Value and Capital Management

A value management framework designed specifically for banking and insurance

The Value Management Handbook is a comprehensive, practical reference written specifically for bank and insurance valuation and value management. Spelling out how the finance and risk functions add value in their respective spheres, this book presents a framework for measuring - and more importantly, influencing - the value of the firm from the position of the CFO and CRO. Case studies illustrating value-enhancing initiatives are designed to help Heads of Strategy offer CEOs concrete ideas toward creating more value, and discussion of "hard" and "soft" skills put CFOs and CROs in a position to better influence strategy and operations. The challenge of financial services valuation is addressed in terms of the roles of risk and capital, and business-specific "value trees" demonstrate the source of successful value enhancement initiatives.

While most value management resources fail to adequately address the unique role of risk and capital in banks, insurance, and asset management, this book fills the gap by providing concrete, business-specific information that connects management actions and value creation, helping readers to:

• Measure value accurately for more productive value-based management initiatives and evaluation of growth opportunities
• Apply a quantitative, risk-adjusted value management framework reconciled with the way financial services shares are valued by the market
• Develop a value set specific to the industry to inspire initiatives that increase the firm's value
• Study the quantitative and qualitative management frameworks that move CFOs and CROs from measurement to management

The roles of CFO and CRO in financial firms have changed dramatically over the past decade, requiring business savvy and the ability to challenge the CEO. The Value Management Handbook provides the expert guidance that leads CFOs and CROs toward better information, better insight, and better decisions.

Auteur

THOMAS C. WILSON is the chief risk officer for Allianz Group, where he is responsible for global risk controlling and risk management policies and guidelines. He has spent nearly 30 years working in finance and risk for such companies as UBS, McKinsey & Company, Swiss Reinsurance, Oliver Wyman & Company, and ING.

Résumé
A value management framework designed specifically for banking and insurance The Value Management Handbook is a comprehensive, practical reference written specifically for bank and insurance valuation and value management. Spelling out how the finance and risk functions add value in their respective spheres, this book presents a framework for measuring - and more importantly, influencing - the value of the firm from the position of the CFO and CRO. Case studies illustrating value-enhancing initiatives are designed to help Heads of Strategy offer CEOs concrete ideas toward creating more value, and discussion of "hard" and "soft" skills put CFOs and CROs in a position to better influence strategy and operations. The challenge of financial services valuation is addressed in terms of the roles of risk and capital, and business-specific "value trees" demonstrate the source of successful value enhancement initiatives. While most value management resources fail to adequately address the unique role of risk and capital in banks, insurance, and asset management, this book fills the gap by providing concrete, business-specific information that connects management actions and value creation, helping readers to: Measure value accurately for more productive value-based management initiatives and evaluation of growth opportunities Apply a quantitative, risk-adjusted value management framework reconciled with the way financial services shares are valued by the market Develop a value set specific to the industry to inspire initiatives that increase the firm's value Study the quantitative and qualitative management frameworks that move CFOs and CROs from measurement to management The roles of CFO and CRO in financial firms have changed dramatically over the past decade, requiring business savvy and the ability to challenge the CEO. The Value Management Handbook provides the expert guidance that leads CFOs and CROs toward better information, better insight, and better decisions.

Contenu

List of Abbreviations xiii

Preface xvii

Acknowledgments xix

About the Author xxiii

Part One

Introduction 1

Chapter 1

Why is Value Management Important? 3

Better Information 3

Better Insights 6

Better Decisions 8

Why Shareholder Value? 12

Chapter 2

How do CFOs and CROs Add Value? 15

The Evolution of the Corporate Center as "Shareholder Surrogate" 15

The Implications for the CFO 20

The Implications for the CRO 24

Part Two

Better Information - Measuring Value 29

Chapter 3

RAPMs - The Industry Standard 31

What Makes Financial Services Unique? 31

What do RAPMs do and How? 34

The RAPM (R)evolution 37

Three RAPMs for Three Distinct Purposes 41

Linking Directly to Shareholder Value 46

Insurance Example 49

Banking Example 50

Chapter 4

Two Challenges in Using RAPMs 51

Do RAPMs Influence Strategy? 51

Do RAPMs Give the Right Signals? 55

Chapter 5

Valuing Financial Services - The Theory 71

What Determines Share Value? Market Multiples, RoE and Growth 71

But What Determines Market Multiples? 73

Why a Market-Consistent Approach? 77

Value: Where it Comes from and How to Create More of it 80

Chapter 6

Valuing Financial Services - The Evidence 85

Evidence from the Insurance Industry 85

Evidence from Banking 96

Is it Just me or are Others Thinking the Same Thing? 98

Chapter 7

Market-Consistent Valuation for Insurers 101

Introduction to Fair Valuation for Insurers 101

Calculating Traditional Embedded Value 104

European Embedded Value 106

Market Consistent Embedded Value (MCEV) 109

How is MCEV Calculated in Practice? 115

From MCEV to MVBS 120

Final Comments: Whither MCEV? 122

Part Three

Better Insights - Managing Value 125

Chapter 8

Property and Casualty Insurance 127

History and Economic Rationale 127

From Principles to Rules of the Game 133

From Rules to the Valuation of PC Businesses 135

PC KPIs: Understanding and Managing Value 140

Chapter 9

Life and Health Insurance 151

History and Economic Rationale 151

From Principles to "Rules of the Game" 163

LH Valuation 167

Understanding Value Creation: Capital Intensity and Financial Risk Taking 171

Chapter 10

Banking 189

History 189

Products 195

Economic Rationale 197

From Principles to "Rules of the Game" 199

From "Rules" to Value 201

Chapter 11

Achieving Profitable Growth 211

Rules of the Game and KPIs 211

Management Actions - Three Horizons of Growth 217

Horizon 1 - Increasing Sales Productivity 218

Horizon 1 - Going Multi-channel 221

Horizon 1 - Getting More out of Existing Customers; cross sell, big data and customer loyalty 224

Horizon 1 - Managing the Customer Portfolio Skew 228

Horizon 2 - Anticipating Mega-trends 230

Horizon 2 - Exploiting Adjacencies 232

Horizon 2 - Transformational and Bolt-on Acquisitions 234

Horizon 3 - Creative Disruptions 238

Chapter 12

Achieving Operating Efficiency 241

The Importance of Operating Efficiency 242

Rules of the Game 248

Pay Less: Optimize Procurement 249

Pay Less: From Business Process Redesign to Outsourcing 250

Use Less, But More Effectively: Digitize and Automate 253

Use Less, But More Effectively: Re-engineer the Product Portfolio 254

Use Less, But More Effectively: Managing Acquisition Expenses 257

Part Four

Better Decisions - Capital, Balance Sheet and Risk Managem…