RIMS Risk Financing & Transfer Strategies

Question 1

Which risk financing strategy involves an organization retaining financial responsibility for losses rather than transferring them to an insurer?

Accepted Answer

Risk retention

Answer

Risk transfer

Answer

Risk avoidance

Answer

Risk sharing

Question 2

A captive insurance company is best described as:

Accepted Answer

A licensed insurer wholly owned by the insured to fund its own risks

Answer

A government-sponsored reinsurer for catastrophic losses

Answer

An independent insurer that specializes in high-risk industries

Answer

A pooling arrangement among unrelated companies in the same industry

Question 3

Under a retrospective rating plan, the final insurance premium is determined by:

Accepted Answer

The insured's actual loss experience during the policy period

Answer

The insurer's investment income during the policy period

Answer

Industry-wide loss statistics for the coverage class

Answer

Actuarial projections made at policy inception

Question 4

Which of the following is the PRIMARY advantage of a large deductible program over a guaranteed-cost insurance policy?

Accepted Answer

Allows the insured to retain investment income on funds held for losses

Answer

Eliminates the need for risk management staff

Answer

Provides broader coverage with no sublimits

Answer

Transfers all catastrophic risk to the insurer at lower cost

Question 5

A risk retention group (RRG) under the federal Liability Risk Retention Act of 1986 must be:

Accepted Answer

Composed of members engaged in similar or related business activities

Answer

Owned by a single corporation with multiple subsidiaries

Answer

Licensed in every state where it writes coverage

Answer

Reinsured by a domestic admitted carrier in each state

Question 6

In a finite risk insurance program, the primary distinguishing feature compared to traditional insurance is:

Accepted Answer

Limited risk transfer combined with a significant timing or investment risk element

Answer

Unlimited policy limits backed by a government guarantee fund

Answer

Coverage only for natural catastrophe perils excluded by standard policies

Answer

Mandatory use of a captive fronting arrangement

Question 7

Which of the following statements BEST describes a loss-sensitive insurance program?

Accepted Answer

The insured's premium varies based on its own actual loss experience

Answer

Premiums are fixed at inception and never adjusted regardless of losses

Answer

Coverage attaches only when aggregate losses exceed a predetermined threshold

Answer

The program covers only losses that are uninsurable in the standard market