Risk Management

Description

Competency

Examine the application of statistical functions and derivatives as instruments for measuring risks. 

Instructions

You  will assume the role of a senior analyst hired by a fictitious company,  Premium Acceptance, a midsized property insurance carrier. Premium  Acceptance is performing well with respect to several key performance  indicators, including policies in force, policy retention, and new  business counts. 

One of your objectives as the newly appointed  senior risk analyst is to develop a framework for managing loss ratios  which is one of the firm’s largest key performance indicators. A loss  ratio is simply the difference between the ratio of claims paid by an  insurance carrier and the ratio of premiums paid. The board of directors  depends on the ability to forecast loss ratios, which in turn enables  them to forecast profitability metrics to the shareholders. The  organization will now consider implementing the use of statistics for  measuring risks. 

Your deliverable should be composed in a report. Be sure to address the following items: 

• Explain how statistics is used to formally define risk in the risk assessment process.
• Discuss at least two statistical tools that can be employed to measure risk.
• Convey which tool best serves the company’s purposes and explain why it is.
• What are the ramifications of the organization electing not to use statistics in this process?
  • Employees
• Also include a discussion on how effective financial management aligns with overall risk management.
• Your  conclusion should highlight how the risk assumed in an organization’s  activities should be consistent with its long-term goals. All business  activities include inherent risks. Thus, all the activities and risks  the firm takes should help them reach their long-term goals. If the  managers engage in activities that create risks outside of this scope,  it can create problems. For instance, most firms have the goal of  driving sustainability. However, if they are highly leveraged, then  seeking additional credit for a project can derail the long-term goal of  sustainability.