What is the Casualty Actuarial Society ERM Framwork (CAS ERM)?
The Casualty Actuarial Society (CAS) is an international credentialing and professional education entity. The organization focuses exclusively on property and casualty risks in insurance, reinsurance, finance, and enterprise risk management.
Background on the CAS ERM Framework
In 2003, the Casualty Actuarial Society (CAS) defined ERM as the discipline by which an organization in any industry assesses, controls, exploits, finances, and monitors risks from all sources for the purpose of increasing the organization’s short- and long-term value to its stakeholders.
The CAS, Society of Actuaries (SOA), and Canadian Institute of Actuaries (CIA) sponsor a risk management website with ERM education resources. The committee organizes the ERM framework by risk type and risk management process.
What are the CAS ERM Risk Types?
The four risk types are defined as follows:
- Hazard Risks: This category contains liability suits, property damage, natural disasters, crime, work-related injuries, and business interruption.
- Financial Risks: This category contains price risk, liquidity risk, credit risk, inflation risk, and hedging risk.
- Operational Risks: This category contains operational risk, empowerment risk, IT risk, integrity risk, and business reporting risk.
- Strategic Risks: This category includes competition, customer risk, demographic and cultural risk, innovation risk, capital availability, regulation, and political risk.
What are the steps in the CAS ERM Risk Management Process?
The CAS risk management process involves the following seven sequential steps:
- Establishing Context: The first step is setting the context for risk based on how the organization currently operates. This step includes understanding internal and external context and ERM context (for example, danger to specific business units and the organization’s environmental risk).
- Identifying Risks: Document threats that prevent your organization from achieving its business objectives. This stage also encourages you to define how you might take advantage of risk to obtain a competitive advantage.
- Analyzing Risks: In this step, analyze risk probability outcomes for each risk and quantify the impact.
- Integrating Risks: In this step, aggregate risk distributions, considering correlations and the effects of risk on portfolios. Measure this stage by the impact to key performance indicators (KPIs).
- Prioritizing Risks: Assess and prioritize each risk to determine how it adds to the aggregate ERM profile.
- Exploiting Risks: This step requires developing strategies for using various risks to the organization’s advantage.
- Monitoring Risks: The last step focuses on performing continuous reviews of the risk environment and overall ERM performance.