Risk Ventures

Produced by CNBC, in association with IBM: 

“Innovation is about re-inventing business processes and building entirely new markets that meet untapped customer needs. Most important, as the Internet and globalization widen the pool of new ideas, it’s about selecting and executing the right ideas and bringing them to market in record time.”

Another creative ad campaign from Zurich:

Question: What if you loose your entire ship? Answer: “We’re right there with you.”

“Think of the different risks that seven continents, hundreds of countries, and all the oceans can serve up. Even the largest companies struggle to keep up with the risks they already see, let alone those that lie just under the surface. To help our customers, our international operations are designed to provide consistent risk analysis, underwriting and claims services. In a changing world where risks can appear anywhere, we believe the most effective approach is to act as one.”

Blog “Sox First” references a February 1, 2007 Harvard Business Review article on “Reputation and Its Risks,” writing: “What’s needed is a forensic guide on identifying, quantifying and managing the risks to a company’s reputation long before the unspeakable substance hits the fan.” 

“Description: Regulators, industry groups, consultants, and individual companies have developed elaborate guidelines over the years for assessing and managing risks in a wide range of areas, from commodity prices to natural disasters. Yet they have all but ignored reputational risk, mostly because they aren’t sure how to define or measure it. That’s a big problem, say the authors. Because so much market value comes from hard-to-assess intangible assets like brand equity and intellectual capital, organizations are especially vulnerable to anything that damages their reputations. Moreover, companies with strong positive reputations attract better talent and are perceived as providing more value in their products and services, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Since the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital. Most companies, however, do an inadequate job of managing their reputations in general and the risks to their reputations in particular. They tend to focus their energies on handling the threats to their reputations that have already surfaced. That is not risk management; it is crisis management–a reactive approach aimed at limiting the damage. The authors provide a framework for actively managing reputational risk. They introduce three factors (the reputation-reality gap, changing beliefs and expectations, and weak internal coordination) that affect the level of such risks and then explore several ways to sufficiently quantify and control those factors. The process outlined in this article will help managers do a better job of assessing existing and potential threats to their companies’ reputations and deciding whether to accept a particular risk or take actions to avoid or mitigate it.”

See Richard Florida’s entry on “Risk, Reward and the New Class,” courtesy of 2blowhards, and the “Risk and Reward Curve.”

In addition to Richard Florida’s blog, he’s also launched The Richard Florida Crativity Group (RFCG), “a global think tank committed to fostering and developing new ideas and strategies to spur creativity, competitiveness and drive growth of companies, nations and communities.”

David Miller, a DC-based principal with the consulting practice, is a great contact.

SF Bay Area-based Risk Management Solutions (RMS) has launched the RMS Infectious Disease Model, the first commercially available probabilistic model for assessing the risk of influenza pandemics across multiple countries.

Here’s a link to a February 27, 2007 press release:

“The RMS model allows life/health insurers and corporate risk managers to quantify mortality and morbidity from nearly 2,000 potential pandemic influenza scenarios, taking into account such factors as likelihood of the pandemic occurring, infectiousness and lethality of the pandemic, demographic impact, location of outbreak, pandemic lifecycle, vaccine production, and national countermeasures. The model covers 31 different countries that collectively comprise over 95% of the global life insurance market.” Here’s a description of RMS: “Founded at Stanford University in 1988, RMS is the world’s leading provider of products and services for the quantification and management of catastrophe risks. We grew rapidly in the 1990s, offering technology and services for the management of insurance catastrophe risk associated with natural perils such as earthquakes, hurricanes, and windstorms, as well as products for weather derivatives and enterprise risk management for the P&C insurance industry. Today, RMS is also the leader in risk modeling for man-made disasters associated with acts of terrorism by analyzing the impact of weapons of mass destruction on property and people for many sectors of the insurance industry.”

Lloyd’s is the world’s leading specialist insurance market, home to 46 managing agents and 66 syndicates, which offer an unrivalled concentration of specialist underwriting expertise and talent. Here’s a link to Lloyd’s “360 Risk Project:”

“Today’s risk environment is changing and evolving – more rapidly than ever before. At Lloyd’s, understanding and anticipating major risk trends is what we do. We have created the Lloyd’s 360 Risk Project with one aim: to generate discussion on how best to manage risk in today’s business environment. By tapping into the concentrated expertise and knowledge within the Lloyd’s market – and bringing together the views of experts from the insurance industry and the wider business, political and academic worlds – we want to stimulate practical, thought-provoking discussion about the issues that matter. Lloyd’s 360 Risk Project will not deliver all the answers but it will provide a forum for us to debate the steps we need to take to better manage risk.” 

Here’s a great background article on global macro-hedge funds by Wall Street Journal reporters Alistair MacDonald and Margot Patrick, “Macro Gang Hangs Tough”:

 “Betting on the world’s broad economic trends tripped up some high-profile names in the hedge fund industry last year, but such “global macro” investing is poised for a comeback this year, money managers say. Global macro was among the first widely practiced hedge-fund strategies. It helped popularize these private-investment vehicles after money managers George Soros, Julian Robertson and other early practitioners saw stellar returns by betting on economic trends via investments in currencies, interest rates, shares and other instruments.”

In the weekend interview on March 3, Holman Jenkins from the Wall Street Journal from profies Myron Scholes, an operator with the hedge fund Platinum Grove Asset Management.

Some excerpts: “You know him better as a winner of the Nobel Prize in economics. You may also recall him as a principal of the hedge fund Long Term Capital Management (LTCM), which went belly-up in the late 1990s. A better description would be a lifelong student of risk, and why we humans need risk, how we manage it and why we’d be unhappy without it.” “Start with the commonplace that risk is one side of a coin whose other side is reward. “We all have a taste for it,” he says. “In life, it would be kind of boring if there was no risk. On the other hand if there’s too much risk, too much uncertainty, too much chaos, we can’t handle it either. We simultaneously want order and disorder, simultaneously want risk and quiescence.”” “Businesses, he explains today, make their money from specializing in “idiosyncratic risk,” not “generalized risk.” Starbucks specializes in selling coffee to consumers. It doesn’t gain anything from exposing itself to currency risk, commodity risk, interest-rate risk, etc. Greater sophistication in financial markets has now made it easier and cheaper to lay off these generalized risks to others more expert at managing them. Businesses can concentrate on managing the risks (and reaping the rewards) unique to their own skills and assets.”

VIX and Investor Fear Gauge

In last month’s global economy up-turns and down-turns, the VIX indicator loomed large: market sell-offs à contagion à global financial market risk.

“The CBOE Volatility Index^® (VIX^®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility.”

Quoting an article on “Index Intelligence EEMA Way to Play Emerging Markets“:

“Stocks within the emerging markets tend to suffer bigger losses when anxiety levels are on the rise and investors become more risk averse. This is confirmed by the fact that, during each of the recent declines in the EEM, the CBOE Volatility Index VIX has spiked higher. A spike in the VIX, which is sometimes called the market’s “fear gauge,” indicates that levels of market angst and risk aversion are on the rise.”

Zurich’s latest marketing ad, “What if you can’t find the 32 hidden risks in this picture?” 

Answer – “We know where to look.”  

If you look at a successful company, you will most likely find it offers something special. For us. That’s providing insurance insight. To help our customers understand where the risks are hidden, we offer one of the largest and most advanced global risk management networks in the world. Through a Relationship Leader who serves as a single point of entry, you get access to highly trained professionals who know your industry, know where to look for risks and what solutions you should consider. In a world where risks are changing all the time, that is special indeed.”