INSTRUCTIONS LTD Acceptance (a fictitious company) is a private auto insurance carrier specializing ...
INSTRUCTIONS LTD Acceptance (a fictitious company) is a private auto insurance carrier specializing in sports cars and motorcycles. LTD Capital, a large equity group with over 15 holdings, owns LTD Acceptance. LTD Acceptance is the parent company's largest holding, driving 70% of total revenue. Due to the inherent risk in that market segment, many of LTD Acceptance's competitors do not offer sports cars or motorcycle policies. This market segment is underserved, and LTD Acceptance organization currently has 20,000 active sports car and motorcycle policies. LTD is headquartered in Houston, TX. LTD does not sell insurance directly to the public. Instead, it uses third-party agents to sell its policies. LTD handles all customer service needs, including claims intake, policy services, and general questions. The company operates in four states: California, Texas, Louisiana, and Florida. LTD does not have an active system to ensure that its agents use LTD guidelines to screen potential policyholders. However, no evidence of negligence has emerged as the organization has yet to have a year in which it was not profitable. LTD has also had the good fortune of not suffering losses because of natural disasters or catastrophic events. LTD Acceptance has 20,000 active policies for sports cars and motorcycle drivers, and the firm is yet to experience a year with high loss ratios. LTD has invested premium dollars across various asset classes to increase its profitability ratios. LTD's Chief Financial Officer (CFO) believes the organization should take a calculated risk and allocate the assets more aggressively. As the senior risk analyst, you have carefully analyzed the organization's numbers and firmly believe that LTD's favorable loss ratios result from chance and not through the sensible use of the firm's non-existent systematic framework for managing risk. You also believe the CFO looks at the rewards, not the risks. Therefore, you do not believe the firm should increase risk exposures now. To convey your point of view, you have decided to conduct a cost-benefit analysis report, which should include the following: For this report, provide an introduction that discusses the relationship between risk and reward. Using the information provided in the background of this case, explain why the organization may appear to be in a better position on paper than it is. Include possible causes of this position to highlight the importance of risk management. Include at least four ways each party listed below can be adversely impacted if the organization suffers losses due to a more aggressive approach. Policyholders Shareholders Vendors Creditors Employees Also, discuss how effective financial management aligns with overall risk management. Keep in mind that if managers engage in activities that create risks outside this scope, they can create problems. For instance, most firms have the goal of driving sustainability. However, if they are highly leveraged, then seeking additional credit for a project can derail the long-term goal of sustainability. Your conclusion should highlight how the risk assumed in an organization's activities should be consistent with its long-term goals. All business activities include inherent risks. Thus, the firm's activities and risks should help them reach their long-term goals. The format for your report should be in the business and professional style while maintaining APA requirements for in-text citations and reference pages.
