Download PDF by Erik Banks: Alternative risk transfer : integrated risk management

By Erik Banks

ISBN-10: 0470857455

ISBN-13: 9780470857458

ISBN-10: 0470857463

ISBN-13: 9780470857465

ISBN-10: 1118673271

ISBN-13: 9781118673270

A realistic method of ART-an replacement technique during which businesses tackle quite a few forms of riskThis entire e-book exhibits readers what paintings is, the way it can be utilized to mitigate chance, and the way convinced instruments/structures linked to paintings can be carried out. via various examples and case reports, readers will examine what really works and what does not whilst utilizing this system. Erik Banks (CT) joined Read more...

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A realistic method of ART-an replacement process in which businesses tackle quite a few kinds of riskThis entire booklet indicates readers what paintings is, the way it can be utilized to mitigate probability, and the way definite instruments/structures linked to paintings can be applied. via various examples and case stories, readers will study what truly works and what does not whilst utilizing this system.

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Example text

While this is convenient, it may not yield the best results, and only a rigorous review can determine if enterprise value is actually being maximized through such a process. Risk retention Risk retention (sometimes referred to as self-insurance) is based on preserving a certain amount of risk exposure. Retention may occur passively (through failure to recognize the presence of a particular risk) or actively (through a specific decision to preserve a particular risk). Passive retention can be the result of a failed or flawed governance process, which causes a firm to improperly identify or quantify its exposures.

For instance, small losses that can be estimated with a reasonable degree of accuracy can be budgeted into the corporate process and may be funded internally at a lower cost than full insurance. Alternatively, the costs associated with partial insurance may be reasonable in light of the benefits that can be obtained. As noted earlier, some firms prefer to transfer risks that are difficult to estimate, such as low-frequency/high-severity exposures. Although this clearly involves a premium cost, two benefits arise: costs savings from not having to precisely quantify the potential impact of a ‘disaster’ (a difficult and sometimes imprecise exercise) and ex-ante post-loss funding that is secured in the aftermath of what might be a significant loss event.

In a typical risk/return framework, the riskier the insurer’s business, the greater the required profitability, since the variability of claims is higher. A business with more claims variability demands greater capital support, meaning a greater economic return to shareholders. If profit loading is not determined correctly, shareholders will not be compensated fairly and will be unwilling to supply capital. If risks are independent and homogeneous, it is relatively easy for an insurer to determine how much premium it needs to charge.

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Alternative risk transfer : integrated risk management through insurance, reinsurance, and the capital markets by Erik Banks


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