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1、pure risk: Risk where the random outcome can only result in loss (produce a cash outflow); that is, no outcome involving a gain (cash flow) is possible.retention: With which a business or individual retains the obligation to pay for part of all of the losses. When coupled with a formal plan to fund
2、losses for medium-to-large business, retention often is self-insurance.integrated risk management: It is a new approach to corporate the risk management, which uses the technology of both finance and insurance to address the whole range of corporate risk-financial, insurable, operational, and busine
3、ss risk.the return on equity (ROE) : It is defined as the ratio of net operating earnings to the book value of equity.ROE=net working earningsequity capitalthe weighted-average cost of capital (WACC) : WACC=cost of debtdebt valueequity value+debt value+cost of equitydebt valueequity value+debt value
4、valued contracts: It establishes the amount of that the insurer pays at the time the contract is initiated without regard to the amount of the loss caused by the insured event.policy limits: Insurance policies often limit the amount of coverage by placing an upper limit, known as policy limits, on t
5、he amount that the insurer will pay for any loss. 保單限額deductibles: It is a common way to limit the amount of the coverage, which eliminate coverage for relatively small losses. 免賠額multi-line/multi-year products (MMPs) : Several lines of insurance are bundled within the same insurance programme.multi
6、-tragger products (MTPs) : The most important feature of these covers is that claims are only paid if, in addition to an insurance event (“first trigger”) during the term of the policy, a non-insurance event (“second trigger”) also occurs.1. Intuitively explain why risk management activities like in
7、surance purchases and loss control expenditures may be redundant form the perspective of diversified shareholders.1 Risk management is unlikely to decrease the opportunity cost of capital for firms with well-diversified shareholders because risk management activities generally decrease the type of r
8、isk (diversifiable risk) that shareholders can eliminate on their own by holding diversified portfolios.2 If risk management does decrease non-diversifiable risk and therefore the opportunity cost of capital, the cost of doing so is likely to negate the benefits of reducing the discount rate.2. Anal
9、yze relations between risk management activities (like insurance purchase and loss control) and the opportunity cost of capital for firms.The discount rate (the opportunity cost of capital) equals the risk-free rate plus a risk premium. The risk-free rate is the rate of return on government bonds an
10、d cannot be influenced by firm decisions. Thus, if risk management is to affect the discount rate it must affect the risk premium. The risk premium depends only on the amount of non-diversifiable risk. As a result, if risk management decreases diversifiable risk only (the risk that investors can eli
11、minate by holding diversified portfolios), the risk premium will be unaffected and so the opportunity cost of capital will be unaffected.1 Risk management activities like insurance purchases and loss control expenditures typically only reduce a firms diversifiable risk. The type of risk that insuran
12、ce companies tend to insure also are risks that insurance company can largely diversified by selling insurance to many different policyholders. If insurance companies can diversified the risk, then so can shareholders by holding well-diversified portfolios, can thus insurance purchases generally do
13、not reduce a firms opportunity cost of capital. 2 The risk that is reduced through loss control also tends to be firm-specific risk. For example, the frequency and severity of workplace accidents and product failures are likely to be uncorrelated across firms. These firm-specific risks can be divers
14、ified by shareholders and so control activities usually will not decreases a firms opportunity cost of capital.3. Explain why exposures with low severity of losses are not likely to be insured?Exposures with low severity of losses are not likely to be insured on an individual basis because the fixed
15、 costs associated with underwriting and distributing a policy make the loading very high compared to expected losses.4. Describe the advantages of captives for a company. 自保1 Efficiency gains through participating in ones claims experienceCaptive were originally invented because companies questioned
16、 the efficiency transferring high-frequency risks. Captives help companies avoid the cost of substantial transaction cost as well as improve claims experience through appropriate risk management measures.2 Tax and financial advantages?At the start of the captive boom towards the end of the sixties a
17、nd the start of the seventies, tax and financial considerations played an important role. The financial advantages include the explicit inclusion of investment income for claims payments and the ability to influence investment policy as well as direct access to the reinsurance market.3 Stabilization
18、 of insurance costsHigh price and the lack of capacity in the traditional market, as well as the long-term stabilization of insurance cost make the number of captives rose sharply.4 The strategic benefit is becoming more and more important: captive as an instrument of holistic risk managementIncreas
19、ingly a broader spectrum of risks is being ceded to captives, as well as the entire range of insurance risks. Captives allow a business to benefit from the natural smoothing and diversification effects of different risks.5. Explain why correlated exposures are not likely to be insured?When losses ar
20、e highly correlated across potential policyholders, the variance of the distribution average losses also will be high. Examples of highly correlated losses are losses from major earthquake, hurricanes and other storms. The problem insuring highly correlated losses is that insurers need to hold a lar
21、ge amount of capital to keep the probability of insolvency low. The cost of raising and holding this capital imply that insurance against highly correlated losses will have a high premium loading. As a result, the amount of coverage purchases is likely to limited and in some cases private insurance
22、coverage will not exist.6. Describe conditions that are required for moral hazard to arise and methods that can decrease moral hazard.Expected losses must depend on the insureds behavior after having obtained insurance. It must be costly for the insurer to observe precautions by policyholders and me
23、asure their impact on expected claim costs.Reducing: Experience rating and limited coverage are the two methods of reducing moral hazard. Experience rating makes the premium charged contingent on the claims in prior periods. Limiting the amount of insurance coverage through deductibles and other pro
24、visions.7. What are the major reasons that insurance contracts rarely provide full coverage?If a insurance contracts premium equals the present value of expected claim costs, a risk-averse person will likely demand full insurance coverage for monetary losses that otherwise would be paid by the perso
25、n. Because premiums almost always have a positive loading. However, risk-averse people will demand less than full coverage. As the loading increases, the quantity of coverage demanded is likely to decrease. Thus, any factor that increases administrative or capital costs (and thus the loading on a po
26、licy) will limit the amount of private market insurance coverage.8. Describe inefficiencies of traditional insurance solutions. P149 1 Good risks are becoming increasingly risks reluctant to subsidize bad and are choosing self instead insurance (adverse selection)2 Insurance reduces the incentive to
27、 prevent/contain losses (moral hazard)3 Basis risks as counterpole to moral hazard4 Traditional (re)insurance involves a substantial credit risk5 Capacity bottlenecks and coverage gaps for large risks (limited insurance capacities)9. Outline the risk management process and describe major risk manage
28、ment methods.Process: 1. Identify all significant risks.2. Evaluate the potential frequency and severity of losses.3. Develop and select methods for managing risk.4. Implement the risk management methods chosen.5. Monitor the performance and suitability of the risk management methods and strategies
29、on an ongoing basis.Method:10. Analyze relations between the insurability of risk and premium loading.There are three major factors that increase costs and there limit the insurability of risk in private insurance market:1premium loadings, which reflect insurer administrative and capital costs2moral
30、 hazard that arises because insurance changes a persons incentive to take precautions3adverse selection that arises when policyholders are better informed about expected claim costs than insurers.11. Please make a comparison between catastrophe bonds and contingent capital.巨災(zāi)債券和應(yīng)急資本的比較：（1）在賠償/融資方面，前
31、者是賠償買方的損失，后者是在損失事件發(fā)生時按照事先約定的條件提供融資，且不可以改善收益。（2）在基差風(fēng)險/尾部風(fēng)險方面，巨災(zāi)債券如果是賠償性/模擬行業(yè)觸發(fā)交易，基差風(fēng)險/尾部風(fēng)險極小，如果是指數(shù)性、模型或參數(shù)性觸發(fā)機制，風(fēng)險就很大；應(yīng)急資本如果是賠償性觸發(fā)機制就極小，如果是指數(shù)性、模型或參數(shù)性觸發(fā)機制，風(fēng)險就巨大。（3）在道德風(fēng)險方面，巨災(zāi)債券如果是指數(shù)性/參數(shù)性觸發(fā)機制，就很低，如果是賠償性觸發(fā)機制就中等，通過合同設(shè)計可減輕風(fēng)險；應(yīng)急資本涉及的道德風(fēng)險低。（4）在交易對手風(fēng)險方面，巨災(zāi)債券極小，資本被投入由受托人所持有的安全證券中；而應(yīng)急資本則取決于是否有事先融資。（5）在風(fēng)險承擔(dān)者的流動性方面，巨災(zāi)債券對于評級交易來說流動性中等；應(yīng)急資本則低。（6）在適用分保公司的監(jiān)管/會計/稅收規(guī)定方面，巨災(zāi)債券會變，應(yīng)急資本沒有這些方面的優(yōu)惠待遇。（7）在承保能力的提供者方面，巨災(zāi)債券一般是機構(gòu)固定收益投資者、對沖基金，而應(yīng)急資本則是再保險公司、對沖基金、商業(yè)銀行、機構(gòu)投資者。（8）在風(fēng)險保護(hù)買方方面，巨災(zāi)債券是大型原保險人、再保險人、公司和政府，應(yīng)急資本是原保險人、再保人、公司和政府實體。（9）巨災(zāi)債券的中介機構(gòu)是投資銀行，而應(yīng)急資本一般沒有中介機構(gòu)，如果有的話則是再保險經(jīng)紀(jì)人。（10）在標(biāo)準(zhǔn)化方面，兩者程度都很低，都是定制的。（11）在承保的復(fù)雜程度方面，兩者都是高的。
浙江財經(jīng)大學(xué)-全面風(fēng)險管理與保險雙語-期末題庫.docx
