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.
Read the first 7 Financial Analysis & Planning flashcards as text
A company has $50M in annual premiums and $45M in incurred losses. Its expense ratio is 30%. What is the combined ratio?
Answer: 120%
Loss ratio = $45M / $50M = 90%; combined ratio = 90% loss ratio + 30% expense ratio = 120%.
Which type of reinsurance arrangement protects a ceding insurer against losses from a single event exceeding a specified per-occurrence retention?
Answer: Excess of loss (XOL) per occurrence
Per-occurrence excess of loss reinsurance attaches above the cedant's per-event retention, covering the reinsurer's layer for catastrophic single events.
Which financial planning concept involves setting aside funds annually to accumulate sufficient assets to fund a large future self-insured loss?
Answer: Funded reserve or sinking fund approach
A funded reserve (sinking fund) systematically accumulates assets over time so that sufficient capital is available to pay large self-insured losses when they occur.
When comparing risk financing alternatives using total cost of risk (TCOR), which of the following components should be included?
Answer: Retained losses, insurance premiums, risk management administrative costs, and indirect costs of risk
TCOR is a comprehensive measure that includes retained (uninsured) losses, premiums, internal risk management costs, and indirect costs such as business interruption and reputational damage.
An insured purchases a $5M per-occurrence limit with a $500,000 self-insured retention (SIR). A loss of $3M occurs. How much does the insured pay?
Answer: $500,000
With an SIR, the insured pays the first $500,000 of each occurrence, and the insurer pays the excess up to the policy limit; for a $3M loss, the insured pays $500,000.
Which metric is most useful for comparing the efficiency of different risk financing structures when the cost occurs at different times?
Answer: Gross premium equivalent (GPE)
The gross premium equivalent converts the total cost of alternative financing structures (including retained losses and investment income) to a single comparable premium figure.
A risk manager notices that the loss development factors (LDFs) for a particular line of business have been consistently greater than 1.0 for five years. What does this indicate?
Answer: Reported losses continue to increase as claims mature, suggesting adequate IBNR reserves are needed
LDFs greater than 1.0 indicate that losses grow from one development period to the next, signaling that IBNR reserves must be established to account for future development.