Module 8

Question 1

Explain what is meant by corporate strategy

Answer 1

Corporate strategy arises when an organisation assesses its:

• value chain
• core competencies and
• the risk / return economies of the overall business.

The resulting corporate strategy identifies where in the value chain it ought to compete and covers:

1. sales growth
2. choice of products (and their design and pricing)
3. choice of distribution techniques and target markets
4. cost management
5. asset management
6. risk management.

Question 2

Explain why financial distress may result in poor decision making

Answer 2

Financial distress can encourage management to take actions that conflict with other stakeholders’ interests, eg:

• producing poor quality goods
• operating a less safe work environment
• cutting back on longer-term investment spend
• exiting promising lines of business
• liquidating an operation that would otherwise have continued to operate adequately.

Volatility in corporate earnings or profits can also affect the share price and the ability to take full advantage of tax credits.

Question 3

Describe the types of companies that would benefit most from active RM

Answer 3

Companies that would benefit most from active RM include those that:

1. offer products with high added value, eg having high production quality
2. offer products for which there are high costs of switching to another line
3. offer products for which the value to customers depends on complementary services or products supplied by other independent companies
4. have high sales growth opportunities.

Question 4

Describe what is typically involved in the systematic management of corporate uncertainty (in its widest sense)

Answer 4

This typically involves:
1. techniques to ensure potential problems are spotted early to facilitate appropriate mitigation, eg:
− horizon scanning

2. strategic structural change to achieve greater resilience and flexibility in case of surprises, eg:
− increased (diversified) outsourcing
− diversified operational locations 
− multi-skilling of teams
− moving sales online.

Question 5

State the five elements of the actuarial control cycle

Answer 5

1. Specify the problem
2. Develop the solution
3. Monitor the experience

All within the wider context of:

4. General commercial and economic environment
5. Professionalism

Question 6

Outline a generic five stage ERM process

Answer 6

1. Identification:
   - defining and recording all risks in a consistent way
2. Assessment
   - considering/quantifying risks in the context of the risk appetite
3. Management
   - ongoing treatment of the risks
4. Monitoring
   - continuous recording, review and reporting of risks, losses and effectiveness of treatments + external audit
5. Modification
   - alter approach as business and risk environment changes