THE CHARTERED INSURANCE INSTITUTE 655 Advanced Diploma in Insurance Unit 655 Risk management April 2011 examination Instructions Three hours are allowed for this paper. Do not begin writing until the invigilator instructs you to. Read the instructions on page 3 carefully before answering any questions. Provide the information requested on the answer book and form B. You are allowed to write on the inside pages of this question paper, but you must NOT write your name, candidate number, PIN or any other identification anywhere on this question paper. The answer book and this question paper must both be handed in personally by you to the invigilator before you leave the examination room. Failure to comply with this regulation will result in your paper not being marked and you may be prevented from entering this examination in the future. 1705
The Chartered Insurance Institute 20 Aldermanbury, London EC2V 7HY Telephone: 020 8989 8464 Fax: 020 8530 3052 Email: customer.serv@cii.co.uk The Chartered Insurance Institute 2011 1705 2
Unit 655 Risk management Instructions to candidates Read the instructions below before answering any questions Three hours are allowed for this paper which carries a total of 160 marks, as follows: Part I 1 compulsory question (case study) 80 marks Part II 2 questions selected from 3 (scenarios) 80 marks You should answer the question in Part I, and two out of the three questions in Part II. You are advised to spend no more than 90 minutes on Part I and 45 minutes on each question selected in Part II. It is recommended that you spend 15 minutes reading and planning your answer to the case study and 75 minutes answering it, and that you spend 10 minutes reading and planning your answer to each scenario and 35 minutes answering it. A case study tests extensively across syllabus learning outcomes, whilst a scenario will be more focused on specific learning outcomes. Read carefully all questions and information provided before starting to answer. Your answer will be marked strictly in accordance with the question set. You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should cross through these notes before you hand in the booklet. It is important to show each step in any calculation, even if you have used a calculator. If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. Answer each question on a new page. If a question has more than one part, leave six lines blank after each part. 1705 3 PTO
PART I Case study. This question is worth 80 marks. To gain maximum marks you should include relevant examples and further reading in your answer. 1. Case study You are the Risk Manager for a property management company that owns and manages a large shopping centre in an inner urban location. The mall was built in the 1970 s and is now looking dated and requires major refurbishment. There are 70 units available of which 50 are currently occupied by tenants from a wide range of retail businesses, including a jewellery store and ageing food retail outlets. There are unoccupied retail units due to expiring leases and the recession. The shortage of car parking space at the centre is considered by the centre management to be a factor in the loss of trade and number of visitors to the centre. This is also a reason why some tenants have decided not to renew their leases and have moved their businesses elsewhere. The infrastructure of the road network within the town centre has changed and pedestrianisation of the high street has led to restrictions on traffic within the town centre, which means that the shopping centre is not as easily reached by car. There is an opportunity to relocate the car park to the rear of the shopping centre which is out in the open. This could improve access to the site by shoppers in cars, as there is road access available here. There are, however, regular bus services which stop outside the shopping centre and it is within easy access of the railway station. The refurbishment works will mean some structural repairs, rewiring and ensuring that the shopping centre complies with recent structural and electrical regulations and statutory and local authority requirements. You and your risk management committee have been asked to be part of the refurbishment project team and to supply information to assist in the formulation of the project, with particular emphasis on operational and financial risk. Question Prepare a report to the Board including the following: Outline the risk management process and how this process can be applied to the refurbishment project. Identify the potential risks and rewards in undertaking such a major refurbishment project and explain how you arrived at your conclusions. Analyse the top five potential risks that the project may incur, their impact and how they would be handled. Based on your analysis make recommendations as to whether this refurbishment should go ahead ensuring that you fully explain the reasons behind your recommendations. (80) 1705 4
PART II Scenarios. Answer TWO of the following THREE questions. Each question is worth 40 marks. To gain maximum marks you should include relevant examples and further reading in your answer. 2. Scenario You are an Account Executive for a firm of national insurance brokers, which provide risk management advice to their clients. You have special responsibility for clients in the manufacturing sector, and you have been asked to make a presentation to the chief executive officers of your clients on business continuity planning. Question Examine the benefits of an up to date and effective business continuity plan ensuring that you include an explanation of relevant content specific to your manufacturing clients. (40) 3. Scenario A large financial services company is looking to develop a risk appetite policy statement to support its risk management and corporate governance activities. You are one of the company s risk professionals and have been asked to draft this statement, however before you do so you need to put a plan together outlining how you are going to put this statement together and why. Note that for this initial statement the company is not seeking to cover all of its risks, just its credit, investment and reputation risks. Question Draft your plan making sure that you cover the following: an appropriate definition of risk appetite and an explanation about why a risk appetite statement is required; identification of stakeholders you should consider when setting your company s appetite for credit, investment and reputation risks; explain how you intend to express the company s appetite/tolerance for these risks (e.g. in terms of probability and impact limits, qualitative statements, ratings, etc). (40) 4. Scenario You are the Health and Safety Manager for a manufacturing company, specialising in the production of specialist components for the motor industry. Your company has recently seen a rise in workplace accidents (mainly machine related injuries) and health problems (primarily vibration white finger VWF) and you are keen to convince your Board of Directors to improve the management of these workplace risks. Question Draft a report to your Board of Directors: describing the potential regulatory, operational and financial risks arising from a poor workplace risk record; recommending how the company should improve the management of its work place risks paying particular attention to the key areas of risk that are affecting it at the current time (machine related injuries and VWF). (40) 1705 5
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