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Risk quadrants are different from risk classifications. Risk quadrants focus on what? - ✔✔The source of the risk itself and what part of the organization has managed it in the past. An enterprise risk management approach is categorizing risks into quadrants. What are hazard risks? - ✔✔Normally managed by risk management professionals. What are the four risks in the enterprise risk management model? - ✔✔Hazard, operational, financial, and hazard. What risk quadrant is the change of stocks or bonds values because interest rate changes in? - ✔✔Financial risks. What is true of pure and speculative risks? - ✔✔All businesses involve speculative risks. What is true of diversifiable and nondiversifiable risks? - ✔✔Systemic risks are nondiversifiable generally. What is an example of a strategic risk? - ✔✔A new computer chip that could give a company growth. What is an example of an operational risk? - ✔✔The ability of suppliers to perform. What is true of subjective and objective risks? - ✔✔Subjective risk can be present where objective risk is not. What is an example of a speculative risk? - ✔✔Investing in stock. What is true of diversifiable versus nondiversifiable risk? - ✔✔Diversifiable risks are not correlated and can be managed through diversification or spread of risk.
A company's fleet of cars is worrying the managers liquidity of the company and fuel prices having an adverse effect is which type of risk quadrant? - ✔✔Financial risk. An employee embezzling funds from a company for not feeling adequately paid is what risk? - ✔✔Both a hazard and an operational risk. Failing to respond to changing customer demands is an example of what risk? - ✔✔Strategic risk. The fear of your home being hit by a storm and damaged or destroyed is what risk for you? - ✔✔A subjective risk. What quadrant of risk is a harmful chemical found in a building with unknown harm to residents and to the clean up crew part of? - ✔✔A hazard risk. Driving instead of flying because of feeling of safety is an example of what? - ✔✔A subjective risk. Investing money in a rental property brings what? - ✔✔Both speculative and pure risks. The property values can increase or decrease and the building could burn down. Increased competition is an example of what? - ✔✔A strategic risk. Renovating a warehouse, purchasing a new order processing software, added two new delivery trucks, and purchasing a production machine which also allows for potential for a new product line, are all projects. Which project is the most speculative? - ✔✔The new production machine. What is a true statement on the basic measures applying to risk management? - ✔✔Consequences measure the degree to which an occurrence could positively or negatively affect an organization. The law of large numbers states as the number of exposure units increases, what happens? - ✔✔The relative accuracy of predictions about future losses increase.
Regression analysis assumes what? - ✔✔The variable being foretasted varies predictably with another variable. What is a key performance indicator? - ✔✔A measure of the performance of a specific activity at a predetermined level or amount. What is an example of a key performance indicator based on a ratio? - ✔✔Inventory turnover. What is the progress of a key performance indicator? - ✔✔A measure of the progress an organization has made toward attaining its goals within a specific amount of time. What answers the question, what shows we are a success and working towards goals, financial or nonfinancial? - ✔✔A key performance indicator. Organizations goals and objectives are met by establishing measurable standards. What is true about those standards? - ✔✔For each key performance indicator, there is a tolerance level for how much deviation from the standard established in the key performance indicator will be acceptable. Insurance reps will get a bonus if retention is increased by 5%, this is an example of what? - ✔✔The standard of a corrective measure linked with an identified tolerance level. Customer satisfaction is a strategic objective, what is a critical success factor to for this objective? - ✔✔High customer retention. A main characteristic of a key risk indicator is? - ✔✔They are based on quantifiable information. What key risk indicator might a contractor monitor? - ✔✔Budget variances. What key risk indicator might a manufacturer monitor? - ✔✔Cost of raw materials.
What are key risk indicators? - ✔✔They are based on quantifiable information and support management decisions. Key risk indicators are used to plan for and respond to risk which can do what? - ✔✔A key risk indicator can reveal an upward trend in the level of a risk that, if it continues, will exceed the designated risk threshold for that risk. Key risk indicators enhance what? - ✔✔Efficiency. Key risk indicators help organizations identify issues that can lead to losses and key risk indicators are based on what? - ✔✔Strategic objectives. The CEO is interested in the key risk indicators measuring a company's profitability. What area of measurement will the risk manager want to look at? - ✔✔Aged accounts receivable. What term measures the significance of a risk? - ✔✔Risk criteria. What departments usually have the most detailed key risk indicators? - ✔✔Department levels. What do business process managements do? - ✔✔Focus on coordinating activities toward the preferences and needs of customers and aligning operational with strategic goals. What business process management step is often skipped? - ✔✔Identify processes. Describe the first step of the business process management. - ✔✔Critical processes that support achievement of the organization's goals are selected for analysis. Business process management focuses on what? - ✔✔Customer satisfaction. Define risk indicator in business process management. - ✔✔A tool used to measure the level of uncertainty in an activity, project, or process.
"means to limit the potential impact from a loss at a single location" is what control? - ✔✔Separation. A systemic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called? - ✔✔Root cause analysis. The second step of root cause analysis determines what agents caused one event to trigger another. What are these agents? - ✔✔Causal factors. What is true of root cause analysis? - ✔✔It must produce effective recommendations for prevention of future accidents. What root cause analysis procedure came from quality control procedures in industrial manufacturing? - ✔✔Production-based root cause analysis. A worker is killed because another worker removes a safety device from the machine and another removes a warning sticker. What is the root cause of this? - ✔✔Inadequate training. An analysis that begins with causes and then gets to consequences is what? - ✔✔Failure mode and effects analysis. How do you prioritize using failure mode and effects analysis? - ✔✔If two system failures are compared, the one with a higher criticality score should be addressed first even if its risk priority number is lower than the other system failure. In failure mode and effects analysis, ranking the severity of losing each component is what? - ✔✔Criticality analysis. A failure mode with an effect on the same level that is being analyzed produces what? - ✔✔A local effect. How do you calculate criticality score? - ✔✔Multiply the severity of failure by the likelihood of failure. Severity * likelihood.
What analysis is identifying important components of production process and ranking the severity of losing each into four failure categories in an attempt to establish priorities of hazards and control? - ✔✔Criticality analysis. Using failure mode and effects analysis to analyze a system, subsystem, components, sub-assemblies, and parts, all with different levels, these various systems and subsystems are what? - ✔✔Indenture levels. Fault tree analysis naturally suggests what? - ✔✔Loss prevention measures. What is the purpose of a fault tree analysis? - ✔✔To identify different ways of analyzing the sequence of events causing the system failures so that the failure can be prevented. In fault tree analysis, an "or" gate means what? - ✔✔That any of the events leading to the gate is sufficient to cause that event to occur. "And" connecting events in rectangles C, D, and E to the event in rectangle A indicates what? - ✔✔Preventing the event in rectangle C, D, or E from occurring will prevent the event in rectangle A from occurring. "And" gate event probabilities include what? - ✔✔Multiplying the probability of each event occurring to get the probably of passing through the "and" gate. Tracing events leading to a failure backwards in a particular system is what approach? - ✔✔Fault tree analysis. What is ratemaking? - ✔✔The process insurers use to calculate insurance rates, which are a premium component. What is the primary goal of ratemaking? - ✔✔Have rates to compete effectively and earn a reasonable profit on operations.
What is the rate multiplied by the number of exposure units? - ✔✔Premium. What is the component in ratemaking to pay future claims and loss adjustment expenses? - ✔✔Prospective loss costs. What component in ratemaking is for premium taxes and fees paid to regulatory organizations? - ✔✔Expense provision. The pure premium is the amount included in the rate per exposure unit required to pay losses. This component is also called what? - ✔✔Loss cost. With regards to investment operations, what is true? - ✔✔Loss reserves for liability insurance are much greater than for property insurance. What is pure premium? - ✔✔The amount included in the rate per exposure unit required to pay losses. What are expenses associated with adjust claims? - ✔✔Loss adjustment expenses. A property-casualty insurer has what two operations? - ✔✔Insurance operations and investment operations. True or false, prospective loss costs are supplied by advisory organizations or developed by insurers with large enough pools of loss data. - ✔✔True. What describes components of an insurance rate? - ✔✔Amounts to pay future claims, loss adjustment expenses, other expenses, and an amount for profit and contingencies. An earned exposure unit is what? - ✔✔An exposure unit that has provided a full year of coverage, by the insurer.
The amount in rates to protect against claims or expenses being high is what? - ✔✔The loading for profits and contingencies. What is true of rate calculations? - ✔✔Some states require investment income to be considered explicitly in rate calculations. Future acquisition costs, overhead, and premium taxes is what? - ✔✔The expense provision of a rate. The amount to pay future claims and loss adjustment expenses is what? - ✔✔Prospective loss costs. Investment return depends on loss reserves, the associated unearned premium reserves, and what? - ✔✔The types of insurance written. In house adjusters salaries are part of what? - ✔✔Loss adjustment expenses The value being insured in a $100,000 homeowners policy is what? - ✔✔The exposure base. The delay in reflecting loss experience in rates stems from what? - ✔✔Time period during which rates are in effect, usually a full year. What is a starting point to estimate future losses? - ✔✔Past loss experience. Loss estimates need to be where? - ✔✔Shown legally through loss reserves on their (the insurer's) balance sheet. Insurers wait longer in ratemaking process is to do what? - ✔✔Permit loss data to mature. What is true with respect to estimating losses for use in the ratemaking process? - ✔✔Rates are based on incomplete loss experience because we are estimating.
Workers compensation insurance benefits are established by a statute. If legislation or a court decision changes these benefits, past losses must be adjust to what? - ✔✔Current benefit levels. What ratemaking data collection method is the least accurate? - ✔✔Calendar-year. When using prospective loss costs supplied by advisory organizations to produce rates, each insurer must apply its own what? - ✔✔Loss cost multiplier. When creating or revising insurance rates, an insurer's staff or an advisory organization on behalf of the insurer follows a series of steps. Generally the first step in this process is to what? - ✔✔Collect data. During which one of the following steps in the ratemaking data development process does an insurer review which areas in a state deserve higher or lower rates? - ✔✔Determine territorial and c lass relativities. True or false, exponential trending assumes data will increase by a fixed percentage. - ✔✔True As a key step in the process of developing insurance rates, actuaries adjust the premium and loss data that they have collected from past years. Which one of the following statements concerning this adjustment process is true? - ✔✔Loss development factors reflect growth in incurred reported losses and in IBNR. When an insurer is under-reserved, its surplus is what? - ✔✔Overstated. Incurred losses = - ✔✔Paid losses + loss reserves + loss adjustment expense reserves What is true of under-reserving and its effects on premium rates? - ✔✔Under-reserving makes incurred losses appear too low and results in rates that are too low. Incurred but not reported reserves do what? - ✔✔Account for future growth of known losses.
What is loss development? - ✔✔The increase or decrease of incurred losses over time. How are loss reserves handled on financial statements? - ✔✔They are liabilities on the balance sheet. What is the purpose of loss reserves? - ✔✔To estimate the liability for losses that have occurred but have not yet been settled. What best describes the reserves a reinsurer must have? - ✔✔Amounts obligated in the future to pay primary insurers. When accounting for accident year losses for year 2016, what would be included? - ✔✔A reserve change in 2017 for a loss that occurred in 2016. PIC had loss reserves at year end last year of $28 million. During the first quarter of this year, PIC's reserves were reevaluated to be $32 million. What is the financial impact of loss reserve increases? - ✔✔Policyholders' surplus will be reduced. What is true of case reserves? - ✔✔Reinsurers may supplement the primary insurer's case reserves for their own financial reporting purposes. What is a negative of the average method of case reserves? - ✔✔It may produce reserves that are too low for insurance with wide variation in claims. The average method of case reserving is best for what insurance? - ✔✔Insurance with claims that are reported and paid promptly. The tabular method of determining case loss reserves would be best for what? - ✔✔A structured settlement amount for a liability insurance claim. What case reserving method establishes average amount for all claims with similar characteristics such as age, health, and marital status? - ✔✔Tabular method.
What is true of checklists and questionnaires? - ✔✔The questions include in the questionnaires and checklists developed by insurers relate mainly to loss exposures for which commercial insurance is generally available. A diagram that graphically and sequentially depicts the activities of a particular organization or process is what? - ✔✔A flowchart. What is a benefit of a compliance review? - ✔✔The can help minimize or avoid liability loss exposures. What can be used to identify net income loss exposures? - ✔✔Income statement. Weakness of risk assessment questionnaire? - ✔✔The structure of the questionnaire may not stimulate the user to do anything more than fill in the blanks to answer the questions posed. The best method to identify all owned property exposures is? The worst is? - ✔✔Personal inspections. Loss histories. To avoid under or overestimating loss projections, past loss data must be presented in what? - ✔✔Constant dollars. To accurately analyze loss exposure data, the data needs to be what? - ✔✔Relevant, complete, consistent, and organized. When developing loss severity distributions, data should be organized how? - ✔✔By size of loss. If fire damage to a building was $200,000 in 2002, the $200,000 represents the value of the loss in what?
- ✔✔Nominal dollars. What must loss data be? - ✔✔Collected on a consistent basis for all recorded losses, and the data must be expressed in constant dollars.
What is true with regards to completeness of past loss data when estimating future loss exposures? - ✔✔What constitutes complete loss data depends largely on the nature of the loss exposure being considered. Past loss data must be reserved in what? - ✔✔Constant dollars. What refers to dollar values today and involves inflating historical values to reflect the effect of inflation?
- ✔✔Current dollars. Investment income and interest earnings should be considered when analyzing which one of the following dimensions of loss exposure? - ✔✔Timing. One dimension of analyzing loss exposures is timing of losses. The timing of losses is significant because?
- ✔✔Money held in reserve to pay for a loss can earn interest until the actual payment is made. What is true of theoretical and empirical probability? - ✔✔An empirical distribution should approach the theoretical distribution as the number of trials increases. What method takes complex, descriptive language expert input and converts them into mathematic equivalents with probabilities employed in this technique based on degrees of a measure rather than specific measures? - ✔✔Fuzzy logic. What is a negative of regression analysis? - ✔✔Regression analysis may not be accurate when forecasting values far into the future. A computer programmed to perform 100,000 times the probability distribution of profitability of acquiring a new company is what? - ✔✔Simulation analysis. What is better in regression analysis when determining the best independent variable to predict the number of accidents, miles driven by fleet vehicles o r number of drivers the company employs? - ✔✔Miles driven by fleet vehicles.
Policy level average annual loss information generated by catastrophe models is used by reinsurers for what? - ✔✔Develop catastrophe reinsurance rates. In cat modeling, what describes the engineering component? - ✔✔The extent of structural damage that would occur based on simulated catastrophes is estimated. Cat model component that includes building construction, occupancy, and building code is what? - ✔✔Engineering component. What is demand surge? - ✔✔The dramatic increase in repair costs that occurs immediately following a catastrophe. Primary insurers use catastrophe models to what? - ✔✔Understand the catastrophe loss potential for their portfolio of policies. What best describes the financial component of cat modeling? - ✔✔It takes estimates of damage to buildings and contents and translates them into estimates of insured losses. The cat modeling component that tells where the future cats will occur and how large they may be in what? - ✔✔The hazard component.
