Practice Test Geeks(RIMS) Risk and Insurance Management Society Certification Practice Test
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Financial Analysis & Planning Flashcards

7 cards from real RIMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. A risk manager wants to quantify the maximum probable loss from a single event at the 99th percentile. Which metric best captures this?

    Answer: Value at Risk (VaR)

    Value at Risk (VaR) represents the maximum loss not exceeded at a given confidence level over a specified time horizon.

  2. Which of the following best describes a 'risk-adjusted return on capital' (RAROC) metric?

    Answer: Return generated per unit of economic capital allocated to a risk

    RAROC measures the return generated relative to the economic capital consumed by a risk, enabling comparison across different risk types.

  3. A company's total insurable value (TIV) is $500 million. If a coinsurance clause requires 90% coverage and the policy limit purchased is $400 million, what is the coinsurance penalty factor?

    Answer: 0.89

    The coinsurance penalty factor = insurance carried / insurance required = $400M / ($500M × 0.90) = $400M / $450M ≈ 0.889.

  4. Which financial statement line item is most directly affected when a company self-insures a large property loss?

    Answer: Operating expenses or loss reserve

    A self-insured loss flows through operating expenses or increases loss reserves on the balance sheet, directly reducing operating income.

  5. In a captive insurance feasibility study, which factor most strongly suggests a captive is NOT financially viable?

    Answer: Insufficient premium base to achieve actuarial credibility

    Without sufficient premium volume, a captive cannot build statistically credible loss data, making accurate pricing and reserving unreliable.

  6. What does a combined ratio greater than 100% indicate for an insurer?

    Answer: Losses and expenses exceed premiums earned

    A combined ratio above 100% means total losses and expenses exceed earned premiums, indicating an underwriting loss.

  7. Which approach is used to convert nominal loss amounts to constant dollars when analyzing multi-year loss data?

    Answer: Trend analysis using price or wage indices

    Trend factors derived from price or wage indices adjust historical losses to a common dollar base, removing the effect of economic inflation.