ERM Glossary: Indicative measures

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For many types of credit, market, operational and insurance risks, the degree of risk exposure is not readily apparent from company accounting systems. To monitor, control, and manage risk exposures, indicative risk measures need to be used. Ideally, these risk measures will also be sensitive to risk characteristics and be predictive risk measures (in the sense that if the risk does occur then the measure will provide some guide as to its magnitude).

‘Indicative’ risk measures are thus indicators of the degree of risk that a firm has taken on, based on information supplied by its accounting, administrative or underwriting systems. Changes in such measures may provide a broad indication of trends relating to the risk. For example, they might include life insurance sums insured and/or premiums earned (for insurance), probable maximum losses, asset values, staff turnover rates, key performance indicators under service level agreements, audit exception reports, etc.

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