Chapter 26: Risk identification and classification

Question 1

Main categories of risks

Answer 1

B usiness
E xternal

C redit
O perational
I nvestment (market)
L iquidity

Question 2

Market risk

Answer 2

the risks related to changes in investment market values or other features correlated with investment markets, such interest or inflation rates.

Question 3

What can market risks be divided into?

Answer 3

the consequences of:
* changes on asset values
* investsment market values changes on liabilities
* a provider not matching asset and liability cashflows

Question 4

Capital risk

Answer 4

The risk that the amount of available capital falls below the level required to support other risks

Question 5

Credit risk

Answer 5

the risk of failure of a third party to meet their obligation

Question 6

liquidity risks

Answer 6

the risk that the individual or company, although solvent, does not have available sufficient financial resources to enable it to meet its obligations as they come due or they can secure those resources only at an excessive cost

Question 7

Business risks

Answer 7

risks that are specific to the business undertaken

Question 8

Division of business risks

Answer 8

Exposure risk - arising from the amount of business sold or retained and its diversification or lack thereof

Underwriting risk - arising from the type of underwriting taken.
Insurance risk - arising from uncertainties in claims and amounts
Financing risk - arising in relation to financing investments or other activities

Question 9

Operational risk

Answer 9

the risk of loss resulting from inadequate or failed internal processes, peoople, and systems or from external events

Question 10

External risks

Answer 10

form of non-financial risk but is seperate to operational risk

Question 11

Risk identification techniques that can be used as part of the risk identification process

Answer 11

Classification
Checklist
experience of staff joining from similar organisations

Question 12

Risk identification techniques that can be used as part of the risk identification process

Answer 12

Classification
Checklist
experience of staff joining from similar organisations

Question 13

Risk identification techniques that can be used as part of the risk identification process

Answer 13

Classification
Checklist
experience of staff joining from similar organisations

Question 14

Risk identification techniques that can be used as part of the risk identification process