The ART of Risk Management
by Christopher L. Culp
From the Inside Flap
"As the capital and insurance markets continue to converge,
the number of innovative alternative risk transfer (ART) products available to corporations, brokers, derivatives participants, and other financial professionals continues to grow. Understanding risk management in a corporate finance context and the ability to use ART to control risk and raise new capital has become a necessity in today’s business world.
"Risk expert Christopher Culp begins by laying down a solid foundation in corporate finance and the processes by which firms strive to find the elusive "optimal capital structure." Culp introduces competing theories on optimal capital structure and provides a summary of empirical evidence for and against these theories. Risk and signaling capital, as well as regulatory capital, round out the discussion of the quest for optimal capital structure.
"To understand the motivations behind ART–many of which appear to be tied to the search by firms for optimal capital structure–Culp then probes the most interesting ART transactions to date by exploring their impact on the capital structure of many actual companies.
"This comprehensive guide also provides a valuable overview of the risk control and capital structure functions provided by banking products,
derivatives targeted at market and credit risk, asset divestitures and securitizations, and insurance and reinsurance. Also discussed are the many similarities between these traditional risk management products, especially (re-) insurance and options. Moving from traditional methods to today’s most cutting-edge risk management and capital formation tools, The ART of Risk Management examines the emerging market for ART forms based on their type and function. You’ll be introduced to the world of ART by looking at two distinct parts of that world: risk finance and risk transfer. You’ll learn about major structures in each, including such risk financing methods as captives, protected cell companies, and finite risk products,
and risk transfer methods, including multiline and multitrigger programs, "committed capital," and alternative risk securitization.
"The final section of this invaluable resource presents some practical issues that ART product users will want to take into consideration. Guest contributors address catastrophic insurance products, weather risk transfer, patent law and ART financial innovation, and ART structures facilitating mergers and acquisitions."
Embracing Risk: The Changing Culture of Insurance and Responsibility
by Tom Baker (Editor), Jonathan Simon (Editor)
The Fair Value of Insurance Business (The New York University Salomon Center Series on Financial Markets and Institutions, V. 5)
by Irwin T. Vanderhoof (Editor), Edward I. Altman (Editor)
"Insurance companies, as well as banks and thrift institutions, have traditionally reported assets and liabilities on the basis of their amortized cost, or book value. But following the turmoil in securities markets due to highly volatile interest rate fluctuations in the 1980s and the early 1990s, and problems caused by inadequate liquidity, in the mid-1990s the Financial Accounting Standards Board (FASB) issued a new ruling calling for financial intermediaries to report the fair, or market, value of most assets. Called FAS
115, this new standard is the first step in the eventual change to valuing all the assets and liabilities belonging to financial intermediaries under the fair value accounting method. Thus, these changes will pose tremendous future implications for three key business measures of a financial intermediary:
Solvency: if the fair values of assets and liabilities are out-of-step,
then healthy companies may report negative net worth and insolvent
companies may appear to be in sound financial condition.
Reported Earnings: if the fair values of assets and liabilities
are out of step, then reported earnings will not accurately
represent the financial operations of the company.
Risk Management: FASB recently postponed the implementation
of its new rules on accounting for the use of derivatives instruments.
"However, if the final set of rules for figuring the fair value of derivatives is not carefully crafted, it may be possible that companies prudently hedging their risks are subject to penalties in their financial reports, while companies taking greater risks appear to have less volatile financial performance. Compared to banks and other financial intermediaries, life insurance companies have the longest term and most complex liabilities, and hence the new FASB requirement poses the most severe challenges to the life insurance industry.
The lessons learned from the debate among life insurance academics and professionals about how respond to the fair value reporting rule will be instructive to their counterparts in other sectors of the insurance industry, as well as those involved with other financial institutions. Of particular note are the two papers which comprise Part III. The first provides examples of the fair valuing of annuity contracts, while the second offers examples of the fair valuing of term insurance products. As the papers collected in The Fair Value of Insurance Business extend and update some of the issues treated in a previous Salomon Center conference volume, The Fair Value of Insurance Liabilities, this new volume may be viewed as a companion to the earlier book."
Fundamentals of Risk and Insurance
by Emmett J. Vaughan, Therese M. Vaughan
"This classic, comprehensive book is divided into three sections.
The first section examines the concept of risk, the nature of the insurance device, and the principles of risk management. This section also provides an overview of the insurance industry. The second section examines the traditional fields of life and health insurance as solutions to the risks connected with the loss of income. The Social Security system, workers compensation, and other social insurance coverages are discussed. The final section deals with the risks associated with the ownership of property and legal liability. Updated to reflect the changes in the field of insurance since 1996, and a listing of Web sites of interest."
Managing Catastrophic Disaster Risks Using Alternative Risk Financing and Pooled Insurance Structures (World Bank Technical Paper, No. 495)
by John D. Pollner
A Practical Guide to Finite Risk Insurance and Reinsurance
by R. George Monti, Andrew Barile
"A topical comprehensive account that deals with insurance and reinsurance arrangements covering the risk of loss including losses from financial transactions. Evaluates actual types of reinsurance agreements, clause by clause, providing detailed explanations of key terms, words and phrases along with their impact on the overall risk transfer. Describes all relevant and emerging regulatory developments in the areas of accounting, tax and securities. Includes six case studies of major, current-market financial reinsurance deals."
Principles of Risk Management and Insurance (Principles of Risk Management and Insurance, 7th Ed)
by George E. Rejda
