• Longevity and mortality risk

    Longer life expectancy can lead to higher than expected pay-outs on pension plans and annuities. It also generates significant solvency issues for pension funds and insurance companies. The increasing awareness of longevity risk has led to a growing demand for capital market instruments that can be used to manage this particular risk exposure. However, initial experiences with mortality-linked securities have been mixed.

  • Enterprise Risk Management – risk treatment and exploitation

    The trade-off between value and risk has become an important consideration in strategic corporate decision making. Enterprise risk management (ERM) analyses risk management activities as a part of value creation. To be successful, an ERM programme must identify key risks that are material to a company’s objectives and determine an optimal portfolio of risk response strategies.

  • Enterprise Risk Management – risk identification and measurement

    In the first stages of the Enterprise Risk Management cycle a large number of risk management techniques can be employed to identify and quantify enterprise-wide risks. The tools and techniques used range from simple interview and brainstorming approaches to complex risk modelling.

  • Enterprise Risk Management

    Enterprise Risk Management (ERM) has received increasing attention in recent years. ERM provides a framework to standardise and integrate risk management across an organisation by identifying, measuring and managing the risks to which a company as a whole is exposed.

  • Counterparty risk – part II

    Counterparty risk is an area of increasing importance for the corporate treasurer. There are significant advantages to tackling counterparty risk at a group level, rather than a subsidiary level. In last month’s article on counterparty risk, we looked at how to identify potential sources of credit defaults and monitor the degree of risk they posed. This month, we look at managing counterparty risk and the tools available to the treasurer to limit the impact a credit default has on the company’s financial health.

  • Counterparty risk

    Traditionally, treasurers have been chiefly concerned with interest rate and exchange rate risk. Counterparty risk is recognised, but may be seen as an issue to be addressed at subsidiary level. However, significant advantages can be derived from treating counterparty risk as a group issue and implementing a centralised approach to tackling the problem. In this article, the first of two dealing with counterparty risk, we look at how to spot potential sources of counterparty risk.

  • Managing commodity risk

    While virtually all companies are exposed to commodity risk on some level, so far relatively few have chosen to manage this risk. However, at a time when the volatility of commodity prices is affecting everyone, more treasurers are looking at ways to avoid the impact of commodity price fluctuations. In this article, we provide an overview of commodity risk, explain the most commonly used hedging techniques and outline the role of the commodity futures markets.

  • Tax efficient (intragroup) hedging activities

    An increasing number of transactions are being concluded in a foreign currency, resulting in greater currency exchange risks. To limit these risks, entities use various types of hedging methods and instruments. In this article we discuss the distinction between the hedging of internal positions versus external positions from a group’s perspective and possible ways to use tax systems to avoid (taxable) currency exchange exposures within the group.

  • The 8th EU Directive

    The auditing and accountancy world has come under greater scrutiny after the Enron-Arthur Andersen scandal in 2001. While the US legislators reacted quickly with Sarbanes-Oxley, in Europe the response has been more gradual. In Europe, national and EU law makers judged that there was a different legal environment in this region. However, the Parmalat case shows that Europe is not immune to accounting scandals. As one of the measures to improve the transparency and quality of statutory audits in Europe, the European Parliament and the Council of Ministers have now passed a new revised 8th EU Company Law Directive, sometimes also known as the ‘Auditing Directive’.

  • Managing interest rate risk with options

    Having previously focused on how swaps can be used to manage interest rate risk exposures, this month we look at the use of interest rate options. Interest rate options are an additional tool which can be used to hedge the exposure of current and future borrowing requirements against changes in interest rates. Options allow companies to limit their exposure to higher interest rates, without restricting their potential to benefit from lower interest rates.