Christopher L. Culp and Kevin J. O'Donnell
Property and casualty (“P&C”) insurance companies rely on “risk capital” to absorb large losses that unexpectedly deplete claims‐paying resources and reduce underwriting capacity…
Abstract
Purpose
Property and casualty (“P&C”) insurance companies rely on “risk capital” to absorb large losses that unexpectedly deplete claims‐paying resources and reduce underwriting capacity. The purpose of this paper is to review the similarities and differences between two different types of risk capital raised by insurers to cover losses arising from natural catastrophes: internal risk capital provided by investors in insurance company debt and equity; and external risk capital provided by third parties. The paper also explores the distinctions between four types of external catastrophe risk capital: reinsurance, industry loss warranties, catastrophe derivatives, and insurance‐linked securities. Finally, how the credit crisis has impacted alternative sources of catastrophe risk capital in different ways is considered.
Design/methodology/approach
The discussion is based on the conceptual framework for analyzing risk capital developed by Merton and Perold.
Findings
In 2008, the P&C insurance industry was adversely affected by significant natural catastrophe‐related losses, floundering investments, and limited access to capital markets, all of which put upward pressure on catastrophe reinsurance premiums. But the influx of new risk capital that generally accompanies hardening markets has been slower than usual to occur in the wake of the credit crisis. Meanwhile, disparities between the relative costs and benefits of alternative sources of catastrophe risk capital are even more pronounced than usual.
Originality/value
Although many insurance companies focus on how much reinsurance to buy, this paper emphasizes that a more important question is how much risk capital to acquire from external parties (and in what form) vis‐à‐vis investors in the insurance company's own securities.
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Fundamentally, a commodity exchange, such as the New York Mercantile Exchange, serves a dual purpose. The first is hedging price risk, in which the exchange offers a fair and…
Abstract
Fundamentally, a commodity exchange, such as the New York Mercantile Exchange, serves a dual purpose. The first is hedging price risk, in which the exchange offers a fair and orderly market for shifting risk via the trading of future obligations. The second major function is price discovery, in which the exchange provides a centralized, open, and liquid forum for buyers and sellers to conduct business, by which the prices of all transactions conducted on the exchange are publicly disseminated. This article surveys the role of exchange traded futures and options contracts within the worldwide energy markets and the concepts, applications, and strategies that have evolved to a level of sophistication and versatility that could not have been foreseen 150 years ago.
Until recently, financial intermediaries have behaved as though immune from the bite of intellectual property law. However, recent decisions of the federal courts and acquiescence…
Abstract
Until recently, financial intermediaries have behaved as though immune from the bite of intellectual property law. However, recent decisions of the federal courts and acquiescence by Congress have created a new legal landscape. This article explores the basic principles and implications of patent law for risk finance, specifically in terms of emerging opportunities and incentives related to structured risk management solutions. In so doing, the discussion introduces the trade‐off between past reliance on trade secret law versus the evolving trend toward financial patents. The author addresses its influence within the convergence markets, and argues that patents may play a significant role in future financial and insurance innovation.
Alternative risk solutions describe the transactions and vehicles that manifest the convergence of insurance and financial markets. This brief article surveys the concepts and…
Abstract
Alternative risk solutions describe the transactions and vehicles that manifest the convergence of insurance and financial markets. This brief article surveys the concepts and issues (regulatory, legal, accounting, etc.) that form the foundation for the transfer and financing of risks not previously priced or traded in financial markets.
Abbas Elmualim, Sherif Mostafa, Nicholas Chileshe and Raufdeen Rameezdeen
This chapter discusses the profound and influential impact the construction industry has on the national economy, together with the huge negative effect it has on the environment…
Abstract
This chapter discusses the profound and influential impact the construction industry has on the national economy, together with the huge negative effect it has on the environment. It argues that by adopting smart and industrialised prefabrication (SAIP), the Australian construction industry, and the construction industry globally, is well positioned to leverage the circular economy to advance future industries with less impact on our natural environment. It discusses aspects of the application of digital technologies, specifically building information modelling, virtualisation, augmented and virtual reality and 3D printing, coupled with reverse logistics as a proponent for advancing the circular economy through smart, digitally enabled, industrialised prefabrication. It further postulates a framework for SAIP for the circular economy.
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Christopher Bajada, Walter Jarvis, Rowan Trayler and Anh Tuan Bui
The purpose of this paper is to explore some of the implications for curriculum design by operationalizing threshold concepts and capabilities (TCC) in subject delivery. The…
Abstract
Purpose
The purpose of this paper is to explore some of the implications for curriculum design by operationalizing threshold concepts and capabilities (TCC) in subject delivery. The motivation for undertaking this exploration is directly related to addressing public concerns for the business school curriculum.
Design/methodology/approach
A post facto analysis of a compulsory subject in finance that is part of an Australian business degree and the impact on a subsequent finance subject.
Findings
Customary approaches to granting part-marks in assessing students, (fractionalising) understanding of content can mean students pass subjects without grasping foundational concepts (threshold concepts) and are therefore not fully prepared for subsequent subjects.
Research limitations/implications
Students passing subjects through fractionalization are poorly equipped to undertake deeper explorations in related subjects. If replicated across whole degree programs students may graduate not possessing the attributes claimed for them through their qualification. The implications for undermining public trust and confidence in qualifications are profound and disturbing.
Practical implications
The literature has exposed risks associated with operationalizing threshold through assessments. This highlights a risk to public trust in qualifications.
Originality/value
Operationalizing threshold concepts is an underexplored field in curriculum theory. The importance of operationalizing customary approaches to assessments through fractionalising marks goes to the legitimacy and integrity of qualifications granted by higher education. Operationalizing assessments for TCC presents profound, inescapable and essential challenges to the legitimacy of award granting institutions.
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Jalal El Fadil and Josée St-Pierre
The purpose of this paper is to analyse the risks associated with outsourcing production to emerging countries with lower labour costs, namely China, and study actions and plans…
Abstract
Purpose
The purpose of this paper is to analyse the risks associated with outsourcing production to emerging countries with lower labour costs, namely China, and study actions and plans used to reduce the influence of factors/drivers that induce these risks.
Design/methodology/approach
This research uses a multiple case-study methodology, involving seven Canadian manufacturing firms that have chosen an outsourcing strategy in China. It is based on a particular approach of classifying factors/drivers that may generate risks related to this strategy and on interviews with two managers per firm to reduce personal bias.
Findings
In each of the seven cases studied, outsourcing was chosen to take advantage of lower labour costs in China, but in reality, costs were higher than expected due to unforeseen factors inherent to the risks involved. This study reveals that risks generated by factors/drivers such as lack of experience, reduced control over foreign operations and cultural differences are of major concern for managers outsourcing part of their production to China. However, according to some executives that were interviewed, certain actions can be taken by firms to overcome the negative influence of these factors/drivers. Furthermore, some risks may have multiple causes or be induced by other risks.
Research limitations/implications
The sample of this study was composed of firms from different industrial sectors, and the authors were therefore unable to analyse sector-specific risks. As the industrial sector has an impact on the technical complexity of the products and their components, it would be appropriate to reconduct our research using samples drawn from similar sectors.
Practical implications
These findings can help guide the decisions of managers wishing to outsource some of their activities to China and other emerging countries. They will contribute to the success of outsourcing strategies to these countries, as they reveal the risks associated with these strategies and the ways to deal with factors/drivers that can induce them. For example, building long-term relationships with Chinese partners based on collaboration, trust and mutual benefit as well as conducting a rigorous prospecting phase and taking time to select the right subcontractor can have a major impact on reducing risks.
Originality/value
The main contribution of this work is the analysis of risks associated with outsourcing to China, based on a categorisation of factors/drivers that can generate these risks, and the study of how firms manage these factors/drivers and control their negative effects. The nature of the practices and actions used to manage important risks depends on the characteristics of the companies, their size, resources and the products they outsource.