Nationwide Slides Draft 6

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RMI5017 Group Presentation on Nationwide

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Nationwide: Ahead of the Curve on ERM, Yet Miles to Go : 

Nationwide: Ahead of the Curve on ERM, Yet Miles to Go Group 3: Alexander Delmas James McCallen William Peterson Gene Ruderer Jennifer Spinner

Milestone Events 1920s – 1970s: ERM 1 Q1 : 

Milestone Events 1920s – 1970s: ERM 1 Q1

1980s and 1990s - Major Changes: ERM 1 Q2 : 

1980s and 1990s - Major Changes: ERM 1 Q2 2 Dominant Influential Leaders: 1981 - John Fisher, CEO Western Development 1992 – Dimon McFerson, CEO Diversified Financial Services

1980s and 1990s - Major Changes: ERM 1 Q2 : 

1980s and 1990s - Major Changes: ERM 1 Q2

1980s and 1990s - Major Changes: ERM 1 Q2 : 

1980s and 1990s - Major Changes: ERM 1 Q2 Product Diversification

1980s and 1990s - Major Changes: ERM 1 Q2 : 

Geographic Expansion 1980s and 1990s - Major Changes: ERM 1 Q2

1980s and 1990s - Major Changes: ERM 1 Q2 : 

New Business Growth 1980s and 1990s - Major Changes: ERM 1 Q2

Risk Profile Changes from 80s & 90s: ERM 1 Q2 : 

Risk Profile Changes from 80s & 90s: ERM 1 Q2 Nationwide’s transactions & endeavors through the 1980s and 1990s: Expanding and diversifying product lines Entering new geographic locations Strengthening capital base Achieving economies of scope and scale Leveraging brand identity and reputation Maintaining distinctive culture

Risk Profile Changes from 80s & 90s: ERM 1 Q2 : 

Nationwide transformed its risk profile to: Minimize financial risk Reduce credit risk Diversity away market risk Gain competitive advantage Risk Profile Changes from 80s & 90s: ERM 1 Q2

Economies of Scale and ERM: ERM 1 Q3 : 

Economies of Scale and ERM: ERM 1 Q3 ERM: ERM program importance is magnified as a result of the scale of Nationwide’s organization. Diversification is extremely important and Nationwide has addressed many of those concerns through ERM for capital adequacy, capacity, appetite and limits framework, and risk assessment/risk decomposition. Future ERM based decisions likely will emphasize focus as the areas for improvement Nationwide faces are speed of decisions, granularity of risk limits for business units, enterprise transparency of risk information have all been identified as areas for improvement.

Wausau Acquisition: ERM 1 Q4 : 

Wausau Acquisition: ERM 1 Q4 In 1985 Nationwide expanded its commercial business through an “affiliation” with the Wausau companies. Concerns with the acquisition Asbestos claims Pollution claims Nationwide conducted due diligence Nationwide purchased control of Wausau Nationwide agreed to add their retrospective claims including the asbestos and environmental claims to their underwriting pool. In 1992 Dimon McFerson was named CEO of Nationwide In 1997 Nationwide issued publicly-traded shares and began to look at their strategy and position in the global financial services industry. In 1998 Nationwide terminated its relationship with Wausau.

Undertaking Risky Projects: ERM 1 Q5 : 

Undertaking Risky Projects: ERM 1 Q5 National and International Expansion Explored growth opportunities into new businesses and markets CEO Dimon McFerson set goal of generating 10% of total revenue from International Business within 10 years

Diversification of firms: ERM 1 Q5 : 

Mutual/Privately held Cash flows are limited to initial/future investments Fiscal limitations lead to unreasonable goals and unnecessary risk to shareholders Publicly traded Value based upon stock price Infusion of capital from stock market enables opportunities to invest and grow operations Diversification of firms: ERM 1 Q5

Shareholder expectations: ERM 1 Q5 : 

Public/Private firm Shareholder Expectations: Both expect to see a Return on Investment (ROI) Both expect the Board members/Officers to make decision in Shareholder’s best interest Shareholder expectations: ERM 1 Q5

Public vs. Private NFS: ERM 1 Q5 : 

Public vs. Private NFS Accounting prepared to more stringent standards One accounting standard across the boards (GAAP) Reconciliation of multiple ledger systems One centralized accounting policy and system functions needed Multiple systems raise red flags Need for accounting system transparency Multiple systems create waste and increase time needed to prove ones credit worthiness to lending agencies Public vs. Private NFS: ERM 1 Q5

Changing asset allocation: ERM 1 Q6 : 

Diversity business through acquisition Allied (1998) European expansion (1998-2000) Gartmore (2000) formation of Villanova Capital (1998) Long-term asset holding Grow operations into similar industries Expansion into new areas at a later date Reap benefits of holding onto asset Offload once asset becomes liability Changing asset allocation: ERM 1 Q6

Mismatched Assets/Liabilities: ERM 1 Q6 : 

Mismatched asset vs. liability Can be profitable or cost money Successful firms become even less so when profits for one pay for losses of another Selling mismatched assets/liabilities can make/cost you money in the short term The cost of holding onto a potential risk Gartmore Example of a mismatched asset. Couldn’t complete, because of lack of marketing Nationwide made their own products compete against themselves Eventually sold off in 2007 Mismatched Assets/Liabilities: ERM 1 Q6

Nationwide ERM Developments: ERM 1 Q7 : 

As of July 2012, Nationwide no longer provides commercial coverage for incidents related to fracking A recent fracking settlement involving Cabot Oil & Gas Corp. resulted in a $54.1 million settlement with residents of Dimock, PA Previous experience with large commercial claims; specifically the asbestos claims handled by Wausau before and during their 1985 acquisition In September 2011 Nationwide purchased Harleysville Insurance to expand it’s independent agency unit The merger increases Nationwide’s reach into the northeast commercial market Some analysts suggest it will also increase risk exposure to northeast US weather events Nationwide ERM Developments: ERM 1 Q7 Star-Telegraph.com. Accessed 7/25/2012. http://blogs.star-telegram.com/barnett_shale/2012/07/nationwide-insurance-to-exclude-fracking-risks.html Insurance Journal Website. Accessed 7/26/2012. http://www.insurancejournal.com/news/national/2011/09/29/217906.htm

Nationwide Future ERM Strategy: ERM 1 Q7 : 

Nationwide is pushing for growth in safe, more traditional insurance channels Auto, home, life, etc. Even with the weather events of 2011, Nationwide still reported strong financials Avoiding policies that could expose the firm to a unknown risks Strong focus protecting customers to prevent claim events Vanishing Deductible, PC software for ID Theft customers Nationwide.com Q3 Results. Accessed 7/26/2011. http://www.nationwide.com/newsroom/111111-3Q-FinancialResults.jsp Nationwide Future ERM Strategy: ERM 1 Q7

Gartmore Purchases in Hindsight: ERM 2 Q1 : 

Whether the desire to improve Nationwide’s immediate stock price was the best long-term option As noted in the case “At the end of the 1999, Nationwide Financial’s stock price was tumbling and its financial strength ratings were falling” Was the market sustainable? Nationwide purchased Gartmore only 2 months after the peak of the tech bubble How Gartmore’s asset management products would be utilized in the US Gartmore was denied “shelf space” in Nationwide’s products Liebenberg, Andra. "Diversification and Divestment Decisions in an ERM Framework: Gartmore". Pages 2-3 Gartmore Purchases in Hindsight: ERM 2 Q1

Slide 21: 

Transparency Accountability Culture ERM Vision “Significant risks are clearly understood, proactively managed and consistently monitored by Nationwide in the context of achieving our business objectives and strategy.” Nationwide ERM Program: ER2 Q2

Slide 22: 

Informed Decision Making Enhanced ERM Capabilities Risk Governance & Policy Framework Risk Capacity, Appetite, & Limits Methodology Risk and Capital Modeling Tools Risk Identification & Assessment Processes Sufficient Compensation for Risk Decision-Making: ER2 Q2

Slide 23: 

Gartmore Foreign Market Large Corporation Corporate Culture Successful Acquisitions Domestic Market Small Companies Synergies What to Consider? Market Company Size Corporate Strategy Competitive Advantage Diversification: ER2 Q3

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