ARM - Associate in Risk Management Risk Financing and Transfer Questions and Answers

Question 1

A construction firm enters into a contract with a subcontractor.
The contract includes a clause requiring the subcontractor to assume the financial responsibility for any liabilities arising from the subcontractor's own negligence.
Which type of contractual risk transfer does this clause represent?

Accepted Answer

A limited form hold-harmless agreement

Answer

A broad form hold-harmless agreement

Answer

An intermediate form hold-harmless agreement

Answer

A waiver of subrogation

Question 2

Which of the following is a primary advantage of using a captive insurer for risk financing?

Accepted Answer

Increased control over claims management and customized coverage design

Answer

Elimination of all underwriting and investment risk

Answer

Guaranteed access to all global reinsurance markets without restriction

Answer

Complete exemption from regulatory oversight and capital requirements

Question 3

A company is seeking a risk financing method that combines elements of risk transfer and risk retention, uses a multi-year contract, and explicitly accounts for the time value of money and investment income. Which of the following alternative risk transfer (ART) products best fits this description?

Accepted Answer

A finite risk insurance plan

Answer

A guaranteed cost insurance policy

Answer

A standard retrospective rating plan

Answer

A catastrophe bond

Question 4

A manufacturing company is concerned about potential liabilities from a new product line. To manage this risk, it transfers the risk to the capital markets by creating and issuing financial securities whose value is linked to the loss experience of the product line. This risk financing technique is known as:

Accepted Answer

Securitization

Answer

Captive insurance

Answer

Contractual risk transfer

Answer

Self-insured retention

Question 5

A risk manager is evaluating risk financing options. Which of the following is considered a pure risk transfer technique?

Accepted Answer

Purchasing a guaranteed-cost insurance policy

Answer

Establishing a captive insurer to cover property losses

Answer

Setting up a funded self-insured retention (SIR) program

Answer

Using a finite risk plan with a profit-sharing provision

Question 6

An organization aims to place the financial burden of a potential loss on the party best able to control or prevent the incident. Which risk financing objective is this organization primarily trying to achieve through its contractual agreements?

Accepted Answer

Achieving effective contractual risk transfer

Answer

Maximizing investment income on retained funds

Answer

Minimizing premium payments to commercial insurers

Answer

Complying with statutory insurance requirements