- 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.
- Indicate potential risk management activities that this might trigger for the group’s central risk team.
- 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
- 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).
- Assess the risks that such a business expansion might introduce to the airline.
- 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)|
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
- 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.