Actuarial Risk Management

Objectives

Identify the risks that can affect an organization. Quantify the risks and their implications in the short and long term.Identify and quantify the cost / benefit ratio of risk mitigation techniques. Identify and document the expected results. Relate financial and non-financial variables in risk modeling and mitigation processes; such as the social and environmental impact of rising global temperatures. Produce documentation to integrate risk analysis into the decision-making process. Communicate risks to decision-makers in a technically documented and effective manner.

General characterization

Code

12461

Credits

3.0

Responsible teacher

Pedro Alexandre da Rosa Corte Real

Hours

Weekly - 2

Total - 28

Teaching language

Português

Prerequisites

Students should have knowledge on mathematical analysis (continuity, derivation and integration), numerical analysis (numerical resolution of non-linear equations), probabilities and statistics (probability, random variables, density functions, probability and distribution, expected value and moments, central limit theorem, distributions).

They must also have knowledge of the essential concepts of the insurance industry, namely, the concept of premium and technical reserves.

Bibliography

Jorion, P. (2007). Value at risk : the new benchmark for managing financial risk. (3rd ed.). New York: McGraw-Hill.

Marrison, C. I. (2002). The fundamentals of risk measurement. New York: McGraw-Hill.

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02009L0138-20170112&from=EN

https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1524003723002&uri=CELEX:02015R0035-20170915

Basel II: available at https://www.bis.org/publ/bcbs128.pdf

Basel III: available at https://www.bis.org/publ/bcbs189.pdf

The Essential Guide To Reinsurance. Brahin, Chatagny, Haberstich, Lechner, Schraft. www.swissre.com, 2010.

Proportional and non-proportional reinsurance. Christoph Bugmann. www.swissre.com, 1997

John Fraser, Betty Simkins. Enterprise Risk Management: Today''''''''s Leading Research and Best Practices for Tomorrow''''''''s Executives. Essential Perspectives, 2010.

James Lame. Implementing Enterprise Risk Management: From Methods to Applications. John Wiley & Sons, 2017 (Wiley Finance)

Teaching method

In the theoretical-practical classes the teacher will explain and discuss the successive topics of the Curricular Unit program, beginning with the Risk Environment followed by the risk identification. Then, the previously identified risks are measured and modeled ending with Risk Mitigation and Management The lectures includes real cases studies solved in computational environment The goal is to prepare the student to solve the professional life problems.
The evaluation is carried out according to the evaluation rules of the FCT considering two moments of evaluation, tests and / or assignments.

Evaluation method

Two group assignments, each corresponding to one of the parts of the subject taught and to 20% of the total of the final evaluation, with the exam having a quotation of 60%.

Subject matter

1. The Risk Environment
1.1. Apply the concepts of the actuarial control cycle to the risk management process.
1.2. Explain the concept of enterprise risk management (ERM).
1.3. Analyze aspects of the operating environment and their relevance to the ERM process.
1.4. Explain the main differences between regulatory and economic capital.
1.5. Define risk appetite and risk culture explain the importance of attitudes towards risk of key stakeholders.
1.6. Evaluate the elements of an ERM framework for an organization.
2. Risk Identification
2.1. Explain the purposes of risk classification.
2.2. Explain the difference between uncertainty (immeasurable) and risk (measurable).
2.3. Describe and classify different types of risk including: financial risk, insurance risk, environmental risk, operational risk and business risk.
2.4. Explain how the design of different products and services affects the risk exposure of the parties to a transaction and analyze the exposures for a particular transaction.
2.5. Explain how the characteristics of the parties to a transaction affect the nature of the risk borne by each and analyze the exposures for a particular transaction.
2.6. Explain the concept of risk pooling and the portfolio approach to the overall management of risks.
3. Risk Measurement and Modelling
3.1. Explain the use of models for risk management in the context of:
a) Pricing
b) Reserving
c) Valuation
d) Capital management
3.2. Describe different methods of risk aggregation and explain their relative advantages and disadvantages.
3.3. Apply these models to practical problems in insurance, pensions or an emerging area of actuarial practice.
4. Risk Mitigation and Management
4.1. Explain the most common risk mitigation and management techniques:
a) Avoidance
b) Acceptance
c) Reduction
d) Transfer
e) Monitoring.
4.2. Describe the principles of asset/liability management and apply them to the main types of liability held by financial institutions.
4.3. Analyze the risk management aspects of a particular business issue and recommend an appropriate risk management strategy.
4.4. Explain the implication of risk for capital requirement, including economic and regulatory capital requirements.

Programs

Programs where the course is taught: