated Endowments4- Dedicated Endowments
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New CoursesNew Courses
Carbon Trading- Carbon Trading- January 2009 January 2009 EMBAEMBA
Petroleum Engineering- Petroleum Engineering- Fall 2009Fall 2009
Degree PlanDegree Plan
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All of these sources provide us the energy we need to live our busy lives.
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Tier ITier I
John Gresham- The AssociateJohn Gresham- The Associate
Bermuda Monetary AuthorityBermuda Monetary Authority
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Tier I- USATier I- USA
Texas – 3Texas – 3 UT, A&M, RiceUT, A&M, Rice
California- 9California- 9
New York- 7New York- 7
Research Funds $150 million plusResearch Funds $150 million plus
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Tier One CommitteesTier One Committees
1.1. National CompetitivenessNational Competitiveness
2.2. Student SuccessStudent Success
3.3. Community InvolvementCommunity Involvement
4.4. Athletic CompetitivenessAthletic Competitiveness
5.5. National and Local RecognitionNational and Local Recognition
6.6. Resource CompetitivenessResource Competitiveness
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Tier One ContributionsTier One Contributions
5,000+ new jobs5,000+ new jobs $129 million in wages to the regional $129 million in wages to the regional
economyeconomy $7.5 million in additional state $7.5 million in additional state
revenuerevenue $202 million in local sales$202 million in local sales
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Insurance RegulationInsurance Regulation
State RegulationState Regulation
Federal RegulationFederal Regulation
Optional RegulationOptional Regulation
Insurance CZAR CandidateInsurance CZAR Candidate
OpinionsOpinions
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Insurance PatriarchsInsurance Patriarchs
Maurice (Hank) GreenbergMaurice (Hank) Greenberg
Warren BuffetWarren Buffet
A third one as replacementA third one as replacement
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Is ERM the answer?Is ERM the answer?
Is RMI education the answer?Is RMI education the answer?
Can Tier I help this conundrum?Can Tier I help this conundrum?
Can insurances continue “business as Can insurances continue “business as usual”?usual”?
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Is the insurance market stable?Is the insurance market stable?
Will the regulation applying to Will the regulation applying to insurance, state vs. federal change?insurance, state vs. federal change?
Will we have federal regulation?Will we have federal regulation?
Will new leaders become known for Will new leaders become known for the insurance industry? the insurance industry?
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SummarySummary
We all have risks We all have risks
Our challenge is to finance the losses that Our challenge is to finance the losses that occuroccur
Risk management is the art of selection of Risk management is the art of selection of the method(s) to pay the method(s) to pay
We cannot eliminate all risk nor should We cannot eliminate all risk nor should wewe
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Risk AssumptionRisk Assumption
Assume risks that are comfortable and Assume risks that are comfortable and predictablepredictable
Transfer those risks that could Transfer those risks that could negatively impact your companynegatively impact your company
Be mindful of the risk bearing Be mindful of the risk bearing capacity of your companycapacity of your company
There are limitations- one is Chapter There are limitations- one is Chapter 1111
BPBPApril 20, 2010April 20, 2010
BP Blow outBP Blow out Maccando Blow outMaccando Blow out Deepwater Horizon Blow outDeepwater Horizon Blow out Vessell - $575,000,000Vessell - $575,000,000 11 deaths11 deaths 17 injured17 injured
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Gulf Issues/EnergyGulf Issues/Energy
BP Pollution LiabilityBP Pollution Liability LiabilityLiability Force MajorsForce Majors InsuranceInsurance No InsuranceNo Insurance Available LimitsAvailable Limits InspectionsInspections RegulationRegulation
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Energy Insurance and Energy Insurance and Risk ManagementRisk Management
Finance 4397/7397Finance 4397/7397
Professor Dan C. JonesProfessor Dan C. Jones
C.T. Bauer College of C.T. Bauer College of BusinessBusiness
FINA 4397/7397 47
Risk financing vs. Risk managementRisk financing vs. Risk management Risk and the worldRisk and the world As a society, always sought to As a society, always sought to
reduce uncertainty-tribes/clansreduce uncertainty-tribes/clans Business but an extension and risk Business but an extension and risk
is at heart of ALL business is at heart of ALL business operationoperation
Decisions cross borders and Decisions cross borders and industries-harm to stakeholdersindustries-harm to stakeholders
FINA 4397/7397 48
Language of risk & Language of risk & insuranceinsurance
RiskRisk Speculative riskSpeculative risk Pure riskPure risk New term-enterprise riskNew term-enterprise risk Management of RisksManagement of Risks A processA process
Identification and evaluationIdentification and evaluation Exploration of TechniquesExploration of Techniques Implementations and reviewImplementations and review
Current Risk managementCurrent Risk management Losses without gainLosses without gain
Holistic approachHolistic approach
FINA 4397/7397 49
Fundamentals of risk & Fundamentals of risk & uncertaintyuncertainty
Risk- variation of outcomesRisk- variation of outcomes Uncertainty- the doubt from Uncertainty- the doubt from
inability to predict future inability to predict future (outcomes)(outcomes)
Arises from riskArises from risk Add managers and becomes Add managers and becomes
complicatedcomplicated
FINA 4397/7397 50
Corporate demand for insuranceCorporate demand for insurance Risk managers assumed risk neutralRisk managers assumed risk neutral AssumptionAssumption
Increasing wealth leads to inc. Satisfaction Increasing wealth leads to inc. Satisfaction AND AND
Marginal utility constant as wealth Marginal utility constant as wealth increasesincreases
Individuals risk adverse butIndividuals risk adverse but Owners / shareholders are notOwners / shareholders are not Investors require higher return if Investors require higher return if
unable to diversify or systemic riskunable to diversify or systemic risk CAPM theoryCAPM theory
FINA 4397/7397 51
Shareholder risk aversion does not explain Shareholder risk aversion does not explain why corporations buy insurance why?why corporations buy insurance why?
Insurance companies have comparative Insurance companies have comparative advantageadvantage
Insurance can lower cost of financial Insurance can lower cost of financial distressdistress
Insurers may have service efficienciesInsurers may have service efficiencies Insurance can lower tax liabilities Insurance can lower tax liabilities
(property)(property) Regulated industries have higher demandRegulated industries have higher demand Compulsory insurance lawsCompulsory insurance laws Financial consideration of stock priceFinancial consideration of stock price
FINA 4397/7397 52
Practitioners increasingly taking Practitioners increasingly taking holistic approachholistic approach
Conceptual and applied economic Conceptual and applied economic knowledge continues to expandknowledge continues to expand
Private markets can not deal with Private markets can not deal with some societal riskssome societal risks
Publicly traded companies Publicly traded companies undergoing evolutionary changesundergoing evolutionary changes
Resources committed to Resources committed to understanding capacity of capital understanding capacity of capital marketsmarkets
A challenge for ALLA challenge for ALL
FINA 4397/7397 53
Economic developmentEconomic development BenefitsBenefits
More competitiveMore competitive Better valuesBetter values Shareholder value increasedShareholder value increased Cash flow levelingCash flow leveling Reduces insolvencyReduces insolvency Expands credit availabilityExpands credit availability Loss control / risk controlLoss control / risk control
Reduced costs results and better Reduced costs results and better able to competeable to compete
FINA 4397/7397 54
Property rights and economic freedomProperty rights and economic freedom Right to own real & personal propertyRight to own real & personal property Right to enter into contractsRight to enter into contracts Right to be compensated for tortious Right to be compensated for tortious
actsacts NeededNeeded
A system and a means to enforceA system and a means to enforce Markets are means of exchanging Markets are means of exchanging
property rightsproperty rights Insurance can not function without Insurance can not function without
defined ownership interestsdefined ownership interests Restrictive - monopolies, insider Restrictive - monopolies, insider
tradingtrading
FINA 4397/7397 55
Hard marketHard market Soft marketSoft market Hurricane AndrewHurricane Andrew 9/119/11 TodayToday
FINA 4397/7397 56
Value of insurance company servicesValue of insurance company services Pricing, underwriting, claims handlingPricing, underwriting, claims handling Pricing - statisticians / actuariesPricing - statisticians / actuaries Time lag of loss payments and Time lag of loss payments and
premium paymentspremium payments Competitive premium is of expected Competitive premium is of expected
losses, expenses, profitlosses, expenses, profit Investment returnInvestment return
Life companies -calculableLife companies -calculable Non-life - long tail claimsNon-life - long tail claims
Government treatmentGovernment treatment
FINA 4397/7397 57
Internationalization of business Internationalization of business creates internationalization of creates internationalization of financial servicesfinancial services
No one market can provide all No one market can provide all needed coverageneeded coverage Oil refineriesOil refineries Oil tankersOil tankers Off shore rigsOff shore rigs SatellitesSatellites Jumbo jetsJumbo jets Environmental impairmentEnvironmental impairment
National markets benefitNational markets benefit Increase competitivenessIncrease competitiveness
FINA 4397/7397 58
The financial environmentThe financial environment Finance and insurance have Finance and insurance have
much in commonmuch in common Each provide its customers tools Each provide its customers tools
for managing risks ANDfor managing risks AND Valuation methods are the sameValuation methods are the same
Fair value of the securityFair value of the security An insurance policyAn insurance policy Based on discounted cash value of Based on discounted cash value of
future cash flowsfuture cash flows
FINA 4397/7397 59
Same definition of risk- the Same definition of risk- the variation of future results from variation of future results from expected valuesexpected values
Rely on same fundamental Rely on same fundamental conceptsconcepts Risk poolingRisk pooling Risk transferRisk transfer
Therefore we have convergence as Therefore we have convergence as insurance company managers, insurance company managers, owners and customers must owners and customers must recognize and understandrecognize and understand
FINA 4397/7397 60
Risk management fundamentalsRisk management fundamentals What is risk?What is risk? Is risk different if building a new Is risk different if building a new
plant in Jakarta?plant in Jakarta? CurrencyCurrency LanguageLanguage Training / hiringTraining / hiring LawsLaws
SeparateSeparate Hazard risk managementHazard risk management Financial risk managementFinancial risk management
FINA 4397/7397 61
Objective of risk management - to Objective of risk management - to contribute to a firms valuecontribute to a firms value
FactorsFactors Unmanaged risk reduce value of Unmanaged risk reduce value of
firmfirm With increase in risk, cost of doing With increase in risk, cost of doing
business increasesbusiness increases Results in lower levels expected Results in lower levels expected
cash flowcash flow Reciprocal is thatReciprocal is that
Reducing risk increases cash flowReducing risk increases cash flow Increases value of firmIncreases value of firm
FINA 4397/7397 62
Risk assessmentRisk assessment Identification of exposureIdentification of exposure Analyzing to determine potential Analyzing to determine potential
impactimpact Assets subject to lossAssets subject to loss
Tangible, intangible, humanTangible, intangible, human The analysis should answerThe analysis should answer
What assets are exposedWhat assets are exposed What perils can cause harmWhat perils can cause harm What are potential consequencesWhat are potential consequences
FINA 4397/7397 63
Financial lossFinancial loss PropertyProperty
Real propertyReal property Personal propertyPersonal property Intangible propertyIntangible property
Net income losses (revenue less expenses)Net income losses (revenue less expenses) Fire lossesFire losses Auto accidentAuto accident Employee injuryEmployee injury
Magnitude function of revenue decreaseMagnitude function of revenue decrease Insurance terms - time element or business Insurance terms - time element or business
interruption because it is time dependentinterruption because it is time dependent
FINA 4397/7397 64
Liability lossesLiability losses Occur when parties assert legal Occur when parties assert legal
rightsrights Many types - mostly civil in natureMany types - mostly civil in nature
Defective productsDefective products Environmental impairmentEnvironmental impairment Injury to employeesInjury to employees Breach of contractBreach of contract Profession errors or omissionsProfession errors or omissions
Huge cost associated with defense Huge cost associated with defense even if no liabilityeven if no liability
FINA 4397/7397 65
Personnel losses - human assetsPersonnel losses - human assets InjuryInjury DisabilityDisability DeathDeath RetirementRetirement ResignationResignation KidnappingKidnapping
Which consumes most time?Which consumes most time?
FINA 4397/7397 66
External influences broadening scope of External influences broadening scope of risksrisks
GlobalizationGlobalization Industry consolidationIndustry consolidation DeregulationDeregulation Regulatory attention to corporate Regulatory attention to corporate
governancegovernance Sarbanes-OxleySarbanes-Oxley
Technological progress enabling better Technological progress enabling better risk quantification and analysisrisk quantification and analysis
FINA 4397/7397 67
Internal FactorsInternal Factors
Increased firm value – the emphasisIncreased firm value – the emphasis Reduces inefficiencies inherent in Reduces inefficiencies inherent in
traditional approachtraditional approach Improving capital efficienciesImproving capital efficiencies Stabilize earningsStabilize earnings Reduce expected costs of external Reduce expected costs of external
capitalcapital
FINA 4397/7397 68
Forces Creating Forces Creating UncertaintyUncertainty
Technology and InternetTechnology and Internet Increased worldwide competitionIncreased worldwide competition Freer trade and investment worldwideFreer trade and investment worldwide Complex financial instruments, Complex financial instruments,
notably derivativesnotably derivatives Deregulation of key industriesDeregulation of key industries Changes in organizational structures Changes in organizational structures
resulting from downsizing, resulting from downsizing, reengineering, and mergersreengineering, and mergers
Higher customer expectations for Higher customer expectations for products and servicesproducts and services
More and larger mergersMore and larger mergers
FINA 4397/7397 69
Enterprise Risk Management Enterprise Risk Management (ERM)(ERM)
Synonymous with:Synonymous with: Integrated Risk Management (IRM)Integrated Risk Management (IRM) Holistic Risk ManagementHolistic Risk Management Enterprise-wide Risk ManagementEnterprise-wide Risk Management Strategic Risk ManagementStrategic Risk Management
FINA 4397/7397 70
Alternatives to InsuranceAlternatives to Insurance RetentionsRetentions Self InsuranceSelf Insurance CaptivesCaptives Mutual CompanyMutual Company Industry developments as alternativeIndustry developments as alternative
WeatherWeather Loss portfolio transferLoss portfolio transfer FiniteFinite SecuritizationSecuritization
FINA 4397/7397 71
Retention CapacityRetention Capacity
Shareholders EquityShareholders Equity 2 - 3%2 - 3% Pre-tax EarningsPre-tax Earnings 5 - 10%5 - 10% Cash FlowCash Flow 4 – 5%4 – 5% Total AssetsTotal Assets 1 – 2%1 – 2% EarningsEarnings 10%10%
Rules of Thumb
FINA 4397/7397 72
Risk Management ContinuumRisk Management Continuum
Mitigate
Retain Transfer
FINA 4397/7397 73
Lets see how well we Lets see how well we have donehave done
FINA 4397/7397 74
1937 – New London, Texas1937 – New London, Texas Natural Gas explosion is school over Natural Gas explosion is school over
200 killed200 killed Now use t-butyl mercaptan or thioplaneNow use t-butyl mercaptan or thioplane
FINA 4397/7397 75
1989 – Exxon Valdez1989 – Exxon Valdez Spilled 10.8 million gallon of crude of Spilled 10.8 million gallon of crude of
coast of Alaska, Prince William Soundcoast of Alaska, Prince William Sound Now require double hull crude carriers Now require double hull crude carriers
in all US portsin all US ports March 2009 Korean vessel found a March 2009 Korean vessel found a
drilling rig lost after IKE, Double Hull drilling rig lost after IKE, Double Hull prevented any spillprevented any spill
FINA 4397/7397 76
2004 – Explosion BP plant Texas City2004 – Explosion BP plant Texas City Extensive damage. BP admitted fault Extensive damage. BP admitted fault
but ignition came during recovery cycle but ignition came during recovery cycle but fatalities due to location of work but fatalities due to location of work trailerstrailers
FINA 4397/7397 77
2005 – Hurricane Katrina & Rita2005 – Hurricane Katrina & Rita Failure of flood gates New OrleansFailure of flood gates New Orleans Inadequate wave clearance & offshore Inadequate wave clearance & offshore
platforms for class 5 stormplatforms for class 5 storm Inadequate response FEMAInadequate response FEMA
FINA 4397/7397 78
2008 – Hurricane Ike2008 – Hurricane Ike Class 2 winds offshoreClass 2 winds offshore Class 5 storm surge Galveston Bay and Class 5 storm surge Galveston Bay and
Trinity BayTrinity Bay Now referred to as Integrated Kinetic Now referred to as Integrated Kinetic
EnergyEnergy Over 2,000,000 million customers lost Over 2,000,000 million customers lost
power.power. Unforeseen especially by CenterPoint.Unforeseen especially by CenterPoint.
FINA 4397/7397 79
1984 - Bhopal India- Union Carbide 1984 - Bhopal India- Union Carbide pesticide plantpesticide plant 300 killed, thousands injured release of 300 killed, thousands injured release of
42 tons of methyl isocyanate42 tons of methyl isocyanate Plant was not following safety and Plant was not following safety and
operating guidelines of Union Carbideoperating guidelines of Union Carbide
FINA 4397/7397 80
19861986 Chernobyl, Ukraine explosion released Chernobyl, Ukraine explosion released
more than 400 times the radioactivity than more than 400 times the radioactivity than with atomic bombing of Hiroshimawith atomic bombing of Hiroshima
Built a sarcophagus a cover for the reactorBuilt a sarcophagus a cover for the reactor That and Three Mile Island incident That and Three Mile Island incident
stopped any nuclear construction, in US in stopped any nuclear construction, in US in 1970’s.1970’s.
Now 4 projects being considered in TexasNow 4 projects being considered in Texas
FINA 4397/7397 81
20022002 Approved repository site in Yucca Mountain NevadaApproved repository site in Yucca Mountain Nevada Operational 2010, to be sealed 2035Operational 2010, to be sealed 2035 Repository in solid rock 1000 feet underground and Repository in solid rock 1000 feet underground and
on average 1000 feet above water tableon average 1000 feet above water table Holds 77000 metric tons of wasteHolds 77000 metric tons of waste Plulonuim-239 has half life of 24000 yearsPlulonuim-239 has half life of 24000 years Cost $9 billionCost $9 billion 2010 budget includes no funding for Yucca Mountain2010 budget includes no funding for Yucca Mountain Present 100 nuclear plants-20% of electricityPresent 100 nuclear plants-20% of electricity 30 plants in planning stage30 plants in planning stage
FINA 4397/7397 82
Asbestos- Alaska Pipe Line recognition Asbestos- Alaska Pipe Line recognition Asbestosis and mesothelioma but was Asbestosis and mesothelioma but was used in shipbuilding in 1940’sused in shipbuilding in 1940’s
Used by the Ancient Greeks because of Used by the Ancient Greeks because of its soft and pliant properties- the its soft and pliant properties- the miracle mineralmiracle mineral
Over 80 companies involved with Over 80 companies involved with asbestos have filed for chapter 11 asbestos have filed for chapter 11 beginning with Johns Mansvillebeginning with Johns Mansville
FINA 4397/7397 83
US Air Flight 1549US Air Flight 1549 Sulley SullenbergerSulley Sullenberger Airbus A 320-214Airbus A 320-214 N10GUSN10GUS
FINA 4397/7397 84
19881988 North Sea- Piper Alpha PlatformNorth Sea- Piper Alpha Platform Explosion many workers killed platform Explosion many workers killed platform
severely damaged.severely damaged. Equipment stacked near crew quartersEquipment stacked near crew quarters Due to economic effort for more Due to economic effort for more
productionproduction
FINA 4397/7397 85
SEMPRA EnergySEMPRA Energy Owners of San Diego Gas & Electric- Owners of San Diego Gas & Electric-
SDGESDGE 2007 Wildfires in California2007 Wildfires in California Have $1.1 billion tower of liability Have $1.1 billion tower of liability
insurance on aggregate basis and insurance on aggregate basis and now totally consumed.now totally consumed.
FINA 4397/7397 86
But in all my experience, I have never But in all my experience, I have never been in any accident… of any sort been in any accident… of any sort worth speaking about I have never worth speaking about I have never seen but one vessel in distress in all seen but one vessel in distress in all my years at sea. I never saw a wreck my years at sea. I never saw a wreck and never have been wrecked nor and never have been wrecked nor was I ever in any predicament that was I ever in any predicament that threatened to end in any disaster of threatened to end in any disaster of any sort.any sort.
FINA 4397/7397 87
EJ SmithEJ Smith Captain-TitanicCaptain-Titanic 19071907
FINA 4397/7397 88
We can add others not directly part of We can add others not directly part of energy but which impact us allenergy but which impact us all
9-119-11 20012001
EnronEnron 20012001
AIGAIG 20082008
Banking systemBanking system 2007-082007-08
We do live in a risky worldWe do live in a risky world
