What are the factors that affect the predictability of claims loss exposure for a non-life insurer? Discuss these factors based on the liquidity risk management perspective of a non-life insurer.

Insurance risk management

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QUESTION 1

Liquidity has always been a vital concern for life insurance companies. Therefore, appropriate liquidity risk management is central to protecting the claims paying ability of the insurer.

i. What are the factors that affect the predictability of claims loss exposure for a non-life insurer? Discuss these factors based on the liquidity risk management perspective of a non-life insurer (150 words)

ii. What are the primary methods that non-life insurance companies can use to reduce their liquidity risk? (100 words)

QUESTION 2

i. The risks to insurers of multiple claims from a single event can be devastating if not managed successfully. Which risk management techniques that can be applied by a non-life insurance company against the risks in question?Provide two examples to illustrate your answer (max 200 words)

ii. Discuss the impact of the following article on a non-life insurance company’s risk and return objectives.

“UK inflation jumped again last month, overshooting economists’ forecasts and the Bank of England target, as the reopening from lockdown drove up prices and unsettled expectations of gradual increases this year. The price of consumer goods raise 2.1% in the year to May, up from 1.5% in April and the highest level since July 2019. The consensus expectation was 1.8%. Economists globally are monitoring price rises, with inflation accelerating as national economies open up in the US, prices increased 5% year on year in May, the fastest rise in almost 13 years”.( max 100 words)

iii. A non-life insurer’s motor line of business brings £8.5 million in premium in 2020. The line’s losses amount to £5.7 milliom, expenses are £2.8 million, and dividends are £0.5 million. Calculate the line’s loss ratio, expense ratio, dividend ratio, combined ratio? What must be the minimum yield on investments to achieve a positive operating ratio (max 150 words)

QUESTION 3

You are a risk officer for an insurance company in conducting an in-house risk management training session for marketing department, you elicit the following statements from one of the staff. “In order to increase premiums and diversify our lines of business, we should offer individuals insurance against losing their jobs”. Explain the problems posed by this recommendation, emphasizing the concepts of adverse selection, moral hazard and requirements of an insurable risk. (max 150 words).

For this assessment, you are not expected to include full referencing but are encouraged, where relevant, to cite the sources of key theories, models, case studies, statues etc

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