RIMS Portfolio Management & Strategy 2

Question 1

In risk portfolio management, what does 'risk aggregation' primarily involve?

Accepted Answer

Combining individual risk exposures to understand total organizational risk

Answer

Risk aggregation combines individual risk exposures across the enterprise to reveal total risk concentration, correlations, and net organizational impact.

Question 2

Which metric best measures the potential loss that a risk portfolio could suffer at a given confidence level over a specified time horizon?

Accepted Answer

Value at Risk (VaR)

Answer

Value at Risk (VaR) quantifies the maximum potential loss at a specified confidence level (e.g., 95%) over a defined time horizon.

Question 3

A company decides to retain a higher level of risk in its portfolio to reduce insurance premiums. This strategy is best described as:

Accepted Answer

Risk retention

Answer

Risk retention involves deliberately keeping risk exposures in-house, often through higher deductibles or self-insurance, to lower the cost of transferred risk.

Question 4

When constructing a risk portfolio strategy, 'correlation' between risks is important because:

Accepted Answer

Highly correlated risks can compound losses when multiple events occur simultaneously

Answer

Highly correlated risks tend to materialize together, meaning simultaneous losses can exceed what independent analysis of each risk would suggest.

Question 5

Which of the following best describes a 'captive insurance company' as a portfolio strategy tool?

Accepted Answer

A subsidiary formed to insure the risks of its parent organization

Answer

A captive is a wholly or partially owned insurance subsidiary created by a parent company to finance its own risk exposures rather than purchasing commercial coverage.

(RIMS) Risk and Insurance Management Society Certification Practice Test

(RIMS) Risk and Insurance Management Society Certification Practice Test

RIMS Portfolio Management & Strategy 2