Module 1 Flashcards
Risk Financing:
A conscious act or decision not to act that generates funds to offset the variability in cash flows that may occur as an outcome or risk.
Retention:
technique that involves assumption of risk in which gains and losses are retained within the organization
Transfer:
In the context of risk management, a risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party.
Hazard Risk
Risk from accidental loss, including the possibility of loss, or no loss
Speculative Risk:
A chance of loss, no loss, or gain
Hold Harmless or indemnity agreements:
a contractual provision that obligates one of the parties to assume the legal liability of another party
Risk:
Uncertainty about outcomes that can be either negative or positive
Hedging:
A financial transaction in which one asset is held to offset the risk associated with another asset`
Futures Contract:
an exchange-traded agreement to buy or sell a commodity or security at a future date at a price that is fixed at the time of the agreement
Describe the two categories of Risk Financing Techniques and three ways to do each
- Retention - org pays for costs
Planned/unplanned
Complete/Partial
Funded or Unfunded - Risk Transfer - transfer potential consequences of loss exposure to another party
Contractual/Hold Harmless or indemnity agreements
Hedging
Insurance
What does Risk Transfer Shift to the other party?
Financial consequences of an event to which one is exposed
Explain when Hedging is Practical
When used to offset the consequences of risk to which one is naturally, voluntarily or naturally exposed
Liquid Asset:
property that can be quickly converted to cash
Risk Management Framework:
A foundation for applying the risk management process throughout the org.
Describe Org’s sources of Liquidity
cash flows
borrowing capacity
ability to issue stock
Describe standards set by Sarbanes Oxley 2002
sets high standards for US public company boards
requires senior executives to take personal responsibility for the accuracy/completeness of reports
modifies reporting requirements for financial transactions
Name the Primary measure used by many orgs to gauge the effectiveness of their insurance risk mgmt program
Managing the cost of risk is the primary measure
Risk Criteria
information used as a basis for measuring the significance of risk
Soft Market
market conditions in which: insurer competition is intents widely available coverage premiums lower insurer profit decreases
Hard Market
Market conditions in which: insurer competition diminishes, buyers have difficulty finding coverage premiums increase insurer profitability rises
Describe what the frequency of losses is
number of losses occurring within a specified period
Describe what the severity of losses is
amount of a loss, usually measured in monetary units/dollars
Enterprise Risk management
an approach to managing all of an organization’s key business risks and opportunities with the intent of maximizing shareholder value also know as Enterprise Wide Risk Management
Business Risk
risk that is inherent in the operation of a particular org, including the possibility of loss, no loss, or gain
