(a) You are the actuary for a rapidly expanding United Kingdom-based insurance company writing a…

(a) You are the actuary for a rapidly expanding United Kingdom-based insurance company writing a full range of lines of business. Gross written premium in 1999 was approximately £2,000 million, while net written premium was £1,500 million.

The finance director recently read a brief article about alternative risk transfer (“ART”). He has asked you to prepare a report to the Board on the threats and opportunities posed to the company by the possible use of ART. The finance director has twenty years’ experience in a wide variety of insurance roles but he has not had any experience of ART.

Draft your report. The report should cover:

• brief explanations of the following forms of ART:

Ø Self-insurance

Ø Captives

• the advantages and disadvantages of each form from both the policyholder and company’s points of view, each as a potential user of ART,

• the potential threats to the company of ART. [11 Marks]

(b) You are a consultant who has been advising the Project manager of Kenya Red Cross on severally issues. You have been contracted to advice on the feasibility of introducing an effective risk management strategy. Outline six key steps you would consider in your

risk management process advice. [9 Marks]