RETENTION AND TRANSFER OF RISK

SHE Level 3
SCQF Credit Points 20.00
ECTS Credit Points 10.00
Module Code M3N313396
Module Leader Muhammad Nawaz
School Glasgow School for Business and Society
Subject Risk
Trimester
  • A (September start)

Pre-Requisite Knowledge

PERSONAL FINANCE & INVESTMENT or INTRODUCTION TO MANAGING RISK.

Summary of Content

The module enables students to critically examine the main methods of retention and transfer of risk and compare these with insurance as a risk transfer mechanism. Some tools of financial as well as statistical evaluation are employed to reinforce concepts such as derivatives, risk retention and securitization. Areas covered include captive insurance, risk retention (self-insurance), risk transfer by contract terms, securitization and derivatives.

Syllabus

Module Introduction. Insurance as a Risk Transfer Mechanism, market composition and capacity, decision to insure, considerations and criteria whether to insure or not to insure. Decision factors insurance/captive market. Value of insurance as a risk transfer mechanism, insurance as a strategy - advantages and disadvantages. Insurance performance indicators in decision-making. Use of statistical models such as Houston Model, Paired Comparison etc. Self-insurance - background and growth. Types and Funding sources, benefits and disadvantages. How the risk manager uses self-insurance. Risk Transfer by Contract Terms - background and relevance of contract terms for risk transfer Captive insurance. Institutional background and growth. Purpose - advantages and disadvantages. Types & domiciles. How the risk manager uses a captive insurance company. Derivatives - Concept, need in financial risk management. Advantages & disadvantages. Types: FRAs, Futures, Options and Swaps, Catastrophe derivatives and how these may be used by the Risk Manager. Discussion and practical examples on the use of these instruments for hedging and speculation. Securitization - rationale and growth. Types and application to risk management and insurance.

Learning Outcomes

On successful completion of this module, the student should be able to:- Understand the role, operation and function of various markets supporting retention and transfer of risk with a view to demonstrating a broad and comparative knowledge of risk retention and transfer and how it interacts with the related subject of risk management.- Demonstrate a critical understanding of the theories, principles and key concepts of insurance, captives, self-insurance and derivatives and be able to explain them with financial and statistical models.- Apply knowledge and understanding of techniques of risk retention and transfer in order to critically evaluate alternative risk retention/transfer strategies- Discuss current developments in the subject area, and their impact on established theories, principles and practice.

Teaching / Learning Strategy

Formative assessment will form a key part of the student feedback strategy. - Keynote lectures will provide conceptual framework - Tutorials and seminars to provide support and understanding and to underpin lecture content - Virtual Learning Environment (VLE) to enable online access of lecture, provide discussion forums, and provide seminar and tutorial content to enhance the student learning experience - Independent and directed learning to provide depth to the subject area The following additional assessment and student feedback strategies will be adopted by this module: A: Facilitating the development of self-assessment Students will be provided with a template for the evaluation of their coursework, and asked both to identify the strengths and weaknesses of their own work in relation to the criteria prior to submission and to indicate the kind of feedback they would like when handing in work. B: Encouraging dialogue Time will be set aside in seminars to discuss feedback provided and strategies to improve performance next time. C: Clarifying good performance Students will be given clear guidance on requirements and given time to discuss and reflect upon those criteria in class. D: Providing opportunities to close the gap between current and desired performance Feedback will identify generic and individual action points, and students will also be encouraged to identify their own action points to improve performance in future. E: Delivering high quality information about your learning Feedback will be provided soon after submission and identify strengths, weaknesses and corrective advice. Time will also be set aside in seminars to provide feedback on formative assignments. F: Encouraging positive motivational beliefs and self-esteem All feedback will be constructive and clear. It will identify strengths in performance. G: Providing information to teachers that can be used to help shape the teaching Opportunities in class will be provided for students to identify 'challenging' issues in the course material, and they will be asked to indicate the kind of feedback they would like when handing in work

Indicative Reading

Due to breadth of material covered, no core text is recommended. Following is a list of relevant text books, websites and journals which cover all the elements of the syllabus: Gordon, Alan (2005)"Risk Financing", Witherby, London Head, Elliott & Blinn (1996) "Essentials of Risk Financing", Insurance Institute of America, Philadelphia PA. Bawcutt, P A (1997) "Captive Insurance Companies - Insurance, Management and Administration" 4th Ed. Witherby Parkinson, J.R. (2002) "Captives and Captive Management for Practitioners and Owners" Key Haven Publications, London Taylor, Francesca (2006) "Mastering Derivatives Markets" 2nd Rev. Edition. Prentice Hall General information resources: Journal of Risk and Insurance The Global Risk Management Network - http://www.grmn.com/ Captive Insurance Website - www.captive.com The Geneva Papers LIFFE - www.liffe.com Securitization - www.securitization.net

Transferrable Skills

The module seeks to systematically develop critical analysis and interpretation skills of students in a manner that encourages independent initiative and learning. Through seminars and tutorials students should develop communication and group-working skills.

Module Structure

Activity Total Hours
Assessment (FT) 18.00
Lectures (FDL) 24.00
Lectures (PT) 24.00
Practicals (PT) 6.00
Independent Learning (FT) 43.00
Tutorials (PT) 4.00
Tutorials (FDL) 4.00
Independent Learning (PT) 43.00
Practicals (FT) 6.00
Assessment (FDL) 18.00
Assessment (PT) 18.00
Practicals (FDL) 6.00
Tutorials (FT) 4.00
Lectures (FT) 24.00
Private Study 105.00
Independent Learning (FDL) 43.00

Assessment Methods

Component Duration Weighting Threshold Description
Exam (Exams Office) 2.00 50.00 35% Final Examination (35% min. applies)
Exam (School) 2.00 50.00 35% Class Test