RMIN 200 Chapter 4

Which one of the following is correct regarding captive programs?

A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer."

"Which one of the following risk financing measures can reduce an organization's cost of risk over time, but has significant start-up costs relative to the other measures?"

A captive plan

"Which one of the following planned retention funding measures recognizes in advance the potential for loss, and supports that potential by allocating cash, securities, or other liquid assets to meet obligations?"

A funded reserve

Which one of the following is a noninsurance risk transfer measure?

A hold-harmless agreement

Current expensing of losses as a planned retention funding measure would be most appropriate for funding which one of the following?

An auto physical damage deductible

Which one of the following statements is correct with respect to retrospective rating plans?

An organization must have a substantial insurance premium to benefit from retrospective rating.

The principal advantage of risk transfer measures is that they

Reduce exposure to large losses.

Which one of the following is an advantage of risk transfer that appears to be valued by investors?

Reducing cash flow variability

Which one of the following statements is correct with respect to retention s ability to meet risk financing goals?

Retention enables an organization to manage its cost of risk.

Which one of the following statements is correct with respect to risk transfer measures?

Most risk transfer measures limit the potential loss amounts being transferred.

Which one of the following statements is correct with respect to transfer s ability to meet risk financing goals?

The primary benefit of transfer is certainty regarding the ability to pay losses.

Which one of the following is considered the primary advantage of using retention as a risk financing technique?

Cost savings

Which one of the following statements is correct with respect to self-insurance?

It is often used to cover workers' compensation and other loss exposures that have claim payments that extend over time.

Which one of the following statements is true?

It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations.

"Which one of the following planned retention measures is appropriate for funding losses with a low expected value, but becomes less advisable as the expected value of losses gets larger?"

Current expensing of losses

Which one of the following planned retention funding measures is the least formal and the least expensive to administer?

Current expensing of losses

Which one of the following statements is true?

"As an organization s retention level increases, so does the level of liquidity required."

Insurance products are often designed around which one of the following types of loss exposures?

"Low-frequency, high-severity"

Which one of the following types of loss exposures lends itself to unfunded retention plans?

"Low-frequency, low-severity"

An advantage that retention offers an individual or organization is

Incentive for risk control.