General Study Notes

Exposure = The maximum potential loss associated with a risk. Volatility = The degree of variability within the range of possible outcomes. Probability = The likelihood that a risk event will occur. Severity = The magnitude of the loss likely to be incurred if a risk event occurs.

Categorisation = Assessing risk by assigning it to predefined categories based on likelihood and severity. Qualitative Assessment = Using subjective judgment and experience to assess risk. Quantitative Assessment = Using numerical data and statistical methods to assess risk. Scenario Analysis = Exploring potential future scenarios and their impact on risk.

Consultative leadership = Encourages open dialogue and involvement in risk decisions Accountability rather than blame = Focuses on learning from mistakes instead of assigning fault Openness = Promotes transparency and communication about risks Knowledge sharing = Facilitates the exchange of risk-related information and best practices

<p>Cyber Risk = Data theft, espionage Significant Shifts in Power = Contagion in asset markets Insurance Claims from New Sources = Rapid changes in nature &amp; source of cyber risk Unexpected Behaviour of Financial Guarantees = Use of social media changing way information is stored &amp; distributed</p> Signup and view all the answers

<p>Participation in decision making on risks = Empowers employees to contribute to risk assessment and mitigation Organizational learning = Continuously improves risk management processes based on experience Good internal communication = Ensures effective dissemination of risk information throughout the organization Easy reporting mechanism for risk = Simplifies the process for employees to report risks and suggestions</p> Signup and view all the answers

<p>Labelling or Numbering System = A method for uniquely identifying and tracking each risk. Categorisation = Classifying risks as upside or downside, depending on their potential impact. Description = A clear and concise statement outlining the details of each risk. Initial Assessment = Evaluating the likelihood, impact, timeframe, and relationship with other risks.</p> Signup and view all the answers

<p>Unintentional Bias = Manager inaccurately assesses risk due to lack of experience Intentional Bias = Manager deliberately overestimates a risk to avoid personal responsibility</p> Signup and view all the answers

<p>From the top of the organization = Demonstrates commitment and leadership from senior management On an incremental basis = Implements changes gradually to avoid disruption and resistance As the profile of new recruits changes the views of staff = Brings in fresh perspectives and ideas to contribute to the evolving culture</p> Signup and view all the answers

<p>Risk Response Action = Steps taken to mitigate, avoid, transfer, or accept a risk. Cost = The financial resources allocated to implementing the risk response. Expected Residual/Secondary Risks = Risks remaining after implementing the response or arising as a consequence of the response. Risk Owner = The individual responsible for monitoring and managing the risk.</p> Signup and view all the answers

<p>Social Media = Impact on information storage and distribution Cyber Security = Hacking, data breaches, espionage Cloud Computing = Data security, access control, service disruptions</p> Signup and view all the answers

<p>Oversight = Provides general monitoring and guidance to ensure compliance Licensing = Authorizes institutions to operate in a specific industry Procedures for monitoring compliance with standards = Establishes processes to verify adherence to regulatory requirements Processes to take action against those who fail to comply = Enforces penalties or corrective measures for non-compliance</p> Signup and view all the answers

<p>Bus interruption = Loss of business income due to cyberattacks Legal defense &amp; damages costs = Cost of legal representation and settlements Reputational damage = Negative publicity and loss of customer trust Damage to digital assets = Loss of data, software, or other digital assets</p> Signup and view all the answers

<p>Horizon scanning = Systematic search for potential developments over the longer term, focusing on changes at the edges of current thinking Analysis of trends = Identification of patterns and potential risks based on historical data and current observations Academic journals &amp; websites = Sources of information on emerging risks and trends in specific areas Experts in the field = Individuals with specialized knowledge and experience relevant to the risk assessment process</p> Signup and view all the answers

<p>International business regulated by different territories = Varying regulatory frameworks across countries Subsidiaries that operate in different industry sectors = Different risk profiles based on industry-specific activities Subsidiaries that operate in different areas within the same sector = Variations in risk levels within different geographical locations Subsidiaries which are new ventures or acquisitions and at different lifecycle stages = Developing companies may have higher risk exposure due to uncertainties</p> Signup and view all the answers

<p>Professional bodies = Ensure adequate training and maintain competence of members Professional regulators = Maintain public confidence and set regulatory standards Industry bodies = Promote the interests of members through lobbying and other activities Industry regulators = Act on behalf of the government to protect the public interest</p> Signup and view all the answers

<p>May affect profitability of the organization = Reduced revenue, increased costs, or decreased efficiency Knowledge of them will influence corporate strategy = Adaptation of business models, competitive advantage, or risk mitigation strategies May yield opportunity for new product = Innovation, expansion into new markets, or competitive advantage</p> Signup and view all the answers

<p>Functional regulation = Different authorities oversee distinct activities Unified regulation = A single regulator covers a broad range of activities</p> Signup and view all the answers

<p>Rapid changes in the nature and source of cyber risk = Emerging IT Risks Significant shifts in power between world economies = Emerging Risks Non-linear dependencies between current known risks = Emerging Risks Use of social media changing the way information is stored and distributed = Emerging IT Risks</p> Signup and view all the answers

<p>Emerging Risks = New or unforeseen risks that have the potential to significantly impact an organization Cyber Risk = Any risk of financial loss, disruption, or damage to reputation from a failure of information technology systems Emerging IT Risks = IT-related risks that are rapidly evolving and pose significant threats to businesses</p> Signup and view all the answers

<p>Nature of business = Defines the core operations and activities of the insurer Governance arrangements = Outlines the structure and processes for decision-making and risk oversight Business plans = Provides insights into the insurer's strategic objectives and risk appetite Financial reports = Reveals the insurer's financial position and performance</p> Signup and view all the answers

<p>FCA = Consumer protection, industry stability, and healthy competition PRA = Prudential regulation and supervision of financial institutions, including insurers LSE = Operating two main traded markets: Main Market and AIM BIS = Guiding the Basel Committee on Banking Supervision (BCBS) to publish Basel regulations</p> Signup and view all the answers

<p>Risk profile = A detailed description of an organization's risk exposures, including potential future risks. Risk appetite = The organization's overall willingness to accept risk, reflecting the setting of targets and limits. Risk tolerance = Specific statements, often quantitative, describing the acceptable level of risk for particular categories or units. Risk limits = Guidelines setting boundaries on actions, ensuring individual units operate within permitted risk tolerances.</p> Signup and view all the answers

<p>SIMR = Ensuring individuals running insurance companies have defined responsibilities and act with integrity Basel I = Setting minimum capital requirements for banks Basel II = Intended to replace Basel I, focusing on capital adequacy Basel III = Addressing liquidity risk, systemic risk, and counterparty risk</p> Signup and view all the answers

<p>Risk capacity = The maximum volume of risk an organization can take on, often measured by economic capital. Risk exposure = The potential maximum loss if a risk event occurs. Utility function = A tool expressing an organization's varying levels of risk aversion, aiming to maximize expected utility. Expected Utility Theorem = States that decisions are based on maximizing the expected value of utility, considering probabilities of different outcomes.</p> Signup and view all the answers

<p>Key Functions = Specific areas of responsibility within an insurance company, as defined by the SIMR Key Function holders = Individuals responsible for overseeing Key Functions within an insurance company Key Function Performers = Individuals carrying out tasks related to Key Functions within an insurance company Governance map = A document that sets out an insurance company's organizational structure and identifies key roles and responsibilities</p> Signup and view all the answers

<p>Monotonically increasing = Indicates that the utility function increases as wealth increases, meaning more wealth is always preferred. Concave = Reflects diminishing marginal utility, where the increase in utility from an additional unit of wealth decreases as wealth increases. U'(w) &gt; 0 = Represents the property of a monotonically increasing utility function, showcasing the positive relationship between utility and wealth. U''(w) &lt; 0 = Represents the property of a concave utility function, signifying diminishing marginal utility.</p> Signup and view all the answers

<p>FCA = Financial Conduct Authority PRA = Prudential Regulation Authority BIS = Bank for International Settlements BCBS = Basel Committee on Banking Supervision</p> Signup and view all the answers

<p>Upper bound of risk exposures = Defines the maximum permissible level of risk the organization is willing to take. Current risk exposures = Represents the existing levels of risk the organization currently faces. Desired risk exposures = Indicates the target levels of risk the organization aims to achieve. Breakdown of the upper bound &amp; risk targets into more detailed statements = Provides specific and detailed guidelines for managing different types of risk at various levels within the organization.</p> Signup and view all the answers

<p>Proactive engagement = Engaging with insurance companies to provide advice and guidance on best practices Supervisory burden = The level of effort required from a regulator to oversee a particular insurer Risk-based supervision = Supervising insurers based on the level of risk they pose to the financial system Fit and proper assessment = Evaluating the suitability of individuals holding senior positions in insurance companies</p> Signup and view all the answers

<p>Governance map = Details company's organizational structure, assigns key functions, and identifies 'key function holders' and 'key function performers' Assessment of fitness and propriety = Evaluates the suitability of senior insurance managers and directors Identified Key Functions = Defines specific areas of responsibility within insurance companies All individuals included in the SIMR regime = Includes senior insurance managers and directors responsible for key functions</p> Signup and view all the answers

<p>Basel I = Minimum capital requirements for banks Basel II = Capital adequacy, including credit risk, operational risk, and market risk Basel III = Liquidity risk, systemic risk, and counterparty risk BCBS = Developing and implementing international banking regulations</p> Signup and view all the answers

<p>Consumer protection = Ensuring the fair treatment and interests of consumers Industry stability = Promoting a resilient and stable financial services industry Healthy competition = Encouraging healthy competition among financial institutions International regulation = Collaborating with international regulatory bodies to harmonize regulations</p> Signup and view all the answers

<p>Offence vs Defence = BU focuses on maximizing income; RM focuses on minimizing loss Policy &amp; Policing = BU operates within established rules; RM enforces rules through auditing and compliance The Partnership Model = BU and RM work together in a client-consultant relationship; both share performance responsibilities None of the above = This model is not mentioned in the text</p> Signup and view all the answers

<p>Conflict &amp; conflict resolution = Handling disagreements and finding solutions between BU and RM staffs Management of RM staff within BU = Integrating RM staff into BU and ensuring effective collaboration Aligning incentives = Ensuring that incentives for both BU and RM staff encourages responsible risk management Measuring operational risk = Quantifying and evaluating the risk associated with day-to-day business operations</p> Signup and view all the answers

<p>Project management = Planning, executing, and monitoring risk-related projects Change management = Managing the process of adaptation to new risks or risk management strategies Relationship management = Building and maintaining strong relationships with BU and other stakeholders Technical expertise = Understanding the technical aspects of risks and risk management</p> Signup and view all the answers

<p>Process for engaging with BU = Establishing a clear and effective communication channel between RM and BU Common risk taxonomy = Adopting a shared language and classification system for risks Standard RM process = Defining a consistent process for identifying, assessing, and managing risks across the organization Appropriate incentives for employees = Ensuring that compensation and reward systems encourage responsible risk management</p> Signup and view all the answers

<p>Setting trigger points for each assumption = Defining specific thresholds that trigger a review of the risk associated with an assumption Setting specific risk communications for new product and business development = Developing clear and tailored communication plans for communicating risks related to new products or businesses None of the above = These actions are not mentioned in the text</p> Signup and view all the answers

<p>Expected losses = The anticipated financial losses resulting from potential risks Cost of capital = The cost associated with financing risk management activities Cost of risk transfer = The cost of transferring risk to another party, such as through insurance</p> Signup and view all the answers

<p>Link between executive compensation and risk management should be disclosed = Transparency in the alignment of executive compensation with risk management practices is essential Compensation should not encourage excessive or inappropriate risk-taking = Remuneration systems should de-incentivize risk-taking beyond acceptable levels Clawback provisions should be implemented = Mechanisms should be in place to recover compensation if excessive or inappropriate risk-taking leads to negative outcomes</p> Signup and view all the answers

<p>Compliance often refers to a separate function = Compliance is often a distinct department or team within the organization None of the above = This statement is not mentioned in the text</p> Signup and view all the answers

<p>Giving advice to the Board on risk = Providing expert guidance to the Board on risk management matters Assess overall risk being run by the business = Evaluating and analyzing the overall risk profile of the organization Making comparisons of overall risks being run with risk appetite = Comparing the organization's current risk profile with its acceptable risk tolerance Acting as central focus point for staff to report new &amp; enhanced risk = Establishing a mechanism for staff to report emerging or changing risks</p> Signup and view all the answers

<p>Process for engaging with BU = Fostering effective communication and collaboration between RM and BU Common risk taxonomy = Ensuring consistency and shared understanding of risk terminology Standard RM process = Establishing a robust and repeatable framework for risk management Appropriate incentives for employees = Encouraging employees to identify and manage risks responsibly</p> Signup and view all the answers