CRO Insurance & Risk Transfer 5

Question 1

Which of the following is the most critical factor a CRO must evaluate when assessing the financial strength of a commercial insurer?

Accepted Answer

AM Best or S&P financial strength rating and surplus adequacy

Answer

Financial strength ratings from agencies like AM Best assess an insurer's ability to pay claims, which is paramount for counterparty risk management.

Question 2

A 'cut-through endorsement' in a reinsurance context primarily benefits the:

Accepted Answer

Original insured, by allowing direct recovery from the reinsurer if the primary insurer becomes insolvent

Answer

A cut-through endorsement gives the original insured the right to claim directly against the reinsurer, protecting against primary insurer insolvency.

Question 3

An organization self-insures workers' compensation and purchases a 'specific stop-loss' policy with a $250K per-claim retention. A single claim reaches $800K. How much does stop-loss pay?

Accepted Answer

$550,000

Answer

Specific stop-loss pays the amount above the per-claim retention: $800K - $250K = $550,000.

Question 4

In insurance contract law, the 'reasonable expectations doctrine' holds that:

Accepted Answer

Courts may interpret ambiguous policy terms in favor of the objectively reasonable expectations of the insured

Answer

The reasonable expectations doctrine resolves ambiguity by honoring what an ordinary insured would reasonably expect coverage to include.

Question 5

Which factor most directly causes 'adverse selection' to increase insurance costs in a risk pool?

Accepted Answer

Higher-risk individuals disproportionately purchasing coverage while lower-risk individuals opt out

Answer

Adverse selection occurs when the insured population skews toward higher-risk individuals, raising average claim costs and ultimately premiums for all participants.

(CRO) Chief Risk Officer Certification Practice Test

(CRO) Chief Risk Officer Certification Practice Test

CRO Insurance & Risk Transfer 5