Taking stock of your risks

Viewing risk retention as a capital-free investment is an illusion that can expose the organization to ruin merely to save a small amount of premium. In the event of a worst-case loss, one's entire capital structure could be considered the potential investment. That does not necessarily mean on...

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Bibliographic Details
Published in:Financial executive (1987) 1997-07, Vol.13 (4), p.42
Main Author: Sanderson, Scott
Format: Magazinearticle
Language:English
Subjects:
Advantages
Balance sheets
Borrowing
Capital structure
Cash flow
Commodities
Corporate profits
Cost control
Decision making
Earnings
Insurance premiums
Investments
Lines of credit
Methods
Payback periods
Risk management
Risk retention
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Summary:Viewing risk retention as a capital-free investment is an illusion that can expose the organization to ruin merely to save a small amount of premium. In the event of a worst-case loss, one's entire capital structure could be considered the potential investment. That does not necessarily mean one should not assume more risk, but one should look at risk retention as an investment like any other. When one does, it is clear that adjusting risk retention up or down (depending on the cost of assumption, transfer, or other factors) to match the company's needs is a process that potentially can save the company a fair amount of money.
ISSN:0895-4186