Insurance and Risk Management
Please note: Before scheduling classes, check with the department to determine the availability of courses for the upcoming semester or visit the Insurance and Risk Management website.
By majoring in insurance and risk management, an MBA student may fuse general management education with specialized expertise. This major enables the student to gain a thorough understanding of both risk management and insurance theory and practice. Students are exposed to the legal, actuarial, financial, and economic principles underlying corporate and public sector risk management, with specific applications to individual, business, and social problems. In addition, the functional areas of insurance company management, e.g., investment policy, financing, marketing, pricing, and underwriting, are explored in depth. Risk Management and Insurance theory, functions, and strategies are all investigated against a background of accelerating change in the legal, regulatory, and economic environment.
Career opportunities for MBA graduates with a major in insurance and risk management include positions in many types of consulting, risk management, employee benefits management, insurance company management, and personal financial planning. Risk management involves financial and statistical analysis of risk and insurance-related problems that confront businesses and public sector managers. Positions are available in risk management departments of large corporations, risk management consulting firms, insurance brokerage firms, and special risk divisions of insurance companies that deal with large corporate risks as well as government and nonprofit organizations around the world. The increasing importance of employee benefits in overall compensation management requires individuals with education in group insurance, pension plans, and deferred-compensation arrangements. Positions are available in corporate benefit departments, employee benefit consulting firms, and bank trust departments as well as social insurance agencies in the public sector. Insurance company management positions are available in general management, marketing, financial management, and research and planning; jobs in the regulatory sector are also available to our graduates. The growth in the number of firms providing personal financial planning has increased the demand for persons with education in the use of life insurance and related mechanisms in capital accumulation and estate conservation.
Additional opportunities for an MBA combining finance and insurance include positions in insurance company investment, pension fund management, and social insurance program design and oversight. Management consulting firms also seek candidates with expertise in insurance for positions involving insurance industry analysis, including insurance company formations and acquisitions. This demand can be expected to accelerate in view of the ongoing erosion of traditional regulatory barriers between commercial banking, insurance, and the securities industry.
The Insurance and Risk Management Department also participates in a cross-functional major in Environmental and Risk Management.
Requirements for the Major
The major requires five credit units. Electives taken on a Pass/Fail basis cannot be counted toward the Insurance and Risk Management major.
Deviations from these requirements must be approved by the MBA Advisor.
MBA Advisor: Gregory Nini (telephone: 215.898.7770; email: greg30@wharton.upenn.edu)
ACTUARIAL SCIENCE
The Wharton actuarial science curriculum prepares students for professional certification as an actuary. The curriculum includes general business courses important for developing a strong, general understanding of the business environment, as well as quantitative courses in economics, accounting, computer science, and finance. The location of the actuarial science program within an internationally renowned business school provides students with an exceptional opportunity to blend studies in economic theory, financial strategies, general business principles, insurance company management, corporate risk management, and public policy. Students enrolling are expected to have undergraduate training in calculus and at least one course in statistics and probability theory. Students are encouraged, but not required, to take actuarial examinations organized by the Society of Actuaries or the Casualty Actuarial Society during their studies.
The Society of Actuaries and the Casualty Actuarial Society adopted a new examination system in 2007. Three topics (Applied Statistical Methods, Corporate Finance, and Economics) require Validation by Educational Experience (VEE). The Society of Actuaries has approved a large number of Wharton and Penn courses that satisfy the VEE requirements. A list of these approved courses can be found on the Society website.
Students then need to pass four preliminary exams: Probability, Financial Mathematics, Actuarial Models, and Construction and Evaluation of Actuarial Models. Actuarial courses offered by the Department prepare students for the Financial Mathematics and the Actuarial Models examinations.
The major requires five credit units. Electives taken on a Pass/Fail basis cannot be counted toward the Actuarial Science major.
INSR 830 Fundamentals of Actuarial Science II
INSR 831 Applied Statistical Methods for Actuaries
b) One of the following courses (1 cu):
c) One advanced study project is required (1 cu):
INSR 805
Risk Management
Description: This course describes the concepts and techniques available to corporations, non-profit organizations, and other organizations in their efforts to manage pure risks. The costs associated with such pure risks as product liability, environmental impairments, property losses, work-related injuries, and employee benefits (e.g., pensions, health insurance, etc.) affect the daily management of all organizations. Managers who make decisions without appropriate consideration of risk management issues can jeopardize the long-term survival of their organizations. The course examines a common set of techniques which can be used by managers in dealing with these problems, including risk assumption, prevention, diversification, and transfer via insurance and non-insurance market mechanisms. In turn, students learn to recognize that the institutional structure of the organization itself influence its own risks and their corresponding treatments.
Prerequisites: None.
INSR 811 (.5 cu)
Risk and Crisis Management
Description: The success of any firm depends jointly on its ability to create value and on its ability to preserve value. The creation of value arises when a firm is able to identify and execute investments with a positive net present value. The creation of value invariably exposes the firm to risk and this value can easily be jeopardized. A fall in demand for its product, a sudden rise in production or financing costs, a technological failure, destruction of assets or information, or liability suit, or the activities of a rogue trader: each can squander the value created. In extreme cases these risky possibilities can bankrupt the firm. Risk management is becoming increasingly important and firms are devoting increasing time, attention and resources to deriving strategies for preserving value. These strategies include hedging, insurance, contingent financing and changes in organizational design which make the firm more robust to shocks. Risk and Crisis Management will look at these and related strategies.
Format: Lecture and case discussions. Final examination and homework.
Prerequisites: None.
INSR 812 (.5 cu)
Markets for Pure Risks
Description: This course examines the supply side of global markets for pure risks. Pure risks can be broadly defined as risks that are beyond the core competencies of the majority of firms in the economy. These are risks that must be managed or avoided in order to enable management to add value by focusing on the firm’s primary activity. An important category of pure risks encompasses those risks that traditionally were managed by purchasing insurance – the risk of reduction of firm value due to fires, natural disasters, liability lawsuits, work injuries, and other types of accidents or legal actions. However, pure risks also include other sources of volatility that have not traditionally been traded in insurance markets. The latter category includes weather risk, credit risk, and foreign exchange risks, among others. The course examines insurance and financial markets, “alternative market” approaches to dealing with pure risks such as captive insurance companies, the global market for reinsurance, and markets for securitized risk product such as catastrophe bonds, mortality index bonds, and life insurance reserve financing securitizations. This course is intended to complement INSR 811, “Risk and Crisis Management.” INSR 811 focuses on how firms can use various types of hedging instruments to manage pure risks, i.e., its emphasis is primarily on the demand side of markets for pure risks, whereas INSR 812 examines the supply side of these markets.
Format: Lecture and discussion. Midterm and final examination.
Prerequisites: Basic microeconomics and finance.
INSR 822
Employee Benefit Plan Design and Financing
Description: Large U.S. employers devote up to 40% of payroll on non-wage benefits, and in other countries, the ratio is higher. What rationales justify such a substantial budget commitment to employee benefits? How are benefit packages designed and how do they evolve to achieve multiple ends? Course units cover aspects of life insurance, health and disability insurance, and deferred compensation plans along with the economic consequences of and regulatory environment shaping each. Executive compensation is also covered. The course is useful to anyone interested in health care, insurance and retirement planning, for either professional or personal reasons.
Format: Combination lecture and discussion. Midterm and final exam, and occasional case studies.
Prerequisites: None.
INSR 823
Business Insurance and Estate Planning
Description: This course presents an analysis of overall private wealth management. This includes planning for: disposition of closely-held business interests; the impact of income taxes and other transfer costs on business interests and other assets; integration of life insurance, disability insurance, medical benefits, and long-term care insurance in the financial plan; planning for concentrated asset (e.g., common stock) positions, diversification techniques, and asset allocation strategies; distribution of retirement assets; lifetime giving and estate planning; and analysis of current developments in the creation, conservation, and distribution of estates. Attention also is given to various executive compensation techniques (including restricted stock and stock options) and planning for various employee benefits. The course also covers sophisticated charitable giving techniques and methods for financing education expenses. Readings consist of a textbook, case studies, and bulk pack articles. This course should be attractive to most students to help them plan for their own or their families’ financial affairs. It also should be particularly attractive to students with interests in entrepreneurship, wealth management, finance, and law.
Format: Lecture, class discussion, and case discussion. Midterm exam, final exam and an optional research paper.
Prerequisites: None.
INSR 825
Managing Pure Risks: Operations & Markets
Description: This course deals with property-liability insurance company financial management, “alternative market” mechanisms for managing pure risks such as captive insurance companies, and the securitization of risk-linked bonds and other instruments. It involves extensive discussion of insurance company financial strategies including investments, asset-liability management, value-at-risk, capital allocation, cost of capital estimation, and financing reporting. Additional topics include product distribution and marketing systems, underwriting operations and policy, reinsurance, rate-making and reserves, claims, accounting, and other functions of insurance risk pools. The regulation and taxation of insurance and captive insurance companies are also covered. A number of public policy issues affecting the management of property-liability insurers are discussed including: insurer solvency and state guarantee funds, discrimination in property-liability insurance pricing, the effect of the underwriting cycles, and the convergence of the financial services sector. The characteristics of the property-liability insurance industry also are studied within the framework of the financial services industry.
Format: Lecture with class discussion encouraged. Two exams.
Prerequisites: None.
INSR 827
Risk Management and Treatment
Description: Nature and objectives of corporate risk management. Primary consideration & recognition, evaluation and treatment of pure risks to which the corporation is exposed.
Prerequisites: None.
INSR 829
Fundamentals of Actuarial Science I
Description: This course is the usual entry point in the actuarial science program. It is required for students who plan to major in actuarial science. It can also be taken by others interested in the mathematics of personal finance and the use of mortality tables. For future actuaries, it provides the necessary knowledge of compound interest and its applications, and basic life contingencies definition to be used throughout their studies. Non-actuaries will be introduced to practical applications of finance mathematics, such as loan amortization and bond pricing, and premium calculation of typical life insurance contracts. Main topics include annuities, loans and bond, basic principles of life contingencies and determination of annuity and insurance benefits and premiums.
Format: Lectures. One midterm exam, a final exam, and homework assignments.
Prerequisites: One semester of calculus.
INSR 830
Fundamentals of Actuarial Science II
Description: This specialized course is usually only taken by Wharton students who plan to major in actuarial science. It provides a comprehensive analysis of advanced life contingencies problems such as reserving, multiple life functions, multiple decrement theory with application to the valuation of pension plans.
Format: Lectures. One midterm exam, a final project, and homework assignments.
Prerequisites: INSR 829.
INSR 831
Applied Statistical Methods for Actuaries
Description: One half of the course is devoted to the study of time series, including ARIMA modeling and forecasting. The other half studies modifications in random variables due to deductibles, co-payments, policy limits, and elements of simulation. This course is a possible entry point into the actuarial science program. No INSR course is a pre-requisite for INSR 831. The Society of Actuaries has approved INSR 831 for VEE credit on the topic of time series.
Format: Lectures. Two midterm exams and homework assignments.
Prerequisites: One semester of probability.
INSR 833
Actuarial Statistics
Description: This course covers models for insurer’s losses, and applications of Markov chains. Poisson processes, including extensions such as non-homogeneous, compound, and mixed Poisson processes are studied in detail. The compound model is then used to establish the distribution of losses. An extensive section on Markov chains provides the theory to forecast future states of the process, as well as numerous applications of Markov chains to insurance, finance, and genetics. The course is abundantly illustrated by examples from the insurance and finance literature. While most of the students taking the course are future actuaries, other students interested in applications of statistics may discover in class many fascinating applications of stochastic processes and Markov chains.
Format: Lectures. One midterm exam and a final exam.
INSR 835
Financial Strategies and Analysis: Insurance
Description: The course presents the fundamentals of corporate risk management. It provides realistic and conceptually motivated overview of risk management for major global corporations. The strategic approach to risk management requires understanding of insurance, alternative risk financing, as well as financial and commodity derivatives. The course starts with the analysis of how the management of risk at the corporate level can enhance firm value. Management of market risk, cash flow risks for non-financial firms, interest rates risks credit risks and operational risks will be presented next. The course will discuss various techniques used to identify and measure a company’s exposure to financial risks and develop the strategies that can be applied to manage these risks. The emphasis is on the process of risk management and financial engineering as opposed to the valuation of financial derivative products.
Format: Lecture, computer work, discussion. Four project/case studies and midterm and final exams.
Prerequisites: Good understanding of capital markets, insurance markets, and statistics.