Module 5,6 & 7 External, Advisory, Enterprise Risk Frameworks

Question 1

List 5 processes that can form part of prudential supervision

Answer 1

Oversight (Financial)
Requirement to meet minimum standards (operational)
Processes to take action against non-compliance
Monitoring compliance to standards and licenses
Requirement of organizations to have licensing

Question 2

What are the two forms of regulation and briefly explain

Answer 2

Functional regulation (Different authorities oversee different activities like banks vs insurance )
Unified regulation (One regulator overseeing different activities)

Question 3

What are the advantages of unified regulation

Answer 3

Consistency between different activity regulations
Sharing of ideas between different activities
Accountability as no reason to pass the buck to another regulator
Prevents regulatory arbitrage where one regulation body has better conditions
Economies of scale
Easier to regulate financial conglomerates

Question 4

What are the two components of the Senior Insurance Managers Regime (SIMR)

Answer 4

Development of a governance map Detailing
Key Functions, Key function holders, key function performers
Company and Corporate governance structure
All individuals within SIMR, their responsibilities and reporting lines
Rationale in choosing those individuals and applying responsibility to them
Assesement of fitness for senior insurance managers based on responsibilities as stated in the governance map

Question 5

What are the three Basel iii pillars?

Answer 5

Minimum capital requirement calculated using (credit, market and operational risk)
Supervisory review (using banks internal risk management process)
Level of disclosure to the public

Question 6

What are the aims of Solvency 11

Answer 6

Comprehensive requirements (asset + liability risks)
Capital against (market, credit, underwriting and operational risk)
Capital is not the only was to reduce risk or mitigate failure
To be more prospective
Economic risk based solvency across EU

Question 7

What are the 3 Solvency ii pillars

Answer 7

Quantitative requirements - market, credit, operational, u/w risk measurements. SCR +MCR - internal/standard model
Qualitative requirements - risk management and supervisory activities + ORSA
Disclosure and supervisory reporting

Question 8

What are the key principles of the Orange Book Advisory Framework

Answer 8

Link Risks to objectives
Distinction between risk and impact
Distinction between inherent and residual risk
Priorities risk before quantification
Risk appetite is either corporate, delegated or project
Regular reviewing and reporting
Dedicated risk committee is required

Question 9

Key Canadian RMF Advisory elements

Answer 9

Comprehensive co risk profile, appetite and tolerance
Focus on RMF and integration of risk mgt activities
Value continuous supportive environment
Link organization and operating environment

Question 10

Key 4 elements of the Canadian RMF

Answer 10

Develop co’s risk profile
Establish a RMF
Practice integrated risk management
Ensure continuous learning or risk

Question 11

Seven key elements of the AS/NZS

Answer 11

Internal and external risk identification (SWOT)
Risk assessment (Identify, analyse and evaluate)
Treat risk
Monitor and review
Communicate and consult

Question 12

Distinguish ISO xtics from AS/NZS

Answer 12

Emphasize possibility of an effect rather than event
How do the effects affect objectives
View risk framework as dynamic

Question 13

RAMP difference from AS/NZS

Answer 13

Includes project launch and close date

A go/no-go decision step

Question 14

Main things to think for frameworks

Answer 14

Identification of risk
Analysis of risk
Mitigation of risk
Value of risk management
Systemic and structured risk management
Dynamic and iterative risk management
Monitoring risk management
Qualitative risk measurements
Quantitave risk measurements
Diversification recognized
Prospective view of risk

Question 15

Benefits of having a robust ERM Framework

Answer 15

Can have a prospective view of risks
Recognize diversification of risks across different departments
Can be customized to different companies

Question 16

Describe 3 S&P risk elements of S&P’s rating framewrok

Answer 16

Sovereign risk analysis (taxation, currency control)
Business risk analysis (diversification, competition, economies of scale)
Financial risk analysis

Question 17

5 Key areas that S&P use to measure ERM Capability

Answer 17

Risk management culture consistency across the organisation
Risk control measures
Extreme event management
Risk and capital models
Strategic risk management

Question 18

Outline S&P’s assessement of risk capital model (8)

Answer 18

Mix of indicative, sensitive and predictive analytics
Matching of type of analysis to the type of risk
Appropriateness of projection approach (stochastic vs deterministic)
Degree of model of the important risks of the company
Operational aspects of the model (assumptions used, procedures to run the models, procedures done to run the models, validation, non financial measurements of risk)
Degree of use of economic capital in day to day management
Modification of standard formulae to business lines
Single or separate models used
Is model consistent across the company and ability to have an aggregated model