Marshall: Risk margin assesment

Study Strategy

Checklist

1. Be able to explain why we need a risk margin
2. Know how to prepare a portfolio by segmenting into homogenous, credible classes
3. Be able to list and define the three main components of risk
   • Independent risk
     • Know and be able to define the two components
     • Be able to explain how to model this risk
   • Internal systemic risk
     • Know and be able to define the three components
     • Be able to estimate risk using a balanced scorecard approach
     • Know the potential risk indicators and which component they fall under
     • Be able to analyze a CoV mapping for reasonability
   • External systemic risk
     • Know and be able to define the components
     • Be able to describe how to quantify risk
4. Be able to describe where we are likely to see correlation in our analysis
5. Know why internal systemic risk correlation occurs
6. Be able to describe the impact of higher/lower correlations on the CoV
7. Be able to consolidate CoVs for each class, liability and risk type into a single CoV
8. Be able to describe when it might be appropriate to use the LogNormal vs the Normal distribution
9. Be able to calculate the risk margin as both a percent and in dollars
10. Be able to describe the types of additional analysis that may need to be performed
    • Sensitivity testing
    • Scenario testing
    • Internal benchmarking
    • External benchmarking
    • Hindsight analysis
11. Be able to explain when a review of the process should be done

My Notes

Comments