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Question 1 of 10
1. Question
What is this type of probability, which is defined as an individual’s estimate of the chance of loss?
Correct
A wide variety of factors can influence subjective probability, including a person’s age, gender, intelligence, education, and the use of alcohol or drugs. Also, a person’s estimate of a loss may differ from objective probability because there may be ambiguity in the way in which the probability is perceived.
Incorrect
A wide variety of factors can influence subjective probability, including a person’s age, gender, intelligence, education, and the use of alcohol or drugs. Also, a person’s estimate of a loss may differ from objective probability because there may be ambiguity in the way in which the probability is perceived.
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Question 2 of 10
2. Question
Pure risk is defined as a situation in which there are only the possibilities of loss or no loss. Which of the following are examples of pure risks?
I. Investing in real estate
II. Premature death
III. Catastrophic medical expenses
IV. Betting on a horse raceCorrect
The only possible outcomes in pure risks are adverse and neutral. Examples of pure risks include premature death, job-related accidents, catastrophic medical expenses, and damage to property from fire, lightning, flood, or earthquake.
Incorrect
The only possible outcomes in pure risks are adverse and neutral. Examples of pure risks include premature death, job-related accidents, catastrophic medical expenses, and damage to property from fire, lightning, flood, or earthquake.
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Question 3 of 10
3. Question
What is this type of risk, which is defined as the collapse of an entire system or entire market due to the failure of a single entity or group of entities that can result in the breakdown of the entire financial system?
Correct
Systemic risk is an economic risk that is extremely important in the monetary policy of the federal reserve, fiscal policies of the federal government, and government regulation of the economy. Systemic risk is especially important to large commercial banks and other financial institutions that are considered too large to fail without doing major financial harm to a large part of the economy.
Incorrect
Systemic risk is an economic risk that is extremely important in the monetary policy of the federal reserve, fiscal policies of the federal government, and government regulation of the economy. Systemic risk is especially important to large commercial banks and other financial institutions that are considered too large to fail without doing major financial harm to a large part of the economy.
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Question 4 of 10
4. Question
What is defined as the tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates, which, if not controlled by underwriting, results in higher-than-expected loss levels?
Correct
Applicants who meet the underwriting standards are insured at standard or preferred rates. If the underwriting standard is not met, the insurance is denied, or an extra premium must be paid, or the coverage offered may be more limited. The problem of adverse selection arises when applicants with a higher-than-average chance of loss succeed in obtaining the coverage at standard or average rates.
Incorrect
Applicants who meet the underwriting standards are insured at standard or preferred rates. If the underwriting standard is not met, the insurance is denied, or an extra premium must be paid, or the coverage offered may be more limited. The problem of adverse selection arises when applicants with a higher-than-average chance of loss succeed in obtaining the coverage at standard or average rates.
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Question 5 of 10
5. Question
Identifying loss exposures is the first step in the risk management process. What are the several sources of information to identify the preceding loss exposures?
I. Online questionnaires and checklists
II. Physical Inspection
III. Financial Statements
IV. FlowchartsCorrect
A risk manager can use several sources of information to identify the preceding loss exposures. They include the following:
(1) Risk analysis questionnaires and checklists
(2) Physical inspection
(3) Flowcharts
(4) Financial statements
(5) Historical loss dataIncorrect
A risk manager can use several sources of information to identify the preceding loss exposures. They include the following:
(1) Risk analysis questionnaires and checklists
(2) Physical inspection
(3) Flowcharts
(4) Financial statements
(5) Historical loss data -
Question 6 of 10
6. Question
Retention is a risk financing technique, which means that the firm retains part or all of the losses that can result from a given loss. Which of the following methods are typically used for paying losses?
I. Policy reserve
II. Unfunded reserve
III. Funded reserve
IV. Federal reserveCorrect
If retention is used, the risk manager must have some method for paying losses.
The following methods are typically used:
(1) The firm can pay losses out of its current net income and treat losses as expenses for that year.
(2) An unfunded reserve is a bookkeeping account that is charged with actual or expected losses from a given exposure.
(3) A funded reserve is the setting aside of the liquid funds to pay losses.
(4) A credit line can be established with a bank, and borrowed funds may be used to pay losses as they occur.Incorrect
If retention is used, the risk manager must have some method for paying losses.
The following methods are typically used:
(1) The firm can pay losses out of its current net income and treat losses as expenses for that year.
(2) An unfunded reserve is a bookkeeping account that is charged with actual or expected losses from a given exposure.
(3) A funded reserve is the setting aside of the liquid funds to pay losses.
(4) A credit line can be established with a bank, and borrowed funds may be used to pay losses as they occur. -
Question 7 of 10
7. Question
What is this risk-financing technique, which is defined as methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party?
Correct
In a risk management program, noninsurance transfers have several advantages:
(1) The risk manager can transfer some potential losses that are not commercially insurable.
(2) Noninsurance transfers often cost less than insurance.
(3) The potential loss may be shifted to someone who is in a better position to exercise loss control.Incorrect
In a risk management program, noninsurance transfers have several advantages:
(1) The risk manager can transfer some potential losses that are not commercially insurable.
(2) Noninsurance transfers often cost less than insurance.
(3) The potential loss may be shifted to someone who is in a better position to exercise loss control. -
Question 8 of 10
8. Question
Private insurers sell a variety of life and health insurance products, annuities, mutual funds, pension plans, and related financial products. Which of the following are major types of private insurers?
I. Lloyd’s of London
II. Advance premium mutual
III. Assessment mutual
IV. Reciprocal exchangesCorrect
In terms of legal ownership and structure, the major types of private insurers can be classified as follows:
(1) Stock insurers
(2) Mutual insurers
(3) Lloyd’s of London
(4) Reciprocal exchanges
(5) Blue Cross and Blue Shield plans
(6) Health maintenance organization
(7) Other types of private insurersIncorrect
In terms of legal ownership and structure, the major types of private insurers can be classified as follows:
(1) Stock insurers
(2) Mutual insurers
(3) Lloyd’s of London
(4) Reciprocal exchanges
(5) Blue Cross and Blue Shield plans
(6) Health maintenance organization
(7) Other types of private insurers -
Question 9 of 10
9. Question
What is this type of private insurer, which is defined as the world’s leading insurance market where members join together to form syndicates to insure and pool risks?
Correct
Lloyd’s of London underwrites seven lines of insurance: casualty, property, marine, energy, motor, aviation, and reinsurance. It is also famous for insuring unusual exposure units, such as a prize for a hole-in-one at a golf tournament, or injury to a Kentucky Derby horserace winner. These unusual exposures, however, account for only a small part of the total business.
Incorrect
Lloyd’s of London underwrites seven lines of insurance: casualty, property, marine, energy, motor, aviation, and reinsurance. It is also famous for insuring unusual exposure units, such as a prize for a hole-in-one at a golf tournament, or injury to a Kentucky Derby horserace winner. These unusual exposures, however, account for only a small part of the total business.
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Question 10 of 10
10. Question
A property and casualty insurer is required by law to maintain certain reserves on its balance sheet to assure that premiums collected in advance will be available to pay future losses. What are the principal types of financial reserves?
I. Loss reserve
II. Policy reserve
III. Case reserve
IV. Federal reserveCorrect
A property and casualty insurer is required to maintain two principal types of financial reserves:
(1) A loss reserve is the estimated claims for losses that have already occurred but that have not been paid as of the valuation date.
(2) Case reserves are loss reserves that are established for each claim when it is reported.Incorrect
A property and casualty insurer is required to maintain two principal types of financial reserves:
(1) A loss reserve is the estimated claims for losses that have already occurred but that have not been paid as of the valuation date.
(2) Case reserves are loss reserves that are established for each claim when it is reported.