CH:28 Accepting risk Flashcards
1
Q
Define risk appetite
A
The maximum amount and types of risk that an individual or organisation is prepared to take on, in order to meet their objectives.
2
Q
How do boards express their risk appetite?
A
statements with reference to:
- solvency level
- credit rating
- earnings and ability to pay dividends
- economic value
3
Q
What is needed in order to retain risks?
A
Capital
4
Q
What is the system for good market for risk transfer called?
A
Risk efficient
5
Q
What criteria does risk must satisfy to be insurable?
A
- policyholder must have an interest in the risk being insured
- risk must be financial and reasonably quantifiable in nature
- amount payable in the event of a claim must bear some relationship to the financial loss
6
Q
What are the 6 desirable criteria for risk to be insurable?
A
- individual risk event should be independent of each other
- probability of event occurring should be small
- large number of potentially similar risk should be pooled together
- ultimate limit on the liability undertaken by insurer
- moral hazard should be eliminated
- sufficient existing data/info to enable insurer to estimate the risk
7
Q
How do you determine an appropriate cost of risk?
A
risk should be classified into subgroups, each of which are homogeneous body of risk with a particular set of rating factors
