Risk Financing & Transfer Strategies 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 Risk Financing & Transfer Strategies flashcards as text
How does a self-insured retention (SIR) differ from a standard deductible in a commercial insurance policy?
Answer: An SIR requires the insured to defend and pay claims up to the retention before insurer involvement, while a deductible typically involves the insurer advancing defense costs
With an SIR the insured controls and pays claims within the retention layer independently; with a deductible the insurer typically defends and pays then seeks reimbursement.
A fronting arrangement in captive insurance programs involves:
Answer: The captive reinsuring a commercial insurer that issues admitted policies on its behalf
In a fronting arrangement an admitted commercial insurer issues the policy and cedes most or all of the risk back to the captive via reinsurance.
A parametric insurance product pays a predetermined amount when:
Answer: A specified triggering event or index reaches a defined threshold, regardless of actual loss
Parametric (index-based) insurance pays upon occurrence of a measurable trigger such as wind speed or earthquake magnitude, eliminating the need for loss adjustment.
Catastrophe bonds (cat bonds) transfer risk to the capital markets by:
Answer: Having investors provide upfront capital that is forfeited if a defined catastrophe trigger is met
Cat bond investors receive above-market interest payments but lose principal if a qualifying catastrophe trigger occurs, providing the issuer with funded loss protection.
Which factor is MOST critical when an organization selects a captive domicile?
Answer: The domicile's regulatory environment, capital requirements, and tax treatment
Captive domicile selection centers on the regulatory framework, minimum capital requirements, reporting obligations, and tax efficiency of the jurisdiction.
Insurance-linked securities (ILS) are PRIMARILY used by insurers and reinsurers to:
Answer: Transfer peak catastrophe exposure to capital market investors
ILS instruments such as cat bonds and sidecars allow (re)insurers to offload concentrated catastrophe risk to non-traditional capital providers in the financial markets.
A risk purchasing group (RPG) differs from a risk retention group (RRG) primarily because an RPG:
Answer: Purchases commercial liability insurance on behalf of its members from a licensed insurer
An RPG is a purchasing cooperative that buys liability coverage from an admitted insurer, while an RRG is an insurer that retains member risks.