PRMIA Exam 8008 Topic 1 Question 11 Discussion

Actual exam question for PRMIA's Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP ? 2015 Edition exam

Question #: 11
Topic #: 1

[All Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP ? 2015 Edition Questions]

Which of the following are elements of 'group risk':

I,Market risk

II,Intra-group exposures

III,Reputational contagion

IV. Complex group structures

AII, III and IV

BII and III

CI and IV

DI and II
The term 'group risk' has been defined in the FSA document 08/24 on stress testing as the risk that a firm may be adversely affected by an occurrence (financial or non-financial) in another group entity or an occurrence that affects ther group as a whole. These risks may occur through:
- reputational contagion,
- financial contagion,
- leveraging,
- double or multiple gearing,
- concentrations and large exposures (particularly intra-group).
Thus, the insurance sector may be considered a group, and a firm may suffer just because another group firm has had losses or reputational issues.
The FSA statement goes on to identify some elements of group risk as follows:
- intra-group exposures (credit or operational exposures through outsourcing or service arrangements, as well as more standard business exposures);
- concentration risks (from credit, market or insurance risks which could put a strain on capital resources across entities simultaneously);
- contagion (reputational damage, operational or financial pressures); and
- complex group structures (with dependencies, complex split of responsibilities and accountabilities).
Therefore Choice 'a' is the correct answer and the rest of the choices are incorrect.

Show Suggested Answer

Suggested Answer: A

by Theola at May 08, 2022, 04:57 PM

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