NSURING RISK IN NATURE AND INDUSTRY1. Explain why using deterministic models for catastrophe loss modelling can understate the potential risk.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5 marks)2. Describe what is meant by moral hazard in insurance. What can insurance companies do to reduce its occurrence? Give an example of a potential moral hazard issue outside of the insurance area.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5 marks)3. Explain the principle of large numbers and its application in insurance.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5 marks)4. Describe the key stages in a catastrophe model? (You may choose whether this captured in 3, 4 or 5 stages).________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5 marks)5. Describe the management of flood risk through the UK’s ‘memorandum of understanding’ between insurers and the government. Discuss the relationship between climate change and flood modelling.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)6. A production line has a consecutive 3 part quality testing mechanism, QT1, QT2 and QT3.If we consider the following probabilities:Probability that QT1 operates properly= 0.76Probability that QT2 operates properly =0.85Probability that QT3 operates properly = 0.79Design an event tree to demonstrate the routes to each of the possible outcomes. Work out the probability of each of the outcomes.What is the probability that a faulty product will pass through the quality tests undetected?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)7. Identify the key types of air pollution. Describe how they are hazardous to the environment. Discuss the role of insurers in environmental risk.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)8. Describe in brief the key health concern of nanomaterials. Discuss the parallel with the insurance industry’s experience of liabilities resulting from asbestos.______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)9. Describe the critical success factors for effective integrated risk management._________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5 marks)10. What is the significance of the requirement to ‘establish the context’ of an enterprise’s risk?_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5 marks)11. Identify the theoretical tools used to control/manage the risks. How could these be implemented in a practical way within a financial institution?_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)12. Describe in brief the evolution of the use of catastrophe modelling in insurance/reinsurance._________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(5marks)13. What are the typical key stages in a catastrophe model?___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)14. What is meant by the terms Annual Average Loss (AAL) and the Exceedance Probability (EP)?How are they typically calculatedHow are they used in insurance/reinsurance?___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)15. Discuss the relationship between climate change and catastrophe modelling (You can use a case study to illustrate).________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________(10 marks)