How statistics is used to formally define risk

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Reference no: EM132159920

Question: Competency: Examine the application of statistical functions and derivatives as instruments for measuring risks.

Instructions: You will assume the role of a senior analyst hired by a fictitious company, Premium Acceptance, a midsized property insurance carrier. Premium Acceptance is performing well with respect to several key performance indicators, including policies in force, policy retention, and new business counts.

One of your objectives as the newly appointed senior risk analyst is to develop a framework for managing loss ratios which is one of the firm's largest key performance indicators. A loss ratio is simply the difference between the ratio of claims paid by an insurance carrier and the ratio of premiums paid. The board of directors depends on the ability to forecast loss ratios, which in turn enables them to forecast profitability metrics to the shareholders. The organization will now consider implementing the use of statistics for measuring risks.

Your deliverable should be composed in a report. Be sure to address the following items:

• Explain how statistics is used to formally define risk in the risk assessment process.

• Discuss at least two statistical tools that can be employed to measure risk.

• Convey which tool best serves the company's purposes and explain why it is.

• What are the ramifications of the organization electing not to use statistics in this process?

• Include:

1. An accurate overview that includes specific examples of how statistics support the risk assessment process is given.

2. At least two valid statistical tools that can be employed to measure risk are discussed with details on specific applications.

3. Correctly identifies which tool best serves the company's purpose AND gives an explanation of why it is the best tool that includes specific examples of an application of the tool.

4. At least two valid ramifications of choosing to not use statistics in the risk assessment process are thoroughly explained.

Reference no: EM132159920

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