Semester 1 

The content of this module is based upon various academic disciplines which are related to risk finance and management. Of most direct relevance are theories and concepts originating within economics, finance and management studies. This treatment of the subject will enable students to recognise the core components of, and compare the merits and limitations of, the available risk financing and management techniques. It will also evaluate the underlying methods and provide a basis for analysing the implications of future developments. 
The module will not only broaden students’ knowledge and understanding of the financial services industry but also further develop their intellectual and practical skills through analysis of the risk financing process. 

Financing and Management of Risk is designed to enable students to build upon their previous knowledge of risk by analysing the processes in risk assessment, control, financing and management, within a financial services context. This module enables students to critically evaluate the characteristics, costs, merits and limitations of the range of instruments for the financing of risk in order to identify those most likely to be suitable to meet corporate objectives arising from a given risk profile. In addition students will design and justify risk financing and management solutions to meet given client needs, involving the combination of various sources of risk financing.

On completion of this module, students will be able to: 
Analyse the factors which organisations must take into account when assessing the impact of risk exposure in both financial and non-financial terms and setting their strategy for the management and financing of risk.  

1. Assess the respective roles of capital (equity and debt), insurance and reinsurance within a corporate risk financing framework. 
2. Identify and analyse sources of information relevant to the risk financing decision making process.  
3. Evaluate the effectiveness of insurance products in the financing of business risks.  
4. Assess and compare the application of alternative risk financing techniques – their structure, operation, security, legal, regulatory and taxation characteristics.  
5. Critically evaluate the characteristics, costs, merits and limitations of the range of instruments for the financing of risk in order to identify those most likely to be suitable to meet corporate objectives arising from a given risk profile.  
6. Design and justify risk financing and management solutions to meet given client needs involving the combination of various sources of risk financing. 

1. Risk control and objectives of risk financing 
2. This section of the syllabus examines the importance of risk control, the objectives of risk financing, the comparison of risk financing mechanisms and the retention versus transfer of risk decision. 
3. Assessment of exposure to risk 
4. This section explores the types of risks facing large organisations (strategic risks, operational risks, financial risks and hazard risks), the characteristics of risk (systematic versus diversifiable risks, speculative versus pure risks, insurable versus non-insurable risks and the reduction of assets: first party/increase in liabilities/third party). The political, economic, societal, technological and environmental influences. The influence of the Basel Committee on banking supervision on the measurement of operational risk in the banking and finance industry. 
5. The evaluation process 
6. This section of the syllabus examines the true financial consequences of loss arising from a risk, establishing acceptable levels of volatility in the financial impact of risk occurrence and residual risk, deciding on the suitability of risk avoidance, retention, transfer and financial instruments techniques to risk profiles. Avoiding volatility in price and availability of risk financing arrangements and designing an integrated risk management strategy. 
7. Organisation-wide approach to risk financing 
8. This section analyses the need for an integrated approach to risk financing. It looks at the historical perspective on the need for, and growth of a wider range of risk financing products. Portfolio effects of combining insurance and financial and other risks – internal hedges. Framework for development of holistic, integrated or strategic risk financing. Demand and supply considerations for organisation-wide risk financing as well as corporate governance issues. 
9. Information required to support applications for risk financing. 
10. The syllabus will provide an appreciation of types of information that are relevant and of their relative importance in evaluating the feasibility and suitability of particular techniques. Including published reports, accounts and statements. The financial strength of the organisation and access to funds. Detailed description of business activities, structure, size and extent of activities. Data on past and projected future losses/costs/claims associated with the business. Existing risk financing and management arrangements including non-funded/uninsured risks.
11. Risk financing using insurance
12. This section will evaluate new and traditional insurance products and how these can be used within an integrated risk management and strategy. The insurance process: proposals, negotiation of premium & terms, cover note, policy wording, loss reserves, claims settlement. Basic types of terms and conditions of an insurance contract: deductible/excess, coinsurance, exclusions, warranties, policy limits. 
13. Main coverage features of commercial insurances: property damage & business interruption, employee’s liability, public and product liability, D&O, E&O, motor, personal accident, life & health. Development into multi-line and/or multi-year integrated programmes and retrospectively rated plans. 
14. Alternative risk financing – general considerations 
15. This part of the module will provide an understanding of the theoretical basis for development of alternative risk financing arrangements and the factors which determine their suitability. This includes the characteristics of alternative risk financing, pre-requirements for accessing certain types of facility, eg size of transaction, quality of data, financial standing. The role of intermediaries and specialist advisors on the options for risk financing including viability of various approaches. Legal, accounting, tax and regulatory considerations. Dangers of lack of transparency of arrangements. 
16. Risk financing using self-insurance mechanisms 
17. This section examines the factors which need to be evaluated when considering self insurance. Actions determining the viability of self funding, finite insurance contracts features of policies – multi-year, aggregate cover/finite limit, premium, profit sharing, commutation, retrospective or prospective. Applications – adverse development cover, loss portfolio transfer. Related accounting and tax issues. 
18. Captive Insurance companies 
19. This part of the module will look at types of captive insurance operations – single parent; mutual/association; rent-a-captives and protected cell companies; exempt activity companies. Feasibility studies and business plans – funding/capitalisation; location (domicile); regulatory requirements; set up and administration costs; reinsurance programmes & fronting arrangements; accounting and tax treatment; selection of directors & managers. Management and operation of captives – underwriting & claims; accounting & treasury; corporate services; review & audit of existing captives. 
20. Risk financing using capital market products 
21. Certain types of risk have proved to be particularly suitable to match with existing capital market products. This topic evaluates the products available and their usage. It will examine the use of derivatives, catastrophe bonds and contingent capital.

The teaching and learning strategy is designed to ensure that the students achieve the learning outcomes by the end of the module. The teaching and learning methods include formal lecture and tutorial, private study of text and other supporting materials, a formal coursework assignment of informal exercises, both individual and group-based and pooling of experience and knowledge through class and individual discussion. 
Assessment Strategy: 
The assessment strategy is designed to achieve a balance between testing the student’s skills of knowledge recall and understanding and those of evaluation, analysis, research, reflection and application. This distinction is reflected in the different assessment instruments and the balance between the coursework assignment and the final written examination. 

Essential Reading 
Punter, A. Risk Financing and Management, ifs 2006
Recommended Reading 
Coyle, B. Risk Awareness and Corporate Governance, ifs 2005 
Doherty, N. Integrated Risk Management:Techniques and Strategies for Reducing Risk, McGraw Hill, 2000 
Gordon, A. Risk Financing (2^nd Edition), Witherby
Harrington, S. and Niehaus, G. Risk Management and Insurance, McGraw Hill 2003.
Background Reading 
Additional reading sources (and links thereto) will be available through ifs Knowledgebank