Risk Retention Essay

Submitted By xiaohuibu
Words: 2473
Pages: 10

RTR Test
Weeks 1-5
Chapters 1-7 (Except 3)
1, Risk Financing Techniques * What are the risks? * How do we finance them? * How do we manage them?
Need data for this: * Own data could be bias need to use data from WHOLE of industry * IF you don’t have data need to set up * Time value of money “compare apples & apples not apples & oranges.
2. Self Insurance * Make sure you have enough money available to cover losses.
3. Captives * Offshore feasibility study if setting up a company in the Bahamas explain the BENEFITS of captives: * Savings in insurance costs * Access to reinsurance market – wholesale market * Taxation * Put all risk in one place better control of risk = centralisation of risk management * Less regulation * ISSUES of setting up captives * Location as offshore * Personnel – expertise * Find out about regulation feasibility study * Costs * Management: outsource – better expertise and less costs * Previous experience loss record * Cost * Need to * Need to know if company has financial ability to manage risk. * How do we charge premium use premium & invest in reinsurance market and decide how much need to retain and how much to invest in reinsurance market * No of ways to access flow of premium they charge patient whatever reinsurance market is charging them and loading * Tailored approach – tailor to company’s needs * Appropriate to company * Previous losses, sufficient data.

Topic 1 Risk Financing 1. Role of Risk Financing : IMCF * Identification * Measurement * Control * Financing

2. Decisions Financing & Investment

3. Costs of risks: RICA * Retained losses * Cash flows * Cost of controlling & handling risk * Admin costs

4. Cost of Losses
Direct & Indirect

5. RF Variables:
Type of losses, cash flows, required return of organisations from resources

6. Loss experience analysed 1. Class of exposure: different RF techniques, max risk 2. Frequency & severity of losses – PYRAMID

7. RF Techniques

* Transfer to non insurer: * Activity giving rise to risk or financial responsibility for losses * Happens in many business agreements * Examples good at job got expertise to manage risk * Transferee financially compensated * Retention * Insurance not appropriate – too expensive not available * Retain in whole or part * Motivations depend on economic advantage financial activity loss characteristics, desire of management. * Finance retention cash flow, internal/external reserve fund * Better risk management (L/T) * Insurance * Professional risk bearer. * Transfer of risk – main objective. * T &C’s met: premium secures source of funds. * Retention: uncertain loss insurance certain premium. * Earning less susceptible to effects of pure loss. * Not always fully compensation limitation of liability, poor management of insurances by insured.

* ARF Tool for solution of larger issues
* Needed to make informed RF decision * Needed to establish an understanding of underlying loss experience * Estimate & valuation of cash flows understanding the manipulation of data. 1. Sources of data: * Own records: * No of loss exposure units, period of time, degree of diversification * May be biased or not enough 2. Insurers data: With caution reflects the loss experience of the whole industry not individual company 3. External Source: Benchmark compare company against industry normal: 1. Data shared with similar organisations 2. Statistics pooled by industrial or employers associations 3. Statistics published by the government
2. Adjustments to data: take account of changes so like is compared with like…