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CRM Chapter 1 > Exam Review #1 > Flashcards

Exam Review #1 Flashcards

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1
Q

Risk management standard

A

Are voluntary

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2
Q

RMM

Risk maturity model

A 
Objective consistent tool to conduct self assessment, not a standard or process or framework 
ERM based 
Risk appetite management 
Root cause 
Performance management
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3
Q

Risk governance

A

Integrating management principals governing the organization with the RM process

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4
Q

ISO 31000

A

Applies regarding whether risk has positive or negative consequences

Can be applied to risks that have positive outcome

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5
Q

Risk assessment

A

Includes risk identification
Risk analysis
Risk evaluation

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6
Q

Risk criteria

A

Information used to evaluate the significance of an orgs risks
Can we meet strategic goals
Defined as reference standards

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7
Q

Supply chain risk

A

Associate with iSO 31000

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8
Q

COSO 5Components

A 
Gorvernance
Strategy 
Performance 
Review and revision 
Information,communication, reporting
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9
Q

COSO governance and culture

A

To do with board of directors

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10
Q

COSO performance

A

Component that refers to practices that permit organizations in all departments assess and respond to risk

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11
Q

Abandonment

A

When you eliminate the loss exposure

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12
Q

Cash matching

A

An insurer can eliminate interest rate risk. To fund liabilities in a timely manner. To achieve this we make investments hold them till maturity to match the amounts the insurer will have to pay out

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13
Q

Interest rate risk?

A

Systematic affects all orgs
The risk a bond future value will decline because of changes in interest rates
Swaps can be used to hedge
Insurers are vulnerable due to investments so use cash matching

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14
Q

Reinvestment risk

A

Not being able to earn the same rate of return from an investment

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15
Q

Risk based capital system

A

Min. Capital for Insurer to support operations

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16
Q

Basel 1

Capital to assets 2003

A

Considers relative risk of assets

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17
Q

Advantage of economic capital analysis

A

Focus attention on risks attached to activities
Ensure solvency at a given level 99% of the time
Economical capital is the amount of money you should have put away for unexpected losses ( not told to you by regulator) almost seen as overarching more than
Frequency is low amount of loss is high
Rare but deadly

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18
Q

Economic Capital

A

Amount you need to stay solvent at a given risk tolerance level

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19
Q

Market Value Margin

A

Additional payment in case reserves are inadequate, additional money for investors to be attractive

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20
Q

Market Value Surplus

A

Fair value accounting, fair value of assets minus fair value of liabilities

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21
Q

Value at Risk VAR

A

All risks together to estimate the probability liabilities will exceed the assets by various amounts over a 1 year period. VAr is used in banks know how much money they are losing

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22
Q

ERM 4 components

A

Align and integrate
Lead establish accountability
Allocate resources
Communicate and report

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23
Q

ERM 5 steps -Process

A 
Scan environment 
Identify risks
Analyze risks 
Treat risks
Monitor and assure
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24
Q

Using existing processes in RM

A

Reduces the resistance to change from introducing new procedures

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25
Risk Appetite | Internal Environment
Is a factor of internal environment
26
Selecting RM Techniques
Is based on a forecast of the frequency and severity of expected losses
27
KRI
Metrics used to measure uncertainty of meeting strategic objectives Used to evaluate performance Remember uncertainty
28
KPI
$ or non $ that defines how successful we will be at meeting long term goals How is the thing performing good or bad?
29
Internal environment
Equipment Systems People Experience
30
Risk Classification
Pure and speculative Objective or subjective Diversifiable or non
31
Risk Quadrants
Hazard Operational Financial Strategic
32
Benefits of ERM
Identify key exposures Transparency Risk transfer negative events Protect tangible or intangible assets
33
Pillars of ERM
Interdependency matters Correlation increases risk Portfolio theory spread of risk
34
Risk management process
Identify Analyze Decide on response Monitoring and control
35
RMM
``` Not a standard or process but focuses on Erm based approach Risk appetite management Root cause discipline Performances management Resilience ```
36
Solvency II Pillars
Risk based capital is adequate Higher governance Greater transparency
37
Exposure
Maximum potential damage A condition that presents possibility for loss or gain, whether or not actually loss occurs Think about underwriting they have to think of worst case senario
38
Basic risk measures
``` Exposure Volitiity Likelihood Consequences Time horizon Correlation ``` Focus is on quantifying risks how much will it affect us
39
Regression analysis
Trend analysis used to estimate relationships between variables
40
EaR
Amount they will gain, amount that might change due to change in interest rates helps with planning used more commonly in Non-banking sectors
41
COSO vs. iSO
COSO was meant for financial controls | Typically looks at adverse price negative outcomes
42
BASEL II 3Pillars
Financial adequacy Risk management Transparency
43
Tolerable uncertainty
Level managers are comfortable with risks
44
PDCA deals with ERM framework and process
Plan Do check Act
45
Traditional Risk Management Process | Focus on Hazard risk only
``` Identify Analyze Examine feasibility Select Implement Monitor ```
46
Risk Control
Avoid preventive reduction Usually done by ops manager or staff Conscious act or not to act that reduces the frequency severity and makes losses more predictable
47
Risk Control
``` Avoidance Prevention Reduction Separation Duplication Diversification ```
48
Risk based auditing
Prioritize the use of internal resources in the areas the pose the greatest risk
49
Risk assurance
The level of confidence in the effectiveness of the org’s risk management culture practices
50
CRSA
A process managers perform an annual self audit to evaluate the effectiveness of business processes the Mangers do it can be expensive
51
Systematic risk
Risk that is common to all securities in the same class
52
Sarbanes-oxley act
2002 require CEO and CFO to verify quarterly and annual financials
53
COSO Internal Controls
Monitoring - when you check if controls are functioning measures compliance (fictious claims question)
54
Report certification
Think external auditors
55
Employees have been informed of the commitment to risk management
Pick internal audit to administer questionnaire
56
Structured Data
Organized into databases with defined fields
57
Unstructured Data
Not organized in database can include images or non traditional media
58
Data Science
Is useful for unstructured Data
59
Ways Insurer and risk manger can use data science to improve results
Discover new relationships
60
Descriptive Approach
Is applied when you have a specific problem
61
Holdout Data
Purpose is to help ensure the model is not overfitted to training data
62
Precision of Predictive Model
False-negatives etc. tP divide (TP + FP) Line up predicted yes to actual yes = TP Number above is FP 40/ (40+5)
63
Find accuracy of predictive model
Actual No divide by Total | Look for larger numbers
64
Training a predictive model reason for cross validation
Limited amount of training data unwise not to use some of it for training because of need for holdout data
65
Root node
Topmost node | The most informative attribute
66
Cluster analysis
Identify previously unknown groupings
67
Leaf node
A branch of a classification tree that leads to a target variable The last end
68
Lift
Percentage of positives divided by percentage expected by chance
69
Expected Value
Weighted Average of all possible outcomes
70
Empirical probability
Based on actual experience through historical data or facts
71
Theoretical probability
Based on theory rather than actual experiences | Think dice
72
Probability analysis
Technique for forecasting events
73
Event tree
Only accidental
74
Qualitative Assessment
Measures risk by significance | High medium or low
75
ISO 300 | Sources and consequences of a risk
Risk Analysis
76
Quantitative analysis
Uses historical data to reach a numeric indication of the level of risk
77
Flip a coin
Mutually exclusive Only one outcome Empirical frequency pick highest number
78
Coefficient of variation
Compare different shapes Means or standard deviations =Standard deviations ➗ by mean or multiply backwards
79
Expected value
Weighted average
80
Trend analysis
Looks at patterns in past data
81
Regression analysis
Varies predictably with another variable
82
Event tree
Only success or failure Analyze consequences of accidents rather than decisions Differ in their purpose
83
Data credibility
Available data ya can accurately indicate future losses
84
Timing dimension
Analyze investments income and interest | Money held in reserves to pay for a loss can earn interest until the payment is made
85
HAZOP
``` Complex scientific systems Review of a process or system Team approach Experts and stakeholders Recommend solutions ```
86
Scenario analysis
Identifies various risks and projects the potential consequences of those risks
87
Delphi
Involves select group of experts question response cycle until consensus is achieved
88
Risk register
Report to depict all risk scenarios likelihood of loss or scenario and consequences Reports in individual risks Developed at risk owner level links activities to to a list of identified risks consolidated at enterprise level
89
Residual risk
The difference between optimum risk represents the risk treatment opportunity to further reduce risk Measures the effectiveness of risk treatment
90
Optimum risk
Level of risk that is within the orgs appetite
91
Flowchart
Depicts organizations activities and processes
92
Income statement
If trying to find net income exposures
93
Balance sheet
Lists assets property values
94
SWOT
Strength weakness opportunities threats associated with a purchase If looking at new product analysis of internal and external factors
95
Delphi
Group of experts respond to survey or inquiry
96
Sensitivity analysis
The effect of a change in one or more variables on the result of a financial analysis
97
Risk financing
Conscious act to act or not act that generates funds to pay for losses or offset the variable in cash flows
98
Proust
Subjective | Loss frequency and severity

CRM Chapter 1 (8 decks)

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