IFoA SP9 flashcards
IFoA SP9 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- COSO ERM 2017 components
- Five components: governance and culture; strategy and objective-setting; performance; review and revision; information, communication and reporting, each supported by underlying principles.
- Three lines model
- IIA model where operational management owns risk, a risk and compliance function provides independent oversight, and internal audit gives independent assurance to the governing body.
- ISO 31000 risk process
- Iterative process of establishing scope and context, identifying, analysing and evaluating risks, treating them, and recording and reporting, with communication and consultation and monitoring and review throughout.
- ORSA
- Own Risk and Solvency Assessment: the insurer's own forward-looking assessment of the risks it faces, its capital needs and its solvency position, approved by the board.
- Risk register fields
- Typical fields: unique ID, cause-event-consequence description, category, owner, likelihood and impact ratings, controls, residual risk, key risk indicator and review date.
- Inherent versus residual risk
- Inherent risk is the exposure before controls; residual is what remains after controls operate. The gap measures control effectiveness.
- Bow-tie analysis
- Diagram linking multiple causes through a hazardous event to multiple consequences, with preventive controls on the left and mitigative controls on the right.
- Risk taxonomy purpose
- A common hierarchical classification of risks that lets an organisation compare, aggregate and report exposures consistently across business units and risk types.
- Value at Risk (VaR)
- The loss threshold not exceeded with a given confidence over a defined horizon; it says nothing about the size of losses beyond that threshold.
- Tail Value at Risk
- Average loss conditional on exceeding the VaR threshold; captures tail severity and is a coherent, subadditive risk measure.
- Copula
- Function joining marginal loss distributions into a joint distribution, allowing dependence and tail dependence to be modelled separately from the marginals.
- Reverse stress testing
- Identifies scenarios or combinations of circumstances that would exhaust capital or make the business model unviable, working backwards from failure.
- Risk appetite statement
- High-level articulation of the amount and type of risk the organisation is willing to accept in pursuit of its strategy, usually combining qualitative and quantitative elements.
- Risk capacity
- The maximum risk an organisation can bear before breaching constraints such as regulatory solvency, liquidity or stakeholder expectations; appetite should sit below it.
- Risk limit cascade
- Translation of board-level appetite into progressively more granular limits for business units, portfolios and individuals, with escalation when limits are approached or breached.
- RAROC
- Risk-Adjusted Return on Capital: risk-adjusted profit divided by economic capital used; compares returns across activities after charging for the risk taken.
- Conduct risk
- Risk that business behaviour, or the way products and services are delivered, causes unfair customer outcomes or harms market integrity.
- Tone at the top
- Signals from senior leadership about acceptable behaviour and risk-taking, shaping whether employees prioritise short-term results or prudent risk management.
- Groupthink
- A behavioural bias where pressure for consensus suppresses dissent and alternative views, leading teams to underestimate risks and ignore warning signs.
- Key risk indicator
- A metric linked to a risk that provides early warning of rising exposure or deteriorating controls, with defined thresholds and an accountable owner.
- Board risk dashboard
- Concise, regular summary of top risks, appetite status, limit breaches, key risk indicators, capital and emerging risks for governing-body oversight.
- Stakeholder materiality
- The principle that risk reporting should focus on information that could influence the decisions or judgements of its intended audience, rather than exhaustiveness.
- Economic capital
- Capital estimated to cover unexpected losses from all risks at a chosen confidence level and horizon, often used for internal allocation.
- Solvency II SCR
- Regulatory capital requirement in the EU set at the one-year value-at-risk of basic own funds at a 99.5% confidence level.
- Euler capital allocation
- Allocation method that divides total diversified capital among sub-risks using each risk's marginal contribution, summing exactly to the total.
- Capital fungibility
- The extent to which capital held in one legal entity or jurisdiction can be moved to absorb losses elsewhere in the group.
- Emerging risk
- A newly developing or changing exposure with high uncertainty, limited historical data and potentially significant impact, which may not yet be well understood.
- Climate transition risk
- Risk of loss from the move to a low-carbon economy, including policy, technology, market and reputational shifts affecting asset values and liabilities.
- Horizon scanning
- Systematic process for detecting weak signals of change in the external environment so emerging risks can be assessed before they crystallise.
- Risk-adjusted hurdle rate
- Minimum required return set above the cost of capital by an amount reflecting the risk of a project or business line, used in decision-making.
- ORSA in decision-making
- The ORSA links strategy, risk profile and capital so that business plans and major decisions are tested against capital and appetite constraints.
- Post-implementation review
- Structured review after a decision or project comparing actual outcomes and risk experience with expectations, feeding lessons into future decisions.