Exam 4: Advanced Topics in Risk Management

Which of the following statements concerning the securitization of risk is (are)true? I.Securitization increases the capacity of the insurance industry. II.Securitization can be used to protect against catastrophic loss.

Hedge Fund Company offers a mutual fund to investors.Fund managers are concerned about fund volatility.They analyzed the fund to determine the worst loss likely to occur in a calendar quarter,assuming a 90 percent level of confidence.The worst probable loss is known as the fund's

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 AT LEAST ONE of the production facilities will be damaged by fire in any given year?

Which of the following statements regarding terrorism insurance is (are)true? I.There is a federal backstop if terrorism claims are catastrophic. II.Private insurers market terrorism insurance.

Terrorists attacked the World Trade Center on September 11,2001.The attack simultaneously created large losses for life insurers,property insurers,workers compensation insurers,health insurers,and liability insurers.What name is given to an event that simultaneously creates large losses in several lines of insurance?

Which of the following statements about the scope of risk management is (are)true? I.Traditionally,risk management was limited in scope to speculative loss exposures. II.In the 1990s,some businesses began to expand the scope of risk management to include financial risks.

Regional Airline (RA)spends millions of dollars each year on jet fuel.The company also has significant liability exposures.RA can retain a large portion of its liability exposure if fuel costs are low.The company can pay high fuel costs if retained liability losses are low.RA cannot,however,absorb both high fuel costs and high retained liability claims.RA's insurer designed an insurance program where the insurer pays only if both contingencies (high fuel costs and high retained liability claims)occur.The contract the insurer designed is called a(n)

Millie is risk manager of JKL Company.She is considering an investment in a loss control project.The project will cost $40,000.Assuming a 10 percent discount rate,the present value of the future net cash flows that this project will generate is $60,000.What is the net present value (NPV)of this project?

A company has a fleet of 200 vehicles.On average,50 vehicles per year experience property damage.What is the probability that any vehicle will be damaged in any given year?

The transfer of insurable risk to the capital markets through the creation of a financial instrument is called

LMN Insurance Company is concerned about its exposure to hurricane losses for property risks it insured on the Gulf Coast.LMN borrowed money from investors by issuing financial securities.LMN promised to repay the money it borrowed with interest if hurricane losses do not exceed a specified level.If hurricane losses exceed the specified level,LMN will repay less than it borrowed and use the extra money to fund hurricane losses.The securities that LMN issued are

A method of characterizing the relationship between two or more variables and then using the characterization to make a prediction is called

An integrated risk management program is a risk management program which combines

Reasons to adopt an enterprise risk management plan include all of the following EXCEPT

The property and liability insurance industry is characterized by a repetitive pattern of loose underwriting standards with low premiums followed by tight underwriting standards with high premiums.This repetitive pattern is called the

Jane is risk manager of ABC Manufacturing Company.She is trying to decide whether to self-insure her company's workers compensation exposure or to purchase insurance.Jane would like to use regression analysis to predict the number of workers compensation claims that will occur next year.The number of claims will be the dependent variable in the regression.All of the following would be reasonable independent variables to use EXCEPT

Uncertainty pertaining to the organization's goals and objectives and the organization's strengths,weaknesses,opportunities,and threats is called

A comprehensive risk management program that addresses an organization's pure risks,speculative risks,strategic risks,and operational risks is called a(n)

Which of the following was a consequence of passage of the Financial Modernization Act (Gramm-Leach-Bliley)?

The terrorism risk in the United States