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Risk Management (WU) > Techinical risks/Techinical risk management > Flashcards

Techinical risks/Techinical risk management Flashcards

1
Q

What are technical risks

A

The risk of balancing risks - the risk that total actual damage from claims will differ from the expectancy value in a period

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2
Q

What causes technical risk

A
  • Randomness
  • Change
  • Error
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3
Q

Randomness

A

Higher or lower expected values

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4
Q

Changes

A

Risks have changed since the were first calculated

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5
Q

Error

A

The reference value is not correct or there was a miscalculation

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6
Q

Expected reserves =

A

RB (Financial reserves at the beginning of the year) + P - Lexp

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7
Q

What are the 5 policies for risk management

A
  • Reserves policy
  • Premuim policy
  • Loss policy
  • Rinsurance policy
  • Portfolio policy
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8
Q

What does premium policy involve

A

Saftey loading

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9
Q

What happens if the safety loading is too high

A

Product is uncompetitive and you cant pool as many risks

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10
Q

What is the gross risk premium/net premium/risk premium

A

Net risk premium + safety loading premium

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11
Q

What is in the gross premium

A

risk premium, loading for admin, profit, tax

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12
Q

What are the 4 methods of calculating gross risk premium

A
  • Extended expectancy-value principal
  • Variance principal
  • Standard deviation principal
  • Variation principal
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13
Q

Extended expectancy-value premium

A

GRP= u + (loading) u

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14
Q

What is the issue with the expectancy-value premium method

A

Expectancy value is not a great method of measuring spread

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15
Q

Variance principal method

A

GRP= Exp value + loading (variance = std squared)

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16
Q

What is the issue with using the variance principal

A

the answer is in €^2

17
Q

Standard deviation principal

A

GRP=expectancy value + loading factor(square root of variance)

18
Q

Variation coefficient

A

Exp. + (loading*standard deviation)/ exp

19
Q

What is the issue with the variation coefficient principal

A

Spread is underrated

20
Q

What does a safety loading do to the density function of a portfolio

A

Pushes it to the right

21
Q

What are the advantages of a safety loading premium (2)

A
  • Orignal expected value of profits increase

- Probability of a loss is reduced

22
Q

Forms of premium policy (4)

A
  • Safety premium
  • Sharing losses with the insured
  • Experience creating
  • Premium adaptation clause
23
Q

What is another name for sharing losses with the insured

A

mutuals

24
Q

What is the advantage to the insurer in mutuals

A

No technical risks

25
Q

Mutuals

A

All deviations (positive or negative) of the actual loss are borne by the policy holder

26
Q

Experience rating

A

Premiums based on loss record

27
Q

Premium adaptation clauses

A

Allow for risk-related changes to the premium, this must be agreed upon in the contract

28
Q

Loss policy

A

The insurer tries to reduce or limit the loss

29
Q

Methods of loss policy

A
  • Active damage management
  • Careful settlement of claims
  • Practice of settling claims
30
Q

active dammage managment

A

When the insurer has a service to prevent further damage (eg own hospital)

31
Q

Portfolio policy

A

Size and composition of portfolio

32
Q

How can an insurer affect their portfolio policy(4)

A
  • Premium policy
  • Product policy
  • Commission for brokers, underwriting
  • mergers and acquisitions
33
Q

What types of portfolios (risk and spread) does an insurer have to choose between

A
  • Higher exp. value and higher spread

- Opposite

34
Q

How should an insurer choose between high or low spread

A

My sigma model

35
Q

What is the advantage of higher reserves

A

Smaller chance of failure

36
Q

What is the disadvantage of a reserve for the insurer

A

Opportunity cost

37
Q

What is meant by the risk balancing process over time?

A

That the positive and negatives from each period balance out - Average damage should equal the total damage

38
Q

How can we balance risk over time

A

Liquidation reserves

  • Reinsurance
  • Adapt contract by agreements and adaptation clauses to not cover certain things
  • Change premiums

Risk Management (WU) (10 decks)

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