Question 1

A grid charting the potential frequency and severity of losses 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. D

Question 2

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.

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 C

Question 3

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 4

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

Accepted Answer

A)  operational risk. 
B)  strategic risk. 
C)  subjective risk. 
D)  pure risk. 
A)  operational risk. 
B)  strategic risk. 
C)  subjective risk. 
D)  pure risk.

Question 5

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 6

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?

Accepted Answer

A)  speculative loss 
B)  clash loss 
C)  retroactive loss 
D)  consequential loss 
A)  speculative loss 
B)  clash loss 
C)  retroactive loss 
D)  consequential loss

Question 7

Which of the following is a demographic factor that has increased losses from climate change in the United States?

Accepted Answer

A)  The increasing life expectancy in the United States. 
B)  The increasing population in Southern states such as Florida, Texas, and South Carolina. 
C)  The declining fertility rate (live births per women of child-bearing age) in the United States. 
D)  The growth in the number of families living below the poverty line in the United States. 
A)  The increasing life expectancy in the United States. 
B)  The increasing population in Southern states such as Florida, Texas, and South Carolina. 
C)  The declining fertility rate (live births per women of child-bearing age) in the United States. 
D)  The growth in the number of families living below the poverty line in the United States.

Question 8

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)

Accepted Answer

A)  double indemnity rider. 
B)  double trigger option. 
C)  multiple protection policy. 
D)  other insurance provision. 
A)  double indemnity rider. 
B)  double trigger option. 
C)  multiple protection policy. 
D)  other insurance provision.

Question 9

When announcing that an enterprise risk management program would be implemented at XYZ Company, the president of the company observed, "We must overcome the silo mentality for the program to be successful." The "silo mentality" refers to

Accepted Answer

A)  over-emphasis on pure risks and ignoring speculative risks. 
B)  using too much of one risk treatment measure and ignoring other risk treatment methods. 
C)  focusing narrowly on one area and not viewing risk holistically. 
D)  everyone assuming someone else is responsible for managing a risk and no one taking leadership. 
A)  over-emphasis on pure risks and ignoring speculative risks. 
B)  using too much of one risk treatment measure and ignoring other risk treatment methods. 
C)  focusing narrowly on one area and not viewing risk holistically. 
D)  everyone assuming someone else is responsible for managing a risk and no one taking leadership.

Question 10

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

Accepted Answer

A)  probability distribution. 
B)  catastrophe model. 
C)  risk map. 
D)  risk management information system. 
A)  probability distribution. 
B)  catastrophe model. 
C)  risk map. 
D)  risk management information system.

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

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

Accepted Answer

A)  to increase earnings volatility. 
B)  to treat risks facing the business in a more holistic way. 
C)  to increase net income. 
D)  to gain an advantage over competitors. 
A)  to increase earnings volatility. 
B)  to treat risks facing the business in a more holistic way. 
C)  to increase net income. 
D)  to gain an advantage over competitors.

Question 13

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 14

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 15

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?

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  25 percent 
D)  50 percent 
A)  10 percent 
B)  20 percent 
C)  25 percent 
D)  50 percent

Question 16

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 17

The first step in the enterprise risk management process is

Accepted Answer

A)  risk analysis. 
B)  implementing and monitoring the program. 
C)  risk identification. 
D)  selection of risk treatment measures. 
A)  risk analysis. 
B)  implementing and monitoring the program. 
C)  risk identification. 
D)  selection of risk treatment measures.

Question 18

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

Accepted Answer

A)  risk management information system. 
B)  financial risk management plan. 
C)  speculative risk management plan. 
D)  enterprise risk management plan. 
A)  risk management information system. 
B)  financial risk management plan. 
C)  speculative risk management plan. 
D)  enterprise risk management plan.

Question 19

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

Accepted Answer

A)  coefficient of risk. 
B)  securitization of risk. 
C)  financial risk management. 
D)  enterprise risk management. 
A)  coefficient of risk. 
B)  securitization of risk. 
C)  financial risk management. 
D)  enterprise risk management.

Question 20

A risk manager analyzed fleet accident data to help determine which loss control measures would provide the greatest safety incentives for drivers. Examining data to generate information that will help make more informed decisions is called

Accepted Answer

A)  predictive analytics. 
B)  catastrophe modeling. 
C)  sensitivity analysis. 
D)  data mining. 
A)  predictive analytics. 
B)  catastrophe modeling. 
C)  sensitivity analysis. 
D)  data mining.

Exam 4: Enterprise Risk Management and Related Topics

A grid charting the potential frequency and severity of losses 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

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

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

Which of the following is a demographic factor that has increased losses from climate change in the United States?

When announcing that an enterprise risk management program would be implemented at XYZ Company, the president of the company observed, "We must overcome the silo mentality for the program to be successful." The "silo mentality" refers to

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.

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

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

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?

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

The first step in the enterprise risk management process is

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

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

A risk manager analyzed fleet accident data to help determine which loss control measures would provide the greatest safety incentives for drivers. Examining data to generate information that will help make more informed decisions is 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

Auto Insurance

Auto Insurance (continued)

Homeowners Insurance, Section I

Homeowners Insurance, Section II

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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