Table of contents 2
List of Figures and Tables
Foreword 14
Part 1 - General Theory of Risk Management 16
Chapter 1 The concept of risk and corporate risk 17
1. The concept of risk 17
(1) Risk in insurance 17
(2) Deviation from expected value 18
(3) Black Swan 19
2. Classification by insurance potential 19
(1) Pure risk and speculative risk 19
(2) Static risk and dynamic risk 20
3. Corporate risk types 20
(1) Market risk 21
(2) Credit risk 23
(3) Operational risk 27
Chapter 2 Corporate risk management and related fields 31
1. Risk management 31
2. Corporate risk management 32
3. Crisis management 36
4. Business continuity plan 38
5. Business continuity management 43
Chapter 3 Accounting Fraud and Internal Control 46
1. Frequent accounting fraud 46
(1) Enron 46
(2) WorldCom 49
(3) Cockroach theory 50
2. SOX act 51
3. Companies act 53
4. Japanese version of the SOX Act (Financial Instruments and Exchange Act) 54
5. Companies act and Japanese SOX act 55
Chapter 4 COSO-ERM framework 58
1. COSO Organization 58
2. Internal control framework 58
3. COSO-ERM framework 63
(1) ERM framework establishment 63
(2) Definition of ERM 65
(3) Features of COSO-ERM 65
(4) COSO-ERM objective categories 67
(5) COSO-ERM basic components 68
(6) Effectiveness and limitations of COSO ERM 69
4. COSO-ERM (2017) 71
(1) Outline of COSO-ERM (2017) 71
(2) Main COSO-ERM (2017) revisions 75
(3) Relationship with internal control of COSO-ERM (2017) 78
Chapter 5 ISO RM Framework 79
1. ISO organizations and risk management standards 79
2. Risk and risk management definitions 80
3. ISO 31000 system 81
4. Principles (ISO 31000:2018) 83
5. Framework (ISO 31000:2018) 85
6. Processes (ISO 31000:2018) 87
7. Features of ISO 31000 90
Chapter 6 Risk Assessment 92
1. Risk assessment overview 92
2. Risk assessment technique 93
3. Risk identification 94
4. Risk analysis 95
(1) Overview of risk analysis 95
(2) Consequence analysis 97
(3) Scenario analysis 97
(4) Quantitative risk analysis indicators 103
(5) Risk curve 104
(6) Risk matrix 105
5. Risk evaluation 106
6. Risk communication 109
Chapter 7 VaR (Value at Risk) 112
1. Probability 112
(1) Concept of probability 112
(2) Variance and standard deviation 114
2. Value at Risk 119
(1) VaR concept 119
(2) Origin and development of VaR 120
(3) VaR measurement method 122
(4) Limits of VaR 124
3. Expected loss and unexpected loss 125
4. VaR by risk type 126
5. Stress test 127
Part II Risk Financing 129
Chapter 8 Risk Treatment and ART 130
1. Risk treatment overview 130
2. Risk treatment measures 131
(1) Risk treatment measures overview 131
(2) Risk control 133
(3) Risk Financing 134
3. ART and risk financing 136
4. Financial market 141
5. Impact of ARTs on finances 142
Chapter 9 Limitations of insurance as a risk financing tool 146
1. Insurance and risk financing 146
2. Insurable interest and insurance 147
(1) Insurable interest and prohibition of gain 147
(2) Relationship between insurable value and sum insured 149
(3) Subrogation 151
3. Insurance Crisis in the United States 153
(1) The start of the insurance crisis in the United States 153
(2) Underwriting cycle 154
(3) Cash flow underwriting 155
(4) Punitive damages 156
(5) PL (Products Liability) lawsuit 158
(6) Court system 159
Chapter 10 Captive Insurers and Finite Insurance 162
1. Captive insurance companies 162
(1) Definition of a captive insurance company 162
(2) Captive insurance companies types 163
(3) Japanese operating companies and captive insurance companies 167
(4) Benefits of captive insurance companies 170
2. Finite insurance 171
Chapter 11 Contingent capital 176
1. Contingent capital overview 176
2. Contingent Debt 177
(1) Commitment line 177
(2) Contingent loan 181
3. Contingent Equity 182
(1) Contingent equity (CoCo bond) 182
(2) Contingent surplus notes and contingent equity puts 185
Chapter 12 Securitization and Insurance Linked Securities 188
1. Asset-backed securities 188
2. Real estate securitization 189
3. Securitization of receivables 190
4. Securitization and the financial crisis 195
(1) Subprime loans 195
(2) CDS 197
(3) CDS and subprimes 199
5. Insurance Linked Securities 200
(1) The emergence of insurance-linked securities 200
(2) The mechanism of insurance-linked securities 204
(3) Trigger 206
6. Japan's earthquake insurance and ILS 208
Chapter 13 Insurance linked security types 224
1. Cat bonds 224
(1) Cat bond mechanism 224
(2) Cat bond effects 226
(3) Cat bond issuance example 228
2. Sidecar 234
3. ILW 236
4. Collateralized reinsurance 239
Chapter 14 Derivatives and Insurance Derivatives 241
1. Derivatives 241
(1) Overview of derivatives 241
(2) Futures 244
(3) Options 246
(4) Swap 251
2. Insurance derivatives 255
Chapter 15 Weather derivatives trading 259
1. Weather risk and companies 259
2. Weather derivatives 262
(1) Features of weather derivatives 262
(2) Types of weather derivatives 263
(3) Effects of weather derivatives 267
3. Weather derivatives trading 269
(1) CDD and HDD 269
(2) Listing of weather derivatives 270
4. Weather derivatives in Japan 271
5. Examples of weather derivative products 273
(1) Risk exchange transactions 273
(2) Non-life insurance company products 275
(Bibliography/Sources) 279
