Chapter 4 Flashcards
(37 cards)
Capacity
refers to the relative level of surplus.
Capital budgeting
method of determining which capital investment projects a company should undertake
Catastrophe bonds
are corporate bonds that permit the issuer to skip or reduce scheduled payments if a catastrophic loss occurs.
Catastrophe modeling
computer-assisted method of estimating losses that could occur as a result of a catastrophic event.
Chief Risk Officer (CRO)
responsible for the treatment of all the risks facing the organization, and for creating a program to successfully manage these risks.
Clash loss
occurs when several lines of insurance simultaneously experience large losses
Combined ratio
the ratio of paid losses and loss adjustment expenses plus underwriting expenses to premiums
Compounding
Because you are earning interest on interest (compound interest), the operation through which a present value is converted to a future value
Dependent events
the occurrence of one event affects the occurrence of the other
Discounting
bringing a future value back to present value
Enterprise risk management
a strategic business discipline that supports the achievement of an organization’s business objectives by addressing the full spectrum of its risks and managing the combined impact of those risks as an integrated risk portfolio
Financial risk
refers to risk created by the changing value of financial assets, commodities, currencies, and interest rates.
“Hard” insurance market
periods of tight underwriting standards and high premiums
Hazard risk
risk associated with the organization’s property, liability, and personnel-related loss exposures
Independent events
the occurrence does not affect the occurrence of another event
Insurance option
option that derives value from specific insurable losses or from an index of values.
Internal rate of return (IRR)
the average annual rate of return provided by investing in the project.
Intranet
private network with search capabilities designed for a limited, internal audience.
Loss distribution
probability distribution of losses that could occur.
Mutually exclusive events
if the occurrence of one event precludes the occurrence of the second event
Net present value (NPV)
the sum of the present values of the future net cash flows minus the cost of the project.
Operational risk
risk arising out of an organization’s operations. A helpful framework for identifying this risk is to consider risks developing from people, processes, systems, and external events.7
Predictive analytics
analysis of data to generate information that will help make more informed decisions
Regression analysis
characterizes the relationship between two or more variables and then uses this characterization to predict values of a variable
