1. Summarise the main reforms introduced by Basel III.




An insurance group has a corporate bond portfolio. One of the larger investments in this portfolio has recently defaulted. It was a jewellery maker. As a result, the debt instruments that the firm held have been converted into equity and the firm now finds itself owning 55% of the equity of the jewellery maker.


  1. Indicate potential risk management activities that this might trigger for the group’s central risk team.



  1. Summarise:
  • The main roles that the group’s central risk team might undertake 
  • Stakeholders likely to be interested in how successful the team is at these roles



  1. Summarise:
  • The main risk policies EIOPA guidance expects an insurance group to have in place


  • Ways in which the group’s central risk team may have contributed to these policies


  • Governance requirements EIOPA guidance expects the group to have followed when 



An international airline company is considering taking over a small bank that has developed a range of innovative online banking services that it offers to retail customers. These services include foreign currency payment services and a platform offering a range of “feeder funds” that allow customers to gain exposure to investment funds provided by selected third-party fund managers. The strategic rationale for the proposed take-over is that the airline can introduce its customers to the bank and vice-versa. The bank is just about to add to this platform a range of investment funds that it will manage itself (through a newly established asset management subsidiary).


  1. Assess the risks that such a business expansion might introduce to the airline.




  1. Discuss:
  • The typical components of an economic capital model
  • How such a model might be used by an airline or by a bank
  • How the output of economic capital models might help either or both of these parties when negotiating the terms of such a transaction



One of a firm’s business units has suffered the following operational risk losses in the last 40 consecutive quarters:




Quarter Ending Loss (£m) Quarter Ending Loss (£m) Quarter Ending Loss (£m) Quarter Ending Loss (£m)
31/03/12 30/09/14 0.2 31/03/17 1.1 30/09/19
30/06/12 0.3 31/12/14 30/06/17 0.1 31/12/19
30/09/12 0.2 31/03/15 30/09/17 0.2 31/03/20
31/12/12 30/06/15 0.6 31/12/17 1.8 30/06/20 0.1
31/03/13 30/09/15 31/03/18 0.2 30/09/20 3.2
30/06/13 31/12/15 0.1 30/06/18 31/12/20 0.1
30/09/13 0.2 31/03/16 30/09/18 0.5 31/03/21
31/12/13 0.6 30/06/16 0.3 31/12/18 0.1 30/06/21 0.3
31/03/14 0.7 30/09/16 0.9 31/03/19 0.6 30/09/21 0.3
30/06/14 0.3 31/12/16 30/06/19 31/12/21 1.8


The firm has asked its risk management team to estimate (i) a 95% and (ii) a 99% confidence level 1-year Value-at-Risk (VaR) for operational risk for the business unit:


  • Using only the above data, prepare estimates of these two VaR risk measures as at 31/12/2021, stating all assumptions you have adopted, explaining your choice of statistical methodology and providing your working
  • Suggest additional data you might be able to obtain that would be likely to make your estimates more accurate

Take all number rank them in order, all quarterly numbers


  1. Describe how an equity-based portfolio credit risk model differs from a ratings-based portfolio credit risk model, and the main instrument types that are hard to cater for in one or both of these model types.