Unit 2 Flashcards
What are the 5 Stakeholder relationships?
- Principal - contribute capital
- Agency - paid by principal
- Controlling - supervise principal/agents
- Advisory - advise principal/agent
- incidental - affected by behaviour & actions of the principal/agent
Define Risk Tolerance
More detailed statements (of Appetite)
quantitative by nature
apply to specific category of risk
Define Risk Limits
A group of guidelines that may be used today by employees responsible for risk decisions
Define Risk Capacity
the maximum exposure of risk that an organisation can accept
Define Agency Risk
“misalignment of interest of stakeholders
namely directors from shareholders’ interest”
What are 3 points that will maximise success of a partnership?
“-Ensure that it is the best option
- ensure that it’s the right alliance partner
- monitor progress of alliance”
Describe 2 Utility functions
“Monotonic increasing (more is better)
Concave (marginally increasing i.e. decreases as wealth increases)”
What is the Prospect function?
“Takes into account investor’s starting point
reflects ambivalence of extreme gains or losses”
What is the CROs responsibilities?
"leadership & direction design and implement ERM framework ongoing risk policy development risk reporting allocation of economic capital across the firm"
What are the potential Risk Function structures?
“Offensive vs. Defensive
Policy & policing - within in rules defined by RMF
Partnership - work together in a client-consultant type relationship”
what is the 3 step risk management Function?
“1. Risk Awareness
- Risk Measurement
- Risk Control - Response”
List Risk identification tools?
"SWOT check-lists prompt lists taxonomy-structure classification case studies process analysis"
List the Risk identification techniques?
Delphi technique Brainstorming Surveys independent group analysis Gap analysis - current vs. desired exposure interviews working groups
Elements of a risk register
- 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
4 key emerging risks
Globalisation
technological
changing market structures
restructuring - M&A activities
Define Underwriting risk
risk of errors in the selection, approval or pricing of insurance risks
Define economic risk
risk of impacts of macroeconomic factors on an organisation and/or its customers
Define insurance risk
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
Define Legal Risk
any risk arising from the understanding of and adherence to legislation, including changes in accepted interpretation
- Political or social pressure
- provisions in important contracts
- Judgement against organisation by courts
Define Regulatory risk
risk of losses arising as a result of changes in legislations
Define Political risk
any risk of loss related to political decisions or indecisions, 1 changes in government or 2 events relating to political instability
Define Reputational risk
A risk event or circumstance that could have an adverse impact on an organisations reputation or brand value
Define Strategic Risk
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
Define Demographic risk
Risk arising from demographic changes such as mortality rates, impacting both customers and employment
