[[Actuarial Notes Wiki|Wiki]] / [[Actuarial Glossary]] / [[Risk]] / ==Financial Risk== ## Actuaries Manage Financial Risk Actuaries traditionally focus on managing [[Financial Risk|financial risk]] for insurers. When put in terms of the ISO definition of risk, financial risk has two parts: **1. Financial Objectives**: "The effect of uncertainty on **financial objectives**." The most important *financial objective* of an insurance company is to have enough cash to pay claims. To do this, they have a few other goals, like charging the right amount of premium for each policy and not taking on too much risk exposure. **2. Financial Uncertainty**: "The effect of **financial uncertainty** on objectives." Financial uncertainty is about how your finances affect your other goals. For example, a question like "will the company have enough money to invest in a new project?" involves *financial uncertainty*. Both financial objectives and uncertainty ### How to Manage Financial Risk: 1. Estimate an insurance company's [[Risk of Ruin|risk of ruin]], i.e. its risk of becoming financially [[Solvency|insolvent]]. 2. Determine a fair [[Insurance Pricing|price]] for the transfer of risk. 3. Identify risk [[Exposure|exposure]] relative to [[Risk Appetite|risk appetite]]. 4. Determine how much money to set aside in [[Insurance Reserving|reserves]]. 5. Estimate the impact of the [[Econometrics|economic environment]] on finances. 6. [[Investment|Invest]] in operational efficiency