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
A captive insurance company is primarily used to:
Answer: Allow a parent organization to self-insure its own risks through a formal insurance structure
A captive is a licensed insurer owned by its policyholder (parent), enabling formal self-insurance with potential tax and regulatory advantages.
Which of the following correctly describes 'systemic risk'?
Answer: Risk arising from the potential collapse of an entire financial system or market
Systemic risk refers to the potential for the failure of one entity or a correlated shock to trigger cascading failures across an interconnected financial system.
In actuarial risk classification, 'adverse selection' arises when:
Answer: High-risk individuals are more likely to seek insurance than low-risk individuals at a given premium
Adverse selection (anti-selection) occurs because individuals with higher loss potential are more motivated to purchase coverage, skewing the insured pool toward worse risks.
Which reinsurance structure provides protection against the aggregate of many small-to-medium losses accumulating beyond a threshold in a policy period?
Answer: Aggregate stop-loss
Aggregate stop-loss reinsurance covers the ceding company once total losses in the period exceed a specified aggregate retention, regardless of individual event size.
The concept of 'risk-adjusted return on capital' (RAROC) divides:
Answer: Risk-adjusted net income by economic capital allocated to a business unit
RAROC = risk-adjusted income / economic capital, enabling comparison of profitability across business units with different risk profiles.
A loss development triangle is primarily used in casualty reserving to:
Answer: Project ultimate losses by tracking how paid and reported losses evolve over time
Loss triangles organize historical paid or incurred loss data by accident year and development year so actuaries can extrapolate to ultimate settlement values.
Which of the following is a key limitation of using historical data for catastrophe risk assessment?
Answer: The historical record is too short to reliably estimate probabilities of rare, high-severity events
For rare catastrophes (e.g., 1-in-200-year events), the historical record—typically only decades long—is statistically insufficient to estimate tail probabilities with confidence.