RIMS Financial Analysis & Planning 2

Question 1

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

Accepted Answer

Value at Risk (VaR)

Answer

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

Question 2

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

Accepted Answer

Return generated per unit of economic capital allocated to a risk

Answer

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

Question 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?

Accepted Answer

0.89

Answer

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

Question 4

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

Accepted Answer

Operating expenses or loss reserve

Answer

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

Question 5

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

Accepted Answer

Insufficient premium base to achieve actuarial credibility

Answer

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

(RIMS) Risk and Insurance Management Society Certification Practice Test

(RIMS) Risk and Insurance Management Society Certification Practice Test

RIMS Financial Analysis & Planning 2