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WorksheetsRisk Management (Test A)
Total questions: 25
Worksheet time: 50mins
The probability that an event that causes a loss will occur
Speculative Risk
Adverse selection
Chance of Loss
Self Insurance
Characteristics of the legal or regulatory system that increase the frequency or severity of loss
A special form of planned retention by which part or all of a given loss exposure is retained by the firm
A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden
Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims
The risk of being financially responsible for damage to another entity(3rd Party)
Legal Hazard
Characteristics of the legal or regulatory system that increase the frequency or severity of loss
A special form of planned retention by which part or all of a given loss exposure is retained by the firm
A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden
Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims
The risk of being financially responsible for damage to another entity(3rd Party)
Moral Hazard
Characteristics of the legal or regulatory system that increase the frequency or severity of loss
A special form of planned retention by which part or all of a given loss exposure is retained by the firm
A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden
Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims
The risk of being financially responsible for damage to another entity(3rd Party)
Liability risks
Characteristics of the legal or regulatory system that increase the frequency or severity of loss
A special form of planned retention by which part or all of a given loss exposure is retained by the firm
A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden
Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims
The risk of being financially responsible for damage to another entity(3rd Party)
Pure Risk
Characteristics of the legal or regulatory system that increase the frequency or severity of loss
A special form of planned retention by which part or all of a given loss exposure is retained by the firm
A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden
Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims
The risk of being financially responsible for damage to another entity(3rd Party)
Death or disability of key employees
Retirement or unemployment exposures
Personal risks
Captive insurer
Indemnification
Human Resources Loss Exposures
Avoidance - don't do the risky activity
Prevention - reduce frequency (Ex Alarms, bike chains)
Reduction - reduce severity after loss occurs (helmets, seat belts, sprinklers, hurricane proofing home)
Risk Control
Moral Hazard
Active retention
Loss exposure
Carelessness or indifference to loss because of the existence of insurance
Ex: leave car unlocked because it is worth more stolen, etc.
Types of personal risks management
Passive retention
Morale (Attitudinal) Hazard
Economically feasible
A situation in which profit or loss is possible
Ex: Stock market, commodities, gambling
Active retention
Speculative risk
Hedging
Subjective probability
Uncertainty based on a person's mental condition or state of mind → Objective probability
True
False
Defective products
Environmental pollution → Liability Loss Exposures
True
False
A larger standard deviation indicates greater risk → Standard Deviation
True
False
Buildings, equipment, inventory, vehicles → Property Loss Exposures
True
False
The relative variation of actual loss from expected loss → Subjective Risk
True
False
Role of insurer Capital
- Poportional (pro-rata) percentage split
- Excess
- Treaty: as long as certain # is insured, then losses split this way
- Facultative: negotiated by two companies one on one
-reduces probability of insolvency
-acts as a cushion-as correlation increases, variance increases, so probability of insolvency increases
-policy holders are residual claimants
-have limited liability
-cannot raise capital by issuing equity (selling stock)
Reinsurance policy types
- Proportional (pro-rata) percentage split
- Excess
- Treaty: as long as certain # is insured, then losses split this way
- Facultative: negotiated by two companies one on one
-policy holders are residual claimants
-have limited liability-cannot raise capital by issuing equity (selling stock)
-reduces probability of insolvency
-acts as a cushion-as correlation increases, variance increases, so probability of insolvency increases
Mutual Insurer company
- Proportional (pro-rata) percentage split
- Excess
- Treaty: as long as certain # is insured, then losses split this way
- Facultative: negotiated by two companies one on one
-reduces probability of insolvency
-acts as a cushion-as correlation increases, variance increases, so probability of insolvency increases
-policy holders are residual claimants
-have limited liability
-cannot raise capital by issuing equity (selling stock)
Lower variability of claim costs by
-diversifying accross geographical areas (i.e. not all in one flood plane)
-across lines of business
investment in an insurer
underwriting
liabilities
insurer capital
Who holds more capital life insurance or property insurance
Risk of Assets and correlation of assets and liabilities (life insurance in mostly bonds)
Lowers the probability of insolvency; improves contract terms, protects value
life insurance
Benefit to owners to adding capital
Risk of Assets and correlation of assets and liabilities (life insurance in mostly bonds)
Lowers the probability of insolvency; improves contract terms, protects value
life insurance
Other factors (other than capital) affecting insolvency
Risk of Assets and correlation of assets and liabilities (life insurance in mostly bonds)
Lowers the probability of insolvency; improves contract terms, protects value
life insurance
Type of differences between investment in an insurer and a mutual fund as listed below, except:
Opportunity costs
Agency costs
Correlation of insurer liabilities with investors' other assets
Underpricing costs
Market Value of securities etc.
Insurer capital
Liabilities
Underwriting
Assets
Payments that the insurer promised to make for policies already sold out in the future
The MV of assets
The MV of liabilities
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