Risk profile/measure/tolerance

I am still getting confused with this. If for example we are using a standard Solvency II model to calculate the 99.5% VaR, then would it correct to say that

• the risk profile is the whole balance sheet or rather Assets - Liabilities
• the risk measure is the VaR(99.5%) over the next year, and
• the risk tolerance is 99.5%?

 

My understanding is that the risk profile is the distribution of possible outcomes (it does not have to be just assets - liabilities = free reserves, it can be gross loss, net loss, ... anything really).

The risk measure in this example is the financial value of the 99.5% VaR.

The risk tolerance is therefore the maximum amount they are willing for this value to be.

For example, the 99.5% VaR of net loss under a particular set of mitigation techniques is GBP1bn, but the company may only have a risk tolerance of GBP800m. Therefore the mitigation techniques need to be adapted/added to in order to reduce the GBP1bn down to at most GBP800m.

But I'm still studying the course so maybe one of the ActEd guru's could confirm!

edit: I've done a bit more reading around the topic and seems my interpretation wasn't correct - the tolerance is indeed the level of confidence (i.e. 99.5% in this example).