ARM 402 Exam Practice

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One example of an indirect cost incurred as a result of an underlying liability loss is A. Verdicts in lawsuits. B. Expenses of complying with an injunction. C. Loss of reputation. D. Legal expenses.

One of the requirements for a contract to be enforceable is A. Imposed responsibility. B. Written confirmation. C. Legal purpose. D. Reciprocity.

One reason that primary insurers purchase reinsurance for catastrophes is to A. Satisfy regulatory requirements for reinsurance. B. Reduce policyholders' surplus to acceptable levels. C. Stabilize insurer earnings. D. Increase large-line capacity.

A captive insurer A. Collects premiums, issues policies, and pays covered losses. B. Usually insures medium to high severity of losses. C. Acts as any other insurer but does not fund losses. D. Does not have substantial administrative requirements.

A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specified future date and price is a A. Forward Contract

A court can order a party to refrain from doing a particular activity. This is called A. An injunction. B. An invasion of privacy. C. A specific performance. D. A nuisance.

A distinctive design that legally identifies a product as belonging to a certain organization is a A. Trademark. B. Trade secret. C. Copyright. D. Patent.

Which one of the following risk control techniques might actually increase loss frequency? A. Separation B. Diversification C. Loss reduction D. Loss prevention

Which one of the following should address quality control issues if a trademark will be used on a product other than the trademark owner's own product? A. Licensing agreement B. Restrictive covenant C. Registration D. Notice

Which one of the following statements is true regarding the operation of retrospective rating plans? A. The adjusted premium under a retrospective rating plan is subject to a maximum amount and a minimum amount agreed to in the policy. B. In a retrospective rating plan, past loss experience is ignored for purposes of developing the standard premium. C. When a loss limit is selected, an insurer uses the ultimate value of losses to determine the retrospective rating insurance premium. D. Retrospective rating is the same as experience rating except that a retrospective plan has no maximum premium amount.

Which one of the following statements is true with regard to excess of loss reinsurance? A. Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance. B. Per risk excess of loss always applies to both property and liability insurance. C. Per policy excess of loss applies primarily to property insurance, and per risk excess of loss applies primarily to liability insurance. D. Per policy excess of loss applies to both property and liability insurance.

Which one of the following is correct with regard to an insurer's line and large-line capacity? A. Reinsurance is generally not used to increase insurers' large-line capacity. B. An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations. C. Large-line capacity is an insurer's ability to reinsure a larger proportion of its book of business. D. The specific characteristics of a loss exposure do not influence an insurer's line.

Which one of the following is the goal with strategic risk? A. The goal is to use information about strategic risks to make informed decisions that optimize the risk-reward ratio. B. The goal is to make sure that products and processes are done right. C. The goal is to remain solvent and cover the risk retained by the organization. D. The goal is to use information about strategic risks to eliminate negative risks and/or their consequences.

Which one of the following is true with regards to the IT operational classification risks? A. The classification of Availability includes the period of inaccessibility and any restoration period. B. The classification of Security includes the possibility that a data breach could result in the failure of an organization to meet its regulatory requirements. C. The classification of Compliance includes situations where the processes for handling data fails to meet an organization's goals. D. The classification of Performance includes the risk that systems, applications, or personnel will not perform at the level required to help an organization create new opportunities.

A practice or method used confidentially by an organization to gain a competitive advantage is A. A trade secret. B. Goodwill. C. A trademark. D. A patent.

A primary insurer uses reinsurance to A. Indemnify it for some or all of the financial consequences of certain loss exposures covered by the insurer's policies. B. Shift responsibility for claim handling to another insurance entity. C. Transfer all of its insurer's insurance risk to another insurance entity. D. Confirm the adequacy of the premiums it charges to its insureds.

A primary loss prevention measure for contractual liability is to have most contracts A. Reviewed by counsel before they are signed. B. Meet American Bar Association guidelines. C. Be oral rather than written. D. Reviewed by management before they are signed.

A rating plan that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period is A. A retrospective rating plan. B. A finite insurance rating plan. C. An occurrence rating plan. D. An experience modification plan.

A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods is A. An experience rating plan. B. A maximum premium rating plan. C. A retrospective rating plan. D. A finite insurance rating plan.

A replenishment of policyholders' surplus provided by the ceding commission paid to the primary insurer by the reinsurer is A. Surplus relief. B. A portfolio. C. The capacity ratio. D. Large-line capacity.

A risk control technique that reduces the frequency of a particular loss is A. Loss prevention. B. Loss reduction. C. Diversification. D. Duplication.

A risk control technique that reduces the severity of a particular loss is A. Loss reduction. B. Loss prevention. C. Duplication. D. Diversification.

A state wants to build a road through an environmentally-sensitive area. The area includes endangered flora and fauna, as well as wetlands. Build-Rite Construction expressed interest in the project, but is concerned about potential liability. Build-Rite agrees to build the road if the state assumes all responsibility for any liability arising out of the construction of the road. A state representative has signed-off on the contract, agreeing that the state will be responsible for all liability. This transfer of responsibility for fault illustrates which one of the following forms of noninsurance risk financing transfer? A. Broad form B. Limited form C. Nullification form D. Intermediate form

An organization wants to create a trademark for its line of products. Which one of the following risk control measures for trademarks should the organization use to avoid the possibility of infringing on someone else's trademark? A. Searches and watches B. Restrictive covenants C. Registration D. Notice

Anti-discrimination laws and corporate governance laws are examples of A. Statutes that impose legal liability on an organization. B. Statutes that do not impose liability on an organization. C. Legal interests that can be violated by torts. D. Legal interests that can be violated by contracts.

Any organization can self-insure its loss exposures, provided that A. The state in which it operates permits self-insurance plans. B. It documents its enterprise risk management program with the state insurance departments in the states in which it operates. C. Its estimated losses from physical hazards do not exceed a state-specified maximum. D. Its operations do not involve the manufacture or distribution of products intended for human consumption.

GBB Insurance Company is a publicly-traded stock company. Financial managers at GBB are concerned that if a large loss occurs, the company could be devastated. The company purchased some reinsurance. In addition, the company sold a put option to a pension fund. The option gives GBB the right to issue 500,000 shares of stock at $50 per share if a catastrophic loss occurs. This right to issue shares at a specified price if a large loss occurs is called A. A contingent capital arrangement. B. An insurance securitzation. C. A collateralized agreement. D. An insurance derivative.

Hanna is preparing her presentation for a meeting. She has a very specific objective which has been shared with the audience. Hanna wants to include several slides in her presentation because she has read that people tend to learn more from presentations that are accompanied by visual aids. Hanna should use the slides to do which one of the following? A. Emphasize key points B. Provide complex detailed graphics C. Keep her speaking to a minimum D. Detail as much content as possible

If a business dispute arises between companies who are domiciled in two different countries with dissimilar laws, one issue that must be considered is whether A. The chosen court has the right to hear the legal dispute. B. The dispute is subject to public or private international law. C. Both countries are General Agreement of Tariffs and Trade member countries. D. Either country has a priority trade agreement established.

If an organization directly securitized its income-producing assets without using a special purpose vehicle (SPV) as an intermediary, investors A. Must consider the overall credit risk of the organization. B. Should examine individual borrowers' payments to the organization. C. Should not consider the overall credit risk of the organization. D. Would avoid investing in the organization altogether.

In any legal dispute arising between parties from different countries, the most important issues are A. Comity and jurisdiction. B. The national origin of the parties and the location of the adjudication. C. Expropriation and precedent. D. The location of the disputed event and the existence of an applicable treaty.

Like domestic courts, courts deciding international cases must determine whether they have jurisdiction over the person or entity and over the subject matter and whether they have jurisdiction to A. Render the particular judgment in the case. B. Revoke rights or benefits of disputing parties. C. Apply injunctions, fines, tariffs or other penalties. D. Establish precedent.

Maxwell Company has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Maxwell arranged to lease identical equipment at another location so that it could use the equipment in the event of a disaster at its location. Maxwell's lease of identical equipment at another location is an example of A. Duplication. B. Separation. C. Loss reduction. D. Diversification.

One advantage associated with contingent capital arrangements is that the A. Cost of funds is less than with insurance. B. Cost of risk retention is higher. C. Capital commitment fee is higher than an insurance premium. D. Cost of capital infusion will vary as conditions change.

One of the essential steps in selecting new operators for any motor vehicle is A. Finding prospects through advertising, pre-screening, and reviewing applications. B. Assuring that the operator's state of residence has lenient licensing standards. C. Providing training in traffic laws of the jurisdictions that the operators will be traversing. D. Rewarding outstanding performance or disciplining substandard performance.

One of the functions of reinsurance is to increase large-line capacity. Which one of the following best describes this function from the perspective of a primary insurer? A. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit B. To limit liability for a single loss that occurs over more than one policy period C. To withdraw from a market segment in a geographic area D. To reduce the financial consequences of a single catastrophic event that causes multiple losses

One reason that an organization might choose to protect an invention with a trade secret status rather than with a patent is that A. A patent requires disclosure of the details of the invention. B. A trade secret status provides a higher degree of protection than a patent. C. Theft of a trade secret is less likely than theft of a patent. D. The invention could be easily reproduced through reverse engineering.

Preventive controls assist the overall control environment of an organization by A. Reducing risk of unauthorized actions. B. Detecting errors or inconsistencies after they occur. C. Addressing reconciliation of accounting errors. D. Comparing different sets of data and investigating any differences.

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. Independent and not catastrophic. B. A large number of similar exposure units. C. Fortuitous. D. Definite and measurable.

Private international law involves disputes between individuals or corporations in different countries. Which one of the following issues does private international try to answer? A. Which laws apply to a situation? B. Who is exempt from the law? C. To whom does the law apply? D. Which country's laws most favor the plaintiff?

Punitive damages are intended to A. Punish the defendant. B. Compensate the defendant for medical expenses. C. Compensate the injured party for pain and suffering. D. Punish the plaintiff.

Reinsurers help primary insurers increase their large-line capacity by A. Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain. B. Providing high layers of insurance above the underlying limits. C. Supplementing primary insurers' earnings. D. Influencing regulations related to the maximum amount of insurance allowed.

Richard's investment portfolio consists of common stock issued by five large oil companies. Adding the common stock issued by which one of the following companies would most improve the portfolio's risk-return position? A. A discount retailer B. Another large oil company C. A natural gas company D. A small oil company

Self-contained excess liability policies A. Can create coverage gaps between excess and underlying layers. B. Typically cover in excess of an exhausted underlying aggregate limit. C. Contain a deductible specific to the policy. D. Have the same conditions as the underlying layer.

Strategy development is an important element of the strategic management process. Which one of the following statements is correct with respect to strategy development? A. Strategies should reflect an understanding of the business, including its identity, customers, and purpose. B. Whether a strategy will yield a return on investment in the form of profit or stock price is generally not a consideration. C. Normally, strategies are the same in all departments and at all levels within an organization. D. Managers typically do not consider the likelihood that personnel will support a strategy before implementing it.

Technological advancements have affected all risk treatment techniques. Which two techniques have been impacted most? A. Modification and transfer B. Retention and avoidance C. Avoidance and modification

Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which one of the following types of loss exposures? A. Automobile B. Property C. Workers compensation D. Business income

Which one of the following can limit liability if they are posted so that they are physically apparent, expressed in clear terms, in language the other party understands, and reasonable in extent? A. Unilateral notices B. Hold-harmless agreements C. Waivers D. Exculpatory agreements

Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment? A. Systems B. External events C. People D. Process

Which one of the following is a consequence that would likely result from legal liability arising from a breach of contract? A. Specific performance B. Sanction C. Ordered restriction D. Indirect loss

Which one of the following is a legal term for waiting too long to assert a legal right? A. Laches B. Infringement C. Time-barred D. Estoppel

Which one of the following statements is correct regarding the master policy in a controlled master program? A. The master policy covers all of the insured's international operations on a blanket basis helping to prevent a coverage gap. B. The master policy covers the foreign subsidiaries of a business and is purchased in the local insurance market of the foreign country. C. The master policy is an admitted policy purchased in the country where the parent company is domiciled. D. The master policy provides coverage for excess losses for the entire multinational portfolio.

Which one of the following vehicle monitoring systems helps drivers to maintain safe following distances, by alerting them of slow-moving traffic, stalled or stopped vehicles ahead of them, and merging vehicles? A. Forward collision warning systems (FCWS) B. Lane departure warning systems (LDWS) C. Rear-mounted vehicle cameras D. Satellite communication with global positioning system (GPS)

"The contractor agrees to indemnify and hold harmless the owner against claims, damages, bodily injury, or property damage arising out of the contractor's work and caused by any act of omission of the contractor, his agents, and his employees." This is an example of which one of the following forms of a hold-harmless agreement? A. Basic form B. Limited form C. Intermediate form D. Broad form

A U.S.-based company that has international operations may use a controlled master program to insure all of its operations. Which one of the following statements regarding a controlled master program is true? A. The U.S. company is required to purchase all of the coverages through locally admitted insurers. B. Usually there are separate policies for the domestic U.S. exposures. C. The master policy is excess over locally purchased admitted coverage and can be no broader than the underlying policies. D. Excess and umbrella liability apply only to coverage on U.S. operations.

A contract whose terms and intentions are indicated by the actions of the parties to the contract and the surrounding circumstances is known as A. A valid contract. B. An implied contract. C. A void contract. D. An express contract.

A major benefit of involving a special purpose vehicle (SPV) in a securitization transaction is that investors can decide whether to invest in the securities based on the A. Overall credit risk of the organization. B. Risk presented by the income-producing assets held as collateral by the SPV. C. Number of borrowers involved and their individual risk. D. Organization's balance sheets.

A practice or method used confidentially by an organization to gain a competitive advantage is A. A trademark. B. A trade secret. C. A patent. D. Goodwill.

A primary risk control loss prevention measure for contractual liability is to A. Eliminate written contracts to the extent possible in routine operations. B. Have most if not all contracts reviewed by counsel before they are signed. C. Subcontract specific activities to transfer responsibility to others. D. Use various techniques to address hazards on the premises.

A release of liability agreement for activities specified in the contract is A. A hold harmless agreement. B. An exculpatory agreement. C. A waiver. D. A duty.

A self-insured plan is usually combined with A. Extended perils insurance to insure perils usually not covered by private insurance. B. Excess insurance to cover severe losses. C. Legal expense insurance to cover legal defense costs. D. First-dollar private insurance to cover small, frequent claims.

A trademark that has been entered on the U.S. Patent and Trademark Office (USPTO) Principal Register is automatically protected A. For 25 years. B. For 10 years. C. For 5 years. D. Indefinitely.

Altria, one of the world's largest manufacturers and distributors of tobacco products, acquired a 35% stake in Juul Labs, an electronic cigarette company and producer of e-cigarettes. The strategic risk that Altria was trying to address by initiating the purchase of a 35% stake in Juul Labs was which one of the following? A. They are addressing the scrutiny from regulators over tobacco products and sales. B. They are addressing the declining sales and demand for cigarettes. C. They are attempting to start a line of their own e-cigarettes. D. They are addressing the growing threat of lawsuits alleging the increasing health cost of smoking.

For insurers to utilize pooling most effectively, the insured exposure units need to be A. Correlated. B. Independent.

One type of noninsurance risk control transfer, a disclaimer of warranties, is used to A. Reinforce implied warranties of merchantability. B. Deny any express warranties made in conjunction with the sale of property. C. Deny an exculpatory clause. D. Recognize and validate the assumption of contractual liability.

One way to control the loss exposures associated with the vehicle component in a fleet safety system is through A. Proper loading. B. Vehicle selection. C. Operator orientation. D. Operator supervision.

Pacific Bar and Grill was having a problem with employees slipping and falling in the kitchen and bar areas. Rather than incur the cost to replace the floors with a new non-slip surface, the owners decided to require employees to wear slip-resistant shoes and monitor the floors for spills on a regular schedule. They are also keeping track of the number of employee slips and falls and the associated costs, as well as, the expenses involved with this risk management program. Which one of the following methods is Pacific Bar and Grill using to measure the effectiveness of this risk management process? A. Dashboard reporting B. Feedback loop C. Scorecard D. Bow-tie diagram

Party A and Party B have entered into a contract specifying that Party A will hold Party B harmless from claims arising from their joint fault. This is an example of which one of the following forms of a hold-harmless agreement? A. Broad form B. Intermediate form C. Basic form D. Limited form

Per risk excess of loss reinsurance covers A. Workers compensation insurance and applies to the total of all losses occurring from one risk. B. Property insurance and applies separately to each loss occurring to each risk. C. Liability insurance and applies to each loss occurring from each occurrence. D. Property insurance and applies to the total of all losses occurring from one risk.

Plastics Manufacturing Company (PMC) operates globally with property values approaching $100 million. Liability exposures are considerable particularly for products liability. Because of its size, PMC decides to form a captive insurer. PMC's board of directors is unwilling to risk huge losses as the captive begins operations. Which function of reinsurance would be most beneficial to PMC and its captive insurer? A. Increase large line capacity B. Stabilize loss experience C. Provide catastrophe protection D. Provide underwriting guidance

Reinsurance is A. A transfer of claim-paying responsibilities from the primary insurer to the reinsurer. B. An agreement under which the reinsurer indemnifies the primary insurer for losses sustained. C. A transfer all of the primary insurer's liability for claim payments to the reinsurer. D. Commonly referred to as "insurance for reinsurers."

Risk management professionals can help prevent statutory liability by A. Using contractual provisions to enable a party to avoid liability for a wrongful act. B. Understanding statutory compliance requirements applicable to their organizations. C. Implementing risk control measures that eliminate or reduce hazards. D. Removing or limiting the organization's legal obligations to others.

Since there is no formal process for creating a trade secret, the risk control measures associated with trade secret loss control focus on maintaining A. Disclosure. B. Secrecy. C. Legality. D. Accountability.

The risk manager for Rapids Rover, a white water rafting company, is working with an attorney to draft a new rental agreement. To enable Rapids Rover to avoid liability for negligence or unsafe acts, they decide to make everyone sign A. A waiver. B. A release of liability. C. A unilateral notice. D. A warrantee.

The risk that the amount the organization receives to offset its losses may be greater than or less than its actual losses is A. Credit risk. B. Basis risk.

The strategic management process begins with an analysis of the organization's internal and external environments. Which one of the following statements is correct with respect to that analysis? B. PESTLE analysis examines the political, economic, sociological, technological, legal, and environmental aspects of the external environment.

To determine the minimum amount of capital an insurer needs to support its operation given the insurer's risk characteristics, the National Association of Insurance Commissioners developed its B. Risk-based capital system. C. Basel I agreement. D. Capital conservation buffer.

U.S. statutory accounting rules allow insurers to issue contingent surplus notes, which A. Decrease an insurer's assets on its balance sheet. B. Are counted as policyholders' surplus rather than as a liability. C. Allow the insurer to negotiate interest rates when funds are needed rather than at issuance. D. Increase an insurer's liabilities on its balance sheet.

When conducting a SWOT analysis, one method has three activities: Brainstorming, Refining, and Prioritizing. When brainstorming: A. Similar items are clustered together and alphabetized. B. Factors are listed under each of the SWOT headings. C. Strengths are ordered by quality and relative importance. D. Factors are evaluated and accepted or rejected.

Which one of the following explains how group self-insurance plans differ from individual self-insurance plans? A. Group self-insurance plans can handle many different lines of business. B. Group self-insurance plans rely on a not-for-profit association or corporation. C. Group self-insurance plans do not require state regulatory filings. D. Group self-insurance plans are only used for healthcare benefits.

Which one of the following is a consequence that would likely result from legal liability arising from a breach of contract? A. Indirect loss B. Specific performance C. Ordered restriction D. Sanction

Which one of the following is a motor fleet vehicle system component that can likely lead to losses? A. Contracts B. Routes C. Financing D. Premises

Which one of the following is a type of intellectual property protection? A. Contract B. Trade secret C. Tort D. Infringement

Which one of the following is a wrongful act or omission for which the remedy is usually monetary damages? A. Statutory liability B. Tort C. Breach of contract D. Act of commission

Which one of the following is the most influential legal system in the world? A. U.S. law B. Civil law C. Common law D. Roman-French law

Which one of the following statements is correct regarding the challenges of delivering messages to internal and external stakeholders? A. When you need to persuade your audience, it is best to use reason rather than character or emotion. B. When addressing individuals of different status levels, it is best to ask for ideas from lower-level persons before turning to those of higher standing. C. When you suspect a person's comments are the result of a hidden agenda, it is best to leave them unaddressed. D. When using visual aids, it is best to pack them with as much information as possible.

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance? A. A primary insurer's underwriting policy and underwriting guidelines are usually developed by its treaty reinsurer. B. Most treaties require that all loss exposures within the treaty's terms be reinsured. C. Usually, primary insurers have only one reinsurance treaty with a single reinsurer. D. Primary insurers generally use facultative reinsurance as the foundation of their reinsurance program.

Which one of the following statements is correct with respect to risk tolerance? A. Risk tolerance is stated in both quantitative and qualitative terms. B. Risk tolerance levels can have high-end thresholds, low-end thresholds, or both. C. A zero-risk tolerance level will typically result in the best risk-based decisions. D. An organization's risk tolerance is typically unrelated to its risk appetite.

Which one of the following statements is true regarding the purpose and operation of self-insurance plans? A. Informal retention is another term for self-insurance. B. Self-insurance best applies to losses that are somewhat predictable in total over a defined time period. C. Self-insurance plans have low administrative costs because no recordkeeping or formal payment systems are required. D. Losses that are both low frequency and low severity are the best candidates for self-insurance plans.

Which one of the following types of entities are commonly members of workers compensation pools? A. Large international entities B. Public entities C. Privately held entities D. Construction entities

Wilderness Experience is a company that organizes and manages team-building exercises for corporate management teams. Some activities management teams engage in include rock climbing, white water rafting, climbing rope ladders, riding zip-lines suspended in the air, and bungee jumping. Although Wilderness Experience employs extensive physical loss control measures, it also requires participants to sign a contract absolving Wilderness Experience from liability arising from any injuries sustained while participating in Wilderness Experience activities. The contract the company uses absolving them of liability is A. An estoppel agreement. B. An exculpatory agreement. C. A waiver. D. An unilateral notice.

A pedestrian crossing a street at a red light observed the traffic and stepped out in front of an oncoming car. The pedestrian could have avoided the severe injuries had he not stepped out in front of the oncoming traffic. The driver of the vehicle that struck the pedestrian could be relieved of some, if not all, of the fault for causing the injuries based on the defense of A. Legal privilege. B. Joint-and-several liability. C. The last clear chance doctrine. D. The intentional tort doctrine.

A primary insurer has a five-line surplus share treaty with a $50 million limit. For a specific loss exposure with coverage limit needs of $20 million, the primary insurer's line guide permits a $5 million line. Which one of the following percentages will be used to cede premiums and losses to the reinsurer? A. 20% B. 25% C. 75% D. 80%

A voluntary relinquishment of a known right defines A. An exculpatory agreement. B. A hold-harmless agreement. C. A waiver. D. Avoidance.

A working cover is A. A surplus share facultative reinsurance contract with a small line. B. A quota share treaty with a high percent of ceding. C. An excess of loss reinsurance agreement with a low attachment point. D. A pro rata treaty with a variable attachment point.

Blithe Drug Manufacturing has developed a drug that cures obesity. However, the side effects are significant and potentially fatal. Blithe decides not to manufacture and sell the drug. This is an example of A. Loss reduction. B. Loss prevention. C. Avoidance. D. Diversification.

Callaway Insurance Company is interested in gradually expanding its property insurance business into the wind-prone coastal areas of the southern U.S. In planning this expansion, on which one of the following goals should Calloway's reinsurance program most likely focus? A. Large-line capacity B. Surplus relief C. Catastrophe protection D. Underwriting guidance

Clark's Electronics is considering launching new technology for the medical industry. Before investing major resources in the project, the company decided to perform a SWOT analysis. The fact that there are new medical industry regulations pending would fall under which one of the following quadrants of a SWOT analysis? A. Strengths B. Weaknesses C. Threats D. Opportunities

Clothing Store leases its space from Leasing Company. In the lease agreement between the companies, Leasing Company makes it clear that it wants Clothing Store to be responsible for anyone injured while in the leased space. This wording inclusion in the lease agreement is called a A. Exculpatory agreement. B. Waiver. C. Hold-harmless agreement. D. Unilateral notice.

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be A. Fortuitous. B. Pure risks. C. Definite. D. Independent.

Concerning fundamental guidelines of contractual risk transfer management, it is wise to A. Avoid being named as an additional insured on the transferee's policy. B. Try to be as general and nonspecific as possible. C. Require a certificate of insurance for contractual liability before contract operations begin. D. Be aggressive in negotiations—the more ruthless the better.

Conditions that increase the frequency or severity of losses are A. Exposures. B. Risks. C. Hazards. D. Liabilities.

Operational risk can be more challenging to manage than cyber risk because A. Most organizations can use one standard framework to address cyber risk. B. Warnings from the IT department to employees eliminate a serious cyber risk exposure. C. Organizational risk can come from anywhere in the organization. D. Cyber risk is not a priority due to the growing reliance on automated systems across industries.

Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet? A. Pure risk B. Definite and measurable C. Large number of similar exposure units D. Independent and not catastrophic

Preventive controls assist the overall control environment of an organization by A. Comparing different sets of data and investigating any differences. B. Addressing reconciliation of accounting errors. C. Reducing risk of unauthorized actions. D. Detecting errors or inconsistencies after they occur.

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. Definite and measurable. B. Fortuitous. C. Independent and not catastrophic. D. A large number of similar exposure units.

Reinsurance is best described as B. An agreement between a primary insurer and a ceding company. C. An agreement by a reinsurer to indemnify a primary insurer for losses. D. A transfer of a primary insurer's retention to a reinsurer.

The control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve is which one of the following risk management techniques? A. Diversification B. Risk transfer C. Duplication D. Separation

The major difference between a self-insurance plan and informal retention is A. Self-insurance involves a formal transfer of risk, and informal retention does not involve a formal transfer of risk. B. Self-insurance does not involve loss control, and informal retention does involve loss control. C. Self-insurance involves dedicated recording and payment of losses, and informal retention does not involve formal recording and payment of losses. D. Self-insurance loss payments are not tax deductible, and informal retention loss payments are tax deductible.

The major purpose of a self-insurance plan is to A. Help the organization avoid liability for losses by shifting the losses to an entity better positioned to pay the losses. B. Take advantage of the favorable tax treatment of self-insured plans compared to purchasing traditional insurance. C. Help the organization achieve a lower cost of risk by paying for its own losses and avoiding risk transfer costs. D. Allow an organization to take advantage of the full range of services a private insurance company offers.

The majority of fleet vehicle accidents are caused by A. Poor vehicle maintenance. B. Weather conditions. C. Driver error. D. Brake failure.

The physical environment of fleets as systems encompasses A. Production. B. Vehicle maintenance. C. Weather conditions. D. Reliability.

The type of patent most appropriate for an invention or a process that has some usefulness is a A. Plant patent. B. Service patent. C. Utility patent. D. Design patent.

Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers? A. Smart contracts can render a risk completely preventable. B. Smart contracts can provide broader coverage at a lower cost. C. Smart contracts can dramatically increase the speed of loss payments. D. Smart contracts can significantly increase the speed of premium payments.

Which one of the following is a risk control measure that can be applied to copyright infringement? A. Unrestrictive covenants B. Duplication C. Registration D. Insurance

Which one of the following is an effective safety related technology for fleet operations to reduce roll-overs? A. Antilock braking system B. Engine diagnostics C. Lane departure warning system D. GPS capabilities

Which one of the following is one of the three categories of torts? A. Errors and omissions. B. Privity torts. C. Strict liability D. Tortfeasors.

Which one of the following is the method often used to assess IT operational risk? A. SWOT analysis B. Phishing C. Scenario analysis D. Regulatory compliance

Which one of the following is true about the liability involved in contracting services? A. If the subcontracted work is inherently dangerous to others, the party who hired the contractor is not liable for an injury to a third party caused by the contractor's negligence. B. In contracting for services, the party that transfers the risk must be an independent contractor, and the party that accepts the risk must be a subcontractor. C. The responsibility that certain duties be performed safely cannot be delegated to another party, such as the duty of common carriers to carry passengers safely. D. If the party that hired the contractor is negligent in selecting the contractor, the contractor is directly liable for such negligence.

Which one of the following statements about correlation and covariance is true? A. Covariance is a scaled version of correlation and ranges from -1 to +1. B. The correlation between variables ranges from 0 to +1. C. Covariance measures the extent to which variables move together or independently. D. Correlation measures causality.

Which one of the following statements is true regarding international law? A. Public international law involves disputes between individual or corporations in different countries. B. International treaties agreed to by a business's country of origin govern all international business transactions. C. Public international law is governed by treaties and other international agreements. D. International treaties are between two countries and cannot be multilateral treaties among many countries.

Which one of the following statements is true regarding trademark creation? A. To obtain any protection for a trademark, the trademark must be marked with the ® sign. B. Trademarks are first created when the trademark is registered with the United States Patent and Trademark Office. C. To be valid, a trademark must be distinctive or memorable because of being unique or unusual. D. Trademarks are not enforceable until the mark has been used on both the product and in product marketing.

Which one of the following trademark categories provides the least protection against infringement by competitors? A. Suggestive mark B. Fanciful mark C. Descriptive mark D. Arbitrary mark

Widget Manufacturing board of directors recently adopted a zero-risk tolerance for work place accidents. Initially the chief risk officer thought this was a great idea, however, he has found it very hard to implement. One reason that a zero-risk tolerance policy is hard to implement is because zero-risk tolerance A. Results in higher capital expenditures and significantly lower returns on investment. B. Results in higher levels of customer defections due to the high costs of implementation. C. Will typically result in risk-based decisions that are too rigid and counter-productive. D. Requires supervisors to constantly monitor and often micro-manage their direct reports.

Allied Insurer has a $450,000 xs $150,000 per risk excess of loss reinsurance treaty with Omega Reinsurer. An insured with a limit of $1,000,000 sustains the following losses: Loss 1: $125,000 Loss 2: $500,000 Loss 3: $850,000 How much will Omega Reinsurer pay for Loss 3? A. $150,000 B. $212,500 C. $450,000 D. $650,000

C: The first 150,000 will be retained, the next 450,000 will be reinsured, and the next 250,000 will also be retained. Omega Reinsurer will pay $450,000 for Loss 3.

A retail gun shop loaned a gun to a customer with a history of armed robbery for a trial period. A bank teller is injured when the gun is used in a bank robbery. The gun shop owner might be liable based on A. Vicarious liability. B. Assault and battery. C. Res ipsa loquitur. D. Negligence.

A retrospective rating plan A. Bases pricing on past loss experience. B. Is a form of self-insurance. C. Is considered to be guaranteed-cost insurance. D. Is insurance that is subject to a rating formula.

A significant disadvantage of self-insurance for liability loss exposures compared to property loss exposures is that A. Administrative costs for liability loss exposures are higher. B. Liability losses are more frequent than property losses. C. An aggregate stop-loss is not available for liability loss exposures. D. Tax deductions for liability losses are likely to be deferred for a longer time.

A tort is A. A wrong against society that is punishable by federal, state, and local officials; and is derived from statutes. B. A written law passed by a legislative body that describes unacceptable acts or omissions. C. An element of negligence that must be present for negligence to be successfully proven. D. A wrongful act or omission, other than a crime or a breach of contract, that involves a legally protected right.

A2Z Contracting entered into a contract with a large corporation headquartered in a different state. A2Z's counsel recommended that they negotiate to have a clause included into a contract that specifies their state's law will govern the contract's interpretation. This is an example of A. Limiting liability. B. A loss prevention measure for contractual liability. C. Diversification. D. A loss reduction measure for contractual liability.

Adverse weather conditions that can threaten the safe delivery of cargo arise from which one of the following environments? A. Competitive B. Economic C. Legal D. Physical

An organization of several similar employers that have formed a not-for-profit association or corporation to which they pay premiums to manage self-insurance of their workers' compensation and healthcare benefits loss exposures is a C. Risk retention group. D. Group self-insurance plan.

As ABC Automobiles increases its risk appetite, which one of the following should it consider doing next? D. Develop KRI's based on a risk appetite between the high-end and low-end risk tolerance thresholds.

Betty has invented a new device that reduces the time it takes to backup computer data by 90 percent. She believes this will be of interest to several major computer and data manufacturers. Betty should protect her invention with a A. Servicemark. B. Copyright. C. Trademark. D. Patent.

Brooks Irrigation Services has designed plans for a new lawn sprinkler system. In order to safeguard their document and control infringement exposures, they have placed the notation © 2012 Brooks Irrigation Services on their published plans. This is known as a copyright A. Restrictive covenant. B. Laches. C. Registration. D. Notice.

GBB Company's general liability insurance has a $500,000 per-claim limit and a $5 million annual aggregate limit. GBB purchased excess liability insurance with a $2 million per-claim limit. A customer was injured at a GBB store and was awarded a $1.5 million judgment. The first $500,000 of the claim was covered by the general liability policy. Excess liability insurance can be written in several forms. Under which one of the following forms is the probability the greatest that the additional $1 million will be covered? A. Self-contained excess liability policy B. Workers compensation and employers' liability policy C. Combination excess liability policy D. Following-form excess liability policy

Hazard control of the loss exposures of premises and operations, products, and completed operations is a key aspect of risk control for A. Contractual liability. B. Statutory liability. C. Vicarious liability. D. Tort liability.

Hi-Tech Phones has been working on two new models of their flagship smart phone. The Research and Development department has been working on a touch-based phone and a voice-activated phone. Which one of the following is a tool that could be used to assess the risks of developing and marketing either or both of these phones? A. A topographic map. B. A tree map. C. A heat map. D. A risk map.

Hugh was recently hired as a risk manager for Malvern Manufacturing. He is preparing for his first presentation to the employees working on the manufacturing floor. Hugh realizes that he needs to establish credibility with the audience in order to be persuasive. He decides that he will tell a couple of stories about how he has dealt with similar situations in the past. Which one of the following modes of persuasion is Hugh using? A. Axios B. Logos C. Pathos D. Ethos

If a captive insurer is established to provide coverage for loss exposures that the parent company has difficulty insuring privately, how does the captive insurer typically deal with such risks? A. By capping the liability on a per-loss basis, with the parent company assuming losses above the liability cap B. Through purchasing proportional reinsurance C. By insuring difficult-to-insure loss exposures of other companies, effectively pooling the exposure D. Through purchasing excess of loss reinsurance

Intellectual property is protected through all of the following, EXCEPT: A. Regulations B. Case law C. Statutes D. Torts

Leasing is a useful noninsurance risk control transfer because A. The lessee stands to lose the property's rental income in the event of damage to the property. B. The lessor loses the ability to use the property for the remainder of the lease in the event of damage to the property. C. The lessee retains the loss exposures resulting from property destruction. D. Certain loss exposures accompany property ownership but do not accompany its use or occupancy.

Liability exposures entail both direct and indirect costs. The former include the cost of settlements and jury awards. Indirect costs include A. Legal defense fees. B. Government fines. C. Interest on appeal bonds. D. Loss of market share.

Margo is a technology company analyst for a large investment company. To determine a market value for the companies she analyzes, Margo calculates the present value of the future cash flows that will be derived from the intellectual property these companies own. This valuation method is called the A. Capital budgeting approach. B. Cost approach. C. Fair market value approach. D. Income approach.

Organizations use retrospective rating plans to A. Help them predict loss frequency for future risk management decisions. B. Shift the burden of retained losses through accounting procedures that take advantage of tax rules. C. Reallocate premium dollars to loss exposures not typically covered by such plans, such as workers' compensation. D. Finance their low- to medium-severity losses.

Pools are well-suited for organizations that A. Are looking to transfer risk. B. Have little or no excess loss exposure. C. Have operations in multiple states. D. Are too small to form a captive insurer.

Self-insurance is most appropriate for organizations that have all of the following characteristics, EXCEPT: A. Willingness to devote capital and resources to the program's financing and administration B. Commitment to risk control C. Ability to tolerate risk retention D. Low predictability of total losses

Several similar small businesses in a state formed a not-for-profit organization. The businesses pay premiums to the organization, and it manages the businesses' planned retention program for workers compensation. The organization pools the loss exposures of the members. The administrator of the organization collects premiums, manages claims, purchases excess insurance, and makes necessary regulatory filings. The organization described is a A. Captive insurance company. B. Multiple-employer trust. C. Trade association plan. D. Group self-insurance plan.

SleepWell Motels is a regional chain of motels. In addition to the motel rooms, each facility has a furnished lobby, an exercise room, a coffee shop, and a meeting room. To increase revenues, the motels routinely rent the meeting room for graduation parties, birthday parties, wedding receptions, and similar functions. A lawsuit was filed against SleepWell last week for injuries sustained by a guest at a wedding reception held in a meeting room. In order to best control its exposure to liability claims SleepWell should A. Post a sign in the hotel lobby stating that it is not responsible for any injuries that occur on the premises. B. Counter-sue anyone who attempts to sue the company for damages. C. Enter into a voidable contract with the tenant, and void the contract if SleepWell is sued. D. Require tenants to sign a hold-harmless agreement.

The BIS created a capital requirement for large, global, systemically important banks as part of its global liquidity framework under A. The standard ratings-based capital requirements. B. The Basel II agreement. C. The risk-adjusted assets in regulators' required capital. D. The Basel III agreement.

The importance of systems relationships from a risk control and fleet safety management perspective is that A. Focusing on the larger system, of which the smaller system is a part, will result in the best risk management outcomes. B. Directing all risk management energy toward smaller systems is most cost effective. C. Failure of any component leads to increased strain on only smaller subsystems. D. When a smaller system fails, the larger system of which the smaller system is a part is more likely to fail.

The level at which each individual accident or occurrence is limited for the purpose of calculating a retrospective rating insurance premium is the A. Increased limit. B. Loss conversion factor. C. Minimum premium limit. D. Loss limit.

The payment to the seller in an option compensates the seller for B. The value of the income-producing asset transferred to the investor in exchange for cash. C. The future-value of the present income-producing asset for which the set strike price has been reduced. D. Accepting the risk that it will have to pay cash to the buyer if the value of the underlying asset exceeds the strike price on an exercised option.

The product of human intelligence that has economic value defines A. Trade secret. B. Infringement. C. Copyright. D. Intellectual property.

The protection afforded to computer software is an example of an overlap between A. Trade secret and copyright. B. Trade secret and patent. C. Trade secret and trademark. D. Copyright and patent.

Weldon Company has a fleet of tank trucks. Oil companies and service stations hire Weldon trucks to transport oil, gas, and diesel fuel. Because of difficulty in obtaining affordable insurance for environmental impairment liability, truckers liability and physical damage, and workers compensation, Weldon formed its own insurance subsidiary. The Vermont-based subsidiary collects premiums, issues policies, and pays Weldon's covered liability claims. The organization that Weldon Company formed is called a A. Reinsurance company. B. Risk retention group. C. Protected cell company. D. Captive insurance company.

When assessing strategic risk, which one of the following represents the amount of risk an organization is willing to take on in order to achieve an anticipated result or return? A. Risk threshold B. Economic capital C. Risk-adjusted return on capital D. Risk appetite

When conducting a SWOT analysis, one method has three activities: Brainstorming, Refining, and Prioritizing. When brainstorming, A. Similar items are clustered together and alphabetized. B. Factors are evaluated and accepted or rejected. C. Strengths are ordered by quality and relative importance. D. Factors are listed under each of the SWOT headings.

Which of the following companies would be best suited for participating in an insurance pool? A. A multi-state Fortune 500 home supply company with adequate liquidity that is seeking workers' compensation coverage for its 5,000 employees. B. A large book seller with hundreds of local retail stores interested in insurance for their fleet of vehicles. C. A construction company has had good results in a group captive but would like more control over their insurance program. D. A local school district that is purchasing new buses and looking to reduce its insurance expense by joining a workers' compensation pool.

Which one of the following allows drivers to work at a reasonable pace? A. An incentive-pay system B. A lax schedule C. A safety incentive system D. A suitable schedule

Which one of the following is intended to protect the literal expression of an idea but not the idea itself? A. Trademark B. Licensing C. Patent D. Copyright

Which one of the following most accurately describes the value of precedent in the common law system? A. Precedents may influence a magistrate's decision, but ultimately the outcome of a case will be determined by the opinion of appointed experts. B. Precedent strictly defines the outcome of most cases, and the analyses of senior courts is binding on lower courts. C. Precedent has little utility in the common law system, which instead relies heavily on a detailed code of statutes. D. Precedents are guides that judges use to aid analysis of the facts in particular cases, but they are not rigid frameworks for all decisions.

Which one of the following risk control techniques is generally used to reduce the frequency of a particular loss? A. Separation B. Loss reduction C. Avoidance D. Loss prevention

Which one of the following statements is correct with regard to reinsurance agreements and their functions? A. Reinsurers are prohibited from transferring part of the liability they have accepted under reinsurance agreements to other reinsurers. B. The retention under a reinsurance agreement is always expressed as a percentage of the original amount of insurance. C. The reinsurance agreement alters the terms of the underlying insurance policies. D. The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement.

Which one of the following statements is true regarding a generic model of a securitization? A. The Special Purpose Vehicle (SPV) uses income-producing assets from investors to fund debt from the organization. B. Investors purchase securities from the organization that are then used as a guarantee for the purchase of income-producing assets. C. The SPV sells income-producing assets to the organization in exchange for securities purchased by investors. D. The organization sells income-producing assets to an SPV in exchange for cash.

Which one of the following types of excess liability policies would be least likely to create gaps between the excess and the underlying insurance layers? A. Combination excess liability policy B. Self-contained excess liability policy C. Specific excess liability policy D. Pure following-form excess liability policy

Which one of the following types of systems used in fleet safety can sense when a vehicle is traveling too fast in a curve and automatically apply the vehicle's brakes? A. Antilock brake system B. Speed regulating system C. Onboard tire inflation system D. Stability control system

Wild Animal Park is a commercial zoo. A lion escapes and injures a child. The parents of the injured child are most likely to pursue a legal remedy against Wild Animal Park using which of the following legal bases? A. Contract B. Vicarious liability C. Statute D. Strict liability

Wilson Community College (WCC) invested significant time and financial resources to develop a new registration system. The system could be used to register for classes at its two campuses, as well as online classes. The new system was rolled-out just in time for the heavy fall registration period. Unfortunately, with the high volume of activity, the system kept freezing and requiring students to log-off and start over. Students were complaining that it took them twice as long to register with the new system. This is an example of which one of the following classifications of IT operational risk? A. Security B. Compliance C. Availability D. Performance

A facultative reinsurance agreement is written for a specified time period A. And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met. B. But can be cancelled at any point during that period by the reinsurer for any reason, provided adequate notice is provided to the primary insurer. C. But can be cancelled at any time by the primary insurer. D. And cannot be cancelled without the express written permission of the insured whose coverage is the subject of the agreement.

A loss limit in the retrospective rating plan formula A. Is applied on an individual loss basis to limit losses included in the formula. B. Is the maximum amount of losses that will be included in the formula. C. Is the most an insured organization will pay during the policy term. D. Is always used in the retrospective rating plan formula.

A paper mill along a river intentionally releases heated water into the river. The farm-raised fish in a fish farm downstream die from the higher water temperature. The fish farm's claim against the paper mill arises out of A. Tort. B. Strict liability. C. Contract. D. Negligence per se.

A patent has a limited life span depending on the type of patent; however, which one of the following types of intellectual property protection can be maintained indefinitely? A. Trade secret B. Trademark C. Copyright D. Descriptive mark

A patent used for the invention of a machine is a A. Utility patent. B. Process patent. C. Design patent. D. Plant patent.

ABC Construction Company agreed to build a bridge for a state. The state required a surety bond. When construction was half-way completed, ABC realized that it would not be able to complete the project on time and budget. It stopped working on the project and moved its construction equipment to another job site. Unfortunately, the surety bond was not properly drafted, so the surety company had no responsibility to the state. The state sued the construction company. Rather than issuing a monetary award, the court ordered the construction company to return to the bridge site and complete the project. The court in this case ordered A. Specific performance. B. Payment for an indirect loss. C. Punitive damages. D. General damages.

An advantage of a large deductible plan is that it allows the insured organization to A. Benefit from the cash flow available on the retained loss reserves. B. Benefit from handling its own claims without insurer control. C. Decrease its uncertainty about the cost of its retained losses. D. Increase its cost of risk compared with other insurance plans.

An advantage of a self-insurance plan when compared with an insurance plan is that a self-insurance plan A. Is less expensive over the long run. B. Decreases the organization's financial uncertainty. C. Is easier to implement. D. Easily satisfies contractual requirements.

An exculpatory clause is A. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act. B. The intentional relinquishment of a known right. C. The surety's right to seek reimbursement from the principal for the surety's payments. D. The substitution of one party for another.

An organization can use securitization to exchange A. Income-producing assets for cash. B. Debt for income-producing assets. C. Cash for income-producing assets. D. Liabilities for mortgage receivables.

In reviewing its business results, Metal Shop, a fabricator of metal tools, discovered that the development costs of new tools far exceed expectations and budget. The root cause of the excess costs is the competition for skilled workers. Skilled tool makers are in demand, and Metal Shop has lost several during the year to competitors, replacing them with new inexperience tool makers at higher salaries. In a SWOT analysis, how would Metal Shop categorize its inability to maintain skilled tool makers? A. Weakness B. Threat C. Opportunity D. Strength

In transferring risk to a transferee's insurer, which one of the following is an advantage for the transferor of using a named insured endorsement? A. The transferor's agents, employees, officers, and directors are considered insureds. B. The transferee's insurer may have a right to inspect the transferor's business and financial records. C. The transferee or its insurer does not have to pay for the cost to defend the transferor for liability losses. D. The transferor may agree to provide periodic reports to the insurer.

Intellectual property is protected through which one of the following? A. Statutes B. Tort C. Contract D. Laches

Large deductible plans A. Lower an organization's cost of risk. B. Enable organizations to transfer the financial consequences of losses below the deductible level. C. Seldom require proof of financial security from the insured organization. D. Provide that the insured settle all claims and bill the insurer for losses in excess of the deductible.

Organizations face strategic risks. Strategic risks A. Are systemic risks that are outside the control of any single organization. B. Impact all organizations in the same way. C. Are internal risks for an organization. D. Are pure risks, which always result in a loss.

PassPorts Company is a rapidly-expanding international shipping company based in the U.S. In some foreign countries where it operates, it does not have a permanent office or place of business. Sometimes the company's operations consist of an employee with a laptop computer working out of a hotel room. To insure its loss exposures in such cases, PassPorts purchases a nonadmitted insurance policy combining coverage for liability, personal property, rented vehicles, and foreign voluntary workers compensation all in one policy. This policy is A. An exporters package policy. B. A difference in conditions insurance policy. C. A commercial multi-peril policy. D. A finite insurance policy.

Pools can help an organization meet which one of the following risk financing goals through economies of scale in administration and the purchase of excess insurance or reinsurance? A. Minimize the costs of risk B. Pay for losses C. Manage uncertainty D. Maintain liquidity

Risk appetite is an important component of strategic risk management (SRM). Which one of the following statements is correct with respect to an organization's risk appetite? A. Regulatory conditions, political risks, and anti-trust or other legal concerns can reduce an organization's risk appetite. B. Economic forces, market forces, and competition generally have little effect on an organizations' risk appetite. C. An organization's risk appetite is typically independent of its capital and other assets, including its human resources. D. Because risk appetite is based on the attitudes of executives and shareholders, it is usually static and does not vary over time.

Sixth National Bank stores all of its financial records in an electronic data base. Sixth National customers are able to access their accounts on-line with a user identification number and a password. Last weekend, a computer hacker was able to breach the firewall of the electronic database and gain access to customer account data. This operational risk for Sixth National Bank is A. Systems Risk

Smith Enterprises is a national plastics distributor with property values in excess of $20 million spread throughout the country. Smith Enterprises wants to insure all of its property exposures with the same insurer. Which function of reinsurance would be most beneficial to Smith's primary insurer? A. Increase large-line capacity B. Provide underwriting guidance C. Stabilize loss experience D. Provide catastrophe protection

Spice Company is an importer and distributor of exotic spices. New regulations may prevent Spice Company from buying domestically grown spices, even though they are less expensive than those that can be imported internationally. In a SWOT analysis table for Spice Company, these regulations would be a threat because A. The regulations diminish Spice Company's competitive advantage. B. Spice Company has created its high level strategies based on its ability to import spices. C. Spice Company is in a changing environment while its domestic competitors are not.

Strategic risk can be created and affected by external factors or internal factors. Which one of the following is considered an internal factor? A. Resource allocation B. Competitive pressures C. Changes in labor market D. Changes in regulations

The cost of medical expenses and the restoration of lost wages are both examples of A. Special damages. B. General damages. C. Specific damages. D. Punitive damages.

The duration of a patent right varies depending on the type of patent. Which one of the following patents last for 14 years from the date of issuance? A. Design patent B. Plant patent C. Process patent D. Utility patent

Which one of the following statements about the self-contained form of an excess liability insurance policy is the most accurate? A. Typically, a self-contained excess liability insurance policy does not depend on the provisions of the underlying policy for determining the scope of its coverage. B. The coverage of a self-contained excess liability insurance policy is typically broader in scope than the coverage of a following-form excess liability policy. C. Self-contained excess liability insurance policies usually depend on the provisions of the underlying policy for determining the scope of coverage. D. Because the policy language is in manuscript form, self-contained excess liability insurance policies reduce or eliminate gaps in coverage between the excess and underlying insurance layer.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? A. A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.

Which one of the following statements is true regarding a standby credit facility? A. The terms of the credit arrangement are specified in advance for a standby credit facility. B. Standby credit facilities have no cash flow advantages over traditional insurance policies. C. Losses paid by funds from a standby credit facility do not have to be paid back. D. Because their uses are incompatible, standby credit facilities are not used in conjunction with an insurance policy.

COBIT's management approach to control operational risks focuses on A. Balancing the costs of IT-related risks with their benefits. B. Ensuring that IT endeavors do not create more risk than the organization can tolerate. C. Soliciting input from senior management on all IT-related risk. D. Creating buy-in for IT initiatives across all departments of the organization.

A: COBIT's management approach to control operational risks focuses on balancing the costs of IT-related risks with their benefits.

A company's management team is preparing to conduct a SWOT analysis as part of its strategic management process. Which one of the following questions can the management team expect to answer as a result of the SWOT analysis? A. Will this organization achieve its objectives for the current period, or is an intervention required? B. Will this organization's current business strategies still allow it to achieve its goals, or is a change required? C. Are the organization's current business strategies in alignment with its mission statement, or is a change required? D. Are this organization's objectives in alignment with the sound enterprise risk management practices in a changing environment, or are changes required?

A defendant's violation of a statute can A. Be categorized as irrelevant in a civil matter. B. Constitute a breach of duty of care. C. Be relevant only in a criminal context. D. Translate into automatic damages being awarded to a plaintiff.

A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them and then using those assets to collateralize securities that will be sold to investors is A. A forward contract. B. A special purpose vehicle. C. A catastrophe bond. D. An insurance derivative.

A formal self-insurance program, which includes all of the necessary administrative functions, is most appropriate for which one of the following types of loss exposures? A. Low-frequency, high-severity loss exposures B. High-frequency, low-severity loss exposures C. Low-frequency, low-severity loss exposures D. High-frequency, high-severity loss exposures

A state has a particularly bad reputation for frivolous lawsuits and large damage awards. Non-profit organizations and charities in the state were having difficulty finding qualified individuals to serve on their boards for fear of legal liability. Janet Barnes, a state senator, sponsored a bill that would shield non-compensated board members of charities and non-profit organizations from tort liability claims. The legal defense that she wanted these board members to be able to assert is A. Comparative negligence. B. Immunity. C. Collateral sources. D. Privilege.

A vehicle selection factor that means the vehicles selected for use by a company have the same design, use the same parts, and have the same operating procedures is fleet A. Equity. B. Uniformity. C. Reliability. D. Suitability.

A1 Architectural Design relies on its historical files and blueprints. The partners of the firm are discussing risk control measures that can be implemented to provide protection against property-related losses. Which one of the following would likely offer the best protection for this exposure? A. Separation B. Duplication C. Diversification D. Avoidance

ABC Company and XYZ Company have entered into a contract which stipulates that, in the event of a breach, the breaching party will pay the non-breaching party the sum of $250,000. Such stipulations are called A. Assigned damages provision. B. Liquidated damages provision. C. Nominal damages provision. D. Consequential damages provision.

Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT: A. Price insurance policies more precisely B. Completely prevent customers' risk C. Customize policies to more closely align with customers' actual risk D. Deliver policy information and payment options to a mobile device

Jessica is a risk manager for East Side Manufacturing. She needs to make a presentation to the executive team to help them make some risk management decisions. Jessica wants to provide the audience with the information that they need to make the decisions, and present it as succinctly as possible. Which one of the following methods should Jessica use? A. Scorecard B. Dashboard reporting C. Feedback-loop D. Bow-tie diagram

Joe operates a wildlife sanctuary that is open to visitors and tours. Animals at the sanctuary include pet lions, tigers, apes, and bears that have been abandoned by their owners. Joe's liability exposure from this operation is most likely to result from A. Intentional torts. B. Strict liability. C. Indirect liability. D. Contract law.

Not all trademarks are covered by the U.S. federal laws. One type of mark not receiving the protection of trademark law is A. An implied mark. B. A generic mark. C. An image mark. D. A random mark.

Once a holistic risk management program is created and put into effect, which one of the following methods can be used to allow constant and consistent monitoring of the process? A. Bow-tie diagram B. Feedback loop C. Dashboard reporting D. SWOT analysis

One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is A. Systems risk. B. Process risk. C. Business complexity risk. D. Technological risk.

One major advantage of self-insurance is that it A. Provides a more cost-effective method to manage losses than a risk management program. B. Allows an organization to exercise direct control over claim settlement. C. Has higher long-run costs that are offset by reductions in taxes. D. Reduces the need to use present value analysis in cost-benefit calculations.

One of the basic forms for an excess liability policy that is subject to the same provisions as the underlying liability policy is the A. Monoline form. B. Following-form. C. Self-contained form. D. Manuscript form.

Preventive controls assist the overall control environment of an organization by A. Comparing different sets of data and investigating any differences. B. Reducing risk of unauthorized actions. C. Detecting errors or inconsistencies after they occur. D. Addressing reconciliation of accounting errors.

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Taylor would like to expand operations and has undertaken a SWOT analysis. When Taylor completes his SWOT analysis in which quadrant of the SWOT analysis will he place reputation? a. Threat b. Strength c. Opportunities d. Weakness

The Sarbanes-Oxley Public Company Reform and Investor Protection Act of 2002 A. Imposes legal liability on an organization only if a tort was committed. B. Imposes legal liability on an organization regardless of whether the organization committed any tort or assumed any liability under contract.

The body of legal principles governing relationships among nations is A. Common law. B. Public international law. C. Criminal law. D. Civil law.

The catastrophe losses that trigger payment under a catastrophe bond A. Are priced at a level to ensure that investors can only break even or lose money on the investment. B. Can be based on aggregate catastrophe losses over a defined period of time or the occurrence of a single catastrophic event. C. Are based solely on a noninsurance organization's losses over an unspecified period of time. D. Are measured using financial indexing techniques to discount losses to present value.

The four SWOT headings are strengths, weaknesses, threats and A. Priorities. B. Opportunities. C. Ideas. D. Markets.

The level of capital required to provide a cushion against unexpected loss of economic value at a financial institution is known as A. Supplementary capital. B. Risk capital. C. Core capital. D. Preferred capital.

The liability loss exposure that exists when an organization is legally responsible for bodily injury or property damage caused by an accident that occurs on an organization's owned, leased, or rented property is A. Operations liability. B. Premises and operations liability. C. Property liability. D. Professional liability.

Victor is the risk manager for Jones Incorporated. He decided that a bow-tie diagram would be the best method to convey a potential risk to the executive team. Victor will use the bow-tie diagram to do which one of the following? A. To provide the team with all of the information it needs to know about the risk within a very brief period of time B. To identify the risk and list its possible causes and possible consequences on either side C. To depict the likeliness that the risk will occur D. To consistently monitor risk exposures and the controls in place

When negotiating noninsurance risk transfer terms, risk management professionals should consider the A. Reduction in insurer risk charges and premium taxes that might result. B. Legal enforceability of contract provisions. C. Effect on the organization's relationship with its insurance broker. D. Effect on the organization's insurance program.

Which one of the following demonstrates the use of a risk treatment trigger based on risk tolerance thresholds? B. The treasurer reporting to the board 60 days before other ABC operations are impacted by investment in electric vehicles.

Which one of the following is true regarding patents? A. Patents do not expire. B. Plant patents are granted on biologically asexually reproducing plants. C. Patent applications must show each user's name. D. International standards apply to patents.

Which one of the following safety technologies for fleet operations prevents a vehicle's brakes from locking up and perpetuating a loss of traction during a skid? A. Lane departure warning system B. Antilock braking system C. Forward collision warning system D. Stability control system

Which one of the following statements about correlation is true? A. If there is no correlation between two variables, the variables are considered to be dependent. B. If two variables are perfectly positively correlated, if one variable increases, the other will increase in direct proportion. C. If two variables have a correlation coefficient of .50 and if one variable increases by 10%, the other variable will decrease by 5%. D. If two variables are perfectly negatively correlated, there is no relationship between the variables.

Which one of the following statements describing following form excess liability insurance is most accurate? A. The deductibles in the following form excess liability policy make it more similar to an umbrella liability policy than a true excess liability policy. B. In its purest state, a following form excess liability policy is nothing more than an increase in limits to the primary policy. C. The following form excess liability policy usually provides fewer exclusions than the primary policy, leading to coverage that is broader in scope. D. The following form excess liability policy must be issued by the same insurer that issued the primary policy.

Which one of the following statements is true regarding the strategic management process? A. The strategic management process aligns all of an organization's strategies and activities to enable it to meet its short-term goals. B. The strategic management process can be applied to any type of organization, including business, not-for-profit organizations, and government entities. C. The strategic management process is the responsibility of an organization's board of directors. D. The strategic management process focuses on the internal environment of the organization.

Which one of the following statements regarding correlation analysis is true? A. Because it incorporates so much data, a risk professional can rely on correlation analysis only when making a major decision. B. Abnormal observations and inaccurate data may skew correlation analysis. C. The range of correlation coefficients is from 0 to +1. D. Correlation analysis can indicate causality between variables.

Which one of the following types of intellectual property protection automatically applies to any work of expression when it becomes fixed in a tangible medium? A. Trademark B. Copyright C. Patent D. Trade secret

Which one of the following types of loss exposures is commonly handled through a group self-insurance plan? A. Flood B. Workers compensation C. General liability D. Auto physical damage

Works of fiction, graphic art, chemical formulas, and software are best described as examples of A. Real property. B. Intellectual property. C. Public property. D. Community property.

Brookgreen Insurance has a 40% quota share treaty with Cypress Reinsurance. Policy A has a limit of $50,000, a premium of $2,000, and a loss of $5,000. How much of the premium will Cypress Reinsurance receive? A. $200 B. $800 C. $1,000 D. $1,200

B: Cypress Reinsurance will receive $2,000 × 40%, or $800 of the premium.

A chemical manufacturing company has coverage under a typical commercial general liability (CGL) policy providing $1,000,000 in coverage for each occurrence. The company also has typical following-form excess liability insurance with $3,000,000 in coverage for each occurrence. A $2,000,000 loss occurs that is excluded by the CGL policy. The following-form excess liability policy would A. Cover the full amount of the loss. B. Cover the loss only up to $1,000,000. C. Not cover the claim because it is not covered by the underlying policy. D. Pro-rate the amount of the loss with the CGL policy.

A large deductible is similar to a self-insured retention (SIR) in that both A. Give the insurer complete control over claim handling. B. Require that the insured adjust and pay claims up to the deductible or SIR amount. C. Require the insured organization to retain a relatively large amount of loss. D. Provide detailed reports to the insurer on all claims.

After an organization develops and implements its strategic plan, it needs to determine how risk taking will be controlled. Which one of the following statements is correct with respect to risk taking? A. At all levels with an organization, decisions are made about which risks should be taken to gain competitive advantage. B. Organizations that are risk adverse usually have little difficulty meeting strategic goals if managers are excessively cautious. C. A factor in strategic decision making is whether an organization has an advantage in controlling risk with a given activity. D. In general, there is little difference between risk taking at the strategic and operational levels within an organization.

All members of a pool share in the risk with the other members of the pool. This allows the pool to manage uncertainty and meet which one of the other risk financing goals? A. Minimize the Cost of Risk B. Maintain Liquidity C. Pay For Losses D. Comply with Legal & Regulatory Requirements

An organization may use a large deductible plan to do which one of the following? A. Retain high severity losses B. Increase its cost of risk C. Defer cash outflows for accidental losses D. Avoid paying residual market loadings

Community Gymnasium has an objective to increase its membership by 5% in the next year. Demographics of the community indicate the population is aging with those over age 65 in the largest population percentage. Community Gymnasium's director has proposed a strategy of adding 10 classes per week targeted to people over the age of 65 to increase membership. Which one of the following statements in Community Gymnasium's SWOT analysis supports this strategy? A. Opportunity: Community Gymnasium can purchase the property adjacent to its property to expand the size of its facility. B. Threat: A new 24-hour-a-day exercise complex is being constructed in the next town, which could attract Community Gymnasium's members. C. Strength: Four of the trainers employed by Community Gymnasium are certified in teaching seniors' physical fitness. D. Weakness: Community Gymnasium has been losing about 1% of its membership per year.

Compensatory damages as a consequence of legal liability might include A. Individual and broad damages. B. Indirect losses and defense costs. C. Special and general damages. D. Specific and common damages.

Eliminating old vehicles and retiring or reassigning aging operators is an example of which one of the following phases in the system life cycle for a motor fleet? A. Operational phase B. Engineering and design phase C. Disposal phase D. Conceptual phase

One characteristic of captive insurance plans is that A. Losses are rarely funded because of the operation of captives. B. Administrative requirements are low because of the relationship between the owner and captive. C. The severity of losses transferred to captives is generally low to medium. D. They typically require no retention.

One example of a noninsurance risk financing transfer is a A. Waiver. B. Guaranty agreement. C. Hold-harmless agreement. D. Disclaimer of warranties.

Self-insurance costs can be lower than the cost of risk transfer because A. Premium taxes for self-insurance are lower than for insurance. B. Residual market loadings are lower than for insurance. C. An insurer's overhead costs are eliminated. D. The risk charge is lower than for insurance.

Self-insurance is a form of A. Transfer under which an organization transfers its losses to a subsidiary. B. Retention under which an organization records its losses and maintains an informal system to pay them. C. Retention under which an organization records its losses and maintains a formal system to pay them. D. Transfer under which an organization transfers its losses to a pool.

The focus of risk control efforts regarding trade secrets should be on A. Enforcing registration rights. B. Use of licensing agreements. C. Disclosure of information only to essential personnel. D. Use of notices.

The lease for a tenant's occupancy of an office space states that the tenant will maintain the property in reasonable condition. The tenant fails to clear ice and snow from the property and a passerby falls and is injured. On what basis might the tenant most likely be liable for the passerby's injuries? A. Strict liability B. Negligence C. Breach of contract D. Tort

The level of capital required to provide a cushion against unexpected loss of economic value at a financial institution is known as C. Risk capital.

The two major types of pro rata reinsurance are A. Clash cover and catastrophe reinsurance. B. Proportional reinsurance and non-proportional reinsurance. C. Quota share and surplus share reinsurance. D. Per risk excess of loss reinsurance and catastrophe reinsurance.

Those resolving international disputes between individuals or corporations first apply any international agreement or treaty that governs the dispute. If no international agreement or treaty applies, then A. The dispute is submitted to an arbitration process. B. The dispute is settled according to the laws of the nation where the dispute occurred. C. Any relevant laws of the involved countries are applied to the dispute. D. The matter is reconciled through an international dispute resolution process.

Treaty reinsurance is best described as a reinsurance agreement A. In which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer must accept all loss exposures submitted. B. That covers an entire class or portfolio of loss exposures, and the reinsurer can typically accept or reject any loss exposures submitted. C. That covers an entire class or portfolio of loss exposures, and all loss exposures that fall within the treaty are automatically reinsured. D. In which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.

Under a per occurrence excess of loss treaty, the attachment point and the reinsurance limit apply to A. Each loss from a single event affecting multiple coverages within the same policy. B. Each loss arising from a single event affecting one or more policies. C. The total losses arising from a single event affecting one or more policies. D. All losses from a single event affecting liability and property insurance within the same policy.

When determining whether an international legal dispute involves public international law, the most important issue is A. Jurisdiction. B. Comity. C. Whether a treaty or other international agreement applies to the dispute. D. The nature of the legal system in the nation where the dispute is adjudicated.

Which one of the following is a common problem with meetings that leaders should try to avoid? A. Trying to stick to an agenda and avoid interruptions B. Committing to an end time, as well as a start time C. Having the wrong people attend D. Stating the objective in writing before the meeting

An amusement park ride malfunctioned, injuring four individuals. ABC Insurer, the general liability insurer for the both the amusement park and the ride manufacturer, paid each of the four individuals $500,000 under the amusement park's policy and paid each of the four individuals $250,000 under the ride manufacturer's policy. ABC has a $5 million xs $200,000 per occurrence excess of loss treaty with XYZ Reinsurer. How much would XYZ pay for these losses? A. $1,400,000 B. $1,500,000 C. $2,800,000 D. $3,000,000

C: (500,000 × 4) + (250,000 × 4) − 200,000 = 2,800,000; XYZ will pay $2,800,000 for these losses.

Violet Insurance Company has a surplus share treaty with White Reinsurer and retains a line of $50,000. The treaty contains five lines and provides for a maximum cession of $250,000. Violet Insurance issues a policy insuring a building for $150,000 for a premium of $1,900 with one loss of $60,000. What percentage of insurance, premiums, and losses is ceded to White Reinsurer? A. 33.33% B. 50% C. 66.67% D. 100%

C: 100,000 (2 lines ceded) ÷ 150,000 = 66.67%; The percentage of insurance, premiums and losses ceded to White Reinsurer is 66.67%. (Or, 2 ceded lines ÷ 3 insured lines = 66.67%.)

Brook Insurance has a 5-line surplus share treaty with Cedars Reinsurance. The line is $100,000. Brook Insurance has the following policies: Limit PremiumLoss Policy A$50,000 $1,000 $1,000 Policy B $400,000 $4,000 $50,000 Policy C $800,000 $16,000 $100,000 How much of the premium for Policy B will Brook Insurance cede to Cedars Reinsurance? A. $800 B. $1,000 C. $3,000 D. $3,200

C: 100,000 is retained and 300,000 is ceded; 300,000 ÷ 400,000 limit = .75; 4,000 × .75 = 3,000. Brook Insurance will cede $3,000 of the premium for Policy B to Cedars Reinsurance.

Red Insurance Company has a surplus share treaty with Black Reinsurer and retains a line of $25,000. The treaty contains nine lines and provides for a maximum cession of $225,000. Red Insurance issues a policy insuring a building for $200,000 for a premium of $1,900 with one loss of $60,000. What percentage of insurance, premiums, and losses is ceded to Black Reinsurer? A. 12.5% B. 75% C. 87.5% D. 100%

C: 175,000 (7 lines × 25,000) ÷ 200,000 = 87.5%. The percentage of insurance, premiums and losses ceded to Black Reinsurer is 87.5%. (Or, 7 ceded lines ÷ 8 insured lines = 87.5%.)

A noninsurance transfer in which the transferor transfers a loss exposure to the transferee, thereby eliminating the possibility that the transferor will suffer a loss from the transferred exposures is a noninsurance A. Risk financing transfer. B. Pooling and funding mechanism. C. Loss control mechanism. D. Risk control transfer.

A patent issued for an invention or process that has some usefulness, does not have to be marketable, but must work is a A. Process patent. B. Design patent. C. Plant patent. D. Utility patent.

ABC Supplement Company has expanded its business from the Midwestern United States into South America due to the popularity of a weight-loss product which has increased ABC's revenue. The Chief Risk Officer (CRO) assigned to this new operation has discussed different strategic risk scenarios with the board of directors and feels that although the South American Market has strong demand to this new product, there could be cases where some users have experienced negative effects from its use. The CRO feels that foreign governments could eventually intervene and impose regulations or significant tariffs which could be detrimental to the company. What kind of strategic risk challenge does the CRO believe is the biggest obstacle for ABC? A. Marketing B. Liquidity/Financial C. Competition D. Regulatory

All of the following are components of a fleet system, EXCEPT: D. Environment

All-Sport Athletic Company spent $120 million to develop the rubber soles of its athletic shoes. The production method used to produce the rubber soles is a closely-guarded company secret. When asked to place a value on the rubber sole technology, All-Sport's chief financial officer said, "$120 million." The intellectual property valuation method used by the chief financial officer is the A. Enterprise value approach. B. Income approach. C. Fair market value approach. D. Cost approach.

Among the properties owned by Hagen Company are five buildings constructed from cement blocks. Hagen did not include these buildings for coverage under its property insurance policy because losses to these structures occur so infrequently. When losses do occur, Hagen Company simply pays for the losses through cash flow or current assets. Hagen's method of dealing with losses to these buildings is called A. Self insurance. B. Group self insurance. C. Third-party administered plan. D. Informal retention.

An implied contract is a contract that A. Is not a legally enforceable contract because it lacks one or more of the necessary requirements. B. Meets all of the requirements to be enforceable. C. Can be rescinded at the election of one or both of the parties to it. D. Has terms and intentions indicated by the actions of the parties to the contract and the surrounding circumstances.

An invention can retain both trade secret protection and patent protection only until the A. Invention is sold to a manufacturer or producer. B. Invention is produced, marketed, and sold. C. Patent application is filed. D. Patent is published.

Copyrights are generally owned by the person (author) who created the work, except when the work A. Has not been registered with the U.S. Copyright Office. B. Was jointly prepared by two or more authors. C. Was created in a reproducible medium such as video or audio tape. D. Was created in the course of the author's employment.

Crimson Casualty Company began insurance operations last year. The company experienced phenomenal success and wrote far more premiums than expected. A representative from the state insurance department contacted Crimson Casualty and warned the company that it was growing too fast and risking insolvency. The insurance regulator added, "Of course you can use reinsurance to help remedy your situation." The regulator was referring to which one of the following functions of reinsurance? A. Using reinsurance to provide large-line capacity B. Using reinsurance to protect against catastrophic losses C. Using reinsurance to stabilize loss experience D. Using reinsurance to provide surplus relief

Driver behavior can be monitored by using which one of the following technological advances in fleet safety? A. Police radar equipment B. Cell phones C. Vehicle inspection reports D. Onboard computers

Ed is investment manager of the Nellor Foundation, a charitable trust. Recently, Ed met with the president of the Foundation. Up until now, assets have been invested in financial assets. Ed told the president that after performing a simulation, he would like to add a high-yielding, higher risk real estate investment to the portfolio. When the president asked if it would be too risky, Ed replied, "It will actually increase expected returns while reducing risk." The purported reduction in risk occurs because A. The real estate investment will not be large enough to significantly impact on the portfolio. B. Rental income generated by the real estate investment is not taxable. C. Taxes on real estate investments may be deferred. D. The real estate investment returns are negatively correlated with the other assets.

Excess of loss reinsurance D. Is used with property or liability loss exposures.

Jepson Manufacturing Company is a U.S.-based company with operations in Mexico, Canada, Brazil, and the Netherlands. Jepson purchases a nonadmitted policy in the U.S. and policies from admitted insurers in each of the countries in which it operates. This collection of admitted and nonadmitted policies used by multinational businesses is called A. A facultative insurance program. B. An enterprise risk management program. C. A pure excess insurance program. D. A controlled master program.

Jurisdictional issues are increasing in importance and complexity as A. Treaties, which were once the primary way governments regulated international business, continue to fall out of favor. B. Governments continue to sign treaties related to international business. C. Organizations like the United Nations gain more control over international business dealings. D. Governments try to control the increase in international business.

New Insurance Company noticed many insurers were withdrawing from the contractor's liability insurance market. The company believed this was a great opportunity to enter this market and earn substantial profits. New Insurance, however, lacked the experience and expertise to successfully market contractor's liability insurance, and their participation in this market was a dismal failure. New Insurance Company decided to formally withdraw from this market and to shift all future responsibility for contractor's liability claims to a reinsurer. What type of reinsurance is specifically designed to cover a whole class of business like New Insurance Company's contractor's liability insurance? A. Excess of loss reinsurance B. Surplus share reinsurance C. Facultative reinsurance D. Portfolio reinsurance

Other than with catastrophe put notes, a disadvantage associated with contingent capital arrangements is that A. Ownership becomes more concentrated if a catastrophe equity put option is exercised. B. Funds received are equity, not loans. C. Ownership becomes more concentrated if a standby credit facility is used. D. Funds received are loans, not equity.

Preventive controls assist the overall control environment of an organization by A. Addressing reconciliation of accounting errors. B. Detecting errors or inconsistencies after they occur. C. Comparing different sets of data and investigating any differences. D. Reducing risk of unauthorized actions.

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Which one of Porter's Five Forces is most greatly affected by Paoli's ability to negotiate a forward contract with a lumber supplier? a. The customers' bargaining power to drive prices down. b. How competitive you are with existing firms. c. The threat of customers finding a substitute way of doing what you do. d. The suppliers bargaining power to drive prices up.

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis. Which one of the following could Taylor's SWOT analysis consider an opportunity or a threat, or both an opportunity and a threat? a. Shortage of personnel to explore new projects b. Lack of Expertise c. Reputation d. Technological advancements

The best example of legal liability resulting from statutes is A. Exposing others to unreasonable danger by failing to exercise a standard of care. B. Failing to comply with a contract's terms. C. Infringing on the reputation of others through libel or slander. D. Unfairly discriminating against certain employees on the basis of gender.

The broad form of the hold-harmless agreement attempts to A. Place all responsibility for negligent acts on the transferor. B. Eliminate the possibility of negligence on the part of the transferee. C. Transfer all financial consequences of potential losses to the transferor. D. Place all financial consequences of potential losses on the transferee.

The catastrophe losses that trigger payment under a catastrophe bond A. Are priced at a level to ensure that investors can only break even or lose money on the investment. B. Are based solely on a noninsurance organization's losses over an unspecified period of time. C. Are measured using financial indexing techniques to discount losses to present value. D. Can be based on aggregate catastrophe losses over a defined period of time or the occurrence of a single catastrophic event.

The ceding commission is paid by A. The reinsurer to the reinsurance broker. B. The ceding company to the reinsurance broker. C. The reinsurance broker to the reinsurer. D. The reinsurer to the ceding company.

The characteristics of a captive insurer A. Rarely involve the purchase reinsurance. B. Normally cover only first-party losses. C. Do not involve policy issuance. D. Normally involve both retention and transfer.

The two types of compensatory damages are A. Special and punitive. B. Direct and indirect. C. General and punitive. D. Special and general.

The typical civil-law case is divided into three stages and they are A. Isolated meetings, written communications, and motions and judgments. B. Mediation and arbitration, negotiation, and settlement. C. Preliminary indictment, admissions, and jury deliberation and deliberation verdicts. D. Pleadings, taking of evidence, and a decision by a judge.

The unauthorized use of an individual's intellectual property is A. Fair use. B. Laches. C. Contravention. D. Infringement.

The way that an organization differentiates its services from its competitors services is a A. Trade dress. B. Trademark. C. Descriptive mark. D. Servicemark.

Under a large deductible plan, the amount that the insurer incurs to adjust losses A. Is outside the deductible. B. Is inside, or included, in the deductible. C. Is prorated between the insured and the insurer based on the size of the loss. D. Can be inside or outside the deductible.

Which one of the following analysis methods concentrates on an organization's competitive environment? A. PESTLE analysis B. Scenario analysis C. SWOT analysis D. Porter's Five Forces analysis

Which one of the following are shared by the primary insurer and the reinsurer in pro rata reinsurance transactions? A. Commissions to producers B. Premium taxes C. Investment income from reserves D. Amounts of insurance

Which one of the following best describes the differences between a following-form excess liability policy and a self-contained excess liability policy? A. A self-contained excess liability policy requires a self-insured retention. B. A combination excess liability policy follows the provisions of the underlying policies then adds additional conditions or exclusions. C. A self-contained excess liability policy is broader than a following-form excess liability policy. D. A self-contained excess liability policy is subject only to its own provisions.

Which one of the following criteria must a creative work meet to be eligible for copyright protection? A. The work must be created in the course of the individual's employment. B. The work must be created on commission. C. The work must not be reproducible. D. The work must be original.

Which one of the following is a contractual provision by which one party agrees to assume the liability of a second party? A. Exculpatory agreements B. Waiver notices C. Unilateral notices D. Hold harmless agreement

Which one of the following is the most intangible and abstract of the four risk quadrants? A. Financial risk B. Hazard risk C. Operational risk D. Strategic risk

Which one of the following is the term used to refer to the amount of uncertainty an organization is prepared to accept in total or more narrowly within a certain business unit, a particular risk category, or for a specific initiative? D. Risk tolerance

Which one of the following statements is true regarding a trade secret? A. A trade secret has a limited life span. B. A trade secret is created with a formal application. C. A trade secret in force for 10 years automatically receives a patent. D. A trade secret remains in force for as long as the secret can be maintained.

Which one of the following statements is true regarding aggregate excess of loss reinsurance? A. The attachment point in an aggregate excess of loss treaty is stated as a percentage on a sliding scale adjusted for the primary insurer's profitability. B. Aggregate excess of loss treaties are usually written to ensure that the primary insurer earns a modest profit on business covered by the treaty. C. Aggregate excess of loss reinsurance is used only for property exposures. D. Losses covered by an aggregate excess of loss treaty occur over a stated period, usually one year.

Which one of the following statements is true regarding how trade secret protection and copyright protection can overlap? A. When the work is created, only trade secret protection applies; copyright protection applies when the work is released for publication. B. Both trade secret and copyright protection are created when the author has the first idea for the work. C. When the work is published, the copyright protection ends but trade secret protection continues. D. When the work is published, the trade secret protection ends but copyright protection continues.

Which one of the following statements is true regarding operational risk? A. Most current methods of managing operational risk are informal. B. Operational risk is best managed during the course of business by an organization's front-line managers. C. Financial institutions and their regulators typically define operational risk to include market risk and credit risk. D. Operational risk is integrated in every activity of an organization.

Which one of the following statements is true regarding swaps? A. Swaps are negotiated for indefinite time periods. B. Parties to a swap pay all of the value and price upfront. C. Swaps decrease portfolio diversification. D. Swaps are commonly used to manage interest rate and currency rate of exchange risk.

Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented? A. Wearables B. Telematics C. Machine learning D. Blockchain

An insurer's ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide is A. Large-line capacity. B. Surplus relief. C. Portfolio management. D. Novation.

An organization that operates warehouses in two locations is using the risk control technique of A. Separation. B. Loss prevention. C. Duplication. D. Diversification.

Blue Sky Enterprises wants to join with a small group of other organizations to create an entirely new type of medical device for heart transplant patients. ABC Insurer is interested in working with the group to meet their insurance needs. However, ABC has no experience in the biotechnology field. Which function of reinsurance would be most beneficial to ABC Insurer? A. Provide underwriting guidance B. Provide catastrophe protection C. Increase large line capacity D. Stabilize loss experience

Chemical Company relies on trade secrets to maintain its competitive advantage. How might Chemical Company's risk management professional ensure information confidentiality? A. Requiring employees to sign a restrictive covenant in the form of a nondisclosure or a confidentiality agreement B. Disclose the information only to senior management C. Registering the trade secret D. Wherever trade secret information appears, marking it with a "TS"

Danforth Grocery Store specializes in fresh produce and is open 24 hours year round. The store has contracts with suppliers to deliver produce and foods by 5:00 AM daily, so the parking area at the rear of the store is congested from 4:30 AM to 5:30 AM. Customer traffic is heaviest from 7:00 AM to 9:00 AM and again from 3:00 PM to 6:00 PM. The store has had six slip-and-fall claims from customers in the past year. To which one of the following types of liability loss is Danforth Grocery Store most exposed? A. Premises liability B. Automobile liability C. Completed operations liability D. Professional liability

Diversification is a risk control technique that A. Spreads loss exposures over numerous projects, products, markets, or regions. B. Views the cause of accidents to be a result of business concentration and vertical integration. C. Produces a copy or backup and keeps it in reserve. D. Divides an asset or operation into two or more separate units.

Due to fierce local competition, the CEO of Apex Manufacturing is planning to expand into other geographical markets. Which one of the following risk control techniques, dealing primarily with business risk, is the CEO applying? A. Diversification B. Segregation C. Separation D. Duplication

During which one of the following stages of the strategic management process would an organization use methods such as Porter's Five Forces Analysis and PESTLE Analysis? A. Analyzing Environments B. Formulating Strategies C. Evaluating Strategies D. Developing Goals

Elliott Industries has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. The building renovations created an airtight, oxygen-free, vacuum-sealed room to house the expensive equipment. For fire losses initiating in that room, the airtight, oxygen-free, vacuum-sealed room is an example of A. Loss prevention.

Emerald Industries has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Emerald installed state-of-the-art smoke detection devices throughout the facility. Emerald's state-of-the-art smoke detection devices are an example of A. Loss reduction. B. Duplication. C. Loss prevention. D. Avoidance.

Feldman Floor Coverings sells carpet and tile from five retail stores. Theft losses are almost nonexistent. Most customers pay by check or credit card, so little cash is kept on the premises. Most of the merchandise in the stores, floor coverings, is difficult to steal by customers. When theft losses occasionally occur, the losses are paid through current cash flow. This method of dealing with theft losses is called A. Informal retention. B. Loss avoidance. C. Self-insurance D. Private insurance.

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Taylor would like to expand operations and has undertaken a SWOT analysis. One of the major complaints Taylor hears from his customers is the difficulty finding local contractors. So, he is considering hiring a general contractor at the store who would also make house calls to assist customers. This will allow him to bill for labor and increase the sale of his products, but he is concerned it may increase his insurance claims and premiums. One of the younger store employees suggested they create a website to expand sales to on-line purchases and target electronic advertisements to commercial accounts. Taylor is not sure that he has the expertise to maintain a website and run the store. The employee claims to know a company that can maintain a website for Paoli at minimal cost. Taylor believes the website is a good idea and will increase sales of lumber. To protect Paoli from increases in the cost of lumber, Taylor is considering a forward contract with the lumber yard. If Taylor completed a PESTLE analysis instead of a SWOT analysis, the PESTLE analysis would include which one of the following? a. Increase in competition b. Introducing on-line sales c. Need for a growth initiative d. Lack of expertise among employees

The determination that an invention is actually a trade secret is A. Often made by the courts. B. Authenticated by the length of time the invention has been in use. C. Confirmed by a search of the trade secret registry. D. Established by customs and traditions of the trade for which the invention is used.

The production phase of an organization's fleet life cycle involves A. Purchasing vehicles selected in the conceptual and engineering phases. B. Using the vehicles to transport freight or passengers. C. Determining what types of vehicles will meet an organization's needs. D. Selecting the vehicles, operators, routes, schedules, and maintenance.

The right to invade another's interest to promote or protect one's own greater interests is A. Legal privilege. B. Self-defense. C. Last clear chance. D. Immunity.

The risk manager of a large manufacturing company has been asked by the CFO to develop a strategy to eliminate property damage at a particular site. Which one of the following risk control techniques can the risk manager use to reduce the probability of loss to zero? A. Avoidance B. Loss prevention C. Loss reduction D. Separation

Treaty reinsurance A. Obligates the reinsurer to assume those loss exposures that fall within the treaty. B. Requires that a certificate be completed for each transaction. C. Obligates the reinsurer to cede loss exposures covered by the agreement. D. Requires that each loss exposure be separately submitted to the reinsurer.

Agri-Lab is a small agricultural products company. Last year, the company patented a new method for extracting ethanol from grain. The Agri-Lab method reduces the cost of this process by over 40%. GrainCom is an agricultural conglomerate that owns huge supplies of grain. GrainCom offered to purchase Agri-Lab (the company) for $40 million, based on the money it would make by applying Agri-Lab's process to the grain it owns and grain it may purchase in the future. The value of GrainCom's bid to purchase Agri-Lab is based on which rationale for assigning a value to intellectual property? A. To use in the acquisition of capital B. For merger and acquisition purposes C. For accounting and tax purposes D. To license its use by others

An amount charged to make up for losses in a state-sponsored plan to insure high-risk exposures, such as an assigned risk plan for auto insurance is known as the A. Guaranty fund assessment. B. Residual market loading. C. Coinsurance penalty. D. State premium tax.

An excess liability insurance policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy is called A. A layered policy. B. A following-form excess policy. C. A true excess policy. D. An umbrella policy.

Basel I and Basel II prescribe capital requirements for A. Government operated businesses. B. Financial institutions. C. International corporations. D. Commercial insurers.

Construction contracts typically hold the A. Contractor harmless for any premises liability claims. B. Landowner harmless for certain construction-related claims. C. Eventual tenant of the premises harmless for construction defects. D. Contractor harmless for any negligence.

Each of the risk control techniques of duplication, separation, and diversification A. Decrease the frequency of losses incurred by an organization. B. Reduce the severity of loss associated with the organization's loss exposures. C. Cause losses to be less predictable but more manageable. D. Work in combination to transfer the organization's loss exposures.

Group self-insurance plans are available for A. Flood loss exposures. B. Workers' compensation loss exposures. C. Auto liability loss exposures. D. Professional liability loss exposures.

Hold-harmless agreements are A. Enforceable without legal consideration. B. Comprised of two parties—the indemnitor and the indemnitee. C. Highly regulated. D. Standardized.

Ideally insurable loss exposures are subject to losses that A. Occur gradually over long periods of time. B. Are definite in time, cause, and location. C. Result from unidentifiable causes. D. Are immeasurable in terms of frequency or severity.

If a pool has enough loss exposures to benefit from the law of large numbers, it can help members meet which one of the following risk financing goals? A. Maintain liquidity B. Manage uncertainty C. Minimize the cost of risk D. Comply with legal and regulatory requirements

In a legal dispute between parties from different countries, which one of the following sets of issues must be considered? A. Jurisdiction and legal system B. Jurisdiction and comity C. Political implications and future trade D. Comity and political implications

In a majority of countries, the legal systems fall into the two major categories of A. Common-law system and tort-law system. B. Common-law system and civil-law system. C. Common-law system and criminal-law system. D. Civil-law system and criminal-law system.

Radley Contracting Company is installing new signage on the front of a building. George, a passerby walking near the building is injured when a Radley employee accidentally drops a tool from a crane. George likely has the ability to assert which one the following types of claim? A. Premises and products liability B. Premises and operations liability C. Completed operations liability D. Incompleted operations liability

Statutory limitations on hold-harmless agreements vary in the A. Cost or compensation associated with the agreement. B. Types of noninsurance transfers to which the statutes apply. C. Allowable complexity of the agreement. D. Length of time that such transfers can be effective.

The major difference between a traditional experience rated insurance plan and a retrospectively rated insurance plan is A. The coverage limits available under each type of plan. B. The period of loss experience that is used to adjust the premium. C. Whether state premium taxes are levied on the premium for the coverage. D. Which party, the insurer or the insured, provides loss adjustment services.

The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposures is called a A. Retrocession. B. Line. C. Novation. D. Loss limit.

The primary purpose of a captive insurer is to A. Transfer risk to another entity. B. Reduce the parent's cost of risk. C. Produce a profit through insurance operations. D. Create a tax shelter for profits.

The priorities established for managing IT risks will vary among organizations. Which one of the following organizations would put more emphasis on performance risk? A. Medical office B. Manufacturing plant C. Online retailer

The process of creating a marketable investment security based on the expected cash flows from a financial transaction is A. Derivation. B. Securitization. C. Investment. D. Trading.

The purpose of ceding commissions in pro rata reinsurance is to A. Increase the primary insurer's loss reserves for unexpected losses. B. Reimburse the primary insurer for policy acquisition expenses. C. Compensate the original producer for developing the business. D. Provide funds for a catastrophe fund in case of disaster.

The purpose of punitive damages is to A. To fund public safety programs related to the alleged harm. B. Set an example so the behavior is discouraged. C. Provide a financial windfall to the plaintiff. D. Substitute for criminal sanctions.

Under a per policy excess of loss treaty, the attachment point and the reinsurance limit apply A. Separately to each loss under each policy up to an aggregate limit specified in the treaty. B. Separately to each insurance policy regardless of the number of losses occurring under each policy. C. To the aggregate of all losses of a specific type from a primary insurer's book of business. D. Separately to each category of loss under each policy as specified in the treaty.

William is the risk manager for a manufacturing company that has decided to expand its operations into several foreign countries. He and the executive team are debating whether they should rely on admitted insurers for insurance coverage in the foreign countries, or use their insurer domiciled in the U.S. For the executive team, which one of the following is an advantage of purchasing the insurance for their foreign operations through admitted insurers in those countries? A. Purchasing locally will increase the company's purchasing power and strengthen the implementation of its enterprise risk management program. B. Doing business locally and complying with local laws will help integrate the company into the local economy and community. C. The premium and claims payments will be made in U.S. currency, thereby eliminating foreign exchange rate risk. D. By using local admitted insurers they are less likely to have problems with nonuniform conditions, coverage gaps, and underinsurance.

ABC Insurance Company (ABC) has entered into a 60% quota share treaty with XYZ Reinsurance Company (XYZ). An $80,000 loss occurs that is subject to the reinsurance treaty. Under the terms of the treaty, how much would XYZ indemnify ABC for the loss? A. $0 B. $32,000 C. $48,000 D. $80,000

ABC Insurance Company has a 20% quota share treaty with XYZ Reinsurer. One of ABC's policies has a $1 million limit, a premium of $8,000, and a loss of $50,000. How much of the loss will XYZ Reinsurer pay? A. $0 B. $4,000 C. $10,000 D. $40,000

Basic Cells, a manufacturer of cell phones, has failed to meet its sales goals for the second consecutive year. The management team at Basic Cells develops the following information as a result of its SWOT analysis: Strength: We produce economy cell phones less expensively than any competitor. Weakness: Our cell phones are considered to be too large by industry standards. Opportunity: Our largest and growing market population is people over age 65. Threat: Competitors are continually increasing the technology in their cell phones. As a result of the SWOT analysis, the management team decided to develop a line of inexpensive cell phones with large buttons and numbers, and with a lanyard attachment to wear around the neck. These will be marketed to people over age 65 who tend to have vision impairments. Which one of the following statements best describes the logic behind this decision? A. Strengths compared to weaknesses determine the driving force for strategies. B. Opportunities compared to threats determined the prioritization of strategies. C. Strengths that can be paired with opportunities are areas of competitive advantage. D. Weaknesses that can be paired with threats are risks to be avoided.

Hadley Computer Manufacturing is being sued by another computer manufacturer because Hadley's logo is written in such a way that it confuses consumers regarding which manufacturer is the creator of the product. This is an example of an infringement of A. Patent. B. Servicemark. C. Trademark. D. Copyright.

Harboring wild or dangerous animals can make someone liable under the doctrine of A. Invasion of privacy. B. Nuisance. C. Strict liability. D. False imprisonment.

In a forward contract, the buyer and seller of a commodity A. Speculate on the price in the future. B. Estimate prices initially and finalize prices in the future. C. Know its price prior to delivery. D. Calculate prices based on industry indexes.

In both noninsurance risk control and noninsurance risk financing transfers, A. The transfer becomes effective only when the transferee actually performs the action that rids the transferor of risk. B. The transferor has protection only after the funds to restore a loss are paid. C. A contract is usually formed before any loss occurs. D. The transferor has protection regardless of the transferee's bankruptcy.

Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in another. Ivanhoe is using which one of the following risk management techniques? A. Risk transfer B. Duplication C. Diversification D. Separation

Kendall Incorporated is a manufacturer based in the U.S. which has growing international exposures. It does not own any permanent offices or manufacturing facilities in foreign countries, but it does have several employees who travel to these countries on a fairly regular basis. Kendall Incorporated purchased an exporters package policy through its U.S.-based insurer to cover the incidental exposures in these foreign countries. Which one of the following coverages will Kendall need to purchase from admitted insurers in the individual countries? A. Crime B. Personal property C. Compulsory auto liability D. Foreign voluntary workers compensation

Loss reduction of statutory liability A. Uses techniques similar to those for contractual liability. B. Often uses the assumption-of-risk defense. C. Is generally ineffective. D. Relies on valuation provisions.

Onboard computers enhance motor vehicle fleet safety when the data are A. Provided only to individual drivers rather than to risk managers. B. Compiled into a national database for statistical purposes. C. Used to improve operator performance. D. Uploaded directly to insurers' databases.

Once an organization determines that a statutory liability loss exposure exists, the organization should A. Devise a means of circumventing the statute. B. Investigate defenses to enforcement. C. Comply with that statute.

Which one of the following statements is correct regarding formulating an organization's long-term strategies? A. All parts of an organization play a role in formulating an organization's long-term strategies. B. A long-term strategy should be an aspirational description of what an organization will accomplish in the long-term future. C. Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments. D. Formulating an organization's long-term strategy involves determining the "who," "what," and "when" responsibilities of each department.

Which one of the following statements is correct regarding how pools operate? A. Pools can be formed to cover workers compensation exposures only. B. The structure of most pools is more formal than that of a group captive. C. Pools operate like an insurer by collecting premiums, paying losses, and purchasing excess insurance or reinsurance.

Which one of the following statements is correct regarding treaty reinsurance? A. Treaty reinsurance agreements are usually designed to allow underwriters to exercise discretion in determining which loss exposures to cede to the treaty reinsurers. B. Treaty reinsurance agreements are designed to address a primary insurer's need to insure atypical loss exposures. C. A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them. D. The price and terms of reinsurance agreements are standard with little negotiation between the parties.

Cargo is least likely to be damaged when A. Drivers do not interfere with loading procedures or securing cargo. B. Vehicle schedules are demanding and tightly coordinated. C. The selected route is the shortest in terms of mileage from point to point. D. A suitable vehicle is selected for transporting the specific cargo.

Which one of the following statements is true regarding contracting for services as a noninsurance risk control transfer? A. Personnel loss exposures associated with an activity cannot be transferred through subcontracting. B. Organizations rarely use contracting to transfer loss exposures to organizations that are better able to control losses from a particular activity. C. Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third parties. D. The party that accepts the risk through contracting for services must be an independent contractor for the transfer to be effective.

A SWOT analysis is a methodical assessment of the A. Employee head count and productivity. B. Executive and board leadership. C. Profitability and market penetration. D. Organization and its business environment.

A contract whose terms and intentions are explicitly stated defines A. An implied contract. B. A void contract. C. A valid contract. D. An express contract.

A following-form excess liability policy is an excess liability policy that A. Provides broad coverage in excess of a self-insured retention. B. Requires the insured to retain a specified amount of loss from the first dollar during a specified period of time. C. Does not depend on the provisions of the underlying policy for determining the scope of the coverage. D. Covers a claim in excess of the underlying limits only if the loss is covered by the underlying insurance.

A group self-insurance plan operates like an insurer in that it A. Can insure most loss exposures, including auto and general liability exposures. B. Is subject to the same regulatory requirements as an insurer. C. Files annual statements in the format prescribed by state insurance departments. D. Pools the loss exposures of its members.

A local shopping center reduced its net income loss after a fire by incurring additional expenses to shorten the time it takes to repair the damage and reopen the shopping center. Bob, the owner of the center, hired a contractor to work around the clock until repairs were completed. This reduced Bob's net income loss because he was able to repair the shops sooner. Bob's action is an example of which one of the following risk management techniques? A. Loss prevention B. Avoidance C. Diversification D. Loss reduction

Few defenses are available to an organization to reduce the fine or penalty it faces when it violates A. Vicarious liability laws. B. Legal interests by torts. C. Products liability laws. D. Statutes.

For a company that has international operations, which one of the following is an advantage of using a controlled master program? A. Local risk managers have greater control and responsibility for their foreign subsidiaries. B. Only one insurance policy is purchased that provides all coverage in a single contract. C. Less information is generated that must be reviewed and analyzed under a controlled master program. D. Premiums are lower because of the elimination of duplicate coverage and increased purchasing power.

For a contract to be enforceable, each party must give up something of value. This is known as A. Legal purpose. B. Agreement. C. Capacity. D. Consideration.

Frozen food spoiling in an unrefrigerated vehicle is an example of A. A tort. B. Poor driver training. C. Vicarious liability. D. An inherent vice.

If a captive insurer is established to provide coverage for loss exposures that the parent company has difficulty insuring privately, how does the captive insurer typically deal with such risks? A. Through purchasing proportional reinsurance B. By capping the liability on a per-loss basis, with the parent company assuming losses above the liability cap C. By insuring difficult-to-insure loss exposures of other companies, effectively pooling the exposure D. Through purchasing excess of loss reinsurance

In any legal dispute arising between parties from different countries, which one of the following issues must be considered? A. Whether domestic law has priority over any relevant trade agreements. B. Whether the conflict may be settled through arbitration. C. Whether the dispute is a public or private matter. D. Whether a court in one country will recognize the decision of another country's court.

Investors in contingent capital arrangements A. Can assume control of the organization's investments when losses exceed the specified threshold. B. Are guaranteed that the organization will exercise the option at a specified time. C. Pay a commitment fee to ensure that they will pay future loss costs. D. Become creditors of the organization following a loss.

Providence Pharmaceuticals believes that another company is infringing upon its trademark. Providence Pharmaceuticals' risk manager has instructed its legal department to begin by sending a cease-and-desist letter and, if that is unsuccessful, to follow up with a notification of intent to sue. This is an example of A. A notice. B. A search and watch. C. A restrictive covenant. D. An enforcement of rights.

Quota share reinsurance is a type of pro rata reinsurance in which the primary insurer and the reinsurer A. Divide the reinsurer's excess profits equally. B. Split losses according to a sliding scale. C. Split policy premiums according to a negotiated sliding scale. D. Share the amounts of insurance using a fixed percentage.

Regarding options, the strike price is the A. The price at which the seller of the assets will make a profit. B. Agreement that gives the holder the right to sell an asset at a specific price over a period of time. C. The price at which the holder of the option will profit. D. Specific price at which the holder of an option can buy or sell the asset associated with the option.

Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other reinsurers, known as A. Ceding reinsurers. B. Cedents. C. Direct insurers. D. Retrocessionaires.

Suds-Z Brewing Company (SBC) is a microbrewery with a loyal following. SBC's "old world brewing method" gives its beer a unique taste. Competitors have tried and failed to duplicate the taste. For SBC, its "old world brewing method" is considered to be A. A reputation risk. B. A depreciable asset. C. A tangible asset. D. Intellectual property.

The control technique that disperses a particular asset or activity over several locations and regularly relies on that asset or activity as a part of an organization's working resources is which one of the following? A. Risk transfer B. Duplication C. Diversification D. Separation

The purpose of a retrospective rating plan is to A. Adjust the premium for flexible-rated insurance plans to reflect the insured organization's past losses. B. Reduce the insured organization's retention by shifting higher loss costs to the insurer for large losses. C. Reduce the cost of property insurance by spreading loss costs over a specified number of years. D. Adjust the premium for guaranteed-cost insurance to reflect the insured organization's current losses.

The purpose of a self-insurance plan is to enable an organization to A. Avoid the time and effort required to maintain records related to exposures and losses. B. Maintain control of its enterprise risk management process by retaining all exposures to loss. C. Retain losses that are of both high severity and low frequency to reduce overall costs. D. Lower its long-term cost of risk by allowing it to pay for its own losses without incurring insurance costs.

Which one of the following statements is true regarding valuing intellectual property? A. The cost approach to valuing intellectual property is the standard recognized by the Internal Revenue Service. B. It is relatively easy to assign a specific value to intellectual property. C. The income approach to valuing intellectual property is the standard recognized by most courts. D. The value of a piece of intellectual property may be used to determine the proportion of risk management resources that should be devoted to it.

Which one of the following terms refers to a condition that can cause property to deteriorate or destroy itself? A. Decay B. Unsuitability C. Depreciation D. Inherent vice

Which one of the following major IT risks is likely to arise when an organization's revenue stream falls? A. Software malfunction B. Phishing C. Data breach D. Project back-log

D: Project back-log is likely to arise when an organization's revenue stream falls. When the revenue stream fall, the organization may need to cut the budget for future IT projects or cut staff, resulting in delayed upgrades to equipment or capabilities.

The IT operational risk caused by a natural disaster such as a tornado or hurricane would be assigned to which one of the following classifications? A. Compliance B. Performance C. Security D. Availability

D: The IT operational risk caused by a natural disaster such as a tornado or hurricane would be classified as availability. Security risks are those dealing with a data breach that could result in unauthorized access to, use of, or alteration of an organization's information.

When organizations invest their assets among a mix of stocks and bonds from companies in different industry sectors they are using the risk management technique of A. Diversification. B. Duplication. C. Risk transfer. D. Separation.

When using a self-insurance plan, excess insurance is A. Usually a useful addition to the total risk management program. B. Purchased as an underlying layer of protection for specific hazards. C. Not needed. D. Needed to cover the frequent, low severity losses that make self-insurance plans expensive.

Which one of the following is a disadvantage of using self-insurance rather than purchasing insurance? A. Deferral of tax deductions B. Exercising greater control over loss settlements C. Avoiding paying the expense portion of insurance premiums D. Improved cash flow as losses are paid over time

Which one of the following methods can be used by a risk management professional to provide high-level executives with the basic information necessary to understand where a risk issue should be ranked among other risk-related priorities? A. Dashboard reporting B. Feedback loop C. Pie chart diagram D. Bow-tie diagram

Which one of the following methods used by a risk professional to convey a program's effectiveness to internal stakeholders is the most visual and can be used to engage the audience? A. Bow-Tie

Which one of the following statements regarding reinsurance is true? A. Reinsurance agreements typically require the primary company to retain part of its original liability. B. The ceding company is the insurer that agrees to indemnify another insurer in case of loss. C. Once risk is transferred to a reinsurer, the reinsurer cannot transfer the risk to another reinsurer. D. Reinsurance transfers the obligations that a primary insurer has to its insured to the reinsurer.

An insured has a commercial general liability policy with one insurer and an excess liability policy with another insurer. There are coverage gaps due to the excess policy's independence from the underlying policy for coverage determination. Which one of the following types of excess policy does the insured have? A. Aggregate excess liability policy B. Self-contained excess liability policy C. Following-form excess liability policy D. Specific excess liability policy

An insured has a specific excess liability policy with a $100,000 per occurrence retention and a $1,000,000 maximum limit. The insured suffers separate losses of $25,000, $50,000, $100,000, and $900,000 during one policy year. Under the specific excess liability policy, the insurer will pay A. $100,000. B. $800,000. C. $1,000,000. D. $1,075,000.

An option is an agreement that gives the holder the A. Option to purchase a specified asset at a definite time in the future at a price negotiated in the future. B. Right, but not the obligation, to buy or sell an asset at a specific price over a period of time. C. Duty to sell an asset at a specified price at an unspecified time in the future. D. Obligation to sell an asset at a specified time in the future, but the price is negotiable.

An organization can be held legally liable because of which one of the following three major liability causes of loss? A. Strict liability, products liability, and ultra hazardous activities B. Torts, contracts, and statutes C. Public liability, workers' compensation, and watercraft liability D. Negligence, intentional tort, and unintentional tort

Boca Insurance Company enters a quota share reinsurance treaty with Beetle Reinsurance Company (Beetle Re). Boca retains 60% of each loss exposure subject to the treaty while reinsuring the remaining amount to Beetle Re. Assuming a $100,000 loss occurs that is subject to this reinsurance agreement, Beetle Re's portion of the loss is A. $0. B. $40,000. C. $60,000. D. $100,000.

Catastrophe bonds A. Are typically structured to cover frequent, low-severity losses. B. Can be issued for any type of catastrophic insurable risk. C. Were developed in response to the excess capacity of catastrophe reinsurers. D. Transfer insurable catastrophe risk to traditional reinsurers.

Charlotte is the risk manager at Parker Incorporated. There is a significant risk management concern that she needs to communicate to the senior management team. Charlotte prepares her presentation with her audience in mind. She thinks about the objectives of the management team and what information they need in order to make decisions. Which one of the following communication methods is Charlotte planning to use? A. Feedback loop B. Dashboard reporting C. Decision tree diagram D. Bow-tie diagram

Cold Coolers, Inc., has its main warehouse in St. Louis. It also stores inventory in two warehouses in other cities to reduce the distance between their warehouses and retail locations. Cold Coolers is using which one of the following risk management techniques? A. Risk transfer B. Separation C. Duplication D. Diversification

Conor needs to deliver an important message to his staff. He has scheduled a meeting in a conference room with his staff of 10 individuals. Which one of the following is the best way for Conor to use his body language to convey confidence in his message and interest in his staff? A. Conor should walk around the room standing over different individuals as he speaks. B. Conor should sit up and lean slightly toward the audience. C. Conor should keep his hands folded on the table to avoid distracting motions. D. Conor should sit at the end of the table leaning back in his chair.

In the United States, the formation and operation of workers compensation pools are regulated by the A. National Council on Compensation Insurance (NCCI). B. Individual states. C. Occupational Safety and Health Act (OSHA). D. Individual industries.

In the typical civil law case the preliminary stage involves submission of pleadings and A. Documentation of evidence. B. Appointment of a hearing judge. C. Definitions of legal terms. D. Preparation of a written summary of the proceedings.

Inserted into a contractual agreement, which one of the following provisions limits the amount for which one party might otherwise be liable? A. Both-to-blame clause B. Liquidated damages clause C. Valuation clause D. Duty to mitigate clause

Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact on which one of the following risk treatment techniques? A. Risk retention B. Risk modification C. Risk avoidance D. Risk transfer

Printer Ink, a business that refills empty printer cartridges, is conducting a SWOT analysis to examine reasons for the growing number of complaints and returned faulty printer cartridges. Printer Ink's managers have listed the following as weaknesses during their brainstorming session: Lack of experience: Printer Ink and has been unable to keep experienced employees. New business: Printer Ink has only been in business for two years. Low capital: Printer Ink is in debt and pays a high rent. Location: Printer Ink is relatively difficult for customers to locate. Weaknesses are ordered by the degree to which they affect performance and by their relative importance. Based on the reasons for the analysis, which weakness should Printer Ink's managers list first in their prioritization of weaknesses? A. Low capital B. Lack of experience C. New business D. Location

Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with potential hidden agendas? A. Olivia should refuse to take questions during her meeting, and request that any questions be forwarded to her in writing after the meeting. B. Olivia should start the meeting by stating that she does not expect everyone like the new procedure, but they must accept it. C. Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure. D. Olivia should hold a separate meeting for those individuals who she suspects have a hidden agenda.

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