Question 1

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

Question 2

All of the following are benefits that may accrue to businesses that adopt an enterprise risk management (ERM)program EXCEPT

Accepted Answer

A)  improved strategic decision making.
B)  increased value of the organization.
C)  increased cost of risk.
D)  assurance of compliance with regulatory and legal requirements. C

Question 3

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)

Accepted Answer

A)  catastrophe bond.
B)  weather option.
C)  interest rate swap.
D)  convertible bond. B

Question 4

A table showing losses that could occur and the corresponding chance that each loss could occur is called a(n)

Accepted Answer

A)  underwriting cycle.
B)  capital budget.
C)  loss distribution.
D)  risk map.

Question 5

Which of the following statements is true concerning the successful adoption of an enterprise risk management program?
I.The management team must be committed to the success of the ERM program.
II.Communication about the ERM program is crucial during the implementation stage.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 6

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

Accepted Answer

A)  underwriting by exception method.
B)  business cycle.
C)  underwriting cycle.
D)  account underwriting method.

Question 7

Jessica is the risk manager of a large technology company.To help better understand the risks that her company faces,Jessica prepared a chart listing all of the risks along with pertinent information about each risk.The chart shows the risk category,who is primarily responsible for the risk,the maximum possible and maximum probable loss,the risk severity score untreated and the risk severity score after risk management measures are applied.The chart Jessica prepared is called a

Accepted Answer

A)  risk management information system.
B)  risk register.
C)  risk management matrix.
D)  risk map.

Question 8

A comprehensive risk management program that addresses all of an organization's risks,includes hazard risks,financial risks,strategic risks,and operational risks is called a(n)

Accepted Answer

A)  traditional risk management plan.
B)  pure risk management plan.
C)  speculative risk management plan.
D)  enterprise risk management plan.

Question 9

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

Question 10

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 11

Which of the following statements about enterprise risk management (ERM)is (are)true?
I.A goal of ERM is to have risks treated in compartmentalized silos.
II.There may be resistance to the implementation of an ERM program.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 12

Which of the following is a financial derivative that derives value from specific insurable losses or from an index of values?

Accepted Answer

A)  commodity futures contract
B)  corporate bond
C)  catastrophe bond
D)  insurance option

Question 13

One operational risk that is considered in an enterprise risk management program is risk that develops due to the use of technology by the organization.This risk is called

Accepted Answer

A)  systems risk.
B)  process risk.
C)  financial risk.
D)  strategic risk.

Question 14

One category of risks that are considered in an enterprise risk management program is risks that are external to the organization.Such risks include demographic trends,acts of competitors,and industry sector trends.This risk is

Accepted Answer

A)  systems risk.
B)  strategic risk.
C)  operational risk
D)  hazard risk.

Question 15

ABC Company in considering a loss control investment.The project will cost $100,000.It will generate an after-tax net cash flow of $60,000 one year after investment and an after-tax net cash flow of $60,000 two years after investment.The present value of $1 received one year from today assuming a 6 percent rate is .9434.The present value of $1 received two years from today assuming a 6 percent interest rate is .8900.Assuming a discount rate of 6 percent,what is the net present value (NPV)of this project?

Accepted Answer

A)  $10,004
B)  $13,195
C)  $16,604
D)  $20,000

Question 16

Which statement is (are)true with respect to enterprise risk management programs?
I.They address traditional property,liability,and personnel loss exposures.
II.They do not address financial risks.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 17

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.

Question 18

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.

Question 19

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 20

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

Accepted Answer

A)  increased loss reserves.
B)  investment income.
C)  increased loss adjustment expenses.
D)  unearned premiums.

Exam 4: Enterprise Risk Management

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

All of the following are benefits that may accrue to businesses that adopt an enterprise risk management (ERM) program EXCEPT

A table showing losses that could occur and the corresponding chance that each loss could occur is called a(n)

Which of the following statements is true concerning the successful adoption of an enterprise risk management program? I.The management team must be committed to the success of the ERM program. II.Communication about the ERM program is crucial during the implementation stage.

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

A comprehensive risk management program that addresses all of an organization's risks,includes hazard risks,financial risks,strategic risks,and operational risks is called a(n)

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.

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 statements about enterprise risk management (ERM) is (are) true? I.A goal of ERM is to have risks treated in compartmentalized silos. II.There may be resistance to the implementation of an ERM program.

Which of the following is a financial derivative that derives value from specific insurable losses or from an index of values?

One operational risk that is considered in an enterprise risk management program is risk that develops due to the use of technology by the organization.This risk is called

One category of risks that are considered in an enterprise risk management program is risks that are external to the organization.Such risks include demographic trends,acts of competitors,and industry sector trends.This risk is

Which statement is (are) true with respect to enterprise risk management programs? I.They address traditional property,liability,and personnel loss exposures. II.They do not address financial risks.

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

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

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.

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