ENSURING RISK IN NATURE AND INDUSTRY

NSURING RISK IN NATURE AND INDUSTRY 1. Explain why using deterministic models for catastrophe loss modelling can understate the potential risk. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5 marks) 2. Describe what is meant by moral hazard in insurance. What can insurance companies do to reduce its occurrence? Give an example of a potential moral hazard issue outside of the insurance area. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5 marks) 3. Explain the principle of large numbers and its application in insurance. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5 marks) 4. Describe the key stages in a catastrophe model? (You may choose whether this captured in 3, 4 or 5 stages). ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5 marks) 5. Describe the management of flood risk through the UK’s ‘memorandum of understanding’ between insurers and the government. Discuss the relationship between climate change and flood modelling. ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 6. A production line has a consecutive 3 part quality testing mechanism, QT1, QT2 and QT3. If we consider the following probabilities: Probability that QT1 operates properly= 0.76 Probability that QT2 operates properly =0.85 Probability that QT3 operates properly = 0.79 Design an event tree to demonstrate the routes to each of the possible outcomes. Work out the probability of each of the outcomes. What is the probability that a faulty product will pass through the quality tests undetected? ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 7. Identify the key types of air pollution. Describe how they are hazardous to the environment. Discuss the role of insurers in environmental risk. ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 8. Describe in brief the key health concern of nanomaterials. Discuss the parallel with the insurance industry’s experience of liabilities resulting from asbestos. ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 9. Describe the critical success factors for effective integrated risk management. _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5 marks) 10. What is the significance of the requirement to ‘establish the context’ of an enterprise’s risk? _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5 marks) 11. Identify the theoretical tools used to control/manage the risks. How could these be implemented in a practical way within a financial institution? _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 12. Describe in brief the evolution of the use of catastrophe modelling in insurance/reinsurance. _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (5marks) 13. What are the typical key stages in a catastrophe model? ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 14. What is meant by the terms Annual Average Loss (AAL) and the Exceedance Probability (EP)? How are they typically calculated How are they used in insurance/reinsurance? ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks) 15. Discuss the relationship between climate change and catastrophe modelling (You can use a case study to illustrate). ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (10 marks)