16.4 Risk Taxonomy
Insurance Hazard:
Unique to insurers that is intentionally taken on to make a profit, the crusx is having inadequate premium to cover the expsosure
In-force exposures:
Accumulation (CAT)
Underwriting (non-CAT)
Past exposures (reserve deterioration)
Financial Risk:
Volatility in: interest rate, FX, equity, credit, liquidity
- Liquidity risk is the risk of having insufficient liquid assets to be able to meet a sudden cash demand
Focus on assets of insurance company (Insurers tend to have high \(\frac{Asset}{Equity}\) ratio)
- Financial risk impact our liability as well
Execution risks of the company (things don’t turn out as planned)
Relates to threats to company value from actions (either the action itself of its consequences departed from plan)
Risk about choices: making the right/wrong choice, or refusing to choose, or fail to recognize the need to choose
Inherent threat to the company in choosing the wrong plan given the current and expected market conditions