Risk Assessment and Management Flashcards
7 cards from real CAS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment and Management flashcards as text
Which statistical distribution is commonly used to model the number of claims in an insurance portfolio due to its flexibility with the mean-variance relationship?
Answer: Negative binomial distribution
The negative binomial distribution is widely used for claim counts because it allows the variance to exceed the mean, capturing overdispersion common in insurance data.
A catastrophe model's 'event set' refers to:
Answer: A catalog of simulated natural disaster scenarios with probabilities and intensities
An event set is the stochastic catalog of thousands of simulated hazard events, each with an annual rate of occurrence and geographic footprint.
The 'probable maximum loss' (PML) at the 99th percentile means:
Answer: There is a 1% chance losses will exceed this level in a given year
A 99th percentile PML means there is a 1-in-100 annual probability that losses will exceed this amount.
Which of the following is an example of 'moral hazard' in insurance?
Answer: An insured taking fewer safety precautions after purchasing insurance
Moral hazard occurs when insurance coverage reduces the insured's incentive to prevent losses, leading to riskier behavior post-purchase.
In risk mapping, a risk heat map typically plots risks on axes representing:
Answer: Frequency vs. severity
Heat maps plot frequency (likelihood) on one axis and severity (impact) on the other to visually prioritize risks requiring attention.
Which risk management strategy involves restructuring a business operation to eliminate an exposure entirely?
Answer: Risk avoidance
Risk avoidance means choosing not to engage in the activity that creates the risk, thus eliminating the exposure rather than mitigating or transferring it.
The Solvency II standard formula uses a one-year Value at Risk at which confidence level to set the Solvency Capital Requirement (SCR)?
Answer: 99.5%
Solvency II sets the SCR at the 99.5th percentile VaR over a one-year horizon, targeting a less-than-0.5% probability of insolvency.