Managing the invisible : identifying value-maximizing

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      <subfield code="a">Panning, William H.</subfield>
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      <subfield code="a">Managing the invisible</subfield>
      <subfield code="b">: identifying value-maximizing</subfield>
      <subfield code="c">William H. Panning</subfield>
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      <subfield code="a">This article demonstrates the linkageoften asserted but seldom describedbetween Enterprise Risk Management (ERM) and maximizing a firm's value. I show that knowing a firm's aggregate risk  exposure (via ERM), when combined with a valuation model like the one presented here, can enable the firm's managers to identify and choose value-maximizing combinations of risk and capital. Using value maximization as the criterion for choosing a firm's capital structure is quite distinct from rules of thumb that CFOs often use for such decisions. The valuation model shows that increasing an insurer's surplus from an initially low level typically increases the present value of future cash flows that take int account the probability of impairment from extreme losses. In contrast to traditional literature on the risk of ruin, impairment here is taken to  mean a loss of creditworthiness such that the firm's business model is no longer sustainable, whether or not the firm is solvent. However, beyond a certain optimal level relative to a firm's risk, further increases in surplus actually reduce a firm's value added measured in this fashion. Sensitivity analyses presented here show how these conclusions are affected by changes in the values of crucial variables. In particular, the article shows how managers can use this model to identify specific actions that their firm can take to increase its value added, and it emphasizes the practical importance of making a firm's value both visible and manageable</subfield>
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      <subfield code="w">MAP20077000239</subfield>
      <subfield code="t">North American actuarial journal</subfield>
      <subfield code="d">Schaumburg : Society of Actuaries, 1997-</subfield>
      <subfield code="x">1092-0277</subfield>
      <subfield code="g">04/03/2013 Tomo 17 Número 1 - 2013 , p. 13-28</subfield>
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