Question 1 (Marks: 15)

Distinguish between the following concepts in risk: (Hint: Use examples where applicable)

Q.1.1.1 Micro and macro risk identification
Q.1.1.2 A peril and a hazard
Q.1.1.3 Priori probabilities and subjective probabilities

Q1.2 Principle two of King I report states that the board of directors and managers should ensure that through a managed and effective process, board appointments are made that provide a mix of proficient directors, each of whom is able to add value and to bring independent judgement to bear on the decision-making process.

Describe how this principle is important in risk management.

Q1.3 Describe the importance of the concept of risk during the business management
planning process.

Question 2 (Marks: 25)

Q.2.1 Outline the measures used to describe possible loss accurately?

Q.2.2 Effective risk management does not function in a vacuum and rarely survives a leadership failure. The risk management function can review, inform, advise, monitor, measure and even resign. Discuss the management principles which risk
management culture addresses.

Q.2.3 Governance structures are the formally approved organisational risk management
structures and committees that govern operational risk management.

In light of this definition above, explain the two components of the governance structure for operational risk.

(Note: No graphical illustration required)

Question 3 (Marks: 10)
Evaluate the concept of risk with the focus on risk management. Your answer should include an
analysis of how it has evolved from its insurance-buying origins.

Question 4 (Marks: 10)
Risk identification and risk evaluation are integral parts of the risk management process. Yet, risk managers in the past have taken a less than holistic approach and have neglected these aspects.

Analyse this statement and highlight the importance of identification and evaluation.

Question 5 (Marks: 10)
Market failure can be defined as a scenario where the market fails to provide goods and services (Valsamakis et al., 2016: 10).

Discuss the concept of market failure and how it is applicable in the insurance industry?

Question 6 (Marks: 30)
Question six requires students to create a framework for risk identification and apply the King I
guidelines.

Read the case study below on Wells Fargo and answer questions that follow

Q.6.1 Imagine you were the chief risk officer at Wells Fargo, prior to the major risk disaster reported in the case study above. Suggest possible systematic approaches that you would use to identify risk at Wells Fargo in order to facilitate an effective risk management programme and ultimately prevent this risk catastrophe.

(NB: Your discussion should regularly refer to the case study.)
Q.6.2 Analyse the Wells Fargo case study above using King I guidelines.

Answers to Above Questions

Answer 1: Risk management is highly essential for businesses in order to achieve their desired outcomes. It is important for businesses to have adequate risk management strategies in order to tackle different types of risks. However it is essential that there is a clear understanding about the different types and concepts of risk. The main difference between micro and macro with identification is that the micro risk is applicable at the firm level whereas macro is applicable at a broader industry level. One of the examples of micro risk is the ability of a company to generate revenue whereas macro refers to the risk at the entire geographical region or countries to which the business is exposed to…..