Chapter 15: Risk 3

Question 1

Aggregation of risk:

Answer 1

The combined effect of all the individual risks of loss must be considered, allowing for any correlations and interactions between them.

Question 2

Risk must also be assessed in relation to: (3)

Answer 2

1. the company’s capital and other resources
2. the impact on supervisory solvency
3. the cost of failing to meet any other legislative requirements

Question 3

A downgrading is itself a risk to the success of the company because it can lead to: (2)

Answer 3

1. adverse publicity, thereby causing marketing difficulties
2. increased difficulty in raising capital, thereby increasing cost and/or limiting the company’s ability to follow capital intensive projects.