Question 1

A computerized data base that permits risk managers to store and analyze risk management data is called a

Accepted Answer

A) risk management information system. 
B) risk management Intranet. 
C) risk management web site. 
D) risk map. 
A) risk management information system. 
B) risk management Intranet. 
C) risk management web site. 
D) risk map. A

Question 2

A large property and liability insurance company merged with a bank and then acquired a stock brokerage company.This type of merger and acquisition activity is categorized as

Accepted Answer

A) insurance company consolidation. 
B) cross-industry consolidation. 
C) financial risk management. 
D) insurance brokerage consolidation. 
A) insurance company consolidation. 
B) cross-industry consolidation. 
C) financial risk management. 
D) insurance brokerage consolidation. B

Question 3

Insurance Brokerage Company uses a computer-based method of estimating the losses its clients will suffer if a severe storm or earthquake occurs.This method of estimating losses is called

Accepted Answer

A) capital budgeting. 
B) securitization of risk. 
C) risk mapping. 
D) catastrophe modeling. 
A) capital budgeting. 
B) securitization of risk. 
C) risk mapping. 
D) catastrophe modeling. D

Question 4

Which of the following statements is (are)true with regard to the use of technology in risk management programs?
I.Risk management Intranets are networks intended for an internal audience.
II.Risk management information systems can be used to store and track workers compensation claims data.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 5

A table showing losses that could occur and the corresponding chance that each loss could occur is called a(n)

Accepted Answer

A) underwriting cycle. 
B) capital budget. 
C) loss distribution. 
D) risk map. 
A) underwriting cycle. 
B) capital budget. 
C) loss distribution. 
D) risk map.

Question 6

The process of determining which set of investments in plant and equipment to undertake is called

Accepted Answer

A) regression analysis. 
B) loss forecasting. 
C) time value of money analysis 
D) capital budgeting. 
A) regression analysis. 
B) loss forecasting. 
C) time value of money analysis 
D) capital budgeting.

Question 7

The relative level of surplus in the insurance industry is called the industry's

Accepted Answer

A) capacity. 
B) liabilities. 
C) reserves. 
D) admitted assets. 
A) capacity. 
B) liabilities. 
C) reserves. 
D) admitted assets.

Question 8

Mid-States Beef is a commercial feedlot business.Currently,the company has over 10,000 cattle in feedlots.Mid-States is concerned that the price of corn,the grain fed to the cattle,will increase significantly.The risk that the price of corn may increase and harm the profitability of Mid-States Beef's operations is a(n)

Accepted Answer

A) currency exchange rate risk. 
B) property risk. 
C) commodity price risk. 
D) interest rate risk. 
A) currency exchange rate risk. 
B) property risk. 
C) commodity price risk. 
D) interest rate risk.

Question 9

Five Below Zero is a new ski resort in Colorado.Five Below Zero is concerned that an abnormally warm winter will prevent the accumulation of snow needed to have a profitable ski season.Five Below Zero purchased a contract that will pay Five Below Zero a lump sum payment if the daily high temperature exceeds 30 degrees for more than 12 days between January 1st and March 31st.The contract Five Below Zero purchased is called a(n)

Accepted Answer

A) catastrophe bond. 
B) weather option. 
C) interest rate swap. 
D) convertible bond. 
A) catastrophe bond. 
B) weather option. 
C) interest rate swap. 
D) convertible bond.

Question 10

Which of the following statements is (are)true regarding investment returns and the underwriting cycle?
I.Investment returns have no impact upon the underwriting cycle.
II.Investment returns can lengthen the duration of a soft market by offsetting underwriting losses.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 11

Which statement is (are)true concerning catastrophe models?
I.Businesses other than insurance companies use catastrophe models.
II. Catastrophe models are able to precisely predict disaster occurrences and loss values.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 12

Consolidation in the insurance industry is a continuing trend.One area where mergers and acquisitions frequently occur is between marketing intermediaries who represent insurance purchasers.These intermediaries are called

Accepted Answer

A) insurance adjusters. 
B) insurance agents. 
C) insurance underwriters. 
D) insurance brokers. 
A) insurance adjusters. 
B) insurance agents. 
C) insurance underwriters. 
D) insurance brokers.

Question 13

Which statement is (are)true regarding property and liability insurance market conditions?
I.Premiums are high when the insurance market is "hard."
II.Underwriting standards are tight when the insurance market is "soft."

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 14

Last year,XYZ Insurance Company had a combined ratio of 102.4 and lost $10.2 million on the insurance that it sold.The company,however,was required to pay income taxes.The best explanation for this apparent contradiction is that XYZ offset its underwriting loss with

Accepted Answer

A) increased loss reserves. 
B) investment income. 
C) increased loss adjustment expenses. 
D) unearned premiums. 
A) increased loss reserves. 
B) investment income. 
C) increased loss adjustment expenses. 
D) unearned premiums.

Question 15

Which statement is (are)true with respect to enterprise risk management programs?
I.They address traditional property,liability,and personnel loss exposures.
II.They do not address financial risks.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 16

Which of the following is a financial derivative that derives value from specific insurable losses or from an index of values?

Accepted Answer

A) commodity futures contract 
B) credit default swap 
C) catastrophe bond 
D) insurance option 
A) commodity futures contract 
B) credit default swap 
C) catastrophe bond 
D) insurance option

Question 17

Which of the following statements is true regarding insurance market conditions and underwriting results?

Accepted Answer

A) A combined ratio greater than one (or 100 percent)indicates profitable underwriting. 
B) In a "soft" insurance market,more retention is used than in a "hard" insurance market. 
C) Insurance rates are high and underwriting standards are tight when the insurance market is "hard." 
D) Property and liability insurance premiums and underwriting standards do not fluctuate over time. 
A) A combined ratio greater than one (or 100 percent)indicates profitable underwriting. 
B) In a "soft" insurance market,more retention is used than in a "hard" insurance market. 
C) Insurance rates are high and underwriting standards are tight when the insurance market is "hard." 
D) Property and liability insurance premiums and underwriting standards do not fluctuate over time.

Question 18

Two buildings are located close together at a production facility.The probability that either of these buildings will experience a fire loss is 4 percent.However,if one building has a fire,the probability that the second building will have a fire is 60 percent.What is the probability that both buildings will have a fire?

Accepted Answer

A) 1)6 percent 
B) 2)4 percent 
C) 8)0 percent 
D) 64.0 percent 
A) 1)6 percent 
B) 2)4 percent 
C) 8)0 percent 
D) 64.0 percent

Question 19

RST Company has production facilities in Salt Lake City and Cleveland.The probability that in any given year a fire will damage the production facility in Salt Lake City is 5 percent.The probability that in any given year a fire will damage the Cleveland production facility is 4 percent.What is the probability that BOTH production facilities will be damaged by fire in any given year?

Accepted Answer

A) 0)20 percent 
B) 2)00 percent 
C) 4)50 percent 
D) 9)00 percent 
A) 0)20 percent 
B) 2)00 percent 
C) 4)50 percent 
D) 9)00 percent

Question 20

Some events cannot occur together because the occurrence of one event makes the occurrence of the second event impossible.Such events are called

Accepted Answer

A) dependent events. 
B) independent events. 
C) conditional events. 
D) mutually exclusive events. 
A) dependent events. 
B) independent events. 
C) conditional events. 
D) mutually exclusive events.

Exam 4: Advanced Topics in Risk Management

A computerized data base that permits risk managers to store and analyze risk management data is called a

A large property and liability insurance company merged with a bank and then acquired a stock brokerage company.This type of merger and acquisition activity is categorized as

Insurance Brokerage Company uses a computer-based method of estimating the losses its clients will suffer if a severe storm or earthquake occurs.This method of estimating losses is called

Which of the following statements is (are)true with regard to the use of technology in risk management programs? I.Risk management Intranets are networks intended for an internal audience. II.Risk management information systems can be used to store and track workers compensation claims data.

A table showing losses that could occur and the corresponding chance that each loss could occur is called a(n)

The process of determining which set of investments in plant and equipment to undertake is called

The relative level of surplus in the insurance industry is called the industry's

Which of the following statements is (are)true regarding investment returns and the underwriting cycle? I.Investment returns have no impact upon the underwriting cycle. II.Investment returns can lengthen the duration of a soft market by offsetting underwriting losses.

Which statement is (are)true concerning catastrophe models? I.Businesses other than insurance companies use catastrophe models. II. Catastrophe models are able to precisely predict disaster occurrences and loss values.

Consolidation in the insurance industry is a continuing trend.One area where mergers and acquisitions frequently occur is between marketing intermediaries who represent insurance purchasers.These intermediaries are called

Which statement is (are)true regarding property and liability insurance market conditions? I.Premiums are high when the insurance market is "hard." II.Underwriting standards are tight when the insurance market is "soft."

Last year,XYZ Insurance Company had a combined ratio of 102.4 and lost $10.2 million on the insurance that it sold.The company,however,was required to pay income taxes.The best explanation for this apparent contradiction is that XYZ offset its underwriting loss with

Which statement is (are)true with respect to enterprise risk management programs? I.They address traditional property,liability,and personnel loss exposures. II.They do not address financial risks.

Which of the following is a financial derivative that derives value from specific insurable losses or from an index of values?

Which of the following statements is true regarding insurance market conditions and underwriting results?

Some events cannot occur together because the occurrence of one event makes the occurrence of the second event impossible.Such events are called

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Health-Care Reform; Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Homeowners Insurance,section I

Homeowners Insurance,section II

Auto Insurance

Auto Insurance and Society

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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