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Mergers, acquisitions and the strategic chief risk officer

Insurance Consulting and Technology|Mergers and Acquisitions|Reinsurance
Mergers and Acquisitions

By Mark Mennemeyer and Dave Ingram | September 25, 2019

Due diligence for an acquisition should include a review of the target’s risks, controls, risk-adjusted returns and its impact on your risk profile.

Pursuing mergers and acquisitions is a strategic growth tool for many businesses, including insurers. However, due to limited resources and capital constraints, opportunities must be assessed alongside alternative growth strategies, which could include creating a new product, going into a new territory or adding a distribution system.

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About our ‘A Year in the Life of the Strategic CRO’ series

In our ongoing A Year in the Life of the Strategic CRO series, risk experts from our Insurance Consulting and Technology team, Willis Re and other parts of Willis Towers Watson cover how a strategically focused CRO can drive corporate strategy through the enterprise risk management planning process and throughout the year.

As a part of the strategy selection process, someone will be tasked with assessing the potential to achieve the objectives for new sales or customers or whatever the goal. Someone will be tasked with assessing the likely costs of the new activity, while someone will need to assess the likelihood of achieving the target return on  investment. And if it is not already part of the due diligence process, a key strategic role for enterprise risk management (ERM) would be to assess the risk, proposed mitigations and controls and expected profit compared to the risk.

This review could answer questions such as:

  • What are the inherent risks of the new strategy?
    • Are those risks adding to the insurer’s highest risk concentrations or are they diversifying?
    • What are the key risks to delivery/implementation of the strategy?
  • What mitigations and controls are proposed?
    • Do these require new expertise?
    • What is the impact of the new strategy on risk profile with mitigations in place?
  • How does the residual risk level compare to other current activities?
    • Risk / premiums – average, range
    • Risk / asset value – average, range
  • How do the expected profits compare to risk?
    • Year one, year two, year three?
    • How does this compare to company standards and to other strategies?
  • When is return on risk expected to be comparable to current activities?
  • Are we prepared to monitor:
      Compliance with proposed mitigations and controls?
      Amount of additional risk?
      On a timely enough basis to catch and fix any problems?

Previously in the A Year in the Life of the Strategic CRO series: 3 factors that make silent cyber risk so challenging for CROs 

Authors

Mark Mennemeyer
Senior Enterprise Risk Management Practitioner, Insurance Consulting and Technology

Dave Ingram
Head of Willis Re ERM Advisory

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