Question 1

Which of the following statements about the loss severity distribution is correct?

Accepted Answer

A)  The loss severity distribution estimates the average size of an expected loss. 
B)  The loss severity distribution can be used to estimate the average severity of loss if a loss occurs. 
C)  The loss severity distribution represents the number of losses likely to happen. 
D)  The loss severity distribution is measured as a percentage of loss. 
A)  The loss severity distribution estimates the average size of an expected loss. 
B)  The loss severity distribution can be used to estimate the average severity of loss if a loss occurs. 
C)  The loss severity distribution represents the number of losses likely to happen. 
D)  The loss severity distribution is measured as a percentage of loss.

Question 2

Homogeneous Risk Characteristics refer to the concept that the parties in a pool exhibit the same level of risk.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about the risk reduction is correct?

Accepted Answer

A)  When the probability distribution is non-normal, risk cannot be reduced by increasing the pool size. 
B)  After the pool size has reached 36, risk can no longer be reduced any further. 
C)  Risk is reduced as the pool size increases. 
D)  All of the above are correct. 
A)  When the probability distribution is non-normal, risk cannot be reduced by increasing the pool size. 
B)  After the pool size has reached 36, risk can no longer be reduced any further. 
C)  Risk is reduced as the pool size increases. 
D)  All of the above are correct.

Question 4

Why is risk reduced by creating a large pool of exposure units?

Accepted Answer

Risk is diversified away by cr

Question 5

The probability distribution associated with the role of a die:

Accepted Answer

A)  can be used to forecast the risk of restaurant law suits 
B)  is a non-normal distribution 
C)  is known in advance 
D)  can not be identified 
A)  can be used to forecast the risk of restaurant law suits 
B)  is a non-normal distribution 
C)  is known in advance 
D)  can not be identified

Question 6

If the Average Loss Severity is $925 and the Average Loss Frequency is 0.17, what is the Average Loss?

Accepted Answer

A)  $183.78 
B)  $157.25 
C)  $5,441.18 
D)  There is not enough information to calculate the Average Loss. 
A)  $183.78 
B)  $157.25 
C)  $5,441.18 
D)  There is not enough information to calculate the Average Loss.

Question 7

The frequency with which losses occur and their severity are two key statistical measures for evaluating loss exposure.

Accepted Answer

A) True 
 B)False

Question 8

A insured person will generally collect on his insurance policy when:

Accepted Answer

A)  he caused the event 
B)  the event was outside his control 
C)  the event affected everybody else also, for example a war 
D)  the event was statistically dependent upon his actions 
A)  he caused the event 
B)  the event was outside his control 
C)  the event affected everybody else also, for example a war 
D)  the event was statistically dependent upon his actions

Question 9

The Expected Value of a probability distribution is calculated by:

Accepted Answer

A)  adding up all expected losses 
B)  adding up all expected losses and dividing the result by the number of observations 
C)  multiplying the expected losses with their probability and dividing the result by the number of observations 
D)  multiplying the expected losses with their probability and calculating the sum of all outcomes 
A)  adding up all expected losses 
B)  adding up all expected losses and dividing the result by the number of observations 
C)  multiplying the expected losses with their probability and dividing the result by the number of observations 
D)  multiplying the expected losses with their probability and calculating the sum of all outcomes

Question 10

How do insurers use a confidence interval?

Accepted Answer

A probability distribution does not guar

Question 11

A Risk Manager needs more information than just the loss frequency and loss severity to assess the risk exposure of their firm.

Accepted Answer

A) True 
 B)False

Question 12

The standard deviation measures the degree to which the actual losses from a loss distribution deviate from the expected loss.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would not be a reason influencing whether or not an insurance company provides insurance?

Accepted Answer

A)  The size of the pool 
B)  The current market interest rate 
C)  Whether or not the losses are independently distributed 
D)  Whether or not the losses can financially ruin the insurance company 
A)  The size of the pool 
B)  The current market interest rate 
C)  Whether or not the losses are independently distributed 
D)  Whether or not the losses can financially ruin the insurance company

Question 14

The range of values found by adding and subtracting three standard deviations to the mean of the random variable accounts for 99.74 percent of the area under the curve.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements about the exposure units and risk pooling is not correct?

Accepted Answer

A)  Exposure units should not be exposed to risk in order to be added to the risk pool. 
B)  Risk pooling is the ability to reduce the risk of an exposure unit by creating more homogenous pool of units. 
C)  Risk pooling works best if the number of exposure units is small. 
D)  Risk pooling is the ability to reduce the risk of an exposure unit by making more accurate predictions about a large pool of units. 
A)  Exposure units should not be exposed to risk in order to be added to the risk pool. 
B)  Risk pooling is the ability to reduce the risk of an exposure unit by creating more homogenous pool of units. 
C)  Risk pooling works best if the number of exposure units is small. 
D)  Risk pooling is the ability to reduce the risk of an exposure unit by making more accurate predictions about a large pool of units.

Question 16

A random variable:

Accepted Answer

A)  is a variable whose future value is known with certainty 
B)  can be given a probability of occurrence by the risk manager 
C)  is completely outside the control of the risk manager 
D)  is not measurable 
A)  is a variable whose future value is known with certainty 
B)  can be given a probability of occurrence by the risk manager 
C)  is completely outside the control of the risk manager 
D)  is not measurable

Question 17

Which of the following statements about convolution is not correct?

Accepted Answer

A)  Regardless of the number of possible outcomes, risk managers still perform convolution calculations by hand. 
B)  Convolution uses joint probabilities to estimate the combined effects of frequency and severity. 
C)  The outcome of the calculation using convolution will be expressed in dollars. 
D)  The total probability of all loss combinations have to add up to 1. 
A)  Regardless of the number of possible outcomes, risk managers still perform convolution calculations by hand. 
B)  Convolution uses joint probabilities to estimate the combined effects of frequency and severity. 
C)  The outcome of the calculation using convolution will be expressed in dollars. 
D)  The total probability of all loss combinations have to add up to 1.

Question 18

When the variance of a probability distribution is $81,000 the risk equals:

Accepted Answer

A)  $900 
B)  $6,561,000,000 
C)  $284.61 
D)  There is not enough information to calculate the risk. 
A)  $900 
B)  $6,561,000,000 
C)  $284.61 
D)  There is not enough information to calculate the risk.

Question 19

The variance is independent of the shape of the probability distribution.

Accepted Answer

A) True 
 B)False

Question 20

What are the requirements for an "ideally" insurable group of exposures?

Accepted Answer

There are four requirements, from the po

Exam 3: Risk Assessment and Pooling

Which of the following statements about the loss severity distribution is correct?

Homogeneous Risk Characteristics refer to the concept that the parties in a pool exhibit the same level of risk.

Which of the following statements about the risk reduction is correct?

Why is risk reduced by creating a large pool of exposure units?

The probability distribution associated with the role of a die:

If the Average Loss Severity is $925 and the Average Loss Frequency is 0.17, what is the Average Loss?

The frequency with which losses occur and their severity are two key statistical measures for evaluating loss exposure.

A insured person will generally collect on his insurance policy when:

The Expected Value of a probability distribution is calculated by:

How do insurers use a confidence interval?

A Risk Manager needs more information than just the loss frequency and loss severity to assess the risk exposure of their firm.

The standard deviation measures the degree to which the actual losses from a loss distribution deviate from the expected loss.

Which of the following would not be a reason influencing whether or not an insurance company provides insurance?

The range of values found by adding and subtracting three standard deviations to the mean of the random variable accounts for 99.74 percent of the area under the curve.

Which of the following statements about the exposure units and risk pooling is not correct?

A random variable:

Which of the following statements about convolution is not correct?

When the variance of a probability distribution is $81,000 the risk equals:

The variance is independent of the shape of the probability distribution.

What are the requirements for an "ideally" insurable group of exposures?

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

Filters