GE 2010 Annual Report Download - page 40

management’s discussion and analsis
38 GE 2010 ANNUAL REPORT
Risks identified through our risk management processes are
prioritized and, depending on the probability and severity of
the risk, escalated to the CRO. The CRO, in coordination with the
CRC, assigns responsibility for the risks to the business or func-
tional leader most suited to manage the risk. Assigned owners
are required to continually monitor, evaluate and report on risks
for which they bear responsibility. Enterprise risk leaders within
each business and corporate function are responsible to present
to the CRO and CRC risk assessments and key risks at least
annually. We have general response strategies for managing
risks, which categorize risks according to whether the company
will avoid, transfer, reduce or accept the risk. These response
strategies are tailored to ensure that risks are within acceptable
GE Board tolerance levels.
Depending on the nature of the risk involved and the particular
business or function affected, we use a wide variety of risk mitiga-
tion strategies, including hedging, delegation of authorities,
operating reviews, insurance, standardized processes and strate-
gic planning reviews. As a matter of policy, we generally hedge the
risk of fluctuations in foreign currency exchange rates, interest
rates and commodity prices. Our service businesses employ a
comprehensive tollgate process leading up to and through the
execution of a contractual service agreement to mitigate legal,
financial and operational risks. Furthermore, we centrally manage
some risks by purchasing insurance, the amount of which is
determined by balancing the level of risk retained or assumed
with the cost of transferring risk to others. We manage the risk of
fluctuations in economic activity and customer demand by moni-
toring industry dynamics and responding accordingly, including
by adjusting capacity, implementing cost reductions and engag-
ing in mergers, acquisitions and dispositions.
GE CAPITAL RISK MANAGEMENT AND OVERSIGHT
GE Capital has developed a robust risk infrastructure and
processes to manage risks related to its businesses and the
GE Corporate Risk Function relies upon them in fulfillment of
its mission. As discussed above, starting in March 2011, the
GE Risk Committee will oversee GE Capital’s risk assessment
and management processes, which was previously an Audit
Committee responsibility.
At the GE Capital level, the GECS Board of Directors oversees
the GE Capital risk management process, and approves all sig nifi-
cant acquisitions and dispositions as well as significant borrow ings
and investments. All participants in the GE Capital risk manage-
ment process must comply with approval limits established by
the GECS Board.
GE Capital’s risk management approach rests upon
three major tenets: a broad spread of risk based on managed
exposure limits; senior, secured commercial financings; and a
hold-to-maturity model with transactions underwritten to “on-
book” standards. Dedicated risk professionals across the
businesses include underwriters, portfolio managers, collectors,
environmental and engineering specialists, and specialized asset
managers who evaluate leased asset residuals and remarket
off-lease equipment. The senior risk officers have, on average,
over 25 years of experience.
GE Capital manages risk categories identified in GE Capital’s
business environment, which if materialized, could prevent
GE Capital from achieving its risk objectives and/or result in
losses. These risks are defined as GE Capital’s Enterprise Risk
Universe, which includes the following risks: strategic (including
earnings and capital), reputational, liquidity, credit, market, opera-
tions (including financial, information technology and legal),
and compliance.
GE Capital’s Enterprise Risk Management Committee (ERMC),
which is comprised of the most senior leaders in GE Capital as well
as the GE CRO, oversees the establishment of appropriate risk
systems, including policies, procedures, and management com-
mittees that support risk controls to ensure the enterprise risks
are effectively identified, measured, monitored and controlled.
The ERMC also oversees the development of GE Capital’s
overall risk appetite. The risk appetite is the amount of risk that
GE Capital is willing and able to bear, expressed as the combina-
tion of the enterprise risk objectives and risk limits. GE Capital’s
risk appetite is determined relative to its desired risk objectives,
including, but not limited to, stand-alone credit ratings, capital
levels, liquidity management, regulatory assessments, earnings,
dividends and compliance. GE Capital determines its risk appetite
through consideration of portfolio analytics, including stress
testing and economic capital measurement, experience and
judgment of senior risk officers, current portfolio levels, strategic
planning, and regulatory and rating agency expectations.
GE Capital uses stress testing to supplement other risk man-
agement processes. The ERMC approves the high-level scenarios
for, and reviews the results of, GE Capital-wide stress tests across
key risk areas, such as credit and investment, liquidity and market
risk. Stress test results are also expressed in terms of impact to
capital levels and metrics, and that information is reviewed with
the GECS Board and the GE Risk Committee at least twice a year.
Stress testing requirements are set forth in the Company’s
approved risk policies. Key policies, such as the Enterprise Risk
Management Policy, the Enterprise Risk Appetite Statement and
the Liquidity and Capital Management policies, are approved
by the GE Risk Committee at least annually.
GE Capital, in coordination with and under the oversight of
the GE CRO, provides comprehensive risk reports to the GE Risk
Committee. At these meetings, which occur at least four times a
year, GE Capital senior management focuses on the risk strategy
and financial services portfolio, including the risk oversight
processes used to manage all the elements of risk managed by
the ERMC.
Additional information about our liquidity and how we manage
this risk can be found in the Financial Resources and Liquidity
section. Additional information about our credit risk and GECS
portfolio can be found in the Financial Resources and Liquidity
and Critical Accounting Estimates sections.
Segment Operations
Our five segments are focused on the broad markets they serve:
Energy Infrastructure, Technology Infrastructure, NBC Universal,
GE Capital and Home & Business Solutions. In addition to pro-
viding information on segments in their entirety, we have also