Question1. A general insurance company has computed reserves for its year end solvency requirements. The Board of Directors are worried that the reserves may have been overstated because of the significant jump in reserve from last year’s.
a) Why would the Board not be keen to keep more reserves than the strict minimum?
b) By keeping higher reserves, explain how this can help the company manage its risks?
Question2. Explain the term Value at Risk (VaR).
Question3. Outline the limitations of VaR as a method of measuring risk.
Question4. Define the Expected Shortfall as a measure of risk.
Question5. Outline two examples of low probability, high impact risks that exist for a small manufacturing company in terms of how they would affect its business.
Question6. Suggest how these risks could be mitigated.