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The Art of Risk Management

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The Art of Risk Management

Alternative Risk Transfer, Capital Structure and the Convergence of the Insurance and Capital Markets

Wiley,

15 min read
10 take-aways
Audio & text

What's inside?

Initials aren’t the only reason that alternative risk transfer products are called ART. The real art resides in knowing how to use them to manage risk and make money.

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Editorial Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

Finance professional and professor Christopher L. Culp tells all, that is, all about alternate risk transfer (ART) products. Culp discusses corporate finance in detail, covering different types of capital. He sets out the risk control and capital structure functions of various classical and alternative risk transfer steps, such as derivatives targeted at market and credit risk, asset divestiture, insurance and reinsurance. Don’t even go here if you aren’t already familiar with (or studying) the sophisticated basics of finance, since this is highly technical reading, including numerous formulas, charts and graphs describing financial theories and processes. But if you are an expert, getAbstract.com congratulates you on finding your way to Culp, who aimed his book at the already-savvy: corporate treasurers, financial officers and those who participate in capital markets and the reinsurance industry.

Summary

The Art of Risk Management

Today’s most critical convergence is between corporate finance and risk management. To consider seriously how your firm manages risk, you must also consider how it raises capital, and vice versa.

Alternative risk transfer (ART), which reflects the movement of the (re-)insurance industry into the process of corporation financing and capital formation, is at the center of this convergence. ART refers to the contracts, structures and solutions that insurance or reinsurance companies provide to enable firms to finance or transfer some risks in a nontraditional way. This type of financing functions as a "synthetic debt or equity (or a hybrid) in a firm’s capital structure." To understand today’s corporate finance, consider risk finance and risk transfer alternatives, capital and insurance market solutions, and risk management and classical treasury decision-making. Michelin, United Grain Growers and British Aerospace have adopted this multi-dimensional approach successfully.

Experts on risk management fall into two camps: the classical insurance people and the financial risk managers. However, the two approaches can be complementary, if ...

About the Author

Christopher L. Culp Managing Director at CP Risk Management LLC in Chicago, is an Adjunct Associate Professor of Finance at the University of Chicago. A former President of Risk Management Counseling Services, Inc., and senior examiner in the Supervision and Regulation Department of the Federal Reserve Bank of Chicago, Dr. Culp is a managing editor of Derivatives Quarterly and Senior Fellow in Financial Regulation with the Competitive Enterprise Institute in Washington, D.C. He holds a Ph.D. in finance from the Graduate School of Business of the University of Chicago and a B.A. in economics from John Hopkins University.

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