4. Risk management tools and techniques

4. Risk management tools and techniques

1. 1. Risk response

   • 4 categories
     • risk reduction, risk removal, accept
     • risk transfer
       • capital market risk trsf
         • Securitization
           • common formats, attractive features, features of good risk response
       • non capital market risk trsf
         • Insurance
   • see 2a for response to diff risks

2. 2. Derivatives: practice and principles G30 recommendations

   • to manage market risk, credit risk, operational risk, legal risk

3. 3. Key rate durations

   • yld curve mvt impact, effective duration, KRD and adv
   • modeling non // yld curve shifts, Basic KR shifts, KRD, 3 types of yld curve mts
   • link w/ pricing models - profiles: 0-coup bond, coupon bond, callable bond, callable bond w/ sinking fund, European call option, European put option, embedded option in callable bond, GNMA pass-thru, principal-only and interest only GNMAs
   • KRD of a pf

4. 4. ALM

   • different techniques
   • proposed framework and advantages
     • metrics: accounting, economic, rating agencies, regulatory
       • challenges faced during crisis
         • 6 Core Processes for efficient ERM process
           • GSAM's ALM & SAA process
             • traditional bottom up approach vs holistic approach. case study on 3 approaches
         • 2 responses and 4 ways to raise capital

5. 5. Special purpose vehicles

   • Benefits and risks, features, structure and uses, ways to manage risks
     • Regulatory: IFRS and USGAAP's determination if "in control"

6. 6. Captives & RM

   • Traditional risk transfer (TRT) vs Alternative risk transfer (ART)
   • Alternative Risk Financing Mechanism (ARFM)
     • RPG and RRG, MEWA
     • self-insurance pools, VEBA
       • do not trsf risk to ARFM
     • Captives
       • Captive insurance : elements, source vs owner of risk, main groups
         • pure captives, Industrial Insured Group captives (IIGC vs RP), RRG, Sponsored captives, Association captives
           • RRG: not req to be Industrial Insured

7. 7. Reinsurance

   • Definition, essential elements, retrocession
     • Forms
       • Treaty Reinsurance: QS vs XS (3 forms)
       • Facultative Reinsurance
   • Common uses and importance
   • Regulation of reinsurance
   • Global markets

8. 8/12. Assumption setting

   • Governance Policy/Process-Type Questions vs Validation-Type Questions
   • sources and spectrum
     • Ownership, factors
       • Categories (sources for base/trend/other, ownership): mortality, lapse, expense, other liability and economic
   • steps and governance, characteristics of best-in-class assn gov
   • How assn vary accoss actuarial practice
     • Dev prudent margins, factors impacting their level
       • Credibility: credible experience vs none

9. 9. Model Governance

   • 1-2. model and development
     • 3 - 4. Model Gov policy and standards, model risk
       • 5-7: governance, process and controls and validation
         • 8 -9: documentation and PBR model gov

10. 10. Leveraging across 3 lines of defenses

    • relationship among obj., frameworks and model
      • 3 LOD
        • roles
        • structuring and coordination
        • leveraging COSO across lines - 5 keys

11. 11. Best practices for ORSA

    • See 5 - ORSA