Resume Enterprise Risk Management a Case Sudy - 848 Words

Key Issue UGG (United Grain Growers) started implementing enterprise rise management by forming a risk management committee. This committee then met with a representative from Willis Risk Solution, a unit of Willis Group Ltd. UGG hired Willis Risk Solution to identify and qualitatively rank the firms major risk. This process identified 47 exposure areas and got the top six risks: 1. Environmental Liability 2. The effect of weather on grain volume 3. Counterparty Risk 4. Credit Risk 5. Commodity price and basis risk 6. Inventory Risk The analysis conducted by Willis Risk Solution led to the conclusion that, of the six risks originally identified, UGG’s main source of unmanaged risk was from the weather.†¦show more content†¦A contract could be tailored on a number dimension to meet the specific needs of buyer such as average temperature, rainfall, snowfall, a heat index, or the number of heating or cooling degree days. The payoff structure could resemble a put option, a call option, a swap, or combinations of these structures. 3. Insurance Contracts This contract can be done by buying the premium of weather insurance to cover weather risk.. Currently, UGG purchased a number of different insurance policies for various traditional risk exposures. Each policy had its own retention level and its own coverage limit. By integrating it various coverages under one policy, UGG could replace the individual deductibles and limits with an overall annual aggregate deductible and limit that would apply to all or a subset of losses, including grain volume losses. The main idea of this solution is by bundling all the risk faced by the UGG with insurance so that the price of premium will be low. To make clearly the solution here the table of advantages and disadvantages of those solutions: Table 1: the advantages and disadvantages of the solution Solution | Advantages | Disadvantages | Retention | * not having to pay the cost of shifting the risk to someone else | * Planned capital expenditures* Increased leverage; * Protect reputation | Weather Derivative | * From the figure 27.5 a weather derivative can be seen that the weather derivative