Exam 4: Enterprise Risk Management

Palmer Polymers is changing from a traditional risk management program to an enterprise risk management program.As a first step,the risk manager determined all the risks that the organization faces.Next,she created a grid with loss frequency on the x-axis and loss severity on the y-axis.Then she plotted all of the loss exposures based on frequency and severity.The grid and the plotted loss exposures are called a

The total exposure that an organization is willing to accept,given the risk and return trade-off for the portfolio of risk the organization faces,is the organization's

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

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 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?

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

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

Which of the following statements is (are)true with regard to probability analysis? I.If two events are independent,the occurrence of one event does not affect the occurrence of the second event. II.If two events are dependent,the occurrence of one event affects the occurrence of the second event.

Calculating the present value of a future amount is called

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)

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.

Organizations are answerable to various regulatory agencies and to their owners.Required filings with regulatory agencies and communications with the owners are considered in an enterprise risk management (ERM)program.The risk associated with regulatory filings and required communications is called

West Coast Insurance writes property and liability insurance in California,Oregon,and Washington.These states are all susceptible to earthquakes.To help determine how much reinsurance to purchase,West Coast Insurance hired an organization to use a computer algorithm to estimate what its insured losses would be if a severe earthquake occurred.West Coast Insurance based its purchase of reinsurance on the loss estimates.This scenario illustrates using

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?

Businesses face several operational risks.One operational risk is the risk associated with deviations from the organization's regular practices and procedures.This risk is called

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

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

Which of the following is a financial risk that may be faced by a business organization?

One category of risk that is considered in an enterprise risk management program is the risk associated with an organization's property,liability,and personnel-related loss exposures.This risk is called