Risk Management

Question 1

Benefits of a Good Risk Management Process

Answer 1

SAMOSAS

Stability and quality of business improved
Avoid surprises
Management of capital improved
Opportunities exploited for profit
Stakeholders given confidence
Arbitrage identified
Synergies identified

Question 2

Identification of causes of risk inprojects

Answer 2

Preston North End Football Club Plays Brilliantly

Political Risks
Natural Risks
Economic risks
Financial risks
Crime
Project Risks
Business Risks

Question 3

Inappropriate Advice

Answer 3

CRIMES

Complicated products
Rubbish (incompetent) adviser
Integrity of adviser lacking
Model or parameters unsuitable
Errors in data relating to members
State-encourage but inappropriate actions

Question 4

Criteria for an Insurable Risk

Answer 4

FIA MUD PIS

Financial / quantifiable
Interest in risk being insured
Amount payable relates to size of loss

Moral hazard eliminated as far as possible
Ultimate limit of liability undertaken
Data exists with which to price risk

Pooling a large number of similar risks
Independent risk events
Small probability of occurrence

Question 5

Importance of Risk reporting

Answer 5

FRAUD CRIME

Financing (appropriate price, reserves, capital requirements)
Rating Agencies
Attractiveness to investors
Understand better (risks and their financial impact)
Determine appropriate control systems

Changes over time
Regulator
Interactions
Monitor effectiveness of controls
Emerging risk identification

Question 6

Risk Responses

Answer 6

PIRATE

Partially transfer
Ignore
Reduce
Accept (retain all)
Transfer
Evade (avoid)

Question 7

Reasons for Using Reinsurance

Answer 7

SAD LIFE

Smooth results
Avoid large losses
Diversification

Limit exposure to risk (single event, accumulation)
Increase capacity to accept risk
Financial assistance
Expertise

Question 8

Possible reasons for using ART

Answer 8

DESCARTES

Diversification
Exploits risk as an opportunity
Solvency improves / source of capital
Cheaper cover (than reinsurance sometimes)
Available when reinsurance may not be
Results smoothed
Tax advantages
Efficient risk management tool
Security of payments improved

Question 9

Reasons for underwriting

Answer 9

SAFARI

Suitable special terms
Avoid anti-selection
Financial underwriting against over-insurance
Actual experience in line with that assumed in the pricing basis
Risk classification / rated fairly
Identify substandard lives