Shin Kong Financial Holding establishes an enterprise-wide risk management system

Since 2002, Shin Kong Financial Holding (SKFH) has been a leading provider of integrated financial products and services to Chinese communities across the globe. Today, the holding company has continued to grow, consisting of five major subsidiaries: Shin Kong Life Insurance Co., Ltd. (SKL), Taiwan Shin Kong Commercial Bank Co., Ltd. (SKB), Shin Kong Investment Trust Co., Ltd. (SKIT), Taiwan Shin Kong Insurance Brokers Co., Ltd. (SKIB), and Shin Kong Venture Capital (SKVC). SKFH serves approximately five million customers in over 400 outlets and branches through its subsidiaries.

For decades, the Shin Kong group has been cultivating markets, accumulating experiences, and building a reputation for excellence. As part of its drive to maintain a market-leading position, SKFH needed to extend risk management across its multiple divisions in order to enhance the investment decision making process and mitigate associated risk. SKFH senior management intended to understand more about the exposure for the group level as well as the individual entities.

SKFH therefore had incentives to improve on its overall approaches to calculating and managing risk. Dr. Grace Chu, CRO of Shin Kong Financial Holding, explains, “We wanted to establish an enterprise-wide risk management system in order to consolidate our investment portfolios and view market risk at the group level.”

Choosing an industry-leading risk management solution
To determine the best course of action, SKFH’s Risk Management department conducted an internal survey of its IT group and business users within its holding companies and decided that an outsourced solution was the best option to suit its diverse needs.

The company felt a vendor solution could be quickly deployed, and would provide the best risk management functionality, in addition to being easier to maintain. SKFH also felt that the company could take advantage of the risk management insights of the outsourced vendor’s consultants.

The firm then sent requests for proposals (RFPs) to prospective vendors and created a shortlist of candidates. After reviewing proofs of concept from these vendors, representatives from across SKFH selected IBM as the preeminent provider of risk analytics. IBM provided an integrated environment for SKFH to manage risk across various categories, was more flexible, offered deeper functionality, and met all the company’s requirements for market risk management.

Specifically, SKFH quickly recognized the solution’s ability to improve the firm’s integration of market risk information and establish an effective management scheme for a range of different risk types. The firm knew that the IBM solution would allow the creation of multiple virtual or changing portfolios to see different risk exposures, the development of multiple stress testing scenarios, and offer the flexibility to work with different pricing models for instruments. IBM Algo Market Risk also provided a sophisticated toolkit for customizations.

Adapting market risk management phases according to subsidiaries’ needs
SKFH took a phased approach to deploying the new risk management framework across its four major subsidiaries. Such an approach would empower the firm to quickly achieve short-term results that helped pave the way for the second, more complex phase.

The first phase, which was completed on time and on budget, focused on the implementation of a Value-at-Risk (VaR) process and stress testing for both domestic and international activities. “When we rolled out the first phase of the IBM enterprise market risk implementation across the entire organization, it was one of the most advanced implementations in Taiwan. The phased approach provided our project team the opportunity to gain confidence and apply lessons learned to the second phase of the project,” explains Dr. Chu.

During phase two, SKFH implemented additional classes of complex financial instruments across three of its subsidiaries: Shin Kong Life Insurance Co., Ltd., Taiwan Shin Kong Commercial Bank Co., Ltd., and Shin Kong Investment Trust Co., Ltd. In particular, this stage covered financial assets with complicated pricing models, such as structured products, mortgage-backed securities, credit-linked products, and over-the-counter (OTC) derivatives.

According to Dr. Chu, “We were pleased to work together with IBM to implement the IBM Algo Market Risk solution, while also sharing valuable insights that streamlined the implementation.” From a support and implementation perspective, SKFH’s needs for local and global expertise were supplied by IBM’s team of consultants, who established best practices for risk management.

Enhancing risk management and decision making
Today, over 50 employees from various departments throughout the organization use IBM Algo Market Risk to manage and gain risk insights into various types of financial assets valued at over US $35 billion. IBM Algo Market Risk provides a flexible and friendly environment for pricing, allowing SKFH to perform fair value calculation of an instrument. The IBM solution also enriches SKFH’s existing risk information and introduces new risk measures. As a result, the quality and quantity of the firm’s daily risk control processes have been enhanced.

The risk management units across SKFH’s entities are able to provide more timely and accurate information at a group level around asset allocation and risk measures such as sensitivity analysis and stress-testing results. With this type of knowledge, the company can better analyze the impact of risk on both asset allocation and portfolio diversification, while fostering upper management’s ability to make more informed decisions. “The reports are now providing our senior management with a system generated holistic view of financial risk across all of our different businesses,” says Dr. Chu.

Sending strong signals to the market
According to Dr. Chu, SKFH’s commitment to risk management and risk integration management has been recognized by many risk professional institutions, such as Taiwan Insurance Institute (TII) and Global Association of Risk Professionals (GARP). “Our investment in a leading risk analytics solution from IBM sends a clear signal that we are recognizing the competitive advantage of utilizing advanced risk management practices.”

SKFH sees the implementation of IBM Algo Market Risk as further indication of its strong position in the Taiwan market. “We are pleased with the results to date and believe that advanced risk management practices will support our continued success of providing financial products and services to the Taiwan market. In fact, with IBM Algo Market Risk as the foundation for our risk management system, we can look towards enhancing our other risk management processes.” concludes Dr. Chu.

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