Problem
LTD Acceptance is a private property and auto insurance carrier specializing in sports cars and motorcycles. This organization is owned by LTD Capital, a large equity group with over 15 holdings. LTD Acceptance is the parent company's single largest holding as it drives 70% of total revenue. Due to the inherent risk involved in that market segment, many of LTD Acceptance's competitors do not offer policies for sports cars or motorcycles.
This market segment is underserved, so the organization has 20,000 active policies for a sports car or a motorcycle. LTD is headquartered in Houston, TX. LTD does not sell insurance directly to the public. Instead, it uses third-party agents to sell its policies. LTD handles all customer service needs, including claims intake, policy services, and general questions. The company operates in four states: California, Texas, Louisiana, and Florida.
LTD is looking to expand its operations by opening a new call center and offices in Iowa. As such, LTD needs financing to pay for this undertaking. As the senior risk analyst, you have been tasked with determining the pros and cons of LTD seeking external finance to complete this venture. You must submit the items you intend to cover to the event planner by next week.
Along with the slides, you must also submit speaker notes on what you will say during the presentation. You are required to use the Notes feature at the bottom of the PowerPoint slide to present the speaker notes and any other relevant information you would use in the presentation.
For help creating a PowerPoint presentation, use the guide here.
A. Explain why credit risk management within the financial sector is so essential. Provide three examples supporting your reasoning.
B. Explain the pros of LTD using external finance vs. cash on hand in this venture. Provide four supporting examples.
C. Explain the cons of LTD using external finance vs. cash on hand in this venture. Provide four supporting examples.
D. Explain the consequences of failing to manage credit risk and whom they affect. Provide four supporting examples.
E. What measures can LTD employ to mitigate credit risks? Provide four examples of measures and how they would work.