The adoption of risk management procedures has already impacted the real business decisions of AMP, according to its chief executive Craig Dunn.
The process of determining where the organisation's risk budget should be allocated led AMP to realise the majority of the budget was being consumed by the company's shareholder's fund and its annuities book.
"It meant risk-based capital or our appetite for risk was going into a shareholder's fund that really wasn't going to get a high PE (price-to-earnings) multiple in terms of business growth," Dunn told delegates yesterday at the Institute of Actuaries of Australia Enterprise Risk Management seminar.
"Our shareholders want us to manage the shareholder's fund responsibly and they want us to get reasonable returns on that fund but if you've got too much risk in that fund it's absorbing risk," he said.
"So what we decided to do, and we actually made this decision before the GFC (global financial crisis) although I wish we'd implemented it a bit more quickly than we did because we implemented it through the course of the GFC, but we made the long-term decision to reduce our weighting to equities and increase our weighting to credit risk bonds.
"This was simply about reducing the amount of risk our shareholder's fund was absorbing because the returns it would generate according to the growth profile and other parts of our business was a lot less attractive."
Dunn said AMP applied the same principle when it made the decision to close its annuities book.
He said any future merger and acquisition activity will be assessed by taking into account the risk profile and the risk budget the opportunity might consume in the context of AMP's overall level of risk and its appetite for risk.
The risk is measured in terms of the profit of the company that is ultimately at risk.
