a typo for X4

[Smith]

just found a maybe typo in the solution for X4.10 in page 17, the last subheading, "Exposure risk", according to the content under that, it seems ought to be "Expense risk", am i right? for reference.

 

[Lindsay Smitherman]

Hi - actually the 'Exposure risk' heading is correct.

The course mentions four possible examples of sub-categories of 'business risk' for a financial product provider, one of which is 'exposure risk'. For an insurance company, this could include new business volume risk, new business mix risk and persistency risk. These are the risks that are described under that heading in the solution to X4.10.

Expenses are mentioned there because there can be a knock-on impact on per policy expenses from some of these exposure risks. In particular, low new business volumes could result in fixed costs not being recovered.

'Expense risk' (specifically the downside risk of expenses being higher than expected) is also an example of a 'business risk'. This could be considered as a separate sub-category or it could be categorised as an 'Insurance risk'. The solution to X4.10 does the latter.

Bear in mind that it is much more important to be able to come up with a wide range of possible risk drivers than to get them into the 'right' categories. There will be plenty of risks that aren't particularly easy to categorise in that way, and indeed there is no definitive risk taxonomy: it's just how the CP1 Core Reading has decided to present things.

 

[Smith]

ok, understood, thanks!