Unit 2

Question 1

What are the 5 Stakeholder relationships?

Answer 1

1. Principal - contribute capital
2. Agency - paid by principal
3. Controlling - supervise principal/agents
4. Advisory - advise principal/agent
5. incidental - affected by behaviour & actions of the principal/agent

Question 2

Define Risk Tolerance

Answer 2

More detailed statements (of Appetite)
quantitative by nature
apply to specific category of risk

Question 3

Define Risk Limits

Answer 3

A group of guidelines that may be used today by employees responsible for risk decisions

Question 4

Define Risk Capacity

Answer 4

the maximum exposure of risk that an organisation can accept

Question 5

Define Agency Risk

Answer 5

“misalignment of interest of stakeholders

namely directors from shareholders’ interest”

Question 6

What are 3 points that will maximise success of a partnership?

Answer 6

“-Ensure that it is the best option

• ensure that it’s the right alliance partner
• monitor progress of alliance”

Question 7

Describe 2 Utility functions

Answer 7

“Monotonic increasing (more is better)

Concave (marginally increasing i.e. decreases as wealth increases)”

Question 8

What is the Prospect function?

Answer 8

“Takes into account investor’s starting point

reflects ambivalence of extreme gains or losses”

Question 9

What is the CROs responsibilities?

Answer 9

"leadership & direction
design and implement ERM framework
ongoing risk policy development
risk reporting
allocation of economic capital across the firm"

Question 10

What are the potential Risk Function structures?

Answer 10

“Offensive vs. Defensive
Policy & policing - within in rules defined by RMF
Partnership - work together in a client-consultant type relationship”

Question 11

what is the 3 step risk management Function?

Answer 11

“1. Risk Awareness

2. Risk Measurement
3. Risk Control - Response”

Question 12

List Risk identification tools?

Answer 12

"SWOT
check-lists
prompt lists
taxonomy-structure classification
case studies
process analysis"

Question 13

List the Risk identification techniques?

Answer 13

Delphi technique
Brainstorming
Surveys
independent group analysis
Gap analysis - current vs. desired exposure
interviews
working groups

Question 14

Elements of a risk register

Answer 14

• labelling or numbering system
• category of risk
• description of risk - clear and understandable
• information of likelihood and re-occurence
• impact and timeframe
• response action
• risk owner
  subject to rigorous document control

Question 15

4 key emerging risks

Answer 15

Globalisation
technological
changing market structures
restructuring - M&A activities

Question 16

Define Underwriting risk

Answer 16

risk of errors in the selection, approval or pricing of insurance risks

Question 17

Define economic risk

Answer 17

risk of impacts of macroeconomic factors on an organisation and/or its customers

Question 18

Define insurance risk

Answer 18

Risk of fluctuations in timings, frequency and severity of insured events, relative to the expectations of the firm at the time of underwriting or pricing

Question 19

Define Legal Risk

Answer 19

any risk arising from the understanding of and adherence to legislation, including changes in accepted interpretation

1. Political or social pressure
2. provisions in important contracts
3. Judgement against organisation by courts

Question 20

Define Regulatory risk

Answer 20

risk of losses arising as a result of changes in legislations

Question 21

Define Political risk

Answer 21

any risk of loss related to political decisions or indecisions, 1 changes in government or 2 events relating to political instability

Question 22

Define Reputational risk

Answer 22

A risk event or circumstance that could have an adverse impact on an organisations reputation or brand value

Question 23

Define Strategic Risk

Answer 23

risk related to the achievement of an organisation’s overall strategic business plans and objective
-covers all the risks that might prevent an organisation meeting its objectives

Question 24

Define Demographic risk

Answer 24

Risk arising from demographic changes such as mortality rates, impacting both customers and employment

Question 25

Define Moral hazard

Answer 25

Where a party/person behaves differently from the way they would have if they were fully exposed to the consequences of that actions
(i.e. party behave inappropriately or less carefully then they would have otherwise
leaving the organisation to bear some of the consequences of the action)