Financial enterprise risk management sweeting download

 
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  1. Financial Enterprise Risk Management (International Series on Actuarial Science)
  2. Financial Enterprise Risk Management
  3. Financial Enterprise Risk Management (Paul Sweeting)
  4. exam-pa-syllabi (4) | Enterprise Risk Management | Risk Management

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Financial Enterprise Risk Management Sweeting Download

Trove: Find and get Australian resources. Books, images, historic newspapers, maps, archives and more. Cambridge Core - Optimisation - Financial Enterprise Risk Management - by Paul Sweeting. 2nd edition. Paul Sweeting, University of Kent, Canterbury. Cambridge Core - Finance and Accountancy - Financial Enterprise Risk Management - by Paul Sweeting.

The readings for each extension appear at the end of this document. The study note package includes all extensions. Seventy-five percent of the exam points will come from the core readings and will be common for all candidates. These questions may also draw on material from the core reading. Exam Registration Candidates may register online or with an application. Order Study Notes Study notes are part of the required syllabus and are not available electronically but may be purchased through the online store. Courseware This document will guide candidates through the syllabus material and reinforce learning that is expected from each topic. It is not intended to duplicate or replace the study material, but rather to enhance it. Introductory Study Note The Introductory Study Note has a complete listing of all study notes as well as errata and other important information. Case Study The case study will be provided with the examination. Candidates will not be allowed to bring their copy of the case study into the examination room.

On the life side, the analysis often involves quantifying how much a potential sum of money or a financial liability will be worth at different points in the future.

Since neither of these kinds of analysis are purely deterministic processes, stochastic models are often used to determine frequency and severity distributions and the parameters of these distributions.

Actuaries do not always attempt to predict aggregate future events. Often, their work may relate to determining the cost of financial liabilities that have already occurred, called retrospective reinsurance , or the development or re-pricing of new products. Actuaries also design and maintain products and systems.

They are involved in financial reporting of companies' assets and liabilities. They must communicate complex concepts to clients who may not share their language or depth of knowledge. Actuaries work under a code of ethics that covers their communications and work products ASB Non-traditional employment[ edit ] As an outgrowth of their more traditional roles, actuaries also work in the fields of risk management and enterprise risk management for both financial and non-financial corporations D'Arcy Actuaries in traditional roles study and use the tools and data previously in the domain of finance Feldblum , p.

The Basel II accord for financial institutions , and its analogue, the Solvency II accord for insurance companies to come into effect in , require institutions to account for operational risk separately, and in addition to, credit , reserve , asset , and insolvency risk. Actuarial skills are well suited to this environment because of their training in analyzing various forms of risk, and judging the potential for upside gain, as well as downside loss associated with these forms of risk D'Arcy They analyze business prospects with their financial skills in valuing or discounting risky future cash flows, and apply their pricing expertise from insurance to other lines of business.

For example, insurance securitization requires both actuarial and finance skills Krutov Actuaries also act as expert witnesses by applying their analysis in court trials to estimate the economic value of losses such as lost profits or lost wages Wagner Mathematician Nathaniel Bowditch was one of America's first insurance actuaries.

Need for insurance[ edit ] The basic requirements of communal interests gave rise to risk sharing since the dawn of civilization. For example, people who lived their entire lives in a camp had the risk of fire, which would leave their band or family without shelter.

After barter came into existence, more complex risks emerged and new forms of risk manifested.

Merchants embarking on trade journeys bore the risk of losing goods entrusted to them, their own possessions, or even their lives. Intermediaries developed to warehouse and trade goods, which exposed them to financial risk. The primary providers in extended families or households ran the risk of premature death, disability or infirmity, which could leave their dependents to starve. Credit procurement was difficult if the creditor worried about repayment in the event of the borrower's death or infirmity.

Alternatively, people sometimes lived too long from a financial perspective, exhausting their savings, if any, or becoming a burden on others in the extended family or society Lewin , p. Early attempts[ edit ] In the ancient world there was not always room for the sick, suffering, disabled, aged, or the poor—these were often not part of the cultural consciousness of societies Perkins Early methods of protection, aside from the normal support of the extended family, involved charity; religious organizations or neighbors would collect for the destitute and needy.

By the middle of the 3rd century, 1, suffering people were being supported by charitable operations in Rome Perkins Charitable protection remains an active form of support in the modern era GivingUSA , but receiving charity is uncertain and is often accompanied by social stigma.

Elementary mutual aid agreements and pensions did arise in antiquity Thucydides. Early in the Roman empire , associations were formed to meet the expenses of burial, cremation, and monuments—precursors to burial insurance and friendly societies. He has twice been awarded the H.

Financial Enterprise Risk Management (International Series on Actuarial Science)

She has won awards and commendations for her research from the International Actuarial Association, the Institute of Actuaries and the Society of Actuaries. The series is a vehicle for publishing books that reflect changes and developments in the curriculum, that encourage the introduction of courses on actuarial science in universities, and that show how actuarial science can be used in all areas where there is long-term finan- cial risk.

A complete list of books in the series can be found at www. Dickson, Mary R. Hardy and Howard R. Having a rigorous ERM process also means that the choices of response are more likely to be consistent across the organisation, as well as more carefully chosen.

Another important advantage of ERM is that it is flexible — an ERM framework can be designed to suit the individual circumstances of each particular organisation ERM processes are sometimes implemented in response to a previous risk management failure in an organisation. This does mean that there is an element of closing the stable door after the horse has bolted, and perhaps of too great a focus on the risk that was faced rather than potential future risks.

It might also lead to excessive risk aversion, although introducing a framework where none has existed previously is generally going to be an improvement. ERM can be used in a variety of contexts. It should be considered when developing a strategy for an organisation as a whole and within individual departments. The organisation must then consider how to assess and deal with the risks, considering the impact on performance both before and after treating the risks identified.

Importantly, the organisation needs to ensure that there is a framework in place for carrying out each of these stages effectively. ERM can also be used when developing new products or undertaking new projects by considering both the objectives and the risks that they will not be met.

Here, it is also possible to determine the levels of risk at which it is desirable to undertake a project. This is not just about deciding whether risks are acceptable or not; it is also about achieving an adequate risk-adjusted return on capital, or choosing between two or more projects.

Finally, ERM is also important for pricing insurance and banking products. This involves avoiding pricing differentials being exploited by customers, but also ensuring that premiums include an adequate margin for risk.

The first stage is to assess the context in which the framework is operating. This means understanding the internal risk management environment of an organisation, which in turn requires an understanding of the nature of an organisation and the interests of various stakeholders.

It is important to do this so that potential risk management issues can be understood. The context also includes the external environment, which consists of the broader cultural and regulatory environment, as well as the views of external stakeholders. Then, a consistent risk taxonomy is needed so that any discussions on risk are carried out with an organisation-wide understanding.

This becomes increasingly important as organisations get larger and more diverse, especially if an organisation operates in a number of countries. However, whilst a consistent taxonomy can allow risk discussions to be carried out in shorthand, it is important to avoid excessive use of jargon so that a framework can be externally validated. Once a taxonomy has been defined, the risks to which an organisation is exposed must be identified.

These assessments are then compared with target levels of risk — which must also be determined — and a decision must be taken on how to deal with risks beyond those targets.

Finally there is implementation, which involves taking agreed measures to manage risk. However, it is also important to ensure that the effectiveness of the approaches used is monitored. Changes in the characteristics of existing risks need to be highlighted, as do the emergence of new risks.

Financial Enterprise Risk Management

In other words, risk management is a continual process. The process also needs to be documented.

This is important for external validation, and for when elements of the process are reviewed. Finally, communication is important. This includes internal communication to ensure good risk management and external communication to demonstrate the quality of risk management to a number of stakeholders. It is important to have good standards of corporate governance if an ERM framework is to be implemented successfully.

Financial Enterprise Risk Management (Paul Sweeting)

Corporate governance is important not only for company boards, but also for any group leading an organisation. This includes the trustees of pension schemes, foundations and endowments. Their considerations are different because they have different constitutions and stakeholders, but many of the same issues are important.

However, regardless of what is required, it is worth commenting briefly on what constitutes good corporate governance. Whilst the principles are generally expressed in relation to companies, analogies can be found in other organisations such as pension schemes.

A key principle of good corporate governance is that different people should hold the roles of chairman and chief executives. A chief executive is responsible for the running of the firm, whilst the chairman is responsible for running the board.

It can be argued that having an executive chairman ensures consistency between the derivation of a strategy and its implementation. However, since the board is intended to monitor the running of the firm, there is a clear conflict of interest if the roles of chief executive and chairman are combined.

Ideally, the majority of directors should also be independent, with no links to the company beyond their role on the board. Furthermore, independent directors should be the sole members of committees such as remuneration, audit and appointment, where independence is important.

The chief risk officer should be a board member. One way of achieving this is to ensure that directors have sufficient knowledge and experience to carry out their duties effectively. Detailed specialist industry knowledge is needed only by executive members of the board — for non-executive directors it is more important that they have the generic skills necessary to hold executives to account.

These skills are not innate, and new directors should receive training to help them perform their roles. It is also important that all directors receive continuing education so that they remain well equipped, and that their performance is appraised regularly. So that these appraisals are effective, it is important to set out exactly what is expected of the directors. This means that the chairman should agree a series of goals with each director on appointment and at regular intervals.

Compensation should be linked to the individual performance of a director and to the performance of the firm as a whole. The latter can be achieved by basing an element of remuneration on the share price. Averaging this element over several periods can reduce the risk of short-termism. A similar way of incentivising directors is to encourage or even oblige them to buy shares in the firm on whose board they sit.

The role of the CRF is discussed in more detail later, but it is worth exploring the higher level issue of interaction here first. The first line of defence is carried out as part of the day-to-day management of an organisation, for example those pricing and selling investment products.

Their work is overseen on an ongoing basis, with a greater or lesser degree of intervention, by an independent second tier of risk management carried out by the CRF. Finally, both of these areas are overseen on a less frequent basis by the third tier, audit. This model explains the division of responsibilities well. However, it leaves open the degree of interaction between the three different lines, in particular the first and second. This is the offence and defence model, where the first and second lines are set up in opposition.

The results of such an approach are rarely optimal. There is no incentive for the first-line units to consider risk since they regard this as the role of the CRF. Conversely, the CRF has an incentive to stifle any risk taking — even though taking risk is what an organisation must often do to gain a return. It is better for first-line units to consider risk whilst making their decisions. It is also preferable for the CRF to maximise the effectiveness of the risk budget rather than to try to minimise the level of risk taken.

This means that, whilst the offence and defence model might reflect the reality in some organisations, it should be avoided. This avoids the outright confrontation that can arise in the offence and defence model, but is not an ideal solution. To be effective, it is essential that the CRF is heavily involved in the way in which business is carried out, and this model might lead to a system that leaves the CRF too detached.

It can be achieved by embedding risk professionals in the first-line teams and ensuring that there is a constant dialogue between the teams and the CRF. However, even this approach is not without its problems. In particular, there is the risk that members of the CRF will become so involved in managing risk within the first-line units that they will no longer be in a position to give an independent assessment of the risk management approaches carried out by those units.

The degree to which the CRF and the first line units work together is therefore an important issue that must be resolved. This means that the time horizon chosen for risk measurement is important. The level of risk over a one-year time horizon might not the same as that faced after ten years — this is clear. However, as well as considering the risk present over a time horizon in terms of the likelihood of a particular outcome at the end of that period, it is also important to consider what might happen in the intervening period.

Are there any significant outflows whose timing might cause a solvency or a liquidity problem? It is also important to consider the length of time it takes to recover from a particular loss event, either in terms of regaining financial ground or in terms of reinstating protection if it has been lost.

For example, if a derivatives counterparty fails, how long will it take to put a similar derivative in place — in other words, for how long must a risk remain uncovered? For example, Solvency II — a mandatory risk framework that is being introduced for insurance companies — requires that firms have a However, this is sometimes interpreted as being able to withstand anything up to a one in two-hundred-year event.

Is this an accurate interpretation of the solvency standard? Would one interpretation be modelled differently from the other? All of these questions must be considered carefully. Lam and Chapman give good overviews, whilst McNeil et al. It is also important to remember that risk management frameworks can be used to gain an understanding of the broader risk management process.

This is particularly true of the advisory risk frameworks such as ISO Before looking at the risks that these organisations face, it is important to understand their nature. By looking at the business that they conduct and the various relationships they have, the ways in which they are affected by risk can be appreciated more fully.

This is the first — and broadest — aspect of the context within which the risk management process is carried out. These organisations provided a way for businessmen to invest their accumulated wealth: bankers lent their own money to merchants, occasionally supplemented by additional funds that they had themselves borrowed.

exam-pa-syllabi (4) | Enterprise Risk Management | Risk Management

The provision of funds to commercial enterprises remains a core business of commercial banks today. By the thirteenth century, bankers from Lombardy in Italy were also operating in London. Following on from a practice devised by the Italian bankers, these goldsmithbankers gave their customers notes by in exchange for the deposited gold, the notes being the basis of the paper currency used today.

There also existed a clearing network for settling payments between the goldsmith-bankers. Much of the deposited gold was then invested, with only a proportion retained by the goldsmith-bankers.

This forms the basis for what is known as fractional banking, where only a proportion of the currency in issue is supported by reserves held.

Over time, the banking industry grew. In London, goldsmith-bankers were joined by money scriveners who acted as a link between investors and borrowers, and by the early eighteenth century the first cheque accounts appeared. For much of the history of banks, particularly before the twentieth century, the industry was characterised by a large number of local banks. This meant that banks did not really need a network of branches.

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