Midterm

What are personal loss exposures

A condition that presents the possibility of loss caused by a person's death, disability, retirement, or designation that deprives an organization of the person's particular skill or knowledge that the organization cannot readily replace

What are income loss exposures?

A condition that presents the possibility of loss caused by a reduction in net income

What are liability loss exposures?

A condition that presents the possibility that a person or an organization will sustain a loss resulting from a claim alleging a person's or an organization's legal responsibility for property damage or bodily injury suffered h another party.

What are property loss exposures

A condition that presents the possibility that a person or will sustain a loss resulting from the damage of property in which that person or organization has a financial interest

What are intangible properties

A personal property that has no physical form: copyrights, patents, trademarks, etc.

Global warming and climate change refer to

An increase in average global temperature

What are loss reserves

An insurer liability represents the insurer's obligation to pay claims that have occurred but have not yet paid

What is unearned premium reserves

An insurer liability represents the number of premiums received from policyholders that are not yet earned

What are premium balances?

An insurer receivable consisting of premium amounts due from producers.

What is loss adjustment expense reserve

An issuer liability representing the expense amounts it has incurred (to settle claims) that have not been paid

What are the principal elements of an insurer balance sheet

-premium balance -reinsurance recoverable -loss reserves -loss adjustment expense reserves -unearned premium reserves

An example of strategic risk?

A competitor coming on to the market

What are state guaranty funds?

Protect policyholders if an insurance company defaults on benefit payments or becomes invent

What is annuity?

Catastrophe risk: too few deaths -longevity risk

What is life insurance?

Catastrophe risk: too many deaths -mortality risk

Expanding the scope to make this market viable

-US (recession) -Global: buyers of recession derivatives -insurance from other countries

Nondiversifiable risk

-also known as systematic risk, is the risk attributable to factors that affect the entire market such as war, inflation, international incidents, and political events -it cannot be eliminated through diversification

Diversifiable risk

-also known as unsystematic risk, represents the risk that is associated with random causes that can be elimated through diversification -Unsystematic risk is due to factors specific to an industry or a company

Risk control refers to techniques that reduce the frequency and severity of losses

-avoidance -loss prevention -loss reduction -separation, duplication, and diversification

Examples of systemic risk

-bailout -bailin

What is a bailin?

-bankruptcy -CoCo bonds

The loss of a building destroyed by fire is a _____, while, the loss of revenues am organization suffers as a result of losing one of it's buildings in a fore is an _____

-direct loss -indirect loss

What are operation risk?

-employee errors -system failures -damage to physical assets -fraud and other criminal activities

What are financial derivatives based on?

-equity risk -interest rate risk -currency risk -commodity risk

What are the four market risk factors (EICC)

-equity risk -interest rate risk -currency risk -commodity risk

What are some exotic derivatives?

-inflation derivatives -weather derivatives -credit derivatives

Types of Risk Financing

-insurance -self-insurance plans -retrospective rating plans -reinsurance -captive insurance plans -finite and integrated risk insurance plans -capital market risk financing plans -noninsurance contractual transfer of risk

Who uses insurer financial statements?

-management -investors -regulators

Two scenarios of CAT bonds

-no catastrophe during the term -catastrophic losses occur during the term

Some questions on insurer financial statements

-profitable -competitive returns -solvent

What are the four commercial lines for hazard risks (PLPN)

-property loss -liability loss -personal loss -(net income loss)

What are the four commercial lines for hazard risks (PLPN)

-property loss exposures -liabililty loss exposures -personnel loss exposures -(net income loss exposures)

What are tangible properties

-real property: land, building, etc. -personal property: furniture, equipment, etc.

What is risk management techniques?

-risk control -risk financing

Types of risks?

-strategic risk -financial risk -compliance risk -operation risk

Types of property

-tangible -intangible

Two key statements about NAIC

-the balance sheet: a time point -the income statement: a time period

Legal liabilities can be based on (TCS)

-torts -contracts -statutes

What are some recession indicator indexes?

-unemployment rate -default rate -expand the scope to make this market viable

What is reinsurance recoverable

Funds due from reinsurers -under reinsurances agreements covering paid losses

Contingent Convertible Bonds (CoCo)

It is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs.

Example of natural hedges

Life insurance and annuity

What is enterprise risk management (erm)?

Managing risk from a "portfolio point of view."

What is an example of hedgeable risk?

Market risk

Catastrophic losses occur during the term

May lose the principal and/or coupon

Indirect loss from a property, liability, or personal loss

Net income loss exposures

An example of financial risk?

Non-payment by a customer or increased interest charges on a business loan

Is market risk, inflation risk, a recession, hedgeable and nonhedgeable considered systematic or unsystematic?

Nondiversifiable risk (systematic)

What is a portfolio point of view?

One must understand individual risks plus their "interactions."

What is a nonhedgeable risk?

Recession

An example of compliance risk?

Responding to the introduction of new health and safety legislation

What is risk financing

Risk financing refers to techniques that provide for the funding of losses.

What are hazard risks (pure risks)

Risks from accidental loss, including the possibility of loss or no loss.

What are natural hedges?

Risks move in opposite directions and cancel out each other

No catastrophes during the term

Same as regular payment

Micro to macro

Systemic

Surplus as regards policyholders

The balance sheet item represents an insurer's net worth under statutory accounting

An example of an operational risk

The breakdown or theft of key equipment

CAT bonds

The instruments will pay coupons deep don't on the loss performance of the underlying loss index. The coupons or even the principal could be at risk of a catastrophe occurs.

What is PAYD

The premium is directly related to an annual mileage

What are business risks (speculative risks)

The risk that is inherent in the operation of the particular organization, including the possibility of loss, no loss, or gain (stocks)

What is market risk

The risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors

What is a bailout?

Too big to fail

What is risks?

Uncertainty about outcomes that can be either negative or positive

What is inflation derivatives

Used to transfer inflation risk from one counterparty to another

What is risk control?

refers to techniques that reduce the frequency and severity of losses