Risk Management and Insurance*
Spring 1998


Professor Richard MacMinn

Office Hours: To be announced


Course Sketch:

0. What is risk?  risk management?

1. Risk Management and Objectives:  This topic  includes how risk management functions are  integrated into the individual's or organization's objective function.

2. Risk Assessment

3. Risk Control:   This will include some explanation of the notion of risk reduction through pooling arrangements and the initial development of the theory of an insurance firm. This topic would also include default risk, monitoring, regulation, and government guarantees.

4. Risk Finance

5. Risk Markets

        Supply This topic will include the development of the theory of the insurance firm. It will build on the risk pooling notions and add other activities such as investment. The organizational form will also be considered here, e.g., mutual versus stock companies.

        Demand This topic may include a variety of different forms of insurance so that the impact of risk aversion may be used to motivate the consumer demand in some lines while taxes, financial distress, agency costs, etc. may be used to motivate the corporate demand. This topic area will also  include some of the problems in insurance pricing such as adverse selection and moral hazard problems. The notions of risk reduction and self-insurance will also be included for both the consumer and corporate demands. On the corporate side of the analysis, we will include a comparison of insurance with other financial instruments that are used to hedge risk. The economic functions and impact of  major liability rules, e.g., strict liability versus negligence, on the choices made by agents and corporations and hence on the demand for insurance will also be investigated.

        Equilibria A sufficiently robust theoretical development will allow some discussion of the rationale for cycles and crises in some lines of insurance. Insurance pricing will be analyzed. With the appropriate data this is also where the market movements may be investigated.







March 30
April 1

Risk and Uncertainty
Williams 1
Bernstein 1-5

National Insurance Corp.

Risk and Uncertainty

April 6
April 8

Risk Management
Williams 2, 3
Bernstein 6
Doherty 1-3
Rothschild and Stiglitz Notes
Fisher Notes

Catastrophe Risk Financing

 Risk Management

April 13
April 15




April 20
April 22

Risk Assessment
Williams 4-10
Bernstein 7
Doherty 4, 7

The Global Insurance Company

Risk Identification

April 27
April 29




May 4
May 6

Risk Control
Williams 11
Bernstein 8
Doherty 8, 13

Equitable Life Assurance Society
of the United States

Risk Control 

May 11
May 13

Risk Finance
Williams 12, 13
1995 Bowles Symposium
Doherty 9-12

Catastrophe Risk Financing

Risk Finance

May 18
May 20




May 25
May 27

Risk Markets
Williams 16-18
Bernstein 9

Equitable Life Assurance Society
of the United States

Demutualization of Insurance Companies
Industry Note

National Insurance Corp.


June 1
June 3





    You will be asked to complete quizzes on most of the assigned chapters in the Williams text.  The quizzes will be administered and graded online.   The links will appear above along with the reading list and the due dates for the quizzes will be given in class.  It is your responsibility to read the Williams text and take the quiz before the due date.  You may take the quizzes more than once but I will use your first score.  You are on the honor system.  Evidence of violations of the honor system may result in an in class final exam.

    You will be expected to complete two or more group projects.   The projects will be discussed in class and each group will make a formal presentation of its results.  One of the projects will be the presentation and discussion of a case study; another group project may be the assessment of a corporationís risks using financial data from a source such as EDGAR.

    Course grades will be determined, without a curve, using the cumulative course scores. The cumulative course score will be determined according to the following formula: Course score = (.2) P + (.5) G + (.3) A, where P, G, and A represent the class participation, group projects, and individual assignment and quiz scores, respectively. The individual score may include a final exam score. Finally, at my discretion, the class participation score may also be based on attendance.

* This syllabus is subject to change without notice.

Modification Date: Thursday, May 14, 1998
College and Graduate School of Business at The University of Texas at Austin
Comments to: MacMinn