Chapter 8. Corporate Risk Management

Agenda

Item 1

Explain the role of the CFO in corporate risk management.

Item 2

Identify the various types of risks to which a corporation is exposed.

Item 3

Discuss the difference between traditional risk management and enterprise risk management.

Item 4

Explain the key elements in enterprise risk management.

Item 5

Identify the objectives of an enterprise risk management system.

Item 6

Explain what the risk retention decision is.

Item 7

Describe what is meant by risk finance, risk retention, risk neutralization, and risk transfer.

Item 8

Explain what risk transfer management is and the vehicles or instruments for transferring risk (traditional insurance, derivatives, alternative risk transfer, and structured finance).

Item 9

Review the financial accounting treatment for derivative instruments used for hedging.

Item 10

Distinguish between traditional insurance and alternative risk transfer and describe the vehicles that can be used in alternative risk transfer (insurance‐linked notes, captives and mutuals, fnite insurance, multiline insurance, and contingent insurance).

All firms face a variety of risks. Scandals such as Enron, WorldCom, Tyco, and Adelphia and tragic events such as 9/11 have reinforced the need for corporate governance committees to set forth that one of the responsibilities of the board of directors is risk management. Moreover, risk management should not be placed at the end of the agenda for a board meeting as “other business” but be a key agenda ...

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