Exam 4: Enterprise Risk Management and Related Topics

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

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?

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 is (are) true with respect to the time value of money? I.Money received today is worth more than the same amount of money received in the future. II.The present value of a future amount is greater than the future amount.

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

Which of the following statements is (are) true regarding the net present value of a capital investment? I.Net present value does not consider time value of money. II.A positive net present value represents an increase in value to the firm.

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.

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.

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

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

A bank stores depositor data electronically. The data include financial account values, social security numbers, and other information. An outside party was able to gain access to the bank's customer data through unauthorized access to the bank's computer system. The outside party was able to steal money from the accounts and to sell customer data, including social security numbers, to others. This scenario illustrates

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.

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

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 a lump sum 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)

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

Calculating the present value of a future amount is called

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

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

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