Stocks Rise with Risk Management

Morgan O'Rourke


March 28, 2013

The link between risk management and the financial performance of a company has always been difficult to quantify. After all, it is harder to put an exact figure on losses avoided than it is on profits gained.

But according to the Aon Risk Maturity Index, which was developed by broker Aon in partnership with the Wharton School at the University of Pennsylvania, companies with the highest level of risk maturity (a measure that gauges the development of an organization’s risk strategy and framework) experience 50% lower stock price volatility than their less-developed counterparts.

In addition, during the two years tracked (between 2010 and 2012), companies with higher risk maturity ratings saw greater annual stock price returns. This was especially apparent during the volatile markets of 2011 and 2012, when the only companies to see positive returns were those with the highest risk maturity ratings. Those lower on the scale saw losses between 17% and 30% by the end of the year.

The findings underline the importance of a fully developed risk management program (something the index calls “advanced”) that is characterized by a strong awareness of the complexity of risk and a willingness to incorporate risk management practices into strategic decisions throughout the organization.

Morgan O’Rourke is editor in chief of Risk Management and director of publications for the Risk & Insurance Management Society, Inc. (RIMS)