Framework for managing operational risk exposures

Assignment Help Operation Management

Reference no: EM132351670

LTD Acceptance is a private property and auto insurance carrier that specializes in sports cars and motorcycles. This organization is owned by LTD Capital, a large equity group with over 15 holdings. LTD Acceptance is the parent company's single largest holding as it drives 70% of total revenue. Due to the inherent risk involved in that segment of the market, many of LTD Acceptance's competitors do not offer policies for sports cars or motorcycles. This market segment is underserved which is why the organization has 20,000 active policies for a sports car or a motorcycle.

LTD is headquartered in Houston, TX. LTD does not sell insurance directly to the public. Instead, it uses third-party agents to sell its policies. LTD handles all customer service needs including claims intake, policy services, and general questions. The company operates in four states: California, Texas, Louisiana, and Florida. Currently, LTD does not have an active system in place to ensure that its agents are in fact using LTD guidelines to screen potential policyholders. However, no evidence of negligence has emerged so far as the organization has yet to have a year in which it was not profitable. LTD has also had the good fortune of not suffering losses because of natural disasters or catastrophic events.

Organizations in every sector experience breakdowns or failures that compromise the efficiency and efficacy of their operations. This concept is defined as an operational failure. Operational failures have a direct and adverse impact on profitability. As such, the shareholders want assurance that the risk management team is actively working on mitigating the occurrence of these failures. As the newly hired senior risk analyst, you are responsible for outlining a plan to do just that.

For this deliverable, provide a report to your supervisor which provides a framework for managing operational risk exposures. Your report should include the following:

Explain why the operational losses cannot be broadly managed. Why do they have to be categorized?

For each operational risk exposure listed below, provide at least two examples of potential losses from the exposure and reasons why you need to manage it.

Internal fraud

External fraud

Employment practices and workplace safety

Clients, products, and business practices

Damage to physical assets

Business disruption and system failures

Assignment #2

LTD Acceptance has 18,000 active policies in its book of business, and the firm is yet to experience a year period with high loss ratios. To increase its profitability ratios, LTD has invested the premium dollars across various asset classes. LTD's Chief Financial Officer (CFO) believes the organization should take a calculated risk and allocate the assets more aggressively. As the senior risk analyst, you have carefully analyzed the organization's numbers and strongly believe that LTD's favorable loss ratios are a result of chance and not through the sensible use of the firm's systematic framework for managing risk. You also believe the CFO is purely looking at the rewards and not the risks. Therefore, you do not believe the firm should increase risk exposures at this time.

To convey your point of view, you have decided to conduct a cost-benefit analysis report which should include the following:

For this report, provide an introduction which discusses the relationship between risk and reward. Using the information provided in the background of this case, explain why the organization may appear to be in a better position on paper than it really is.

Include at least two ways how each party listed below can be adversely impacted if the organization suffers losses as a result of a more aggressive approach.

Policyholders

Shareholders

Vendors

Creditors

Employees

Also include a discussion on how effective financial management aligns with overall risk management.

Your conclusion should highlight how the risk assumed in an organization's activities should be consistent with its long term goals. All business activities include inherent risks. Thus, all the activities and risks the firm takes should help them reach their long-term goals. If the managers engage in activities that create risks outside of this scope, it can create problems. For instance, most firms have the goal of driving sustainability. However, if they are highly leveraged, then seeking additional credit for a project can derail the long term goal of sustainability.

Reference no: EM132351670

Questions Cloud

Characteristics of a good health and safety program : What are the characteristics of a good health and safety program?

Health and safety policies and procedures : Each organisation must have health and safety policies and procedures. How can employees be informed about what these cover and how the work team can access

How you can support your minorities in your classroom : How you can support your minorities (black student) in your classroom? Use martin luther king i have been to the mountaintop quote.

Why is it necessary to explain to work teams : Why is it necessary to explain to work teams, the relevant provisions of health and safety legislation, regulations and codes of practice?

Framework for managing operational risk exposures : For this deliverable, provide a report to your supervisor which provides a framework for managing operational risk exposures.

Define the term quality as applied to an it project : BCS HIGHER EDUCATION QUALIFICATIONS BCS Level 5 Diploma in IT- Draw a template form for the entries in a risk register clearly labelling the sections.

Ensure skilled staff availability : Assume that the management team has approved your business plan but has expressed concerns about ensuring there is sufficient

Classify types of vacations in brief : A classification essay requires that you choose a category and divide that category into subcategories. For example, if your topic was drivers then you might.

Best strategy on staying on top of everything : When managing and running your business what are the best strategy's on staying on top of everything?

User Account

All Pages