Risk Management

Risk Manager

Risk Defined

Financial Loss

Non Economic Risks

Economic Risks

1

Pure Risks

Speculative Risks

1

2

Fundamentel Risks

2 Greene Mrk et. Al. Risk and ins., 8 th edition, U. S. A., Sauth western

publishing company, p. 49

Particular Risks

Static Risks

Dynamic Risks

Perils

Harzards

Physical Hazards

Morale Hazards

Moral Hazards

Personal Perils

Property and Liability Perils

Fundamental Perils

Particular Perils

identAcc

Loss

Total Loss

Partial Loss

Direct Loss

Indirect Loss

Factors of Risk Measurement

Degree of Risk

Probability of loss

Chance of loss

Mathematical Probability

Probability

Imperical Probabiltiy

:Expected Probability

:Actual or realized Probability

Low of

Large Numbers

5000

4800

5000

200 0.04 =

5000

3200 0.64 =

5000

1200 0.24 =

5000

400 0.08 =

5000

150 0.03 =

5000

50 0.01 =

5000

1200 400 150 50 +++

5000

1800

5000

400 150 50

5000

600 12.0

++==

5000

150 50

5000

200 0.4

+==

5000

50 0.01 =

5000

1200 3200

5000

4400 0.88

+==

5000

400 1200 3200

5000

4800 0.96

++==

5000

150 400 1200 3200

5000

4950 0.99

+++==

5000

50 150 400 200 3200

5000

5000 00.1

++++==

3

Expected losl Severity

)3

4

1

2

1000 +

2

1

2

1000 - 2000

Loss frequency

Loss Severity

Ruin of the Business

10000 100

150

100

110

The maximum possible loss and the maximum probable

Expectation of loss or Mathematical Expectation

)1

1(

+

2000

4000 60

2000

60

5000

1000 )

1 0.12

1(20

1) 12.0(20 +

5000

1000

1000

482

1000

261

1000

123

1000

74

1000

33

1000

19

1000

8

2

8.300

2.0

0963.0

2.0

0522.0

Probability Distribution of Total Losses

The maximum

Probable Yearly Aggregate Loss

The Maximum Probable Loss

Ruin Probability

Yardstick

Standard Deviation

Variance

2

2

2

2

Coefficient of Variation

}{

}{

4

4 Hossak I.B.et.al Introductory statistics with Opplication in general

Ins. 1 st edition, U. K, compridge university press, 1983, p. 101

Chebysheve

Inequality

1

1

1

5.1

1

2

2

2

1

2

1

2000

3500

4

9

4

9

4

9

4500

5250

2000

3500

4

9

751.

25.2

75.1

5.1

75.1

2000

3500

100

20

75.1

4

75.12

4

2

4

2

030625.0

0625.3

2000

800

= 5000

40000

093.4941

2000

6000

433.1267

5

5 Daherty Neil. A., --------- management A Finantial expositon, U. S.

A. Mc Graw-Hill Inc. ------

2000

80000

253.9726

6

(

6 R.E. Beard et al Risk Theory: The stochastic Basis of ins., (2nd

edition: U.K., Chapman and Hall, 1978), p. 1

10000

22

The normal approximation

The chebyshev method

The Allen-Duval method

The norm al power method

The student T distribution

Edgeworth series

Simulation

7Shiang lau-Hon

Thomas A. Aiuppa

22 2

7 Hon-shiang law, An effective approach for estimating the aggregate loss

of an ins. Portfolio, Journal of Risk and ins. Vol., 3, 1984, pp. 20-25

2

2

2

2

222

2

2

90000

144000000

450000

12000

2

400

640000

400

800

2000

640000

2000

800

1

225

15

2

15

4.0

10000

22

576000

038.116715

7200000

038.116715

2

2

2

2

2

10000

2

222

22

576000

038.116715

11520000

038.161

11520000

038.161

2

2

2

2

222

4000

253.9726

80000

253.9726

50000

253.9726

1

144

43162.

12

4316.2

12

1216.0

12

1945.0

Automatic Sprinklers

Insurance

AgentBroker

Underweriter

Loss Adjuster

Risk Management Objectives

Risk Reduction

Ridsk avoidance

Loss Control

Risk Separation

Risk Financing Tools

Risk Retention

Risk Combination

Risk Transfer

Risk Avodance

Loss Control

Both Loss-Prevention and loss-

reduction Programs

Fire-Resistive Constructive

Product Liability

Safety goggles

Loss Minimization Programs

Salvage Programs

Heinrich

Heinrich

Frederick Taylor

Safety equals efficiency

Dr. Haddon

Unions

Determining Economic Feasibillity

Cost of accidents

Bird and Germain

Cost of loss control measures

Sprinklers

Extinguishers

Guards

Insurance

PremiumsLoss Frequencies

Loss Seuerity

Risk Separation

Risk retention

Unplanned risk retention

Contingency Reserve

Self Insurance

Risk Combination

General Average

Business Interruption

Risk Transfer

1 2

1

1

+

1 2

1 085.0

1

+

1000

892.143884

2

1

Lease Contract

Leasee

Leasor

Construction Contract

Bailment Contract

Bailor

Bailee

Laundry

Forming Organization Contract

8

8

Linear Programming

Games TheoryQueueing TheoryLoss

Matrix MethodMarginal analysisThe

Worry MethodCritical Probability Method

Break-Even Probability Method

Expected Tangible Loss MethodThe

Expected Utility Apporach

The Loss Matrix Method

Pay-off Matrix

9

9 Williams and Hiens, Risk management ins.6 th edition, Mc Graw-Hill

Inc., 1989, PP. 270279

Minimax criteria

Minimin criter ia

Minimize the Loss Associated with the Most Probable Outcomes

Miniminze the Expected Tangible Loss During the Policy Period

Criteria

The worry method

The Worry Method

Flactuations

The Critical Probability method

0

Even Probability-Break

Michael Smith

150

25

25

150

25

150

Expected Utiltiy Function Method

Risk Averter

Neutral toward risk

Risk seeker

0.0010 25

15 0.0020) - (0.0010 +

25

15

1. Emmett J. Vaughan, Risk Management, John Wiley & Sons Inc., Iowa, 2003.

2. Erik Banks, Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance, and the Capital Markets , 1st

edition, Wiley,Texas , 2004)

3. George E. Rejda, Introduction to Risk Management & Insurance, th ed, Addison Wesley, NY, 2008.

4. Harrington Niehaus, Risk Management & Insurance,1st ed, Irwin/McGraw-Hill, NY, 1999.

5. Doherty Neil A., Corporate Risk Management: A financial exposition, New Jersey., Mc Grew Hill Inc., 1985

6. Green Mark et al., Risk and Ins., 8th edition, N Y, south western Publishing company, 1992

7. Travis Pritchett et al. Risk Management & Insurance 7th edition

Wet Publishing Company Los Angeles 2000

8. S. Travis Pritchett et al., Risk Management & Insurance, 7th edition, Los Angeles, Wet Publishing Company, 2000

9. Williams and Hiens, Risk management and Insurance, 8th edition, California, Mc Grew-Hill inc., 2001