1 ICA – 15 avril 2008

INTEGRATED RISK PROFILE INTEGRATED RISK PROFILE RÉGIME DE RENTES DU RÉGIME DE RENTES DU

MOUVEMENT DESJARDINS MOUVEMENT DESJARDINS (RRMD)(RRMD)

INTEGRATED RISK PROFILE INTEGRATED RISK PROFILE RÉGIME DE RENTES DU RÉGIME DE RENTES DU

MOUVEMENT DESJARDINS MOUVEMENT DESJARDINS (RRMD)(RRMD)

2

RRMD: the numbers tell the story

Over 500 employers

35 900 active members

6 600 pensioners 12 000 in 2014

$5.5 B $10 B in 2014

3

RRMD – Governance model

Three-year strategic plan

Annual business plan: 39 initiatives in 2008

Governance plan (internal by-laws): accountability

Financing policy

Investment policy and risk budget

Matching study

A “strong” pension committee

4

RRMD – Objectives of integrated risk profile

Even better governance

Ultimately, increase the RRMD’s viability

Ensure that all risks are known and dealt with

Keep the plan’s overall risk at an acceptable level

5

RRMD – Steps

1st step

RRMD head office creates a risk inventory (90 risks)

Search for experienced consultant

Create an integrated risk profile (2006)

2nd step (2007)

Review risk profile

Develop a trend chart

6

Risk management core concepts

What is risk?

An inherent risk is the expression of the likelihood and impact of an event or a specific set of circumstances before controls are taken into consideration. An inherent risk takes into account the organizational situation and the operating environment underlying the organization or unit.

A residual risk is the level of risk remaining with the potential to influence the achievement of an objective or outcome, once the controls and other mitigation measures have been taken into consideration.

7

Integrated risk management

Definition

Integrated risk management (IRM) is a series of management practices supported by a risk culture that make it possible to assess, communicate and manage risk according to the organization’s risk profile and the opportunities available to it.

8

Valeurs et culture en matière de gestion du risque

Ressources de gestion du risque

OPÉRATIONNALISER LA GESTION DU RISQUE

ÉTABLIR ET MAINTENIR L’INFRASTRUCTURE

DE GESTION DU RISQUE

Construire le

cadreSurv

eille

r le

cadre

Compre

ndre

les

risques

Agir face aux

risques

©

Cadre de gouvernance

Lignes directrices et

outils de gestion du risque

Identification des risques

Réponse et plans d’action face aux

risques

Réponses particulières face aux situations de

risque

Indicateurs de rendement de la

gestion du risque

Prise de décisions éclairée

Cadre de politique

Plan de gestion du risque

Affectation de ressources fondée

sur les risques

Évaluation indépendante du

cadre

Évaluation des contrôles

Évaluation des risques

Information sur

les risques

Information sur les risques

Formation et renforcement des capacités

Plans de continuité des opérations

Principaux indicateurs de

risque

Information sur les risques

Info

rmat

ion

sur

les

risqu

es

Résultats Gestion du changement

Communication

Amélioration continue

Surveillance par la direction

IRM framework

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Integrated risk management

IRM helps take risk management beyond the level of individual activity or functional silos, such that:

• risks can be assessed horizontally throughout the plan

• risks can be assessed vertically(i.e. at multiple levels) within the plan

• all types of risks (strategic, operational, financial, etc.) are examined in such a way as to understand the full extent of the exposure to risk

• risk management is incorporated in the planning and decision-making process within the plan

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Definition of RCSA process

Structured approach geared to specific expertise of plan stakeholders (risk and control self-assessments)

Complementarity of facilitators thanks to their experience and outward-looking approach (independence, impartiality, knowledge of what’s being done elsewhere and recognized risk management managers)

Participants are valued equally, irrespective of their hierarchy in the risk determination and assessment process

The RCSA process helps make decisions to manage risks

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Typical steps in an RCSA

Defining the action framework

Defining the templates and scales

Collecting and analysing the information available on the plan

Defining the risk categories

Identifying, defining and classifying the risks

Identifying the assessment scales

Setting up assessment workshops (interactive votes)

Drafting the final report (risk maps, analyses, etc.)

Providing support in carrying out actions(trend charts, action plans, risk indicators, etc.)

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Collecting and analysing information on the plan

By analysing the existing documentation and conducting

interviews, the following is identified:

• Events (cases occurring in the plan or in the industry, incidents that

almost happened,...)

• Risk factors

• Inherent risks

• Controls

There is a convergence of the inherent risks with the

controls assigned to them

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Risk and control self-assessments

Presentation of inherent risks with associated controls

Self-assessment of each risk through votes to determine:

• impact (financial, objective, clients/partners, employees, reputation, sanction)

• frequency and likelihood (number of incidents, qualitative observations)

• exposure = √(impact*frequency or likelihood)

• effectiveness of controls currently in place

• residual risk = √(exposure*effectiveness of controls)

• trend

• strategy to adopt (accept, mitigate, transfer, avoid)

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Results of an RCSA

Once the strategies have been chosen (accept, mitigate, transfer or avoid), managers define the action plans

• An action plan includes corrective measures, the person responsible, a schedule and the strategic objective involved

Indicators (risk levels and trends, appropriateness of controls, maps,...) support the decision-making process

Development / updating of a trend chart for risks

• The trend chart is used to track changes in risks and categories based on changes in various indicators

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Description of the 13 “major” risks (highlighted area)

ID Service Category Risk

3 Assets management Market Market volatility

15 Liabilities management Business Solvency deficiency

5 Assets management Liquidity Insufficient liquidity in certain

classes of assets

8 Assets management Strategic Poor investment strategies or

policies

9 Liabilities management Business Plan design

10 Liabilities management Business

Policies and decisions relating to human resource management

14 Liabilities management Business Funding deficiency

12Consulting services for

administratorsBusiness

Unfavourable changes in accounting standards or the CIA’s standards

16 Liabilities management Business

Reliability of actuarial assumptions (going concern valuation)

1 Assets management Credit Default by an issuer

11 Liabilities management Business Risk of pension costs

20Consulting services for

administratorsOperational Retention of expertise and

succession planning

24Consulting services for

administratorsOperational Management of suppliers and

partners

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Definition of major risks

RRMD – Definition of the 13 major risks

Risk category

Risk priority Service category MCD category ID List of “major” residual risks

1Assets

managementMarket 3

There is a risk that performance volatility could exceed the established tolerance thresholds, thereby causing losses for RRMD and affecting its financial situation and ability to meet its commitments.

2Liabilities

managementBusiness (actuarial) 15

There is a risk that RRMD could have a solvency deficiency, affecting its ability to reach its strategic objectives, particularly contribution rate stability.

3Assets

managementLiquidity 5

There is a risk of loss due to insufficient liquidity in certain classes of assets, including real estate investments, private equity and hedge funds.

4Assets

managementStrategic 8

There is a risk that the RRMD’s investment strategies and policies will not enable it to achieve its strategic objectives and meet its commitments. Policy and strategy weaknesses can include asset allocation, diversification strategies, basic risks, etc.

5Liabilities

managementBusiness (HR) 9

There is a risk that the Plan design (e.g. overly generous benefits), which comes under the responsibility of human resources, might generate too high an ongoing cost, thus affecting RRMD’s ability to achieve its strategic objectives and meet its commitments.

6Liabilities

managementBusiness (HR) 10

There is a risk that human resource management decisions (wage increases, employment equity, mergers, acquisitions, outsourcing, etc.) might deviate from the assumptions, thus affecting RRMD’s ability to achieve its long-range strategic objectives and meet its commitments.

7Liabilities

managementBusiness (actuariel) 14

There is a risk that RRMD could have a funding deficiency, affecting its ability to achieve its strategic objectives, including its contribution rate stability, safety cushion and accountability to the regulatory authorities.

17

Definition of major risks (cont’d)

RRMD – Definition of the 13 major risks

Risk category

Risk priority

Service category MCD category ID List of “major” residual risks

8Consulting services for

administrators

Business (legal and regulatory

framework) 12

There is a risk that unfavourable changes in accounting standards or the CIA’s standards might negatively impact the RRMD’s financial situation and/or that of the members and partners.

9Liabilities

managementBusiness (actuarial)

16There is a risk that the reliability of the actuarial assumptions (going concern valuation) might affect RRMD’s financial situation and its ability to meet its commitments.

10Assets

managementCredit 1

There is a risk that the issuer of a debt instrument might not repay some or all of the principal and interest, thereby generating losses for RRMD and affecting its financial situation and its ability to meet its commitments (includes the risk of collateral associated with securities loans as well as the risk of discounting by a credit rating agency).

11Liabilities

managementBusiness (financial

health)11

There is a risk that the pension costs will be higher than forecast and/or higher year over year (which also impacts the company’s finances), affecting RRMD’s ability to achieve its long-range objectives and meet its commitments.

12Consulting services for

administrators

Operational (adequate resources)

20 There is a risk relating to retention of expertise and succession planning.

13Consulting services for

administrators

Operational (management of

suppliers and partners)

24

There is a risk that lack of performance or breach of contract by outside suppliers and by partners (asset managers, building managers, administrative managers, IT and data suppliers, asset custodian, etc.) could impact RRMD’s ability to meet its commitments and achieve its business objectives.

18

Advantages of IRM

Improves the decision-making process, strengthens the

organization’s governance, increases the ability to achieve

objectives and narrows the gap between perception (of the

plan) and reality.

Enables organizations to take advantage of optimization

opportunities, take charge of their development and protect

tangible and intangible organizational assets.

Helps improve results by managing risk proactively.

A tool to improve resource allocation according to the relative

importance of the risks

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The IRM process is an ongoing one

The evolution of risk changes according to internal management, industry and other factors. Consequently, the plan’s risk profile is not static; rather, it evolves within its environment.

This evolution must be monitored and controlled to ensure continuity of activities.

The process gains by being continuous and dynamic. It offers tools and a flexible methodology to facilitate risk management over time.

Makes it possible to develop trend charts that help the plan track changes in risks and the impact of these risks on the ability to achieve objectives.

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Success factors

A commitment on the part of management and the pension committees, with clear guidelines that are effectively communicated

Solid functional leadership

A risk culture shared throughout the organization

Targeting of risk areas

A method of training and support geared to “learning through action”