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Exam 7 > ERM Ch.4 > Flashcards

ERM Ch.4 Flashcards

1
Q

7 types of operational risk losses (Basel)

A
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2
Q

System Performance Perspective - 4 components

A
  • Stable
  • Available
  • Reliable
  • Affordable
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3
Q

Cycle Management - 4 focus areas

A
  • Intellectual property
  • Underwriter incentives
  • Market overreaction
  • Owner education
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4
Q

General operation risks (banking & manufacturing)

A
  • Pension funding
  • IT failure risk
  • Other HR risks
  • Reputational risk
  • Lawsuits
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5
Q

Objectives of interal control

A
  • Relability & integrity of information
  • Compliance w/ policies, laws, & regulations
  • Safeguarding of assets
  • Economical & efficient use of resources
  • Accomplishment of established objectives & goals for operations or programs
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6
Q

Possible insurer KRIs

A
  • Production
  • Internal controls
  • Staffing
  • Claims
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7
Q

Steps for operational risk portfolio management

A
  • Identify exposure bases for each key operational risk source
  • Measure the exposure leel
  • Estimate the loss potential
  • Combine 2 & 3 to produce loss frequency & severity distributions of each business unit
  • Estimate the impact of mitigation, process improvements or risk transfer on the business unit loss disributions
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8
Q

Elements of strategic risk (Baird & Thomas)

A
  • Voluntariness of Exposure
  • Controllability of Consequences
  • Discounting in Time
  • Discounting in Space
  • Knowledge of Risky Situation
  • Magnitdue of Impact
  • Group/Individual Factors
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9
Q

Categories of Strategic Risk (Slywotzky & Drzik)

A
  • Industry
  • Technology
  • Brand
  • Competitor
  • Customer
  • Project
  • Stagnation
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10
Q

Key Steps in Scendario Planning Process

A
  • Define the scope
  • Identify major stakeholders
  • Identify basic trends
  • Identify key uncertainties
  • Construct initial scenario themes
  • Check for consistency & plausibility
  • Develop learning scenarios
  • Identify research needs
  • Develop quantitative models
  • Evolve toward decision scenarios
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11
Q

Controlled Self Assessment (CSA)

A

Controlled Self Assessment (CSA) - A process through which internal control effectiveness is examined and assessed. The objective
is to provide reasonable assurance that all business objectives will be met

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12
Q

Risk Indicators

A

Broad category of measures that monitor the activities and status of the control environment of an operational risk category

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13
Q

Operation Risk

A

The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic or reputational risk

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14
Q

Definitions of Strategy

A
  • A science and art of planning
  • Using political, economic, psychological and organizational resources,
  • To achieve major organizational goals
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15
Q

Reasons for insurer failures

A
  • Underreserving
  • Underpricing
  • Insufficiently supervised delegation of underwriting authority
  • Rapid Exapnsion
  • Reckless Management
  • Abuse of Reinsurance
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16
Q

Root cause of insurer failure

A

The accumulation of too much exposure given the asset base

Could be due to insufficient initial reserving or premaure reserve release

17
Q

Three implications to focusingon core assets through the cycle

A
  • Must retain top talent throughout periods of capacity reduction, and continue to grow & develop their skills
  • Must maintain a presence in core market channels, so the company can reenter when premiums move up
  • Must maintain a consistent pattern of investment in: systems, models & databases
18
Q

Agency Theory Perspective

A

The owners of the firm have hired agents (the managers) to run the firm. This can lead to problems since their incentives are not always perfectly aligned.

Example of stock grants/options vs. percent increase in value

19
Q

Six Sigma provides a framework encompassing

A
  • Process redesign
  • Project management
  • Customer feedback gathering
  • Internal communication
  • Design trade-offs
  • Documentation
  • Control Plans
20
Q

Six Sigma is helpful in identifying & eliminating issues & Insurance Example

A
  • Inefficiencies
  • Errors
  • Overlaps
  • Gaps in communication & coordination
  • Insurance areas that could benefit:
    • Underwriting
    • Claims
    • Reinsurance
21
Q

Advanced Scenario Planning & Enterprise Risk Modeling

A
  • We’ll need to define goals that want to be achieved
  • Need to determine the essential environmental variables that define the state of the world
  • Must define action rules that respond to the environment variables
22
Q

Agent-Based Modeling

A

Need to incorporate how other agents (competitors) will react in the system

Exam 7 (25 decks)

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