Levels of talking about risks

[Logarithm n Blues]

I currently have 4 flashcards relating to risks, types of risks and categories or risks
(These are 'Risk a life drown cats', PNEFCPB, COMBEL, and one I made from an exam answer that suggests that risk categories are 'Model/ Parameter/ Random fluctuations')
I also answer risk exam questions sometimes by thinking about the risk categories in SCR or ORSA work I have done before (quite similar to COMBEL.) and some risks seem common in exam answers but aren't part of these acronyms.

These are great for generating ideas, but I often find when I come to mark my answers to past exam papers, that I'm talking about risks at the wrong level. Ie. sometimes It seems like I'm being too specific - maybe using 'Risk a life drown cats' when the examiner wants higher level categories of risks. At other times I feel like I'm being too high level - maybe talking about categories like COMBEL instead of specific risk events. The number of marks on offer does not always seem to be a good indicator. I have noticed shorter questions where a small number of detailed risks are given in the answer, or longer ones which still seem to require a higher level generalised view of risks.

Does anyone have any guidance on how to use these acronyms responsibly?
Are there any clear clues regarding how specific to be about risks?
Maybe these are each used in a different context and I'm missing the bigger picture in each case?

 

[Lindsay Smitherman]

Hi

The SP2 Examiners will be using the SP2 Core Reading when setting questions and writing the marking schedules, so you should be focusing on the sources of risk that are covered by the Core Reading that is included in Chapters 10 and 11 of the Course Notes.

RISK A LIFE DROWN CATS is the acronym that is specifically designed to represent those SP2 sources of risk.

PNEFCPB represents risks that arise when undertaking projects, which is specific to the CP1 syllabus. COMBEL is also CP1, representing the high level categories of risk as they are presented in that subject. A list of the categories of risk relevant to the SCR is specific to the SA2 (or SA1 or SA3) syllabus. Although these acronyms might help you to think up some more risks if you are struggling to come up with enough, for the SP2 exam I would recommend focussing on using the one that is designed for the SP2 Core Reading.

Having said that, bear in mind that an acronym is just there as a memory-jogger and is not intended to cover every possible answer point. For example, there is only one letter in the acronym that represents counterparty risks, but different examples of such risk could be relevant depending on the given scenario (eg reinsurer default, poor quality outsourcing, corporate bond default). This extra detail is included in the Core Reading. Similarly, 'actions of distributors' could include churning, not passing on premiums, and mis-selling - with related reputational risk.

For some questions, the wording might be specifically asking for risk categories or main risk types, in which case the higher level headings are more appropriate. However, this is much less likely for SP2 (than it is for CP1 or SA2) as the Core Reading is not presented in that way. You might find that solutions to SP2 exam questions are grouped into the higher level categories, to help give some structure to the answer, but the content still contains the detail that can be found in the full SP2 syllabus list of sources of risk.

Generally speaking, you should be aiming to cover as many different examples of risk as you can, and be as specific as you can about them in relation to whatever details or scenario you have been given.

I have noticed shorter questions where a small number of detailed risks are given in the answer, or longer ones which still seem to require a higher level generalised view of risks.

If you have some examples where there are lots of marks available but the content still seems to be quite high level, perhaps you could reference those questions so that I can check them out and respond directly on them?

some risks seem common in exam answers but aren't part of these acronyms.

Similarly, if you could indicate what these are that would be helpful? It may well be that they are variations on a theme, or more tailored examples?

Your comment about model, parameter and random fluctuation risk is an example of needing to be on top of the full detail of the Core Reading rather than just using the acronym. As explained in Chapter 10, these relate to setting assumptions and thus are relevant to mortality risk, expense risk, persistency risk, investment risk etc. So they may or may not be useful for including in the solution depending on how much detail is required, how many marks are available, what the specific context of the question is etc. For example, they would certainly be worth mentioning if the question is narrowly asking about describing the components of mortality risk that arise.

Hope that is useful but please post again if I have misunderstood your concerns.

 

[Logarithm n Blues]

Thanks Lindsay. That Answer really helps to clear things up for me.

If you have some examples where there are lots of marks available but the content still seems to be quite high level, perhaps you could reference those questions so that I can check them out and respond directly on them?

I will try to have a look through some of these questions again through the lens of your comments - I suspect I'm just mistaking a well structured answer for a high level answer.