Hedge Fund Company offers a mutual fund to investors. Fund managers are concerned about fund volatility. They analyzed the fund to determine the worst loss likely to occur in a calendar quarter, assuming a 90 percent level of confidence. The worst probable loss is known as the fund’s A) unrealized capital gain. B) value at […]
When announcing that an enterprise risk management program would be implemented at XYZ Company, the president of the company observed, “We must overcome the silo mentality for the program to be successful.” The “silo mentality” refers to A) over-emphasis on pure risks and ignoring speculative risks. B) using too much of one risk treatment measure […]
Uncertainty pertaining to the organization’s goals and objectives and the organization’s strengths, weaknesses, opportunities, and threats is called A) operational risk. B) strategic risk. C) subjective risk. D) pure risk. ANSWER Answer: B
A risk manager analyzed fleet accident data to help determine which loss control measures would provide the greatest safety incentives for drivers. Examining data to generate information that will help make more informed decisions is called A) predictive analytics. B) catastrophe modeling. C) sensitivity analysis. D) data mining. ANSWER Answer: A
Insurance Brokerage Company uses a computer-based method of estimating the losses its clients will suffer if a severe storm or earthquake occurs. This method of estimating losses is called A) capital budgeting. B) securitization of risk. C) risk mapping. D) catastrophe modeling. ANSWER Answer: D
West Coast Insurance writes property and liability insurance in California, Oregon, and Washington. These states are all susceptible to earthquakes. To help determine how much reinsurance to purchase, West Coast Insurance hired an organization to use a computer algorithm to estimate what its insured losses would be if a severe earthquake occurred. West Coast Insurance […]
Which of the following is a financial derivative that derives value from specific insurable losses or from an index of values? A) commodity futures contract B) corporate bond C) catastrophe bond D) insurance option ANSWER Answer: D
Palmer Polymers is changing from a traditional risk management program to an enterprise risk management program. As a first step, the risk manager determined all the risks that the organization faces. Next, she created a grid with loss frequency on the x-axis and loss severity on the y-axis. Then she plotted all of the loss […]
Consolidation in the insurance industry is a continuing trend. One area where mergers and acquisitions frequently occur is between marketing intermediaries who represent insurance purchasers. These intermediaries are called A) insurance adjusters. B) insurance agents. C) insurance underwriters. D) insurance brokers. ANSWER Answer: D
Which statement is (are) true concerning catastrophe models? I. Businesses other than insurance companies use catastrophe models. II. Catastrophe models are able to precisely predict disaster occurrences and loss values. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: A
