Risk Retention Analysis

What is Risk Retention Analysis?
A risk bearing capacity analysis helps an organisation determine its financial capacity to accept various levels of risk retention/self-insurance. Such an analysis evaluates the costs/benefits of increasing operational risk retention as opposed to risk transfer (e.g. insurance).

The overriding objective of a risk retention analysis is to establish the level of risk over and above current retentions, which the organisation can safely absorb without adversely affecting its financials in the event of a bad year. To the extent that an organisation can retain its own risks less expensively than it can engage through other options, it should consider doing so.

Benefits

• Determine the economic value of a risk retention/transfer through financial metrics for comparing competing retention/transfer scenarios
• Empower the organisation to select the optimal level of self-insurance and risk transfer
• Ensure that the qualitative reasoning, and internal departmental considerations are appreciated, when determining risk retention
• Gain control over the costs of risk while potentially improving coverages and limits, enhancing claims management and loss control, and gaining cash flow advantages
• Provide a fully worked Risk Bearing Capacity (RBC) model, which can be retained by the organisation for future use

Echelon’s approach
Our focus will be to help organisations examine the relative and absolute costs of risk financing options. We will focus on scientifically determining if the amount of risk your organisation is retaining as part of the deductibles under its insurance programme is at appropriate levels. This will involve the application of industry standard ratios to financial performance factors, such as liquidity, financial strength and earnings, to calculate the amount of risk that may reasonably be absorbed by an organisation, without seriously exposing the balance sheet, profit forecasts or dividend levels.

Our Experience & Credibility
Echelon’s Risk Bearing Capacity Team comprises a range of professionals from the risk retention disciplines within Jardine Lloyd Thompson/Echelon Risk Consulting Asia. We have experience in assisting a variety of organisations with their risk retention needs and risk bearing capacity. We apply industry standard ratios to financial performance factors to calculate the amount of risk that may reasonably be absorbed by an organisation without seriously exposing the balance sheet, profit forecasts or dividend levels. The measures considered include an organisation’s liquidity, financial strength and earnings.

To obtain more information about RBC analyses, please contact Echelon Risk Consulting Asia.