A quantified exposure line for publicly funded programmes. Nine reference indices, five severity bands with defined attachment points, an indicative recovery cost at each band, and quarterly revaluation.
Most programme risk registers carry reputational exposure as a narrative entry with no number against it. It is the only material line on the register that is never valued, and it is consequently the only one that cannot be provisioned for, hedged, or reported to a board in the same units as everything else.
This practice values it. Each programme is written up as a single exposure, measured against nine reference indices, banded by severity against defined attachment points, and priced at an indicative recovery cost. The output is a figure a finance director can carry in a forecast and an audit committee can minute, refreshed monthly and revalued in full each quarter.
Exposure is measured against nine published index series, refreshed at fifteen-minute intervals. That is 96 refreshes per index per day, 864 across the set, and 315,360 index observations per annum.
Every index is licensable directly by the client, and every figure we report can be reproduced from the same series without reference to us.
Banding is mechanical. A band is set by attachment point and not by judgement, which is why the same index state produces the same band irrespective of who is on duty.
| Band | Attachment point | Notification | Indicative recovery cost |
|---|---|---|---|
| B-0 Baseline | Within 1.0 times the trailing 12-week mean | Weekly | Nil |
| B-1 Elevated | 1.5 times trailing mean, sustained 72 hours | 5 working days | 18,000 EUR |
| B-2 Material | 3.0 times trailing mean, or first tier-1 original copy | 24 hours | 74,000 EUR |
| B-3 Structural | Attribution transfers from the deliverable to the framework agreement | 4 hours | 310,000 EUR |
| B-4 Aggregate | The commissioning body is called to state a position | 60 minutes | 1,150,000 EUR |
Each band attaches at approximately four times the recovery cost of the band below. The three step multiples are 4.11, 4.19 and 3.71, a mean of 4.00. An exposure carried from B-1 through to B-4 develops to 63.9 times its cost at first attachment.
B-3 is the attachment point that governs the pricing of the whole line. Below it the exposure sits against a single deliverable and its severity distribution is bounded by the value of that deliverable. At B-3 attribution transfers to the framework agreement, the severity distribution is bounded instead by the value of the contract, and the counterparties with a recoverable interest change. Loss development above B-3 is not a continuation of the curve below it.
Of the last 214 B-1 attachments across the portfolio, 167 closed without development and 47 developed to B-2 or above, a development rate of 22.0 per cent. Median lead between a B-1 attachment and the corresponding inflection in the national Coverage Volume Index is 9 days.
Notification is automatic on attachment and issues simultaneously to the named partner and the client’s single point of contact, with index-level detail attached. Every notification carries two or three costed courses of action with an indicative day count, and one written recommendation. Nothing is issued or briefed before written instruction from the client, at any band.
Exposures are not independent. Programmes sharing a framework agreement or a delivery consortium show a band-change correlation coefficient of 0.62. Programmes with no shared counterparty show 0.11. A portfolio concentrated behind one framework agreement therefore carries substantially more aggregate exposure than the sum of its programme-level valuations implies, and is priced on that basis.
| Band | Frequency per programme per annum | Recovery cost | Expected annual cost |
|---|---|---|---|
| B-1 | 4.2 | 18,000 EUR | 75,600 EUR |
| B-2 | 0.9 | 74,000 EUR | 66,600 EUR |
| B-3 | 0.22 | 310,000 EUR | 68,200 EUR |
| B-4 | 0.05 | 1,150,000 EUR | 57,500 EUR |
| Total | 267,900 EUR |
Across a twelve-programme portfolio that is an expected annual exposure of 3,214,800 EUR.
The monitoring retainer is 6,500 EUR per programme per month, or 78,000 EUR per annum, covering index measurement, banding, notification, the costed option set and reporting. Recovery work is engaged and charged separately at the rates set out on the case studies page.
A single B-3 exposure addressed at first attachment avoids 292,000 EUR of recovery cost against an annual retainer of 78,000 EUR, a ratio of 3.7 to 1. Clients running four or more programmes take the portfolio rate of 5,200 EUR per programme per month, a diversification credit of 20.0 per cent, which on four programmes is 249,600 EUR per annum against 312,000 EUR standalone. On a twelve-programme portfolio the retainer is 748,800 EUR against expected annual exposure of 3,214,800 EUR, a ratio of 4.3 to 1.
| Report | Contents | Frequency |
|---|---|---|
| Index note | Series levels, current band, movement since last | Weekly, Monday 09:00 |
| Attachment record | Every attachment raised, confirmed or closed, with index detail | On occurrence |
| Board pack | Band distribution, exposure valuation, correlation matrix | Monthly |
| Revaluation | Full reprice of the portfolio against current attachment points | Quarterly |
| Annual review | Twelve-month band history, retainer against avoided cost | Annually |
The exposure figure is a valuation and is reported as such on every page of every report. Clients electing to carry it as a provision take that treatment from their auditors.
Measurement begins on signature and requires only the programme name and the terms under which it is discussed. A trailing twelve-week mean is constructed from historical series in the first week and replaced with live data at week twelve. Banding is live from day one against the historical mean, and the first board pack issues at the end of the first full month.