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5 March 2024 Disclaimer We produce a variety of publications and research about monetary policy, financial stability and related economic and financial issues. Most are available without charge as part [...]

I. INTRODUCTION In many cases, gambling is relatively easy to identify. Purchasing a lottery ticket, betting on a particular team to win the Super Bowl, and playing blackjack at a [...]

As materials handling operations strive to become more flexible, they take great pains to refine processes to avoid operational risk. Unfortunately, the fear of a symbolic collapse often overshadows the [...]

To understand the importance and potential benefits of enterprise risk management (ERM), it is helpful to consider the ways it can improve management of a specific risk area, such as [...]

Risk managers in the oil and gas industry must protect against the threats that vessels pose to their offshore assets located in marine environments, from hydrocarbon pipelines that traverse miles [...]

Last October, the United Nations' Intergovernmental Panel on Climate Change (IPCC) reported in its Summary for Policymakers that the world is failing to keep the global temperature increase below the [...]

This paper highlights the role of nonprofit organizations in communicating risk. Nonprofit organizations have emerged as vital actors in not just working toward the benefit of human welfare and bettering society, but also making society aware of hazards or risks that exist. The approach used to communicate risk is a critical element that ultimately will lead to the success or failure of a nonprofit organization's mission and objectives. Finding ways to communicate risk is a challenging task that requires being able to first make people aware of the significance or value of an act/idea or existing state, communicating the danger at hand, and then drawing on the causal relationship between the two. Although a major function, the literature on risk communication of nonprofit organizations is scarce. This article draws on the relational theory of risk, which includes three elements: object at risk (value), risk object (danger), and association (Boholm and Corvellec 2011). We recommend that the best way for nonprofits--and in some instances other organizations--that need to communicate risk is to communicate this risk through the use of narratives., INTRODUCTION The concept of risk is regarded as a semantic frame for the construction of networks of objects and categories, associated by known or supposed contingent causal links of inflicted [...]

We address the problem of risk sharing among agents using a two-parameter class of quantile-based risk measures, the so-called range-value-at-risk (RVaR), as their preferences. The family of RVaR includes the value-at-risk (VaR) and the expected shortfall (ES), the two popular and competing regulatory risk measures, as special cases. We first establish an inequality for RVaR-based risk aggregation, showing that RVaR satisfies a special form of subadditivity. Then, the Pareto-optimal risk sharing problem is solved through explicit construction. To study risk sharing in a competitive market, an Arrow-Debreu equilibrium is established for some simple yet natural settings. Furthermore, we investigate the problem of model uncertainty in risk sharing and show that, in general, a robust optimal allocation exists if and only if none of the underlying risk measures is a VaR. Practical implications of our main results for risk management and policy makers are discussed, and several novel advantages of ES over VaR from the perspective of a regulator are thereby revealed. Funding: R. Wang would like to thank Forschungsinstitut fur Mathematik at ETH Zurich for supporting his visits in 2015 and 2016, and he acknowledges financial support from the Natural Sciences and Engineering Research Council of Canada [RGPIN-2018-03823, RGPAS-2018-522590]. P. Embrechts would like to thank the Swiss Finance Institute for financial support. H. Liu acknowledges financial support from the University of Waterloo and the China Scholarship Council during her Ph.D. study at the University of Waterloo. Supplemental Material: The e-companion is available at https://doi.org/10.1287/opre.2017.1716. Keywords: value-at-risk * expected shortfall * risk sharing * regulatory capital * robustness * Arrow-Debreu equilibrium, 1. Introduction 1.1. Risk Sharing Problems and Quantile-Based Risk Measures A risk sharing problem concerns the redistribution of a total risk among multiple participants. In this paper, we address collaborative [...]

In March, theTrump administration sparked an outcry by announcing that it would impose import tariffs of 10% on aluminum and 25% on steel, following earlier tariffs on solar panels and [...]

Carrie Di Santo may well be sitting at the precipice of risk in today's capital markets--and from that high perch, she's come to recognize the most effective way to manage [...]

Healthcare organizations have long employed various approaches to risk management to prepare for risks that are unique to healthcare delivery settings, such as adverse events that pose harm to patients, [...]

COMMON TRENDS ARE EMERGING IN THE NEW AND PROPOSED cyberrisk management regulatory standards calling for a broad range of financial institutions to address cyberrisk across all three lines of defense [...]

The transition to value-based care calls for enormous changes from providers, including assuming increased risk under new payment models, making requisite investments in data analytics, and ultimately, redesigning revenue cycle [...]

Natural hedging allows life insurers to manage long-term longevity and investment risks of life annuity products through offsetting risks in life insurance products. Benefits include a reduction in risk-based capital. We use stochastic mortality and interest rate models to assess life insurance and annuity capital requirements and to quantify the benefits of natural hedging for a range of different types of life insurance product designs and risk measures based on probability of insurer solvency. We show that level-premium life insurance products with a medium duration (around 20-30 years) can better hedge annuity products than whole life products. Renewable term life insurance products have less hedge effectiveness than level-premium term insurance. Results vary with the risk measure used, with the 1-year horizon Solvency II risk measure showing lower natural hedging benefits of life insurance compared to multiple-period risk measures., INTRODUCTION Life annuities are recognized as an important product that protects individuals against longevity risk and investment risk in retirement. The recent global financial crisis, which resulted in significant falls [...]

We optimize a life insurance company's asset allocation in the context of classical portfolio theory when the firm needs to adhere to the market risk capital requirements of Solvency II. The discussion starts with a brief review of the standard formula and the introduction of a parsimonious partial internal model. Subsequently, we estimate empirical risk-return profiles for the main asset classes held by European insurers and run a quadratic optimization program to derive nondominated frontiers with budget, short-sale, and investment constraints. We then compute the capital charges under both solvency models and identify those efficient portfolio compositions that are permitted for an exogenously given amount of equity. Finally, we consider a systematically selected set of inefficient portfolios and check their admissibility, too. Our results show that the standard formula suffers from severe shortcomings that interfere with economically sensible asset management decisions. Therefore, the introduction of Solvency II in its current form is likely to have an adverse impact on certain parts of the European insurance sector., INTRODUCTION The new risk-based capital standards Solvency II, which are currently scheduled for implementation in 2016, aim to modernize and harmonize the regulation of insurance companies in the member states [...]

The development of genetic testing creates opportunities to better target disease prevention actions. In this article, we determine how the genetic information modifies self-insurance efforts in different health insurance market equilibria with adverse selection. We show that a regulation prohibiting insurers from using genetic information for rate-making purposes: (1) cancels the benefits of genetic testing when pooling equilibria occur and (2) does not prevent the exploitation of the benefits derived from genetic testing when separating equilibria (both of the Rothschild-Stiglitz or of the Miyazaki-Spence type) prevail in insurance markets., INTRODUCTION The identification through genetic testing of gene mutations increasing the susceptibility to some diseases raises several economic issues. One of the most controversial is related to the use of [...]

Weather-related risks present significant concerns for businesses worldwide. This article studies the impact weather conditions have on the financial performance of sports teams and proposes a hedging mechanism to manage the exposure. We analyze a unique game attendance data set supplied by the Japanese premier soccer association, J. League. Our analysis shows that precipitation has a significantly adverse impact on game attendance and team profits. We then design a hedging mechanism for this risk exposure and examine its contribution to the corporate value of the teams. In particular, we use the Wang transform model to incorporate the decision makers' risk preferences in the evaluation of the weather derivatives, where the risk aversion parameters are obtained from a survey of J. League managers. We find that the proposed weather derivatives contribute significantly to team value. Our analysis and results provide insights for weather risk management for sports teams in the international markets., INTRODUCTION Weather-related risk exposures, such as varying temperature and precipitation, are important concerns for companies worldwide. According to the Chicago Mercantile Exchange (CME) Group, (1) one-third of businesses around the [...]

Importance. Patient safety experts believe that patients/family members should be involved in adverse event review. However, it is unclear how aware patients/family members are about the causes of adverse events they experienced. Objective. To determine whether patients/family members interviewed could identify at least one contributing factor for the event they experienced. Secondary objectives included understanding the way patients/family members became aware of adverse events, the types of contributing factors patients/family members identified for different types of adverse events, and recommendations provided by patients/family members to address the contributing factors. Design. We interviewed patients/family members using semistructured interviews to understand their perceptions about why these adverse events occurred. The adverse events occurred between 1991 and 2014. Setting. Participants described adverse events that occurred in various types of health care organizations (i.e., hospitals, ambulatory facilities/clinics, and dental clinics). Participants. We interviewed 72 patients and family members who each described a unique adverse event. Eligibility requirements were that patients/family members spoke English or Spanish and were aware of an adverse event that happened to them or a loved one. Intervention(s) for Clinical Trials or Exposure(s) for Observational Studies. N/A. Main Outcome(s) and Measure(s). The main outcome was determining whether patients/family members could identify at least one contributing factor they perceived as related to the adverse event they described. Results. Each participant identified at least one contributing factor and on average identified 3.67 contributing factors for their event. The most frequently mentioned contributing factors were Staff Qualifications/Knowledge (79 percent), Safety Policies/Procedures (74 percent), and Communication (64 percent). Participants knew about the contributing factors from personal observation only (32 percent), personal reasoning (11 percent), personal research (7 percent), record review (either their own medical records or reports they received in their own investigation; 6 percent), and being told by a physician (5 percent). Finally, patients/family members were able to provide recommendations that address each of the nine contributing factors we examined. Conclusions and Relevance. Patients/family members identified contributing factors related to their adverse event. Given that these contributing factors might not be known to health care organizations because most participants stated that they were not involved in the analysis process, opportunities for organizational learning from patients are potentially being missed. Health care organizations should interview patients/family about the event that harmed them to help ensure a full understanding of the causes of the event. Key Words. Learning, contributing factors, patients, family, events, Health care organizations are beginning to recognize that information learned from the patient and family during the error disclosure process may be invaluable for event analysis and prevention of recurrences [...]

UK-based international charities are now more aware than ever of the reputational harm caused by safeguarding issues and, in some cases, their perceived failure to respond meaningfully to breaches. This [...]

Companies often have difficulties determining which criteria to base their investment decisions in different countries on. When considering direct foreign investment several risk indices are available. The PCI (Peren-Clement-Index) in its original form was developed in 1998. Its further refinement improves the PCI in three major ways: First, it offers a dynamic adjustment of criteria and consideration of recent changes in the international environment. Second, it provides business specificities of a company or its industrial sector to be considered in addition to macroeconomic aspects by a two-dimensional presentation, which ensures a customized assessment. Third, the PCI allows for consolidating investment decisions by combining a resource-orientated with a market-oriented view. The PCI allows, unlike other indices, a customized and company-specific strategic planning process. Ultimately companies must take up both perspectives in the context of an international investment decision. The use of risk indices in corporate planning for assessing global investments decision creates a fundamentally new of risk assessment. Keywords: Risk Analysis, Scenarios, Strategic Planning, Country Risks, Internationalization, INTRODUCTION Companies often have difficulty determining which criteria to choose for their investment decisions in different countries and specific locations. Due to the fact that location decisions cannot be easily [...]

This article addresses challenges of estimating operational risk regulatory capital when a loss sample is truncated from below at a data collection threshold. Recent operational risk literature reports that the attempts to estimate loss distributions by the maximum likelihood method are not always successful under the truncation approach that accounts for the existence of censored losses--the likelihood surface is sometimes ascending with no global solution. The literature offers an alternative called the shifting approach, which estimates the loss distribution without taking into account censored losses. We present a necessary and sufficient condition for the existence of the global solution to the likelihood maximization problem under the truncation approach when the true loss distribution is lognormal, and derive a practically explicit expression for the global solution. We show by a simulation study that, as the sample size increases, the capital bias by the truncation approach declines while the bias by the shifting approach does not., INTRODUCTION Available databases of operational losses usually do not store records below some data collection thresholds at the event level. Having a data collection threshold helps to avoid difficulties with [...]

Reputation risk is becoming increasingly important, especially with the rapidly growing influence of social media, heightened scrutiny on reputation risk by banking and insurance regulators, and reputation's impact on organizational value. Insurers have responded to this development only recently by offering new reputation risk insurance solutions. The aim of this article is to present the first detailed academic analysis of these new insurance policies, including examination of the risks insurers face in offering such coverage. We also offer a conceptualization of reputation risk in an insurance and risk management context with focus on exposures, perils, and hazards. Our analysis indicates that loss identification and measurement generate the greatest challenges to insurers in providing reputation risk coverage. Lack of experience as well as the complexity of the chain of reputation risk events related to reputation insurance coverage present insurers with significant challenges in making this a viable line of business., INTRODUCTION With notable recent events such as the $59 billion in firm value lost to BP shareholders from the reputational effects of the 2010 Gulf Coast oil spill (see Aon [...]

We investigate the impact of domestic/international bancassurance deals on the risk-return profiles of announcing and nonannouncing banks and insurers within a GARCH model. Bank-insurance deals produce intra-and interindustry contagion in both risk and return, with larger deals producing greater contagion. Bidder banks and peers experience positive abnormal returns, with the effects on insurer peers being stronger than those on bank peers. Insurance-bank deals produce insignificant excess returns for bidder and peer insurers and positive valuations for peer banks. Following the deal, the bank bidders' idiosyncratic (systematic) risk falls (increases), while insurance bidders exhibit a lower systematic risk and maintain their idiosyncratic risk., INTRODUCTION A widespread mode of corporate restructuring within the financial intermediation industry is the bank-insurance interface, or bancassurance. Arguments in favor of this structure include diversification benefits, scale and scope [...]

Nadia Fahim-Koster, MBA, MSHL, CISSP, is the director of IT Risk Management for Meditology Services (www.MeditologyServices.com) and can be reached at 404/354-8598 or by email at Nadia.FahimKoster@meditologyservices.com. Snell: Please tell [...]

Working with socially or economically disadvantaged business enterprises provides opportunities for new business on government projects, but these opportunities come with additional risks. Many of these entities do not have [...]

ALTHOUGH CLAIMS FROM LARGE LOSSES due to natural catastrophes and other hazards around the globe declined significantly over the past two years, the devastating warehouse explosions that killed 173 people [...]

An unprecedented shift of financial risk from payers to providers is occurring within the healthcare delivery system as a result of reform efforts. Healthcare providers have many important strategic decisions [...]

Josef Stalin once bragged that 'quantity has a quality all its own.' He may have been boasting of Russia's numerical superiority over its enemies, hut bankers battle legions of ledger [...]

ABSTRACT We conducted an experiment in which participants were confronted with an experimental annuitization decision. Previous research has argued in favor of the hypothesis that a combination of mental accounting [...]

The generic insurance product involves an agent giving up a certain amount of money ex ante some risky event in the expectation of being given some money in the future [...]

ABSTRACT Economic theory tells us how to evaluate the expected welfare gain from insurance products on offer to individuals. If we know the risk preferences of the individual, and subjective [...]

With Edward Snowden's 2013 data leaks, the National Security Agency saw first-hand the power of one of corporate America's most critical and amorphous risks: reputation. When NSA Director Michael Rogers [...]

This paper develops a theory of risk attitudes that can be applied in a broad array of settings, including those in which the decision maker (DM) abides by a preference [...]

ABSTRACT This article shows that, in the temporal model of Eeckhoudt, Huang, and Tzeng (2012), prudence alone is sufficient to obtain a precautionary effort. Moreover, our conclusions relax the assumption [...]

ABSTRACT This article tests for the presence of asymmetric information in Dutch car insurance among senior drivers using several nonparametric tests based on conditional-correlation approach. Since asymmetric information implies that [...]

ABSTRACT This article develops and tests hypotheses regarding the relationship between directors' and officers' (D&O) insurance purchase and firm size, governance characteristics, and business risk, using a unique panel data [...]

ABSTRACT Starting in 2009, the Labor Insurance (LI) program in Taiwan has allowed workers to choose between pension old-age benefits and one-time old-age benefits. The introduction of the pension option [...]